SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Nevada 75-2847135
------------------------------- -----------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 12,381,540
---------------------------- ---------------------------------
(Class) (Outstanding at October 27, 2000)
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PART I. FINANCIAL INFORMATION
The accompanying Consolidated Financial Statements have not been audited by independent certified public accountants but in the opinion of the management of American Realty Investors, Inc. ("ARI"), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of consolidated results of operations, consolidated financial position and consolidated cash flows at the dates and for the periods indicated, have been included.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
-------------- ------------
(dollars in thousands,
except per share)
Assets
------
Notes and interest receivable
Performing ($10,814 in 2000 and $14,331 in 1999
from affiliates).................................. $ 13,474 $ 38,272
Nonperforming....................................... 2,927 2,909
-------- --------
16,401 41,181
Less - allowance for estimated losses................ (2,577) (2,577)
-------- --------
13,824 38,604
Real estate held for sale............................ 253,562 319,636
Real estate held for investment, net of accumulated
depreciation ($151,499 in 2000 and $183,757 in
1999)............................................... 405,144 451,994
Pizza parlor equipment, net of accumulated
depreciation ($3,004 in 2000 and $2,294 in 1999).... 7,358 6,872
Marketable equity securities, at market value........ 263 394
Cash and cash equivalents............................ 6,754 2,479
Investments in equity investees...................... 41,878 47,686
Intangibles, net of accumulated amortization
($2,117 in 2000 and $1,652 in 1999)................. 13,958 14,305
Other assets (including $15,290 in 2000 from
affiliates)......................................... 46,896 37,576
-------- --------
$789,637 $919,546
======== ========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS - Continued
September 30, December 31,
2000 1999
------------ ------------
(dollars in thousands,
except per share)
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable ($5,784 in 2000 and
$13,477 in 1999 to affiliates)....................... $633,627 $706,196
Margin borrowings..................................... 14,561 33,264
Accounts payable and other liabilities ($4,700 in
2000 and $12,409 in 1999 to affiliate)............... 30,269 45,983
-------- --------
678,457 785,443
Minority interest..................................... 43,484 87,837
Stockholders' equity
Preferred Stock, $2.00 par value, authorized
50,000,000 shares, issued and outstanding
Series A, 2,600,000 shares in 2000 and 1999
(liquidation preference $26,000)................... 4,600 4,600
Series E, 50,000 shares in 2000 (liquidation
preference $500)................................... 100 --
Common Stock, $.01 par value; authorized 100,000,000
shares, issued 12,381,540 shares in 2000 and
13,496,688 in 1999................................... 124 135
Paid-in capital....................................... 107,214 85,854
Accumulated (deficit)................................. (44,315) (44,295)
Treasury stock at cost, 2,741,646 shares in 2000 and
2,737,216 shares in 1999............................. (27) (28)
-------- --------
67,696 46,266
-------- --------
$789,637 $919,546
======== ========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(dollars in thousands, except per share)
Property revenue
Rents.............................. $ 34,708 $ 40,260 $ 105,211 $ 122,125
Property operations expenses....... 23,776 27,377 70,451 80,778
----------- ----------- ----------- -----------
Operating income................. 10,932 12,883 34,760 41,347
Land operations
Sales.............................. 89,285 17,434 108,238 62,158
Cost of sales...................... 65,674 11,396 81,116 44,741
----------- ----------- ----------- -----------
Gain on land sales............... 23,611 6,038 27,122 17,417
Pizza parlor operations
Sales.............................. 8,124 7,800 24,388 22,753
Cost of sales...................... 6,798 6,711 20,138 19,509
----------- ----------- ----------- -----------
Gross margin..................... 1,326 1,089 4,250 3,244
Income from operations............... 35,869 20,010 66,132 62,008
Other income
Interest income.................... 283 1,331 3,295 5,029
Equity in income of investees...... 2,577 1,874 2,873 5,270
Gain on sale of real estate........ 3,474 42,552 51,706 69,890
Other.............................. 606 300 419 (740)
----------- ----------- ----------- -----------
6,940 46,057 58,293 79,449
Other expenses
Interest........................... 19,580 22,988 60,153 68,528
Depreciation and amortization...... 4,001 4,479 12,909 13,496
General and administrative......... 3,198 3,839 12,030 12,689
Advisory fee to affiliate.......... 1,197 1,472 3,821 3,958
Litigation settlement.............. -- -- -- 275
Provision for loss................. -- 45 -- 2,072
Minority interest.................. 4,953 23,188 32,219 38,561
----------- ----------- ----------- -----------
32,929 56,011 121,132 139,579
----------- ----------- ----------- -----------
Income before income taxes........... 9,880 10,056 3,293 1,878
Provision for income taxes........... (1,652) -- (1,652) --
----------- ----------- ----------- -----------
Net income........................... 8,228 10,056 1,641 1,878
Preferred dividend requirement....... (590) (570) (1,661) (1,704)
----------- ----------- ----------- -----------
Net income (loss) applicable to
Common shares...................... $ 7,638 $ 9,486 $ (20) $ 174
=========== =========== =========== ===========
Earnings per share
Net income......................... $ .76 $ .88 $ -- $ .02
=========== =========== =========== ===========
Weighted average Common shares used
in computing earnings per share.... 10,013,087 10,759,309 10,496,364 10,753,600
=========== =========== =========== ===========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2000
Series A Series E
Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Capital (Deficit) Equity
--------- --------- ----- ----- ------- --------- -------
(dollars in thousands, except per share)
Balance, January 1, 2000.............. $ 4,600 $ -- $ 135 (28) $ 85,854 (44,295) $ 46,266
Preferred dividends
Series A Preferred Stock ($.75 per
share)........................... -- -- -- -- -- (1,639) (1,639)
Series E Preferred Stock ($.42 per
share)........................... -- -- -- -- -- (22) (22)
Retirement of Treasury Stock.......... -- -- (20) 36 (16) -- --
Repurchase of Common Stock............ -- -- -- -- (746) -- (746)
Sale of Series E Preferred Stock...... -- 100 -- -- 400 -- 500
Common Stock issued in exchange for
NRLP partnership units.............. -- -- 9 (35) 21,722 -- 21,696
Net income............................ -- -- -- -- -- 1,641 1,641
--------- --------- ------ -------- -------- --------- ---------
Balance, September 30, 2000........... $ 4,600 $ 100 $ 124 $ (27) $107,214 $ (44,315) $ 67,696
========= ========= ====== ======== ======== ========= ========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
----------------------
2000 1999
---------- ----------
(dollars in thousands)
Cash Flows From Operating Activities
Rents collected.................................... $ 105,131 $ 120,986
Pizza parlor sales collected....................... 24,422 23,445
Interest collected................................. 4,553 3,716
Distributions received from equity investees'
operating cash flow............................... 1,869 935
Payments for property operations................... (81,625) (93,939)
Payments for pizza parlor operations............... (20,030) (20,092)
Interest paid...................................... (55,855) (54,754)
Advisory fee paid to affiliate..................... (3,821) (3,958)
Distributions to minority interest holders......... (6,159) (3,805)
Purchase of marketable equity securities........... (5,307) (2,180)
Proceeds from sale of marketable equity securities. 5,170 2,648
General and administrative expenses paid........... (12,030) (12,738)
Other.............................................. 10,110 5,500
-------- --------
Net cash (used in) operating activities........ (33,572) (34,236)
Cash Flows From Investing Activities
Collections on notes receivable.................... 39,930 19,187
Pizza parlor equipment purchased................... (1,120) (740)
Proceeds from sale of real estate.................. 125,218 166,907
Notes receivable funded............................ (17,260) (40,942)
Earnest money/escrow deposits...................... (5,424) 18,944
Investment in real estate entities................. 3,828 (366)
Acquisition of real estate......................... (19,015) (48,094)
Construction and development....................... (9,415) --
Real estate improvements........................... (8,587) (20,005)
-------- --------
Net cash provided by investing activities...... 108,155 94,891
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the Nine Months
Ended September 30,
----------------------
2000 1999
--------- ---------
(dollars in thousands)
Cash Flows from Financing Activities
Proceeds from notes payable........................... $ 136,321 $ 112,730
Payments on notes payable............................. (152,871) (175,048)
Deferred borrowing costs.............................. (6,690) (5,947)
Net (payments) to/advances from affiliates............ (34,208) 3,489
Issuance of Series I Preferred Stock.................. 500 --
Margin borrowings, net................................ (10,953) (3,814)
Common dividends paid................................. -- (545)
Preferred dividends paid.............................. (1,661) (1,704)
Sale of Preferred Stock............................... -- 500
Repurchase of Common Stock............................ (746) --
--------- ---------
Net cash (used in) financing activities............ (70,308) (70,339)
Net increase (decrease) in cash and cash
equivalents...................................... 4,275 (9,684)
Cash and cash equivalents, beginning of period......... 2,479 11,523
--------- ---------
Cash and cash equivalents, end of period............... $ 6,754 $ 1,839
========= =========
Reconciliation of net income to net cash (used in)
operating activities
Net income............................................ 1,641 1,878
Adjustments to reconcile net income to net cash
(used in) operating activities
Depreciation and amortization....................... 20,930 23,353
Provision for loss.................................. -- 2,072
Gain on sale of real estate......................... (78,828) (87,307)
Distributions from equity investees' operating
cash flow......................................... 1,869 935
Distributions to minority interest holders.......... 6,159 3,805
Equity in (income) of investees..................... (2,873) (5,270)
Decrease in marketable equity securities............ 131 2,159
(Increase) decrease in accrued interest receivable. 1,258 (1,605)
Decrease in other assets............................ 4,640 13,817
(Decrease) in accrued interest payable.............. (3,723) (6,640)
Increase in accounts payable and other liabilities.. 15,224 18,567
--------- ---------
Net cash (used in) operating activities........... $ (33,572) $ (34,236)
========= =========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the Nine Months
Ended September 30,
----------------------
2000 1999
---------- ----------
(dollars in thousands)
Schedule of noncash investing and financing activities
Notes payable from acquisition of real estate........... $ 6,262 $70,133
Notes payable assumed by buyer on sale of properties.... 32,460 6,776
Notes receivable from sale of real estate............... 2,790 --
Conversion of note receivable to partnership interest. -- 22,678
Retirement of Common Stock.............................. 20 --
Provision for loss...................................... -- 2,072
Exchange of real estate at carrying value............... 2,989 --
Common Stock in exchange for NRLP units................. 27,353 --
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The accompanying notes are an integral part of these Consolidated Financial Statements.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Dollar amounts in tables are in thousands, except per share amounts. Certain balances for 1999 have been reclassified to conform to the 2000 presentation.
Operating results for the nine month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Annual Report on Form 10-K for American Realty Trust, Inc. ("ART") for the year ended December 31, 1999 (the "1999 Form 10-K").
On November 3, 1999, National Realty, L.P. ("NRLP") and ART jointly announced their agreement to combine, in a tax-free exchange, under the ownership of a new company, American Realty Investors, Inc. ("ARI"). The share exchange and merger was subject to a vote of stockholders/unitholders of both entities. Approval required the vote of the unitholders holding a majority of NRLP's outstanding units, and the vote of the stockholders holding a majority of ART's outstanding shares of common and preferred stock. At special meetings held on March 21, 2000, the NRLP unitholders and ART stockholders approved the merger proposal. The transaction was closed on August 2, 2000. NRLP unitholders, except for ART, received one share of ARI common stock for each unit of NRLP held. ART stockholders received .91 shares of ARI common stock for each share of ART common stock held. Each share of ART preferred stock was converted into one share of preferred stock of ARI, having substantially the same rights as ART's preferred stock. The ART shares of common stock ceased trading on the New York Stock Exchange on August 2, 2000. ARI common stock commenced trading on the New York Stock Exchange on August 3, 2000. For accounting purposes, the merger was treated as the purchase of NRLP by ART; accordingly, the historical financial statements presented for ARI are those of ART.
In January 2000, a $365,000 note receivable was collected in full, including accrued but unpaid interest. In March 2000, ARI collected in full, including accrued but unpaid interest, a $942,000 note receivable.
In August 1999, a $2.6 million loan was funded to JNC Enterprises, Inc. ("JNC"). The loan was subsequently split into two pieces. The loans were secured by second liens on 3.5 acre and 1.2561 acre parcels of land in Dallas, Texas, the guarantee of the borrower and the
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
personal guarantees of its shareholders. The loans bore interest at 16.0% per annum and matured in February 2000. All principal and interest were due at maturity. In March 2000, the $2.0 million loan secured by the 3.5 acre land parcel was collected in full, including accrued but unpaid interest. In April 2000, the remaining loan, with a principal balance of $600,000, was collected in full, including accrued but unpaid interest.
In September 1999, in conjunction with the sale of two apartments, $2.1 million in purchase money financing was provided, secured by limited partnership interests in two limited partnerships owned by the buyer. The financing bore interest at 16.0% per annum, required monthly payments of interest only at 6.0%, beginning in February 2000 and a $200,000 principal paydown in December 1999, which was not received, and matured in August 2000. ARI had the option to obtain the buyer's general and limited partnership interests in the collateral partnerships in full satisfaction of the financing. In March 2000, ARI agreed to forbear foreclosing on the collateral securing the note, and released one of the partnership interests, in exchange for payment of $250,000 and executed deeds of trusts on certain properties owned by the borrower. In March 2000, the borrower made a $1.1 million payment, upon receipt of which ARI returned the deeds of trust and terminated the option agreement. The borrower executed a replacement promissory note for the remaining note balance of $1.0 million, which is unsecured, non-interest bearing and matures in April 2003. In April 2000, ARI funded a $100,000 loan to the borrower. The loan is secured by five second lien deeds of trust, is non-interest bearing and matures in September 2001.
In December 1999, a note with a principal balance of $1.2 million and secured by a pledge of a partnership interest in a partnership which owns real estate in Addison, Texas, matured. The maturity date was extended to April 2000 in exchange for an increase in the interest rate to 14.0% per annum. All other terms remained the same. Negotiations are in process to further modify and extend the loan.
In June 1998, a $4.2 million loan was funded to Cuchara Partners, Ltd. and Ski Rio Partners, Ltd., affiliates of JNC. The loan was secured by (1) a first lien on approximately 450 acres of land in Huerfano County, Colorado, known as Cuchara Valley Mountain Ski Resort; (2) an assignment of a $2.0 million promissory note secured by approximately 2,623 acres of land in Taos County, New Mexico, known as Ski Rio Resort; and (3) a pledge of all related partnership interests. The loan bore interest at 16.0% per annum and had an extended maturity of March 2000. All principal and interest were due at maturity. In the fourth quarter of 1998, $109,000 was received on the sale of 11 parcels of the collateral property in Taos, New Mexico. In August and September 1999, paydowns totaling $3.3 million were received. The loan had a principal balance of $1.6 million at March 31, 2000. In April 2000, the loan was collected in full, including accrued but unpaid interest.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In August 1998, ARI funded a $635,000 loan to La Quinta Partners, LLC. The loan was secured by interest bearing accounts prior to being used as escrow deposits toward the purchase of a total of 956 acres of land in La Quinta, California, and the personal guarantee of the manager of the borrower. The loan had an extended maturity of November 1999. All principal and interest were due at maturity. In November and December 1998, $250,000 in principal paydowns were received. In the second quarter of 1999, the loan was modified, increasing the interest rate to 15.0% per annum and extending the maturity date to November 1999. Accrued but unpaid interest was added to the principal balance, increasing it by $42,000 to $402,000. In the fourth quarter of 1999, an additional $2,000 was funded, increasing the loan's principal balance to $404,000 at March 31, 2000. In March 2000, $25,000 in interest was collected and the loan's maturity was extended to April 2000. The borrower did not make the required payments and the loan was classified as nonperforming. ARI has begun legal proceedings to collect the balance due. No loss is expected in excess of previously established reserves if ARI is unable to collect the balance due.
In October 1998, ARI funded a $2.1 million loan to Frisco Panther Partners, Ltd., an affiliate of JNC. The loan was secured by a second lien on 408.23 acres of land in Frisco, Texas, the guaranty of the borrower and the personal guarantees of its partners. The loan bore interest at 16.0% per annum and had an extended maturity of March 2000. All principal and interest were due at maturity. In April 2000, the loan was collected in full, including accrued but unpaid interest.
In December 1998, ARI funded $3.3 million of a $5.0 million loan commitment to JNC. In January 1999, a $1.3 million paydown was received and subsequently in 1999 an additional $3.0 million was funded, increasing the loan balance to $5.0 million. The loan was secured by a second lien on 1,791 acres of land in Denton County, Texas, and a second lien on 91 acres of land in Collin County, Texas. The loan bore interest at 16.0% per annum, and had an extended maturity of March 2000. All principal and interest were due at maturity. At March 31, 2000, the loan had a principal balance of $5.0 million. In April 2000, the loan was collected in full, including accrued but unpaid interest. In conjunction with the April 2000 JNC loan payoffs, described above, ARI paid off $5.0 million in mortgage debt secured by the notes.
In June 2000, ARI sold the 124,322 sq.ft. Marina Playa Office Building in Santa Clara, California, for $25.8 million, receiving $7.6 million in cash and providing financing of $18.8 million. Also in June 2000, ARI sold the note receivable, net of the underlying debt, for $6.2 million, retaining a $3.9 million participation. In August 2000, the remaining balance of the note was collected in full, including accrued but unpaid interest.
In July 2000, ARI sold 749.1 acres of its Keller land for $10.0 million, receiving $8.7 million in cash and providing purchase money financing of the remaining $1.3 million of the purchase price. Through September 2000, $481,000 has been repaid.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In August 2000, ARI sold 20.5 acres of Mason Goodrich land for $3.6 million, receiving $1.8 million in cash and providing purchase money financing of the remaining $1.5 million of the purchase price.
Related Party. 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 has an extended maturity of December 2000. All principal and interest are due at maturity. In December 1999, the borrower sold the collateral property and $810,000 of the net proceeds of the sale were paid to ARI of which $386,000 was applied to accrued interest and the remaining $424,000 was applied to principal reducing the principal balance to $1.7 million. Escrowed monies of $377,000 are to be received in 2000. Through September 2000, $50,000 has been received. The loan is currently unsecured. Richard D. Morgan, a Warwick shareholder, was a Director of the general partner of NRLP, and since August 3, 2000, serves as a Director of ARI.
Beginning in 1997 and 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 100% membership interest in Bordeaux, which owns a shopping center in
Oklahoma City, Oklahoma; (2) 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 partners. The loan bears interest
at 14.0% per annum. In November 1998, the loan was modified to allow interest
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 but unpaid interest due
of $261,000, then to principal, reducing the loan balance to $1.4 million. The
note was further modified, changing the loan commitment to $1.5 million, the
maturity date to December 2000, and payments to net revenues of the shopping
center. Richard D. Morgan, a Bordeaux member, was a Director of the general
partner of NRLP, and since August 3, 2000, serves as a Director of ARI.
In 1999, ARI 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. A corporation controlled by Richard D. Morgan, is the general partner of Lordstown, L.P. Mr. Morgan was a director of the general partner of NRLP, and since August 3, 2000, serves as a Director of ARI.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In 1999, ARI 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 99% limited partner of 261, L.P., and a profits interest in subsequent land sales. A corporation controlled by Richard D. Morgan is the general partner of 261, L.P., and Mr. Morgan was a director of the general partner of NRLP, and since August 3, 2000, serves as a Director of ARI. In August 2000, the loan was collected in full, including accrued but unpaid interest.
In February 1999, ARI funded $5.0 million under an unsecured line of credit to One Realco Corporation, which at September 30, 2000, owned approximately 12.3% of the outstanding shares of ARI's common stock. The line of credit bears interest at 12.0% per annum and originally matured in February 2000. All principal and interest were due at maturity. The line of credit is guaranteed by Basic Capital Management, Inc. ("BCM"), ARI'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. The maturity date was extended to February 2002. In exchange for the modification and extension, the borrower paid all accrued but unpaid interest and pledged collateral consisting of a $10.0 million promissory note secured by the stock of World Trade Company, Ltd., which owns a hotel in 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 and unpaid interest. In September 2000, ARI acquired 100% of the stock of World Trade Company, Ltd. See NOTE 4. "REAL ESTATE."
During 1998 and 1999, ARI funded a total of $31.0 million of a $52.5 million loan commitment to Centura Tower, Ltd. ("Centura"). The loan was secured by 2.244 acres of land and an office building under construction in Farmers Branch, Texas. In August 1999, ARI exercised its option contained in the loan agreement, and obtained a combined 80% general and limited partnership interest in Centura in exchange for a $24.1 million capital contribution through conversion of a portion of its note receivable to an equity interest. ARI has contracted to purchase an additional 10.0% limited partnership interest in both Centura and NLP/CH, Ltd., a Centura affiliated partnership that owns land adjacent to the office building, for a total of $1.3 million. Through October 2000, $763,000 has been paid.
In 2000, ARI sold the following properties:
Net
Units/ Sales Cash Debt Gain on
Property Location Sq.Ft./Acres Price Received Discharged Sale
------------------ --------------- ------------ ------- -------- ------------- -------
First Quarter
Apartments
Summerwind Reseda, CA 172 Units $9,000 $3,082 $5,568 /(1)/ $6,684
Windtree Reseda, CA 159 Units 8,350 2,911 5,063 /(1)/ 6,170
Whispering Pines Canoga Park, CA 102 Units 5,300 1,597 3,437 /(1)/ 3,106
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Net
Units/ Sales Cash Debt Gain on
Property Location Sq.Ft./Acres Price Received Discharged Sale
----------------- ----------------- ----------------- ------------ -------- ------------ ----------
Shopping Center
Katella Plaza Orange, CA 62,290 Sq.Ft. $ 1,814 $ 283 $ 1,188 $ 194
Land
Duchense Duchense, UT 420 Acres 43 42 -- 16
Frisco Bridges Collin County, TX 15.00 Acres 2,675 706 2,000 297
Frisco Bridges Collin County, TX 19.74 Acres 2,971 -- --/(2)/ --
Mason/Goodrich Houston, TX 1.1 Acres 129 -- 116 70
Mason/Goodrich Houston, TX 12.8 Acres 2,536 -- 1,803 1,783
Nashville Nashville, TN 2.6 Acres 405 -- 345 225
Rasor Plano, TX 43.01 Acres 1,850 -- 1,604 58
Second Quarter
Apartments
Pines Little Rock, AR 257 Units 4,650 1,281 3,063 2,441
Four Seasons Denver, CO 384 Units 16,600 6,543 9,220/(1)/ 8,191
Sherwood Glen Urbandale, IA 180 Units 6,250 1,244 4,626/(1)/ 4,161
Office Building
Marina Playa Santa Clara, CA 124,205 Sq.Ft. 25,750 7,737 7,766 17,395
Land
Rasor Plano, TX 5.4 Acres 915 -- 915 705
Salmon River Salmon River, ID 3.0 Acres 45 44 -- 38
Valley Ranch Irving, TX 22.4 Acres 1,455 -- 1,375 (585)
Parkfield Denver, CO 2.6 Acres 615 (1) 584 512
Frisco Bridges Collin County, TX 24.3 Acres 4,194 (435) 4,000 259
Vista Business
Park Travis County, TX 5.4 Acres 620 14 577 173
McKinney Corners
II Collin County, TX 14.6 Acres 500 (599) 1,050 (40)
Third Quarter
Apartments
Fair Oaks Euless, TX 208 Units 6,850 609 5,711 3,364
Land
Mason/Goodrich Houston, TX 6.8 Acres 1,198 114 991 807
McKinney Corners
I,II,III,IV,V Collin County, TX 82.0 Acres 9,150 613 8,123 1,638
Parkfield Denver, CO 326.8 Acres 13,164 7,969 3,279 3,768
Rasor Plano, TX 41.1 Acres 3,779 3,587 -- 1,902
Pantex Collin County, TX 182.5 Acres 8,160 -- 4,546/(1)/ 959
Rowlett Creek Collin County, TX 80.4 Acres 2,262 919 1,173 462
Vann Cattle Collin County, TX 126.6 Acres 3,564 1,872 1,471 1,257
Mastenbrook Collin County, TX 157.9 Acres 4,445 1,890 2,275 747
Wakefield Collin County, TX 70.3 Acres 1,981 1,239 612 478
Nashville Nashville, TN 3.0 Acres 523 19 450 310
Keller Tarrant County, TX 749.1 Acres 10,000 3,892 4,500 3,373
Frisco Bridges Collin County, TX 127.4 Acres 27,500 7,411 18,570 6,954
Mason/Goodrich Houston, TX 20.5 Acres 3,560 497 1,308 956
|
(1) Debt assumed by purchaser.
(2) Exchanged for 3.25 acres of Clark land.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In 1999, ARI sold the following properties:
Net
Units/ Sales Cash Debt Gain on
Property Location Sq.Ft./Acres Price Received Discharged Sale
---------- ----------- ------------ ------- -------- ---------- ---------
First Quarter
Apartments
Olde Towne Middleton, Ohio 199 Units $ 4,600 $4,400 $ $ 2,200
Santa Fe Kansas City, MO 225 Units 4,600 4,300 -- 706
Mesa Ridge Mesa, AZ 480 Units 19,500 8,593 9,400 10,200
Land
Plano Parkway Collin County, TX 4.6 Acres 1,200 -- 1,100 473
Rasor Plano, TX 13.0 Acres 1,600 -- 1,500 979
Mason/Goodrich Houston, TX 9.9 Acres 956 33 860 432
McKinney Corners McKinney, TX 23.7 Acres 7,700 -- 5,500 2,900
Second Quarter
Apartments
Horizon East Dallas, TX 166 Units 4,000 1,200 2,600 1,800
Lantern Ridge Richmond, VA 120 Units 3,400 880 2,400 2,300
Barcelona Tampa, FL 368 Units 9,800 2,200 7,000 2,200
Land
Vista Ridge Lewisville, TX 15.0 Acres 2,600 552 1,800 913
Plano Parkway Collin County, TX 24.5 Acres 4,900 -- 4,700 1,100
Frisco Bridges Collin County, TX 27.6 Acres 16,900 2,700 13,000 4,200
Plano Parkway Collin County, TX 6.0 Acres 1,600 -- 1,600 615
Hotel
Continental Las Vegas, NV 400 Rooms 25,000 5,000 -- 7,900
Third Quarter
Apartments
Country Place Round Rock, TX 152 Units 6,000 1,300 4,300 3,300
Lake Nora Indianapolis, IN 588 Units 29,100 2,700 24,500 15,100
Fox Club Indianapolis, IN 336 Units
Oakhollow Austin, TX 409 Units 35,500 7,800 22,200 24,200
Windridge Austin, TX
Land
JHL Connell Carrollton, TX .13 Acres 53 -- 49 23
Plano Parkway Collin County, TX 11.8 Acres 3,800 1,700 2,000 1,900
Vista Ridge Lewisville, TX 6.7 Acres 1,400 329 975 584
Valley Ranch Irving, TX 1.4 Acres 163 159 -- 128
Keller Tarrant County, TX 2.1 Acres 185 91 90 158
Sun City Sun City, TX 26.5 Acres 260 240 -- 180
Katrina Palm Desert, CA 121.2 Acres 6,600 5,500 -- 186
Frisco Bridges Collin County, TX 13.6 Acres 2,600 -- 2,100 403
Plano Parkway Collin County, TX 6.2 Acres 900 208 650 (40)
Keller, Scout
and Scoggins Tarrant County, TX 185.6 Acres 3,500 758 2,500 1,800
Vista Ridge Lewisville, TX 1.3 Acres 715 665 -- 538
|
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In 2000, ARI purchased the following properties:
Net
Units/Sq.Ft. Purchase Cash Debt Interest Maturity
Property Location Acres/Rooms Price Paid Incurred Rate Date
------------------- ------------------ ------------ -------- ------- ------------ --------- --------
First Quarter
Land
Clark Farmers Branch, TX 3.25 Acres $ 2,989 $ -- $ -- /(2)/ -- % --
Kelly lots Collin County, TX .75 Acres 130 20 100 /(1)/ 10.0 03/10
Mastenbrook Collin County, TX 157.86 Acres 3,200 704 2,400 /(1)/ 9.0 09/00
Second Quarter
Land
Sladek Travis County, TX 63.3 Acres 712 316 427 /(1)/ 10.0 05/04
Third Quarter
Hotel
Grand Hotel Sofia(3) Sofia, Bulgaria 145 Rooms 17,975 17,975 -- -- --
|
(1) Seller financing.
(2) Exchanged for 19.74 acres of Frisco Bridges land.
(3) Related Party. In September 2000, ARI purchased 100% of the outstanding
stock of World Trade Company, Ltd. from One Realco Corporation, for $18.0
million in cash. World Trade Company owns a hotel in Sofia, Bulgaria.
In 1999, ARI purchased the following properties:
Net
Units/ Purchase Cash Debt Interest Maturity
Property Location Sq.Ft./Acres Price Paid Incurred Rate Date
------------------ -------------------- -------------- -------- ------- -------- --------- --------
First Quarter
Land
Frisco Bridges Collin County, TX 336.8 Acres $46,800 $7,800 $39,000 10.25% 01/00
Second Quarter
Land
Rowlett Creek Collin County, TX 80.4 Acres 1,600 400 1,200 8.75 05/04
Leone Irving, TX 8.2 Acres 1,500 300 1,200 8.00 05/03
Vineyards II Tarrant County, TX 18.6 Acres 6,300 2,300 4,000 14.50 06/02
Lake Houston Harris County, TX 33.58 Acres 2,500 2,500 -- -- --
Office Building
Encino Executive
Plaza Los Angeles, CA 177,211 Sq.Ft. 40,100 2,800 34,600 7.74 05/08
Cooley Farmers Branch, TX 27,000 Sq.Ft. 3,500 1,500 2,000 9.00 05/19
Third Quarter
Land
Monterey Riverside County, CA 85.0 Acres 5,600 1,100 4,500 9.00 06/02
Wakefield Allen, TX 70.0 Acres 1,300 688 612 8.50 07/04
|
Real estate entities. ARI's investment in real estate entities at September 30, 2000, included equity securities of two publicly traded real estate investment trusts, Income Opportunity Realty Investors, Inc. ("IORI") and Transcontinental Realty Investors, Inc. ("TCI"), and interests in real estate joint venture partnerships. BCM, ARI's advisor, serves as advisor to IORI and TCI.
ARI accounts for its investment in IORI and TCI and the joint venture partnerships using the equity method. Substantially all of the equity securities of IORI and TCI are pledged as collateral for borrowings. See NOTE 9. "MARGIN BORROWINGS."
ARI's investment in real estate entities, accounted for using the equity method, at September 30, 2000 was as follows:
Percentage Carrying Equivalent
of ARI's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee September 30, 2000 September 30, 2000 September 30, 2000 September 30, 2000
-------- ------------------- ------------------ ------------------ ------------------
IORI 27.00% $ 8,293 $11,102 $ 2,154
TCI 24.73% 26,874 47,058 13,141
------- -------
35,167 $15,295
=======
Other 6,711
-------
$41,878
=======
|
The difference between the carrying value of ARI's investment and the equivalent investee book value is being amortized over the life of the properties held by each investee.
Management continues to believe that the market value of IORI and TCI undervalues their assets and ARI may, therefore, continue to increase its ownership in these entities.
Set forth below is summarized results of operations of equity investees for the nine months ended September 30, 2000:
Revenues.................................... $116,111
Equity in income of partnerships............ (71)
Property operating expenses................. 75,448
Depreciation................................ 16,729
Interest expense............................ 39,359
--------
(Loss) before gains on sale of real estate.. (15,496)
Gain on sale of real estate................. 50,440
--------
Net income.................................. $ 34,944
========
|
ARI's share of equity investees' loss before gains on the sale of real estate was $2.5 million for the nine months ended September 30, 2000, and its share of equity investees' gains on sale of real estate was $13.3 million for the nine months ended September 30, 2000.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
ARI's cash flow from IORI and TCI is dependent on the ability of each of them to make distributions. In the nine months ended September 30, 2000, distributions totaling $1.5 million were received from IORI and TCI.
In the first nine months ended September 30, 2000, ARI purchased a total of $976,000 of equity securities of IORI and TCI.
In June 2000, ARI sold its partnership interest in Vestavia Lake Apartments in Orlando, Florida, resulting in a gain of $787,000 included in equity income <loss> of investees on the Statement of Operations.
Elm Fork Ranch, L.P. In September 1997, a newly formed limited partnership, of which ARI is a 1% general partner and 21.5% limited partner, purchased a 422.4 acre parcel of unimproved land in Denton County, Texas, for $16.0 million in cash. ARI contributed $3.6 million in cash with the remaining $12.4 million being contributed by the other limited partners. The partnership agreement designates ARI as the managing general partner. In September 1997, the partnership obtained financing of $6.5 million secured by the 422.4 acres of land. The mortgage bears interest at 10% per annum, requires quarterly payments of interest only and matures in September 2001. The net financing proceeds were distributed to the partners, ARI receiving $2.9 million of its initial investment. The partnership agreement also provides that the limited partners receive a 12% preferred cumulative return on their investment before any sharing of partnership profits occurs. One Realco, one of the limited partners in the partnership owns approximately 12.3% of the outstanding shares of ARI's Common Stock. In June 2000, ARI sold its partnership interest for $2.0 million with an option to repurchase the interest at any time prior to December 31, 2000 for $2.0 million plus an amount equal to 20% times the number of days from the date of agreement to the exercise date. ARI intends to exercise the option, and, therefore, has recognized neither gain nor (loss) on the sale.
Since 1994, ARI has been purchasing equity securities of entities other than those of the REITs and NRLP to diversify and increase the liquidity of its margin accounts. In the first nine months of 2000, ARI purchased $5.3 million and sold $5.2 million of such securities. These equity securities are considered a trading portfolio and are carried at market value. At September 30, 2000, ARI recognized an unrealized decrease in the market value of its trading portfolio securities of $267,000. Also in the first nine months of 2000, ARI realized a net loss of $747,000 from the sale of trading portfolio securities and received no dividends. Unrealized and realized gains and losses on trading portfolio securities are included in other income in the accompanying Consolidated Statements of Operations.
Net
Acres/ Debt Debt Cash Interest Maturity
Property Location Units/Sq.Ft. Incurred Discharged Received Rate Date
-------------- ------------------ -------------- ------------- ---------- -------- --------- --------
First Quarter
Land
Centura, Clark
and Woolley Farmers Branch, TX 10.08 Acres $ 7,150 $ -- $ 6,960 14.00% 03/03
Frisco Bridges Collin County, TX 127.41 Acres 18,000 11,900 6,190 13.00 03/01
Frisco Bridges Collin County, TX 62.84 Acres 7,800 4,985 2,432 14.00 03/02
Nashville Nashville, TN 144.82 Acres 10,000 2,034 7,039 15.50 07/00
Second Quarter
Apartments
Rockborough Denver, CO 345 Units 2,222 -- 1,942 8.37 11/10
Confederate Point Jacksonville, FL 206 Units 7,440 5,879 1,039 8.12 05/07
Whispering Pines Topeka, KS 320 Units 7,530 6,829 302 8.12 05/07
Chateau Bayou Ocean Springs, MS 122 Units 1,007 -- 988 8.36 05/10
Waters Edge Gulfport, MS 238 Units 7,532 3,993 3,447 8.08 05/07
Land
Katy Harris County, TX 130.6 Acres 4,250 4,042 (9) 13.00 05/01
Third Quarter
Office Buildings
Centura Tower Farmers Branch, TX 410,910 Sq.Ft. 15,000 -- 14,612 16.9 07/02
Fourth Quarter
Land
Tree Farm Dallas, TX 10.36 Acres $ 8,000/(1)/ $ -- $ 7,750 14.0% 10/01
Thompson Farmers Branch, TX 3.99 Acres /(1)/
Tomlin Farmers Branch, TX 9.00 Acres /(1)/
Lacy Longhorn Farmers Branch, TX 17.12 Acres /(1)/
Kelly Fort Worth, TX 30.13 Acres /(1)/
McKinney Corners McKinney, TX 10.98 Acres /(1)/
|
Fees and cost reimbursement to affiliates for the nine months ended:
September 30,
2000
-------------
Property and construction management fees*.. $ 1,932
Loan placement fees......................... 530
Real estate commissions..................... 4,487
Leasing commissions......................... 877
Reimbursement of administrative expenses.... 2,680
-------
$10,506
=======
-----------------
|
* Net of property management fees paid to subcontractors, other than Regis Realty, Inc., which is owned by an affiliate of BCM.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
ARI has margin arrangements with various brokerage firms which provide for borrowing of up to 50% of the market value of marketable equity securities. The borrowings under such margin arrangements are secured by equity securities of IORI and TCI and ARI's trading portfolio and bear interest rates ranging from 7.0% to 11.0%. Margin borrowings totaled $14.6 million at September 30, 2000.
In June 2000, 1.6 million shares of TCI stock and 54,000 shares of IORI stock held as collateral on margin loans were sold to satisfy margin calls resulting in losses totaling $7.9 million. These losses are included in equity income of investees on the Statement of Operations. See NOTE 5. "INVESTMENT IN EQUITY INVESTEES."
In April 2000, ARI obtained a security loan in the amount of $5.0 million with a financial institution. ARI received net cash of $4.6 million after various closing costs. The loan bears interest at 1% plus prime per annum (currently 10.5%), requires monthly payments of interest only and matures April 2001. The loan is secured by 1,050,000 shares of ARI Common Stock held by BCM, ARI's advisor.
In June 2000, TCI advanced ARI $9.0 million. The loan was secured by 409,934 shares of IORI common stock. The loan bore interest at 15% per annum and matured in October 2000. All principal and interest were due at maturity. A paydown of $3.2 million plus accrued interest was made in September 2000 with the remainder of the loan plus accrued interest being paid in October 2000.
Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses. ARI had no taxable income or provision for income taxes in the nine months ended September 30, 1999. For the nine months ended September 30, 2000, a provision for income taxes in the amount of $1.7 million was recorded.
Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their net operating income and cash flow. Expenses that are not reflected in the segments are $12.0 million of general and administrative expenses for the nine months ended September 30, 2000 and $12.7 million for 1999. Excluded from operating segment assets are assets of $92.1 million in 2000 and $76.6 million in 1999, which are not identifiable with an operating segment. There are no intersegment revenues and expenses and ARI conducted all of its business prior to September 30, 2000, within the United States.
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Presented below are ARI's reportable segments operating income for the nine months ended September 30, and segment assets at September 30.
Commercial Pizza
2000 Properties Apartments Hotels Land Parlors Receivables Total
--------- ---------- ---------- -------- --------- -------- ----------- ---------
Rents................. $ 23,831 $ 53,003 $25,501 $ 2,876 $24,388 $ -- $129,599
Property operating
expenses............. 14,838 30,743 17,758 7,112 20,138 -- 90,589
Interest income....... -- -- -- -- -- 3,295 3,295
Interest expense -
notes receivable..... -- -- -- -- -- -- --
-------- -------- ------- -------- ------- ------- --------
Segment operating
income............... $ 8,993 $ 22,260 $ 7,743 $ (4,236) $ 4,250 $ 3,295 $ 42,305
======== ======== ======= ======== ======= ======= ========
Depreciation/
amortization......... $ 5,234 $ 4,752 $ 1,941 $ -- $ 982 $ -- $ 12,909
Interest on debt...... 12,869 15,716 3,704 20,917 854 -- 54,060
Capital expenditures.. 4,404 10,827 495 2,276 1,120 -- 19,122
Assets................ 171,490 148,560 87,966 253,562 22,108 13,824 697,510
|
Commercial
Property Sales: Properties Apartments Land Total
---------- ---------- --------- ---------
Sales price $27,564 $57,000 $108,238 $192,802
Cost of sale 9,975 22,883 81,116 113,974
------- ------- -------- --------
Gain on sale $17,589 $34,117 $ 27,122 $ 78,828
======= ======= ======== ========
|
Commercial Pizza
1999 Properties Apartments Hotels Land Parlors Receivables Total
-------- ---------- ---------- -------- --------- -------- ----------- ---------
Rents................... $ 22,136 $ 74,727 $24,965 $ 297 $22,753 $ -- $144,878
Property operating
expenses............... 11,887 44,711 17,716 6,464 19,509 -- 100,287
Interest income......... -- -- -- -- -- 5,029 5,029
Interest expense -
notes receivable....... -- -- -- -- -- 784 784
-------- -------- ------- -------- ------- ------- --------
Segment operating
income (loss).......... $ 10,249 $ 30,016 $ 7,249 $ (6,167) $ 3,244 $ 4,245 $ 48,836
======== ======== ======= ======== ======= ======= ========
Depreciation/
amortization........... $ 3,086 $ 7,558 $ 1,884 $ -- $ 968 $ -- $ 13,496
Interest on debt........ 7,404 24,427 3,582 17,640 695 -- 53,748
Capital expenditures.... 6,726 408 1,279 1,149 740 -- 10,302
Assets.................. 176,388 214,310 71,939 314,210 21,357 64,519 862,723
|
Property Sales: Apartments Hotels Land Total
-------------- ---------- ------- -------- --------
Sales price............. $116,350 $25,000 $ 19,461 $160,811
cost of sales........... 54,338 17,122 2,044 73,504
-------- ------- -------- --------
Gain on sale............ $ 62,012 $ 7,878 $ 17,417 $ 87,307
======== ======= ======== ========
|
In 1996, ARI was admitted to the Valley Ranch, L.P. partnership as general partner and Class B Limited Partner. The existing general and limited partners converted their general and limited partner interest into 8,000,000 Class A units. The units are exchangeable into shares of ARI's Series B Cumulative Convertible Preferred Stock at the rate of 100 Class A units for each share of Series B Preferred Stock. In February 1999, the limited partner notified ARI that it intended to convert 100,000 Class A units into 1,000 shares of Series E Preferred Stock. In
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
March 1999, ARI purchased the 100,000 of the Class A units for $100,000. ARI subsequently reached an agreement with the other Class A unitholders to acquire the remaining 7,900,000 Class A units for $1.00 per unit. In 1999 and the first quarter of 2000, a total of 4,000,000 units were purchased, and an additional 2,000,000 units will be purchased in May 2001 and May 2002.
In the second quarter of 2000, ARI obtained second mortgage financing secured by three of its apartments totaling $17.1 million.
On October 3, 2000, IORI entered into a stock option agreement which provided IORI and ARI with an option to purchase 1,858,900 shares of common stock of TCI from a third party. On October 19, 2000, IORI assigned all of its rights to purchase such shares to ARI. ARI may exercise the option between January 1, 2001 and April 13, 2001. The total cost to purchase the shares is $30.7 million. In October 2000, ARI paid $5.6 million of the option price.
Litigation. ARI is involved in various lawsuits arising in the ordinary course of business. In the opinion of ARI's management, the outcome of these lawsuits will not have a material impact on ARI's financial condition, results of operations or liquidity.
In October 2000, ARI obtained new mortgage financing of $8.0 million secured by six parcels of undeveloped land, receiving net cash of $7.7 million after payment of various closing costs.
In October 2000, ARI acquired a 100% interest in EQK Realty Investors, I ("EQK"), a real estate investment trust headquartered in Atlanta, Georgia, for $1.1 million in cash and $1.25 million in Series A Preferred Stock (125,000 shares). Subsequently, EQK acquired from ARI a shopping center in Lubbock, TX.
ARI's predecessor, ART, was organized in 1961 to provide investors with a professionally managed, diversified portfolio of equity real estate and mortgage loan investments selected to provide opportunities for capital appreciation as well as current income.
Transaction with American Realty Trust, Inc. and National Realty, L.P. On November 3, 1999, NRLP and ART jointly announced their agreement to combine, in a tax free exchange, under the ownership of a new company to be named ARI. The share exchange and merger was subject to a vote of stockholders/unitholders of both entities. Approval required the vote of the unitholders holding a majority of NRLP's outstanding units, and
the vote of the stockholders holding a majority of ART's outstanding shares of common and preferred stock. At special meetings held on March 21, 2000, the NRLP unitholders and ART stockholders approved the merger proposal. The transaction was closed on August 2, 2000. NRLP unitholders, except for ART, received one share of ARI common stock for each unit of NRLP held. ART stockholders received .91 shares of ARI common stock for each share of ART common stock held. Each share of ART preferred stock converted into one share of preferred stock of ARI, having substantially the same rights as ART's preferred stock. The ART shares of common stock ceased trading on the New York Stock Exchange on August 2, 2000. ARI common stock commenced trading on the New York Stock Exchange on August 3, 2000.
General. Cash and cash equivalents at September 30, 2000, totaled $6.8 million, compared with $2.5 million at December 31, 1999. Although ARI anticipates that during the remainder of 2000 it will generate excess cash flow from property operations, as discussed below, such excess cash is not sufficient to discharge all of ARI's debt obligations as they mature. ARI will therefore continue to rely on externally generated funds, including borrowings against its investments in various real estate entities, refinancing of properties and, to the extent necessary, borrowings to meet its debt service obligations, pay taxes, interest and other non-property related expenses.
At December 31, 1999, notes payable totaling $196.9 million had either scheduled maturities or required principal reduction payments during 2000. During the first nine months of 2000, ARI either extended, refinanced, paid down, paid off or received commitments from lenders to extend or refinance $148.9 million of the debt scheduled to mature in 2000.
Net cash used in operating activities improved to a use of $33.6 million in the nine months ended September 30, 2000, from a use of $34.2 million in the nine months ended September 30, 1999. Fluctuations in the components of cash flow from operations are discussed in the following paragraphs.
Net cash from property operations (rents collected less payments for expenses applicable to rental income) decreased to $23.5 million in the nine months ended September 30, 2000, from $27.0 million in 1999. The decrease is primarily attributable to the sale of seven apartments in 2000 and 14 apartments in 1999.
ARI expects a decrease in cash flow from property operations during the remainder of 2000. Such decrease is expected to result from the continued selective sale of income producing properties.
Net cash from pizza operations (sales less cost of sales) increased to $4.4 million in the nine months ended September 30, 2000, from $3.4 million in the nine months ended September 30, 1999.
Interest collected increased to $4.6 million in the nine months ended September 30, 2000, from $3.7 million in 1999. The increase was attributable to loans funded in 1999.
Interest paid increased slightly to $55.9 million in the nine months ended September 30, 2000, from $54.8 million in 1999.
Advisory fees paid of $3.8 million in the nine months ended September 30, 2000, approximated the $4.0 million in 1999.
General and administrative expenses of $12.0 million in the nine months ended September 30, 2000, approximated the $12.7 million in 1999.
ARI's cash flow from its investment in IORI and TCI is dependent on the ability of each of the entities to make distributions. ARI received distributions from IORI and TCI totaling $1.9 million in the first nine months of 2000 compared to $935,000 in 1999.
Other cash from operating activities increased to $10.1 million in the nine months ended September 30, 2000, from $5.5 million in 1999. The increase was due to a decrease in property prepaids, other miscellaneous property receivables and property escrows.
In the first nine months of 2000, ARI received a total $11.8 million on the collection of seven mortgage notes receivable, $26.5 million on the payoff of four mortgage notes receivable, and $1.6 million in partial paydowns of two mortgage notes receivable.
In 2000, ARI sold the following properties:
Net
Units/ Sales Cash Debt
Property Location Sq.Ft./Acres Price Received Discharged
------------------ ----------------- ------------- ------- -------- -------------
First Quarter
Apartments
Summerwind Reseda, CA 172 Units $9,000 $3,082 $ 5,568 /(1)/
Windtree Reseda, CA 159 Units 8,350 2,911 5,063 /(1)/
Whispering Pines Canoga Park, CA 102 Units 5,300 1,597 3,437 /(1)/
Shopping Center
Katella Plaza Orange, CA 62,290 Sq.Ft. 1,814 283 1,188
Land
Duchense Duchense, UT 420 Acres $ 43 $ 42 $ --
Frisco Bridges Collin County, TX 15.00 Acres 2,675 706 2,000
Frisco Bridges Collin County, TX 19.74 Acres 2,971 -- -- /(2)/
Mason/Goodrich Houston, TX 1.1 Acres 129 -- 116
Mason/Goodrich Houston, TX 12.8 Acres 2,536 -- 1,803
Nashville Nashville, TN 2.6 Acres 405 -- 345
Rasor Plano, TX 43.01 Acres 1,850 -- 1,604
|
Net
Units/ Sales Cash Debt
Property Location Sq.Ft./Acres Price Received Discharged
------------------------- ------------------ -------------- ------ -------- ------------
Second Quarter
Apartments
Pines Little Rock, AR 257 Units 4,650 1,281 3,063
Four Seasons Denver, CO 384 Units 16,600 6,543 9,220/(1)/
Sherwood Glen Urbandale, IA 180 Units 6,250 1,244 4,626/(1)/
Office Building
Marina Playa Santa Clara, CA 124,205 Sq.Ft. 25,750 7,627 7,766
Land
Rasor Plano, TX 5.4 Acres 915 -- 915
Salmon River Salmon River, ID 3.0 Acres 45 44 --
Valley Ranch Irving, TX 22.4 Acres 1,455 -- 1,375
Parkfield Denver, CO 2.6 Acres 615 (1) 584
Frisco Bridges Collin County, TX 24.3 Acres 4,194 (435) 4,000
Vista Business Park Travis County, TX 5.4 Acres 620 14 577
McKinney Corners II Collin County, TX 14.6 Acres 500 (599) 1,050
Third Quarter
Apartments
Fair Oaks Euless, TX 208 Units 6,850 609 5,711
Land
Mason/Goodrich Houston, TX 6.8 Acres 1,198 114 991
McKinney Corners I, II,
III, IV and V Collin County, TX 82.0 Acres 9,150 613 8,123
Parkfield Denver, CO 326.8 Acres 13,164 7,969 3,279
Rasor Plano, TX 41.1 Acres 3,779 3,587 --
Pantex Collin County, TX 182.5 Acres 8,160 -- 4,546(1)
Rowlett Creek Collin County, TX 80.4 Acres 2,262 919 1,173
Vann Cattle Collin County, TX 126.6 Acres 3,564 1,872 1,471
Mastenbrook Collin County, TX 157.9 Acres 4,445 1,890 2,275
Wakefield Collin County, TX 70.3 Acres 1,981 1,239 612
Nashville Nashville, TN 3.0 Acres 523 19 450
Keller Tarrant County, TX 749.1 Acres 10,000 3,892 4,500
Frisco Bridges Collin County, TX 127.4 Acres 27,500 7,411 18,570
Mason/Goodrich Houston, TX 20.5 Acres 3,560 497 1,308
|
In 2000, ARI financed/refinanced or obtained second mortgage financing on the following:
Net
Acres/ Debt Cash Debt
Property Location Units/Sq.Ft. Incurred Received Discharged
---------------- ------------------ ------------ -------- -------- ----------
First Quarter
Land
Centura, Clark
and Woolley Farmers Branch, TX 10.08 Acres $ 7,150 $6,960 $ --
Frisco Bridges Collin County, TX 127.41 Acres 18,000 6,190 11,900
Frisco Bridges Collin County, TX 62.84 Acres 7,800 2,432 4,985
Nashville Nashville, TN 144.82 Acres 10,000 7,039 2,034
|
Net
Acres/ Debt Cash Debt
Property Location Units/Sq.Ft. Incurred Received Discharged
------------------- ------------------ -------------- ------------- -------- ----------
Second Quarter
Apartments
Rockborough Denver, CO 345 Units $ 2,222 $ 1,942 $ --
Confederate Point Jacksonville, FL 206 Units 7,440 1,039 5,879
Whispering Pines Topeka, KS 320 Units 7,530 302 6,829
Chateau Bayou Ocean Springs, MS 122 Units 1,007 988 --
Waters Edge Gulfport, MS 238 Units 7,532 3,447 3,993
Land
Katy Harris County, TX 130.6 Acres 4,250 (9) 4,042
Third Quarter
Office Buildings
Centura Tower Farmers Branch, TX 410,910 Sq.Ft. 15,000 14,612 --
Fourth Quarter
Land
Tree Farm Dallas, TX 10.36 Acres $ 8,000 /(1)/ 7,750 --
Thompson Farmers Branch, TX 3.99 Acres /(1)/
Tomlin Farmers Branch, TX 9.00 Acres /(1)/
Lacy Longhorn Farmers Branch, TX 17.12 Acres /(1)/
Kelly Fort Worth, TX 30.13 Acres /(1)/
McKinney Corners McKinney, TX 10.98 Acres /(1)/
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ARI has margin arrangements with various brokerage firms which provide for borrowing up to 50% of the market value of ARI's marketable equity securities. The borrowings under such margin arrangements are secured by equity securities of IORI, TCI and ARI's trading portfolio and bear interest rates ranging from 7.0% to 11.0%. Margin borrowing totaled $14.6 million at September 30, 2000. In June 2000, 1.6 million shares of TCI stock and 54,000 shares of IORI stock held as collateral on margin loans were sold to satisfy margin calls resulting in losses totaling $7.9 million. These losses are included in equity income of investees on the Statement of Operations. See NOTE 5. "INVESTMENTS IN EQUITY INVESTEES."
Management expects that it will be necessary for ARI to sell $65.0 million, $25.2 million and $11.0 million of its land holdings during each of the next three years to satisfy the debt on such land as it matures. If ARI is unable to sell at least the minimum amount of land to satisfy the debt obligations on such land as it matures, or, if it was not able to extend such debt, ARI would either sell other of its assets to pay such debt or return the property to the lender.
Management reviews the carrying values of ARI's properties and mortgage note receivables at least annually and whenever events or a change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property. For notes receivable impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected. In those instances where
impairment is found to exist, a provision for loss is recorded by a charge against earnings. ARI's mortgage note receivable review includes an evaluation of the collateral property securing such note. The property review generally includes selective property inspections, a review of the property's current rents compared to market rents, a review of the property's expenses, a review of maintenance requirements, a review of the property's cash flow, discussions with the manager of the property and a review of properties in the surrounding area.
In 1996, ARI was admitted to the Valley Ranch, L.P. partnership, as general partner and Class B Limited Partner. The existing general and limited partners converted their general and limited partner interest into 8,000,000 Class A units. The units are exchangeable into shares of ARI's Series B Cumulative Convertible Preferred Stock at the rate of 100 Class A units for each share of Series B Preferred Stock. In February 1999, the limited partner notified ARI that it intended to convert 100,000 Class A units into 1,000 shares of Series B Preferred Stock. In March 1999, ARI purchased the 100,000 Class A units for $100,000. ARI subsequently reached agreement with the Class A unitholder to acquire the remaining 7,900,000 Class A units for $1.00 per unit. In 1999 and the first quarter of 2000, a total of 4,000,000 units were purchased, and an additional 2,000,000 units will be purchased in May 2001 and May 2002.
On October 3, 2000, IORI entered into a stock option agreement which provided IORI and ARI with an option to purchase 1,858,900 shares of common stock of TCI from a third party. On October 19, 2000, IORI assigned all of its rights to purchase such shares to ARI. ARI may exercise the option between January 1, 2001 and April 13, 2001. The total cost to purchase the shares is $30.7 million. In October 2000, ARI paid $5.6 million of the option price.
For the nine months ended September 30, 2000, ARI reported net income of $1.6 million, compared to net income of $1.9 million for the nine months ended September 30, 1999. The primary factors contributing to ARI's net income are discussed in the following paragraphs.
Pizza parlor sales and cost of sales were $8.1 million and $6.8 million, respectively, in the three months ended September 30, 2000 and $24.4 million and $20.1 million for the nine months ended September 30, 2000 compared to $7.8 million and $6.7 million, respectively, for the three months ended September 30, 1999 and $22.8 million and $19.5 million for the nine months ended September 30, 1999. The increased sales were primarily attributable to the effects of a more aggressive marketing and advertising strategy.
Rents decreased to $34.7 million and $105.2 million in the three and nine months ended September 30, 2000, from $40.3 million and $122.1 million in 1999. Rents from commercial properties increased to $23.8 million for the nine months ended September 30, 2000, from $22.1 million in 1999, rent from hotels increased to $25.5 million in the nine months ended September 30, 2000, from $25.0 million in 1999 and rent from apartments decreased to $53.0 million in the nine months ended September 30, 2000, from $74.7 million in 1999. The increase in commercial property rents was primarily attributable to the purchase of Encino
Executive Plaza in May 1999 and the decrease in apartment rent was due to the sale of seven apartments in 2000 and 14 apartments in 1999. Rental income is expected to decrease significantly in the remainder of 2000 as a result of the income producing properties sold in 1999 and 2000.
Property operations expense decreased to $23.8 million and $70.4 million in the three and nine months ended September 30, 2000, from $27.4 million and $80.8 million in 1999. Property operations expense for commercial properties increased to $14.8 million in the nine months ended September 30, 2000, from $11.9 million in 1999. For hotels, property operations expense increased to $17.8 million in the nine months ended September 30, 2000, from $17.7 million in 1999. For land, property operations expense increased to $7.1 million in the nine months ended September 30, 2000 from $6.5 million in 1999. For apartments, property operations expense decreased to $30.7 million in the nine months ended September 30, 2000, from $44.7 million in 1999. The increase in commercial property operations expense was primarily due to the purchase of Encino Executive Plaza in May 1999. The increase in land operating expenses was primarily due to increased property taxes. The decrease in property operations expense for apartments was due to the sale of seven apartments in 2000 and 14 apartments in 1999. Property operations expense is expected to decrease significantly in the remainder of 2000 as a result of the properties sold in 1999 and 2000.
Interest income from notes receivable decreased to $283,000 and $3.3 million in the three and nine months ended September 30, 2000 from $1.3 million and $5.0 million in 1999. The decrease is due to the collection of mortgage notes receivable and related accrued but unpaid interest at maturity in 2000.
Other income increased to $606,000 and $419,000 in the three and nine months ended September 30, 2000, improved from income of $300,000 in the three months ended September 30, 1999, and a loss of $740,000 in the nine months ended September 30, 1999. ARI recognized an unrealized decrease in market value of its trading portfolio securities of $267,000 in the nine months ended September 30, 2000, compared to $1.8 million in 1999. See NOTE 6. "MARKETABLE EQUITY SECURITIES -TRADING PORTFOLIO."
Interest expense decreased to $19.6 million and $60.2 million in the three and nine months ended September 30, 2000 from $23.0 million and $68.5 million in 1999. The decrease was attributable to the sale of seven apartments in 2000 and 14 apartments and 22 parcels of land in 1999. In the remainder of 2000, interest expense is expected to continue to decrease due to the properties sold in 1999 and 2000.
Depreciation expense decreased to $4.0 million and $12.9 million in the three and nine months ended September 30, 2000, from the $4.5 million and $13.5 million in 1999. This decrease was due to the sale of seven apartments in 2000 and 14 apartments in 1999.
Advisory fees of $1.2 million and $3.8 million in the three and nine months ended September 30, 2000, approximated the $1.5 million and $4.0 million in 1999.
General and administrative expenses of $3.2 million and $12.0 million in the three and nine months ended September 30, 2000, approximated the $3.8 million and $12.7 million in 1999.
Minority interest decreased to $5.0 million and $32.2 million in the three and nine months ended September 30, 2000, from $23.2 million and $38.6 million in 1999. The decrease is attributable to the decreased earnings of NRLP in the first seven months of 2000. Minority interest will continue to decrease in the fourth quarter with ARI's acquisition of the minority interest in NRLP effective August 3, 2000. See NOTE 2. "TRANSACTION WITH AMERICAN REALTY TRUST, INC. AND NATIONAL REALTY, L.P."
Equity in income of investees increased to $2.6 million and decreased to $2.9 million in the three and nine months ended September 30, 2000, from $1.9 million and $5.3 million in 1999. The three month increase in equity income was attributable to gains from the sale of properties, while the nine month decrease in equity income was attributable to the loss associated with the sale of TCI and IORI stock.
In 2000, ARI sold the following properties:
Units/ Gain on
Property Location Sq.Ft./Acres Sale
------------------ ----------------- -------------- -------
First Quarter
Apartments
Summerwind Reseda, CA 172 Units $ 6,684
Windtree Reseda, CA 159 Units 6,170
Whispering Pines Canoga Park, CA 102 Units 3,106
Shopping Center
Katella Plaza Orange, CA 62,290 Sq.Ft. 194
Land
Duchense Duchense, UT 420 Acres 16
Frisco Bridges Collin County, TX 15.00 Acres 297
Frisco Bridges Collin County, TX 19.74 Acres --
Mason/Goodrich Houston, TX 1.1 Acres 70
Mason/Goodrich Houston, TX 12.8 Acres 1,783
Nashville Nashville, TN 2.6 Acres 225
Rasor Plano, TX 43.01 Acres 58
Second Quarter
Apartments
Pines Little Rock, AR 257 Units 2,441
Four Seasons Denver, CO 384 Units 8,191
Sherwood Glen Urbandale, IA 180 Units 4,161
Office Building
Marina Playa Santa Clara, CA 124,205 Sq.Ft. 17,285
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Units/ Gain on
Property Location Sq.Ft./Acres Sale
--------------------- ------------------ ------------ -------
Land
Rasor Plano, TX 5.4 Acres 705
Salmon River Salmon River, ID 3.0 Acres 38
Valley Ranch Irving, TX 22.4 Acres (585)
Parkfield Denver, CO 2.6 Acres 512
Frisco Bridges Collin County, TX 24.3 Acres 259
Vista Business Park Travis County, TX 5.4 Acres 173
McKinney Corners II Collin County, TX 14.6 Acres (40)
Third Quarter
Apartments
Fair Oaks Euless, TX 208 Units 3,364
Land
Mason/Goodrich Houston, TX 6.8 Acres 807
McKinney Corners I,
II, III, IV and V Collin County, TX 82.0 Acres 1,638
Parkfield Denver, CO 326.8 Acres 3,768
Rasor Plano, TX 41.1 Acres 1,902
Pantex Collin County, TX 182.5 Acres 959
Rowlett Creek Collin County, TX 80.4 Acres 462
Vann Cattle Collin County, TX 126.6 Acres 1,257
Mastenbrook Collin County, TX 157.9 Acres 747
Wakefield Collin County, TX 70.3 Acres 478
Nashville Nashville, TN 3.0 Acres 310
Keller Tarrant County, TX 749.1 Acres 3,373
Frisco Bridges Collin County, TX 127.4 Acres 6,954
Mason/Goodrich Houston, TX 20.5 Acres 956
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In 1999, ARI sold the following properties:
Units/ Gain on
Property Location Sq.Ft./Acres Sale
------------------ ----------------- ------------ -------
First Quarter
Apartments
Olde Towne Middleton, Ohio 199 Units $ 2,200
Santa Fe Kansas City, MO 225 Units 706
Mesa Ridge Mesa, AZ 480 Units 10,200
Land
Plano Parkway Collin County, TX 4.6 Acres 473
Rasor Plano, TX 13.0 Acres 979
Mason/Goodrich Houston, TX 9.9 Acres 432
McKinney Corners McKinney, TX 23.7 Acres 2,900
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Units/ Gain on
Property Location Sq.Ft./Acres Sale
------------------- ------------------ ------------ -------
Second Quarter
Apartments
Horizon East Dallas, TX 166 Units 1,800
Lantern Ridge Richmond, VA 120 Units 2,300
Barcelona Tampa, FL 368 Units 2,200
Land
Vista Ridge Lewisville, TX 15.0 Acres 913
Plano Parkway Collin County, TX 24.5 Acres 1,100
Frisco Bridges Collin County, TX 27.6 Acres 4,200
Plano Parkway Collin County, TX 6.0 Acres 615
Hotel
Continental Las Vegas, NV 400 Rooms 7,900
Third Quarter
Apartments
Country Place Round Rock, TX 152 Units 3,300
Lake Nora Indianapolis, IN 588 Units 12,700
Fox Club Indianapolis, IN 336 Units
Oakhollow Austin, TX 409 Units 24,200
Windridge Austin, TX
Land
JHL Connell Carrollton, TX .13 Acres 23
Plano Parkway Collin County, TX 11.8 Acres 1,900
Vista Ridge Lewisville, TX 6.7 Acres 584
Valley Ranch Irving, TX 1.4 Acres 128
Keller Tarrant County, TX 2.1 Acres 158
Sun City Sun City, TX 26.5 Acres 180
Katrina Palm Desert, CA 121.2 Acres 186
Frisco Bridges Collin County, TX 13.6 Acres 403
Plano Parkway Collin County, TX 6.2 Acres (40)
Keller, Scout and
Scoggins Tarrant County, TX 185.6 Acres 1,800
Vista Ridge Lewisville, TX 1.3 Acres 538
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Under various federal, state and local environmental laws, ordinances and regulations, ARI may be potentially liable for removal or remediation costs, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.
Management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on ARI's business, assets or results of operations.
The effects of inflation on ARI's operations are not quantifiable. Revenues from apartment operations fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect the sales values of properties and the ultimate gains to be realized from property sales. To the extent that inflation affects interest rates, earnings from short-term investments and the cost of new borrowings as well as the cost of variable interest rate debt will be affected.
Even though January 1, 2000, has passed and no adverse impact from the transition to the year 2000 was experienced, no assurance can be provided that ARI's suppliers and tenants have not been affected in a manner not yet apparent. As a result, management will continue to monitor ARI's year 2000 compliance and the year 2000 compliance of its suppliers and tenants.
At September 30, 2000, ARI's exposure to a change in interest rates on its debt is as follows:
Weighted Effect of 1%
Average Increase In
Balance Interest Rate Base Rates
---------- --------------- -------------
(Amounts in thousands, except per share)
Notes payable:
Variable rate.................. $96,866 9.20% $967
Total decrease in ARI's annual
net income..................... $967
====
Per share....................... $.09
====
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PART II. OTHER INFORMATION
(a) Exhibits:
Exhibit
Number Description
------ -------------------------------------------------------
3.0 Certificate of Restatement of Articles of Incorporation of
American Realty Investors, Inc., dated August 3, 2000.
3.1 Certificate of Correction of Restated Articles of Incorporation of
American Realty Investors, Inc., dated August 29, 2000
27.0 Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K as follows:
A Current Report on Form 8-K, dated August 2, 2000, was filed with respect
to ITEM 2. "ACQUISITION OR DISPOSITION OF ASSETS," and ITEM 7. "FINANCIAL
STATEMENTS AND EXHIBITS," which reports ART's reorganization and
combination with National Realty, L.P.
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMERICAN REALTY INVESTORS, INC.
Date: November 14, 2000 By: /s/ Karl L. Blaha
------------------------- -----------------------------------
Karl L. Blaha
President
Date: November 14, 2000 By: /s/ Mark W. Branigan
-------------------------- -----------------------------------
Mark W. Branigan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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AMERICAN REALTY INVESTORS, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Quarter ended September 30, 2000
Exhibit Page
Number Description Number
------- -------------------------------------------------- ------
3.0 Certificate of Restatement of Articles of
Incorporation of American Realty Investors,
Inc., dated August 3, 2000.
3.1 Certificate of Correction of Restated Articles
of Incorporation of American Realty Investors,
Inc., dated August 29,
2000.
27.0 Financial Data Schedule.
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Exhibit 3.0
RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN REALTY INVESTORS, INC.
The total number of shares of all classes which the Corporation shall have authority to issue is 150,000,000 shares, of which 100,000,000 shares, par value $0.01 per share, shall be of a class designated "Common Stock," and 50,000,000 shares, par value $2.00 per share, shall be of a class designated "Preferred Stock."
(a) the distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors;
(b) the dividend rate or rates on the shares of such series and the preferences, if any, over any other series (or of any other series over such series) with respect to dividends, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate;
(c) the voting powers, full or limited, if any, of shares of such
series, and under what conditions, if any, the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a class for the election of one or more directors of the Corporation in case of dividend arrearages or other specified events or upon other matters;
(d) whether the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemptions, the time or times when, the price or prices at which and the manner in which such shares shall be redeemable, including, but not limited to, the manner of selecting shares of such series for redemption if less than all shares are to be redeemed;
(e) the rights to which the holders of shares of such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding up is voluntary or involuntary, and, if voluntary, may vary at different dates;
(f) whether the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series, including, but not limited to, the price or prices at which the shares may be purchased or redeemed, or to other corporate purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes, or of any other series of the same class, and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange;
(h) whether the issuance of additional shares of Preferred Stock shall be subject to restrictions as to issuance, or as to the powers, preferences or other rights of any other series;
(i) the right of the shares of such series to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional stock (including additional shares of such series or any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding stock of the Corporation; and
(j) any other preferences, privileges and powers, and relative participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors
may deem advisable and as shall not be inconsistent with applicable law or the provisions of these Restated Articles of Incorporation, as amended from time to time.
2. Shares of Preferred Stock which have been issued and reacquired in any manner by the Corporation (excluding, until the Corporation elects to retire them, shares which are held as treasury shares, but including shares redeemed, shares purchased and retired and shares which have been converted into shares of Common Stock) shall have the status of authorized but unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reissued as a part of another series of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock.
3. Except as otherwise provided by the resolution or resolutions providing for the issuance of any series of Preferred Stock, after payment shall have been made to the holders of Preferred Stock of the full amount of dividends to which they shall be entitled pursuant to the resolution or resolutions providing for the issuance of any series of Preferred Stock, the holders of Common Stock shall be entitled, to the exclusion of the holders of Preferred Stock of any and all series, to receive such dividends as from time to time may be declared by the Board of Directors.
4. Except as otherwise provided by the resolution or resolutions providing for the issuance of any series of Preferred Stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment shall have been made to the holders of Preferred Stock of the full amounts to which they shall be entitled pursuant to such resolution or resolutions, the holders of Common Stock shall be entitled, to the exclusion of the holders of Preferred Stock of any and all series, to share, ratably according to the number of shares of Common Stock held by them, in all remaining assets of the Corporation available for distribution to its stockholders.
5. The holders of Preferred Stock shall not have any preemptive rights except to the extent such rights shall be specifically provided for in the resolution or resolutions providing for the issuance thereof adopted by the Board of Directors.
6. Of the 50,000,000 shares of Preferred Stock authorized, the Board of Directors has designated the following: (i) 15,000,000 as Series A Preferred Stock, (ii) 80,000 as Series B Preferred Stock, (iii) 231,750 as Series C Preferred Stock, (iv) 91,000 as Series D Preferred Stock and (v) 500,000 as Series E Preferred Stock. Following is a description of the rights and preferences of each of the series A, B, C, D and E Preferred Stock.
(c) Upon any conversion, fractional shares of Common Stock shall not be issued but any fractions shall be adjusted by the delivery of one
(e) A number of authorized shares of Common Stock sufficient to provide for the conversion of the Series A Preferred Stock outstanding upon the basis hereinbefore provided shall at all times be reserved for such conversion. If the Corporation shall propose to issue any securities or to make any change in its capital structure which would change the number of shares of Common Stock into which each share of Series A Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved for conversion of the outstanding Series A Preferred Stock on the new basis.
substantially in the proportion which the total number of shares of stock of each such class resulting from all such reclassifications bears to the total number of shares of stock of all such classes resulting from all such reclassifications.
(g) In case the Corporation shall propose at any time before all shares of the Series A Preferred Stock have been redeemed by or converted into Common Stock of the Corporation:
(i) to pay any dividend on the Common Stock outstanding payable in Common Stock or to make any other distribution, other than cash dividends to the holders of the Common Stock outstanding; or
(ii) to offer for subscription to the holders of the Common Stock outstanding any additional shares of any class or any other rights or options; or
(iii) to effect any re-classification or recapitalization of the Common Stock outstanding involving a change in the Common Stock, other than a subdivision or combination of the Common Stock outstanding; or
(iv) to merge or consolidate with or into any other corporation (unless the Corporation is the surviving entity and holders of Common Stock continue to hold such Common Stock 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;
then, in each such case, the Corporation shall mail to the holders of record of each of the shares of Series A Preferred Stock at their last known addresses as shown by the Corporation's records a statement, signed by an officer of the Corporation, with respect to the proposed action, such statement to be so mailed at least 30 days prior to the date of the taking of such action or the record date for holders of the Common Stock for the purposes thereof, whichever is earlier. If such statement relates to any proposed action referred to in clauses (iii) or (iv) of this Section C.3(g), it shall set forth such facts with respect thereto as shall reasonably be necessary to inform the holders of the Series A Preferred Stock as to the effect of such action upon the conversionrights of such holders.
(a) Except as may otherwise be specifically required by law or otherwise provided herein, the holders of the shares of Series A Preferred Stock shall not have the right to vote such stock, directly or indirectly, at any meeting of the stockholders of the Corporation, and such shares of stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of stockholders;
(b) In the event that, under the circumstances, the holders of the Series A Preferred Stock are required by law to vote upon any matter, the approval of such series shall be deemed to have been obtained only upon the affirmative vote of the holders of a majority of the shares of the Series A Preferred Stock then outstanding;
(c) Except as set forth herein, or as otherwise provided by the Articles of Incorporation or by law, holders of the Series A Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action;
(e) At any time when the voting right described in Section C.3(d) of this
Series A Preferred Stock in the same manner as that required to be given to holders of the Common Stock for the annual meeting of stockholders. Such meeting shall be held at the earliest practicable date upon the notice required for special meetings of stockholders of the Corporation, or, if none, at a time and place designated by the Secretary of the Corporation.
(h) So long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of record of two-thirds of the outstanding shares of Series A Preferred Stock, amend its articles of incorporation, including these Restated Articles of Incorporation, or bylaws if such amendment would materially alter or change the existing terms of the Series A Preferred Stock.
the Corporation of any shares of its Preferred Stock or Common Stock or any other class of its stock will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section C.6.
(b) The Corporation may redeem all or a portion of any holder's shares of Series A Preferred Stock by giving such holder not less than 20 days nor more than 30 days notice thereof prior to the date on which the Corporation desires such shares to be redeemed, which date shall be a Business Day (the "Redemption Date"). Such notice shall be written and shall be hand delivered or mailed, postage prepaid, to the holder (the "Redemption Notice"). The Redemption Notice, once given, shall be irrevocable. If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail, postage prepaid, addressed to the holder of shares of Series A Preferred Stock at his address as it appears on the stock transfer records of the Corporation. The Redemption Notice shall state (i) the total number of shares of Series A Preferred Stock held by such holder; (ii) the total number of shares of the holder's Series A Preferred Stock that the Corporation intends to redeem; (iii) the Redemption Date and the Redemption Price; and (iv) the place at which the holder(s) may obtain payment of the applicable Redemption Price upon surrender of the share certificate(s).
(c) If fewer than all shares of the Series A Preferred Stock at any time outstanding shall be called for redemption, such shares shall be redeemed pro rata, by lot drawn or other manner deemed fair in the sole
discretion of the Board of Directors to redeem one or more such shares without
redeeming all such shares of Series A Preferred Stock. If a Redemption Notice
shall have been so mailed, at least two Business Days prior to the Redemption
Date the Corporation shall provide for payment of a sum sufficient to redeem the
applicable number of shares of Series A Preferred Stock subject to redemption
either by (i) setting aside the sum required to be paid as the Redemption Price
by the Corporation, separate and apart from its other funds, in trust for the
account of the holder(s) of the shares of Series A Preferred Stock to be
redeemed or (ii) depositing such sum in a bank or trust company (either located
in the state where the principal executive office of the Corporation is
maintained, such bank or trust company having a combined surplus of at least
$20,000,000 according to its latest statement of condition, or such other bank
or trust company as may be permitted hereby or by law) as a trust fund, with
irrevocable instructions and authority to the bank or trust company to give or
complete the notice of redemption and to pay, on or after the Redemption Date,
the applicable Redemption Price on surrender of certificates evidencing the
share(s) of Series A Preferred Stock so called for redemption and, in either
event, from and after the Redemption Date (v) the share(s) of Series A Preferred
Stock shall be deemed to be redeemed, (w) such setting aside or deposit shall be
deemed to constitute full payment for such shares(s), (x) such share(s) so
redeemed shall no longer be deemed to be outstanding, (y) the holder(s) thereof
shall cease to be a stockholder of the Corporation with respect to such
share(s), and (z) such holder(s) shall have no rights with respect thereto
except the right to receive the Redemption Price for the applicable shares. Any
interest on the funds so deposited shall be paid to the Corporation. Any and all
such redemption deposits shall be irrevocable except to the following extent:
any funds so deposited which shall not be required for the redemption of any
shares of Series A Preferred Stock because of any prior sale or purchase by the
Corporation other than through the redemption process, subsequent to the date of
deposit but prior to the Redemption Date, shall be repaid to the Corporation
forthwith and any balance of the funds so deposited and unclaimed by the
holder(s) of any shares of Series A Preferred Stock entitled thereto at the
expiration of one calendar year from the Redemption Date shall be repaid to the
Corporation upon its request or demand therefor, and after any such repayment of
the holder(s) of the share(s) so called for redemption shall look only to the
Corporation for payment of the Redemption Price thereof. All shares of Series A
Preferred Stock redeemed shall be canceled and retired and no shares shall be
issued in place thereof, but such shares shall be restored to the status of
authorized but unissued shares of Preferred Stock.
(d) Holders whose shares of Series A Preferred Stock have been redeemed hereunder shall surrender the certificate or certificates representing such shares, duly endorsed or assigned (unless such endorsement or assignment be waived by the Corporation), to the Corporation by mail, courier or personal delivery at the Corporation's principal executive office or other location so designated in the Redemption Notice, and upon the Redemption Date the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event fewer than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares.
executive offices (which shall be deemed to be the address most recently provided to the Securities and Exchange Commission ("SEC") as its principal executive offices for so long as the Corporation is required to file reports with the SEC).
regardless of the number of certificates that may be issued to evidence such share (whether by reason of transfer of such share or for any other reason). Accrued but unpaid dividends shall not accrue dividends and shall not accrue interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding upon which dividends have accrued. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 50 days prior to the date fixed for the payment thereof.
(c) So long as any shares of the Series B Preferred Stock are outstanding, the Corporation will not make, directly or indirectly, any distribution (as such term is defined in the NRS) in respect of Junior Securities unless on the date specified for measuring distributions, (i) all accrued dividends on the Series B Preferred Stock for all past quarterly dividend periods have been paid in full and the full amount of accrued dividends for the then current quarterly dividend period has been paid or declared and a sum sufficient for the payment thereof set apart, and (ii) after giving effect to such distribution (x) the Corporation would not be rendered unable to pay its debts as they become due in the usual course of business, and (y) the Corporation's total assets would not be less than the sum of its total liabilities plus the amount that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the holders of the Series B Preferred Stock as provided in these Restated Articles of Incorporation. Dividends shall not be paid (in full or in part) or declared and set apart for payment (in full or in part) on any series of Preferred Stock (including the Series B Preferred Stock) for any dividend period unless all dividends, in the case dividends are being paid in full on the Series B Preferred Stock, or a ratable portion of all dividends, in the case dividends are not being paid in full on the Series B Preferred Stock, have been or are, contemporaneously, paid and declared and set apart for payment on all outstanding series of Preferred Stock entitled thereto for each dividend period terminating on the same or earlier date. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series B Preferred Stock, such payment will be distributed ratably among the then holders of Series B Preferred Stock so that an equal amount is paid with respect to each outstanding share.
(d) Any dividend payment required to be made by the Corporation hereunder but made by Basic Capital Management, Inc. ("Basic") to holders of the Series B Preferred Stock pursuant to the terms of the Unpaid Preferred Return and Dividend Guaranty made by Basic in favor of holders of the Class A Units (as those terms are defined in the Second Amended and Restated Agreement of Limited Partnership of Valley Ranch Limited Partnership (the "Partnership Agreement")) shall be treated by each recipient thereof as payment by the Corporation of such dividend and shall, after the expiration of any applicable preference period established by applicable bankruptcy laws, terminate the liability of
the Corporation for payment thereof, but shall not be considered as paid by the Corporation for purposes of applying any restrictions on the payment of dividends by the Corporation under these Restated Articles of Incorporation or under applicable law.
(b) For purposes of this Section D.3, the following terms shall have the meanings ascribed below:
(i) "Conversion Schedule" shall be and mean the schedule below, which sets forth the maximum percentage of the number of shares of Series B Preferred Stock that each holder of Series B Preferred Stock may convert at those certain future dates (which number with respect to any one conversion shall be no less than 1,000 or all shares of Series B Preferred Stock held by any holder thereof, whichever is less), which total number of shares so convertible by each holder (the "Convertible Shares") shall be calculated based on the sum of (x) the total number of shares of Series B Preferred Stock then held by such holder, (y) with respect to holders that are also the Class A Limited Partners (as defined in the Partnership Agreement), the total number of shares of Series B Preferred Stock (excluding the shares described in clause (x)) which such holder would be entitled to hold if such holder fully exercised its right to exchange its Class A Units (as defined in the Partnership Agreement) for shares of Series B Preferred Stock in accordance with the terms of the Exchange Agreement (as defined in the Partnership Agreement) and (z) the total number of shares of Series B Preferred Stock already converted by such holder:
(A) up to 50% of the original number of Convertible Shares of each holder at any time; and
(B) up to an additional 50% of the original number of Convertible Shares of each holder beginning as of November 4, 2001, and thereafter.
(e) A number of authorized shares of Common Stock sufficient to provide for the conversion of the Series B Preferred Stock outstanding upon the basis hereinbefore provided shall at all times be reserved for such conversion. If the Corporation shall propose to issue any securities or to make any changes in its capital structure which would change the number of shares of Common Stock into which each share of Series B Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved for conversion of the outstanding Series B Preferred Stock on the new basis.
(f) The term "Common Stock" shall mean stock of the class designated as Common Stock of the Corporation on the date hereof or stock of any class or classes resulting from any reclassification or reclassifications thereof, the right of which to share in distributions of both earnings and assets is without limitation in the articles of incorporation of the Corporation, including these Restated Articles of Incorporation, as to any fixed amount or percentage and which are not subject to redemption; provided, that if at any time there shall be more than one such resulting class, the shares of each such class then issuable on conversion of the Series B Preferred Stock shall be substantially in the proportion which the total number of shares of stock of each such class resulting from all such reclassifications bears to the total number of shares of stock of all such classes resulting from all such reclassifications.
(g) In the case the Corporation shall propose at any time before all shares of the Series B Preferred Stock have been redeemed by or converted into Common Stock:
(i) to pay any dividend on the Common Stock outstanding payable in Common Stock or to make any other distribution, other than cash dividends to the holders of the Common Stock outstanding; or
(ii) to offer for subscription to the holders of the Common Stock outstanding any additional shares of any class or any other rights or options; or
(iii) to effect any re-classification or recapitalization of the Common Stock outstanding involving a change in the Common Stock, other than a subdivision or combination of the Common Stock outstanding; or
(iv) to merge or consolidate with or into any other corporation, or to sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up;
then, in each such case, the Corporation shall mail to the holders of record of
each of the shares of Series B Preferred Stock at their last known addresses as
shown by the Corporation's records a statement, signed by an officer of the
Corporation, with respect to the proposed action, such statement to be so mailed
at least 30 days prior to the date of the taking of such action or the record
date for holders of the Common Stock for the purposes thereof, whichever is
earlier. If such statement relates to any proposed action referred to in clauses
(iii) or (iv) of this Section D.3(g), it shall set forth such facts with respect
thereto as shall reasonably be necessary to inform the holders of the
Series B Preferred Stock as to the effect of such action upon the conversion rights of such holders.
(a) Except as may otherwise be specifically required by law or otherwise provided herein, the holders of the shares of Series B Preferred Stock shall not have the right to vote such stock, directly or indirectly, at any meeting of the stockholders of the Corporation, and such shares of stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of stockholders;
(b) In the event that, under the circumstances, the holders of the Series B Preferred Stock are required by law to vote upon any matter, the approval of such series shall be deemed to have been obtained only upon the affirmative vote of the holders of a majority of the shares of the Series B Preferred Stock then outstanding;
(c) Except as set forth herein, or as otherwise provided by these Restated Articles of Incorporation or by law, holders of the Series B Preferred Stock shall have no special voting rights and their consent shall not be required for the taking of any corporate action.
declared, to the date of such payment (the "Liquidation Value"), whether such liquidation is voluntary or involuntary, and the holders of the Series B Preferred Stock shall not be entitled to any other or further distributions of the assets. If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, the net assets available for distribution shall be insufficient to permit payment to the holders of all outstanding shares of all series of Preferred Stock of the amount to which they respectively shall be entitled, then the assets of the Corporation to be distributed to such holders will be distributed ratably among them based upon the amounts payable on the shares of each such series of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution or winding up, as the case may be, in proportion to the full preferential amounts, together with any and all arrearages to which they are respectively entitled. Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of Preferred Stock have been paid in full the amounts to which they are entitled, the remaining assets of the Corporation may be distributed to holders of Junior Securities, including Common Stock, of the Corporation. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 20 nor more than 50 days prior to the payment date stated therein to each record holder of Series B Preferred Stock. Neither the consolidation nor merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor a reduction in the capital stock of the Corporation, nor the purchase or redemption by the Corporation of any shares of its Preferred Stock or Common Stock or any other class of its stock will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section D.6.
(a) The Corporation shall have the right to redeem all or a portion of the Series B Preferred Stock issued and outstanding at any time and from time to time. The redemption price of the Series B Preferred Stock shall be an amount per share equal to the Liquidation Value (the "Redemption Price").
(b) The Corporation may redeem all or a portion of any holder's shares of Series B Preferred Stock by giving such holder not less than 20 days nor more than 60 days notice thereof prior to the date on which the Corporation desires such shares to be redeemed, which date shall be a Business Day (the "Redemption Date"). Such notice shall be written and shall be hand delivered or mailed, postage prepaid, to the holder (the "Redemption Notice"). If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail, postage prepaid, addressed to the holder of shares of Series B Preferred Stock at his address as it appears on the stock transfer records of the Corporation. The Redemption Notice shall state: (i) the total number of shares of Series B Preferred Stock held by such holder; (ii) the total number of shares of the holder's Series B Preferred Stock that the Corporation intends to redeem; (iii) the Redemption Date and the Redemption Price; and (iv) the place at which the holder(s) may obtain payment of the applicable Redemption Price upon surrender of the share certificate(s).
(c) If fewer than all shares of the Series B Preferred Stock at any time
outstanding shall be called for redemption, such shares shall be redeemed pro
rata, by lot drawn or other manner deemed fair in the sole discretion of the
Board of Directors to redeem one or more such shares without redeeming all such
shares of Series B Preferred Stock. If such Redemption Notice shall have been so
mailed, on or before the Redemption Date the Corporation may provide for payment
of a sum sufficient to redeem the applicable number of shares of Series B
Preferred Stock called for redemption either (i) by setting aside the sum
required to be paid as the Redemption Price by the Corporation, separate and
apart from its other funds, in trust for the account of the holder(s) of the
shares of Series B Preferred Stock to be redeemed or (ii) by depositing such sum
in a bank or trust company (either located in the state where the principal
executive office of the Corporation is maintained, such bank or trust company
having a combined surplus of at least $20,000,000 according to its latest
statement of condition, or such other bank or trust company as may be permitted
hereby or by law) as a trust fund, with irrevocable instructions and authority
to the bank or trust company to give or complete the notice of redemption and to
pay, on or after the Redemption Date, the applicable Redemption Price on
surrender of certificates evidencing the share(s) of Series B Preferred Stock so
called for redemption and, in either event, from and after the Redemption Date
(v) the share(s) of Series B Preferred Stock shall be deemed to be redeemed, (w)
such setting aside or deposit shall be deemed to constitute full payment for
such share(s), (x) such share(s) so redeemed shall no longer be deemed to be
outstanding, (y) the holder(s) thereof shall cease to be a stockholder of the
Corporation with respect to such share(s), and (z) such holder(s) shall have
no rights with respect thereto except the right to receive their proportionate
share of the funds set aside pursuant hereto or deposited upon surrender of
their respective certificates. Any interest on the funds so deposited shall be
paid to the Corporation. Any and all such redemption deposits shall be
irrevocable except to the following extent: any funds so deposited which shall
not be required for the redemption of any shares of Series B Preferred Stock
because of any prior sale or purchase by the Corporation other than through the
redemption process, subsequent to the
date of deposit but prior to the Redemption Date, shall be repaid to the Corporation forthwith and any balance of the funds so deposited and unclaimed by the holder(s) of any shares of Series B Preferred Stock entitled thereto at the expiration of one calendar year from the Redemption Date shall be repaid to the Corporation upon its request or demand therefor, and after any such repayment of the holder(s) of the share(s) so called for redemption shall look only to the Corporation for payment of the Redemption Price thereof. In addition to the redemption under this Section D.9, the Corporation may redeem or repurchase shares of the Series B Preferred Stock from any holder(s) thereof who consents in writing to any such consented redemption. All shares of Series B Preferred Stock redeemed shall be canceled and retired and no shares shall be issued in place thereof, but such shares shall be restored to the status of authorized but unissued shares of Preferred Stock.
(d) On or before the Redemption Date, the holder who shall redeem such Series B Preferred Stock hereunder shall surrender the certificate or certificates representing such shares to the Corporation by mail, courier or personal delivery at the Corporation's principal executive office or other location so designated in the Redemption Notice, and upon the Redemption Date the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event fewer than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares.
(e) If the Redemption Notice is not withdrawn prior to one Business Day before the Redemption Date, and if on or prior to the Redemption Date the Redemption Price is either paid or made available for payment, then notwithstanding that the certificates evidencing any of the shares of the Series B Preferred Stock so called for redemption have not been surrendered, (i) all rights with respect to such shares shall forthwith after the Redemption Date cease and terminate, to the full extent permitted by applicable law, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor, and (ii) to the full extent permitted by applicable law, such shares shall no longer be deemed outstanding for any purpose.
(b) Dividends shall commence accruing cumulatively on outstanding shares of the Series C Preferred Stock from the date of issuance of such shares to and including the date on which the Redemption Price (as defined in Section E.9(a) of this Article FOURTH) of such shares is paid, whether or not such dividends have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of such dividends. For purposes of this Section E.2, the date on which the Corporation has issued any share of Series C Preferred Stock is its date of issuance, regardless of the number of times a transfer of such share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates that may be issued to evidence such share (whether by
reason of transfer of such share or for any other reason). Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of dividends at the time accrued and payable on such shares shall be allocated among the holders of such shares in proportion to their respective Unpaid Accrual Amounts, where for this purpose the "Unpaid Accrual Amount" of a holder of shares of Series C Preferred Stock at any time equals the total of accrued unpaid dividends on all such shares held by such holder. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon other than a quarterly dividend paid on the Quarterly Dividend Payment Date immediately after such dividend accrued; which record date shall be not more than 50 days prior to the date fixed for the payment thereof.
(c) So long as any shares of the Series C Preferred Stock are outstanding, the Corporation will not make, directly or indirectly, any distribution (as such term is defined in the NRS) in respect of Junior Securities unless on the date specified for measuring such distribution, (i) all accrued dividends on the Series C Preferred Stock for all past quarterly dividend periods have been paid in full and the full amount of accrued dividends for the then current quarterly dividend period has been paid or declared and a sum sufficient for the payment thereof set apart and (ii) after giving effect to such distribution (x) the Corporation would not be rendered unable to pay its debts as they become due in the usual course of business and (y) the Corporation's total assets would not be less than the sum of its total liabilities plus the amount that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the holders of the Series C Preferred Stock as provided in these Restated Articles of Incorporation. Dividends shall not be paid (in full or in part) or declared and set apart for payment (in full or in part) on any series of Preferred Stock (including the Series C Preferred Stock) for any dividend period unless all dividends, in the case dividends are being paid in full on the Series C Preferred Stock, or a ratable portion of all dividends (i.e., so that the amount paid on each share of each series of Preferred Stock as a percentage of total accrued and unpaid dividends for all periods with respect to each such share is equal), in the case dividends are not being paid in full on the Series C Preferred Stock, have been or are, contemporaneously, paid and declared and set apart for payment on all outstanding series of Preferred Stock (including the Series C Preferred Stock) entitled thereto for each dividend period terminating on the same or earlier date. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series C Preferred Stock, such payment will be distributed ratably among the then holders of Series C Preferred Stock so that an equal amount is paid with respect to each outstanding share.
(a) The Series C Preferred Stock may be converted in such amounts and at such times as are set forth below, at the option of the holders thereof, in accordance with Section E.3(d) of this Article FOURTH at the Conversion Price (as defined in Section E.3(b) of this Article FOURTH) into fully paid and nonassessable Common Stock of the Corporation by dividing (i) the Adjusted Liquidation Value for such shares of Series C Preferred Stock as of the date of conversion by (ii) the Conversion Price; provided, however, that as to any shares of Series C Preferred Stock which shall have been called for redemption pursuant to Section E.9 of this Article FOURTH, the right of conversion shall terminate upon receipt by the holder of the notice of redemption from the Corporation; and provided further, however, that on the earlier of (w) the commencement of any liquidation, dissolution or winding up of the Corporation by the filing with the Secretary of State of the State of Nevada or with a federal bankruptcy court, (x) the adoption by the stockholders of the Corporation of any resolution authorizing the commencement thereof, (y) the dividends on the Series C Preferred Stock have not been declared in the amount of the dividend preference as of the first business day of any calendar quarter, or, if declared, have not been paid by the fifth business day of such quarter, or (z) the Corporation is acquired in a merger or similar transaction, the right of conversion shall be immediately accelerated for all shares of Series C Preferred Stock issued and then outstanding, irrespective of the conversion schedule set forth below. Notwithstanding anything to the contrary herein provided, the Corporation may elect to redeem the shares of Series C Preferred Stock sought to be converted, pursuant to Section E.9 of this Article FOURTH, instead of issuing shares of Common Stock in replacement thereof in accordance with the provisions of Section E.3(d) of this Article FOURTH. The Series C Preferred Stock may be converted in the following amounts, at any time on or after the respective dates (each, a "Conversion Date"): (A) 25,000 shares on or after December 31, 2000; (B) 25,000 shares on or after June 30, 2002; (C) 25,000 shares on or after June 30, 2003; (D) 25,000 shares on or after December 31, 2005; and (E) all remaining outstanding shares on or after December 31, 2006. The number of shares of Series C Preferred Stock each holder thereof shall be entitled to convert on or after each Conversion Date shall be determined by (1) dividing the total number of shares of Series C Preferred Stock held by such holder on such Conversion Date by the total number of shares of Series C Preferred Stock outstanding on such Conversion Date, and (2) multiplying such amount obtained in (1) by the number of shares of Series C Preferred Stock convertible on or after such Conversion Date pursuant to the schedule set forth above less the total number of shares of Series C Preferred Stock previously converted pursuant to this Section E.3 (a).
(b) For purposes of this Section E.3, the term "Conversion Price" shall be and mean the amount obtained (rounded upward to the next highest cent) by multiplying (i) 0.9 by (ii) the simple average of the daily closing price of the Common Stock for the twenty Business Days ending on the last Business Day of the calendar week immediately preceding the date of conversion on the Principal Stock Exchange or, if the Common Stock is not then listed or admitted to trading on a Principal Stock Exchange, the average of the last reported closing bid
and asked prices on such days in the over-the-counter market or, if no such
prices are available, the fair market value per share of the Common Stock, as
determined by the Board of Directors in its sole discretion. The Conversion
Price shall not be subject to any adjustment as a result of the issuance of any
additional shares of Common Stock by the Corporation for any purpose, except for
stock splits (whether accomplished by stock dividends or otherwise) or reverse
stock splits occurring during the 20 Business Days referenced in the calculation
of the Conversion Price. For purposes of calculating the Conversion Price, the
term "Business Day" shall mean a day on which the exchange looked to for
purposes of determining the Conversion Price is open for business or, if no such
exchange, the term "Business Day" shall have the meaning given such term in
Section C.3(a) of this Article FOURTH.
(c) Upon any conversion, fractional shares of Common Stock shall not be issued but any fractions shall be adjusted by the delivery of one additional share of Common Stock in lieu of any cash. Any accrued but unpaid dividends shall be convertible into shares of Common Stock as provided for in this Section E.3(c). The Corporation shall pay all issue taxes, if any, incurred in respect to the issuance of Common Stock on conversion; provided, however, that the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such Common Stock in names other than those in which the Series C Preferred Stock surrendered for conversion may stand.
(d) Any conversion of Series C Preferred Stock into Common Stock shall be made by the surrender to the Corporation, at the office of the Corporation set forth in Section E.12 of this Article FOURTH or at the office of the transfer agent for such shares, of the certificate or certificates representing the Series C Preferred Stock to be converted, duly endorsed or assigned (unless such endorsement or assignment be waived by the Corporation), together with a written request for conversion. The Corporation shall either (i) issue, as of the date of receipt by the Corporation of such surrender, shares of Common Stock calculated as provided above and evidenced by a stock certificate delivered to the holder as soon as practicable after the date of such surrender or (ii) within two Business Days after the date of such surrender advise the holder of the Series C Preferred Stock that the Corporation is exercising its option to redeem the Series C Preferred Stock pursuant to Section E.9 of this Article FOURTH, in which case the Corporation shall have 30 days from the date of such surrender to pay to the holder cash in an amount equal to the Redemption Price for each share of Series C Preferred Stock so redeemed. The date of surrender of any Series C Preferred Stock shall be the date of receipt by the Corporation or its agent of such surrendered shares of Series C Preferred Stock.
(e) A number of authorized shares of Common Stock sufficient to provide for the conversion of the Series C Preferred Stock outstanding upon the basis hereinbefore provided shall at all times be reserved for such conversion. If the Corporation shall propose to issue any securities or to make any change in its capital structure which would change the number of shares of Common Stock into which each share of
Series C Preferred Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved for conversion of the outstanding Series C Preferred Stock on the new basis.
(f) The term "Common Stock" shall mean stock of the class designated as Common Stock of the Corporation on the date the Series C Preferred Stock is created or stock of any class or classes resulting from any reclassification or reclassifications thereof, the right of which to share in distributions of both earnings and assets is without limitation in the articles of incorporation of the Corporation, including these Restated Articles of Incorporation, as to any fixed amount or percentage and which are not subject to redemption; provided, that if at any time there shall be more than one such resulting class, the shares of each such class then issuable on conversion of the Series C Preferred Stock shall be substantially in the proportion which the total number of shares of stock of each such class resulting from all such reclassifications bears to the total number of shares of stock of all such classes resulting from all such reclassifications.
(g) In case the Corporation shall propose at any time before all shares of the Series C Preferred Stock have been redeemed by or converted into Common Stock:
(i) to pay any dividend on the Common Stock outstanding payable in Common Stock or to make any other distribution, other than cash dividends to the holders of the Common Stock outstanding; or
(ii) to offer for subscription to the holders of the Common Stock outstanding any additional shares of any class or any other rights or options; or
(iii) to effect any re-classification or recapitalization of the Common Stock outstanding involving a change in the Common Stock, other than a subdivision or combination of the Common Stock outstanding; or
(iv) to merge or consolidate with or into any other corporation (unless the Corporation is the surviving entity and holders of Common Stock continue to hold such Common Stock 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;
then, in each such case, the Corporation shall mail to the holders of record of each of the shares of Series C Preferred Stock at their last known addresses as shown by the Corporation's records a statement, signed by an officer of the Corporation, with respect to the proposed action, such statement to be so mailed at least 30 days prior to the date of the taking of such action or the record date for holders of the Common Stock for the purposes thereof, whichever is earlier. If such
statement relates to any proposed action referred to in clauses (iii) or (iv) of this Section E.3(g), it shall set forth such facts with respect thereto as shall reasonably be necessary to inform the holders of the Series C Preferred Stock as to the effect of such action upon the conversion rights of such holders.
(a) Except as may otherwise be specifically required by or otherwise provided herein, the holders of the shares of Series C Preferred Stock shall not have the right to vote such stock, directly or indirectly, at any meeting of the stockholders of the Corporation, and such shares of stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of stockholders;
(b) In the event that, under the circumstances, the holders of the Series C Preferred Stock are required by law to vote upon any matter, the approval of such series shall be deemed to have been obtained only upon the affirmative vote of the holders of a majority of the shares of the Series C Preferred Stock then outstanding;
(c) Except as set forth herein, or as otherwise provided by these Restated Articles of Incorporation or by law, holders of the Series C Preferred Stock shall have no special voting rights and their consent shall not be required for the taking of any corporate action.
Preferred Stock has priority over such securities as to dividends or upon liquidation, dissolution or winding up), to receive a liquidation preference in an amount in cash equal to the Adjusted Liquidation Value as of the date of such payment, whether such liquidation is voluntary or involuntary, and the holders of the Series C Preferred Stock shall not be entitled to any other or further distributions of the assets. If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, the net assets available for distribution shall be insufficient to permit payment to the holders of all outstanding shares of all series of Preferred Stock of the amount to which they respectively shall be entitled, then the assets of the Corporation to be distributed to such holders will be distributed ratably among them based upon the amounts payable on the shares of each such series of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution or winding up, as the case may be, in proportion to the full preferential amounts, together with any and all arrearages to which they are respectively entitled. Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of Preferred Stock have been paid in full the amounts to which they are entitled, the remaining assets of the Corporation may be distributed to holders of Junior Securities, including Common Stock, of the Corporation. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 20 nor more than 50 days prior to the payment date stated therein, to each record holder of Series C Preferred Stock. Neither the consolidation nor merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of less than all or substantially all of its assets, nor a reduction in the capital stock of the Corporation, nor the purchase or redemption by the Corporation of any shares of its Preferred Stock or Common Stock or any other class of its stock will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section E.6.
(a) In addition to the redemption right of the Corporation set forth in
Section E.3(a) of this Article FOURTH, the Corporation shall have the right to
redeem all or a portion of the Series C Preferred Stock issued and outstanding
at any time and from time to time, at its option, for cash. The redemption price
of the Series C Preferred Stock pursuant to this Section 9 shall be an amount
per share equal to the sum of (i) (v) 104% of Liquidation Value during the
period from issuance through December 31, 2000; (w) 103% of the Liquidation
Value during the period from January 1, 2001 through December 31, 2001; (x) 102%
of Liquidation Value during the period from January 1, 2002 through December 31,
2002; (y) 101% of Liquidation Value during the period from January 1, 2003
through December 31, 2003; and (z) 100% of Liquidation Value from January 1,
2004 and thereafter, and (ii) all accrued and unpaid dividends thereon through
the date of such redemption (the "Redemption Price").
(b) The Corporation may redeem all or a portion of any holder's shares of Series C Preferred Stock by giving such holder not less than 20 days nor more than 30 days notice thereof prior to the date on which the Corporation desires such shares to be redeemed, which date shall be a Business Day (the "Redemption Date"). Such notice shall be written and shall be hand delivered or mailed, postage prepaid, to the holder (the "Redemption Notice"). If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail, postage prepaid, addressed to the holder of shares of Series C Preferred Stock at his address as it appears on the stock transfer records of the Corporation. The right of the Corporation to redeem shares of Series C Preferred Stock shall remain effective notwithstanding prior receipt by the Corporation of notice by any holder of Series C Preferred Stock of such holder's intent to convert shares of Series C Preferred Stock in accordance with Section E.3 of this Article FOURTH, provided that the Redemption Notice is given on or prior to the second Business Day following the date of surrender of shares made to convert said shares to Common Stock. The Redemption Notice shall state (i) the total number of shares of Series C Preferred Stock held by such holder; (ii) the total number of shares of the holder's Series C Preferred Stock that the Corporation intends to redeem; (iii) the Redemption Date and the Redemption Price; and (iv) the place at which the holder(s) may obtain payment of the applicable Redemption Price upon surrender of the share certificate(s).
(c) If fewer than all shares of the Series C Preferred Stock at any time outstanding shall be called for redemption, such shares shall be redeemed pro rata, by lot drawn or other manner deemed fair in the sole discretion of the Board of Directors to redeem one or more such shares without redeeming all such shares of Series C Preferred Stock. If a Redemption Notice shall have been so mailed, at least two Business Days prior to the Redemption Date the Corporation shall provide for payment of a sum sufficient to redeem the applicable number of shares of Series C Preferred Stock subject to redemption either by (i) setting aside the sum required to be paid as the Redemption Price by the Corporation, separate and apart from its other funds, in trust for the account of the holder(s) of the shares of Series C Preferred Stock to be redeemed or
(ii) depositing such sum in a bank or trust company (either located in the state where the principal executive office of the Corporation is maintained, such bank or trust company having a combined surplus of at least $20,000,000 according to its latest statement of condition, or such other bank or trust company as may be permitted hereby or by law) as a trust fund, with irrevocable instructions and authority to the bank or trust company to give or complete the notice of redemption and to pay, on or after the Redemption Date, the applicable Redemption Price on surrender of certificates evidencing the share(s) of Series C Preferred Stock so called for redemption and, in either event, from and after the Redemption Date (v) the share(s) of Series C Preferred Stock shall be deemed to be redeemed, (w) such setting aside or deposit shall be deemed to constitute full payment for such shares(s), (x) such share(s) so redeemed shall no longer be deemed to be outstanding, (y) the holder(s) thereof shall cease to be a stockholder of the Corporation with respect to such share(s), and (z) such holder(s) shall have no rights with respect thereto except the right to receive the Redemption Price for the applicable shares. Any interest on the funds so deposited shall be paid to the Corporation. Any and all such redemption deposits shall be irrevocable except to the following extent: any funds so deposited which shall not be required for the redemption of any shares of Series C Preferred Stock because of any prior sale or purchase by the Corporation other than through the redemption process, subsequent to the date of deposit but prior to the Redemption Date, shall be repaid to the Corporation forthwith and any balance of the funds so deposited and unclaimed by the holder(s) of any shares of Series C Preferred Stock entitled thereto at the expiration of one calendar year from the Redemption Date shall be repaid to the Corporation upon its request or demand therefor, and after any such repayment of the holder(s) of the share(s) so called for redemption shall look only to the Corporation for payment of the Redemption Price thereof. All shares of Series C Preferred Stock redeemed shall be canceled and retired and no shares shall be issued in place thereof, but such shares shall be restored to the status of authorized but unissued shares of Preferred Stock.
(d) Holders whose shares have been redeemed hereunder shall surrender the certificate or certificates representing such shares, duly endorsed or assigned (unless such endorsement or assignment be waived by the Corporation), to the Corporation by mail, courier or personal delivery at the Corporation's principal executive office or other location so designated in the Redemption Notice, and upon the Redemption Date the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event fewer than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares.
(b) Dividends shall begin to accrue (but not compound) cumulatively on outstanding shares of the Series D Preferred Stock from the date of issue of such shares to and including the date on which the Redemption Price (as defined in Section F.8(a) of this Article FOURTH) of such shares is paid, whether or not such dividends have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of such dividends. For purposes of this Section F.2 of this Article FOURTH, the date on which the Corporation initially issues any share of Series D Preferred Stock is its date of issuance, regardless of the number of times transfer of such share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates that may be issued to evidence such share (whether by reason of transfer of such share or for any other reason). Accrued but unpaid dividends shall not bear interest and shall not accrue dividends. Dividends paid on the shares of Series D Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated prorata on a share-by-share basis among all such shares at the time outstanding upon which dividends have accrued. The Board of Directors may fix a record date for the determination of
holders of shares of Series D Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 50 days prior to the date fixed for the payment thereof.
(c) So long as any shares of the Series D Preferred Stock are outstanding, the Corporation will not declare or pay any dividends on Junior Securities (other than dividends in respect of Common Stock payable in shares of Common Stock) or make, directly or indirectly, any other distribution of any sort in respect of Junior Securities, or any payment on account of the purchase or other acquisition of the Junior Securities, unless on the date of such declaration in the case of a dividend, or on such date of distribution or payment, in the case of such distribution or other payment (i) all accrued dividends on the Series D Preferred Stock for all past quarterly dividend periods in which dividends accrued have been paid in full and the full amount of accrued dividends for the then current quarterly-yearly dividend periods have been paid or declared and a sum sufficient for the payment thereof set apart, and (ii) after giving effect to such payment of dividends, other distributions, purchase or redemption, the aggregate capital of the Corporation applicable to all capital stock of the Corporation then outstanding, plus the earned and capital surplus of the Corporation shall exceed the aggregate amount payable on involuntary dissolution, liquidation or winding up of the Corporation on all shares of the Preferred Stock and all stock ranking prior to or on a parity with the Series D Preferred Stock as to dividends or assets outstanding after the payment of such dividends, other distributions, purchase or redemption. Dividends shall not be paid (in full or in part) or declared and set apart for payment (in full or in part) on any series of Preferred Stock (including the Series D Preferred Stock) for any dividend period unless all dividends, in the case dividends are being paid in full on the Series D Preferred Stock, or a ratable portion of all dividends, in the case dividends are not being paid in full on the Series D Preferred Stock, have been or are, contemporaneously, paid or declared and set apart for payment on all outstanding series of Preferred Stock entitled thereto for each dividend period terminating on the same or earlier date.
(a) Except as may otherwise be specifically required by law or otherwise provided herein, the holders of the shares of Series D Preferred Stock shall not have the right to vote such stock, directly or indirectly, at any meeting of the stockholders of the Corporation, and such shares of stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of stockholders;
(b) In the event that, under the circumstances, the holders of the Series D Preferred Stock are required by law to vote upon any matter, the approval of such series shall be deemed to have been obtained only upon the affirmative vote of the holders of a majority of the shares of
the Series D Preferred Stock then outstanding;
(c) Except as set forth herein, or as otherwise provided by these Restated Articles of Incorporation or by law, holders of the Series D Preferred Stock shall have no special voting rights and their consent shall not be required for the taking of any corporate action.
assets, nor a reduction in the capital stock of the Corporation, nor the purchase or redemption by the Corporation of any shares of its Preferred Stock or Common Stock or any other class of its stock will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section F.5.
(a) The Corporation shall have the right to redeem all or a portion of the Series D Preferred Stock issued and outstanding at any time and from time to time but only from and after June 1, 2001. The redemption price of the Series D Preferred Stock shall be an amount per share equal to the Liquidation Value (the "Redemption Price").
(b) The Corporation may redeem all or a portion of any holder's shares of Series D Preferred Stock by giving such holder not less than 20 days nor more than 60 days notice thereof prior to the date on which the Corporation desires such shares to be redeemed, which date shall be a Business Day (the "Redemption Date"). Such notice shall be written and shall be hand delivered or mailed, postage prepaid, to the holder (the "Redemption Notice"). If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail, postage prepaid, addressed to the holder of shares of Series D Preferred Stock at his address as it appears on the stock transfer records of the Corporation. The Redemption Notice shall state:
(i) the total number of shares of Series D Preferred Stock held by such holder;
(ii) the total number of shares of the holder's Series D Preferred Stock that the Corporation intends to redeem;
(iii) the Redemption Date and the Redemption Price; and
(iv) the place at which the holder(s) may obtain payment of the applicable
Redemption Price upon surrender of the share certificate(s).
(c) If fewer than all shares of the Series D Preferred Stock at any time
outstanding shall be called for redemption, such shares shall be redeemed pro
rata, by lot drawn or other manner deemed fair in the sole discretion of the
Board of Directors to redeem one or more such shares without redeeming all such
shares of Series D Preferred Stock. If such Redemption Notice shall have been so
mailed, on or before the Redemption Date the Corporation may provide for payment
of a sum sufficient to redeem the applicable number of shares of Series D
Preferred Stock called for redemption either by (i) setting aside the sum
required to be paid as the Redemption Price by the Corporation, separate and
apart from its other funds, in trust for the account of the holder(s) of the
shares of Series D Preferred Stock to be redeemed or (ii) depositing such sum in
a bank or trust company (either located in the state where the principal
executive office of the Corporation is maintained, such bank or trust company
having a combined surplus of at least $20,000,000 according to its latest
statement of condition, or such other bank or trust company as may be permitted
hereby or by law) as a trust fund, with irrevocable instructions and authority
to the bank or trust company to give or complete the notice of redemption and to
pay, on or after the Redemption Date, the applicable Redemption Price on
surrender of certificates evidencing the share(s) of Series D Preferred Stock so
called for redemption and, in either event, from and after the Redemption Date
(v) the share(s) of Series D Preferred Stock shall be deemed to be redeemed, (w)
such setting aside or deposit shall be deemed to constitute full payment for
such share (s), (x) such share(s) so redeemed shall no longer be deemed to be
outstanding, (y) the holder(s) thereof shall cease to be stockholder of the
Corporation with respect to such share(s), and (z) such holder(s) shall have
no rights with respect thereto except the right to receive their proportionate
share of the funds set aside pursuant hereto or deposited upon surrender of
their respective certificates. Any interest on the funds so deposited shall be
paid to the Corporation. Any and all such redemption deposits shall be
irrevocable except to the following extent: any funds so deposited which shall
not be required for the redemption of any shares of Series D Preferred Stock
because of any prior sale or purchase by the Corporation other than through the
redemption process, subsequent to the date of deposit but prior to the
Redemption Date, shall be repaid to the Corporation forthwith and any balance of
the funds so deposited and unclaimed by the holder(s) of any shares of Series D
Preferred Stock entitled thereto at the expiration of one calendar year from the
Redemption Date shall be repaid to the Corporation upon its request or demand
therefor, and after any such repayment of the holder(s) of the share(s) so
called for redemption shall look only to the Corporation for payment of the
Redemption Price thereof. In addition to the redemption under this Section F.8,
the Corporation may redeem or repurchase shares of the Series D Preferred Stock
from any holder(s) thereof who consents in writing to any such consented
redemption. All shares of Series D Preferred Stock redeemed shall be canceled
and retired and no shares shall be issued in place thereof, but such shares
shall be restored to the status of authorized but unissued shares of Preferred
Stock.
(d) On or before the Redemption Date, the holder who shall redeem such Series D Preferred Stock hereunder shall surrender the certificate or certificates representing such shares to the Corporation by mail, courier or personal delivery at the Corporation's principal executive office or other location so designated in the Redemption Notice, and upon the Redemption Date the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event fewer than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares.
(e) If the Redemption Notice is not withdrawn prior to one Business Day before the Redemption Date, and if on or prior to the Redemption Date the Redemption Price is either paid or made available for payment, then notwithstanding that the certificates evidencing any of the shares of the Series D Preferred Stock so called for redemption have not been surrendered, (i) all rights with respect to such shares shall forthwith after the Redemption Date cease and terminate, to the full extent permitted by applicable law, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor, and (ii) to the full extent permitted by applicable law, such shares shall no longer be deemed outstanding for any purpose.
such transfer will not have an adverse impact on the ability of the Merger to be treated as part of a transaction that satisfies the requirements of Section 351 of the Code.
(a) The holders of shares of Series E Preferred Stock shall be entitled to
receive, when, as, and if declared by the Board of Directors and to the extent
permitted under the NRS, out of funds legally available for the purpose and in
preference to and with priority over dividends upon all Junior Securities (as
defined in Section G.5 of this Article FOURTH), quarterly cumulative dividends
payable in arrears in cash on the first day of each calendar quarter (or if such
day is not a Business Day (as defined in Section G.8(b) of this Article FOURTH)
on the next following Business Day) (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or a fraction of a
share of Series E Preferred Stock, in an amount per share (rounded to the next
highest cent) equal to 6.0% per annum of the Liquidation Value (as defined in
Section G.5 of this Article FOURTH, but excluding from such Liquidation Value
any accrued and unpaid dividends and distributions thereon), assuming each year
consists of 360 days and each quarter consists of 90 days.
(b) Dividends shall begin to accrue (but not compound) cumulatively on outstanding shares of the Series E Preferred Stock from the date of issuance of such shares to and including the date on which the Redemption Price (as defined in Section G.8(a) of this Article FOURTH) of such shares is paid, whether or not such dividends have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of such dividends. For purposes of this Section G.2, the date on which the Corporation has issued any share of Series E Preferred Stock is its date of issuance, regardless of the number of times a transfer of such share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates that may be issued to evidence such shares (whether by reason of transfer of such share or for any other reason). Dividends paid on the shares of Series E Preferred Stock in an amount less than the total amount of dividends at the time accrued and payable on such shares shall be allocated among the holders of such shares in proportion to their respective Unpaid Accrual Amounts, where for this purpose the "Unpaid Accrual Amount" of a holder of shares of Series E Preferred Stock at any time equals the total of accrued unpaid dividends on all such shares held by such holder. The Board of Directors may fix a record date for the determination of holders of shares of Series E Preferred Stock entitled to receive payment of a dividend or distribution declared thereon other than a quarterly dividend paid on the Quarterly Dividend Payment Date immediately after such dividend accrued, which record date shall be not more than 50 days prior to the date fixed for the payment thereof.
(c) So long as any shares of the Series E Preferred Stock are outstanding, the Corporation will not make, directly or indirectly, any distribution (as such term is defined in the NRS) in respect of Junior Securities unless on the date specified for measuring distributions, (i) all accrued dividends on the Series E Preferred Stock for all past quarterly dividend periods have been paid in full and the full amount of accrued dividends for the then current quarterly dividend period has been paid or declared and a sum sufficient for the payment thereof set
apart and (ii) after giving effect to such distribution (x) the Corporation would not be rendered unable to pay its debts as they become due in the usual course of business and (y) the Corporation's total assets would not be less than the sum of its total liabilities plus the amount that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of the holders of the Series E Preferred Stock as provided in these Restated Articles of Incorporation. Dividends shall not be paid (in full or in part) or declared and set apart for payment (in full or in part) on any series of Preferred Stock (including the Series E Preferred Stock) for any dividend period unless all dividends, in the case dividends are being paid in full on the Series E Preferred Stock, or a ratable portion of all dividends (i.e., so that the amount paid on each share of each series of Preferred Stock as a percentage of total accrued and unpaid dividends for all periods with respect to each such share is equal), in the case dividends are not being paid in full on the Series E Preferred Stock, have been or are, contemporaneously, paid and declared and set apart for payment on all outstanding series of Preferred Stock (including the Series E Preferred Stock) entitled thereto for each dividend period terminating on the same or earlier date. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series E Preferred Stock, such payment will be distributed ratably among the then holders of Series E Preferred Stock so that an equal amount is paid with respect to each outstanding share.
(a) Except as may otherwise be specifically required by or otherwise provided for herein, the holders of the shares of Series E Preferred Stock shall not have the right to vote such stock, directly or indirectly, at any meeting of the stockholders of the Corporation, and such shares of stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of stockholders;
(b) In the event that, under the circumstances, the holders of the Series E Preferred Stock are required by law to vote upon any matter, the approval of such series shall be deemed to have been obtained only upon the affirmative vote of the holders of a majority of the shares of the Series E Preferred Stock then outstanding;
(c) Except as set forth herein, or as otherwise provided by these Restated Articles of Incorporation or by law, holders of the Series E Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action.
of the Corporation within the meaning of this Section G.5.
(a) The Corporation shall have the right to redeem all or a portion of the Series E Preferred Stock issued and outstanding at any time and from time to time. The redemption price of the Series E Preferred Stock shall be an amount per share equal to the Liquidation Value (the "Redemption Price").
(b) The Corporation may redeem all or a portion of any holder's shares of Series E Preferred Stock by giving such holder not less than 20 days nor more than 30 days notice thereof prior to the date on which the Corporation desires such shares to be redeemed, which date shall be a Business Day (the "Redemption Date"). Such notice shall be written and shall be hand delivered or mailed, postage prepaid, to the holder (the "Redemption Notice"). If mailed, such notice shall be deemed to be delivered when deposited in the United States Mail, postage prepaid, addressed to the holder of shares of Series E Preferred Stock at his address as it appears on the stock transfer records of the Corporation. The Redemption Notice shall state:
(i) the total number of shares of Series E Preferred Stock held by such holder;
(ii) the total number of shares of the holder's Series E Preferred Stock that the Corporation intends to redeem;
(iii) the Redemption Date and the Redemption Price; and
(iv) the place at which the holder(s) may obtain payment of the applicable Redemption Price upon surrender of the share certificate(s).
(c) If fewer than all shares of the Series E Preferred Stock at any time
outstanding shall be called for redemption, such shares shall be redeemed pro
rata, by lot drawn or other manner deemed fair in the sole discretion of the
Board of Directors to redeem one or more such shares without redeeming all such
shares of Series E Preferred Stock. If such Redemption Notice shall have been so
mailed, on or before the Redemption Date the Corporation may provide for payment
of a sum sufficient to redeem the applicable number of shares of Series E
Preferred Stock subject to redemption either by (i) setting aside the sum
required to be paid as the Redemption Price by the Corporation, separate and
apart from its other funds, in trust for the account of the holder(s) of the
shares of Series E Preferred Stock to be redeemed or (ii) depositing such sum in
a bank or trust company (either located in the state where the principal
executive office of the Corporation is maintained, such bank or trust company
having a combined surplus of at least $20,000,000 according to its latest
statement of condition, or such other bank or trust company as may be permitted
hereby or by law) as a trust fund, with irrevocable instructions and authority
to the bank or trust company to give or complete the notice of redemption and to
pay, on or after the Redemption Date, the applicable Redemption Price on
surrender of certificates evidencing the share(s) of Series E Preferred Stock so
called for redemption and, in either event, from and after the Redemption Date
(v) the share(s) of Series E Preferred Stock shall be deemed to be redeemed, (w)
such setting aside or deposit shall be deemed to constitute full payment for
such shares(s), (x) such share(s) so redeemed shall no longer be deemed to be
outstanding, (y) the holder(s) thereof shall cease to be a stockholder of the
Corporation with respect to such share(s), and (z) such holder(s) shall have no
rights with respect thereto except the right to receive the Redemption Price for
the applicable shares. Any interest on the funds so deposited shall be paid to
the Corporation. Any and all such redemption deposits shall be irrevocable
except to the following extent: any funds so deposited which shall not be
required for the redemption of any shares of Series E Preferred Stock because of
any prior sale or purchase by the Corporation other than through the redemption
process, subsequent to the date of deposit but prior to the Redemption Date,
shall be repaid to the Corporation forthwith and any balance of the funds so
deposited and unclaimed by the holder(s) of any shares of Series E Preferred
Stock entitled thereto at the expiration of one calendar year from the
Redemption Date shall be repaid to the Corporation upon its request or demand
therefor, and after any such repayment of the holder(s) of the share(s) so
called for redemption shall look only to the Corporation for payment of the
Redemption Price thereof. All shares of Series E Preferred Stock redeemed shall
be canceled and retired and no shares shall be issued in place thereof, but such
shares shall be restored to the status of authorized but unissued shares of
Preferred Stock.
(d) On or before the Redemption Date, the holder whose shall redeem such Series E Preferred Stock hereunder shall surrender the certificate or certificates representing such shares, duly endorsed or assigned (unless such endorsement or assignment be waived by the Corporation), to the Corporation by mail, courier or personal delivery at the Corporation's principal executive office or other location so designated
in the Redemption Notice, and upon the Redemption Date the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event fewer than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares.
(e) If the Redemption Notice is not withdrawn prior to one Business Day before the Redemption Date, and if on or prior to the Redemption Date the Redemption Price is either paid or made available for payment, then notwithstanding that the certificates evidencing any of the shares of the Series E Preferred Stock so called for redemption have not been surrendered, (i) all rights with respect to such shares shall forthwith after the Redemption Date cease and terminate, to the full extent permitted by applicable law, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor, and (ii) to the full extent permitted by applicable law, such shares shall no longer be deemed outstanding for any purpose.
Except as otherwise specifically required by law or as specifically provided in any resolution of the Board of Directors providing for the issuance of any particular series of Preferred Stock, the exclusive voting power of the Corporation shall be vested in the Common Stock. Except as otherwise provided in these Restated Articles of Incorporation, each share of Common Stock shall entitle the holder thereof to one vote at all meetings of the stockholders of the Corporation.
The capital stock of the Corporation, after the amount of the subscription price has been paid, in money, property or services, as the directors shall determine, shall not be subject to assessment to pay the debts of the Corporation, nor for any other purpose, and no stock issued as fully paid up shall ever be assessable or assessed, and these Restated Articles of Incorporation shall not be amended in this particular.
A director shall hold office until the annual meeting for the year in which such director's term expires and until such director's successor shall be elected, subject, however, to prior death, resignation, retirement or removal from office. Except as provided by applicable law, any vacancy in the Board of Directors shall be filled by a majority of the directors then in office or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of such director's predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of these Restated Articles of Incorporation or the
resolution or resolutions adopted by the Board of Directors pursuant to Article FOURTH hereof applicable thereto.
Any repeal or modification of this Section A of Article SEVENTH shall not increase the personal liability of any director of the Corporation for any act or occurrence taking place prior to such repeal or modification, or otherwise adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
The provisions of this Section A of Article SEVENTH shall not be deemed to
limit or preclude indemnification of a director by the Corporation for any
liability of a director which has not been eliminated by the provisions of this
Section A of Article SEVENTH.
B. The Corporation shall indemnify to the fullest extent authorized or permitted by law (as now or hereafter in effect) and shall advance expenses, to the fullest extent authorized or permitted by law (as now or hereinafter in effect), to any person made or threatened to be made a party or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or by reason of the fact that such person, at the request of the
Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other than directors and officers may be entitled by law. No amendment to or repeal of this Section B of Article SEVENTH shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal.
C. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the NRS. The Board of Directors, without the approval of the stockholders of the Corporation, may also create a trust fund, grant a security interest or use other means (including, but not limited to, letters of credit, surety bonds or other similar arrangements), as well as enter into contracts providing indemnification to the fullest extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing, to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere.
of the Corporation, (b) any director, officer or employee of any Advisor, (c) any Advisor or (d) any Affiliate or Associate (as such terms are defined below) of the Corporation or of any person identified in the foregoing clauses (a) through (c), unless 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 or are known to the Board of Directors or committee thereof, as the case may be, and the Board of Directors or committee thereof, as the case may be, determines that such contract or transaction is fair as to the Corporation and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors (as hereinafter defined) entitled to vote thereon. For purposes of this Article ELEVENTH, a director of the Corporation shall be deemed "independent" if such director is neither an officer nor an employee of the Corporation nor a director, officer or employee of any Advisor.
The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") as in effect on the date these Restated Articles of Incorporation became effective under the NRS (the term "registrant" in such Rule meaning in this case the Corporation)
of stockholders, of this Corporation, as the case may be, and also on this Corporation.
If any provision of these Restated Articles of Incorporation is determined to be invalid, void, illegal or unenforceable, the remaining provisions of these Restated Articles of Incorporation shall continue to be valid and enforceable and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, I have executed these Restated Articles of Incorporation this 31st day of July, 2000.
/s/ Robert A. Waldman ---------------------------------- Robert A. Waldman, Secretary |
Exhibit 3.1
The following corrections to the
Restated Articles of Incorporation
of
American Realty Investors, Inc.
were made by filing of
Certificate of Correction
filed and dated stamped August 29, 2000 with the Nevada Secretary of State
4. The second sentence of Section C.3(d) of the Restated Articles of Incorporation currently reads as follows: "The Corporation shall either (i) issue as of the date of receipt by the Corporation of such surrender shares of Common Stock calculated as provided above and evidenced by a stock certificate delivered to the holder as soon as practicable after the date of such surrender or (ii) within two Business Days after the date of such surrender advise the holder of the Series A Preferred Stock pursuant to Section C.3(a) of this Article FOURTH, in which case the Corporation shall have 30 days from the date of such surrender to pay to the holder cash in an amount equal to the Conversion Price for each share of Series A Preferred Stock so redeemed (italics added)."
The italicized language was incorrectly included in the Articles of Incorporation due to a scrivener's error and should read as set forth in paragraph 5 below.
5. The second sentence of Section C.3(d) of the Articles of Incorporation should read as follows: "The Corporation shall either (i) issue as of the date of receipt by the Corporation of such surrender shares of Common Stock calculated as provided above and evidenced by a stock certificate delivered to the holder as soon as practicable after the date of such surrender or (ii) within two Business Days after the date of such surrender advise the holder of the Series A Preferred Stock pursuant to Section C.3(a) of this Article FOURTH, in which case the Corporation shall have 30 days from the date of such surrender to pay to the holder cash in an amount equal to the aggregate market value of the Common Stock that would be issued upon conversion of the Series A Preferred
Stock, calculated as set forth in Section C.3(b)(ii) above."
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | DEC 31 2000 |
| PERIOD START | JAN 01 2000 |
| PERIOD END | SEP 30 2000 |
| CASH | 6,754 |
| SECURITIES | 263 |
| RECEIVABLES | 16,401 |
| ALLOWANCES | 2,577 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 810,205 |
| DEPRECIATION | 151,499 |
| TOTAL ASSETS | 789,637 |
| CURRENT LIABILITIES | 0 |
| BONDS | 633,627 |
| PREFERRED MANDATORY | 124 |
| PREFERRED | 0 |
| COMMON | 4,700 |
| OTHER SE | 62,872 |
| TOTAL LIABILITY AND EQUITY | 789,637 |
| SALES | 24,388 |
| TOTAL REVENUES | 105,211 |
| CGS | 20,138 |
| TOTAL COSTS | 70,451 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 60,153 |
| INCOME PRETAX | 3,293 |
| INCOME TAX | 1,652 |
| INCOME CONTINUING | 1,641 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,641 |
| EPS BASIC | (.00) |
| EPS DILUTED | (.00) |