UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange of 1934 (Amendment No. __)
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Preliminary Proxy Statement. |
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CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)). |
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Definitive Proxy Statement. |
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Definitive Additional Materials. |
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Soliciting Material Pursuant to Section 240.14a-12. |
AMERICAN REALTY INVESTORS, INC. |
(Name of Registrant as Specified In Its Charter) |
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AMERICAN
REALTY INVESTORS, INC.
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER 16, 2015
American
Realty Investors, Inc. will hold its Annual Meeting of Stockholders on Wednesday, December 16, 2015, at 10:15 a.m., local Dallas,
Texas time, at 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234. The purpose of the meeting is to:
· Elect
a Board of four directors to serve until the next Annual Meeting of Stockholders and until their successors are duly elected and
qualified.
· Ratify
the appointment of Farmer, Fuqua & Huff, P.C. as the independent registered public accounting firm.
· Act
upon such other matters as may properly be presented at the Annual Meeting.
Only
Stockholders of record at the close of business on November 4, 2015, will be entitled to vote at the meeting.
Your
vote is important. Whether or not you plan to attend the meeting, please complete, sign, date and return the enclosed proxy card
in the accompanying envelope provided. Your completed proxy will not prevent you from attending the meeting and voting in person
should you choose.
Dated:
November 5, 2015
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By order of the Board of Directors, |
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Louis J. Corna |
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Executive Vice President, General Counsel, |
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Tax Counsel and Secretary |
This
Proxy Statement is available at www.americanrealtyinvest.com.
Among
other things, the Proxy Statement contains information regarding:
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The date, time and location of the meeting |
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A list of the matters being submitted to Stockholders |
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Information concerning voting in person |
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AMERICAN
REALTY INVESTORS, INC.
PROXY
STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD DECEMBER 16, 2015
The
Board of Directors of American Realty Investors, Inc. (the “Company,” or “we” or “us”) is
soliciting proxies to be used at the 2015 Annual Meeting of Stockholders (the “Annual Meeting”). Distribution of this
Proxy Statement and a Proxy Form is scheduled to begin on November 10, 2015. The mailing address of the Company’s principal
executive offices is 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234.
About
the Meeting
Who
Can Vote
Record
holders of Common Stock of the Company at the close of business on November 4, 2015 (the “Record Date”), may vote
at the Annual Meeting. On that date, 15,514,360 shares of Common Stock were outstanding. Each share is entitled to cast one vote.
How
Can You Vote
If
you return your signed proxy before the Annual Meeting, we will vote your shares as you direct. You can specify whether your shares
should be voted for all, some or none of the nominees for director. You can also specify whether you approve, disapprove or abstain
from the other proposal to ratify the selection of auditors.
If
a proxy is executed and returned but no instructions are given, the shares will be voted according to the recommendations of the
Board of Directors. The Board of Directors recommends a vote FOR Proposals 1 and 2.
Revocation
of Proxies
You
may revoke your proxy at any time before it is exercised by (a) delivering a written notice of revocation to the Corporate Secretary,
(b) delivering another proxy that is dated later than the original proxy, or (c) casting your vote in person at the Annual Meeting.
Your last vote will be the vote that is counted.
Vote
Required
The
holders of a majority of the shares entitled to vote who are either present in person or represented by a proxy at the
Annual Meeting will constitute a quorum for the transaction of business at the Annual Meeting. As of November 4, 2015, there
were 15,514,360 shares of Common Stock issued and outstanding. The presence, in person or by proxy, of stockholders entitled
to cast at least 7,757,181 votes constitutes a quorum for adopting the proposals at the Annual Meeting. If you have properly
signed and returned your proxy card by mail, you will be considered part of the quorum, and the persons named on the proxy
card will vote your shares as you have instructed. If the broker holding your shares in “street” name indicates
to us on a proxy card that the broker lacks discretionary authority to vote your shares, we will not consider your shares as
present or entitled to vote for any purpose.
A
plurality of the votes cast is required for the election of directors. This means that the director nominee with the most votes
for a particular slot is elected to that slot. A proxy that has properly withheld authority with respect to the election of one
or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes
of determining whether there is a quorum.
For
the other proposal, the affirmative vote of the holders of a majority of the shares represented in person or by proxy entitled
to vote on the proposal will be required for approval. An abstention with respect to such proposal will not be voted, although
it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a
negative vote.
As
of the Record Date, affiliates held 13,259,885 shares representing approximately 85.48% of the shares outstanding. These affiliates
have advised the Company that they currently intend to vote all of their shares in favor of the approval of both proposals.
If
you received multiple proxy cards, this indicates that your shares are held in more than one account, such as two brokerage accounts,
and are registered in different names. You should vote each of the proxy cards to ensure that all your shares are voted.
Other
Matters to be Acted Upon at the Annual Meeting
We
do not know of any other matters to be validly presented or acted upon at the Annual Meeting. Under our Bylaws, no business besides
that stated in the Annual Meeting Notice may be transacted at any meeting of stockholders. If any other matter is presented at
the Annual Meeting on which a vote may be properly taken, the shares represented by proxies will be voted in accordance with the
judgment of the person or persons voting those shares.
Expenses
of Solicitation
The
Company is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing
these proxy materials and soliciting votes. Some of our directors, officers and employees may solicit proxies personally, without
any additional compensation, by telephone or mail. Proxy materials will also be furnished without cost to brokers and other nominees
to forward to the beneficial owners of shares held in their names.
Available
Information
Our
internet website address is www.americanrealtyinvest.com. We make available free of charge through our website our
most recent Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, and amendments to those
reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange
Commission (the “SEC”). In addition, we have posted the Charters of our Audit Committee, Compensation Committee, and
our Governance and Nominating Committee, as well as our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial
Officers, Corporate Governance Guidelines and Director Independence Standards, all under separate headings. These charters and
principles are not incorporated in this instrument by reference. We will also provide a copy of these documents free of charge
to stockholders upon written request. The Company issues Annual Reports containing audited financial statements to its common
stockholders.
Multiple
Stockholders Sharing the Same Address
SEC
rules allow for the delivery of a single copy of an annual report and proxy statement to any household at which two or more stockholders
reside, if it is believed the stockholders are members of the same family. Duplicate account mailings will be eliminated by allowing
stockholders to consent to such elimination, or through implied consent if a stockholder does not request continuation of duplicate
mailings. Depending upon the practices of your broker, bank or other nominee, you may need to contact them directly to continue
duplicate mailings to your household. If you wish to revoke your consent to house holding, you must contact your broker, bank
or other nominee.
If
you hold shares of common stock in your own name as a holder of record, house holding will not apply to your shares.
If
you wish to request extra copies free of charge of any annual report, proxy statement or information statement, please send your
request to American Realty Investors, Inc., Attention: Investor Relations, 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234 or
call (800) 400-6407.
Questions
You
may call our Investor Relations Department at 800-400-6407 if you have any questions.
PLEASE
VOTE - YOUR VOTE IS IMPORTANT
Corporate
Governance and Board Matters
The
affairs of the Company are managed by the Board of Directors. The Directors are elected at the annual meeting of stockholders
each year or appointed by the incumbent Board of Directors and serve until the next annual meeting of stockholders or until a
successor has been elected or approved.
During
the past few years, changes have occurred in the membership of the Board of Directors. Martha C. Stephens and RL S. Lemke were
elected directors on February 1, 2011. On October 13, 2011, each of Martha C. Stephens and RL S. Lemke resigned as directors.
On October 25, 2011, the Board of Directors reelected Sharon hunt (a director from February 20, 2004, to January 31, 2011) as
a director.
Current
Members of the Board
The
members of the Board of Directors (all of whom were elected by the stockholders at the last annual meeting held on December 9,
2014), on the date of this proxy statement, and the committees of the Board on which they serve are identified below:
Role
of the Board’s Committees
The
Board of Directors has standing Audit, Compensation and Governance and Nominating Committees.
Audit
Committee. The functions of the Audit Committee are described below under the heading “Report of the Audit Committee.”
The charter of the Audit Committee was adopted February 19, 2004, and is available on the Company’s Investor Relations website
(www.americanrealtyinvest.com). The Audit Committee was originally formed on February 19, 2004. All of the members
of the Audit Committee are independent within the meaning of SEC regulations, the listing standards of the New York Stock Exchange
(“NYSE”) and the Company’s Corporate Governance Guidelines. Mr. Munselle, a member and Chair of the Committee,
is qualified as an audit committee financial expert within the meaning of SEC regulations and the Board has determined that he
has accounting and related financial management expertise within the meaning of the listing standards of the NYSE. All of the
members of the Audit Committee meet the independence and experience requirements of the listing standards of the NYSE. The Audit
Committee met five times during 2014.
Governance
and Nominating Committee. The Governance and Nominating Committee is responsible for developing and implementing policies
and practices relating to corporate governance, including reviewing and monitoring implementation of the Company’s Corporate
Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board
and makes recommendations to the Board regarding such candidates. The Committee also prepares and supervises the Board’s
annual review of director independence and the Board’s performance of self-evaluation. The charter of the Governance and
Nominating Committee was adopted on March 17, 2004, and is available on the Company’s Investor Relations website (www.americanrealtyinvest.com).
All of the members of the Committee are independent within the meaning of the listing standards of the NYSE and the Company’s
Corporate Governance Guidelines. The Governance and Nominating Committee met two times during 2014.
Compensation
Committee. The Compensation Committee is responsible for overseeing the policies of the Company relating to compensation
to be paid by the Company to the Company’s principal executive officer and any other officers designated by the Board and
make recommendations to the Board with respect to such policies, produce necessary reports on executive compensation for inclusion
in the Company’s proxy statement in accordance with applicable rules and regulations and to monitor the development and
implementation of succession plans for the principal executive officer and other key executives and make recommendations to the
Board with respect to such plans. The charter of the Compensation Committee was adopted on March 17, 2004, and is available on
the Company’s Investor Relations website (www.americanrealtyinvest.com). All of the members of the Committee
are independent within the meaning of the listing standards of the NYSE and the Company’s Corporate Governance Guidelines.
The Compensation Committee is to be comprised of at least two directors who are independent of management and the Company. The
Compensation Committee met one time during 2014.
Presiding
Director
On
June 17, 2004, the Board created a new position of presiding director, whose primary responsibility is to preside over periodic
executive sessions of the Board in which management directors and other members of management do not participate. The presiding
director also advises the Chairman of the Board and, as appropriate, Committee chairs with respect to agendas and information
needs relating to Board and Committee meetings, provides advice with respect to the selection of Committee chairs and performs
other duties that the Board may from time to time delegate to assist the Board in the fulfillment of its responsibilities. In
December 2014, the nonmanagement members of the Board designated Ted R. Munselle to serve in this position until the Company’s
annual meeting of stockholders to be held following the fiscal year ended December 31, 2014.
Selection
of Nominees for the Board
The
Governance and Nominating Committee will consider candidates for Board membership suggested by its members and other Board members,
as well as management and stockholders. The Committee may also retain a third party executive search firm to identify candidates
upon request of the Committee from time to time. A stockholder who wishes to recommend a prospective nominee for the Board should
notify the Company’s Corporate Secretary or any member of the Governance and Nominating Committee in writing with whatever supporting
material the stockholder considers appropriate. The Governance and Nominating Committee will also consider whether to nominate
any person nominated by a stockholder pursuant to the provisions of the Company’s bylaws relating to stockholder nominations.
Once
the Governance and Nominating Committee has identified a prospective nominee, the Committee will make an initial determination
as to whether to conduct a full evaluation of the candidate. This initial determination will be based on whatever information
is provided to the Committee with the recommendation of the prospective candidate, as well as the Committee’s own knowledge of
the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. The preliminary
determination will be based primarily on the need for additional Board members to fill vacancies or expand the size of the Board
and the likelihood that the prospective nominee can satisfy the evaluation factors described below. If the Committee determines,
in consultation with the Chairman of the Board and other Board members as appropriate, that additional consideration is warranted,
it may request the third party search firm to gather additional information about the prospective nominee’s background and experience
and to report its findings to the Committee. The Committee will then evaluate the prospective nominee against the standards and
qualifications set out in the Company’s Corporate Governance Guidelines, including:
· the
ability of the prospective nominee to represent the interests of the stockholders of the Company;
· the
prospective nominee’s standards of integrity, commitment and independence of thought and judgment;
· the
prospective nominee’s ability to dedicate sufficient time, energy, and attention to the diligent performance of his or her duties,
including the prospective nominee’s service on other public company boards, as specifically set out in the Company’s Corporate
Governance Guidelines;
· the
extent to which the prospective nominee contributes to the range of talent, skill and expertise appropriate for the Board;
· the
extent to which the prospective nominee helps the Board reflect the diversity of the Company’s stockholders, employees, customers,
guests and communities; and
· the
willingness of the prospective nominee to meet any minimum equity interest holding guideline.
The
Committee also considers such other relevant factors as it deems appropriate, including the current composition of the Board,
the balance of management and independent directors, the need for Audit Committee expertise and the evaluations of other prospective
nominees. In connection with this evaluation, the Committee determines whether to interview the prospective nominee, and if warranted,
one or more members of the Committee, and others as appropriate, interview prospective nominees in person or by telephone. After
completing this evaluation and interview, the Committee makes a recommendation to the full Board as to the persons who should
be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Committee.
The
Bylaws of the Company provide that any stockholder entitled to vote at the Annual Meeting in the election of directors may nominate
one or more persons for election as directors at a meeting only if written notice of such stockholders’ intention to make
such nomination has been delivered personally to, or has been mailed to and received by the Secretary at the principal office
of the Company not later than 60 nor more than 90 days prior to the first anniversary date of the preceding year’s annual
meeting. If a stockholder has a suggestion for candidates for election, the stockholder should follow this procedure. Each notice
from a stockholder must set forth (i) the name and address of the stockholder who intends to make the nomination and the name
of the person to be nominated, (ii) the class and number of shares of stock held of record, owned beneficially and represented
by proxy by such stockholder as of the record date for the meeting and as of the date of such notice, (iii) a representation
that the stockholder intends to appear in person or by proxy at the meeting to nominate the person specified in the notice, (iv)
a description of all arrangements or understandings between such stockholder and each nominee and any other person (naming those
persons) pursuant to which the nomination is to be made by such stockholder, (v) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules, and (vi)
the consent of each nominee to serve as a director of the Company if so elected. The chairman of the Annual Meeting may refuse
to acknowledge the nomination of any person not made in compliance with this procedure.
Determinations
of Director Independence
In
February 2004, the Board enhanced its Corporate Governance Guidelines. The Guidelines adopted by the Board meet
or exceed the new listing standards adopted during that year by the NYSE. The full text of the Guidelines can be found
in the Investor Relations section of the Company’s website (www.americanrealtyinvest.com). A copy may also be obtained
upon request from the Company’s Corporate Secretary.
Pursuant
to the Guidelines, the Board undertook its annual review of director independence in August 2014. During this review, the
Board considered transactions and relationships between each director or any member of his or her immediate family and the Company
and its subsidiaries and affiliates, including those reported under “Certain Relationships and Related Transactions”
below. The Board also examined transactions and relationships between directors or their affiliates and members of the Company’s
senior management or their affiliates. As provided in the Guidelines, the purpose of this review was to determine whether
any such relationships or transactions were inconsistent with a determination that the director is independent.
As
a result of this review, the Board affirmatively determined that directors Ted R. Munselle, Robert A. Jakuszewski and Sharon Hunt
are each independent of the Company and its management under the standards set forth in the Corporate Governance Guidelines.
Board
Meetings During Fiscal 2014
The
Board met seven times during fiscal 2014. No incumbent director attended fewer than 75% of the meetings of the Board, and each
director attended all of the meetings of the Committees on which he or she served. Under the Company’s Corporate Governance
Guidelines, each Director is expected to dedicate sufficient time, energy and attention to ensure the diligent performance
of his or her duties, including by attending meetings of the stockholders of the Company, the Board and Committees of which he
or she is a member. In addition, the independent directors met in executive session four times during fiscal 2014.
Directors’
Compensation
Each
nonemployee director is currently entitled to receive an annual retainer of $20,000, plus reimbursement for expenses. Prior to
January 4, 2010, when the Board of Directors reduced fees, each nonemployee director was entitled to an annual retainer of $45,000.
The Chairman of the Board does not currently receive any additional fee per year. The Chairman of the Audit Committee also receives
an annual fee of $500. In addition, each independent director receives an additional fee of $1,000 per day for any special services
rendered by him to the Company outside of his or her ordinary duties as a director, plus reimbursement of expenses. The Company
also reimburses directors for travel expenses incurred in connection with attending Board, committee and stockholder meetings
and for other Company/business related expenses. Directors who are also employees of the Company or its Advisor receive no additional
compensation for service as a director.
During
2014, $60,500 was paid to the nonemployee directors in total directors’ fees for all services, including the annual fee
for service during the period from January 1, 2014, through December 31, 2014. Those fees received by directors were Sharon Hunt
($20,000), Ted R. Munselle ($20,500), and Robert A. Jakuszewski ($20,000).
In
January 1999, the stockholders of a predecessor of the Company approved the Directors Stock Option Plan which was assumed by the
Company in 2000 (the “Directors Plan”) which provides for the availability of options to purchase up to 40,000 shares
of Common Stock. The Directors Plan provided for automatic annual grants of options to directors of the Company who, at the time
of grant of an option were not, and had not been for at least one year, either an employee or officer of the Company or any of
its affiliates. Options granted pursuant to the Directors Plan are immediately exercisable and expire on the earlier of the first
anniversary of the date on which a director ceases to be a director or ten years from the date of grant. Each qualifying director
was awarded an option to purchase an additional 1,000 shares on January 1 of each year. The Directors Plan was terminated by the
Board of Directors on December 15, 2005. All options expired January 1, 2015, unexercised.
Stockholders’
Communication with the Board
Stockholders
and other parties interested in communicating directly with the presiding director or with the nonmanagement directors as a group
may do so by writing to Ted R. Munselle, Director, Post Office Box 830163, Richardson, Texas 75083-0163. Effective March 22, 2004,
the Governance and Nominating Committee of the Board also approved a process for handling letters addressed to members of the
Board but received at the Company. Under that process, the Corporate Secretary of the Company reviews all such correspondence
and regularly forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion
of the Corporate Secretary, deals with the functions of the Board or committees thereof or that he otherwise determines requires
their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members
of the Board and received by the Company and request copies of any such correspondence. Concerns relating to accounting, internal
controls or auditing matters are immediately brought to the attention of the Chairman of the Audit Committee and handled in accordance
with procedures established by the Audit Committee with respect to such matters.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics, which applies to all directors, officers and employees (including those
of the Contractual Advisor). In addition, the Company has adopted a code of ethics entitled “Code of Ethics for Senior Financial
Officers” that applies to the principal executive officer, president, principal financial officer, chief financial officer,
principal accounting officer and controller. The text of both documents is available on the Company’s Investor Relations website
(www.americanrealtyinvest.com). The Company intends to post amendments to or waivers from its Code of Ethics for
Senior Financial Officers (to the extent applicable to the Company’s principal executive officer, principal financial officer
or principal accounting officer) at this location on its website.
Compliance
with Section 16(a) of Reporting Requirements
Section
16(a) under the Securities Exchange Act of 1934 requires the Company’s directors, executive officers and any persons holding
10% or more of the Company’s shares of Common Stock are required to report their ownership of the Company’s shares
of Common Stock and any changes in that ownership to the SEC on specified report forms. Specific due dates for these reports have
been established, and the Company is required to report any failure to file by these dates during each fiscal year. All of these
filing requirements were satisfied by the Company’s directors and executive officers and holders of more than 10% of the
Company’s Common Stock during the fiscal year ended December 31, 2014. In making these statements, the Company has relied
upon the written representations of its directors and executive officers and the holders of 10% or more of the Company’s
Common Stock and copies of the reports that each has filed with the SEC.
Security
Ownership of Certain Beneficial Owners and Management
Security
Ownership of Certain Beneficial Owners
The
following table sets forth the ownership of the Company’s Common Stock, both beneficially and of record, both individually
and in the aggregate, for those persons or entities known by the Company to be the beneficial owners of more than 5% of its outstanding
Common Stock as of the close of business on November 4, 2015.
| |
| Amount and Nature of | | |
| Approximate | |
Name and Address of Beneficial Owner | |
| Beneficial Ownership* | | |
| Percent of Class** | |
| |
| | | |
| | |
Prime Stock Holdings, Inc. | |
| 1,459,828 | (a) | |
| 9.41 | % |
1603 LBJ Freeway, Suite 800 | |
| | | |
| | |
Dallas, Texas 75234 | |
| | | |
| | |
| |
| | | |
| | |
Realty Advisors, Inc. | |
| 13,598,885 | (a)(b)(c) | |
| 87.65 | % |
1603 LBJ Freeway, Suite 800 | |
| | | |
| | |
Dallas, Texas 75234 | |
| | | |
| | |
| |
| | | |
| | |
Realty Advisors LLC | |
| 9,270,914 | (a) | |
| 59.76 | % |
1603 LBJ Freeway, Suite 800 | |
| | | |
| | |
Dallas, Texas 75234 | |
| | | |
| | |
| |
| | | |
| | |
Ryan T. Phillips | |
| 13,287,487 | (a)(b)(c)(d) | |
| 85.65 | % |
1603 LBJ Freeway, Suite 800 | |
| | | |
| | |
Dallas, Texas 75234 | |
| | | |
| | |
(a) Includes
1,459,828 shares owned by Prime Stock Holdings, Inc. (“PSH”) which is wholly owned by Realty Advisors, LLC (“RALLC”),
over which each of the directors of PSH, Ryan T. Phillips and Mickey Ned Phillips, may be deemed to be beneficial owners by virtue
of their positions as directors of PSH. The directors of PSH disclaim beneficial ownership of such shares.
(b) Realty
Advisors, Inc. (“RAI”) directly owns 3,988,971 shares as a result of the conversion of 890,797 shares of Series A
Cumulative Convertible Preferred Stock on July 17, 2014, into 2,502,230 shares and the conversion of 460,638 shares of Series
A Cumulative Convertible Preferred Stock on April 9, 2015, into 1,486,741 shares.
(c) Includes
7,811,086 shares owned directly by RALLC, over which each of the managers, Gene S. Bertcher and Daniel J. Moos, may be deemed
to be beneficial owners by virtue of their positions as managers of RALLC. The managers of RALLC disclaim beneficial ownership
of such shares. RAI is the sole member of RALLC.
(d) Includes
27,602 shares owned by the Gene E. Phillips Children’s Trust, of which Ryan T. Phillips is a beneficiary.
Security
Ownership of Management
The
following table sets forth the ownership of the Company’s Common Stock, both beneficially and of record, both individually
and in the aggregate for the directors and executive officers of the Company as of the close of business on November 4, 2015.
| |
| | | |
| | |
Name and Address of Beneficial Owner | |
Amount and Nature of Beneficial Ownership** | | |
Approximate Percent of Class*** | |
| |
| | | |
| | |
Gene S. Bertcher | |
| 13,489,099 | (1)(2)(3)(4) | |
| 86.95 | % |
| |
| | | |
| | |
Henry A. Butler | |
| 229,214 | (3) | |
| 1.63 | % |
| |
| | | |
| | |
Louis J. Corna | |
| 13,489,099 | (1)(2)(3)(4) | |
| 86.95 | % |
| |
| | | |
| | |
Sharon Hunt | |
| 229,214 | (3) | |
| 1.64 | % |
| |
| | | |
| | |
Robert A. Jakuszewski | |
| 229,214 | (3) | |
| 1.63 | % |
| |
| | | |
| | |
Daniel J. Moos | |
| 13,489,099 | (1)(2)(3)(4) | |
| 86.95 | % |
| |
| | | |
| | |
Ted R. Munselle | |
| 229,214 | (3) | |
| 1.64 | % |
| |
| | | |
| | |
All directors and executive officers as a group (7 people) | |
| 13,489,099 | (1)(2)(3) (4) | |
| 86.95 | % |
* Less
than 1%.
** “Beneficial
Ownership” means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect
to a security, or any combination thereof.
*** Percentages
are based upon 15,514,360 shares of Common Stock outstanding at November 4, 2015.
(1) Includes
7,811,086 shares owned by RALLC, over which the managers and executive officers of RALLC may be deemed to be the beneficial owners
by virtue of their positions as managers and executive officers of RALLC; the managers and executive officers of RALLC disclaim
beneficial ownership of such shares. Also includes 3,988,971 shares owned by RAI, over which the executive officers of RAI may
be deemed to be the beneficial owners by virtue of their positions; the executive officers of RAI disclaim beneficial ownership
of such shares.
(2) Includes
1,459,828 shares owned by PSH, over which the executive officers of PSH may be deemed to be the beneficial owners by virtue of
their positions as executive officers of PSH; the executive officers of PSH disclaim beneficial ownership of such shares.
(3) Includes
229,214 shares owned by Transcontinental Realty Investors, Inc. (“TCI”), over which the directors and executive officers
of TCI may be deemed to be the beneficial owners by virtue of their positions as directors and executive officers of TCI; the
directors and executive officers of TCI disclaim beneficial ownership of such shares.
(4) Includes
3,988,971 shares owned by RAI, over which the executive officers of RAI may be deemed to be the beneficial owners by virtue of
their positions as executive officers of RAI; the executive officers of RAI disclaim beneficial ownership of such shares.
PROPOSAL
1
ELECTION
OF DIRECTORS
Four
directors are to be elected at the Annual Meeting. Each director elected will hold office until the Annual Meeting following the
fiscal year ending December 31, 2014. All of the nominees for director are now serving as directors of the Company. Each of the
nominees has consented to being named in this proxy statement as a nominee and has agreed to serve as a director if elected. The
persons named on the proxy card will vote for all of the nominees for director listed unless you withhold authority to vote for
one or more of the nominees. The nominees receiving a plurality of votes cast at the Annual Meeting will be elected as directors.
Abstentions and broker non-votes will not be treated as a vote for or against any particular nominee and will not affect the outcome
of the election of directors. Cumulative voting for the election of directors is not permitted. If any director is unable to stand
for reelection, the Board will designate a substitute. If a substitute nominee is named, the persons named on the proxy card will
vote for the election of the substitute director.
The
nominees for directors are listed below, together with their ages, terms of service, all positions and offices with the Company
or the Company’s advisor, other principal occupations, business experience and directorships with other companies during
the last five years or more. The designation “affiliated” when used below with respect to a director means that the
director is an officer, director or employee of the Company or the advisor.
Henry
A. Butler, 65 (Affiliated)
Broker
– Land Sales (since April 30, 2011) for Pillar Income Asset Management, Inc. (“Pillar”) and (July 2003 to April
30, 2011) for Prime Income Asset Management, LLC (“Prime”) and (1992 to June 2003) for Basic Capital Management, Inc.
(“BCM”); Director (since July 2003) and Chairman of the Board (since May 2009) of the Company, Director (since December
2001) and Chairman of the Board (since May 2009) of TCI and Director (December 2001 to July 1, 2003) and since February 8, 2011
of Income Opportunity Realty Investors, Inc. (“IOT”); owner/operator (1989-1991) of Butler Interests, Inc. Vice President
(since August 3, 2000) of the Company and (since February 1, 2011) of TCI and (since February 8, 2011) of IOT.
Sharon
Hunt, 72
Ms.
Hunt is retired (since December 2014). She was a Licensed Realtor in Arkansas with Keystone Realty. Ms. Hunt has been a director
of the Company since her election on October 25, 2011, and was previously a director from February 20, 2004, to January 31, 2011.
She was a director (February 2004 to January 31, 2011) and is again (since October 25, 2011) of TCI and has been a director of
IOT since October 25, 2011.
Robert
A. Jakuszewski, 53
Territory
Manager for Artesa Labs (since April 2015). He was a medical specialist (from January 2014 to April 2015) for VAYA Pharma, Inc.;
Senior Medical Liaison for Vein Clinics of America (January 2013 to July 2013); Vice President of Sales and Marketing (September
1998 to December 2012) for New Horizons Communications, Inc.; Consultant (January 1998 - September 1998) for New Horizon Communications,
Inc.; Regional Sales Manager (1996-1998) for Continental Funding; Territory Manager (1992-1996) for Sigvaris, Inc.; Senior Sales
Representative (1988-1992) for Mead Johnson Nutritional Division, USPNG; and Sales Representative (1986-1987) for Muro Pharmaceutical,
Inc. Mr. Jakuszewski has been a director of IOT since March 16, 2004, and a director of the Company and ARL since November 22,
2005.
Ted.
R. Munselle, 59
Vice
President and Chief Financial Officer (since October 1998) of Landmark Nurseries, Inc.; President (December 2004 to August 2007)
of Applied Educational Opportunities, LLC, an educational organization which had two career training schools located in Texas;
Director (since February 2004) of the Company and TCI and (since May 2009) IOT; Certified Public Accountant (since 1980) who was
employed as an Audit Partner in two Dallas, Texas based CPA firms (1986 to 1998), as an Audit Manager at Grant Thornton LLP (1983
to 1986) and as Audit Staff to Audit Supervisor at Laventhal & Horwath (1977 to 1983). Director of IOT since May 21, 2009.
Mr. Munselle is also a director (since February 17, 2012) of Spindletop Oil & Gas Company, a publicly held Texas corporation
whose stock is traded in the Over-The-Counter (“OTC”) market.
The
Board of Directors unanimously recommends a vote FOR
the election of all of the Nominees named above.
PROPOSAL
2
RATIFICATION
OF APPOINTMENT OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Farmer, Fuqua
& Huff, P.C. as the independent registered public accounting firm of American Realty Investors, Inc. for the 2015 fiscal year
and to conduct quarterly reviews through September 30, 2015. The Company’s Bylaws do not require that stockholders ratify
the appointment of Farmer, Fuqua & Huff, P.C. as the Company’s independent registered public accounting firm. Farmer,
Fuqua & Huff, P.C. has served as the Company’s independent registered public accounting firm for each of the fiscal
years ended December 31, 2004 through 2014. The Audit Committee will consider the outcome of this vote in its decision to appoint
an independent registered public accounting firm next year; however, it is not bound by the stockholders’ decision. Even
if the selection is ratified, the Audit Committee, in its sole discretion, may change the appointment at any time during the year
if it determines that such a change would be in the best interest of the Company and its stockholders.
A representative of
Farmer, Fuqua & Huff, P.C. will attend the Annual Meeting. The representative will have an opportunity to make a statement
if he or she desires to do so and will be available to respond to appropriate questions from the stockholders.
The Board of Directors recommends a
vote FOR the ratification
of the appointment of Farmer, Fuqua
& Huff, P.C.
as the Company’s independent registered
public accounting firm.
Fiscal Years 2014 and 2013 Audit Firm
Fee Summary
The following table
sets forth the aggregate fees for professional services rendered to the Company for the years 2014 and 2013 by the Company’s
principal accounting firms, BDO Seidman, LLP and Farmer, Fuqua & Huff, P.C.
| |
2014 | | |
2013 | |
Type
of Fee | |
Farmer,
Fuqua &
Huff, P.C. | | |
BDO
Seidman,
LLP | | |
Farmer,
Fuqua &
Huff, P.C. | | |
BDO
Seidman,
LLP | |
Audit Fees | |
$ | 210,101 | | |
| — | | |
$ | 201,200 | | |
| — | |
Audit Related Fees | |
| — | | |
$ | 10,250 | | |
| — | | |
| — | |
Tax Fees | |
$ | 21,692 | | |
$ | 8,042 | | |
$ | 13,300 | | |
$ | 8,042 | |
All Other Fees | |
| — | | |
| — | | |
| — | | |
| — | |
Total
| |
$ | 231,793 | | |
$ | 18,292 | | |
$ | 214,500 | | |
$ | 8,042 | |
All services rendered
by the principal auditors are permissible under applicable laws and regulations and were preapproved by either the Board of Directors
or the Audit Committee, as required by law. The fees paid the principal auditors for services as described in the above table
fall under the categories listed below:
Audit
Fees. These are fees for professional services performed by the principal auditor for the audit of the Company’s annual
financial statements and review of financial statements included in the Company’s 10-Q filings and services that are normally
provided in connection with statutory and regulatory filing or engagements.
Audit
Related Fees. These are fees for assurance and related services performed by the principal auditor that are reasonably related
to the performance of the audit or review of the Company’s financial statements. These services include attestations by
the principal auditor that are not required by statute or regulation and consulting on financial accounting/reporting standards.
Tax Fees.
These are fees for professional services performed by the principal auditor with respect to tax compliance, tax planning, tax
consultation, returns preparation and review of returns. The review of tax returns includes the Company and its consolidated subsidiaries.
All Other
Fees. These are fees for other permissible work performed by the principal auditor that do not meet the above category descriptions.
These services are
actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity
and independence in the principal auditor’s core work, which is the audit of the Company’s consolidated financial
statements.
Report of
the Audit Committee
of the Board
of Directors
The Audit Committee
of the Board of Directors is composed of three directors, each of whom satisfies the requirements of independence, experience
and financial literacy under the requirements of the NYSE and the SEC. The Audit Committee has directed the preparation of this
report and has approved its content and submission to the stockholders.
The Audit Committee
is responsible for, among other things:
· retaining
and overseeing the independent registered public accounting firm that serves as our independent auditor and evaluating their performance
and independence;
· reviewing
the annual audit plan with management and the independent registered public accounting firm;
· preapproving
any permitted, non-audit services provided by our independent registered public accounting firm;
· approving
the fees to be paid to our independent registered public accounting firm;
· reviewing
the adequacy and effectiveness of our internal controls with management, internal auditors and the independent registered public
accounting firm;
· reviewing
and discussing the annual audited financial statements and the interim unaudited financial statements with management and the
registered public accounting firm; and
· approving
our internal audit plan and reviewing reports of our internal auditors.
The Audit Committee
operates under a written charter adopted by the Board of Directors. The Committee’s responsibilities are set forth in this
charter which is available on our website at www.americanrealtyinvest.com.
The Audit Committee
assists the Board in fulfilling its responsibilities for general oversight of the integrity of the Company’s financial statements,
the adequacy of the Company’s system of internal controls, the Company’s risk management, the Company’s compliance
with legal and regulatory requirements, the independent auditors’ qualifications and independence, and the performance of
the Company’s independent auditors. The Committee has sole authority over the selection of the Company’s independent
auditors and manages the Company’s relationship with its independent auditors. The Committee has the authority to obtain
advice and assistance from outside legal, accounting or other advisors as the Committee deems necessary to carry out its duties
and receive appropriate funding, as determined by the Committee, from the Company for such advice and assistance.
The Committee met
five times during 2014. The Committee schedules its meetings with a view to ensuring that it devotes appropriate attention to
all of its tasks. The Committee’s meetings include private sessions with the Company’s independent auditors without
the presence of the Company’s management, as well as executive sessions consisting of only Committee members. The Committee
also meets senior management from time to time.
Management has the
primary responsibility for the Company’s financial reporting process, including its system of internal control over financial
reporting and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted
in the United States of America. The Company’s independent auditors are responsible for auditing those financial statements
in accordance with professional standards and expressing an opinion as to their material conformity with U.S. generally accepted
accounting principles and for auditing management’s assessment of, and the effective operation of, internal control over
financial reporting. The Committee’s responsibility is to monitor and review the Company’s financial reporting process
and discuss management’s report on the Company’s internal control over financial reporting. It is not the Committee’s
duty or responsibility to conduct audits or accounting reviews or procedures. The Committee has relied, without independent verification,
on management’s representation that the financial statements have been prepared with integrity and objectivity and in conformity
with accounting principles generally accepted in the United States of America and on the opinion of the independent registered
public accountants included in their report on the Committee’s financial statements.
As part of its oversight
of the Company’s financial statements, the Committee reviews and discusses with both management and the Company’s
independent registered public accountants all annual and quarterly financial statements prior to their issuance. During 2014,
management advised the Committee that each set of financial statements reviewed had been prepared in accordance with accounting
principles generally accepted in the United States of America, and reviewed significant accounting and disclosure issues with
the Committee. These reviews include discussions with the independent accountants of the matters required to be discussed pursuant
to Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards), including the quality (not merely
the acceptability) of the Company’s accounting principles, the reasonableness of significant judgments, the clarity of disclosures
in the financial statements and disclosures related to critical accounting practices. The Committee has also discussed with Farmer,
Fuqua & Huff, P.C. matters relating to its independence, including a review of audit and non-audit fees, and written disclosures
from Farmer, Fuqua & Huff, P.C. to the Company pursuant to Independence Standards Board Standard No. 1 (Independence Discussions
with Audit Committees). The Committee also considered whether non-audit services, provided by the independent accountants are
compatible with the independent accountant’s independence. The Company also received regular updates on the amount of fees
and scope of audit, audit related and tax services provided.
In addition, the Committee
reviewed key initiatives and programs aimed at strengthening the effectiveness of the Company’s internal and disclosure
control structure. As part of this process, the Committee continued to monitor the scope and adequacy of the Company’s internal
controls, reviewed staffing levels and steps taken to implement recommended improvements in any internal procedures and controls.
Based on the Committee’s
discussion with management and the independent accountants and the Committee’s review of the representation of management
and the report of the independent accountants to the Board of Directors, the Audit Committee recommended to the Board of Directors,
and the Board of Directors has approved, that the audited consolidated financial statements be included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC. The Audit Committee and the Board of Directors
have also selected Farmer, Fuqua & Huff, P.C. as the Company’s independent registered public accountants and auditors
for the fiscal year ending December 31, 2015.
AUDIT COMMITTEE
Sharon Hunt |
Ted R. Munselle |
Robert A. Jakuszewski |
Pre-Approval Policy for Audit and Non-Audit
Services
Under the Sarbanes-Oxley
Act of 2002 (the “SO Act”) and the rules of the SEC, the Audit Committee of the Board of Directors is responsible for
the appointment, compensation and oversight of the work of the independent auditor. The purpose of the provisions of the SO Act
and the SEC rules for the Audit Committee role in retaining the independent auditor is twofold. First, the authority and responsibility
for the appointment, compensation and oversight of the auditors should be with directors who are independent of management. Second,
any non-audit work performed by the auditors should be reviewed and approved by these same independent directors to ensure that
any non-audit services performed by the auditor do not impair the independence of the independent auditor. To implement the provisions
of the SO Act, the SEC issued rules specifying the types of services that an independent auditor may not provide to its audit client,
and governing the Audit Committee’s administration of the engagement of the independent auditor. As part of this responsibility,
the Audit Committee is required to preapprove the audit and non-audit services performed by the independent auditor in order to
assure that they do not impair the auditor’s independence. Accordingly, the Audit Committee has adopted a written pre-approval
policy for audit and non-audit services (the “Policy”), which sets forth the procedures and conditions pursuant to
which services to be performed by the independent auditor are to be preapproved. Consistent with the SEC rules establishing two
different approaches to approving non-prohibited services, the policy of the Audit Committee covers pre-approval of audit services,
audit related services, international administration tax services, non-U.S. income tax compliance services, pension and benefit
plan consulting and compliance services, and U.S. tax compliance and planning. At the beginning of each fiscal year, the Audit
Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be
performed and the proposed fees, and approve or reject each service, taking into account whether services are permissible under
applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management.
Typically, in addition to the generally preapproved services, other services would include due diligence for an acquisition that
may or may not have been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit
Committee designated by the Board or the financial expert member of the Audit Committee responsibilities to preapprove services
to be performed by the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services,
and such authority may only be exercised when the Audit Committee is not in session.
Executive Compensation
The Company has no
employees, payroll or benefit plans and pays no compensation to its executive officers. The executive officers of the Company who
are also officers or employees of Pillar, the Company’s advisor, are compensated by Pillar. Such executive officers perform
a variety of services for Pillar, and the amount of their compensation is determined solely by Pillar. Pillar does not allocate
the cash compensation of its officers among the various entities for which it serves as advisor. See “The Advisor”
for a discussion of the compensation payable to Pillar under the Advisory Agreement.
Compensation Committee
Report
The Compensation Committee
of the Board of Directors is comprised of at least two directors who are independent of management and the Company. Each member
of the Compensation Committee must be determined to be independent by the Board under the Corporate Governance Guidelines on Director
Independence adopted by the Board and under the NYSE standards for nonemployee directors and Rule 16b-3(b)(3)(i) of the rules and
regulations promulgated under the Securities Exchange Act of 1934 and the requirements for “outside directors” set
forth in Treasury Regulations, Section 27(e)(3). Each member of the Committee is to be free of any relationship that in the judgment
of the Board from time to time may interfere with the exercise of his or her independent judgment. Each Committee member is appointed
annually subject to removal at any time by the Board and serves until his or her Committee appointment is terminated by the Board.
The Compensation Committee is composed of three directors, each of whom meets the standards described above.
The purposes of the
Compensation Committee are to oversee the policies of the Company relating to compensation to be paid by the Company to the Company’s
principal executive officer (“CEO”) and any other officers designated by the Board and make recommendations to the
Board with respect to such policies, produce necessary reports and executive compensation for inclusion in the Company’s
proxy statement, in accordance with applicable rules and regulations, and monitor the development and implementation of succession
plans for the CEO and other key executives and make recommendations to the Board with respect to such plans.
The Company has no
employees, payroll, or benefit plans and pays no compensation to its executive officers. The executive officers of the Company,
who are also officers or employees of Pillar, are compensated by Pillar. Such executive officers perform a variety of services
for Pillar, and the amount of their compensation is determined solely by Pillar. Pillar does not allocate the cash compensation
of its officers among the various entities for which it may serve as advisor or sub-advisor.
The only remuneration
paid by the Company is to directors who are not officers or directors of Pillar. These independent directors (i) review the business
plan of the Company to determine that it is the best interest of the stockholders, (ii) review the advisory contract and recommend
any appropriate changes thereto, (iii) supervise the performance of the Company’s advisor, and review the reasonableness
of the compensation paid to the advisor in terms of the nature and quality of services performed, (iv) review the reasonableness
of the total fees and expenses of the Company, and (v) select, when necessary, a qualified, independent real estate appraiser to
appraise properties to be acquired. See the sub caption “Directors’ Compensation” in the Proxy Statement for
a description of the compensation paid.
The charter of the
Compensation Committee was adopted on March 17, 2004, and the members of the Compensation Committee, all of whom are independent
within the meaning of the listing standards of the NYSE and the Company’s Corporate Governance Guidelines, are listed below.
Since its formation on March 17, 2004, the Compensation Committee has annually reviewed its existing charter and regularly performed
the tasks described above relating to the business plan, advisory contract, reasonableness of compensation paid to the advisor,
and the reasonableness of the total fees and expenses of the Company.
COMPENSATION COMMITTEE
Sharon Hunt |
Ted R. Munselle |
Robert A. Jakuszewski |
Compensation Committee Interlocks and
Insider Participation
The Company’s
Compensation Committee is made up of nonemployee directors who have never served as officers of, or been employed by, the Company.
None of the Company’s executive officers serve on a board of directors of any entity that has a director or officer serving
on this Committee.
Executive Officers
Executive officers
of the Company are listed below, all of whom are employed by Pillar. None of the executive officers receive any direct remuneration
from the Company nor do any hold any options granted by the Company. Their positions with the Company are not subject to a vote
of stockholders. The ages, terms of service, and all positions and offices with the Company, Pillar, and other affiliated entities,
other principal occupations, business experience and directorships with other publicly held companies during the last five years
or more are set forth below.
Daniel J. Moos,
65
President (since April
2007), Chief Executive Officer (since March 2010), and Chief Operating Officer (April 2007 to March 2010) of the Company, TCI,
and IOT; President (since December 2010), Chief Executive Officer (since March 2011), Treasurer (since October 2013), and Director
(December 2010 to March 2011) of Pillar; Senior Vice President and Business Line Manager of U.S. Bank (NYSE) working out of their
offices in Houston, Texas from 2003 to April 2007; Executive Vice President and Chief Financial Officer, Fleetcor Technologies
a privately held transaction processing company that was headquartered in New Orleans, Louisiana from 1998 to 2003; Senior Vice
President and Chief Financial Officer, ICSA a privately held internet security and information company headquartered in Carlisle,
Pennsylvania from 1996 to 1998; and for more than five years prior thereto was employed in various financial and operating roles
for PhoneTel Technologies, Inc. which was a publicly traded telecommunication company on the American Stock Exchange headquartered
in Cleveland, Ohio (1992 to 1996) and LDI which was a publicly traded computer equipment sales/service and asset leasing company
listed on the NASDAQ and headquartered in Corporation of Cleveland, Ohio.
Gene S. Bertcher,
66
Executive
Vice President (since May 2008) and Chief Financial Officer (since November 2, 2009) of the Company, TCI and IOT. Prior thereto
(from February 2008 to March 2008) he was Executive Vice President and Interim Chief Financial Officer of the Company, TCI and
IOT. Mr. Bertcher is also President, Chief Executive Officer (since December 2006), and Chief Financial Officer (since January
2003) of New Concept Energy, Inc. (formerly CabelTel International Corporation), a Nevada corporation (“GBR”), which
has its common stock listed on the NYSE MKT, a position he has occupied since November 1, 2004. From January 3, 2003 until November
1, 2004, Mr. Bertcher was also Chief Executive Officer of GBR. He has been a certified public accountant since 1973; Mr. Bertcher
has been a director since June 1999 (and was from November 1989 to September 1996) of GBR. Until November 1989, Mr. Bertcher was
a partner in Grant Thornton, LLP having served as the Chairman of its National Real Estate and Construction Committee. Executive
Vice President and Chief Finance Officer of Pillar (since April 30, 2011).
Louis J. Corna,
68
Executive Vice President,
General Counsel/Tax Counsel and Secretary (since February 2004), Executive Vice President–Tax (October 2001 to February 2004),
Executive Vice President–Tax and Chief Financial Officer (June 2001 to October 2001) and Senior Vice President–Tax
(December 2000 to June 2001) of the Company, TCI, and IOT; Executive Vice President, General Counsel/Tax Counsel and Secretary
(since February 2004), Executive Vice President–Tax (July 2003 to February 2004) of Prime and Prime Income Asset Management,
Inc. (“PIAMI”); Private Attorney (January 2000 to December 2000); Vice President–Taxes and Assistant Treasurer
(March 1998 to January 2000) of IMC Global, Inc.; Vice President–Taxes (July 1991 to February 1998) of Whitman Corporation.
Executive Vice President-General Counsel/Tax Counsel and Secretary of Pillar (since April 30, 2011).
In addition to the
foregoing executive officers, the Company has several vice presidents and assistant secretaries who are not listed herein.
The Advisor
Although the Board
of Directors is directly responsible for managing the affairs of the Company and for setting the policies which guide it, day-to-day
operations are performed by a contractual advisor under the supervision of the Board of Directors. The duties of the advisor include,
among other things, locating, investigating, evaluating and recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources. The advisor also serves as a consultant to the Board of Directors in connection with
the business plan and investment decisions made by the Board.
Pillar is the Contractual
Advisor to the Company. Pillar is a Nevada corporation which is owned by RALLC, a Nevada limited liability company, the sole member
of which is RAI, a Nevada corporation, which is 100% owned by RAMI, the sole stockholder of which is a Trust, for the benefit of
the children of Gene E. Phillips. Mr. Phillips is not an officer or director of Pillar, RAMI, RALLC, RAI nor ARL, nor is he a Trustee
of the Trust. Mr. Phillips does serve as a representative of the Trust and is involved in daily consultation with the officers
of Pillar and has significant influence over the conduct of Pillar’s business, including the rendering of advisory services
and the making of investment decisions for itself and the Company.
Under the Advisory
Agreement, Pillar is required to annually formulate and submit for Board approval a budget and business plan containing a twelve-month
forecast of operations and cash flow, a general plan for asset sales and purchases, borrowing activity and other investments. Pillar
is required to report to the Board, on a quarterly basis, the Company’s performance against the business plan. In addition,
all transactions require prior Board approval, unless they are explicitly provided for in the approved plan or are made pursuant
to authority expressly delegated to Pillar by the Board.
The Advisory Agreement
also requires prior approval of the Board for the retention of all consultants and third party professionals, other than legal
counsel. The Advisory Agreement provides that Pillar shall be deemed to be in a fiduciary relationship to the stockholders; contains
a broad standard governing Pillar’s liability for losses by the Company; and contains guidelines for Pillar’s allocation
of investment opportunities as among itself, the Company and other entities it advises.
The Advisory Agreement
provides for the advisor to receive monthly base compensation at the rate of 0.0625% per month (0.75% on an annualized basis) of
Average Invested Assets.
In addition to base
compensation, Pillar, an affiliate of Pillar, or a related party receives the following forms of additional compensation:
(1) an
acquisition fee for locating, leasing or purchasing real estate for the Company in an amount equal to the lesser of (a) the amount
of compensation customarily charged in similar arm’s length transactions, or (b) up to 6% of the costs of acquisition, inclusive
of commissions, if any, paid to nonaffiliated brokers;
(2) a disposition
fee for the sale of each equity investment in real estate in an amount equal to the lesser of (a) the amount of compensation customarily
charged in similar arm’s length transactions, or (b) 3% of the sales price of each property, exclusive of fees, if any, paid
to nonaffiliated brokers;
(3) a loan
arrangement fee in an amount equal to 1% of the principal amount of any loan made to the Company arranged by Pillar;
(4) an
incentive fee equal to 10% of net income for the year in excess of a 10% return on stockholders’ equity, and 10% of the excess
of net capital gains over net capital losses, if any, realized from sales of assets;
(5) a mortgage
placement fee, on mortgage loans originated or purchased, equal to 50%, measured on a cumulative basis, of the total amount of
mortgage origination and placement fees on mortgage loans advanced by the Company for the fiscal year.
(6) a
construction management fee equal to 6% of the so-called “hard costs” only of any costs of construction on a completed
basis, based upon amounts set forth as approved on any architect certificate issued in connection with such construction, which
fee is payable at such time as the applicable architect certifies other costs for payment to third parties.
The Advisory Agreement
further provides that Pillar shall bear the cost of certain expenses of its employees, excluding fees paid to the Company’s
directors; rent and other office expenses of both Pillar and the Company (unless the Company maintains office space separate from
that of Pillar); costs not directly identifiable to the Company’s assets, liabilities, operations, business or financial
affairs; and miscellaneous administrative expenses relating to the performance by Pillar of its duties under the Advisory Agreement.
If and to the extent
that the Company shall request of Pillar, or any director, officer, partner or employee of Pillar, to render services to the Company
other than those required to be rendered by Pillar under the Advisory Agreement, such additional services, if performed, will be
compensated separately on terms agreed upon between such party and the Company from time to time.
The Advisory Agreement
automatically renews from year to year unless terminated in accordance with its terms. Management believes that the terms of the
Advisory Agreement are at least as fair as could be obtained from unaffiliated third parties.
Situations may develop
in which the interests of the Company are in conflict with those of one or more directors or officers in their individual capacities
or of Pillar, or of their respective affiliates. In addition to services performed for the Company, Pillar actively provides similar
services as agent for, and advisor to, other real estate enterprises, including persons and entities involved in real estate developing
and financing, including IOT and TCI. The Advisory Agreement provides that Pillar may also serve as advisor to those entities.
As advisor, Pillar
is a fiduciary of the Company’s public investors. In determining to which entity a particular investment opportunity will
be allocated, Pillar will consider the respective investment objectives of each entity and the appropriateness of a particular
investment in light of each such entity’s existing mortgage note and real estate portfolios and business plan. To the extent
any particular investment opportunity is appropriate to more than one such entity, such investment opportunity will be allocated
to the entity that has had funds available for investment for the longest period of time, or, if appropriate, the investment may
be shared among various entities.
Effective April 30,
2011, the Company and Pillar entered into a Cash Management Agreement to further define the administration of the Company’s
day-to-day investment operations, relationship contracts, flow of funds and deposit and borrowing of funds. Under the Cash Management
Agreement, all funds of the Company are delivered to Pillar which has a deposit liability to the Company and is responsible for
payment of all payables and investment of all excess funds which earn interest at the Wall Street Journal Prime Rate plus
1% per annum, as set quarterly on the first day of each calendar quarter. Borrowings for the benefit of the Company bear the same
interest rate. The term of the Cash Management Agreement is coterminous with the Advisory Agreement, and it is automatically renewed
each year unless terminated with the Advisory Agreement.
Pillar may assign the
Advisory Agreement only with the prior consent of the Company.
The managers and principal
officers of Pillar are set forth below:
Name |
Office(s) |
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Mickey N. Phillips |
Director |
Ryan T. Phillips |
Director |
Daniel J. Moos |
President and Chief Operating Officer |
Gene S. Bertcher |
Executive Vice President and Chief Financial Officer |
Louis J. Corna |
Executive Vice President, General Counsel, Tax Counsel, and Secretary |
Micky N. Phillips is
the brother of Gene E. Phillips, and Ryan T. Phillips is the son of Gene E. Phillips.
Property Management
Effective January 1,
2011, Regis Realty Prime, LLC d/b/a Regis Property Management, LLC (“Regis”), the sole member of which is RALLC, has
managed the Company’s commercial properties for a fee of 3% or less of the monthly gross rents collected on any commercial
properties Regis manages and leasing commissions of 6% or less in accordance with the terms of a property level management agreement.
Regis Hotel I, LLC manages the Company’s hotel investments.
Real Estate Brokerage
Regis also provides
real estate brokerage services to the Company (on a nonexclusive basis). Regis is entitled to receive a real estate commission
for property purchases and sales in accordance with a sliding scale of total fees to be paid (i) maximum fee of 4.5% on the first
$2 million of any purchase or sale transaction of which no more than 3.5% would be paid to Regis or affiliates; (ii) maximum fee
of 3.5% on transaction amounts between $2 million and $5 million, of which no more than 3% would be paid to Regis or affiliates;
(iii) maximum fee of 2.5% on transaction amounts between $5 million and $10 million, of which no more than 2% would be paid to
Regis or affiliates; and (iv) maximum fee of 2% on transaction amounts in excess of $10 million, of which no more than 1.5% would
be paid to Regis or affiliates.
Certain Relationships and Related
Transactions
Policies with Respect to Certain Activities
Article ELEVENTH of
the Company’s Articles of Incorporation provides that the Company shall not, directly or indirectly, contract or engage in
any transaction with (1) any director, officer or employee of the Company, (2) any director, officer or employee of the advisor,
(3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial
interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by the Company’s
Board of Directors or the appropriate committee thereof, and (b) the Company’s Board of Directors or appropriate committee
thereof determines that such contract or transaction is fair to the Company and simultaneously authorizes or ratifies such contract
or transaction by the affirmative vote of a majority of independent directors of the Company entitled to vote thereon. Article
ELEVENTH defines an “Independent Director” (for purposes of that Article) as one who is neither an officer or employee
of the Company, nor a director, officer or employee of the Company’s advisor. This definition predates the Company’s
director independence guidelines adopted in February 2004.
The Company’s
policy is to have such contracts or transactions approved or ratified by a majority of the disinterested directors with full knowledge
of the character of such transactions, as being fair and reasonable to the stockholders at the time of such approval or ratification
under the circumstances then prevailing. Such directors also consider the fairness of such transactions to the Company. Management
believes that, to date, such transactions have represented the best investments available at the time and that they were at least
as advantageous to the Company as other investments that could have been obtained. The Company may enter into future transactions
with entities the officers, directors or stockholders of which are also officers, directors or stockholders of the Company, if
such transactions would be beneficial to the operations of the Company and consistent with the Company’s then current investment
objectives and policies, subject to approval by a majority of disinterested directors as discussed above.
The Company does not
prohibit its officers, directors, stockholders or related parties from engaging in business activities of the types conducted by
the Company.
Certain Business Relationships
Pillar has served as
the Company’s advisor since April 30, 2011. Pillar is also a company for which Messrs. Bertcher, Corna, and Moos (all executive
officers of the Company) serve as executive officers. The executive officers of the Company also serve as executive officers of
TCI and IOT, and owe fiduciary duties to each of those entities as well as to Pillar under applicable law. TCI and IOT each have
the same relationship with Prime as the Company. Mr. Bertcher is also an officer and director of GBR and, as such, owes fiduciary
duties to GBR.
The Company owns an
equity interest in TCI which in turn owns over 80% of the Common Stock of IOT. At December 31, 2014, the Company, together with
one of its wholly owned subsidiaries, owned approximately 82% of TCI’s outstanding common stock.
Tax Sharing Agreement
For tax periods ending
before August 31, 2012, the Company was part of the ARL consolidated federal return. After that date, the Company and the rest
of the ARL group (TCI and IOT) joined the RAMI consolidated group for tax purposes. The income tax expense (benefit) for 2010 and
2011 tax periods was calculated under a tax sharing and compensating agreement among the Company, TCI, and IOT. That agreement
continued until August 31, 2012, at which time the new tax sharing and compensating agreement was entered into among the Company,
TCI, IOT, and RAMI for the remainder of 2012. For 2013, the Company, TCI, and IOT had a combined net taxable loss. The benefit
or expense under such arrangements is calculated based upon the amount of losses absorbed by taxable income multiplied by the statutory
rate of 35% per the tax sharing and compensating agreements.
Related Party Transactions
Historically, the Company,
TCI, IOT, Prime and Pillar have each engaged in, and may continue to engage in, business transactions, including real estate partnerships,
with related parties. Management believes that all of the related party transactions represented the best investments available
at the time and were at least as advantageous to the Company as could have been obtained from unrelated parties.
The Company paid advisory
fees of $10.2 million, net income fees of $4.1 million, mortgage brokerage and equity refinancing fees of $1.9 million, cost reimbursements
of $3.5 million, and interest of $400,000 to Pillar in 2014. The Company paid property management, construction management, and
leasing commissions of $500,000 to Regis in 2014.
Operating Relationships
The Company received
rental revenue of $600,000 in 2012, $700,000 in 2013, and $700,000 in 2014 from Pillar and its affiliates for rental of Company
owned properties, including an airplane hanger in Addison, Texas, One Hickory, Two Hickory, Browning Place, and Folsom Land, all
located in Dallas, Texas, GNB Building and Land, Thermalloy Building and Land, and Senlac Land, all located in Farmers Branch,
Texas.
Advances and Loans
From time to time,
the Company and its affiliates have made advances to each other, which have not had specific repayment terms, did not bear interest
until July 1, 2005, are unsecured and have been reflected in the Company’s financial statements as other assets or other
liabilities. Effective July 1, 2005, such advances bear interest at 1% above prime rate per annum. At December 31, 2014, Pillar
owed the Company $21.9 million.
OTHER MATTERS
The Board of Directors
knows of no other matters that may be properly or should be brought before the Annual Meeting. However, if any other matters are
properly brought before the Annual Meeting, the persons named in the enclosed proxy or their substitutes will vote in accordance
with their best judgment on such matters.
FINANCIAL STATEMENTS
The audited financial
statements of the Company, in comparative form for the years ended December 31, 2013 and 2014, are contained in the 2014 Annual
Report to Stockholders, which was mailed to stockholders in April 2015. However, such report and the financial statements contained
therein are not to be considered part of this solicitation.
SOLICITATION OF PROXIES
THIS PROXY STATEMENT
IS FURNISHED TO STOCKHOLDERS TO SOLICIT PROXIES ON BEHALF OF THE BOARD OF DIRECTORS OF AMERICAN REALTY INVESTORS, INC. The
cost of soliciting proxies will be born by the Company. Directors and officers of the Company may, without additional compensation,
solicit by mail, in person or by telecommunication.
FUTURE PROPOSALS OF STOCKHOLDERS
Stockholder proposals
for our Annual Meeting to be held in 2016 must be received by us by December 31, 2015, and must otherwise comply with the rules
promulgated by the SEC to be considered for inclusion in our proxy statement for that year. Any stockholder proposal, whether or
not to be included in our proxy materials, must be sent to our Corporate Secretary at 1603 LBJ Freeway, Suite 800, Dallas, Texas
75234.
COPIES OF
AMERICAN REALTY INVESTORS, INC.’S ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014, TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (WITHOUT EXHIBITS) ARE AVAILABLE TO STOCKHOLDERS
WITHOUT CHARGE THROUGH OUR WEBSITE WWW.AMERICANREALTYINVEST.COM OR UPON WRITTEN REQUEST
TO AMERICAN REALTY INVESTORS, INC., 1603 LBJ FREEWAY, SUITE 800, DALLAS, TEXAS 75234, ATTN: INVESTOR RELATIONS.
Dated: November 5,
2015
By Order of the Board
of Directors,
Louis J. Corna
Executive Vice President,
General Counsel,
Tax Counsel and Secretary
☐ ■
AMERICAN
REALTY INVESTORS, INC.
THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 16, 2015
The
undersigned stockholder of AMERICAN REALTY INVESTORS, INC. hereby appoints HENRY A. BUTLER and LOUIS J. CORNA, and each of them
proxies with full power of substitution in each of them, in the name, place and stead of the undersigned, as attorneys and proxies
to vote all shares of Common Stock, par value $0.01 per share, of AMERICAN REALTY INVESTORS, INC. which the undersigned is entitled
to vote at the Annual Meeting of Stockholders to be held on Wednesday, December 16, 2015, at 10:15 a.m., local Dallas, Texas time,
at 1603 LBJ Freeway, Suite 800, Dallas, Texas 75234, or any adjournment(s) thereof, with all powers the undersigned would possess
if personally present, as indicated below, for the transaction of such business as may properly come before said meeting or any
adjournment(s) thereof, all as set forth in the November 5, 2015, Proxy Statement for said meeting.
(Continued
and to be signed and dated on the reverse side)
ANNUAL MEETING
OF STOCKHOLDERS OF
AMERICAN
REALTY INVESTORS, INC.
December 16,
2015
GO GREEN
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e-Consent
makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents
online, while reducing costs, clutter and paper waste. Enroll today via www.amstock.com to enjoy online access. |
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NOTICE
OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting,
Proxy Statement, Proxy Card
are available at www.americanrealtyinvest.com
Please
sign, date and mail
your
proxy card in the
envelope
provided as soon
as
possible.
Please detach along perforated line and mail in the envelope provided.
■ 20430000000000000000 8 |
121615 |
The
Board of Directors of American Realty Investors, Inc. recommends approval of all nominees for election as directors |
and
a vote FOR ratification of the appointment of Farmer, Fuqua and Huff, P.C. as the independent registered public accounting
firm. |
PLEASE
SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ☒ |
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1. Election of Directors: |
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Ratification of the Appointment of Farmer, Fuqua & Huff, P.C.
as the Independent Registered Public Accounting Firm. |
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NOMINEES: |
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for ail nominees |
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Henry
A. Butler
Sharon
Hunt |
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In their
discretion on any other matters which may properly come before the meeting or any adjournment(s) thereof. |
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WITHHOLD authority
for all nominees |
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Robert
A. Jakuszewski
Ted R. Munselle |
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THIS
PROXY WILL BE VOTED AS DIRECTED BUT IF NO DIRECTION IS INDICATED, IT WILL BE VOTED FOR ALL NOMINEES AND FOR RATIFICATION
OF THE APPOINTMENT OF FARMER, FUQUA & HUFF, P.C. AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. ON OTHER MATTERS
THAT MAY COME BEFORE SAID MEETING, THIS PROXY WILL BE VOTED IN THE DISCRETION OF THE PERSONS NAMED ON THE REVERSE SIDE. |
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FOR ALL EXCEPT
(See instructions below) |
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INSTRUCTIONS: |
To
withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle
next to each nominee you wish to withhold, as shown here: n |
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To
change the address on your account, please check the box at right and indicate your new address in the address space above. Please
note that changes to the registered name(s) on the account may not be submitted via this method. |
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Signature of Stockholder
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Signature of Stockholder
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Note: |
Please sign exactly as your name or names appear
on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by
authorized person. |
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