0001104659-02-001921.txt : 20020510 0001104659-02-001921.hdr.sgml : 20020510 ACCESSION NUMBER: 0001104659-02-001921 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN SPECTRUM REALTY INC CENTRAL INDEX KEY: 0001121783 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 522258674 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-16785 FILM NUMBER: 02641568 BUSINESS ADDRESS: STREET 1: 1800 EAST DEERE AVENUE CITY: SANTA ANA STATE: CA ZIP: 92705 MAIL ADDRESS: STREET 1: 1800 EAST DEERE AVENUE CITY: SANTA ANA STATE: CA ZIP: 92705 10-Q 1 j3580_10q.htm 10-Q UNITED STATES

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2002
		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
		THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-16785

American Spectrum Realty, Inc.
(Exact name of Registrant as specified in its charter)

State of Maryland		52-2258674
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7700 Irvine Center Drive, Suite 555 Irvine, California		92618
(Address of principal executive offices)		(Zip Code)

(949) 753-7111

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

Title of each class

Name of Exchange on

which registered

Common Stock, $.01 par value

American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

As of May 8, 2002, 5,538,228 shares of Common Stock ($.01 par value) were outstanding.

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Balance Sheets at March 31, 2002 and December 31, 2001
	Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001
	Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2002
	Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001
	Notes to Consolidated Financial Statements
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3	Quantitative and Qualitative Disclosure about Market Risk

PART II	OTHER INFORMATION

Item 1	Legal Proceedings
Item 6	Exhibits and Reports on Form 8-K

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share amounts)

	March 31, 2002			December 31, 2001
	(Unaudited)
ASSETS
Real estate held for investment	$	255,681		$	254,679
Accumulated depreciation and valuation allowance	8,039			5,172
Real estate held for investment, net	247,642			249,507

Cash and cash equivalents	1,717			2,284
Tenant and other receivables, net of allowance for doubtful accounts of $315 and $234, respectively	1,267			1,378
Deferred rents receivable	286			149
Deposits held in escrow	1,687			1,956
Investment in management company	4,000			4,000
Prepaid and other assets, net	7,109			6,931

Total Assets	$	263,708		$	266,205

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Notes payable, net of premiums of $4,673 and $4,829, respectively (including $2,799 and $2,802, respectively, to related parties)	$	179,307		$	176,915
Notes payable to former limited partners	1,138			2,292
Accounts payable	2,546			3,203
Deferred gain on disposition of property	232			232
Accrued and other liabilities (including $2,771 and $3,394, respectively, to related parties)	17,532			18,510

Total Liabilities	200,755			201,152

Minority Interests:
Unit holders in the operating partnership	10,341			10,616
Partially owned property	1,038			1,033
Total minority interests	11,379			11,649

Commitments and Contingencies:

Redeemable Common Stock	300			300

Stockholders’ equity:

Preferred stock, $.01 par value; authorized, 25,000,000 shares, none	—			—
issued and outstanding
Common stock, $.01 par value; authorized, 100,000,000 shares; issued and outstanding, 5,529,031 and 5,529,190 shares, respectively	55			55
Additional paid-in capital	56,502			56,502
Accumulated deficit	(4,139		)	(2,038		)
Deferred compensation	(1,142		)	(1,415		)
Treasury stock, at cost (159 common shares at March 31, 2002)	(2		)	—

Total stockholders’ equity	51,274			53,104

Total Liabilities and Stockholders’ equity	$	263,708		$	266,205

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share amounts)

(Unaudited)

	Quarter Ended March 31,
	2002			2001
REVENUES:

Rental revenue	$	9,876		$	165
Interest and other income	79			44

Total revenues	9,955			209

EXPENSES:

Property operating expense	3,560			59
General and administrative	2,417			95
Depreciation and amortization	2,982			47
Interest expense	3,337			31

Total expenses	12,296			232

OTHER INCOME (LOSS):

Loss from investment in unconsolidated joint venture	—			(20		)

Total other income (loss)	—			(20		)

Minority Interests:
Unit holders in the operating partnership	276			—
Partially owned property	(36		)	—

Total minority interests	240			—

Net loss	$	(2,101	)	$	(43	)

Basic per share data:
Net loss per basic share	$	(.38	)	$	—

Per unit data:
Limited partner loss per unit	$	N/A		$	(.55	)

Basic weighted average shares used	5,529,058			—
Limited partnership units outstanding	N/A			77,000

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

	Common Stock		Additional Paid-In Capital		Accumulated Deficit			Deferred Compensation			Treasury Stock			Total Equity
Balance, December 31, 2001 (audited)	$	55	$	56,502	$	(2,038	)	$	(1,415	)	—			$	53,104
Amortization of deferred compensation	—		—		—			273			—			273
Common stock repurchase	—		—		—			—			$	(2	)	(2		)
Net loss	—		—		(2,101		)	—			—			(2,101		)

Balance, March 31, 2002	$	55	$	56,502	$	(4,139	)	$	(1,142	)	$	(2	)	$	51,274

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Quarter Ended
	March 31, 2002			March 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,101	)	$	(43	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,982			47
Loss from investment in unconsolidated joint venture	—			20
Minority interest	(240		)	—
Deferred compensation expense	273			—
Deferred rental income	(137		)	(1		)
Amortization of loan premiums, included in interest expense	(156		)	—
Changes in operating assets and liabilities:
Decrease in tenant and other receivables	372			8
Increase in prepaid and other assets	(293		)	(36		)
Decrease in accounts payable	(657		)	(29		)
Decrease in accrued and other liabilities	(978		)	(58		)

Net cash used in operating activities:	(935		)	(92		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets	(1,002		)	(21		)
Contributions to minority owner of partially owned property	(30		)	—
Distributions from unconsolidated joint venture	—			185

Net cash (used in) provided by investing activities:	(1,032		)	164

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings	10,650			—
Repayment of borrowings	(8,102		)	(5		)
Note payments to former limited partners	(1,154		)	—
Collection of advances to affiliate	8			—
Advances to affiliate	—			(97		)
Repurchase of common stock	(2		)	—

Net cash provided by (used in) financing activities:	1,400			(102		)

Decrease in cash	(567		)	(30		)

Cash, beginning of period	2,284			34

Cash, end of period	$	1,717		$	4

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	3,314		$	31

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements

NOTE 1. DESCRIPTION OF BUSINESS

GENERAL

American Spectrum Realty, Inc. (“ASR” or the “Company”) is a Maryland corporation established on August 8, 2000. The Company is a full-service real estate corporation, which owns, manages and operates income-producing properties. As of March 31, 2002, through its majority-owned subsidiary, American Spectrum Realty Operating Partnership, L.P. (the “Operating Partnership”), the Company owned and operated 33 properties which consisted of 12 office, 11 office/warehouse, five shopping center, and four apartment properties, and one developmental land property. The properties are located in four geographic regions in nine states. The Company plans to expand its business and net assets by acquiring additional properties. The Company will focus primarily on office and office/warehouse properties located in Texas, California, Arizona and the Midwest.

The structure of the Company is generally referred to as an “UPREIT” structure. Substantially all of the Company’s assets are held through the Operating Partnership. The Company is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, the Company generally has the exclusive power under the Partnership Agreement to manage and conduct the business of the Operating Partnership. The Company’s interest in the Operating Partnership entitles it to share in cash distributions from, and in profits and losses of, the Operating Partnership. Holders of limited partnership units in the Operating Partnership (“OP Units”) have the same rights to distributions as holders of Common Stock in the Company. Most of the properties will be owned by the Operating Partnership through subsidiary limited partnerships or limited liability companies.

At March 31, 2002, the Company held a 1% general partner interest and an 87.4% limited partner interest in the Operating Partnership. Holders of the OP Units have the option to redeem their units and to receive, at the option of the Company, in exchange for each OP Unit (i) one share of Common Stock of the Company, or (ii) cash equal to the fair market value of one share of Common Stock of the Company at the date of conversion. As of March 31, 2002, the Operating Partnership, directly and through the subsidiaries in which it and the Company own 100% of the ownership interests, controls a portfolio of 33 real estate properties.

The Company intends to qualify as a real estate investment trust, REIT, as defined under the Internal Revenue Code of 1986, as amended, and to elect to be treated as a REIT beginning in 2003. In general, a REIT is a company that owns or provides financing for real estate and pays annual distributions to investors of at least 90% of its taxable income. A REIT typically is not subject to federal income taxation on its net income, provided applicable income tax requirements are satisfied. Currently, the Company is taxed as a C corporation.

CONSOLIDATION TRANSACTION

On October 19, 2001, the Company was the legal acquirer and registrant in a consolidation transaction (the “Consolidation”). Pursuant to the Consolidation, subsidiaries of the Company merged with eight public limited partnerships, acquired the assets and liabilities of two private entities managed by CGS Real Estate Company, Inc. (“CGS”) and its affiliates and acquired certain assets and liabilities of CGS and its majority-owned affiliates. The accounting acquirer in the Consolidation was Sierra Pacific Pension Investors `84 (“SPPI84”), one of the eight public limited partnerships. SPPI84’s activities have involved the ownership and operation of two real estate properties in Arizona: Sierra Spectrum in Phoenix, Arizona and Sierra Valencia in Tucson, Arizona. Pursuant to the Consolidation, partners of the public partnerships received shares in the Company or promissory notes in exchange for their partnership units and owners of existing related entities exchanged ownership interests in real estate for ASR shares or units in the Operating Partnership, an entity formed for this purpose and initially wholly owned by the Company. Prior to October 19, 2001, the Company was a wholly owned subsidiary of CGS.

The condensed combined statement of operations and cash flows of CGS and its majority-owned affiliates for the three months ended March 31, 2001 follows (dollars in thousands):

Condensed Combined Statement of Operations	Quarter Ended
	March 31, 2001

Total revenues	$	6,141
Operating expenses	4,203
Depreciation and amortization	1,166
Interest expense	2,971
Equity in loss of uncombined partnerships	7
Gain on sale of property	100
Minority interest	14
Net loss	$	(2,092	)

Condensed Combined Statement of Cash Flows	Quarter Ended
	March 31, 2001

Cash flows provided by (used in):
Operating activities	$	(377	)
Investing activities	(236		)
Financing activities	177
Decrease in cash	(436		)
Cash, beginning of period	1,787
Cash, end of period	$	1,351

It is suggested that these condensed combined financial statements be read in conjunction with the combined financial statements for the period January 1 to October 19, 2001 and the related notes thereto included in the Company’s 2001 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. In the opinion of the Company, the accompanying interim unaudited consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, the results of operations and changes in cash flows of the Company and its subsidiaries for interim periods.

The results for such interim periods are not necessarily indicative of results for a full year. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements for the year ended December 31, 2001 and the related notes thereto included in the Company’s 2001 Annual Report on Form 10-K filed with the SEC.

As discussed in Note 1, the accounting acquirer in the Consolidation was SPPI84. As such, the consolidated statement of operations and cash flows for the three months ended March 31, 2001 reflects the results of operations and cash flows of SPPI84.

All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

RECLASSIFICATION

Certain prior year balances have been reclassified to conform with the current year presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could materially differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, FASB issued SFAS No. 141, which supercedes APB 16, “Business Combinations”, which is effective for business combinations initiated after June 30, 2001. SFAS 141 requires all business combinations to be accounted for under the purchase method and that the pooling-of-interest method is no longer allowed. The Company accounted for the Consolidation under the purchase method.

In June 2001, FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”, which is effective for fiscal years beginning after December 15, 2001. SFAS 142 requires, among other things, that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The adoption of SFAS No. 142 did not have a material impact on the Company’s consolidated financial position or results of operations.

In June 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of SFAS 143 are required to be applied starting with fiscal years beginning after June 15, 2002. The Company believes the adoption of the provisions of SFAS 143 will not have a significant effect on its consolidated financial position or results of operations.

In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. SFAS 144 will be effective for the Company beginning January 1, 2002, the first day of its 2002 fiscal year. The adoption of SFAS No. 144 did not have a material impact on the Company’s consolidated financial position or results of operations.

REAL ESTATE

Rental properties are stated at cost, net of accumulated depreciation, unless circumstances indicate that cost, net of accumulated depreciation, cannot be recovered, in which case, the carrying value of the property is reduced to estimated fair value. Estimated fair value: (i) is based upon the Company’s plans for the continued operation of each property; and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized net operating income based upon the age, construction and use of the building. The fulfillment of the Company’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Company to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, it is reasonably possible that the actual results of operating and disposing of the Company’s properties could be materially different than current expectations.

Depreciation is provided using the straight-line method over the useful lives of the respective assets. The useful lives are as follows:

Building and Improvements		10 to 40 years
Tenant Improvements		Term of the related lease
Furniture and Equipment		3 to 5 years

CASH EQUIVALENTS

Cash equivalents are considered to be all highly liquid investments with a maturity of three months or less at the date of purchase.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, escrow deposits, tenant and other receivables, notes payable, accounts payable and accrued expenses. The Company has entered into

interest rate swap agreements in notional amounts totaling $21,800,000 to manage its interest rate risk. The agreements effectively fix the interest rate at 2.68% plus the applicable variable rate margin (5.68% at March 31, 2002). Management believes that the carrying value of the Company’s financial instruments approximate their respective fair market values at March 31, 2002 and December 31, 2001.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company follows Statement of Financial Accounting Standard No. 133, as amended, which establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts and hedging activities. All derivatives, whether designed in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. The Company uses interest rate swaps to hedge against fluctuations in interest rates on specific borrowings. Our objective is to minimize the risk of fluctuations using the most effective methods to eliminate or reduce the impact of this exposure.

DEFERRED FINANCING AND OTHER FEES

Fees paid in connection with the financing and leasing of the Company’s properties are amortized over the term of the related notes payable or lease and are included in other assets.

STOCK-BASED COMPENSATION

The Financial Accounting Standards Board issued SFAS No. 123, “Accounting for Stock-Based Compensation” in October 1995. This standard establishes a fair value approach to valuing stock options awarded to employees as compensation. The Company has elected, as permitted by the standard to use the intrinsic value based method of accounting for stock options consistent with Accounting Principles Board Opinions No. 25, “Accounting for Stock Issued to Employees”. The intrinsic value method measures compensation cost for stock options as the excess, if any, of the quoted market price of the Company’s stock at the measurement date over the exercise price.

MINORITY INTERESTS

Unit holders in the Operating Partnership. At March 31, 2002 and December 31, 2001, unit holders in the Operating Partnership held an 11.6% limited partnership interest in the Operating Partnership. Each of the holders of the interests in the Operating Partnership has the option to redeem its OP Units and to receive, at the option of the Company, in exchange for each OP Unit, either (i) one share of Common Stock of the Company, or (ii) cash equal to the fair value of one share of Common Stock of the Company at the date of conversion.

Partially owned property. On February 28, 2001, a third party buyer (the “Buyer”) purchased a 49% undivided tenancy-in-common interest in the Company’s Creekside/Riverside property for $1,000,000. In addition, the sale agreement stipulates income and expenses shall be allocated to the Company and the Buyer based upon the respective ownership interests.

The Company has accounted for this transaction as a partial interest in real property and as such, the purchase price is accounted for as minority interest on the accompanying balance sheet. Further, income and distributions allocable to the buyer are accounted for as an offset to the minority interest account. In addition, to the extent that the accumulation of net income less distributions made to the Buyer does not cover the guaranteed return of $30,000 and simple interest of 12% per annum, the Company records an accrual for any such difference in each fiscal period until such obligation is paid in full.

RENTAL REVENUE

Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. The Company records rental income for the full term of each lease on a straight-line basis. Accordingly, a receivable is recorded from tenants for the amount that is expected to be collected over the remaining lease term rather than currently (Deferred Rent Receivable).

When a property is acquired, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation.

The Company’s portfolio of leases turns over continuously, with the number and value of expiring leases varying from year to year. The Company’s ability to re-lease the space to existing or new tenants at rates equal to or greater than those realized historically is impacted by, among other things, the economic conditions of the market in which a property is located, the availability of competing space, and the level of improvements which may be required at the property. No assurance can be given that the rental rates that the Company will obtain in the future will be equal to or greater than those obtained under existing contractual commitments.

NET LOSS PER SHARE

Net loss per share is calculated based on the weighted average number of common shares outstanding. Stock options outstanding and OP Units have not been included in the net loss per share calculation since their effect would be antidilutive.

INCOME TAXES

The Company is currently taxed as a C corporation. Until the Company elects to be taxed as a REIT, it will be subject to federal income tax on its taxable income at regular corporate rates. Any distribution by the Company to its stockholders will be subject to tax as a dividend at the stockholder’s respective federal income tax rates. Beginning in 2003, the Company intends to elect to be taxed as a REIT for federal income tax purposes. The Company believes that it is organized and will operate so as to qualify as a REIT. The qualification and taxation of the Company as a REIT depends upon its ability to meet, through actual annual operating results, distribution levels, share ownership requirements and various qualifications imposed under the Internal Revenue Code of 1986, as amended. Accordingly, while the Company intends to qualify as a REIT and believes that it will be able to do so, the Company cannot predict that the actual results of its operations for any particular year will satisfy the requirements.

If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes on its taxable income at regular corporate tax rates. In addition, a REIT is subject to an entity level tax on the sale of property it held before electing REIT status. During the 10-year period following its qualification as a REIT, the Company will be subject to an entity level tax on the income it recognizes upon the sale of assets, including all the assets transferred to it as part of the consolidation, it held before electing REIT status in an amount up to the amount of the built-in gains at the time the Company becomes a REIT.

The potential tax related to this built-in gain is approximately $12,943,000. A deferred tax liability has not been recorded for this potential tax because the tax law provides a means by which the assets can be recovered tax-free. The Company expects that it will ultimately hold the properties subject to the built-in gains tax throughout the 10-year holding period or to dispose of properties utilizing only tax-deferred exchanges. If the Company’s expectation changes and it disposes of any property that would become subject to the built-in gains tax upon the Company’s qualification for REIT status, the entire $12,943,000 deferred tax liability will be recorded immediately on the books of the Company.

NOTE 3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

The Company currently has no investments in operating joint ventures. Prior to the Consolidation, SPPI84 held an investment in Sierra Mira Mesa Partners (“SMMP”), which it accounted for using the equity method.

SMMP is a California general partnership formed in 1985 between SPPI84 and Sierra-Pacific Development Fund II (“SPDFII”), an affiliate of SPPI84, to develop and operate the real property known as Mira Mesa, a 89,560 square foot office building located in San Diego, California. At March 31, 2001, SPPI84’s interest in SMMP was 80.32%; the remaining 19.68% interest was owned by SPDFII. During the three months ended March 31, 2001, SPPI84 recorded a loss from investment in SMMP of $20,450.

On October 19, 2001, SPPI84 and SPDFII merged into a respective subsidiary of the Company pursuant to the Consolidation. As a result, the assets and liabilities of Mira Mesa are included in the consolidated balance sheets of the Company at March 31, 2002 and December 31, 2001.

NOTE 4. NOTES PAYABLE

The Company had the following mortgage loans, bank lines, and notes payable outstanding as of March 31, 2002 and December 31, 2001 (dollars in thousands):

	2002		2001
Unsecured loans with various lenders, bearing interest at fixed rates between 8.00% and 20.00% at March 31, 2002 and December 31, 2001, and maturing at various dates through October 1, 2005.	$	995	$	1,279

Unsecured loans with various lenders, bearing interest at variable rates between 5.02% and 6.25% at March 31, 2002 and 5.17% and 6.25% at December 31, 2001, and maturing at various dates through November 5, 2002.	52		72

Unsecured loans with various parties, non-interest bearing, and maturing at various dates through January 1, 2003.	158		399

Secured loans with various lenders, net of unamortized premiums of $4,673 at March 31, 2002 and $4,829 at December 31, 2001, bearing interest at fixed rates between 5.00% and 12.00%, with monthly principal and interest payments ranging between $8 and $269 and maturing at various dates through March 1, 2012.	126,661		116,445

Secured loans with various banks bearing interest at variable rates ranging between 4.88% and 9.00% at March 31, 2002 and 4.93% and 9.00% at December 31, 2001, and maturing at various dates through May 1, 2008.	36,094		43,337

Secured Series A & B Bonds with a fixed interest rate of 6.39%, monthly principal and interest payments of $74, and a maturity date of September 30, 2031.	11,783		11,816

Secured Series C Bonds with a fixed interest rate of 9.50%, semi-annual principal and interest payments that increase by $5 from the previous semi-annual payment ($70 at March 31, 2002 and December 31, 2001), and a maturity date of November 1, 2006.	765		765

Secured loan with IDM Participating Mortgage Income Fund (“IDM PMIF”), a California limited partnership. Entities owned by William J. Carden own a 5% limited partnership interest and a 1% general partnership interest in IDM PMIF. Mr. Carden is Chairman of the Board of the Company and an over 5% stockholder of the Company. The loan bears interest at the Federal Discount Rate plus 3%, with a minimum of 12.12% and a maximum of 15.15% (12.12% at March 31, 2002 and December 31, 2001), maturing on November 30, 2002.	1,000		1,000

Unsecured loan with Brown Parker and Leahy, LLP, a law firm in which Timothy R. Brown, a director of the Company, is a partner. The loan bears interest at prime (4.75% at March 31, 2002 and 5.00% at December 31, 2001) and is payable on demand.	199		202

Unsecured loan with John N. Galardi, a principal stockholder, with a fixed interest rate of 8.00%, payable on demand.	1,600		1,600

Total	$	179,307	$	176,915

Debt premiums are amortized into interest expense over the terms of the related mortgages using the effective interest method. As of March 31, 2002 and December 31, 2001, the unamortized debt premiums were $4,673,000 and $4,829,000, respectively.

REFINANCINGS

In January 2002, the Company refinanced $4,500,000 on a loan partially secured by North Creek Office Park and entered into a new loan agreement in the amount of $5,625,000. The new loan bears interest at a

fixed rate of 7.58% per annum and matures in February 2012. Net proceeds of $639,000 were received as a result of the refinancing.

In March 2002, the Company refinanced $2,750,000 on a loan partially secured by Countryside Office Park and entered into a new loan agreement in the amount of $5,025,000. The new loan bears interest at a fixed rate of 7.38% per annum and matures in March 2012. Net proceeds of $1,887,000 were received as a result of the refinancing.

NOTES PAYABLE TO FORMER LIMITED PARTNERS

Limited partners of the eight public limited partnerships who voted against the Consolidation had the option of electing to receive notes instead of ASR shares. The notes, which totaled $2,291,671, bear interest at 5.92% per annum and mature in October 2009. Interest is payable semi-annually in arrears on each June 15 and December 15, commencing June 15, 2002. The notes may be redeemed at any time at the option of the Company, in whole or from time to time in part, at a redemption price equal to the sum of the principal amount of the notes being redeemed plus accrued interest thereon to the redemption date. On March 18, 2002, $1,153,862 of the notes, plus accrued interest, were paid. Additional payments of $4,971 and $705,161, plus accrued interest, were paid on April 1, 2002 and April 25, 2002, respectively. These payments reduced the principal balance of the notes to $427,677 as of April 25, 2002.

NOTE 5. RELATED PARTY TRANSACTIONS

Effective January 1, 2002, the Company assumed, from a related party, operations of an executive suite in an office building owned by the Company. The note and receivables due the Company for rent from the executive suite business through the date of acquisition of $177,000 has been offset by reducing a payable owed by the Company to an entity owned by the related party. No gain or loss was recorded as a result of the assumption.

During the first quarter of 2002, the Company made payments totaling $521,808 on its obligation to ASJ, Ltd., which is owned by Mr. Carden, his wife, and in a trust for his children. These payments reduced the balance due to ASJ, Ltd. to $200,000 as of March 31, 2002.

NOTE 6. SEGMENT INFORMATION

As of March 31, 2002, the Company owned a diverse portfolio of properties comprising of office, office/warehouse, shopping center, apartment, and developmental land. Each of these property types represents a reportable segment with distinct uses and tenant types, which require the Company to employ different management strategies. Each segment contains properties located in various regions and markets within the United States. The office portfolio consists primarily of suburban office buildings. The office/warehouse portfolio consists of properties designed for warehouse, distribution and light manufacturing for single-tenant or multi-tenant use. The shopping center portfolio consists primarily of community shopping centers. The properties in the apartment portfolio are apartment buildings with units rented to residential tenants on either a month-by-month basis or for terms of one year or less.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of its property types based on net operating income derived by subtracting rental expenses and real estate taxes (operating expenses) from rental revenue. Significant information used by the Company for its reportable segments as of and for the quarters ended March 31, 2002, and 2001 is as follows (dollars in thousands):

	Office		Office/ Warehouse		Shopping Center		Apartment		Land Held for Development and Other			Property Total
2002
Rental revenue	$	5,489	$	1,861	$	551	$	1,975	—			$	9,876
Property operating expenses	1,855		569		233		889		$	14		3,560
Net operating income (NOI)	$	3,634	$	1,292	$	318	$	1,086	$	(14	)	$	6,316
Real estate assets, net	$	131,719	$	47,073	$	17,526	$	47,281	$	4,043		$	247,642

2001
Rental revenue	—		$	165	—		—		—			$	165
Property operating expenses	—		59		—		—		—			59
Net operating income (NOI)	—		$	106	—		—		—			$	106
Real estate assets, net	—		$	1,198	—		—		—			$	1,198

The following is a reconciliation of segment revenues, income and assets to consolidated revenues, income and assets for the periods presented above (dollars in thousands):

	Quarter Ended March 31,
	2002			2001
REVENUES
Total revenues for reportable segments	$	9,876		$	165
Other revenues	79			44
Total consolidated revenues	$	9,955		$	209

NET INCOME
NOI for reportable segments	$	6,316		$	106
Unallocated amounts:
Interest and other income	79			44
General and administrative expenses	(2,417		)	(95		)
Depreciation and amortization	(2,982		)	(47		)
Interest expense	(3,337		)	(31		)
Loss from investment in unconsolidated joint venture	–			(20		)
Loss from operations before minority interests	(2,341		)	(43		)
Minority interests	240			—
Net loss	$	(2,101	)	$	(43	)

	Quarter Ended March 31,
	2002		2001
ASSETS
Total assets for reportable segments	$	247,642	$	1,198
Cash and cash equivalents	1,717		4
Tenant and other receivables, net	1,267		61
Deferred rent receivable	286		50
Note receivable from affiliate, net	—		1,618
Accounts receivable from affiliate	—		1,034
Investment in management company	4,000		—
Deposits held in escrow	1,687		—
Investment in unconsolidated joint venture	—		6,857
Prepaid and other assets, net	7,109		253
Total consolidated assets	$	263,708	$	11,075

NOTE 7. SUBSEQUENT EVENTS

On April 8, 2002, the Company refinanced $3,650,000 on a loan secured by Oak Grove Commons, an office/warehouse property, and entered into a new loan agreement in the amount of $4,313,700. The new

loan bears interest at a fixed rate of 7.61% per annum and matures in May 2012. Net proceeds of $383,000 were received as a result of the refinancing. The Company recognized a loss on early extinguishment of debt of $72,000 due to the write-off of unamortized deferred loan costs associated with the original loan.

On April 16, 2002, the Company’s Board of Directors declared a first quarter cash dividend in the amount of $.20 per common share. The dividend will be paid on June 3, 2002 to common stockholders of record on April 30, 2002.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

American Spectrum Realty, Inc. is a full-service real estate corporation which owns, manages and operates various income-producing properties. As of March 31, 2002, through the Operating Partnership, the Company owned and operated 33 properties which consisted of 12 office, 11 office/warehouse, five shopping center, four apartment properties, and one developmental land property. The properties are located in four geographic regions in nine states. The Company plans to expand its business and net assets by acquiring additional properties. The Company will focus primarily on office and office/warehouse properties located in Texas, California, Arizona and the Midwest. The Company intends to qualify as a real estate investment trust as defined under the Internal Revenue Code of 1986, as amended, and to elect to be treated as a REIT beginning in 2003.

On October 19, 2001, the Company was the legal acquirer and registrant in the Consolidation. Pursuant to the Consolidation, subsidiaries of the Company merged with eight public limited partnerships, acquired the assets and liabilities of two private entities managed by CGS and acquired certain assets and liabilities of CGS and the majority owned affiliates of CGS. The accounting acquirer in the Consolidation was SPPI84, one of the eight public limited partnerships. Pursuant to the Consolidation, partners of the public partnerships received shares in the Company or promissory notes in exchange for their partnership units and owners of existing related entities exchanged ownership interests in real estate for ASR shares or units in the Operating Partnership, an entity formed for this purpose and initially wholly owned by the Company. Prior to October 19, 2001, the Company was a wholly owned subsidiary of CGS.

The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the accompanying consolidated financial statements of the Company, including the notes thereto, included in Item 1.

The major accounting policies followed by the Company are listed in Note 2. — Summary of Significant Accounting Policies. — in the Notes to the Consolidated Financial Statements. The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could differ materially from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:

• Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. The Company records rental income for the full term of each lease on a straight-line basis. Accordingly, a receivable is recorded from tenants for the amount that is expected to be collected over the remaining lease term rather than currently (Deferred Rent Receivable). When a property is acquired, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation.

• Rental properties are stated at cost, net of accumulated depreciation, unless circumstances indicate that cost, net of accumulated depreciation, cannot be recovered, in which case, the carrying value of the property is reduced to estimated fair value. Estimated fair value: (i) is based upon the Company’s plans for the continued operation of each property; and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized net operating income based upon the age, construction and use of the building. The fulfillment of the Company’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Company to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, it is reasonably possible that the actual results of operating and disposing of the Company’s properties could be materially different than current expectations.

• The Company is currently taxed as a C corporation. Until the Company elects to be taxed as a REIT, it will be subject to federal income tax on its taxable income at regular corporate rates. Any distribution by the Company to its stockholders will be subject to tax as a dividend at the stockholder’s respective federal income tax rates. Beginning in 2003, the Company intends to elect to be taxed as a REIT for federal income tax purposes. The Company believes that it is organized and will operate so as to qualify as a REIT. The qualification and taxation of the Company as a REIT depends upon its ability to meet, through actual annual operating results, distribution levels, share ownership requirements and various qualifications imposed under the Internal Revenue Code of 1986, as amended. Accordingly, while the Company intends to qualify as a REIT and believes that it will be able to do so, the Company cannot predict that the actual results of its operations for any particular year will satisfy the requirements.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2002 to the three months ended March 31, 2001.

The statement of operations for the three months ended March 31, 2001 solely reflects the operating results of SPPI84, the accounting acquirer in the Consolidation. Therefore, a discussion of operating results for the quarters ended March 31, 2002 and 2001 is not a true comparison.

The Company recorded rental revenue of $9,876,000 and expenses of $12,296,000 for the three months ended March 31, 2002, which reflect the operations of the Company’s 33 properties. The weighted average occupancy of the properties at March 31, 2002 was 87%. Expenses not anticipated to be recurring totaled approximately $250,000 due to professional fees associated with the Consolidation. Rental revenue of $165,000 and operating expenses of $232,000 generated in the corresponding period in the prior year reflected the operations SPPI84’s sole wholly owned property, Sierra Valencia.

SPPI84 recorded a $20,000 loss from investment in its unconsolidated joint venture partner, SMMP, during the three months ended March 31, 2001. This represents SPPI84’s share of losses generated by SMMP and SMMP’s joint venture partners. The Company had no investments in unconsolidated joint ventures for the quarter ended March 31, 2002.

Holders of OP Units share of the loss for the three months ended March 31, 2002 was $276,000, which represented the 11.6% limited partner interest in the Operating Partnership not held by the Company at March 31, 2002. In addition, minority interest expense of $36,000 was recognized as a result of income generated on a partially owned property. SPPI84 had no minority interests in the corresponding period of the prior year.

LIQUIDITY AND CAPITAL RESOURCES

The Company used net cash in operating activities of $935,000 during the three months ended March 31, 2002. This amount was comprised of (i) net loss of $2,101,000 adjusted for non-cash items of $2,722,000, which included depreciation and amortization of $2,982,000, and ii) the net decrease in operating assets

and liabilities of $1,556,000. The net decrease in operating assets and liabilities was primarily due to the pay-down of payables associated with the Consolidation.

Cash used in investing activities of $1,032,000 for the three months ended March 31, 2002 was comprised of (i) $1,002,000 paid for capital expenditures, which in large part were related to renovations on an apartment property, and (ii) $30,000 in distributions to the minority owner of the Company’s Creekside/Riverside property.

Net cash provided by financing activities amounted to $1,400,000 during the three months ended March 31, 2002. Proceeds received from borrowings totaled $10,650,000 as detailed below. Repayment of borrowings, which consisted of $7,250,000 from refinances and $852,000 in scheduled principal payments, totaled $8,102,000. Note payments to former limited partners totaling $1,154,000 were also made during the period.

The Company expects to meet its short-term liquidity requirements from cash generated by operations and refinancings. The Company believes that its cash generated by operations and refinancings will be adequate to meet normal operating expenses.

The Company is projecting the need for substantial cash to fund obligations other than normal operating expenses in 2002. These obligations include capital costs related to re-leasing space, improvements to properties, repayment of notes issued in the Consolidation, and payment of other liabilities arising from a litigation settlement agreement that was subsequently declared void. The Company is in the process of refinancing several properties to generate the cash necessary to fund the non-operating capital costs.

The Company will consider issuance of stock or OP Units in order to acquire additional properties. There can be no assurance that the Company will be successful in doing so.

The Company intends to qualify as a REIT beginning in 2003. If the Company becomes a REIT, it must pay distributions to investors of at least 90% of its taxable net income. The Company anticipates cash generated by operations will be sufficient to meet distribution requirements.

FUNDS FROM OPERATIONS

In October 1999, the Board of Governors of NAREIT issued `White Paper on FFO-October 1999’ to clarify its definition of Funds from Operations (FFO). The clarification was effective January 1, 2000 and requires restatement for all periods presented in financial statements or tables. FFO, as clarified by NAREIT, represents “net income excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.” In 2002, NAREIT clarified that FFO related to assets held for sale, sold or otherwise transferred and included in results of discontinued operations should continue to be included in FFO. This clarification was effective January 1, 2002 and requires restatement for all periods presented financial statements or tables. The Company computes FFO in accordance with the clarified definition except that we eliminate straight-line rent from the calculation, which may not be comparable to FFO reported by REITs that interpret the clarified definition differently than we do. The Company believes that FFO is helpful to investors as a measure of performance of an equity REIT because, along with cash flow from operating activities, FFO provides investors with an indication of our ability in incur and service debt, to make capital expenditures and to fund other cash needs. FFO does not represent net income or cash flows from operations as defined by GAAP, and should not be considered as an alternative to net income

(determined in accordance with GAAP) as an indicator of the Company’s operating performance or as an alternative to cash flows from operating, investing and financing activities (determined in accordance with GAAP) as a measure of liquidity. FFO does not necessarily indicate that cash flows will be sufficient to fund all of the Company’s cash needs including principal amortization, capital improvements and distributions to stockholders. Further, FFO as disclosed by other companies may not be comparable to the Company’s calculation of FFO.

The following table sets forth the Company’s calculation of FFO for the three months ended March 31, 2002 (in thousands except weighted average shares and per share amounts): FFO for the three months ended March 31, 2001 is not presented as it is not comparable or meaningful.

	March 31, 2002
Loss from operations before minority interests	$	(2,341	)
Depreciation and amortization	2,982
Adjustment for straight-line rents	(137		)
FFO	504

Basic weighted average shares	5,529,058
FFO per share	$	.09

INFLATION

Substantially all of the leases at the industrial and retail properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. Leases at the multifamily properties generally provide for an initial term of one month to one year and allow for rent adjustments at the time of renewal. Leases at the office properties typically provide for rent adjustment and pass-through of increases in operating expenses during the term of the lease. All of these provisions may permit the Company to increase rental rates or other charges to tenants in response to rising prices and therefore, serve to reduce the Company’s exposure to the adverse effects of inflation.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are based on Management beliefs and expectations, which may not be correct. Important factors that could cause actual results to differ materially from the expectations reflected in these forward-looking statements include the following: ASR’s level of indebtedness and ability to refinance its debt; the fact that ASR’s predecessors have had a history of losses in the past; unforeseen liabilities which could arise as a result of the prior operations of companies acquired in the Consolidation; risks inherent in the Company’s acquisition and development of properties in the future, including risks associated with ASR’s strategy of investing in under-valued assets; general economic, business and market conditions; changes in federal and local laws, and regulations; increased competitive pressures; and other factors, including the factors set forth below, as well as factors set forth elsewhere in this Report on Form 10-Q.

RISK FACTORS

Stockholders or potential stockholders should read the “Risk Factors” section of the Company’s latest annual report on Form 10-K filed with the Securities and Exchange Commission in conjunction with this quarterly report on Form 10-Q to better understand the factors affecting the Company’s results of operations and the Company’s common stock share price.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATES

The Company’s primary market risk exposure is to changes in interest rates obtainable on its secured and unsecured borrowings.

It is the Company’s policy to manage its exposure to fluctuations in market interest rates for its borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable

with such arrangements. In order to maximize financial flexibility when selling properties and minimize potential prepayment penalties on fixed rate loans, the Company has also entered into variable rate debt arrangements.

The Company has entered into interest rate swap agreements to manage its interest rate risk. The agreements, in nominal amounts totaling $21,800,000, effectively fix the interest rate at 2.68% plus the applicable variable rate margin (5.68% at March 31, 2002).

At March 31, 2002, the Company’s total indebtedness included fixed-rate debt of $143,099,946 and floating-rate indebtedness of $37,345,011. The Company continually reviews the portfolio’s interest rate exposure in an effort to minimize the risk of interest rate fluctuations. The Company does not have any other material market-sensitive financial instruments.

A change of 1.00% in the index rate to which the Company’s variable rate debt is tied would change the annual interest incurred by the Company by $373,450, based upon the balances outstanding on variable rate instruments at March 31, 2002.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following is information concerning material, pending legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject in which there were material developments during the quarter:

Lewis-Madison Matter

On or about September 27, 2001, Robert L. Lewis, Madison Liquidity Investors 103 LLC and Madison Liquidity Investors 112 LLC (“Plaintiffs”), purporting to represent themselves and all others similarly situated, initiated an action (the “Action”) against the Company, CGS, William J. Carden, John N. Galardi and S-P Properties, Inc. in the Orange County Superior Court, Case No. 01 CC 000394 (“Defendants”) (hereinafter refer to as “Plaintiffs’ Compliant”).

Plaintiffs’ Complaint in the Action alleges claims against the Company and others for breach of fiduciary duty and breach of contract. Plaintiffs’ Complaint challenges the Consolidation, although the Consolidation was disclosed in a Prospectus/Consent Solicitation filed with the Securities and Exchange Commission and was approved by a majority vote of the limited partners of the partnerships. Plaintiffs allege that the approval was invalid and that the Consolidation constitutes a breach of fiduciary duty by each of the Defendants. Plaintiffs further allege that the Consolidation constitutes a breach of partnership agreements governing the partnerships.

Plaintiffs’ prayer for relief seeks the following: 1) an injunction prohibiting the Defendants from commingling; 2) imposition of a constructive trust providing for liquidation of the assets of the partnerships and a distribution of the assets to the former limited partners therein; 3) a judicial declaration that the Action may be maintained as a class action; 4) monetary/compensatory damages; 5) Plaintiffs’ costs of suit, including attorneys’, accountants’ and expert fees; and 6) a judicial order of dissolution of the partnerships and appointment of a liquidating trustee.

The Company intends to vigorously defend against the claims asserted in the action. On February 13, 2002, the Company filed a Demurrer to Plaintiff Complaint contending Plaintiffs lack standing to assert some of the claims alleged, that Plaintiffs’ Complaint fails to state a cause of action for breach of fiduciary duty against the Company and that the Plaintiffs’ Complaint fails to state a cause of action for breach of contract against the Company. On March 15, 2002, the Orange County Superior Court sustained the Company’s Demurrer on the ground that Plaintiffs’ Complaint fails to state a cause of action for either breach of fiduciary duty or breach of contract against the Company, and overruled the Company’s Demurrer on the ground of standing. The Court gave the Plaintiffs’ twenty days leave to amend their Complaint, which amended compliant was received by the Company on April 3, 2002. On May 8, 2002, the Company responded to the amended complaint by Dumurrer. The Court set a hearing for June 14, 2002.

Other Matters

Certain claims and lawsuits have arisen against the Company in its normal course of business. The Company believes that such claims and lawsuits will not have a material adverse effect on the Company’s financial position, cash flow or results of operations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

The Exhibit Index attached hereto is herby incorporated by reference to this item.

(b) Reports on Form 8-K:

On February 15, 2002, a report on Form 8-K was filed with respect to a change in certifying accountants

On February 27, 2002, a report on Form 8-K was filed with respect to a change in certifying accountants

SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN SPECTRUM REALTY INC

By: American Spectrum Realty Inc.,

Date: May 10, 2002 /s/ William J. Carden

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William J. Carden

Chairman of the Board, President

and Chief Executive Officer

Date: May 10, 2002 /s/ Thomas N. Thurber

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Thomas N. Thurber

Chief Financial Officer and

Senior Vice President

Date: May 10, 2002 /s/ Patricia A. Nooney

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Patricia A. Nooney

Principal Accounting Officer

Senior Vice President

EXHIBIT INDEX

Exhibit No. Exhibit Title

10.01 Employment Agreement dated October 15, 2001 between the Company and Harry A. Mizrahi

10.02 Employment Agreement dated April 3, 2002 between the Company and Paul E. Perkins

10.03 Employment Agreement dated April 16, 2002 between the Company and Patricia A. Nooney

EX-10.01 3 j3580_ex10d01.htm EX-10.01 Exhibit 10

Exhibit 10.01

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), dated as of October 15, 2001, is entered into between American Spectrum Realty, Inc., a Maryland corporation (the “Company”) and Harry A. Mizrahi (“Executive”).

Recitals

A. The Company is a corporation intended to be qualified and to operate as a real estate investment trust under the Internal Revenue Code of 1986, as amended.

B. The Company wishes to employ Executive and Executive wishes to be employed by the Company, on the terms and conditions set forth below.

THEREFORE, the parties agree as follows:

1. Employment Duties. During the Term (as defined in paragraph 2 below), the Company will employ Executive as its Chief Operating Officer and Senior Vice President. Executive will devote substantially all of his business time and attention to the performance of his duties under this Agreement. Executive shall have the duties, rights and responsibilities normally associated with his position with the Company, together with such other reasonable duties which are commensurate with his position relating to the operation of the business of the Company and its affiliates as may be assigned to him from time to time by the President or Chief Executive Officer of the Company or by the Board of Directors. Such duties shall include being responsible for the Company’s interaction with the public capital markets including, research coverage activities; investor relations, Company branding and public relations initiatives; trading exchange relationships including, the American Stock Exchange and related specialists; and, working with the Chief Executive Officer and with the Board of Directors. With respect to public capital markets activities, Executive will be responsible for corporate debt issuance through private or public placement, publicly or privately placed preferred stock, publicly or privately placed common stock, and/or other forms of corporate capital. In addition, Executive will work in conjunction with the Chief Executive Officer and Senior Vice President Investments, for sourcing and negotiating Company acquisitions, including portfolios and individual assets, and dispositions, including travel to support these activities. If the Company shall so request, Executive shall act as an officer and/or director of any of the subsidiaries of the Company as they may now exist or may be established by the Company in the future without any compensation other than that provided for in paragraph 3.

2. Term. The term of Executive’s employment under this Agreement (the “Term”) will begin on the date of this Agreement and will continue, subject to the termination provisions set forth in paragraph 5 below, until the first anniversary of the date hereof, provided that this Agreement will automatically renew for additional one year periods unless either party gives written notice to the other not to extend the Term not less than 90 days prior to the then next upcoming expiration date.

3. Salary and Bonus.

a. Salary. During each year of the Term, Executive will receive a salary at the initial annual rate of $204,500 (the “Base Salary). The Base Salary will be adjusted for each

completed property purchase and the revised Base Salary will be paid beginning with the first pay period following a property acquisition that increases the cost for all of the Company’s real property above the thresholds as follows:

Cost of Completed Property Purchased		Revised Annualized Compensation
Over $269 million but less that $750 million		$623.70 for each $1,000,000 in increased cost of the Company’s real property
Over $750 million		$504,500

For purposes of the above calculation of the “Property Cost” it shall be assumed that the “Property Cost” of the real property currently owned by the Company is $269,000,000.

b. Bonus. In addition to the Base Salary, the Executive shall be entitled to an annual incentive bonus payable within 120 days after the end of each year ended December 31 in an amount which shall be determined in the sole discretion of the Board of Directors taking into account such factors concerning the performance of the Company and Executive and Executive’s overall compensation level, as shall be determined by the Board of Directors. The amount of the incentive bonus shall be determined in the sole discretion of the Board of Directors and Executive shall not be entitled to any incentive bonus unless and until such incentive bonus is approved by the Board of Directors.

4. Fringe Benefits. In addition to the other compensation payable pursuant to this Agreement, during the Term:

a. Standard Benefits. Executive will be entitled to receive such fringe benefits and perquisites, including medical and life insurance, as are generally made available from time to time to senior management employees and Executives of the Company and to participate in any pension, profit–sharing, stock option or similar plan or program established from time to time by the Company for the benefit of its senior management employees.

b. Vacation and Sick Leave. Executive will be entitled to such periods of paid vacation (not less than three weeks per year) and sick leave allowance each year that are consistent with the Company’s vacation and sick leave policy for senior management.

c. Business Expenses. The Company will pay or reimburse Executive for all business–related expenses incurred by Executive in the course of his performance of duties under this Agreement, subject to the procedures established by the Company from time to time with respect to incurrence, substantiation, reasonableness and approval, including without limitation dues, meeting expenses and travel costs for professional organizations not to exceed $10,000.00 per calendar year.

50% on the date hereof at an option exercise price of $15.00 per share and (ii) 50% on April 15, 2002 at an option exercise price equal to the price that the stock is trading on April 15, 2002 or if there is no established market, at the fair market value of the stock as determined by the Board of Directors in its sole discretion. Executive has previously received a grant of 35,000 shares of restricted common stock pursuant to the Plan which shares shall be subject to repurchase by the Company on termination of Executive’s employment for Cause or by the Executive without Good Reason prior to October 15, 2002 for a price of $.01 per share, which repurchase option shall lapse in its entirety on October 14, 2002. Notwithstanding the foregoing, stock options granted to Executive shall become fully exercisable and repurchase restrictions on stock grants shall lapse in full upon (i) a Change of Control of the Company (as defined herein) or (ii) Executive’s termination of employment by Executive with Good Reason or by the Company without Cause, and Executive shall have one (1) year from such termination, or remaining term of the option, if earlier, to exercise such options.

5. Termination of Employment.

a. Death and Disability. Executive’s employment under this Agreement will terminate immediately upon his death and upon 30 days’ prior written notice given by the Company in the event Executive is determined to be “permanently disabled” (as defined below).

b. For Cause. The Company may terminate Executive’s employment under this Agreement for “Cause” (as defined below) upon providing Executive written notice of termination, which notice will describe in detail the basis of such termination and will become effective immediately after Executive’s receipt thereof unless Executive (i) cures to the satisfaction of the Board of Directors the alleged violation or other circumstance which was the basis of such termination within such thirty (30) day notice period or (ii) sends, within thirty (30) days, written notice to the Board disputing in good faith the existence of Cause and requesting arbitration of such dispute pursuant to paragraph 9 below. During the pendency of the arbitration, Executive will continue to receive all compensation and benefits to which he is entitled hereunder but shall have no duties or authority in connection with any activities of the Company. If the Company is not successful in obtaining a determination by the arbitrators that there was Cause for termination, the Company will pay Executive’s reasonable expenses, including, without limitation, reasonable attorneys’ fees and disbursements, in connection with such dispute resolution and Executive may elect to terminate his employment and shall receive the payments and benefits set forth in paragraph 6(b) as if his employment were terminated without Cause. If the Company is successful in obtaining a determination by the arbitrators that there was Cause for termination, the Executive shall pay the Company’s expenses, including without limitation, reasonable attorneys’ fees and disbursements, in connection with such dispute resolution.

c. For Good Reason. Executive may terminate his employment under this Agreement for “Good Reason” (as defined below) upon providing the Company 30 days’ prior written notice of termination, which notice will detail the basis of such termination and will become effective on the 30th day after the Company’s receipt thereof, unless the Company cures the alleged violation or other circumstance which was the basis of such termination within such 30–day notice period; provided that any termination pursuant to (d)(iii)(C) of the definition of Good Reason shall be made by notice given not more than 60 days after the effective date of the Change of Control (as defined below).

d. Definitions. For purposes of this Agreement:

(i) Executive will be deemed “permanently disabled” if he becomes unable to discharge his normal duties as contemplated under this Agreement for more than six consecutive months as a result of incapacity due to mental or physical illness as determined by a physician acceptable to Executive and the Company and paid by the Company, whose determination will be final and binding. If Executive and the Company are unable to agree on a physician, Executive and the Company will each choose one physician who will mutually choose the third physician, whose determination will be final and binding.

(ii) “Cause” means either (A) a breach by Executive of any material provisions of this Agreement, but only if, after notice provided in subparagraph (b) above, Executive fails to cure such breach, (B) action by Executive constituting willful misconduct in connection with performing his duties as set forth by the Board of Directors or as established by law based on Executive’s position with the Company, (C) an act of fraud, misappropriation of funds or embezzlement by Executive in connection with his employment hereunder; or (D) Executive is convicted of, pleads guilty to or confesses any felony.

(iii) “Good Reason” means the occurrence of any of the following, without the prior written consent of Executive: (A) a breach by the Company of any of its material obligations under this Agreement, but only if after expiration of the 30 day notice period provided in subparagraph (c) above, the Company fails to cure such breach or (B) a Change of Control as herein defined, or (C) the withdrawal without Executive’s consent of any material part of Executive’s responsibilities, duties or authority as previously discharged or as set forth in this Agreement or (D) the harassment of Executive intended, designed or which would have the foreseeable effect of causing Executive to resign or abandon Executive’s employment with Company or (E) change of location of Company’s offices where Executive is currently employed to a location more than thirty miles from such location.

(iv) “Change of Control” means the occurrence of

(a) An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act) immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d–3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred, Voting Securities which are acquired in a “Non–Control Acquisition” (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A “Non–Control Acquisition” shall mean an acquisition by (a) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Company or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a “Subsidiary”), (b) the Company or its Subsidiaries, (iii) any corporation or other Person the majority of its voting power or its voting equity securities is owned, directly or indirectly, by William J. Carden or

John N. Galardi or (iv) any Person in connection with a “Non–Control Transaction” (as hereinafter defined);

(b) The individuals who, as of the date of this Agreement, are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least two-thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at least two–thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a–11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or

(i) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a “Non–Control Transaction” a “Non–Control Transaction” shall mean a merger, consolidation or reorganization of the Company where:

(A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization,

(B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization, constitute at least two–thirds of the members of the board of directors of the Surviving Corporation, or a corporation beneficially directly or indirectly owning a majority of the Voting Securities of the Surviving Corporation, and

(C) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of thirty percent (30%) or more of the then outstanding Voting Securities has Beneficial Ownership of thirty percent (30%) or more

of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

(ii) A complete liquidation or dissolution of the Company;

(iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. In no event shall stock option ownership be considered in calculating Change of Control.

6. Benefits Upon Termination.

a. Termination with Cause or Resignation. Upon termination of Executive’s employment by the Company for Cause or a voluntary resignation by Executive (other than for Good Reason pursuant to paragraph 5(c) above) during the Term, the Company will remain obligated to pay Executive only the unpaid portion of his Base Salary and benefits to the extent accrued through the effective date of termination and reimburse Executive for all expenses. Any amount due under this subparagraph will be payable within 30 days after the date of termination. In addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive, whether vested or unvested as of the date of termination, shall immediately expire on the date of termination and all unvested stock–based grants shall immediately expire.

b. Termination without Cause or for Good Reason. The Company shall also have the right to terminate Executive’s employment without Cause. Upon termination of Executive’s employment (x) by the Company without Cause or (y) by Executive for Good Reason, in addition to the stock options and stock grants to be retained by Executive in accordance with Section 4(d) hereof, Executive will be entitled to the benefits provided below, subject to signing by Executive of a general release of claims in a form reasonably satisfactory to the Company and Executive:

(i) the Company will pay as severance pay to Executive, in equal monthly installments over a twelve month period, an amount (the “Severance Amount”) equal to one times the sum of the Executive’s Base Salary and bonus for the immediately preceding calendar year or fifty (50%) percent of the base salary if the termination is in the first calendar year of employment (which shall be annualized if the applicable calendar year is less than a full year);

(ii) subject to Executive making a valid election to continue medical coverage under the Company’s group health plan, the Company will pay Executive’s COBRA premium for the shorter of (x) 12 months following Executive’s termination of employment or (y) the end of the COBRA continuation period;

(iii) pay Executive the unpaid portion of his Base Salary and benefits to the extent accrued through the effective date of termination and any bonus previously approved by the board for a prior year and not yet paid; and

(iv) reimburse Executive for all expenses.

c. Termination Upon Death or Permanent Disability. Upon termination of Executive’s employment upon Executive’s death or permanent disability, in addition to the stock options and stock grants to be retained by Executive or his estate in accordance with Section 4(d) hereof, Executive or Executive’s estate will be entitled to the benefits provided below, subject to signing by Executive or Executive’s estate of a general release of claims in a form reasonably satisfactory to the Company:

(i) the Company will pay as severance pay to Executive or Executive’s estate, in equal monthly installments over a twelve–month period, an amount equal to the Executive’s Base Salary as in effect on the date of termination of employment;

(iv) reimburse Executive for all expenses.

d. No Mitigation. Executive will not be required to mitigate the amount of any

payment provided for in this paragraph 6 by seeking other employment or otherwise, nor will the amount of any payment or benefit provided for in this paragraph 6 be reduced by any compensation earned by him as the result of employment by another employer or by retirement benefits after the date of termination.

e. Expiration of this Agreement. In the event the Term of this Agreement expires without having otherwise been previously terminated pursuant to paragraph 5 above or by the Company without Cause, Executive will not be entitled to any severance compensation whatsoever under this paragraph 6.

7. No Solicitation; Confidentiality; Competition; Cooperation.

was, at any time during the Restricted Period, an officer, executive or employee of the Company or of any of its affiliates. As used in this Agreement, the term “Executive–Controlled Person” shall mean any company, partnership, firm or other entity as to which Executive possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise.

b. Executive acknowledges that, through his status as Chief Operating Officer and Senior Vice President of the Company, he has, and will have, possession of important, confidential information and knowledge as to the business of the Company and its affiliates, including, but not limited to, knowledge of marketing and operating strategies, acquisition, leasing and other agreements, financial results and projections, future plans, the provisions of other important contracts entered into by the Company and its affiliates, possible acquisitions and similar information. Executive agrees that all such knowledge and information constitutes a vital part of the business of the Company and its affiliates and is by its nature trade secrets and confidential information proprietary to the Company and its affiliates (collectively, “Confidential Information”). Executive agrees that he shall not, so long as the Company remains in existence, divulge, communicate, furnish or make accessible (whether orally or in writing or in books, articles or any other medium) to any individual, firm, partnership or corporation, any knowledge or information with respect to Confidential Information directly or indirectly useful in any aspect of the business of the Company or any of its affiliates. The obligations of confidentiality set forth herein shall not apply to any Confidential Information which is:

(i) possessed by Executive prior to receipt from the Company, other than through prior disclosure by the Company, as evidenced by Executive’s written records;

(ii) published or available to the general public otherwise than through a breach of this Agreement or other obligation of confidentiality by Executive;

(iii) obtained by Executive from a third party with a valid right to disclose such Confidential Information, provided that such third party is not under a confidentiality obligation to the Company;

(iv) independently developed by employees of Executive who had no knowledge of the Company’s Confidential Information as evidenced by Executive’s written records; or

(v) required to be disclosed pursuant to law, regulation, or court order provided, however, that Executive gives the Company prompt, written notice prior to disclosure in order to allow that party to take whatever action it deems necessary to protect its Confidential Information.

c. All memoranda, notes , notebooks, lists, records and other documents or papers (and all copies thereof), including such items stored in computer memories, portable computers and the like, on microfiche, disk or by any other means, made or compiled by or on behalf of Executive or made available to him relating to the Company are and shall be the Company’s property and shall be delivered to the Company promptly upon the termination of Executive’s employment with the Company or at any other time on request and such information shall be held confidential by Executive after the termination of his employment with the Company.

d. Following Executive’s termination of employment, Executive will cooperate with the Company, its executives, counsel and other professional advisors (i) to the extent reasonably possible with respect to the consummation of matters that were in progress at the time of Executive’s termination of employment and (ii) with respect to any litigation or regulatory matters arising out of or related to the business, operations, or personnel of the Company (including participation in depositions, hearings and trials, as and if deemed necessary or appropriate by the Company, execution of appropriate affidavits and participation in interviews with Company counsel). The Company shall compensate Executive on a reasonable basis for any services provided by Executive pursuant to this paragraph 7(d).

e. The provisions contained in this paragraph 7 as to the time periods, scope of activities, persons or entities affected, and territories restricted shall be deemed divisible so that, if any provision contained in this paragraph 7 is determined to be invalid or unenforceable, such provisions shall be deemed modified so as to be valid and enforceable to the full extent lawfully permitted.

f. Executive agrees that the provisions of this paragraph 7 are reasonable and necessary for the protection of the Company and that they may not be adequately enforced by an action for damages and that, in the event of a breach thereof by Executive or any Executive-Controlled Person, the Company shall be entitled to apply for and obtain injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of such violation or otherwise to enforce specifically such provisions against such violation, without the necessity of the posting of any bond by the Company. Executive further covenants and agrees that if he shall violate any of his covenants under this paragraph 7, the Company shall not be obligated to make any payments or provide any benefits provided in paragraph 6 and the Company shall be entitled to recover any amounts previously paid pursuant to paragraph 6. Such a remedy shall, however, not be exclusive and shall be in addition to any injunctive relief or other legal or equitable remedy to which the Company is or may be entitled. Accordingly, Executive and Company agree that they shall reimburse the prevailing party for any reasonable attorneys’ fees and expenses that the prevailing party might incur in any action brought to enforce this paragraph 7 if it is judicially determined that Executive has or has not breached this paragraph 7.

8. Indemnification. To the full extent permitted by applicable law, Executive shall be defended, indemnified and held harmless by the Company against any and all judgments, penalties, fines, amounts paid in settlement, and other reasonable expenses (including, without limitation, reasonable attorneys’ fees and disbursements) actually incurred by Executive in connection with any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative, investigative or other) for any action or omission in his capacity as a director, officer or employee of the Company or any of its subsidiaries or affiliates, but the Executive shall not be indemnified for his own gross negligence willful misconduct or fraud. Indemnification under this paragraph 8 shall be in addition to, and not in substitution of, any other indemnification by the Company of its officers and directors.

York, New York by a single neutral arbitrator and win be held in accordance with the rules of the American Arbitration Association. The decision and award of the arbitrators must be in writing and will be final and binding upon the parties hereto. Judgment upon the award may be entered in any court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The expenses of arbitration will be borne in accordance with the determination of the arbitrator with respect thereto, except as otherwise specified in paragraph 5(b) above. Pending a decision by the arbitrator with respect to the dispute or difference undergoing arbitration, all other obligations of the parties will continue as stipulated herein, and all monies not directly involved in such dispute or difference will be paid when due.

10. Miscellaneous.

a. Executive represents and warrants that he is not a party to any agreement, contract or understanding, whether employment or otherwise, which would restrict or prohibit him from undertaking or performing employment in accordance with the terms and conditions of this Agreement.

b. The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provision to the extent enforceable in any jurisdiction will remain binding and enforceable.

c. The rights and obligations of the Company under this Agreement inure to the benefit of, and will be binding on, the Company and its successors and permitted assigns, and the rights and obligations (other than obligations to perform services) of Executive under this Agreement will inure to the benefit of, and will be binding upon, Executive and his heirs, personal representatives and permitted assigns; provided, however, that Executive shall not be entitled to assign or delegate any of his rights and obligations under this Agreement without the prior written consent of the Company; provided, further, that the Company shall not have the right to assign or delegate any of its rights or obligations under this Agreement except to a corporation, partnership or other business entity that is, directly or indirectly, controlled by the Company.

d. Any notice to be given under this Agreement will be personally delivered in writing or will have been deemed duly given when received after it is posted in the United States mail, postage prepaid, registered or certified, return receipt requested, and if mailed to the Company, will be addressed to its principal place of business, attention: Secretary, and if mailed to Executive, will be addressed to him at his home address last known on the records of the Company or at such other address or addresses as either the Company or Executive may hereafter designate in writing to the other.

e. The failure of either party to enforce any provision or provisions of this Agreement will not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy will not constitute a waiver of such party’s right to assert all other legal remedies available to it under the circumstances.

f. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS.

g. Captions and paragraph headings used herein are for convenience and are not a part of this Agreement and will not be used in construing it.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above.

AMERICAN SPECTRUM REALTY, INC.

By:	/s/ William J. Carden
Name:			William J. Carden
Title:		President

/s/ Harry A. Mizrahi
HARRY A. MIZRAHI

EX-10.02 4 j3580_ex10d02.htm EX-10.02 Exhibit 10

Exhibit 10.02

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), dated as of April 3, 2002, is entered into between American Spectrum Realty, Inc., a Maryland corporation (the “Company”),

and Paul E. Perkins (“Executive”).

Recitals

A. The Company is a corporation intended to be qualified and to operate as a real estate investment trust under the Internal Revenue Code of 1986, as amended.

B. The Company wishes to employ Executive and Executive wishes to be employed by the Company, on the terms and conditions set forth below.

THEREFORE, the parties agree as follows:

1. Employment Duties. During the Term (as defined in paragraph 2 below), the Company will initially employ Executive as its Senior Vice President except as set forth on Schedule A to this Agreement, Executive will devote substantially all of his business time and attention to the performance of his duties under this Agreement. Executive shall have the duties, rights and responsibilities normally associated with his position with the Company, together with such other reasonable duties relating to the operation of the business of the Company and its affiliates as may be assigned to him from time to time by the President or Chief Executive Officer of the Company or by the Board of Directors. If the Company shall so request, Executive shall act as an officer and/or director of any of the subsidiaries of the Company as they may now exist or may be established by the Company in the future without any compensation other than that provided for in paragraph 3.

2. Term. The term of Executive’s employment under this Agreement (the “Term”) will begin on the date of this Agreement and will continue, subject to the termination provisions set forth in paragraph 5 below, until the first anniversary of the date hereof, provided that this Agreement will automatically renew each year for an additional one year period unless either party gives written notice to the other not to extend the Term not less than 90 days prior to the then next upcoming expiration date.

3. Salary and Bonus.

a. Salary. During each year of the Term, Executive will receive a salary at the annual rate of $125,000.00 (the “Base Salary”).

of Directors and Executive shall not be entitled to any incentive bonus unless and until such incentive bonus is approved by the Board of Directors.

4. Fringe Benefits. In addition to the other compensation payable pursuant to this Agreement, during the Term:

b. Vacation and Sick Leave. Executive will be entitled to such periods of paid vacation (not less than three (3) weeks per year) and sick leave allowance each year.

d. Stock Options. Executive shall be entitled to participate in employee stock plans from time to time established for the benefit of employees of the Company in accordance with the terms and conditions of such plans. Simultaneously with the closing of the consolidation of the Company, Executive shall receive pursuant to and subject to the Company’s 2000 Incentive Plan (the “Plan”), a stock option grant for 15,000 shares of restricted stock. The options shall be exercisable as follows: (i) 50% on the closing of the consolidation pursuant to the Company’s Registration Statement on Form S–4 at an option exercise price of $15.00 per share and (ii) 50% on the six-month anniversary of such Closing at an option exercise price equal to the price that the stock is trading on the date of grant or if there is no established market, at the fair market value of the stock as determined by the Board of Directors in its sole discretion. Executive has previously received a grant of 10,000 shares of restricted stock pursuant to the Plan which shares shall be subject to repurchase by the Company on termination of Executive’s employment for a price of $.01 per share, which repurchase option shall lapse in four nearly equal installments on each of the first, second, third and fourth anniversary of the date of grant. Notwithstanding the foregoing, stock options granted to Executive shall become fully exercisable and repurchase restrictions on stock grants shall lapse in full upon (i) a Change of Control of the Company (as defined herein) or (ii) Executive’s termination of employment by Executive with Good Reason or by the Company without Cause, and Executive shall have one (1) year from such termination, or remaining term of the option, if earlier, to exercise such options.

Notwithstanding the foregoing, in the event this Employment Agreement is terminated by the Company without Cause, then (i) the obligation of the Company to grant stock options to the Employee for subsequent years shall also terminate except that the stock options to be granted for the next succeeding year shall be granted as of and as a condition to the termination and (ii) the Company’s right to repurchase the restricted stock issued pursuant to the Plan shall not lapse except as to the lapse of the right that would have occurred in the year subsequent to the

termination.

5. Termination of Employment.

b. For Cause. The Company may terminate Executive’s employment under this Agreement for “Cause” (as defined below) upon providing Executive written notice of termination, which notice will describe in detail the basis of such termination and will become effective immediately after Executive’s receipt thereof unless Executive (i) cures to the satisfaction of the Board of Directors the alleged violation or other circumstance which was the basis of such termination within such notice period or (ii) sends, within thirty (30) days, written notice to the Board disputing in good faith the existence of Cause and requesting arbitration of such dispute pursuant to paragraph 9 below. During the pendency of the arbitration, Executive will continue to receive all compensation and benefits to which he is entitled hereunder but shall have no duties or authority in connection with any activities of the Company. If the Company is not successful in obtaining a determination by the arbitrators that there was Cause for termination, the Company will pay Executive’s reasonable expenses, including, without limitation, reasonable attorneys’ fees and disbursements, in connection with such dispute resolution and Executive may elect to terminate his employment and shall receive the payments and benefits set forth in paragraph 6(b) as if his employment were terminated without Cause.

c. For Good Reason. Executive may terminate his employment under this Agreement for “Good Reason” (as defined below) upon providing the Company 30 days’ prior written notice of termination, which notice will detail the basis of such termination and will become effective on the 30th day after the Company’s receipt thereof, unless the Company cures the alleged violation or other circumstance which was the basis of such termination within such 30 day notice period; provided that any termination pursuant to (d)(iii)(C) of the definition of Good Reason shall be made by notice given not more than 120 days after the effective date of the Change of Control (as defined below).

d. Definitions. For purposes of this Agreement:

(ii) “Cause” means either (A) a breach by Executive of any material provisions of this Agreement, but only if, after notice provided in subparagraph (b) above,

Executive fails to cure such breach; (B) action by Executive constituting willful misconduct or gross negligence in connection with performing his duties as set forth by the Board of Directors or as established by law based on Executive’s position with the Company; (C) an act of fraud, misappropriation of funds or embezzlement by Executive in connection with his employment hereunder; or (D) Executive is convicted of, confesses or pleads guilty to any felony.

(iii) “Good Reason” means the occurrence of any of the following, without the prior written consent of Executive: (A) a breach by the Company of any of its material obligations under this Agreement, but only if after expiration of the 30 day notice period provided in subparagraph (c) above, the Company fails to cure such breach or (B) a Change of Control. as herein defined, or (C) the withdrawal without Executive’s consent of any substantive part of Executive’s responsibilities, duties or authority as previously discharge or (D) the harassment of Executive intended, designed or which would have the foreseeable effect of causing Executive to resign or abandon Executive’s employment with Company.

(iv) “Change of Control” means the occurrence of:

(b) The individuals who, as of the date of this Agreement , are members of the Board (the “Incumbent Board”), cease for any reason to constitute at least two–thirds of the members of the Board; provided, however, that if the election, or nomination for election by the Company’s common stockholders, of any new director was approved by a vote of at least two–thirds of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a– 11 promulgated under the Exchange Act) or other actual or threatened solicitation of

proxies or consents by or on behalf of a Person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or

(i) A merger, consolidation or reorganization involving the Company, unless such merger, consolidation or reorganization is a “Non-Control Transaction”. A “Non–Control Transaction” shall mean a merger, consolidation or reorganization of the Company where:

(A) the stockholders of the Company, immediately before such merger, consolidation or reorganization, would own, directly or indirectly immediately following such merger, consolidation or reorganization, at least fifty percent (50 %) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the “Surviving Corporation”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization,

(C) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any employee benefit plan (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation, or any Subsidiary, or (iv) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of thirty percent (30%) or more of the then outstanding Voting Securities, has Beneficial Ownership of thirty percent (30 %) or more of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

(ii) A complete liquidation or dissolution of the Company; or

(iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary).

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. In no event shall stock option ownership be considered in calculating Change of Control.

6. Benefits upon Termination.

a. Termination with Cause or Resignation. Upon termination of Executive’s employment by the Company for Cause or a voluntary resignation by Executive (other than for Good Reason pursuant to paragraph 5(c) above) during the Term, the Company will remain obligated to pay Executive only the unpaid portion of his Base Salary and benefits to the extent accrued through the effective date of termination. Any amount due under this subparagraph will be payable within 30 days after the date of termination. In addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive, whether vested or unvested as of the date of termination, shall immediately expire on the date of termination and all unvested stock–based grants shall immediately expire.

b. Termination without Cause or for Good Reason. The Company shall also have the right to terminate Executive’s employment without Cause. Upon termination of Executive’s employment (x) by the Company without Cause or (y) by Executive for Good Reason, Executive will be entitled to the benefits provided below, subject to signing by Executive of a general release of claims in a form reasonably satisfactory to the Company and Executive.

(i) the Company will pay as severance pay to Executive, in equal monthly installments over a twelve–month period, an amount (the “Severance Amount”) equal to one times Executive’s Base Salary and bonus for the immediately preceding calendar year or current year if the termination is in the first calendar year of employment (which shall be annualized if the applicable calendar year is less than a full year);

(ii) subject to Executive making a valid election to continue medical coverage under the Company’s group health plan, the Company will pay Executive’s COBRA premium for the longer of (x) 12 months following Executive’s termination of employment or (y) the end of the COBRA continuation period.

c. Termination Upon Death or Permanent Disability. Upon termination of Executive’s employment upon Executive’s death or permanent disability, Executive or Executive’s estate will be entitled to the benefits provided below, subject to signing by Executive or Executive’s estate of a general release of claims in a form reasonably satisfactory to the Company and Executive:

(i) the Company will pay as severance pay to Executive or Executive’s estate, in equal monthly, installments over a twelve–month period, an amount equal to the Executive’s Base Salary Bonus (for the immediately preceding calendar year) as in effect on the date of termination of employment; and

d. No Mitigation. Executive will not be required to mitigate the amount of any

payment provided for in this paragraph 6 by seeking other employment or otherwise.

7. No Solicitation; Confidentiality, Competition; Cooperation.

a. During the Restricted Period (defined below), neither Executive nor any Executive–Controlled Person (defined below) will, without the prior written consent of the Board, directly or indirectly solicit for employment, employ in any capacity or make an unsolicited recommendation to any other person that it employ or solicit for employment any person who is or was, at any time during the Restricted Period, an officer, executive or employee of the Company or of any of its affiliates. As used in this Agreement, the term “Executive-Controlled Person” shall mean any company, partnership, firm or other entity as to which Executive possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise.

b. Executive acknowledges that, through his status as Senior Vice President of the Company, he has, and will have, possession of important, confidential information and knowledge as to the business of the Company and its affiliates, including, but not limited to, knowledge of marketing and operating strategies, financial results and projections, future plans, the provisions of other important contracts entered into by the Company and its affiliates. Executive agrees that all such knowledge and information constitutes a vital part of the business of the Company and its affiliates and is by its nature trade secrets and confidential information proprietary to the Company and its affiliates (collectively, “Confidential Information”). Executive agrees that he shall not for a period of 12 months after employment divulge, communicate, furnish or make accessible (whether orally or in writing or in books, articles or any other medium) to any individual, firm, partnership or corporation, any knowledge or information with respect to Confidential Information directly useful in any aspect of the business of the Company or any of its affiliates. The obligations of confidentiality set forth herein shall not apply to any Confidential Information which is:

(i) possessed by Executive prior to receipt from the Company, other than through prior disclosure by the Company, as evidenced by Executive’s written records;

(ii) published or available to the general public otherwise than through a breach of this Agreement or other obligation of confidentiality by Executive;

(iii) obtained by Executive from a third party with a valid right to disclose such Confidential Information, provided that such third party is not under a confidentiality obligation to the Company;

(iv) independently developed by employees of Executive who had no knowledge of the Company’s Confidential Information as evidenced by Executive’s written records; or

c. All memoranda, notes, notebooks, lists, records and other documents or papers (and all copies thereof), made available to him relating to the Company are and shall be the Company’s property and shall be delivered to the Company promptly upon the termination of Executive’s employment with the Company or at any other time on request and such information shall be held confidential by Executive after the termination of his employment with the Company.

f. Executive agrees that the provisions of this paragraph 7 are reasonable and necessary for the protection of the Company.

the Company or any of its subsidiaries or affiliates, but the Executive shall not be indemnified for his own gross negligence, willful misconduct or fraud. Indemnification under this paragraph 8 shall be in addition to, and not in substitution of, any other indemnification by the Company of its officers and directors.

9. Arbitration. The parties hereto will endeavor to resolve in good faith any controversy, disagreement or claim arising between them, whether as to the interpretation, performance or operation of this Agreement or any rights or obligations hereunder. If they are unable to do so, any such controversy, disagreement or claim will be submitted to binding arbitration, for final resolution without appeal, by either party giving written notice to the other of the existence of a dispute which it desires to have arbitrated. The arbitration will be conducted in California by a single neutral arbitrator and will be held in accordance with the rules of the American Arbitration Association. The decision and award of the arbitrators must be in writing and will be final and binding upon the parties hereto. Judgment upon the award may be entered in any court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The expenses of arbitration will be borne in accordance with the determination of the arbitrator with respect thereto. Pending a decision by the arbitrator with respect to the dispute or difference undergoing arbitration, all other obligations of the parties will continue as stipulated herein, and all monies not directly involved in such dispute or difference will be paid when due.

10. Miscellaneous.

c. The rights and obligations of the Company under this Agreement inure to the benefit of, and will be binding on, the Company and its successors and permitted assigns, and the rights and obligations (other than obligations to perform services) of Executive under this Agreement will inure to the benefit of, and will be binding upon, Executive and his heirs, personal representatives and permitted assigns; provided, however, Executive shall not be entitled to assign or delegate any of his rights and obligations under this Agreement without the prior written consent of the Company; provided, further, that the Company shall not have the right to assign or delegate any of its rights or obligations under this Agreement except to a corporation, partnership or other business entity that is, directly or indirectly, controlled by the Company.

will be addressed to him at his home address last known on the records of the Company or at such other address or addresses as either the Company or Executive may hereafter designate in writing to the other.

f. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS OF LAWS.

g. Captions and paragraph headings used herein are for convenience and are not 6 part of this Agreement and will not be used in construing it.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above.

AMERICAN SPECTRUM REALTY, INC.

By:	/s/ William J. Carden
	Name: William J. Carden
	Title: President

/s/ Paul E. Perkins
PAUL E. PERKINS

Schedule A

Notwithstanding anything to the contrary in this Agreement, including without limitation paragraphs I and 7, the Company acknowledges and agrees that (i) Executive currently holds and in the future may hold ownership interests in to be determined at the sole discretion of Executive; (ii) Executive currently and in the future may serve as a director, officer, partner, member, principal, consultant or in other capacities for the (above); (iii) Executive may while employed with the Company and at any time thereafter own interests in, serve in various capacities for and otherwise undertake activities related to the (above) without restriction or limitation under the Agreement. Company must receive written notification.

In addition, Company acknowledges and agrees that Executive is currently an officer of American Spectrum __________ and many of its affiliates. Company acknowledges and agrees that Executive may while employed with the Company and at any time thereafter serve in various capacities for and

undertake activities related to these companies and their subsidiaries and affiliates without restriction or limitation under the Agreement.

Company and Executive agree that the business of Company is furthered through Executive’s participation in certain professional organizations and gatherings. It is, therefore, agreed that attendance at meetings and gatherings of professional organizations shall not constitute vacation for purposes of this Agreement.

EX-10.03 5 j3580_ex10d03.htm EX-10.03 EMPLOYMENT AGREEMENT

Exhibit 10.03

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), dated as of April 16, 2002, is entered into between American Spectrum Realty, Inc., a Maryland corporation (the “Company”), and Patricia A. Nooney (“Executive”).

Recitals

A. The Company is a corporation intended to be qualified and to operate as a real estate investment trust under the Internal Revenue Code of 1986, as amended.

B. The Company wishes to employ Executive and Executive wishes to be employed by the Company, on the terms and conditions set forth below.

THEREFORE, the parties agree as follows:

1. Employment Duties. During the Term (as defined in paragraph 2 below), the Company will initially employ Executive as its Senior Vice President Asset Management for the period from November 1, 2001 to January 29, 2002 and thereafter as its Senior Vice President Asset Management and Treasurer. Except as set forth on Schedule A to this Agreement, Executive will devote substantially all of her business time and attention to the performance of her duties under this Agreement. Executive shall have the duties, rights and responsibilities normally associated with her position with the Company, together with such other reasonable duties relating to the operation of the business of the Company and its affiliates as may be assigned to her from time to time by the President or Chief Executive Officer of the Company or by the Board of Directors. Such duties are generally set forth in the By laws of the Company and by memorandum to Executive of even date with this employment agreement. If the Company shall so request, Executive shall act as an officer and/or director of any of the subsidiaries of the Company as they may now exist or may be established by the Company in the future without any compensation other than that provided for in paragraph 3.

2. Term. The term of Executive’s employment under this Agreement (the “Term”) began on November 1, 2001, and will continue, subject to the termination provisions set forth in paragraph 5 below, until the first anniversary of the date hereof, provided that this Agreement will automatically renew each year for an additional one year period unless either party gives written notice to the other not to extend the Term not less than 90 days prior to the then next upcoming expiration date.

3. Salary and Bonus.

a. Salary. During each year of the Term, Executive will receive a salary at the annual rate of $125,000 prorated through January 28, 2002 and thereafter at the annual rate of $175,000 (the “Base Salary”).

b. Bonus. In addition to the Base Salary, the Executive shall be entitled to an annual incentive bonus payable within 120 days after the end of each year ended December 31 in an amount which shall be determined in the sole discretion of the Board of Directors taking into account such factors concerning the performance of the Company and Executive and the Executive’s overall compensation level, as shall be determined by the Board of Directors. The amount of the incentive bonus shall be determined in the sole discretion of the Board of Directors and Executive shall not be entitled to any incentive bonus unless and until such incentive bonus is approved by the Board of Directors.

4. Fringe Benefits. In addition to the other compensation payable pursuant to this Agreement, during the Term:

b. Vacation and Sick Leave. Executive will be entitled to such periods of paid vacation (not less than three (3) weeks per year) and sick leave allowance each year that are consistent with the Company’s vacation and sick leave policy for senior management.

c. Business Expenses. The Company will pay or reimburse Executive for all business–related expenses incurred by Executive in the course of her performance of duties under this Agreement, subject to the procedures established by the Company from time to time with respect to incurrence, substantiation, reasonableness and approval, including without limitation dues, meeting expenses and travel costs for professional organizations not to exceed $10,000.00 per calendar year.

d. Stock Options. Executive shall be entitled to participate in employee stock plans from time to time established for the benefit of employees of the Company in accordance with the terms and conditions of such plans. Simultaneously with the closing of the consolidation of the Company, Executive shall receive pursuant to and subject to the Company’s Omnibus Stock Incentive Plan (the “Plan”), a grant of 4,500 stock options for common stock of the Company. The options shall be granted (i) 50% on the date of the closing of the consolidation described in the Company’s Registration Statement on Form S-4 (the “Consolidation”) with an option exercise price of $15.00 per share and (ii) 50% on the six-month anniversary of such closing with an option exercise price equal to the price at which the common stock is trading at the close of business on that date, or if there is no established market, at the fair market value of the common stock as determined by the Board of Directors in its sole discretion. The options shall be 25% exercisable on the date of grant and the balance of which become exercisable subject to Executive’s continuing to be employed by the Company in three nearly equal installments on the first, second and third anniversaries of the date of grant.

In addition, Executive shall receive upon Board approval, pursuant to and subject to the Plan, a grant of 10,000 shares of restricted stock of the Company which shares shall be subject to repurchase by the Company on termination of Executive’s employment for a price of $.01 per share, which repurchase option shall lapse 50% on the date of issuance and 50% on the sixth month anniversary of

the date of grant. Executive has previously received a grant of 2,000 shares of restricted stock pursuant to the Plan which shares shall be subject to repurchase by the Company on termination of Executive’s employment for a price of $.01 per share, which repurchase option shall lapse 25% on the date of issuance and 25% in three nearly equal installments on each of the first, second, and third anniversary of the date of grant. Notwithstanding the foregoing, stock options granted to Executive shall become fully exercisable and repurchase restrictions on stock grants shall lapse in full upon (i) a Change of Control of the Company (as defined herein) or (ii) Executive’s termination of employment by Executive with Good Reason or by the Company without Cause, and Executive shall have one (1) year from such termination, or remaining term of the option, if earlier, to exercise such options.

5. Termination of Employment.

a. Death and Disability. Executive’s employment under this Agreement will terminate immediately upon her death and upon 30 days’ prior written notice given by the Company in the event Executive is determined to be “permanently disabled” (as defined below).

b. For Cause. The Company may terminate Executive’s employment under this Agreement for “Cause” (as defined below) upon providing Executive 30 days’ prior written notice of termination, which notice will describe in detail the basis of such termination and will become effective immediately on the 30^th day after Executive’s receipt thereof unless Executive (i) cures to the reasonable satisfaction of the Board of Directors the alleged violation or other circumstance which was the basis of such termination within such notice period or (ii) sends, within thirty (30) days, written notice to the Board disputing in good faith the existence of Cause and requesting arbitration of such dispute pursuant to paragraph 9 below. During the pendency of the arbitration, Executive will continue to receive all compensation and benefits to which she is entitled hereunder but shall have no duties or authority in connection with any activities of the Company. If the Company is not successful in obtaining a determination by the arbitrators that there was Cause for termination, the Company will pay Executive’s reasonable expenses, including, without limitation, reasonable attorneys’ fees and disbursements, in connection with such dispute resolution and Executive may elect to terminate her employment and shall receive the payments and benefits set forth in paragraph 6(b) as if her employment were terminated without Cause. If the Company is successful in obtaining a determination by the arbitrators that there was Cause for termination, the Executive shall pay the Company’s expenses, including without limitation, reasonable attorneys’ fees and disbursements, in connection with such dispute resolution.

c. For Good Reason. Executive may terminate her employment under this Agreement for “Good Reason” (as defined below) upon providing the Company 30 days’ prior written notice of termination, which notice will detail the basis of such termination and will become effective on the 30th day after the Company’s receipt thereof, unless the Company cures to the reasonable satisfaction of Executive the alleged violation or other circumstance which was the basis of such termination within such 30 day notice period; provided that any termination pursuant to (d)(iii)(C) of the definition of Good Reason shall be made by notice given not more than 120 days after the effective date of the Change of Control (as defined below).

d. Definitions. For purposes of this Agreement:

(i) Executive will be deemed “permanently disabled” if she becomes unable to discharge her normal duties as contemplated under this Agreement for more than six consecutive months as a result of incapacity due to mental or physical illness as determined by a physician acceptable to Executive and the Company and paid by the Company, whose determination will be final and binding. If Executive and the Company are unable to agree on a physician, Executive and the Company will each choose one physician who will mutually choose the third physician, whose determination will be final and binding.

(ii) “Cause” means either (A) a breach by Executive of any material provisions of this Agreement, but only if, after notice provided in subparagraph (b) above, Executive fails to cure such breach; (B) action by Executive constituting willful misconduct or gross negligence in connection with performing her duties hereunder; (C) an act of fraud, misappropriation of funds or embezzlement by Executive in connection with her employment hereunder; or (D) Executive is convicted of/or pleads guilty to any felony involving moral turpitude.

(iii) “Good Reason” means the occurrence of any of the following: (A) a breach by the Company of any of its material obligations under this Agreement, but only if after expiration of the 30 day notice period provided in subparagraph (c) above, the Company fails to cure such breach or (B) change of location of Company office where Executive is to be employed to a location more than 30 miles from St. Louis, Missouri, but Executive agrees that her duties will compel her to supervise activities in various offices of the Company and the requirement to travel and conduct work at such offices shall not be deemed a relocation, or (C) a Change of Control as herein defined, or (D) the withdrawal without Executive’s prior written consent of any substantive part of Executive’s responsibilities, duties or authority as previously discharged or (E) the harassment of Executive intended, designed or which would have the foreseeable effect of causing Executive to resign or abandon Executive’s employment with Company.

(iv) “Change of Control” means the occurrence of:

(a) An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any “Person” (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act) immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d–3 promulgated under the Exchange Act) of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding Voting Securities; provided, however, in determining whether a Change of Control has occurred, Voting Securities which are acquired in a “Non–Control Acquisition” (as hereinafter defined) shall not constitute an acquisition which would cause a Change of Control. A “Non–Control Acquisition” shall mean an acquisition by (a) an employee benefit plan (or a trust forming a part thereof) maintained by (i) the Company or (ii) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a “Subsidiary”), (b) the Company or its Subsidiaries, (iii) any corporation or other Person the majority of its voting power or its voting equity securities is owned, directly or indirectly, by William J. Carden or

John Galardi or (iv) any Person in connection with a “Non-Control Transaction” (as hereinafter defined); or

thirty percent (30%) or more of the then outstanding Voting Securities, has Beneficial Ownership of thirty percent (30 %) or more of the combined voting power of the Surviving Corporation’s then outstanding voting securities.

(ii) A complete liquidation or dissolution of the Company; or

(iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Subsidiary).

Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change of Control shall occur. In no event shall stock option ownership be considered in calculating Change of Control.

6. Benefits upon Termination.

a. Termination with Cause or Resignation. Upon termination of Executive’s employment by the Company for Cause or a voluntary resignation by Executive (other than for Good Reason pursuant to paragraph 5(c) above) during the Term, the Company will remain obligated to pay Executive only the unpaid portion of her Base Salary and benefits to the extent accrued through the effective date of termination (all of which will for this purpose be deemed to accrue daily). Any amount due under this subparagraph will be payable within 30 days after the date of termination. In addition to whatever other rights or remedies the Company may have at law or in equity, all stock options held by Executive, whether vested or unvested as of the date of termination, shall immediately expire on the date of termination and all unvested stock–based grants shall immediately expire.

b. Termination without Cause or for Good Reason. The Company shall also have the right to terminate Executive’s employment without Cause. Upon termination of Executive’s employment (x) by the Company without Cause or (y) by Executive for Good Reason, Executive will be entitled to the benefits provided below, subject to signing by Executive of a general release of claims in a form reasonably satisfactory to the Company and Executive.

current year if the termination is in the first calendar year of employment (which shall be annualized if the applicable calendar year is less than a full year);

(i) the Company will pay as severance pay to Executive or Executive’s estate, in equal monthly installments over a twelve month period, an amount equal to the Executive’s Base Salary as in effect on the date of termination of employment; and

d. No Mitigation. Executive will not be required to mitigate the amount of any

payment provided for in this paragraph 6 by seeking other employment or otherwise, nor will the amount of any payment or benefit provided for in this paragraph 6 be reduced by any compensation earned by her as the result of employment by another employer or by retirement benefits after the date of termination.

e. Expiration of this Agreement. In the event the Term of this Agreement expires without having otherwise been previously terminated pursuant to paragraph 5 above, Executive will not be entitled to any severance compensation whatsoever.

7. No Solicitation; Confidentiality; Cooperation.

a. For a period of 12 months after employment, neither Executive nor any Executive–Controlled Person (defined below) will, without the prior written consent of the Board, directly or indirectly solicit for employment, employ in any capacity or make an unsolicited recommendation to any other person that it employ or solicit for employment any person who is or was, at any time during the 12-month period, a senior officer or senior executive of the Company or of any of its affiliates. As used in this Agreement, the term “Executive-Controlled Person” shall mean any company, partnership, firm or other entity as to which Executive possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise.

b. Executive acknowledges that, through her status as Senior Vice President Asset Management of the Company, she has, and will have, possession of important, confidential information and knowledge as to the business of the Company and its affiliates, including, but not

limited to, knowledge of marketing and operating strategies, acquisition, leasing and other agreements, financial results and projections, future plans, the provisions of other important contracts entered into by the Company and its affiliates, possible acquisitions and similar information. Executive agrees that all such knowledge and information constitutes a vital part of the business of the Company and its affiliates and is by its nature trade secrets and confidential information proprietary to the Company and its affiliates (collectively, “Confidential Information”). Executive agrees that she shall not for a period of 12 months after employment divulge, communicate, furnish or make accessible (whether orally or in writing or in books, articles or any other medium) to any individual, firm, partnership or corporation, any knowledge or information with respect to Confidential Information directly or indirectly useful in any aspect of the business of the Company or any of its affiliates. The obligations of confidentiality set forth herein shall not apply to any Confidential Information which is:

(i) possessed by Executive prior to receipt from the Company, other than through prior disclosure by the Company, as evidenced by Executive’s records;

(ii) published or available to the general public otherwise than through a breach of this Agreement or other obligation of confidentiality by Executive;

(iii) obtained by Executive from a third party with a valid right to disclose such Confidential Information, provided that such third party is not under a confidentiality obligation to the Company;

(iv) independently developed by employees of Executive who had no knowledge of the Company’s Confidential Information as evidenced by Executive’s records; or

c. All memoranda, notes, notebooks, lists, records and other documents or papers (and all copies thereof), including such items stored in computer memories, portable computers and the like, on microfiche, disk or by any other means, made or compiled by or on behalf of Executive or made available to her relating to the Company are and shall be the Company’s property and shall be delivered to the Company promptly upon the termination of Executive’s employment with the Company or at any other time on request and such information shall be held confidential by Executive after the termination of her employment with the Company.

Company shall compensate Executive on a reasonable basis for any services provided by Executive pursuant to this paragraph 7(d).

e. Executive agrees that the provisions of this paragraph 7 are reasonable and necessary for the protection of the Company and that they may not be adequately enforced by an action for damages and that, in the event of a breach thereof by Executive or any Executive-Controlled Person, the Company shall be entitled to apply for and obtain injunctive relief in any court of competent jurisdiction to restrain the breach or threatened breach of such violation or otherwise to enforce specifically such provisions against such violation, without the necessity of the posting of any bond by the Company. Executive further covenants and agrees that if it is finally judicially determined by a court of competent jurisdiction that she materially violated any of her covenants under this paragraph 7, the Company shall not be obligated to make any payments or provide any benefits provided in paragraph 6 and the Company shall be entitled to recover any amounts previously paid pursuant to paragraph6. Such a remedy shall, however, not be exclusive and shall be in addition to any injunctive relief or other legal or equitable remedy to which the Company is or may be entitled. Accordingly, Executive agrees that she shall reimburse the Company for any reasonable attorneys’ fees and expenses that the Company might incur in enforcing this paragraph 7 if it is finally judicially determined that Executive has materially breached this paragraph 7.

8. Indemnification. To the full extent permitted by applicable law, Executive shall be indemnified and held harmless by the Company against any and all judgments, penalties, fines, amounts paid in settlement, and other reasonable expenses (including, without limitation, reasonable attorneys’ fees and disbursements) as they are actually incurred by Executive in connection with any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative, investigative or other) for any action or omission in her capacity as a director, officer or employee of the Company or any of its subsidiaries or affiliates, but the Executive shall not be indemnified to the extent that is finally judicially determined that such amounts resulted directly from her own gross negligence, willful misconduct or fraud. Indemnification under this paragraph 8 shall be in addition to, and not in substitution of, any other indemnification by the Company of its officers and directors.

9. Arbitration. The parties hereto will endeavor to resolve in good faith any controversy, disagreement or claim arising between them, whether as to the interpretation, performance or operation of this Agreement or any rights or obligations hereunder. If they are unable to do so, any such controversy, disagreement or claim will be submitted to binding arbitration, for final resolution without appeal, by either party giving written notice to the other of the existence of a dispute which it desires to have arbitrated. The arbitration will be conducted in St. Louis, Missouri by a single neutral arbitrator and will be held in accordance with the rules of the American Arbitration Association. The decision and award of the arbitrators must be in writing and will be final and binding upon the parties hereto. Judgment upon the award may be entered in any court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. The expenses of arbitration will be borne in accordance with the determination of the arbitrator with respect thereto, except as otherwise specified in paragraph 5(b) above. Pending a decision by the arbitrator with respect to the dispute or difference undergoing arbitration, all other obligations of the parties will continue as stipulated herein, and all monies not directly involved in such dispute or difference will be paid when due.

10. Miscellaneous.

a. Executive represents and warrants that she is not a party to any agreement, contract or understanding, whether employment or otherwise, which would restrict or prohibit her from undertaking or performing employment in accordance with the terms and conditions of this Agreement.

c. The rights and obligations of the Company under this Agreement inure to the benefit of, and will be binding on, the Company and its successors and permitted assigns, and the rights and obligations (other than obligations to perform services) of Executive under this Agreement will inure to the benefit of, and will be binding upon, Executive and her heirs, personal representatives and permitted assigns; provided, however, Executive shall not be entitled to assign or delegate any of her rights and obligations under this Agreement without the prior written consent of the Company; provided, further, that the Company shall not have the right to assign or delegate any of its rights or obligations under this Agreement except to a corporation, partnership or other business entity that is, directly or indirectly, controlled by the Company.

d. Any notice to be given under this Agreement will be personally delivered in writing or will have been deemed duly given when received after it is posted in the United States mail, postage prepaid, registered or certified, return receipt requested, and if mailed to the Company, will be addressed to its principal place of business, attention: Secretary, and if mailed to Executive, will be addressed to her at her home address last known on the records of the Company or at such other address or addresses as either the Company or Executive may hereafter designate in writing to the other.

f. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS OF LAWS.

g. Captions and paragraph headings used herein are for convenience and are not a part of this Agreement and will not be used in construing it.

h. The parties agree that Schedule A attached hereto is an integral part of this Agreement and is deemed incorporated herein.

i. This Agreement is intended to amend and restate the prior agreement between the parties that was effective as of the date of the Consolidation. This Agreement contains the entire agreement between the parties and supercedes any previous agreements between them.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above.

	AMERICAN SPECTRUM REALTY, INC.

	By:	/s/ William J. Carden
	Name: William J. Carden
	Title: President

	/s/ Patricia A. Nooney
	PATRICIA A. NOONEY

Schedule A

Notwithstanding anything to the contrary in this Agreement, including without limitation paragraphs 1 and 7, the Company acknowledges and agrees that (i) Executive currently holds and in the future may hold ownership interests in Clayton Realty Associates LLC d/b/a Coldwell Banker Commercial and entities affiliated or related to the foregoing collectively referred to as “CRA Group”; (ii) Executive currently and in the future may serve as a director, officer, partner, member, principal, consultant or in other capacities for the CRA Group; (iii) Executive may while employed with the Company and at any time thereafter own interests in, serve in various capacities for and otherwise undertake activities related to the CRA Group without restriction or limitation under the Agreement.

In addition, Company acknowledges and agrees that Executive is currently an officer of American Spectrum Midwest and many of its affiliates. In addition, Company acknowledges and agrees that Executive is currently an officer and director of Brooklyn Street Properties, Inc. and several of its affiliates and subsidiaries. Company acknowledges and agrees that Executive may while employed with the Company and at any time thereafter serve in various capacities for and undertake activities related to these companies and their subsidiaries and affiliates without restriction or limitation under the Agreement.

Company acknowledges that Executive currently serves as the Institute of Real Estate Management’s (IREM) national President–Elect and will be National President in 2003. Company agrees to allow Executive to fully participate in and carry out the duties required of these positions.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Notes to Consolidated Financial Statements

GENERAL

CONSOLIDATION TRANSACTION

REAL ESTATE

STOCK-BASED COMPENSATION

MINORITY INTERESTS

NET LOSS PER SHARE

REFINANCINGS

NOTES PAYABLE TO FORMER LIMITED PARTNERS

NOTE 5. RELATED PARTY TRANSACTIONS

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2002 to the three months ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

Date: May 10, 2002 /s/ William J. Carden

Date: May 10, 2002 /s/ Thomas N. Thurber

Chief Financial Officer and

Date: May 10, 2002 /s/ Patricia A. Nooney

Schedule A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION