0001104659-02-003673.txt : 20020813 0001104659-02-003673.hdr.sgml : 20020813 20020813110656 ACCESSION NUMBER: 0001104659-02-003673 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 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: 02728304 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 j4417_10q.htm 10-Q

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 June 30, 2002

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 August 9, 2002, 5,536,990 shares of Common Stock ($.01 par value) were outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION

Item 1	Financial Statements
	Consolidated Balance Sheets at June 30, 2002 and December 31, 2001
	Consolidated Statements of Operations for the six months ended June 30, 2002 and 2001 and for the three months ended June 30, 2002 and 2001
	Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2002
	Consolidated Statements of Cash Flows for the six months ended June 30, 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 5	Other Information
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)

	June 30, 2002			December 31, 2001
	(Unaudited)

ASSETS

Real estate held for investment	$	266,830		$	254,679
Accumulated depreciation and valuation allowance	10,666			5,172
Real estate held for investment, net	256,164			249,507

Cash and cash equivalents	1,908			2,284
Tenant and other receivables, net of allowance for doubtful accounts of $519 and $234, respectively	934			1,378
Deferred rents receivable	420			149
Mortgage loan receivable	1,100			—
Deposits held in escrow	—			1,956
Investment in management company	4,000			4,000
Prepaid and other assets, net	8,668			6,931

Total Assets	$	273,194		$	266,205

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Notes payable, net of premiums of $4,361 and $4,829, respectively (including $2,799 and $2,802, respectively, to related parties)	$	192,416		$	176,915
Notes payable to former limited partners	428			2,292
Accounts payable	1,769			3,203
Deferred gain on disposition of property	—			232
Accrued and other liabilities (including $2,803 and $3,394, respectively, to related parties)	18,337			18,510

Total Liabilities	212,950			201,152

Minority Interests:
Unit holders in the operating partnership	10,001			10,616
Partially owned property	1,031			1,033
Total minority interests	11,032			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, 5,536,990 and 5,529,190 shares, respectively	55			55
Additional paid-in capital	55,448			56,502
Accumulated deficit	(5,621		)	(2,038		)
Deferred compensation	(970		)	(1,415		)

Total stockholders’ equity	48,912			53,104

Total Liabilities and Stockholders’ equity	$	273,194		$	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)

	Three Months Ended June 30,					Six Months Ended June 30,
	2002			2001		2002			2001
REVENUES:

Rental revenue	$	10,283		$	165	$	20,159		$	331
Interest and other income	72			44		151			87

Total revenues	10,355			209		20,310			418

EXPENSES:

Property operating expense	3,607			58		7,167			117
General and administrative	1,812			57		4,229			151
Depreciation and amortization	2,872			54		5,854			101
Interest expense	3,740			31		7,077			63

Total expenses	12,031			200		24,327			432

OTHER INCOME:

Net gain on sales of real estate assets	84			—		84			—
Income from investment in unconsolidated joint venture	—			230		—			210

Total other income	84			230		84			210

Minority Interests:
Unit holders in the operating partnership	194			—		470			—
Partially owned property	(31		)	—		(67		)	—

Total minority interests	163			—		403			—

Net (loss) income before extraordinary item	(1,429		)	239		(3,530		)	196

Extraordinary item – net loss on extinguishment of debt	(53		)	—		(53		)	—

Net (loss) income	$	(1,482	)	$	239	$	(3,583	)	$	196

Basic per share data:
Net loss before extraordinary item	$	(.26	)	$	—	$	(.64	)	$	—
Extraordinary item – net loss on extinguishment of debt	(.01		)	—		(.01		)	—
Net loss	$	(.27	)	$	—	$	(.65	)	$	—

Per unit data:
Limited partner income per unit	$	N/A		$	3.07	$	N/A		$	2.52

Basic weighted average shares used	5,535,591			—		5,531,705			—
Limited partnership units outstanding	N/A			77,000		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
Issuance of common stock to officer	—		70			—			(70		)	—			—
Common stock repurchases	—		(14		)	—			—			$	14		—
Retirement of common stock	—		—			—			—			(14		)	(14		)
Amortization of deferred compensation	—		—			—			515			—			515
Dividends paid to common stockholders	—		(1,110		)	—			—			—			(1,110		)
Net loss	—		—			(3,583		)	—			—			(3,583		)

Balance, June 30, 2002	$	55	$	55,448		$	(5,621	)	$	(970	)	$	—		$	48,912

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)

	For the Six Months Ended June 30,
	2002				2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(3,583	)		$		196
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	5,854				102
Extraordinary net loss on extinguishments of debt	53				—
Net gain on sales of real estate assets	(84		)		—
Income from investment in unconsolidated joint venture	—				(210			)
Minority interest	(403		)		—
Deferred compensation expense	515				—
Deferred rental income	(271		)		(2			)
Amortization of loan premiums, included in interest expense	(337		)		—
Changes in operating assets and liabilities:
Decrease (increase) in tenant and other receivables	652				(22			)
Increase in prepaid and other assets	(1,937		)		(41			)
Decrease in accounts payable	(1,434		)		(5			)
Decrease in accrued and other liabilities	(413		)		(114			)

Net cash used in operating activities:	(1,388		)		(96			)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements to real estate assets	(2,217		)		(38			)
Proceeds received from sale of real estate asset	59				—
Contributions to minority owner of partially owned property	(69		)		—
Distributions from unconsolidated joint venture	—				334

Net cash (used in) provided by investing activities:	(2,227		)		296

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings	21,773				—
Repayment of borrowings	(15,409		)		(9			)
Note payments to former limited partners	(1,864		)		—
Collection of advances to affiliate	8				—
Advances to affiliate	—				(191			)
Dividends to common stockholders	(1,110		)		—
Distributions to unitholders in the operating partnership	(145		)		—
Repurchase of common stock	(14		)		—

Net cash provided by (used in) financing activities:	3,239				(200			)

Decrease in cash	(376		)		—

Cash, beginning of period	2,284				34

Cash, end of period	$	1,908			$		34

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	6,435		$		63

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Assumption of mortgage loans in acquisitions of real estate assets	$	8,650		$		—

Seller financing of acquired real estate assets	$	955		$		—

Trust deed note receivable from disposition of real estate asset	$	1,100		$		—

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 June 30, 2002, through its majority-owned subsidiary, American Spectrum Realty Operating Partnership, L.P. (the “Operating Partnership”), the Company owned and operated 34 properties which consisted of 14 office, 11 office/warehouse, four 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 June 30, 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 June 30, 2002, the Operating Partnership, directly and through the subsidiaries in which it and the Company own 100% of the ownership interests, owns a portfolio of 34 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 unaudited condensed combined statements of operations and cash flows of CGS and its majority-owned affiliates for the six months and three months ended June 30, 2001 follows (dollars in thousands):

Condensed Combined Statements of Operations	Six Months Ended June 30, 2001			Three Months Ended June 30, 2001

Total revenues	$	12,682		$	6,541
Operating expenses	10,201			5,998
Depreciation and amortization	2,132			966
Interest expense	6,445			3,474
Equity in income of uncombined partnerships	54			61
Gain on sale of property	100			—
Minority interest	193			207
Net loss	$	(6,135	)	$	(4,043	)

Condensed Combined Statements of Cash Flows	Six Months Ended June 30, 2001			Three Months Ended June 30, 2001

Cash flows provided by (used in):
Operating activities	$	(7,064	)	$	(6,687	)
Investing activities	(1,160		)	(924		)
Financing activities	7,791			7,614
(Decrease) increase in cash	(433		)	3
Cash, beginning of period	1,787			1,351
Cash, end of period	$	1,354		$	1,354

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 six months and three months ended June 30, 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.

In April 2002, FASB issued SFAS No. 145, “Rescission of FASB No. 4, 44, and 62, Amendment of FASB No. 13, and Technical Corrections” (“FAS 145”). In most instances, FAS 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt (“FAS 4”). This provision of FAS 145 is effective for fiscal years beginning after May 15, 2002, with early application encouraged. Upon application, any gain or loss on extinguishments of debt previously classified as an extraordinary item in prior periods presented that does not meet the criteria of Opinion 30 for such classifications should be reclassified to conform to the provisions of FAS 145. Earlier application of the provisions of FAS 145 related to the rescission of FAS 4 is encouraged. The Company will adopt FAS 145 in the third quarter of 2002.

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, mortgage loan receivable, 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 June 30, 2002). Management believes that the carrying value of the Company’s financial instruments approximate their respective fair market values at June 30, 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. The interest rate swap contracts are reflected at fair value in the Company’s balance sheet and the changes in the fair value of the hedge are recognized as adjustments to interest expense. During the six months ended June 30, 2002, the Company recorded a charge of approximately $89,000 attributable to changes in the fair value of its derivatives financial instruments. The Company’s 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 June 30, 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 property that is subject to the built-in gains tax without a tax deferred exchange 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. REAL ESTATE

ACQUISITIONS

On May 28, 2002, the Company acquired two office properties in Houston, Texas consisting of 142,792 total square feet. The aggregate acquisition costs of approximately $11,567,000 consisted of proceeds from a tax-deferred exchange, the assumption of debt and seller financing. The Company is in the process of finalizing assumption of the existing debt. If the existing lender does not approve the Company’s assumption of the debt, the Company can elect to waive the requirement for approval of debt assumption or cause the Seller to repurchase the properties. In the event the Company elects to have the Seller repurchase the properties prior to electing to be treated as a Real Estate Investment Trust for Federal income tax purposes, the Company would record a deferred tax liability of $12,943,000. See Note 2. – Summary of Significant Accounting Policies – Income Taxes.

DISPOSITIONS

On April 30, 2002, the Company sold Beach & Lampson, a 13,017 square foot shopping center in California for $1,200,000. The Company received net cash proceeds of approximately $59,000 and obtained a $1,100,000 trust deed note from the buyer (See Note 4). The transaction resulted in a $148,000 loss on sale of real estate. In the second quarter, the Company recognized a $232,000 deferred gain associated with the sale of Tower Industrial in 2001.

NOTE 4. MORTGAGE LOAN RECEIVABLE

On April 30, 2002, the Company obtained a $1,100,000 trust deed note receivable from the sale of Beach & Lampson. The note bears interest at 9.5% per annum and matures September 15, 2003. A discount in the amount of $200,000 will apply in the event the note is paid in full by September 15, 2002.

NOTE 5. 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 June 30, 2001, SPPI84’s interest in SMMP was 80.32%; the remaining 19.68% interest was owned by SPDFII. During the six months and three months ended June 30, 2001, SPPI84 recorded income from investment in SMMP of $209,472 and $229,922, respectively.

On October 19, 2001, SPPI84 and SPDFII merged into a 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 June 30, 2002 and December 31, 2001.

NOTE 6. NOTES PAYABLE

The Company had the following mortgage loans, bank lines, and notes payable outstanding as of June 30, 2002 and December 31, 2001 (dollars in thousands):

	2002		2001
Unsecured loans with various lenders, bearing interest at fixed rates between 5.47% and 20.00% at June 30, 2002 and 8.00% and 20.00% at December 31, 2001, and maturing at various dates through October 1, 2004.	$	1,614	$	1,279

Unsecured loans with various lenders, bearing interest at variable rates between 4.75% and 6.25% at June 30, 2002 and 5.17% and 6.25% at December 31, 2001, and maturing at various dates through November 5, 2002.	31		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 $4,361 at June 30, 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 at June 30, 2002 and December 31, 2001, and maturing at various dates through June 1, 2012.	141,499		116,445

Secured loans with various banks bearing interest at variable rates ranging between 4.84% and 9.00% at June 30, 2002 and 4.93% and 9.00% at December 31, 2001, and maturing at various dates through May 1, 2008.	33,878		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.	11,737		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 ($65 at June 30, 2002 and $70 at December 31, 2001), and a maturity date of November 1, 2006.	700		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 June 30, 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 June 30, 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	$	192,416	$	176,915

Debt premiums are amortized into interest expense over the terms of the related mortgages using the effective interest method. As of June 30, 2002 and December 31, 2001, the unamortized debt premiums were $4,361,000 and $4,829,000, respectively.

In July 2002, a lender notified the Company it was technically in default under its loan agreement. The principal balance of the loan as of June 30, 2002 was $6,262,000. The Company is working to resolve this matter as of the filing date of this Form 10-Q.

In May 2002, through the acquisition of two office properties in Houston, Texas, the Company assumed two loans totaling $8,650,000. The loans bear interest at 7.45% per annum and mature in May 2012. The Company also entered into an agreement which provides for seller financing of $955,000, bearing interest at 7.45% per annum and maturing in May 2004.

In May 2002, an $859,000 unsecured loan was obtained to finance insurance premiums on the Company’s properties. The loan bears interest at a fixed rate of 5.47% per annum and matures in February 2003.

REFINANCINGS

In May 2002, the Company refinanced $1,452,000 on a loan secured by Southwest Pointe, an office/warehouse property, and entered into a new loan agreement in the amount of $2,950,000. The new

loan bears interest at a fixed rate of 7.33% per annum and matures in June 2012. Net proceeds of $1,297,000 were received as a result of the refinancing.

In May 2002, the Company refinanced $1,346,000 on a loan secured by Leawood Fountain Plaza, an office property, and entered into a new loan agreement in the amount of $3,000,000. The new loan bears interest at Libor plus 2.85% with a minimum of 5.75% per annum (5.75% at June 30, 2002), and matures in June 2003. The loan contains a one-year extension option and an option to convert to a permanent loan provided certain lender conditions are satisfied. Net proceeds of $1,026,000 were received as a result of the refinancing.

In April 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.

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.

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.

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, bore 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 June 30, 2002. On July 2, 2002, a payment of $191,055, plus accrued interest, reduced the principal balance to $236,622.

NOTE 7. NET LOSS ON EARLY EXTINGUISHMENTS OF DEBT

In connection with the refinancing of several loans, as discussed above, the Company recorded a net loss on early extinguishments of debt of $53,000 in the second quarter of 2002. Losses of $184,000 due to the write-off of unamortized deferred loan costs and prepayment penalties were partially offset by a $131,000 gain on the write-off of an unamortized loan premium.

NOTE 8. 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 June 30, 2002.

NOTE 9. SEGMENT INFORMATION

As of June 30, 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 three months and six months ended June 30, 2002 and 2001 is as follows (dollars in thousands):

	Office		Office/ Warehouse		Shopping Center		Apartment		Land Held for Development and Other			Property Total
Three Months Ended June 30, 2002
Rental revenue	$	5,704	$	1,999	$	561	$	2,019	—			$	10,283
Property operating expenses	2,005		422		146		922		$	112		3,607
Net operating income (NOI)	$	3,699	$	1,577	$	415	$	1,097	$	(112	)	$	6,676
Real estate assets, net	$	141,891	$	46,599	$	16,109	$	47,511	$	4,054		$	256,164

2001
Rental revenue	—		$	165	—		—		—			$	165
Property operating expenses	—		58		—		—		—			58
Net operating income (NOI)	—		$	107	—		—		—			$	107
Real estate assets, net	—		$	1,178	—		—		—			$	1,178

	Office		Office/ Warehouse		Shopping Center		Apartment		Land Held for Development and Other			Property Total
Six Months Ended June 30, 2002
Rental revenue	$	11,193	$	3,860	$	1,112	$	3,994	—			$	20,159
Property operating expenses	3,861		990		379		1,811		$	126		7,167
Net operating income (NOI)	$	7,332	$	2,870	$	733	$	2,183	$	(126	)	$	12,992
Real estate assets, net	$	141,891	$	46,599	$	16,109	$	47,511	$	4,054		$	256,164

2001
Rental revenue	—		$	331	—		—		—			$	331
Property operating expenses	—		117		—		—		—			117
Net operating income (NOI)	—		$	214	—		—		—			$	214
Real estate assets, net	—		$	1,178	—		—		—			$	1,178

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):

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
REVENUES
Total revenues for reportable segments	$	10,283		$	165		$	20,159		$	331
Other revenues	72			44			151			87
Total consolidated revenues	$	10,355		$	209		$	20,310		$	418

NET (LOSS) INCOME
NOI for reportable segments	$	6,676		$	107		$	12,992		$	214
Unallocated amounts:
Interest and other income	72			44			151			87
General and administrative expenses	(1,812		)	(57		)	(4,229		)	(151		)
Depreciation and amortization	(2,872		)	(54		)	(5,854		)	(101		)
Interest expense	(3,740		)	(31		)	(7,077		)	(63		)
Income from investment in unconsolidated joint venture	—			230			—			210
Net gain on sales of real estate assets	84			—			84			—
(Loss) income from operations before minority interests	(1,592		)	239			(3,933		)	196
Minority interests	163			—			403			—
Net (loss) income before extraordinary item	$	(1,429	)	$	239		$	(3,530	)	$	196
Extraordinary item – net loss on extinguishment of debt	(53		)	—			(53		)	—

Net (loss) income	$	(1,482	)	$	239		$	(3,583	)	$	196

	June 30,
	2002		2001
ASSETS
Total assets for reportable segments	$	256,164	$	1,178
Cash and cash equivalents	1,908		34
Tenant and other receivables, net	934		4
Deferred rent receivable	420		51
Note receivable from affiliate, net	—		1,618
Accounts receivable from affiliate	—		1,128
Interest receivable	—		87
Mortgage loan receivable	1,100		—
Investment in management company	4,000		—
Investment in unconsolidated joint venture	—		6,937
Prepaid and other assets, net	8,668		241
Total consolidated assets	$	273,194	$	11,278

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 June 30, 2002, through the Operating Partnership, the Company owned and operated 34 properties which consisted of 14 office, 11 office/warehouse, four 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

The statements of operations for the three and six months ended June 30, 2001 solely reflects the operating results of SPPI84, the accounting acquirer in the Consolidation. Therefore, a discussion of operating results for the three and six months ended June 30, 2002 and 2001 is not a true comparison.

Comparison of the three months ended June 30, 2002 to the three months ended June 30, 2001.

The Company recorded rental revenue of $10,283,000 and expenses of $12,031,000 for the three months ended June 30, 2002. The Company acquired two office properties during the quarter consisting of 142,792 rentable square feet with an average occupancy of 93% at June 30, 2002. One shopping center property, consisting of 13,017 square feet was sold during the period. The weighted average occupancy of the Company’s properties increased from 87% at March 31, 2002 to 88% at June 30, 2002. Rental revenue increased $407,000 between the first and second quarters of 2002 primarily due the acquisition of the two office properties and a lease buy-out. The Company owned and operated 34 properties at June 30, 2002.

Rental revenue of $165,000 and operating expenses of $200,000 generated in the corresponding period in 2001 reflected the operations SPPI84’s sole wholly owned property, Sierra Valencia.

The Company recorded an $84,000 net gain from sales of real estate assets during the three months ended June 30, 2002. The Company recognized a $232,000 deferred gain associated with the sale of the Tower Industrial in 2001. This gain was partially offset by a $148,000 loss on the sale of Beach & Lampson.

Holders of OP Units share of the loss for the quarter ended June 30, 2002 was $194,000, which represented the 11.6% limited partner interest in the Operating Partnership not held by the Company at June 30, 2002. In addition, minority interest expense of $31,000 was recognized as a result of income generated on a partially owned property. SPPI84 had no minority interests in the corresponding period of 2001.

SPPI84 recorded income of $230,000 from investment in its unconsolidated joint venture partner, SMMP, during the three months ended June 30, 2001. This represents SPPI84’s share of income generated by SMMP and SMMP’s joint venture partners. The Company had no investments in unconsolidated joint ventures during the quarter.

The Company recorded a $53,000 net loss on early extinguishments of debt in connection with the refinancing of several loans during the quarter. Losses of $184,000 due to the write-off of unamortized deferred loan costs and prepayment penalties were partially offset by a $131,000 gain on the write-off of an unamortized loan premium.

Comparison of the six months ended June 30, 2002 to the six months ended June 30, 2001.

The Company recorded rental revenue of $20,159,000 and expenses of $24,327,000 for the six months ended June 30, 2002. The Company acquired two office properties during the period consisting of 142,792 rentable square feet with an average occupancy of 93% at June 30, 2002. One shopping center property, consisting of 13,017 square feet was sold during the period. The weighted average occupancy of the Company’s properties was 88% at December 31, 2001 and June 30, 2002. Expenses not anticipated to be recurring totaled approximately $250,000 during the six months ended June 30, 2002 due to professional fees associated with the Consolidation.

Rental revenue of $331,000 and operating expenses of $432,000 generated during the six months ended June 30, 2001 reflect the operations SPPI84’s sole wholly owned property, Sierra Valencia.

The Company recorded an $84,000 net gain from sales of real estate assets during the six months ended June 30, 2002. The Company recognized a $232,000 deferred gain associated with the sale of the Tower Industrial in 2001. This gain was partially offset by a $148,000 loss on the sale of Beach & Lampson.

Holders of OP Units share of the loss for six months ended June 30, 2002 was $470,000, which represented the 11.6% limited partner interest in the Operating Partnership not held by the Company at June 30, 2002.

In addition, minority interest expense of $67,000 was recognized as a result of income generated on a partially owned property. SPPI84 had no minority interests in the corresponding period of 2001.

SPPI84 recorded income of $210,000 from investment in its unconsolidated joint venture partner, SMMP, during the six months ended June 30, 2001. This represents SPPI84’s share of income generated by SMMP and SMMP’s joint venture partners. The Company had no investments in unconsolidated joint ventures during the six months ended June 30, 2002.

The Company recorded a $53,000 net loss on early extinguishments of debt in connection with the refinancing of several loans during the six months ended June 30, 2002. Losses of $184,000 due to the write-off of unamortized deferred loan costs and prepayment penalties were partially offset by a $131,000 gain on the write-off of an unamortized loan premium.

LIQUIDITY AND CAPITAL RESOURCES

While the Company had a net loss of $3,583,000 for the six months ended June 30, 2002, the Company’s expenses included non-cash items of $5,327,000, net, which included depreciation and amortization of $5,854,000. Thus, excluding the Company’s pay-down of payables, the Company would have had positive cash flow from its operating activities. Nonetheless, the Company used net cash in operating activities of $1,388,000, primarily as a result of the pay-down of payables resulting from the Consolidation.

Net cash used in investing activities of $2,227,000 for the six months ended June 30, 2002 was comprised of (i) $2,217,000 paid for capital expenditures, which in large part were related to major renovations on an apartment property, (ii) $69,000 in distributions to the minority owner of the Company’s Creekside/Riverside property, and (iii) $59,000 in proceeds received from the sale of the Beach & Lampson property.

Net cash provided by financing activities amounted to $3,239,000 during the six months ended June 30, 2002. Proceeds received from borrowings totaled $21,773,000 as detailed below, of which $13,698,000 was used to repay debt. The Company paid $1,711,000 in scheduled principal payments during the six months ended June 30, 2002. Note payments to former limited partners totaling $1,864,000 were also made during the period. Further, dividends to common stockholders of $1,110,000 and distributions to unitholders in the operating partnership of $145,000 were made during the period.

In May 2002, the Company refinanced $1,452,000 on a loan secured by Southwest Pointe, an office/warehouse property, and entered into a new loan agreement in the amount of $2,950,000. The new loan bears interest at a fixed rate of 7.33% per annum and matures in June 2012. Net proceeds of $1,297,000 were received as a result of the refinancing.

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 and June 30, 2002, and for the six months ended June 30, 2002 (in thousands except weighted average shares and per share amounts): FFO for the three months ended March 31 and June 30, 2001 and the six months

ended June 30, 2001 is not presented as it is not comparable or meaningful.

	March 31, 2002			June 30, 2002			Year to Date 2002
Loss from operations before minority interests and extraordinary item	$	(2,341	)	$	(1,592	)	$	(3,933	)
Depreciation and amortization	2,982			2,872			5,854
Net gain on sales of real estate assets	—			(84		)	(84		)
Adjustment for straight-line rents	(137		)	(134		)	(271		)
FFO	$	504		$	1,062		$	1,566

Basic weighted average shares	5,529,058			5,535,591			5,531,705
FFO per share	$	.09		$	.19		$	.28

FFO increased by $558,000 for the three months ended June 30, 2002 as compared to the three months ended March 31, 2002 for the same reasons discussed in the analysis of Results of Operations.

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, including the impact of the current economic downturn; 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 June 30, 2002).

At June 30, 2002, the Company’s total indebtedness included fixed-rate debt of approximately $157,735,000 and floating-rate indebtedness of approximately $35,109,000. 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 approximately $197,000 based upon the balances outstanding on variable rate instruments at June 30, 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.

On April 3, 2002, Plaintiffs filed and served a Second Amended Complaint alleging claims against the Company for breach of fiduciary duty, breach of contract, intentional interference with prospective economic advantage, and intentional interference with contractual relations. On May 8, 2002, the Company filed a Demurrer to Plaintiffs’ Second Amended Complaint contending Plaintiffs’ Second Amended Complaint failed to state a cause of action for interference with contract or interference with prospective economic advantage against the Company. On June 14, 2002, the Orange County Superior Court sustained the Company’s Demurrer on the grounds that Plantiffs’ Second Amended Complaint failed to state a cause of action against the Company. The Court gave Plantiffs’ twenty days leave to amend.

On July 2, 2002, Plaintiffs filed and served a Third Amended Complaint on the Company alleging claims against the Company for breach of fiduciary duty, breach of contract, intentional interference with prospective economic advantage, and intentional interference with contractual relations. Plaintiffs’ prayer for relief on its Third Amended Compliant 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. On August 6, 2002, the Company responded to Plaintiffs’ Third Amended Compliant by Demurrer. The Court set a hearing for September 6, 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 5. OTHER INFORMATION

Effective August 7, 2002, Thomas N. Thurber resigned as Chief Financial Officer and Secretary of the Company. On August 9, 2002, the Company’s Board of Directors appointed William J. Carden, the Company's Chairman, Chief Executive Officer and President, to serve as Acting Chief Financial Officer on an interim basis. Mr. Thurber will remain with the Company as Senior Vice President Corporate Development.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

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

(b) Reports on Form 8-K:

On April 26, 2002, a report on Form 8-K was filed with respect to a cover letter sent to stockholders of American Spectrum Realty, Inc., which accompanied the Company’s Annual Report on Form 10-K

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: August 12, 2002		/s/ William J. Carden
		William J. Carden Chairman of the Board, President, Chief Executive Officer and Acting Chief Financial Officer

Date: August 12, 2002		/s/ Patricia A. Nooney
		Patricia A. Nooney
		Principal Accounting Officer
		Senior Vice President

EXHIBIT INDEX

Exhibit No.		Exhibit Title

3.01		Amended and Restated Bylaws of the Company

10.04		Employment Agreement dated September 1, 2002 between the Company and Thomas N. Thurber (Exhibits pursuant to the Agreement have not been filed by the Registrant, who hereby undertakes to file such exhibits upon request of the SEC).

EX-3.01 3 j4417_ex3d01.htm EX-3.01

Exhibit 3.01

AMENDED AND RESTATED

BYLAWS

AMERICAN SPECTRUM REALTY, INC.

ARTICLE I

OFFICES

Section 1. PRINCIPAL OFFICE. The principal office of the Corporation shall be located at such place or places as the Board of Directors (the “Board”) may designate.

Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices at such places as the Board may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. PLACE. All meetings of stockholders shall be held at the principal office of the Corporation or at such other place as shall be set by the Board stated in the notice of the meeting.

Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on a date and at the time set by the Board during the month of May in each year.

Section 3. SPECIAL MEETINGS.

(a) General. The chairman of the board, president, chief executive officer or Board may call special meetings of the stockholders. Special meetings of stockholders shall also be called by the secretary of the Corporation upon the written request of the holders of shares entitled to cast not less than ten percent (10%) of all the votes entitled to be cast at such meeting. Such request shall state the purpose of such meeting and the matters proposed to be acted on at such meeting. The secretary shall inform such stockholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Corporation by such stockholders of such costs, the secretary shall give notice to each stockholder entitled to notice of the meeting.

(b) Stockholder Requested Special Meetings. (1) Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board to fix a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more stockholders of record as of the date of signature (or their duly authorized agents), shall bear the date of signature of each such stockholder (or other agent) and shall set forth all information

relating to each such stockholder that must be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-11 thereunder. Upon receiving the Record Date Request Notice, the Board may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board. If the Board, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement of such Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which the Record Date Request Notice is received by the secretary.

(2) In order for any stockholder to request a special meeting, one or more written requests for a special meeting signed by stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast not less than a majority (the “Special Meeting Percentage”) of all of the votes entitled to be cast at such meeting (the “Special Meeting Request”) shall be delivered to the secretary. In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such stockholder (or other agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Corporation’s books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class and number of shares of stock of the Corporation which are owned of record and beneficially by each such stockholder, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 60 days after the Request Record Date. Any requesting stockholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.

(3) The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including the Corporation’s proxy materials). The secretary shall not be required to call a special meeting upon stockholder request and such meeting shall not be held unless, in addition to the documents required by paragraph (2) of this Section 3(b), the secretary receives payment of such reasonably estimated cost prior to the mailing of any notice of the meeting.

(4) Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the president, chief executive officer or Board, whoever has called the meeting. In the case of any special meeting called by the secretary upon the request of stockholders (a “Stockholder Requested Meeting”), such meeting shall be held at such place, date and time as may be designated by the Board; provided, however, that the date of any Stockholder Requested Meeting shall be not more than 90 days after the record date for such meeting (the “Meeting Record Date”); and provided further that if the Board fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for the Stockholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90^th day after the Meeting Record Date or, if such 90^th day is not a Business Day (as defined below), on the first preceding Business

Day; and provided further that in the event that the Board fails to designate a place for a Stockholder Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive offices of the Corporation. In fixing a date for any special meeting, the president, chief executive officer or Board may consider such factors as he, she or it deems relevant within the good faith exercise of business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board to call an annual meeting or a special meeting. In the case of any Stockholder Requested Meeting, if the Board fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30^th day after the Delivery Date shall be the Meeting Record Date.

(5) If at any time as a result of written revocations of requests for the special meeting, stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast less than the Special Meeting Percentage shall have delivered and not revoked requests for a special meeting, the secretary may refrain from mailing the notice of the meeting or, if the notice of the meeting has been mailed, the secretary may revoke the notice of the meeting at any time before ten days before the meeting if the secretary has first sent to all other requesting stockholders written notice of such revocation and of intention to revoke the notice of the meeting. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.

(6) The chairman of the board, the president or the Board may appoint regionally or nationally recognized independent inspectors of elections to act as the agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported request shall be deemed to have been delivered to the secretary until the earlier of (i) five Business Days after receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the secretary represent at least a majority of the issued and outstanding shares of stock that would be entitled to vote at such meeting. Nothing contained in this paragraph (6) shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).

(7) For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of California are authorized or obligated by law or executive order to close.

Section 4. NOTICE. Not less than ten nor more than 90 days before each meeting of stockholders, the secretary shall give to each stockholder entitled to vote at such meeting, and to each stockholder not entitled to vote who is entitled to notice of the meeting, written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called, either by mail, or by presenting it to such stockholder personally or by leaving it at his residence or usual

place of business or by any other means permitted by Maryland General Corporation Law (“Maryland Law”). If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Corporation, with postage thereon prepaid.

Section 5. SCOPE OF NOTICE. Any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except as otherwise set forth in Section 11 (a) of this Article II and except for such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice.

Section 6. ORGANIZATION. At every meeting of stockholders, the chairman of the board, if there be one, shall conduct the meeting or, in the case of vacancy in office or absence of the chairman of the board, one of the following officers present shall conduct the meeting in the order stated: the vice chairman of the board, if there be one, the president, the vice presidents in their order of rank and seniority, or a chairman chosen by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast, shall act as chairman, and the secretary, or, in his absence, an assistant secretary, or in the absence of both the secretary and assistant secretaries, a person appointed by the chairman shall act as secretary. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairman, are appropriate for the proper conduct of the meeting, including without limitation (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies or such other persons as the chairman of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies or such other persons as the chairman of the meeting may determine; (d) limiting the time allotted to questions or comments by participants; (e) maintaining order and security at the meeting; (f) removing any stockholder who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; and (g) recessing or adjourning the meeting to a later date and time and place announced at the meeting. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 7. QUORUM. At any meeting of stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum; but this section shall not affect any requirement under any statute or the charter of the Corporation for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the stockholders, the chairman of the meeting or the stockholders entitled to vote at such meeting, present in person or by proxy, by a majority in voting power thereof, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally

notified. The stockholders present either in person or by proxy, at a meeting which has been duly called and convened, may continue to transact business until adjournment, not withstanding the withdrawal of enough stockholders to leave less than a quorum.

Section 8. VOTING.

(a) Number of Votes Required. A plurality of all votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a director. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to vote. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute, these Bylaws or by the charter of the Corporation. Unless otherwise provided in the charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders.

(b) Voting of Stock by Certain Holders. Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by an officer thereof, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or other fiduciary may vote stock registered in his name as such fiduciary, either in person or by proxy.

Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

The Board may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification.

Section 9. PROXIES. A stockholder may vote the stock owned of record by him, either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney in fact in any manner permitted by law. Such proxy or evidence of authorization of such

proxy shall be filed with the secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

Section 10. INSPECTORS. At any meeting of stockholders, the chairman of the meeting may appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders.

Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 11. NOMINATIONS AND STOCKHOLDER BUSINESS.

(a) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board or (iii) by any stockholder of the Corporation who was a stockholder of record both at the time of giving of notice provided for in this Section 11 (a) and at the time of the annual meeting of stockholders, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 11 (a).

(2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 11, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive office of the Corporation not less than 90 days nor more than 120 days prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting; provided, however, that in the event that the date of the mailing of the notice for the annual meeting is advanced by more than 30 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120^th day prior to the date of mailing of the notice for such annual meeting and not later than the close of business on the later of the 90^th day prior to the date of mailing of the notice for such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcements of a postponement or adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (A) the name, age, business address and residence address of such person, (B) the class and number of shares of stock of the Corporation that are beneficially owned or owned of record by such person and (C) all other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise

required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder (including any anticipated benefit to the stockholder therefrom) and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such stockholder, as they appear on the Corporation’s stock ledger and current name and address, if different, and of such beneficial owner and (y) the number of shares of each class of stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.

(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 11 to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least 100 days prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting, a stockholder’s notice required by this Section 11 (a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.

(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board or (iii) provided that the Board has determined that directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 11 (b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 11 (b). In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be) for election to such position as specified in the Corporation’s notice of meeting, if the stockholder’s notice containing the information required by paragraph (a)(2) of this Section 11 shall be delivered to the secretary at the principal executive offices of the Corporation not earlier than the 120^th day prior to such special meeting and not later than the close of business on the later of the 90^th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of a postponement or adjournment of a special meeting commence a new time period for the giving of a stockholder’s notice as described above.

procedures set forth in this Section 11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 11. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed in accordance with the procedures set forth in this Section 11 and, if any proposed nomination or business is not in compliance with this Section 11, to declare that such defective nomination or proposal be disregarded.

(2) For purposes of this Section 11, (a) the “date of mailing of the notice” shall mean the date of the proxy statement for the solicitation of proxies for election of directors and (b) ”public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(3) Notwithstanding the foregoing provisions of this Section 11, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in, nor the right of the Corporation to omit a proposal from the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

Section 12. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any stockholder shall demand that voting be by ballot.

Section 13. CONTROL SHARE ACQUISITION ACT. Notwithstanding any other provision of the charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of Maryland Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition

ARTICLE III

DIRECTORS

Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board.

Section 2. NUMBER AND TENURE. At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than the minimum number required by Maryland Law, nor more than 15, and further provided that the tenure of office of a director shall not be affected by any decrease in the number of directors.

Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. The Board may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board without other notice than such resolution.

Section 4. SPECIAL MEETINGS. Special meetings of the Board may be called by or at the request of the chairman of the board, president or by a majority of the directors then in office. The person or persons authorized to call special meetings of the Board may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board called by them. The Board may provide, by resolution, the time and place for the holding of special meetings of the Board without other notice than such resolution.

Section 5. NOTICE. Notice of any special meeting of the Board shall be delivered personally or by telephone, electronic mail, facsimile transmission, United States mail or courier to each director at his business or residence address. Notice by personal delivery, by telephone, electronic mail or a facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by mail shall be given at least three days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be at least two days prior to the meeting and shall be deemed to be given when deposited with or delivered to a courier properly addressed. Telephone notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which he is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 6. QUORUM. A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board, provided that, if less than a majority of such directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the charter of the Corporation or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum must also include a majority of such group.

The directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.

Section 7. VOTING. The action of the majority of the directors present at a meeting at which a quorum is present shall be the action of the Board, unless the concurrence of a greater or different proportion or a particular group of directors is required for such action by the charter of the Corporation or applicable statute. If enough directors have withdrawn from a meeting to

leave less than a quorum but the meeting is not adjourned, the action of the majority of directors still present at such meeting shall be the action of the Board, unless the concurrence of a greater or different proportion of a particular group of directors is required for such action under the charter of the Corporation or applicable statute.

Section 8. ORGANIZATION. At each meeting of the Board, the chairman of the board or, in the absence of the chairman, the vice chairman of the board, if any, shall act as chairman. In the absence of both the chairman and vice chairman of the board, the chief executive officer or in the absence of the chief executive officer, the president or in the absence of the president, a director chosen by a majority of the directors present, shall act as chairman. The secretary or, in his or her absence, an assistant secretary of the Corporation, or in the absence of the secretary and all assistant secretaries, a person appointed by the chairman, shall act as secretary of the meeting.

Section 9. TELEPHONE MEETINGS. Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 10. INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting, if a consent in writing to such action is signed by each director and such written consent is filed with the minutes of proceedings of the Board.

Section 11. VACANCIES. If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder (even if fewer than three directors remain). Any vacancy on the Board for any cause other than an increase in the number of directors shall be filled by a majority of the remaining directors, even if such majority is less than a quorum. Any vacancy in the number of directors created by an increase in the number of directors may be filled by a majority vote of the entire Board. Any individual so elected as director shall hold office until the next annual meeting of stockholders and until his successor is elected and qualifies.

Section 12. COMPENSATION. Directors shall not receive any stated salary for their services as directors but, by resolution of the Board, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Corporation and for any service or activity they performed or engaged in as directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as directors; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.

Section 13. LOSS OF DEPOSITS. No director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or stock have been deposited.

Section 14. SURETY BONDS. Unless required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his duties.

Section 15. RELIANCE. Each director, officer, employee and agent of the Corporation shall, in the performance of his duties with respect to the Corporation, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Corporation, upon an opinion of counsel or upon reports made to the Corporation by any of its officers or employees or by the accountants, appraisers or other experts or consultants selected by the Board or officers of the Corporation, regardless of whether such counsel or expert may also be a director.

ARTICLE IV

COMMITTEES

Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board may appoint from among its members an Executive Committee, an Audit Committee and other committees, composed of one or more directors, to serve at the pleasure of the Board.

Section 2. POWERS. The Board may delegate to committees appointed under Section 1 of this Article IV any of the powers of the Board, except as prohibited by law or the provisions of the charter of the Corporation.

Section 3. MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board may designate a chairman of any committee, and such chairman, or in the absence of a chairman, any two members of any committee (if there are at least two members of the Committee) may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent member. Each committee shall keep minutes of its proceedings.

Section 4. TELEPHONE MEETINGS. Members of a committee of the Board may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 5. INFORMAL ACTION BY COMMITTEE. Any action required or permitted to be taken at any meeting of a committee of the Board may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.

Section 6. VACANCIES. Subject to the provisions hereof, the Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 1. GENERAL PROVISIONS. The officers of the Corporation shall include a chief executive officer, a president, a secretary and a treasurer and may include a chairman of the board, a vice chairman of the board, one or more vice presidents, a chief operating officer, a chief financial officer, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Corporation shall be elected annually by the Board at the meeting of the Board held after each annual meeting of stockholders, except that the chief executive officer or president may appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his successor is elected and qualifies or until his death, resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. In its discretion, the Board may leave unfilled any office except that of president, treasurer and secretary. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.

Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed, with or without cause, by the Board if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Board, the chairman of the board, the president or the secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.

Section 3. VACANCIES. A vacancy in any office may be filled by the Board for the balance of the term.

Section 4. CHIEF EXECUTIVE OFFICER. The Board may designate a chief executive officer. In the absence of such designation, the chairman of the board shall be the chief executive officer of the Corporation. The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board, and for the management of the business and affairs of the Corporation.

Section 5. CHIEF OPERATING OFFICER. The Board may designate a chief operating officer. The chief operating officer shall have the responsibilities and duties as set forth by the Board or the chief executive officer.

Section 6. CHIEF FINANCIAL OFFICER. The Board may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as set forth by the Board or the chief executive officer.

Section 7. CHAIRMAN OF THE BOARD. The Board shall designate a chairman of the board. The chairman of the board shall preside over the meetings of the Board and of the stockholders at which he shall be present. The chairman of the board shall perform such other duties as may be assigned to him by the Board.

Section 8. PRESIDENT. The president or chief executive officer, as the case may be, shall, in general, supervise and control all of the business and affairs of the Corporation. In the absence of a designation of a chief operating officer by the Board, the president shall be the chief operating officer. He may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board from time to time.

Section 9. VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to him by the president or by the Board. The Board may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility.

Section 10. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board and committees of the Board in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the share transfer books of the Corporation; and (f) in general, perform such other duties as from time to time may be assigned to him by the chief executive officer, the president or by the Board.

Section 11. TREASURER. The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. In the absence of a designation of a chief financial officer by the Board, the treasurer shall be the chief financial officer of the Corporation.

The treasurer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the president and Board, at the regular meetings of the Board or whenever it may so require, an account of all his transactions as treasurer and of the financial condition of the Corporation.

If required by the Board, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation,

retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his possession or under his control belonging to the Corporation.

Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board. The assistant treasurers shall, if required by the Board, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Board.

Section 13 SALARIES. The salaries and other compensation of the officers shall be fixed from time to time by the Board and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. CONTRACTS. The Board may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Board and upon the Corporation when authorized or ratified by action of the Board and executed by an authorized person.

Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board.

Section 3. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may designate.

ARTICLE VII

STOCK

Section 1. CERTIFICATES. Except as otherwise provided in these Bylaws, this section shall not be interpreted to limit the authority of the Board to issue some or all of the shares of any or all of its classes or series without certificates. Each stockholder, upon written request to the secretary of the Corporation, shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each class of stock held by him in the Corporation. Each certificate shall be signed by the chairman of the board, the president or a vice president and countersigned by the secretary or an assistant secretary or the treasurer or an assistant treasurer and may be sealed with the seal, if any, of the Corporation. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Corporation shall, from time to time, issue several classes of stock, each class may have its own

number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Corporation, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the certificates may state that the Corporation will furnish a full statement of such information to any stockholder upon request and without charge. If the Corporation has authority to issue stock of more than one class, the certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of stock and, if the Corporation is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the shares of each series to the extent they have been set and the authority of the Board to set the relative rights and preferences of subsequent series. In lieu of such statement or summary, the certificate may state that the Corporation will furnish a full statement of such information to any stockholder upon request and without charge. If any class of stock is restricted by the Corporation as to transferability, the certificate shall contain a full statement of the restriction or state that the Corporation will furnish information about the restrictions to the stockholder on request and without charge.

Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer agent of the Corporation of a stock certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and compliance with any contractual or statutory requirements, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to, or interest in, such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by Maryland law.

Notwithstanding the foregoing, transfers of shares of any class of stock will be subject in all respects to the charter of the Corporation and all of the terms and conditions contained therein.

Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, an officer designated by the Board may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to advertise the same in such manner as he shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

Section 4. FIXING OF RECORD DATE. The Board may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.

If no record date is fixed, (a) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30^th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the directors, declaring the dividend or allotment of rights, is adopted.

When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in which case a new record date shall be determined as set forth herein.

Section 5. STOCK LEDGER. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder. The stock transfer books shall not be closed for any purpose.

Section 6. FRACTIONAL STOCK: ISSUANCE OF UNITS. The Board may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the charter or these Bylaws, the Board may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.

ARTICLE VIII

ACCOUNTING YEAR

The Board shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE IX

DISTRIBUTIONS

Section 1. AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized and declared by the Board, subject to the provisions of law and the charter of the Corporation. Dividends and other distributions may be paid in cash,

property or stock of the Corporation, subject to the provisions of law and the charter.

Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board shall determine to be in the best interest of the Corporation, and the Board may modify or abolish any such reserve in the manner in which it was created.

ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the charter of the Corporation, the Board may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.

ARTICLE XI

SEAL

Section 1. SEAL. The Board may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland. “ The Board may authorize one or more duplicate seals and provide for the custody thereof.

Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.

ARTICLE XII

INDEMNIFICATION AND ADVANCE OF EXPENSES

To the maximum extent permitted by Maryland Law in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made a party to the proceeding by reason of his service in that capacity, or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his service in that capacity. The Corporation may, with the approval of its Board, provide such indemnification and advance for expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.

Neither the amendment nor repeal of this Article, nor the adoption or amendment of any

other provision of the Bylaws or charter of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE XIII

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the charter of the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

ARTICLE XIV

AMENDMENT OF BYLAWS

The Board shall have the power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws. In addition, any provision of these Bylaws may be adopted, altered or repealed by the affirmative vote of the stockholders of at least a majority of the votes entitled to be cast.

EX-10.04 4 j4417_ex10d04.htm EX-10.04

Exhibit 10.04

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”), effective as of September 1, 2002, is entered into between American Spectrum Realty, Inc., a Maryland corporation (the “Company”), and Thomas N. Thurber (“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 Corporate Development. 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. Such duties are generally set forth in the Bylaws 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”) will begin on the date of this Agreement and will continue, subject to the termination provisions set forth in paragraph 5 below, until the second 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 annual rate of $300,000 (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. Per annum, 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 and approved by the Chief Executive Officer in writing 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. Also see Exhibit B relating to reimbursement of relocation costs.

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 received (i) pursuant to and subject to the Company’s Omnibus Stock Incentive Plan (the “Plan”), a grant of 50,000 stock options, for common stock of the Company. The options are 25% exercisable at the date of grant and the balance of which become exercisable subject to Executive’s continuing to be employed by the Company under the formula described in Exhibit A to this Agreement. The options were granted (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 June 1, 2001 at an option exercise price equal to the $6.77 per share.

Executive has previously received a grant of 35,000 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 for 25% of the shares shall lapse upon execution of this Agreement. The remainder of the Company’s repurchase option shall lapse under a formula described in Exhibit A to this Agreement. Notwithstanding the foregoing, stock

options granted to Executive shall become exercisable and repurchase restrictions on stock grants shall lapse in full upon 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 30 days’ prior written notice of termination, which notice will describe in detail the basis of such termination and will become effective on the 30^th day after the Executive’s receipt thereof, unless the Executive cures the alleged violation or other circumstance which was the basis of such termination within such 30-day notice period or (ii) sends, within such 30-day notice period, written notice to the Board disputing in good faith the existence of Cause and requesting arbitration of such dispute pursuant to paragraph 9 below. Notwithstanding the foregoing, the Company may elect to suspend all of Executives duties and restrict his access during such 30-day period.

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.

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 or gross negligence in connection with performing his duties hereunder; (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 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) change of location of Company’s offices where Executive is currently employed to a location more than 30 miles from San Diego, California or (C) if Executive ceases to report to William J. Carden or the then Chief Executive Officer of the Company, in connection with the services under this Agreement.

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 or the Executive shall also have the right to terminate Executive’s employment without Cause. If the Executive terminates the Executive’s employment without Cause, then the Severance Amount and the additional sums as provided in Section 6b(i) and (ii)shall not be due by the Company to the Executive. 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 satisfactory to the Company:

(i) the Company will pay as severance pay to Executive, in 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) unless the termination is covered by subsection (ii) below;

(ii) in addition to the Severance Amount, the Company will pay to Executive, in a lump sum paid within 10 days of Executive’s notice, an amount equal to one (1.00) times Executive’s base salary and bonus for the immediately preceding calendar year, reduced by 1/24 of such amount times the number of complete months that have elapsed since the effective date of this Agreement. By way of example, if

Executive is terminated on January 1, 2003 and his salary and bonus for 2002 was $300,000.00 then the lump sum payment shall equal $250,000.00, (calculated as $300,000.00 minus 4/24 of $300,000.00 or $50,000.00 to equal $250,000.00)

(iii) 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.

c. No Mitigation. Executive will not be required to mitigate the amount of any payment under this paragraph 6 by seeking other employment or otherwise, nor will the amount of any payment or benefit under this paragraph 6 be reduced by any compensation earned by Executive as the result of employment by another employer or by retirement benefits after the date of termination, or otherwise.

d 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 satisfactory to the Company:

(i) the Company will pay as severance pay to Executive or Executive’s estate, in 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

(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.

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

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 Corporate Development 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.

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. As used in this Agreement, “Restricted Period” shall mean the twelve (12) months following Executive’s termination of employment for any reason.

e. 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 at an hourly rate of $200.00 plus out of pocket travel and lodging costs which have been approved in advance by the Chief Executive Officer, for any services provided by Executive pursuant to this paragraph 7(f).

f. 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.

g. 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 agrees that he shall reimburse the Company for any reasonable attorneys’ fees and expenses that the Company might incur in enforcing this paragraph 7 if it is judicially determined that Executive has 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) 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, its affiliates and predecessors (for which the Company would be liable). 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 Orange County, 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, 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.

h. THIS AGREEMENT SUPERCEEDES ANY AND ALL OTHER UNDERSTANDINGS AND AGREEMENTS BETWEEN EXECUTIVE AND COMPANY IN ANY MANNER RELATING TO EXECUTIVE’S EMPLOYMENT, INCLUDING ANY EMPLOYMENT AGREEMENT REFERENCED IN THE S-4 FILED BY THE COMPANY WITH THE U.S. SECURITIES EXCHANGE COMMISSION, WHICH BECAME EFFECTIVE IN 2001 AND ALL SUCH OTHER AGREEMENTS ARE TERMINATED. EXECUTIVE HEREBY RELEASES, RELIEVES AND RELINQUISHES COMPANY, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS AND REPRESENTATIVES (COLLECTIVELY THE “RELEASED PARTIES”) FROM ALL CLAIMS, LIABILITIES, DUTIES AND OBLIGATIONS WHICH EXECUTIVE MAY HAVE AGAINST THE RELEASED PARTIES AND THE EXECUTIVE AGREES TO INDEMNIFY AND HOLD THE RELEASED PARTIES HARMLESS FROM AND AGAINST ANY AND ALL SUCH CLAIMS, LIABILITIES, DUTIES AND OBLIGATIONS.

i. The Executive agrees to abide by all Company policies including but not limited to the requirement of strict confidentiality on all information in any manner related to the Company. Executive shall refer any third party (being any party who is not an employee or board member of the Company) inquiries concerning the operations of the Company, past, current or future to the Chief Executive Officer.

j. The Executive shall be deemed to have resigned from his position as Chief Financial Officer effective as of August 7, 2002. In this regard, the Executive shall fully cooperate in filing such information and notices as may be required by law or requested by the Company announcing such resignation.

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

	AMERICAN SPECTRUM REALTY, INC.


	By:
		William J. Carden, Chief Executive Officer


		Thomas N. Thurber