Document:

exv10w1

	 	 	 	 	 

EXHIBIT 10.1

ADVISORY AGREEMENT

BETWEEN

AMERICAN REALTY INVESTORS, INC.

AND

PILLAR INCOME ASSET MANAGEMENT, INC.

     THIS ADVISORY AGREEMENT (the “Agreement”) is dated as of April 26, 2011, but is effective as
of April 30, 2011, for tax and accounting purposes (the “Effective Date”) between American Realty
Investors, Inc., a Nevada corporation (the “Company”), and Pillar Income Asset Management, Inc.
(the “Advisor”), a Nevada corporation.

WITNESSETH:

     A. The Company owns a complex, diversified portfolio of real estate, mortgages and other
assets, including certain non-performing or troubled assets.

     B. The Company is an active real estate investment company with funds available for investment
primarily in the acquisition of income-producing real estate and to a lesser extent in short and
medium term mortgages.

     C. The Advisor and its employees have extensive experience in the administration of real
estate assets and the origination, structuring and evaluation of real estate and mortgage
investments.

     NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained,
the parties agree as follows:

     1. Duties of the Advisor. Subject to the supervision of the Board of Directors, the
Advisor will be responsible for the day-to-day operations of the Company and, subject to Section 17
hereof, shall provide such services and activities relating to the assets, operations and business
plan of the Company as may be appropriate, including:

     (a) preparing and submitting an annual budget and business plan for approval by the
Board of the Company (the “Business Plan”);

     (b) using its best lawful efforts to present to the Company a continuing and suitable
investment program consistent with the investment policies and objectives of the Company as
set forth in the Business Plan;

     (c) using its best lawful efforts to present to the Company investment opportunities
consistent with the Business Plan and such investment program as the Directors may adopt
from time to time;

     (d) furnishing or obtaining and supervising the performance of the ministerial
functions in connection with the administration of the day-to-day operations of the Company
including the investment of reserve funds and surplus cash in short-term money market
investments;

 

 

     (e) serving as the Company’s investment and financial advisor and providing research,
economic, and statistical data in connection with the Company’s investments and investment and
financial policies;

     (f) on behalf of the Company, investigating, selecting and conducting relations with
borrowers, lenders, mortgagors, brokers, investors, builders, developers and others;
provided, however, that the Advisor shall not retain on the Company’s behalf any
consultants or third party professionals, other than legal counsel, without prior Board
approval;

     (g) consulting with the Directors and furnishing the Directors with advice and recommendations
with respect to the making, acquiring (by purchase, investment, exchange or otherwise), holding and
disposition (through sale, exchange, or otherwise) of investments consistent with the Business Plan
of the Company;

     (h) obtaining for the Directors such services as may be required in acquiring and disposing of
investments, disbursing and collection the funds of the Company, paying the debts and fulfilling
the obligations of the Company, and handling, prosecuting, and settling any claims of the Company,
including foreclosing and otherwise enforcing mortgage and other liens securing investments;

     (i) obtaining for and at the expense of the Company such services as may be required for
property management, loan disbursements, and other activities relating to the investments of the
Company, provided, however, the compensation for such services shall be agreed to
by the Company and the service provider;

     (j) advising the Company in connection with public or private sales of shares or other
securities of the Company, or loans to the Company, but in no event in such a way that the Advisor
could be deemed to be acting as a broker dealer or underwriter;

     (k) quarterly and at any time requested by the Directors, making reports to the
Directors regarding the Company’s performance to date in relation to the Company’s approved
Business Plan and its various components, as well as the Advisor’s performance of the foregoing
services;

     (l) making or providing appraisal reports, where appropriate, on investments or
contemplated investments of the Company;

     (m) assisting in preparation of reports and other documents necessary to satisfy the reporting
and other requirements of any governmental bodies or agencies and to maintain effective
communications with stockholders of the Company; and

     (n) doing all things necessary to ensure its ability to render the services contemplated
herein, including providing office space and office furnishings and personnel necessary for the
performance of the foregoing services as Advisor, all at its own expense, except as otherwise
expressly provided for herein.

     2. No Partnership or Joint Venture. The Company and the Advisor are not
partners or joint venturers with each other, and nothing herein shall be construed so as to
make them such partners or joint venturers or impose any liability as such on either of them.

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     3. Records. At all times, the Advisor shall keep proper books of account
and records of the Company’s affairs which shall be accessible for inspection by the
Company at any time during ordinary business hours.

     4. Additional Obligations of the Advisor. The Advisor shall refrain from any
action that would (a) violate any law, rule, regulation, or statement of policy of any
governmental body or agency having jurisdiction over the Company or over its securities, (b) cause
the Company to be required to register as an investment company under the Investment Company Act of
1940, or (c) otherwise not be permitted by the Articles of Incorporation of the Company.

     5. Bank Accounts. The Advisor may establish and maintain one or more
bank accounts in its own name, and may collect and deposit into any such account or
accounts, any money on behalf of the Company, under such terms and conditions as the Directors may
approve, provided that no funds in any such account shall be commingled with funds of the Advisor;
and the Advisor shall from time to time render appropriate accounting of such collections and
payments to the Directors and to the auditors of the Company.

     6. Bond. The Advisor shall maintain a fidelity bond with a responsible
surety company in such amount as may be required by the Directors from time to time,
covering all directors, officers, employees, and agents of the Advisor handling funds of the
Company and any investment documents or records pertaining to investments of the Company. Such bond
shall inure to the benefit of the Company in respect to losses of any such property from acts of
such directors, officers, employees, and agents through theft, embezzlement, fraud, negligence,
error, or omission or otherwise, the premium for said bond to be at the expense of the Company.

     7. Information Furnished Advisor. The Directors shall have the right to change
the Business Plan at any time, effective upon receipt by the Advisor of notice of such
change. The Company shall furnish the Advisor with a certified copy of all financial statements, a
signed copy of each report prepared by independent certified public accountants, and such other
information with regard to the Company’s affairs as the Advisor may from time to time reasonably
request.

     8. Consultation and Advice. In addition to the services described
above, the Advisor shall consult with the Directors, and shall, at the request of the
Directors or the officers of the Company, furnish advice and recommendations with respect to any
aspect of the business and affairs of the Company, including any factors that in the Advisor’s best
judgment should influence the policies of the Company.

     9. Annual Business Plan and Budget. No later than January 15th of each year, the Advisor shall submit to the Directors a written Business Plan for the
current Fiscal year of the Company. Such Business Plan shall include a twelve-month forecast of
operations and cash flow with explicit assumptions and a general plan for asset sales or
acquisitions, lending, foreclosure and borrowing activity, other investments or ventures and
proposed securities offerings or repurchases or any proposed restructuring of the Company. To the
extent possible, the Business Plan shall set forth the Advisor’s recommendations and the basis
therefor with respect to all material investments of the Company. Upon approval by the Board of
Directors, the Advisor shall be authorized to conduct the business of the Company in accordance
with the explicit provisions of the Business Plan, specifically including the borrowing, leasing,
maintenance, capital improvements, renovations and sale of investments set forth in the Business
Plan. Any transaction or investment not explicitly provided for in the approved Business Plan shall
require the prior approval of the Board of Directors unless made pursuant to authority expressly
delegated to the Advisor. Within sixty (60) days of the end of each calendar quarter, the Advisor
shall provide the Board of Directors with a report comparing the Company’s actual performance for
such quarter against the Business Plan.

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     10. Definitions. As used herein, the following terms shall have the
meanings set forth below:

     (a) “Affiliate” shall mean, as to any Person, any other Person who owns beneficially,
directly, or indirectly, 1% or more of the outstanding capital stock, shares or equity interests of
such Person or of any other Person which controls, is controlled by, or is under common control
with such Person or is an officer, retired officer, director, employee, partner, or trustee
(excluding noninterested trustees not otherwise affiliated with the entity) of such Person or of
any other Person which controls, is controlled by, or is under common control with, such Person.

     (b) “Appraised Value” shall mean the value of a Real Property according to an appraisal made
by an independent qualified appraiser who is a member in good standing of the American Institute of
Real Estate Appraisers and is duly licensed to perform such services in accordance with the
applicable state law, or, when pertaining to Mortgage Loans, the value of the underlying property
as determined by the Advisor.

     (c) “Book Value” of an asset or assets shall mean the value of such asset or assets on the
books of the Company, before provision for amortization, depreciation, depletion of valuation
reserves and before deducting any indebtedness or other liability in respect thereof, except that
no asset shall be valued at more than its fair market value as determined by the Directors.

     (d) “Book Value of Invested Assets” shall mean the Book Value of the Company’s total assets
(without deduction of any liabilities), but excluding (i) goodwill and other intangible assets,
(ii) cash, and (iii) cash equivalent investments with terms which mature in one year or less.

     (e) “Business Plan” shall mean the Company’s investment policies and objectives and the
capital and operating budget based thereon, approved by the Board as thereafter modified or
amended.

     (f) “Fiscal Year” shall mean any period for which an income tax return is submitted to the
Internal Revenue Service and which is treated by the Internal Revenue Service as a reporting
period.

     (g) “Gross Asset Value” shall mean the total assets of the Company after deduction of
allowance for amortization, depreciation or depletion and valuation reserves.

     (h) “Mortgage Loans” shall mean notes, debentures, bonds, and other evidences of indebtedness
or obligations, whether negotiable or non-negotiable, and which are secured or collateralized by
mortgages, including first, wraparound, construction and development, and junior mortgages.

     (i) “Net Asset Value” shall mean the Book Value of all the assets of the Company minus all
the liabilities of the Company.

     (j) “Net Income” for any period shall mean the Net Income of the Company for such period
computed in accordance with generally accepted accounting principles after deduction of the Gross
Asset Fee, but before deduction of the Net Income Fee, as set forth in Sections 11(a) and 11(b),
respectively, herein, and inclusive of gain or loss of the sale of assets.

     (k) “Net Operating Income” shall mean rental income less property operating
expenses.

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     (l) “Operating Expenses” shall mean the aggregate annual expenses regarded as operating
expenses in accordance with generally accepted accounting principles as determined by the
independent auditors selected by the Directors and including the Gross Asset Fee payable to the
Advisor and fees and expenses paid to the Directors who are not employees or Affiliates of the
Advisor.

     (m) The operating expenses shall exclude, however, the following:

     (i) the cost of money borrower by the Company;

     (ii) income taxes, taxes and assessments on real property and all other taxes applicable to
the Company;

     (iii) expenses and taxes incurred in connection with the issuance, distribution, transfer,
registration and stock exchange listing of the Company’s securities (including legal, auditing,
accounting, underwriting, brokerage, printing, engraving and other fees);

     (iv) fees and expenses paid to independent mortgage servicers, contractors, consultants,
managers and other agents retained by or on behalf of the Company;

     (v) expenses directly connected with the purchase, origination, ownership and disposition of
Real Properties or Mortgage Loans (including the costs of foreclosure, insurance, legal,
protective, brokerage, maintenance, repair and property improvement services) other than expenses
with respect thereto of employees of the Advisor, except legal, internal auditing, foreclosure and
transfer agent services performed by employees of the Advisor;

     (vi) expenses of maintaining and managing real estate equity interests and processing and
servicing mortgage and other loans;

     (vii) expenses connected with payments of dividends, interest or distributions by the Company
to shareholders;

     (viii) expenses connected with communications to shareholders and bookkeeping and clerical
expenses for maintaining shareholder relations, including the cost of printing and mailing share
certificates, proxy solicitation materials and reports;

     (ix) transfer agent’s, registrar’s and indenture trustee’s fees and charges; and

     (x) the cost of any accounting, statistical, bookkeeping or computer equipment necessary for
the maintenance of books and records of the Company.

     Additionally, the following expenses of the Advisor shall be excluded:

     (i) employment expenses of the Advisor’s personnel (including Directors, officers and
employees of the Company who are directors, officers or employees of the Advisor or its
Affiliates), other than the expenses of those employee services listed at (v) above;

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     (ii) rent, telephone, utilities and office furnishings and other
office expenses of the Advisor (except those relating to a separate office,
if any, maintained by the Company); and

     (iii) the Advisor’s overhead directly related to performance of
its functions under this Agreement.

     (n) “Person” shall mean and include individuals, corporations, limited partnerships,
general partnerships, joint stock companies or associations, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts, or other entities
and governments and agencies and political subdivisions thereof.

     (o) “Real Property” shall mean and include land, rights in land, leasehold interests
(including, but not limited to, interests of a lessor or lessee therein), and any buildings,
structures, improvements, fixtures, and equipment located on or used in connection with
land, leasehold interests, and rights in land or interests therein.

     All calculations made pursuant to this Agreement shall be based on statements (which may be
unaudited, except as provided herein) prepared on an accrual basis consistent with generally
accepted accounting principles, regardless of whether the Company may also prepare statements on a
different basis. All other terms shall have the same meaning as set forth in the Company’s Articles
of Incorporation and Bylaws.

	11.	 	Advisory Compensation. 

     (a) Gross Asset Fee. On or before the twenty-eighth day of each month during
the term hereof, the Company shall pay to the Advisor, as compensation for the basic
management and advisory services rendered to the Company hereunder, a fee at a rate of
        .0625% per month of the average of the Gross Asset Value of the Company at the beginning and
at the end of the next preceding calendar month. Without negating the provisions of Sections
18, 19, 22 an 23 hereof, the annual rate of the Gross Asset Fee shall be .75% per annum.

     (b) Net Income Fee. As an incentive for successful investment and management of
the Company’s assets, the Advisor will be entitled to receive a fee equal to 7.5%
per annum of the Company’s Net Income for each Fiscal Year or portion thereof for which the
Advisor provides services. To the extent the Company has Net Income in a quarter, the 7.5%
Net Income fee is to be paid quarterly on or after the third business day following the
filing of the report on Form 10-Q with the Securities and Exchange Commission, except for
the payment for the fourth quarter, ended December 31, which is to be paid on or after the
third business day following the filing of the report on Form 10-K with the Securities and
Exchange Commission. The 7.5% Net Income Fee is to be cumulative within any Fiscal Year,
such that if the Company has a loss in any quarter during the Fiscal Year, each subsequent
quarter’s payment during such Fiscal Year shall be adjusted to maintain the 7.5% per annum
rate, with final settlement being made with the fourth quarter payment and in accordance
with audited results for the Fiscal Year. The 7.5% Net Income Fee is not cumulative from
year to year.

     (c) Acquisition Commission. For supervising the acquisition, purchase or
long term lease of Real Property for the Company, the Advisor is to receive an
Acquisition Commission equal to the lesser of (i) up to 1% of the cost of acquisition,
inclusive of commissions, if any, paid to

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nonaffiliated brokers; or (ii) the compensation customarily charged in arm’s-length
transactions by others rendering similar property acquisition services as an ongoing public
activity in the same geographical location and for comparable property (including the Acquisition
Commissions and all real estate brokerage fees) may not exceed such property’s Appraised Value at
acquisition.

     (d) Incentive Sales Compensation. To encourage periodic sales of appreciated
Real Property at optimum value and to reward the Advisor for improved performance of the
Company’s Real Property, the Company shall pay to the Advisor, on or before the 45th day
after the close of each Fiscal Year, an incentive fee equal to 10% of the amount, if any, by which
the aggregate sales consideration for all Real Property sold by the Company during such Fiscal Year
exceeds the sum of: (i) the cost of each such Real Property as originally recorded in the Company’s
books for tax purposes (without deduction for depreciation, amortization or reserve for losses),
(ii) capital improvements made to such assets during the period owned by the Company, and (iii) all
closing costs (including real estate commissions) incurred in the sale of such Real Property;
provided, however, no incentive fee shall be paid unless (a) such Real Property
sold in such Fiscal year, in the aggregate, has produced an 8% simple annual return on the
Company’s net investment, including capital improvements, calculated over the Company’s holding
period before depreciation and inclusive of operating income and sales consideration and (b) the
aggregate Net Operating Income from all Real Property owned by the Company for all of the prior
Fiscal Year and the current Fiscal Year shall be at least 5% higher in the current Fiscal Year than
in the prior Fiscal Year.

     (e) Mortgage or Loan Acquisition Fees. For the acquisition or purchase from
an unaffiliated party of any existing mortgage or loan by the Company, the Advisor or an
Affiliate is to receive a Mortgage or Loan Acquisition Fee equal to the lesser of (a) 1% of the
amount of the mortgage or loan purchased by the Company or (b) a brokerage or commitment fee which
is reasonable and fair under the circumstances. Such fee will not be paid in connection with the
origination or funding by the Company of any mortgage loan.

     (f) Mortgage Brokerage and Equity Refinancing Fees. For obtaining loans to
the Company or refinancing on Company properties, the Advisor or an Affiliate is to receive
a Mortgage Brokerage and Equity Refinancing Fee equal to the lesser of (a) 1% of the amount of the
loan or the amount refinanced or (b) a brokerage or refinancing fee which is reasonable and fair
under the circumstances; provided, however, that no such fee shall be paid on loans
from the Advisor or an Affiliate without the approval of the Board of Directors. No Fee shall be
paid on loan extensions.

     (g) Construction Advisory Fee. For all activities in connection with or related
to construction for the Company and its subsidiaries, Advisor shall receive a fee equal to
6% of the so-called “hard costs” only of any costs of construction on a completed basis based upon
amounts set forth as approved on any architect’s certificate issued in connection with such
construction from time to time, which fee shall be payable at such time as the applicable architect
certifies other costs for payment to third parties. For the purposes of this subpart (g), the
phrase “hard costs” shall mean and be all actual costs of construction paid to all contractors,
subcontractors and third parties for materials or labor performed as a part of the construction,
but does not include items generally deemed to be “soft costs” which are consulting fees,
attorneys’ fees, architectural fees, fees of any other professional or permit fees.

     12. Limitation on Third Party Mortgage Placement Fees. The Advisor or
any of its Affiliates shall pay to the Company, one-half of any compensation received by
the Advisor or any such Affiliate from third parties with respect to the origination, placement or
brokerage of any loan made by the

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Company, provided, however, the compensation retained by the Advisor or
Affiliated shall not exceed the lesser of (a) 2% of the amount of the loan committed by the Company
or (b) a loan brokerage and commitment fee which is reasonable and fair under the circumstances.

     13. Statements. The Advisor shall furnish to the Company not later than the
tenth day of each calendar month, beginning with the second calendar month of the term of
this Agreement, a statement showing the computation of the fees, if any, payable in respect to the
next preceding calendar month (or, in the case of incentive compensation, for the preceding Fiscal
Year, as appropriate) under the Agreement. The final settlement of incentive compensation for each
Fiscal year shall be subject to adjustment in accordance with, and upon completion of, the annual
audit of the Company’s financial statements; any payment by the Company or repayment by the Advisor
that shall be indicated to be necessary in accordance therewith shall be made promptly after the
completion of such audit and shall be reflected in the audited statements to be published by the
Company.

     14. Compensation for Additional Services. If and to the extent that the
Company shall request the Advisor or any director, officer, partner, or employee of the
Advisor to render services for the Company other than those required to be rendered by the Advisor
hereunder, such additional services, if performed, will be compensated separately on terms to be
agreed upon between such party and the Company from time to time. In particular, but without
limitation, if the Company shall request that the Advisor perform property management, leasing,
loan disbursement or similar functions, the Company and the Advisor shall enter into a separate
agreement specifying the obligations of the parties and providing for reasonable additional
compensation to the Advisor for performing such services.

     15. Expenses of the Advisor. Without regard to the amount of compensation or
reimbursement received hereunder by the Advisor, the Advisor shall bear the following
expenses:

     (a) employment expenses of the personnel employed by the Advisor (including Directors,
officers, and employees of the Company who are directors, officers, or employees of the
Advisor or of any company that controls, is controlled by, or is under common control with
the Advisor), including, but not limited to, fees, salaries, wages, payroll taxes, travel
expenses, and the cost of employee benefit plans and temporary help expenses except for
those personnel expenses described in Sections 16(e) and (p);

     (b) advertising and promotional expenses incurred in seeking
investments for the Company;

     (c) rent, telephone, utilities, office furniture and furnishings, and other office
expenses of the Advisor and the Company, except as any of such expenses relates to an office
maintained by the Company separate from the office of the Advisors; and

     (d) miscellaneous administrative expenses relating to performance by the Advisor of its
functions hereunder.

     16. Expenses of the Company. The Company shall pay all of its expenses not
assumed by the Advisor and, without limiting the generality of the foregoing, it is
specifically agreed that the following expenses of the Company shall be paid by the Company and
shall not be paid by the advisor:

     (a) the cost of money borrowed by the Company;

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     (b) income taxes, taxes and assessments on real property, and all other taxes applicable
to the Company;

     (c) legal, auditing, accounting, underwriting, brokerage, listing, registration and
other fees, printing, and engraving and other expenses, and taxes incurred in connection with the
issuance, distribution, transfer, registration, and stock exchange listing of the Company’s
securities;

     (d) fees, salaries, and expenses paid to officers and employees of the Company who are
not directors, officers or employees of the Advisor, or of any company that controls, is controlled
by, or is under common control with the Advisor;

     (e) expenses directly connected with the origination or purchase of Mortgage Loans and
with the acquisition, disposition and ownership of real estate equity interests or other property
(including the costs of foreclosure, insurance, legal, protective, brokerage, maintenance, repair,
and property improvement services) and including all compensation, traveling expenses, and other
direct costs associated with the Advisor’s employees or other personnel engaged in (i) real estate
transaction legal services, (ii) internal auditing, (iii) foreclosure and other mortgage finance
services,
(iv) sale or solicitation for sale of mortgages, (v) engineering and appraisal services, and
(vi) transfer agent services;

     (f) expenses of maintaining and managing real estate equity interests;

     (g) insurance, as required by the Directors (including Directors’ liability
insurance);

     (h) the expenses of organizing, revising, amending, converting, modifying, or
termination the Company;

     (i) expenses connected with payments of dividends or interest or distributions in cash or any
other form made or caused to be made by the Directors to holders of securities of the Company;

     (j) all expenses connected with communications to holders of securities of the Company and the
other bookkeeping and clerical work necessary in maintaining relations with holders of securities,
including the cost of printing and mailing certificates for securities and proxy solicitation
materials and reports to holders of the Company’s securities;

     (k) the cost of any accounting, statistical, bookkeeping or computer equipment or computer
time necessary for maintaining the books and records of the Company and for preparing and filing
Federal, State and Local tax returns;

     (l) transfer agent’s, registrar’s, and indenture trustee’s fees and charges;

     (m) legal, accounting, investment banking, and auditing fees and expenses charged by
independent parties performing these services not otherwise included in clauses (c) and (e) of this
Section 16;

     (n) expenses incurred by the Advisor, arising from the sales of Company properties, including
those expenses related to carrying out foreclosure proceedings;

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     (o) commercially reasonable fees paid to the Advisor for efforts to liquidate mortgages
before maturity, such as the solicitation of offers and negotiation of terms of sale;

     (p) costs and expenses connected with computer services, including, but not limited to,
employee or other personnel compensation, hardware and software costs, and related development and
installation costs associated therewith;

     (q) costs and expenses associated with risk management (i.e. insurance relating to the
Company’s assets);

     (r) loan refinancing compensation; and

     (s) expenses associated with special services requested by the Directors pursuant to Section
14 hereof.

     17. Other Activities of Advisor. The Advisor, its officers, directors, or
employees or any of its Affiliates may engage in other business activities related to real
estate investments or act as advisor to any other person or entity (including another real estate
investment trust), including those with investment policies similar to the Company, and the Advisor
and its officers, directors, or employees and any of its Affiliates shall be free from any
obligation to present to the Company any particular investment opportunity that comes to the
Advisor or such persons, regardless of whether such opportunity is in accordance with the Company’s
Business Plan. However, to minimize any possible conflict, the Advisor shall consider the
respective investment objectives of, and the appropriateness of a particular investment to each
such entity in determining to which entity a particular investment opportunity should be presented.
If appropriate to more than one entity, the Advisor shall present the investment opportunity to the
entity that has had sufficient uninvested funds for the longest period of time.

     18. Limitation on Operating Expenses. To the extent that the Operating
Expenses of the Company for any Fiscal Year exceed the lesser of (a) 1.5% of the average of
the Book Values of Invested Assets of the Company at the end of each calendar month of such Fiscal
Year, or (b) the greater of 1.5% of the average of the Net Asset Value of the Company at the end of
each calendar month of such Fiscal Year or 25% of the Company’s Net Income, the Advisor shall
refund to the Company from the fees paid to the Advisor the amount, if any, by which the Operating
Expenses so exceed the applicable amount, provided, however, that the Advisor shall
not be required to refund to the Company, with respect to any Fiscal Year, any amount which
exceeds the aggregate of the Gross Asset Fees paid to the Advisor under this Agreement with respect
to such Fiscal Year.

     19. Term; Termination of Agreement. This Agreement shall continue in force
until the next Annual Meeting of Stockholders of the Company, and, thereafter, it may be
renewed from year to year, subject to any required approval of the Stockholders of the Company and,
if any Director is an Affiliate of the Advisor, the approval of a majority of the Directors who are
not so affiliated. Notice of renewal shall be given in writing by the Directors to the Advisor not
less than 60 days before the expiration of this Agreement or of any extension thereof. This
Agreement may be terminated for any reason without penalty upon 60 days written notice by the
Company to the Advisor or 120 days written notice by the Advisor to the Company, in the former case
by the vote of a majority of the Directors who are not Affiliates of the Advisor or by the vote of
holders of a majority of the outstanding shares of the Company. Notwithstanding the foregoing,
however, in the event of any material change in the ownership, control or management of the
Advisor, the Company may terminate this Agreement without penalty and without advance notice to the
Advisor.

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     20. Amendments. This Agreement shall not be changed, modified, terminated
or discharged in whole or in part except by an instrument in writing signed by both parties
hereto, or their respective successors or assigns, or otherwise as provided herein.

     21. Assignment. This Assignment shall not be assigned by the Advisor without
the prior consent of the Company. The Company may terminate this Agreement in the event of
its assignment by the Advisor without the prior consent of the Company. Such an assignment or any
other assignment of this Agreement shall bind the assignee hereunder in the same manner as the
Advisor is bound hereunder. This Agreement shall not be assignable by the Company without the
consent of the Advisor, except in the case of assignment by the Company to a corporation,
association, trust, or other organization that is a successor to the Company. Such successor shall
be bound hereunder and by the terms of said assignment in the same manner as the Company is bound
hereunder.

     22. Default, Bankruptcy, etc. At the option solely of the Directors, this
Agreement shall be and become terminated immediately upon written notice of termination
from the Directors to the Advisor if any of the following events shall occur:

     (a) if the Advisor shall violate any provision of this Agreement, and after notice of
such violation shall not cure such default within 30 days; or

     (b) if the Advisor shall be adjudged bankrupt or insolvent by a court of competent
jurisdiction, or an order shall be made by a court of competent jurisdiction for the
appointment of a receiver, liquidator, or trustee of the Advisor or of all or substantially
all of its property by reason of the foregoing, or approving any petition filed against the
Advisor for its reorganization, and such adjudication or order shall remain in force or
unstayed for a period of 30 days; or

     (c) if the Advisor shall institute proceedings for voluntary bankruptcy or shall file a
petition seeking reorganization under the Federal bankruptcy laws, or for relief under any
law for the relief of debtors, or shall consent to the appointment of a receiver of itself
or of all or substantially all its property, or shall make a general assignment for the
benefit of its creditors, or shall admit in writing its inability to pay its debts
generally, as they become due.

     The Advisor agrees that if any of the events specified in subsections (b) and (c) of this
Section 22 shall occur, it will give written notice thereof to the Directors within seven days
after the occurrence of such event.

     23. Action Upon Termination. From and after the effective date of termination of this
Agreement, pursuant to Sections 19, 21 or 22 hereof, the Advisor shall not be entitled to
compensation for further services hereunder but shall be paid all compensation accruing to the date
of termination. The Advisor shall forthwith upon such termination:

     (a) pay over to the Company all monies collected and held for the account of the
Company pursuant to this Agreement;

     (b) deliver to the Directors a full accounting, including a statement showing all
payments collected by it and a statement of any monies held by it, covering the period
following the date of the last accounting furnished to the Directors; and

11

 

     (c) deliver to the Directors all property and documents of the Company then in
the
custody of the Advisor.

     24. Miscellaneous. The Advisor shall be deemed to be in a fiduciary
relationship to the stockholders of the Company. The Advisor assumes no responsibility
under this Agreement other than to render the services called for hereunder in good faith, and
shall not be responsible for any action of the Directors in following or declining to follow any
advice or recommendations of the Advisor. Neither the Advisor nor any of its shareholders,
directors, officers, or employees shall be liable to the Company, the Directors, the holders of
securities of the Company or to any successor or assign of the Company for any losses arising from
the operation of the Company if the Advisor had determined, in good faith, that the course of
conduct which caused the loss or liability was in the best interests of the Company and the
liability or loss was not the result of negligence or misconduct by the Advisor. However, in no
event will the directors, officers or employees of the Advisor be personally liable for any act or
failure to act unless it was the result of such person’s willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.

     25. Notices. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing unless some other method of giving such
notice, report, or other communication is accepted by the party to whom it is given, and shall be
given by being delivered at the following addresses of the parties hereto:

     The Directors and/or the Company:

American Realty Investors, Inc.

1800 Valley View Lane, Suite 300

Dallas, Texas 75234

Attn: President

     The Advisor:

Pillar Income Asset Management, Inc.

1800 Valley View Lane, Suite 300

Dallas, Texas 75234

Attn: Executive Vice President and Principal Financial Officer

     Either party may at any time give notice in writing to the other party of a change of its
address for the purpose of this Section 25.

     26. Headings. The section headings hereof have been inserted for convenience
of reference only and shall not be construed to affect the meaning, construction, or
effect of this Agreement.

     27. Governing Law. This Agreement has been prepared, negotiated and
executed in the State of Texas. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Texas applicable to agreements made and to
be performed entirely in the State of Texas.

     28. Execution. This Agreement is executed and made on behalf of the Company by
an officer of the Company, not individually but solely as an Officer, and the obligations
under this Agreement are not binding upon, nor shall resort be had to the private property of, any
of the Directors, stockholders, officers, employees, or agents of the Company personally, but bind
only the Company property.

12

 

     29. Facsimile; Electronic Transmission. This Agreement may be transmitted by
facsimile or electronic transmission, and it is the intent of the Parties for the facsimile of any
autograph reproduced by a receiving facsimile machine or computer to be an original signature, and
for the facsimile or computer-generated version and any complete photocopy of this Agreement to be
deemed an original counterpart.

     IN WITNESS WHEREOF, AMERICAN REALTY INVESTORS, INC. and PILLAR INCOME ASSET MANAGEMENT, INC.,
by their duly authorized officers, have signed this Agreement as of the day and year first above
written.

	 	 	 	 	 
	 	AMERICAN REALTY INVESTORS, INC.

 	 
	 	By:  	/s/ Daniel J. Moos
 	 
	 	 	Daniel J. Moos, President 	 
	 	 	 	 
	 
	 	PILLAR INCOME ASSET MANAGEMENT,

INC.

 	 
	 	By:  	/s/ Gene S. Bertcher
 	 
	 	 	Gene S. Bertcher, Executive Vice 	 
	 	 	President 	 
	 

13exv4w3

Exhibit 4.3

DELIVERY OPTIONS FOR SUBSCRIPTION RIGHTS CERTIFICATE

Delivery other than in the manner or to the addresses listed below will not constitute valid delivery.

	 	 	 

	If delivering by mail: 
	 	If delivering by hand or overnight courier:
	American Stock Transfer & Trust Company, LLC
	 	American Stock Transfer & Trust Company, LLC
	Attn: Reorganization Department
	 	Operations Center
	P.O. Box 2042
	 	Attn: Reorganization Department
	New York, New York 10272-2042
	 	6201 15th Avenue
	 
	 	Brooklyn, New York 11219

PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY.

FORM 1-EXERCISE OF SUBSCRIPTION RIGHTS

To subscribe for shares pursuant to your Subscription Right, please complete lines (a) and
(c) and sign under Form 3 below. To subscribe for shares pursuant to your Over-Subscription
Right, please also complete line (b) and sign under Form 3 below. To the extent you
subscribe for more Shares than you are entitled under the Subscription Right or the
Over-Subscription Right, you will be deemed to have elected to
purchase the maximum number of shares for which you are entitled to subscribe under the Subscription Right or
Over-Subscription Right, as applicable. Under your Subscription Right (paragraph a below)
you may subscribe for three shares for each Subscription Right you hold.

(a) EXERCISE OF SUBSCRIPTION RIGHT:

	 	 	 	 	 

	I apply for ______________ shares x $.__	 	= $_______________
	(no. of new shares)

	 	(subscription price)
	 	 (amount enclosed)

(b) EXERCISE OF OVER-SUBSCRIPTION RIGHT

If you have exercised your Subscription Right in full and wish
to subscribe for additional shares in an amount equal to up to 5% of the issued Common Stock
for of the Company complete the number of shares to which you wish to subscribe pursuant to
your Over-Subscription Right:

	 	 	 	 	 

	I apply for ______________ shares x $.__	 	= $_______________
	(no. of new shares)

	 	(subscription price)
	 	 (amount enclosed)

(c) Total
Amount of Payment Enclosed = $__________________

METHOD OF PAYMENT (CHECK ONE)

	o	 	Check or bank draft payable to “American Stock Transfer & Trust Company, LLC as
Subscription Agent.”
	 
	o	 	Wire transfer of immediately available funds directly to the account maintained by
American Stock Transfer & Trust Company, LLC, as Subscription Agent, for purposes of
accepting subscriptions in this Rights Offering at JPMorgan Chase Bank, 55 Water Street,
New York, New York 10005, ABA #021000021, Account # 530-354624 American Stock Transfer
FBO Mace Security International, Inc. with reference to the rights holder’s name.

FORM 2-DELIVERY TO DIFFERENT ADDRESS

If you wish for the Common Stock underlying your subscription rights, a
certificate representing unexercised subscription rights or the proceeds of any sale of
subscription rights to be delivered to an address different from that shown on the face
of this Subscription Rights Certificate, please enter the alternate address below, sign
under Form 3 and have your signature guaranteed under Form 4.

 

 

 

FORM 3-SIGNATURE

TO SUBSCRIBE: I acknowledge that I have received the Prospectus for this Rights Offering and I
hereby irrevocably subscribe for the number of shares indicated above on the terms and
conditions specified in the Prospectus. By signing below I confirm that (1) after giving
effect to the exercise of my Rights, I will not beneficially own, as determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, more than 5.00% of the
Company’s outstanding shares of Common Stock (calculated immediately upon the closing of the
rights offering after giving effect to the sale of the Additional Stock, as described in the
Prospectus) and (2), if I already beneficially own, as determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended, in excess of 5.00% of the
Company’s outstanding shares of Common Stock I will not, via the exercise of the Rights,
increase my proportionate interest in the Company’s Common Stock (with respect to (1) or (2),
any such excess shares, the “Excess Shares”). I agree to cooperate with the Company and
provide to the Company any and all information requested by the Company in connection with
verifying the percentage of Common Stock I beneficially own.

	 	 	 

	Signature(s):
	 	 
	 

	 	 

IMPORTANT: The signature(s) must correspond with the name(s) as printed on the reverse of
this Subscription Rights Certificate in every particular, without alteration or enlargement,
or any other change whatsoever.

FORM 4-SIGNATURE GUARANTEE

This form must be completed only if you have requested that we send your shares
to an address other than that shown on the face of this Subscription Rights Certificate
(Form 2).

	 	 	 

	Signature Guaranteed:

	 	 
	 

	 	 
	 

	 	(Name of Bank or Firm)

	 	 	 

	By:

	 	 
	 

	 	 
	 

	 	(Signature of Officer)

IMPORTANT: The signature(s) should be guaranteed by an eligible guarantor institution
(bank, stock broker, savings & loan association or credit union) with membership in an
approved signature guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15.

FOR INSTRUCTIONS ON THE USE OF THIS SUBSCRIPTION RIGHTS CERTIFICATE, CONTACT THE
INFORMATION AGENT,
PHOENIX ADVISORY PARTNERS, AT (212) 493-3910 for BANKS AND BROKERS OR (877) 478-5038 ALL
OTHERS

 

			
	 	 	 
	RIGHTS CERTIFICATE #:
	 	NUMBER OF RIGHTS

THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING
ARE SET FORTH IN THE COMPANY’S PROSPECTUS DATED
_______, 2011 (THE “PROSPECTUS”) AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM MACE
SECURITY INTERNATIONAL, INC., AND PHOENIX
ADVISORY PARTNERS, THE INFORMATION AGENT FOR THE
RIGHTS OFFERING.

Mace Security International, Inc.

Incorporated under the laws of the State of Delaware

NON - TRANSFERABLE SUBSCRIPTION RIGHTS CERTIFICATE

Evidencing Non-Transferable Subscription Rights to Purchase Shares of Common Stock of Mace Security International, Inc.

Subscription Price: $.__ per Share

THE SUBSCRIPTION RIGHTS WILL EXPIRE IF NOT EXERCISED ON OR BEFORE 5:00 P.M., EASTERN STANDARD TIME,

ON _______ __, 2011, UNLESS EXTENDED BY THE COMPANY

REGISTERED

        OWNER:

THIS CERTIFIES THAT the registered owner whose name is inscribed hereon is the owner
of the
number of non-transferable subscription rights (“Rights”) set forth above. Each whole
Right entitles the holder thereof to subscribe for and purchase three shares of Common
Stock, with a par value of $0.01 per share, of Mace Security International, Inc., a
Delaware corporation, at a subscription price of $.__ per share (the “Subscription
Privilege”), pursuant to a rights offering (the
“Rights Offering”), on the terms and subject to the conditions set forth in the
Prospectus and the
“Instructions as to Use of Mace Security International, Inc. Subscription Rights
Certificates” accompanying this Subscription Rights Certificate. If any shares of
Common Stock available for purchase in the Rights Offering are not purchased by other
holders of Rights pursuant to the
exercise of their Subscription Privilege (the “Excess Shares”), any Rights holder that exercises
its
Subscription Privilege in full may subscribe for a number of Excess Shares pursuant
to the terms and conditions of the Rights Offering, subject to proration, as
described in the Prospectus (the “Over-
Subscription Privilege”). The Rights represented by this Subscription Rights
Certificate may be exercised by completing Form 1 and any other appropriate forms
on the reverse side hereof and by retuning the full payment of the subscription
price for each share of Common Stock in accordance with the “Instructions as to Use
of Mace Security International, Inc. Subscription Rights Certificates” that
accompany this Subscription Rights Certificate.

This Subscription Rights Certificate
is not valid unless countersigned by the
subscription agent and registered by the
registrar.

Witness the seal of the Corporation
and the signatures of its duly authorized
officers.

Dated:

	 	 	 	 	 	 	 

	 

Chief Executive Officer 

and Principal Executive Officer

	 	 	 	 

Chief Financial Officer and Secretary

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