<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
ERLY INDUSTRIES, INC.
--------------------------------------------------------
(Name of Issuer)
COMMON STOCK
--------------------------------------------------------
(Title of Class of Securities)
26883910
--------------------------------------------------------
(CUSIP Number)
Michael L. Tenzer
11400 West Olympic Boulevard,
Suite 1040
Los Angeles, California 90064 Tel: (310) 820-6000
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 17, 1996
--------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box / /.
Check the following box if a fee is being paid with this statement / /. (A
fee is not required only if the reporting person: (1) has a previous statement
on file reporting beneficial ownership of more than five percent of the class
of securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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CUSIP No. 26883910 13D Page 2 of 40 Pages
--------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
KINGWOOD LAKES SOUTH, L.P.
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) [ ]
of a Group* (b) [X]
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power
Beneficially Owned
by Each Reporting 383,333 shares
Person With --------------------------------------------------
(8) Shared Voting Power
--------------------------------------------------
(9) Sole Dispositive Power
383,333 shares
--------------------------------------------------
(10) Shared Dispositive Power
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
383,333 shares
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares*
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
9.0%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
PN
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
<PAGE>
CUSIP No. 26883910 13D Page 3 of 40 Pages
--------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
TENZER COMPANY, INC.
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) [ ]
of a Group* (b) [X]
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Delaware corporation
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power
Beneficially Owned
by Each Reporting
Person With --------------------------------------------------
(8) Shared Voting Power
383,333 shares
--------------------------------------------------
(9) Sole Dispositive Power
--------------------------------------------------
(10) Shared Dispositive Power
383,333 shares
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
383,333 shares
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares*
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
9.0%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
CO
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION.
<PAGE>
CUSIP No. 26883910 13D Page 4 of 40 Pages
--------- --- ---
- -------------------------------------------------------------------------------
(1) Names of Reporting Persons. S.S. or I.R.S. Identification Nos. of Above
Persons
MICHAEL L. TENZER
- -------------------------------------------------------------------------------
(2) Check the Appropriate Box if a Member (a) [ ]
of a Group* (b) [X]
- -------------------------------------------------------------------------------
(3) SEC Use Only
- -------------------------------------------------------------------------------
(4) Source of Funds*
00
- -------------------------------------------------------------------------------
(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
- -------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
- -------------------------------------------------------------------------------
Number of Shares (7) Sole Voting Power
Beneficially Owned
by Each Reporting
Person With --------------------------------------------------
(8) Shared Voting Power
383,333 shares
--------------------------------------------------
(9) Sole Dispositive Power
--------------------------------------------------
(10) Shared Dispositive Power
383,333 shares
- -------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
383,333 shares
- -------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares*
- -------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
9.0%
- -------------------------------------------------------------------------------
(14) Type of Reporting Person*
IN
- -------------------------------------------------------------------------------
*SEE INSTRUCTION BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION.
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
This Statement relates to the Schedule 13D (the "Schedule 13D") filed by
Kingwood Lakes South, L.P., Tenzer Company, Inc. and Michael L. Tenzer with
regard to beneficial ownership of common stock, par value $1.00 per share (the
"Common Stock") of ERLY Industries, Inc. (the "Company") and constitutes
Amendment No. 2 thereto. Terms used herein and not otherwise defined have the
meaning set forth in the Schedule 13D.
ITEM 4. PURPOSE OF TRANSACTION.
Item 4 is hereby amended by adding the following:
On April 13, 1996, the Lawsuit was amended pursuant to Plaintiffs',
Intervenors' and Third Party Defendants' Seventh Amended Original Petition and
Fifth Amended Original Counterclaim, a copy of which is filed as EXHIBIT 1
hereto and incorporated herein in its entirety by reference.
On May 17, 1996, the Court issued an order denying defendants' ERLY
Industries Inc.'s and American Rice, Inc.'s motion for summary judgment, a copy
of which is filed as EXHIBIT 2 hereto and incorporated herein in its entirety by
reference.
On May 17, 1996, the Court issued an order (the "Dissolution Order") to
dissolve the agreed temporary injunction issued by the Court on May 9, 1995
pursuant to which the Limited Partnership was prohibited from disposing of the
Shares pending disposition of the Lawsuit on the merits. The foregoing
description of the Dissolution Order is qualified in its entirety by reference
to the Dissolution Order, a copy of which is filed as EXHIBIT 3 hereto and
incorporated herein in its entirety by reference. The Limited Partnership
intends to sell some or all of the Shares (as defined in Item 5(a)) as soon
as practicable to satisfy Mr. Murphy's obligations to the Limited Partnership
under the Note.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Item 5(a) is hereby amended to read in its entirety as follows:
a) As of the date hereof, the Limited Partnership beneficially owns 383,333
shares of the Common Stock, constituting 9.0% of the 4,275,685 shares of Common
Stock outstanding as reported by the Company in its Form 10-Q for the quarter
ended December 31, 1995. The General Partner, which controls the Limited
Partnership, and Mr. Tenzer, who controls the General Partner, also may be
deemed to have beneficial ownership of these Shares.
5
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Ms. May beneficially owns 57 shares of Common Stock, all of which are
held in an individual retirement account in Ms. May's name.
Item 5(c) is hereby amended by adding the following:
c) In September 1995, the Company paid a 15% stock dividend on its shares of
Common Stock. As a result of the stock dividend, Mr. Murphy received 50,000
shares of the Company's Common Stock with respect to the 333,333 shares of
Common Stock that had been pledged to the Limited Partnership pursuant to the
Security Agreement. The Security Agreement grants the Limited Partnership a
security interest in such shares. However, as of the date hereof, Mr. Murphy
has not delivered the certificate(s) representing those shares, nor any stock
powers with respect thereto, to the Limited Partnership.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT 1. Plaintiffs', Intervenors' and Third Party Defendants' Seventh
Amended Original Petition and Fifth Amended Original Counterclaim
in KINGWOOD LAKES SOUTH, L.P. ET AL. V. GERALD D. MURPHY, ET AL.,
No. 95-016749 (151st Judicial District, Harris County Texas)
EXHIBIT 2. Order entered by the District Court of Harris County, Texas on
May 17, 1996 (denying motion for summary judgment).
EXHIBIT 3. Order entered by the District Court of Harris County, Texas on
May 17, 1996 (dissolving agreed temporary injunction).
6
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SIGNATURE.
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
KINGWOOD LAKES SOUTH, L.P., a
Texas Limited Partnership
By: TENZER COMPANY, INC., a
Delaware corporation, as General Partner
May 23, 1996 By: /s/ Michael L. Tenzer
- ---------------------- ---------------------------
Date Michael L. Tenzer
Title: President
TENZER COMPANY, INC., a Delaware
corporation
May 23, 1996 By: /s/ Michael L. Tenzer
- ---------------------- ---------------------------
Date Michael L. Tenzer
Title: President
MICHAEL L. TENZER
May 23, 1996 /s/ Michael L. Tenzer
- ---------------------- ---------------------------
Date Michael L.Tenzer
7
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EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
EXHIBIT 1. Plaintiffs', Intervenors' and Third Party Defendants'
Seventh Amended Original Petition and Fifth Amended Original
Counterclaim in KINGWOOD LAKES SOUTH, L.P. ET AL. V. GERALD
D. MURPHY, ET AL., No. 95-016749 (151st Judicial District,
Harris County Texas)
EXHIBIT 2. Order issued by the District Court of Harris County, Texas on May
17, 1996 (denying motion for summary judgment).
EXHIBIT 3. Order issued by the District Court of Harris County, Texas
on May 17, 1996 (dissolving agreed temporary injunction).
8
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EXHIBIT 1
<PAGE>
NO. 95-016749
KINGWOOD LAKES SOUTH, L.P. Section IN THE DISTRICT COURT OF
Section
V. Section HARRIS COUNTY, T E X A S
Section
GERALD D. MURPHY, ET AL. Section 151ST JUDICIAL DISTRICT
PLAINTIFFS', INTERVENORS' AND THIRD PARTY
DEFENDANTS' SEVENTH AMENDED ORIGINAL PETITION
AND FIFTH AMENDED ORIGINAL COUNTERCLAIM
TO THE HONORABLE TEXAS DISTRICT JUDGE:
Plaintiffs KINGWOOD LAKES SOUTH, L.P., and Intervenors and Third-Party
Defendants TENZER COMPANY, INC. and ANTHONY M. FRANK, file this their Seventh
Amended Original Petition and Fifth Amended Original Counterclaim, and hereby
complain of Defendants GERALD D. MURPHY, DOUGLAS A. MURPHY, AMERICAN RICE, INC.
and ERLY INDUSTRIES, INC., and for cause of action respectfully show as follows:
PARTIES
1. Kingwood Lakes South, L.P. ("KLS") is a Texas Limited Partnership,
with its principal place of business in Los Angeles, California.
2. Tenzer Company, Inc. ("Tenzer Co.") is a Delaware corporation, with
its principal place of business in Los Angeles, California, and is the General
Partner of KLS.
3. Anthony M. Frank ("Mr. Frank") is a resident of Belvedere, California,
and is a limited partner in KLS.
4. Defendant Gerald D. Murphy ("Gerald") is a resident of Los Angeles,
California, and a limited partner of KLS. He is also the Chairman of the Board
of
<PAGE>
Directors of both ARI and ERLY. The claims set forth herein against Gerald are
made against him both individually and in his capacity as a officer and director
of ARI and ERLY. Gerald has appeared and answered herein.
5. Defendant Douglas A. Murphy ("Douglas") is a resident of Kingwood,
Texas and a limited partner of KLS. He is also the President, Chief Executive
Officer and a director of ARI, and the President and a director of ERLY. The
claims set forth herein against Douglas are made against him both individually
and in his capacity as a officer and director of ARI and ERLY. Douglas has
appeared and answered herein.
6. Defendant American Rice, Inc. ("ARI") is a Texas corporation,
approximately eighty-one percent (81%) of which is owned by ERLY. ARI has
previously appeared herein.
7. Defendant ERLY Industries, Inc. ("ERLY") is a California corporation,
which owns approximately eighty-one percent (81%) of ARI. ERLY has previously
appeared herein. Approximately forty-two percent (42%) of ERLY is owned
collectively by Gerald and Douglas.
BACKGROUND FACTS
8. The president of Tenzer Co., Mr. Michael L. Tenzer, is a nationally
renowned developer of active adult residential communities and single family
subdivisions. Over the past 32 years, Mr. Tenzer has served as president and
chief executive officer of two major companies in this industry, and he has been
integrally involved in the development and construction of more than 65 thousand
residences throughout the United States. In particular, Mr. Tenzer's expertise
lies in the
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development of large scale active adult communities and single family and multi-
family residential developments.
9. Friendswood Development Company ("Friendswood") is a substantial real
estate developer, headquartered in Houston, Texas. One of Friendswood's
successful developments in the Houston area is Kingwood, a large scale master
planned community.
10. For a number of years, Friendswood considered its various options
concerning prime property located in Kingwood, comprising approximately 196
acres, and situated contiguous to Kingwood Country Club and its prestigious golf
courses. In fact, the property is totally surrounded by nine of the eighteen
holes of the Lakes Course. In 1993 Friendswood approached Tenzer Co. concerning
the feasibility of developing the 196 acre property as an active adult
residential community. This is a type of development which is very different
from typical single family developments, or even retirement or senior citizen
communities. Thereafter, at great cost and expense, Tenzer Co. investigated the
potential for such a project and, in coordination with and through the
assistance of Friendswood, created a viable plan for the development of the
property into an active adult community which would not only satisfy the
specific requirements of Friendswood, but which would hold out the potential for
significant profits to Tenzer Co.
11. On July 1, 1994, Tenzer Co., as purchaser, entered into a Sale and
Purchase Agreement with Friendswood (and King Ranch, Inc., a venturer with
Friendswood in Kingwood), as seller. The Sale and Purchase Agreement provided
for a purchase price of $3.5 million, to be paid in cash at closing, which was
to occur on or before December 29, 1994.
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12. Tenzer Co. knew that the development of the property would require a
substantial investment of capital. Based upon Mr. Tenzer's experience in the
industry and the input of highly qualified, third party professionals, a capital
structure, which was necessary for the successful development of the property,
was formulated. As part of this process, it was determined that the financial
success of the project would require approximately $6 million of equity, in
addition to all of the substantial sums already expended by Tenzer Co. in
investigating the project and assuring that all permits, regulatory approvals,
and the like would be available, so that the development could proceed in a
legal and practical fashion. After learning of what the necessary capital
structure would be, Tenzer Co. began searching for one or more investors to
furnish the necessary equity capital. In that regard, Tenzer Co. engaged the
services of The Harlan Company, Inc., a New York investment banking firm, to
raise equity capital for the project. At the same time, Mr. Tenzer approached
various contacts and former business associates who he felt might be interested
in investing in the project.
13. Mr. Tenzer had previously served for 18 years as the chief executive
officer and board chairman of Leisure Technology, Inc., a New York Stock
Exchange Company, which was a nationwide developer of numerous award-winning
active adult residential communities. Until 1984 Defendant Gerald was a major
shareholder in Leisure Technology, Inc., and served for 12 years on its Board of
Directors. Gerald's investment in Leisure Technology was highly profitable to
him.
14. In July 1994, Mr. Tenzer contacted Gerald to see if he might be
interested in investing in Tenzer Co.'s proposed active adult residential
community, which Tenzer Co. was then referring to as Kingwood Lakes South. By
coincidence, it turned out that
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Gerald's son, Douglas, lived in Kingwood in the very vicinity of Kingwood Lakes
South. Upon learning that both Gerald and Douglas were very interested in the
project, Mr. Tenzer met with the Murphys and provided them detailed information,
including but not limited to economic projections, financial models and
projections and Tenzer Co.'s development plan for an active adult community at
Kingwood Lakes South.
15. Both Gerald and Douglas committed themselves to invest in the project.
Although Mr. Tenzer and Gerald and Douglas discussed the possible participation
of other equity investors, the Murphys consistently assured Mr. Tenzer that the
Murphys desired to provide all of the additional $6 million in equity necessary
for the Kingwood Lakes South project. Thereafter, Tenzer Co. and the Murphys
informed The Harlan Co., Inc. that the Murphys had committed to make the
necessary investment of equity, thereby discouraging The Harlan Co., Inc.'s
further efforts to obtain equity investors.
16. Between August and December 1994, Tenzer Co. and the Murphys
negotiated concerning the various rights and obligations they would have with
one another in the development of the project. They mutually agreed to consult
with lawyers and accountants concerning financial, tax and legal issues. It was
determined that a limited partnership would be formed, with Tenzer Co. as
general partner and the Murphys as limited partners. This limited partnership
would be called Kingwood Lakes South, L.P. Although the parties briefly
considered the possibility of forming two distinct business entities, one to
acquire and develop the property, install roads, utilities and common areas
(site improvements) and the other to construct residential improvements for sale
to the public, it was determined and mutually agreed that it would be best to
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have the one limited partnership conduct both the acquisition and development of
the project and the construction of all of the homes for sale to the public.
17. In early December 1994, the Murphys advised Tenzer Co. that, because
of other pressing business matters, they had delayed taking steps to arrange the
liquidity necessary to make the full amount of their committed investment of $6
million cash by the scheduled December 29, 1994, closing date with Friendswood.
As a result, the parties met with representatives of Friendswood to renegotiate
the terms upon which the real property could be acquired. In that regard,
Friendswood agreed to modify the Purchase and Sale Agreement, so that the
purchase price would not be required to be paid in a lump sum cash amount at
closing. The amended Purchase and Sale Agreement provided for payment of the
purchase price with a downpayment in the cash amount of $1 million plus the
delivery of a promissory note in the amount of $2.22 million, which would be
secured by a first lien upon the property. In addition, Friendswood offered to
modify the Purchase and Sale Agreement so as to reduce the amount of the
purchase price and to contribute 30,000 cubic yards of qualified fill (soils)
material at no cost, to offset additional unanticipated site improvement costs,
in connection with the land development, as a result of an October 1994 flood.
18. In December 1994, with the concurrence of the Murphys, Tenzer Co.
contacted Mr. Frank, who also was formerly on the board of Leisure Technology,
concerning the opportunity to invest in Kingwood Lakes South. In that regard,
Mr. Frank was provided with detailed information concerning the proposed
project, which included economic projections and financial models and
projections. Thereafter, Mr. Frank agreed to invest the sum of $500,000 cash
toward the required aggregate equity
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of $6.6 million (including the $600,000 invested by Tenzer Co.), and that he
would receive a proportionate limited partner interest in KLS for his equity
investment.
19. Tenzer Co. prepared new financial projections, referred to as
Financial Run 7.0, based upon the modified sales contract, and these projections
were provided to the Murphys and Mr. Frank.
20. It was agreed among the parties that, at the time of the acquisition
of the property from Friendswood by KLS in late December 1994, Mr. Frank would
fund his entire cash commitment of $500,000.00, the Murphys would fund $2
million of their aggregate cash commitment of $5.5 million (with the balance of
$3.5 million being funded within several months of the closing of the
acquisition of the property), and Tenzer Co. would contribute the Purchase and
Sale Agreement and all appurtenant rights to the contract, including all
entitlements which had been obtained by Tenzer Co. The lawyers selected by the
Murphys for the venture, Nathan, Wood & Sommers (who are also attorneys for
ARI), then prepared another revision to a draft of the proposed limited
partnership agreement (which had been the subject of active negotiation between
the parties for several months), to show the new capital contribution schedule.
This revised draft of the proposed limited partnership agreement was circulated
to all of the parties by the lawyers. On or about December 18, 1994, Mr. Frank
inquired of Gerald whether he was committed to the project and whether he and
Douglas were in fact going to make their capital contribution. Gerald
represented to Mr. Frank that he and Douglas had conducted "due diligence" and
were convinced that the project, as proposed by Tenzer Co., was sound. Gerald
assured both Mr. Frank and Tenzer Co. that he and Douglas were firmly committed
to the project and that the initial portion of their capital contribution,
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in the amount of $2 million, would be funded in cash at the upcoming closing,
scheduled several days later, as agreed.
21. On or about December 20, 1994, Mr. Tenzer and Ms. Melanie May,
executive vice-president of Tenzer Co., traveled to Houston from Los Angeles to
finalize the execution of the Agreement of Limited Partnership, so as to
evidence the agreement reached by Tenzer Co., the Murphys, and Mr. Frank, as
well as to close the acquisition of the real property. Mr. Tenzer and Ms. May
arrived in Houston on December 21, 1994, the day before the closing with
Friendswood was scheduled. The day before arriving in Houston, they had been
requested by Gerald to meet with the Murphys at the corporate headquarters of
ARI early on December 22, 1994, the date scheduled for the closing with
Friendswood. When Mr. Tenzer and Ms. May arrived at the early morning meeting,
the Murphys informed them for the first time that, notwithstanding their
numerous confirmations of their commitment to furnish cash for the closing of
the land purchase, they did not, in fact, have in available and ready funds the
initial $2 million cash portion of their total equity capital commitment of $5.5
million.
22. The failure by the Murphys to arrange to have their committed funds
available placed Tenzer Co. in an exigent situation. Unless a solution could be
reached, insufficient funds would be available to pay the cash downpayment to
Friendswood and to cover the projected operational costs during the first months
of the project. Without the Murphys' promised funds, Tenzer Co.'s Purchase and
Sale Agreement with Friendswood would expire a few days later on December 30,
1995, causing Tenzer Co. to lose all of the benefit and value which had been
created by its hard work and expenditure of substantial sums of money. This
urgent situation was created solely because of the
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<PAGE>
failure of the Murphys to contribute their committed funds, in accordance with
their agreements, and their abject failure to disclose the truth of the
situation at any time prior to the day of closing.
23. After Mr. Tenzer signed all final closing documents, with Gerald in
attendance, at an escrow closing at the title company, Friendswood agreed to a
short delay in the actual funding. Douglas agreed to contribute $500,000, no
later than the following week so as to cover, when combined with Mr. Frank's
contribution, the $1 million downpayment required to close with Friendswood.
Douglas also agreed to contribute an additional sum of $500,000.00 within
several weeks of closing, so as to enable KLS to continue with ongoing
engineering and architectural services, among other operations, within the time
frames included in the development plan of Tenzer Co. and financial projections
for the project as prepared by the outside financial consultants.
24. Because of the disconcerting, unanticipated last minute disclosure by
the Murphys of their inability to honor their financial commitments to the
project, notwithstanding Mr. Tenzer's prior good relationship with Gerald,
Tenzer Co. became concerned with whether the Murphys could be trusted to honor
their commitments. In order to assure Tenzer Co., and to induce it to
contribute the Purchase and Sale Agreement to a venture to include the Murphys,
Gerald agreed to execute and deliver to KLS his unconditional Promissory Note in
the amount of $1.5 million, payable on or before March 22, 1995. Additionally,
Gerald agreed to secure payment of such Promissory Note with an unconditional
pledge to KLS of 333,333 shares owned by him in ERLY, a public company. Gerald
also executed a stock power for the entire block of shares of ERLY, so that upon
a default in payment of the Promissory Note, KLS could
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<PAGE>
immediately sell the shares, which it was holding as collateral, for cash to
maintain operations of KLS. In his capacity as an officer and director of ERLY,
Gerald Murphy promised to obtain for KLS, and later did obtain, a written
opinion by ERLY's legal counsel that KLS would be entitled to enforce the Pledge
Agreement in accordance with its terms. (Plaintiffs later discovered that both
Gerald Murphy and ERLY were misleading KLS: they omitted to state that they,
ARI, and Douglas Murphy would do all they could to prevent KLS's enforcement of
the Pledge Agreement.) Moreover, both of the Murphys acted apologetic and
continued to assure Tenzer Co. that they were firmly committed to the project,
that they had the financial wherewithal and intent to fund all their financial
obligations, and that their current failure was simply the result of further
delays and inattention by them, resulting from unrelated business and personal
occurrences.
25. Based upon these excuses, as well as the continued assurances by the
Murphys that they would honor their agreement, and the evidence thereof
demonstrated by the execution by Gerald of the Promissory Note, Pledge
Agreement, and Stock Power, Tenzer Co. joined with Mr. Frank in entering into a
written Limited Partnership Agreement, Mr. Frank contributed $500,000, and
Tenzer Co. contributed the Purchase and Sale Agreement and all the property
entitlements to KLS, the resulting limited partnership.
26. The Agreement of Limited Partnership of KLS (the "Partnership
Agreement"), was executed on or about December 22, 1995. In paragraph 3.1(b) of
the Partnership Agreement, the Murphys agreed that: (a) Gerald would deliver the
Promissory Note in the amount of $1.5 million to KLS; (b) Douglas would make the
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<PAGE>
initial $500,000 cash contribution, which was required to close the acquisition
of the property; and (c) Douglas and Gerald would "collectively commit,
covenant, and agree to contribute . . ., [an additional] $3,500,000.00" (or
such lesser amount as Tenzer Co. and the Murphys might agree would be necessary)
"as and when called for by [Tenzer Co.], but in any event prior to the closing
of the Acquisition and Development Loan." The partnership agreement includes
Exhibit "D", commonly known as Run 7.0. In the alternative, Exhibit "D" was
not an essential part of the partnership agreement, or Run 7.0 was not included
as a part of the partnership agreement because of mutual mistake and/or
accident, and the agreement should be reformed to include Run 7.0 as Exhibit
"D".
27. After Tenzer Co. assigned to KLS the Purchase and Sale Agreement, KLS
acquired the real estate from Friendswood by paying the downpayment and
executing the purchase money promissory note. Thereafter, Tenzer Co. began the
process of obtaining an Acquisition and Development Loan for KLS. To facilitate
the acquisition of such debt capitalization, additional engineering and
architectural work was necessary. The Murphys were fully apprised on numerous
occasions of this situation by Tenzer Co. and of the adverse consequences which
would result from delays in that regard. It was anticipated that such
professional costs would be funded out of the $500,000 which Douglas stated
would be available within a few weeks after closing.
28. After the passage of several weeks after closing, the Murphys still
had not delivered the $500,000 portion of their aggregate, agreed capital
contribution so as to enable KLS to proceed in a timely manner with the ongoing
professional work necessary to enhance KLS's ability to obtain an Acquisition
and Development Loan. Mr. Tenzer placed numerous telephone calls to Douglas,
who failed and refused to return any of such
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<PAGE>
calls. Moreover, Tenzer Co. advised both of the Murphys in writing of KLS'
urgent need for cash, and that the lack thereof would bring about dire
consequences to KLS. Finally, on February 8, 1995, Douglas wrote Mr. Tenzer,
acknowledging the urgency of the liquidity problem and informing him of Douglas'
efforts to borrow the agreed capital contribution. Douglas also inquired at
that time concerning the status of KLS' efforts to obtain an Acquisition and
Development Loan. Upon receipt of such request, Tenzer Co. immediately provided
both of the Murphys with a full and complete written report detailing the status
of negotiations with various possible acquisition and development lenders.
Tenzer Co. also reiterated that the equity to be provided by the investors was
essential to the loan application process.
29. Ultimately, Tenzer Co. called upon Gerald and Douglas to make the full
amount of their additional agreed capital contribution of $5.0 million, which
was needed by KLS in order to obtain an Acquisition and Development Loan.
Notwithstanding this, the Murphys failed to make their agreed capital
contributions or any further portion thereof. The $5 million is the total of
the $3.5 million commitment of Gerald and Douglas jointly, plus the $1.5 million
Promissory Note executed by Gerald and which matured on March 22, 1995.
30. The failure by the Murphys to make their agreed capital contributions
caused KLS to be unable to obtain an Acquisition and Development Loan and a
Construction Loan by June 30, 1995. The Murphys were well aware of this fact.
Moreover, they knew that, pursuant to paragraph 10.1 of the Partnership
Agreement, their failure to contribute the agreed capital could bring about a
dissolution of KLS.
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<PAGE>
31. In fulfilling its fiduciary duties, Tenzer Co. brought suit on behalf
of KLS against Gerald, upon his default in payment of the Promissory Note when
it matured on March 22, 1995. Immediately thereafter, the Murphys, acting in
their capacity as officers and directors of ARI and ERLY, and with the approval
of the Board of Directors and the Executive Committee of ARI, caused ARI and
ERLY to join them in bringing suit in Brazoria County, Texas (the "Brazoria
County Suit"), a jurisdiction which had no relationship to any of the parties or
the project, and in obtaining an ex parte order restraining KLS from selling the
ERLY stock which had been pledged as collateral for Murphy's Promissory Note.
The involvement by ARI and ERLY was part of these corporations' desire and plan
that the Murphys not make their agreed capital contributions to KLS. The
Murphys, ARI and ERLY also brought suit against Tenzer Co. and Mr. Tenzer,
individually. ARI and ERLY had no standing to complain of any conduct or
anticipated conduct by KLS, Tenzer Co. or Mr. Tenzer. The Brazoria County Suit
was an abuse of process designed to interfere with KLS' ability to enforce its
Pledge Agreement. ARI and ERLY's willingness to file such a lawsuit (and to
assist Gerald Murphy in obtaining an order stopping the foreclosure sale)
induced the Murphys not to perform their obligations to pay the capital
contributions owing to KLS. In order to avoid the cost and inconvenience of a
multiplicity of suits, and possible unfair prejudice resulting from a proceeding
in an unrelated, rural county, KLS elected to agree to the entry of a temporary
injunction as a trade-off to a transfer of the Brazoria County Suit to Harris
County.
32. In the Brazoria County Suit, the Murphys and ERLY and ARI first
revealed that the foreclosure by KLS of the ERLY stock securing payment of
Gerald Murphy's
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Promissory Note would adversely affect ARI and ERLY. According to the Original
Petition filed by ARI, ERLY and the Murphys, and sworn to by Douglas Murphy,
"the sale of said stock would place American Rice, Inc. in technical default of
its financing and it would materially interfere with the ongoing re-financing
which would cost American Rice, Inc. over $9 million a year." As directors and
officers of ERLY and ARI, the Murphys knew about the effect of a foreclosure
sale of the stock upon ERLY and ARI, and they knew that they and ARI and ERLY
would resist the enforcement of Gerald Murphy's pledge of the stock. In the
Pledge Agreement, Gerald Murphy represented that the pledged stock was not
subject to any restriction on transfer or assignment, and that he had the
unrestricted right to pledge the stock (See Section 2.01 of the Pledge
Agreement). In addition, Gerald Murphy represented that the Pledge Agreement
created a first priority perfected security interest in the stock, and that
there were no conditions precedent to the effectiveness of the agreement that
had not been fully and permanently satisfied (see Section 2.04 of the Pledge
Agreement). Both the Murphys and ARI and ERLY knew that Plaintiffs believed
Gerald Murphys' pledge to be both enforceable and effective (especially based on
the opinion letter obtained by Gerald Murphy as an officer and director of
ERLY), and that the partnership could rely upon the pledge to secure Gerald
Murphy's obligation. The Murphys and ARI and ERLY had a duty to disclose (and
misled Plaintiffs by omitting to disclose) their intent to oppose any
foreclosure sale by filing suit and seeking an order stopping the sale. If the
statements in the Brazoria County Suit were true, the Murphys had a conflict of
interest between their duties to ARI and ERLY as its officers and directors (to
oppose any foreclosure sale) and their duties to the Partnership (to permit a
foreclosure sale, pursuant to their agreement) which they
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should have disclosed to KLS and to their partners. Gerald Murphy pledged the
stock without any intent to perform his obligations thereunder. The Murphys'
failure to disclose their conflict of interest as ERLY and ARI's officers and
directors and to disclose the difficulty KLS would have in enforcing the pledge
constitutes fraud. Gerald Murphy's misrepresentations in the Pledge Agreement,
along with his execution of the Pledge Agreement without any intent to perform
it, also constitute fraud, both by the Murphys and by ARI and ERLY. The
Murphys' and ARI and ERLY's fraud induced Tenzer Co. to accept the Promissory
Note in lieu of the previously agreed cash contribution, and to accept the stock
as security for the Promissory Note. The Murphys' and ARI and ERLY's duties to
disclose these facts arose because of the Murphy's relationship to Tenzer Co.
and Frank as partners, because of the Murphys' conflict of interest as officers
and directors of ARI and ERLY, because of knowledge by the Murphys, ARI and ERLY
of the assumptions of KLS with regard to the enforceability and effectiveness of
the Pledge Agreement, because of the matters actually stated by Gerald Murphy,
and because of the opinion letter promised and obtained by Gerald Murphy as an
officer and director of ARI and ERLY.
33. The Murphys also failed to disclose certain ongoing investigations
against ARI, which could substantially impact the market price of the ERLY stock
given as security for Gerald's promissory note payable to KLS. After formation
of the partnership, Tenzer Co. learned that ARI was again under investigation by
the federal government. On information and belief, the gravamen of such
investigation is that ARI may have violated laws of the United States by trading
with its enemies, including the countries of Iran and/or Iraq.
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<PAGE>
34. When KLS was formed in late December 1994, it was agreed that an
annual operating plan for 1995 would be submitted to the partners by the end of
March 1995. Such plan was to include, among other things, an operating budget
for 1995. It was originally contemplated that, as a result of post-formation
engineering and architectural work, Tenzer Co. would be in a position to further
quantify the cost estimates contained within Financial Run 7.0 which was
delivered to the prospective partners in December 1994. When it became apparent
that the Murphys were not going to honor their contractual financial
commitments, in March 1995 Tenzer Co. prepared a 1995 operating plan, based upon
the original cost estimates contained in Financial Run 7.0, and distributed it
to the Murphys and Mr. Frank. Thereafter, the Murphys purported to raise
numerous objections to the 1995 operating plan and informed Tenzer Co. that they
did not approve of it. Mr. Frank made no objections.
35. The Murphys' purported disapproval of the 1995 operating plan
submitted by Tenzer Co. was in bad faith and in breach of their fiduciary duties
owed to KLS and their partners. The purported objections raised by the Murphys
were spurious, as indicated by the fact that many of such objections went to
fundamental and integral facets of the project which had existed since the very
first day on which Tenzer Co.'s development plan was submitted to the Murphys
for consideration. The Murphys made these objections to hide the fact that they
were unwilling to meet their financial obligations to KLS, which they were
unable to do without selling their stock in ERLY. Because selling the stock
might result in a harmful change of control of the ownership of ARI and ERLY,
those companies and the Murphys (acting as officers and directors of ARI and
ERLY) decided that the Murphys should default in their obligations to KLS. ARI
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and ERLY both induced the Murphys to default and helped justify the default with
bad faith objections to the 1995 operating plan, formulated by lawyers hired and
paid for by ARI and/or ERLY.
36. The Murphys have claimed that KLS has dissolved according to the terms
of the Partnership Agreement, and that their liability is therefore limited so
as not to include post dissolution lost profits. If it is found that the
Partnership dissolved, then the dissolution was wrongful, caused by the Murphys'
breaches of the Partnership Agreement. The Murphys are therefore estopped from
relying upon the dissolution in order to limit their damages.
37. In the Pledge Agreement, Gerald Murphy also promised to forward any
stock dividends from the pledged stock to KLS, are of Tenzer Company. Gerald
Murphy has since received a 15% stock dividend, which he has failed to send to
KLS. Despite the provisions of the Pledge Agreement, the officers and directors
of ERLY failed to send the stock dividend to KLS, as requested by KLS. The
actions of ERLY (through its officers and directors) and Gerald Murphy (taken as
a director and officer of ERLY) were taken in concert with one another, and
constitute breach of contract by Gerald Murphy, tortious interference with
contract by ERLY, and both conspiracy and conversion by both Gerald Murphy and
ERLY.
38. Gerald Murphy and Douglas Murphy acted in their capacities as
directors and officers of ERLY and ARI in breaching their duties to Plaintiffs,
in misleading Plaintiffs concerning the Pledge Agreement, and in causing ARI and
ERLY to interfere with the contracts between the Plaintiffs and the Murphys.
The Murphys had actual,
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implied, and apparent authority to act on behalf of ERLY and ARI, and ERLY and
ARI approved and/or have ratified the actions of the Murphys taken on their
behalf.
CAUSES OF ACTION
BREACHES OF CONTRACT
39. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. Gerald and Douglas have breached their contractual obligations,
which are oral, contained within the partnership agreement, and contained within
the Promissory Note. Plaintiffs and Counterclaimants have been damaged by such
breaches in an amount far in excess of the minimum jurisdictional limits of this
court. All such damages were proximately caused by the breaches of the
contracts and were foreseeable by the Murphys. Judgment for such damages is
requested from the Murphys, jointly and severally.
40. The written and oral agreements on which this suit is brought are
unambiguous and entitle Plaintiffs and Counterclaimants to the relief requested
herein.
BREACHES OF FIDUCIARY DUTIES
41. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. As a result of their partnership relationship, the Murphys owed
Plaintiffs and Counterclaimants the highest of fiduciary duties. In addition, a
special relationship of trust and confidence existed, which imposed upon the
Murphys the duty of utmost good faith and loyalty, the duty of full disclosure
and fair dealing, and the duty of placing the interests of KLS and their fellow
partners above their own interests or those of ERLY and ARI. In wanton
violation of their duties, the Murphys concealed and misrepresented material
information about their financial circumstances and the potential for a conflict
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of interest with respect to ERLY and ARI. Moreover, the Murphys made false
promises and falsely represented that they would participate in the Kingwood
Lakes South project and provide the necessary equity capital. Specifically, but
not by way of limitation, the Murphys refused to carry out their duty to provide
equity capital, while at the same time refusing to cooperate with the efforts of
Tenzer Co. to advance the interests of KLS by raising spurious, bad faith
objections to the 1995 operating plan. This conduct by the Murphys unreasonably
and unfairly impaired efforts to obtain an Acquisition and Development Loan,
which was necessary to the ultimate success of the venture. The Murphys placed
their own interests before those of KLS and their fellow partners. The breaches
by the Murphys of their duties to Plaintiffs and Counterclaimants were in their
capacity as officers and directors of ERLY and ARI, and proximately caused
damages which are substantially in excess of the jurisdictional limits of this
court, and for which recovery is requested from the Murphys jointly and
severally.
ACTUAL AND/OR CONSTRUCTIVE FRAUD (STATUTORY AND COMMON LAW)
42. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. By their misrepresentations, false promises, failures to disclose
material information, and by their other wrongful conduct in taking advantage of
and breaching the obligations of their confidential and fiduciary relationships,
the Murphys have committed actual and/or constructive frauds upon Plaintiffs and
Counterclaimants, which have proximately caused damages for which recovery is
requested from the Murphys jointly and severally. Without limitation, the
Murphys specifically misrepresented their intent and ability to provide at least
$5.5 million in equity capital. Furthermore, as set forth in paragraph 32,
although owing a duty to do so, the Murphys omitted and failed
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to disclose the fact that a sale of Gerald's stock in ERLY would be adverse to
the interests of ERLY and ARI and thereby place Gerald and Douglas in a conflict
of interest position. Such representations were false, made with knowledge of
their falsity, and to induce Counterclaimants to enter into a limited
partnership agreement with the Murphys. In making their representations, and in
failing to disclose important facts, the Murphys were acting as officers and
directors of ARI and ERLY. Counterclaimants reasonably and justifiably relied
upon these representations to their detriment and were damaged thereby.
Likewise, the failures by the Murphys to disclose material information was
relied upon reasonably and justifiably by Counterclaimants to their detriment
and damage. Counterclaimants seek recovery for the Murphys' actions pursuant to
both common law fraud and Chapter 27 of the Texas Business and Commerce Code,
regarding fraud in connection with real estate transactions.
PROMISSORY ESTOPPEL
43. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. In addition or alternatively to the foregoing, Plaintiffs and
Counterclaimants have reasonably relied to their detriment on the continuing
agreements, promises and representations of the Murphys, including without
limitation, the representation and promise that the Murphys would provide the
equity capital needed by KLS in the amount of $5.5 million. The Murphys are
equitably estopped by their representations and conduct from denying their
obligation to participate in the Kingwood Lakes South project and their duty to
provide the equity capital needed therefor or otherwise from denying their
liability for all of the losses, damages, expenses, interests and benefits as
claimed herein. Injustice can only be avoided by enforcing these promises.
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<PAGE>
KNOWING PARTICIPATION IN BREACHES OF FIDUCIARY DUTIES
44. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. Defendants ARI and ERLY had knowledge of the partnership and
fiduciary relationships between Counterclaimants and the Murphys. In fact, in
their capacities as officers and directors of ERLY and ARI, the Murphys
consulted with legal counsel to ARI and ERLY in connection with furnishing a
legal opinion as to the validity of Gerald's Pledge Agreement. Despite
knowledge of the fiduciary relationship, Defendants ARI and ERLY actively and
knowingly assisted in the breach of the fiduciary obligations owed by the
Murphys.
45. In addition or in the alternative, Defendants ARI and ERLY knew that
Counterclaimants and the Murphys shared a relationship of trust and confidence
which generated a fiduciary obligation. Despite knowledge of this relationship
and these fiduciary obligations, Defendants ARI and ERLY actively and knowingly
assisted in the breach of the fiduciary obligations owed by the Murphys.
46. ARI and ERLY acted through their officers and directors in providing
active and knowing assistance in the breaches by the Murphys of their fiduciary
obligations. ARI and ERLY are therefore liable for all damages sustained.
TORTIOUS INTERFERENCE WITH
CONTRACT AND BUSINESS RELATIONS
47. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. In an effort to further their own interests, ARI and ERLY,
through their officers and directors, wilfully, intentionally, and deliberately
interfered with the contractual and/or business relationships between Plaintiffs
and Counterclaimants and the Murphys. ARI and ERLY were successful in inducing
the Murphys to breach their
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contracts with Plaintiffs and Counterclaimants, or in making performance of
those contracts more difficult. As a proximate result of this interference,
Plaintiffs and Counterclaimants suffered damages in excess of the minimum
jurisdictional limits of this court.
CIVIL CONSPIRACY
48. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. ARI and ERLY conspired with Douglas Murphy and Gerald Murphy,
with the joint objective of preventing the Murphys from having to sell any of
their stock in ERLY and ARI, and to prevent the Partnership from foreclosing on
the pledged shares of ERLY. In order to achieve this objective, ARI and ERLY
hired attorneys to help the Murphys make spurious objections to the Annual
Operating Plan, joined with the Murphys in filing a frivolous lawsuit in
Brazoria County, in which they obtained a temporary restraining order stopping
the partnership from foreclosing on Gerald Murphy's stock. The spurious
objections to the Annual Operating Plan were unlawful, because they were
breaches of the Murphys' fiduciary duties of loyalty to the Partnership and the
duty the Murphys had to exercise any rights and powers in the conduct of the
Partnership business in good faith and in a manner the Murphys reasonably
believed to be in the best interest of the Partnership. The lawsuit was also an
unlawful act, because it was a wrongful method of interference, and because it
was a violation of the Murphys' duty of loyalty to the Plaintiffs. In
conspiring with ARI and ERLY, the Murphys acted in their capacities as officers
and directors of ARI and ERLY. The Plaintiffs were damaged by the conspiracy
between ARI, ERLY and the Murphys in the amount of the capital contributions the
Murphys failed to make, the promissory note Gerald Murphy failed to
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pay, and the profits lost on the Kingwood project. These damages are in excess
of the minimal jurisdictional limits of this Court.
CONVERSION
49. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. By failing to send KLS the stock dividend issued by ERLY in
connection with the stock pledged by Gerald Murphy, both ERLY and Gerald Murphy
converted the stock dividends. Gerald Murphy acted in his capacity as an officer
and director of ERLY in converting the stock dividend. As a proximate result of
this conversion, Plaintiffs and Counterclaimants suffered damages in excess of
the minimum jurisdictional limits of this Court.
WRONGFUL INJUNCTION
50. Paragraphs 1 through 35 above are incorporated herein by reference for
all purposes. In obtaining a temporary restraining order and an injunction,
ARI, ERLY, and the Murphys wrongfully enjoined KLS from foreclosing on the ERLY
stock. In doing so, the Murphys acted in their capacities as officers and
directors of ARI and ERLY. As a proximate result of the temporary restraining
order and injunction, Plaintiffs and Counterclaimants suffered damages in
excess of the minimum jurisdictional limits of this Court.
ACTUAL AND/OR CONSEQUENTIAL DAMAGES
51. The wrongful conduct of Defendants set forth above has resulted in
substantial damages to Plaintiffs and Counterclaimants. Gerald Murphy owes the
$1.5 million note, and both of the Murphys owe the $3.5 million capital
contribution. Tenzer Co. has been damaged because the wrongful conduct of
Defendants has rendered it
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impossible for KLS to reimburse Tenzer Co. for expenses and fees to which it
would have been entitled but for such wrongful conduct. The expenses incurred
by the partnership and the net profits which would have been distributable to
the partners are in excess of $15 million, all of which has been lost as a
result of the wrongful conduct of Defendants. Counterclaimants would have been
entitled to approximately 60% of such profits which have been lost.
Accordingly, the damages sought herein from Defendants are substantially in
excess of the minimum jurisdictional limits of this Court.
PUNITIVE DAMAGES
52. Paragraphs 1 through 35 are incorporated herein by reference for all
purposes. Plaintiffs seek a recovery of punitive damages against ARI and ERLY
because ARI and ERLY interfered with the contracts between the Murphys and
Plaintiffs with actual malice to Plaintiffs, and because ARI and ERLY willfully
or maliciously assisted the Murphys in breaching their fiduciary duties to
Plaintiffs. ARI and ERLY persuaded and assisted the Murphys not to sell stock
in ERLY, which ARI and ERLY knew was the only way the Murphys could pay the
money they owed to the Partnership. In addition, ARI and ERLY knew of the
Pledge Agreement, and had even instructed their attorney to give an opinion
letter to the Plaintiffs stating that the Pledge Agreement was enforceable. In
a fraudulent effort to relieve the Murphys of the need to sell the stock in ARI
and ERLY, ARI and ERLY hired and paid a team of lawyers to help the Murphys make
spurious objections to the Annual Operating Plan. ARI and ERLY also filed a
frivolous lawsuit against the Partnership in Brazoria County, Texas seeking and
obtaining a temporary restraining order stopping the Partnership from selling
the stock pursuant to the Pledge Agreement. ARI and ERLY have funded almost all
of the
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litigation costs of the Defendants in this case, in an effort to continue
helping the Murphys avoid their obligations to the Partnership. ARI and ERLY
have acted willfully and with malice (i.e., ill will, spite, evil motive, or
purpose to injure another) toward Plaintiffs: ARI and ERLY acted while knowing
of the Murphys' obligations to the Partnership and knowing the damage that would
result to the Partnership if the Murphys broke their promises. ARI and ERLY had
no interest in or relationship with the Partnership; their actions were solely
those of third parties meddling for their own interest or to help the Murphys
evade responsibility for their actions. In this case, ARI and ERLY admit that
they did not want the Murphys to sell stock because it would have affected ARI
and ERLY's attempt to obtain loans and to prevent defaults under loans.
53. Plaintiffs also seek a recovery of punitive damages against Gerald
Murphy and Douglas Murphy, because their breaches of fiduciary duty and the
other torts listed herein were committed knowingly, intentionally, maliciously
and/or in wanton disregard of the rights of Plaintiffs.
54. Due to the egregious nature of the conduct of the Defendants, and
considering the financial status of the Defendants, punitive damages should be
awarded against each of them, in an amount to be set by the trier of fact,
sufficient to fulfill the public policies of deterring them from similar conduct
in their relations with others and of setting an example to others similarly
situated that such conduct will not be tolerated in the market place. All
causes of action (except those relating to the stock dividend) giving rise to
such an award accrued prior to September 1, 1995.
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ATTORNEYS' FEES
55. Pursuant to Article 38 of the Texas Civil Practice and Remedies Code,
Chapter 27 of the Texas Business and Commerce Code, and the terms of the various
agreements (the $1.5 million Promissory Note and the Pledge Agreement),
Plaintiffs and Counterclaimants are entitled to recover from the Murphys their
reasonable and/or necessary attorneys' fees.
CONDITIONS PRECEDENT
56. All conditions precedent to the relief requested herein have been
performed or have occurred.
WHEREFORE, Plaintiffs and Counterclaimants pray that, after final trial
hereof, they recover judgment against Defendants, jointly and severally, for all
of their actual and consequential damages, for punitive damages, for reasonable
attorneys' fees, for pre-judgment and post-judgment interest, for costs of
court, expert witness fees, deposition copy costs, and for such other and
further relief as to which they may be justly entitled.
Respectfully submitted,
DOW, COGBURN & FRIEDMAN, P.C.
By:
--------------------------------
B. Edward Williamson
State Bar No. 21616400
9 Greenway Plaza, Suite 2300
Houston, Texas 77046
(713) 626-5800
(713) 940-6099 (Fax)
ATTORNEYS FOR Plaintiffs
AND COUNTERCLAIMANTS
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the above and foregoing
has been forwarded via certified mail, return receipt requested to Larry Knippa,
Knippa & Kral, 1221 McKinney, Suite 950, Houston, Texas 77010; Mr. Brit T.
Brown, Bell & Murphy, 1300 Post Oak Blvd., 20th Floor, Houston, Tx 77056-3095;
and Mr. Glenn R. Legge, Legge, Farrow, Kimmitt & McGrath L.L.P., One Westheimer
Plaza, 5718 Westheimer, Suite 1850, Houston, TX 77057 on this _______ day of
__________________, 1996.
-----------------------------------
<PAGE>
EXHIBIT 2
<PAGE>
NO. 95-016749
KINGWOOD LAKES SOUTH, L.P., ET AL. ) IN THE DISTRICT COURT OF
)
) HARRIS COUNTY, TEXAS
VS. )
)
GERALD D. MURPHY, ET AL. ) 151ST JUDICIAL DISTRICT
ORDER
American Rice, Inc. and ERLY Industries, Inc. filed a Motion for Summary
Judgment, and after reviewing the Motion and the Response, the Court is of the
opinion that the Motion should be denied. It is therefore
ORDERED that Defendants' American Rice, Inc.'s and ERLY Industries Inc.'s
Motion for Summary Judgment is hereby denied.
SIGNED this the 17 day of May, 1996.
/s/ Carolyn Garcia
----------------------------
JUDGE PRESIDING
APPROVED:
DOW, COGBURN & FRIEDMAN, P.C.
BY:/s/ B. Edward Williamson
----------------------------
B. Edward Williamson
State Bar No. 21616400
David L. Pybus
State Bar No. 16418900
2300 Nine Greenway Plaza
Houston, Texas 77046
(713) 626-5800
(713) 940-6099 (Fax)
ATTORNEYS FOR PLAINTIFFS
<PAGE>
EXHIBIT 3
<PAGE>
NO. 95-016749
KINGWOOD LAKES SOUTH, L.P., ET AL. ) IN THE DISTRICT COURT OF
)
) HARRIS COUNTY, TEXAS
VS. )
)
GERALD D. MURPHY, ET AL. and )
DOUGLAS A. MURPHY, ET AL ) 151ST JUDICIAL DISTRICT
ORDER
On this day the Court considered the Motion to Dissolve Agreed Temporary
Injunction filed herein by Plaintiffs Kingwood Lakes South, L.P., Tenzer
Company, Inc. and Anthony M. Frank, and any response thereto filed by
Defendants, and it appearing to the Court that good cause exists for the
granting of such Motion as noted*, it is therefore;
ORDERED that the Agreed Temporary Injunction entered in this cause on May
9, 1995 be, and hereby is, dissolved and of no further force and effect.
Signed this the 17 day of May, 1996
/s/ Carolyn Garcia
----------------------------
JUDGE PRESIDING
APPROVED:
DOW, COGBURN & FRIEDMAN, P.C.
BY:/s/ B. Edward Williamson *The Agreed Temporary
-------------------------- Injunction was void from the
B. Edward Williamson inception and of no effect. No
State Bar No. 21616400 bond was set. No trial date
2300 Nine Greenway Plaza was set.
Houston, Texas 77046
(713) 626-5800 *The Rule 11 agreement provided
(713) 940-6099 (Fax) for dissolution in any case
ATTORNEYS FOR PLAINTIFFS after 120 days, and all such
time has passed and the Rule 11
agreement is of no effect.
