UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30,
1995................................................
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to
________________
Commission file number 1-9016
___________________________
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)
Texas 75-6335572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6220 North Beltline Road, Suite 205
Irving, Texas 75063-2656
(Address of principal executive offices) (Zip code)
(214) 550-6053
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
9,075,400 Shares of Beneficial Interest were outstanding as
of July 26, 1995.
American Industrial Properties REIT
Form 10-Q
For the Quarter Ended June 30, 1995
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the three
months and six months
ended June 30, 1995 and 1994 3
Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994 4
Consolidated Statements of Cash Flows for the six
months ended
June 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 8
Part II - Other Information
Item 1. Legal Proceedings 10
Item 3. Defaults Upon Senior Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 12
American Industrial Properties REIT
Consolidated Statements of Operations
(unaudited, in thousands except share and per share data)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES
Rents $ 2,199 $ 2,117 $ 4,303 $ 4,074
Tenant reimbursements 771 670 1,446 1,353
Interest income 123 89 190 172
3,093 2,876 5,939 5,599
REAL ESTATE EXPENSES
Property operating expenses:
Property taxes 364 431 701 729
Property management fees 108 105 215 225
Utilities 104 108 218 227
General operating 162 170 339 363
Repairs and maintenance 105 115 224 255
Other property operating
expenses 74 68 134 128
Depreciation and amortization 721 846 1,446 1,665
Interest on 8.8%
notes payable 1,057 992 2,039 1,974
Interest on mortgages payable 444 171 923 349
Amortization of original issue discount on
Zero Coupon Notes due 1997 - 376 - 751
Administrative expenses:
Trust administration
and overhead 295 387 777 765
Litigation and proxy costs 366 397 375 633
3,800 4,166 7,391 8,064
Loss from real estate operations (707) (1,290) (1,452) (2,465)
Loss on sales of real estate - - (191) -
Extraordinary loss on
extinguishment of debt (55) - (55) -
NET LOSS $ (762) $(1,290) $ (1,698) $(2,465)
PER SHARE DATA
Loss from real estate
operations $ (0.07) $ (0.14) $ (0.16) $ (0.27)
Loss on sales of real estate - - (0.02) -
Extraordinary loss on
extinguishment of debt (0.01) - (0.01) -
Net Loss $ (0.08) $ (0.14) $ (0.19) $ (0.27)
Distributions Paid - - - -
Number of shares outstanding 9,075,400 9,075,400 9,075,400 9,075,400
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<S> <C> <C> <C>
June 30, December 31,
1995 1994
(unaudited)
ASSETS
Real estate:
Held for investment $95,396 $95,033
Held for sale 5,406 8,810
100,802 103,843
Accumulated depreciation (22,244) (21,859)
Net real estate 78,558 81,984
Cash and cash equivalents:
Unrestricted 7,809 6,919
Restricted 690 602
Total cash and cash equivalents 8,499 7,521
Other assets, net 2,731 3,045
Total Assets $89,788 $92,550
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
8.8% notes payable $45,239 $45,239
Mortgage notes payable 17,685 20,374
Accrued interest 2,512 504
Accounts payable, accrued expenses
and other liabilities 1,346 1,682
Tenant security deposits 508 555
Total Liabilities 67,290 68,354
Shareholders' Equity:
Shares of beneficial interest, $0.10 par value authorized
10,000,000 Shares; issued and outstanding
9,075,400 Shares 908 908
Additional paid-in capital 124,605 124,605
Retained earnings (deficit) (103,015) (101,317)
Total Shareholders' Equity 22,498 24,196
Total Liabilities and
Shareholders' Equity $89,788 $92,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,698) $(2,465)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Amortization of original issue discount
on Zero Coupon Notes due 1997 - 751
Depreciation and amortization 1,446 1,664
Loss on sales of real estate 191 -
Extraordinary loss on extinguishment
of debt 55 -
Changes in operating assets and liabilities:
Decrease (increase) in other assets 88 (108)
Increase in accrued interest 2,008 974
Increase (decrease) in accounts payable,
accrued expenses and other liabilities
and tenant security deposits (348) 245
Net Cash Provided By
Operating Activities 1,742 1,061
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized improvements and
leasing commissions (496) (869)
Net proceeds from sales of real estate 2,476 -
Net Cash Provided By (Used In)
Investing Activities 1,980 (869)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage
notes payable (2,689) (69)
Prepayment penalty on extinguishment
of debt (55) -
Partial repurchase of Zero Coupon Notes - (159)
Net Cash Used In Financing Activities (2,744) (228)
Net Increase in Cash
and Cash Equivalents 978 (36)
Cash and Cash Equivalents
at Beginning of Period 7,521 1,119
Cash and Cash Equivalents
at End of Period $ 8,499 $ 1,083
Cash Paid for Interest $ 954 $ 1,349
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Notes to Consolidated Financial Statements
June 30, 1995
(unaudited)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements are
presented in accordance with the requirements of Form 10-Q
and consequently do not include all of the disclosures
required by generally accepted accounting principles or
those contained in the Trust's Annual Report on Form 10-K.
Accordingly, these financial statements should be read in
conjunction with the audited financial statements of the
Trust for the year ended December 31, 1994, included in the
Trust's Annual Report on Form 10-K.
The financial information included herein has been prepared
in accordance with the Trust's customary accounting
practices and has not been audited. In the opinion of
management, the information presented reflects all
adjustments necessary for a fair presentation of interim
results. All such adjustments are of a normal and recurring
nature.
Certain amounts in prior year financial statements have been
reclassified to conform with the current year presentation.
Note 2 - Significant Accounting Policies
Principles of Consolidation. The consolidated financial
statements of the Trust include the accounts of American
Industrial Properties REIT and its wholly-owned
subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.
Real Estate. The Trust carries its real estate at the lower
of depreciated cost or net realizable value. Management
considers net realizable value for assets held for
investment as the total of the estimated undiscounted future
cash flows from the property. For assets held for sale,
management considers net realizable value as estimated
market value. Provisions for possible losses on real estate
are recorded when management determines that the net book
value of a specific real estate property is less than its
net realizable value. At June 30, 1995, thirteen properties
were classified as held for investment and one property was
classified as held for sale. Should unforeseen factors
cause additional properties to be classified as held for
sale, significant adjustments to reduce the net book value
of such properties could be required.
Property improvements are capitalized while maintenance and
repairs are expensed as incurred. Depreciation of buildings
and capital improvements is computed using the straight-line
method over forty years. Depreciation of tenant
improvements is computed using the straight-line method over
ten years.
Other Assets. Other assets consists primarily of deferred
rent receivable, prepaid leasing commissions and loan fees.
Deferred rent receivable arises as the Trust recognizes
rental income, including contractual rent increases or
delayed rent starts, on a straight-line basis over the lease
term. Leasing commissions are capitalized and amortized on
a straight-line basis over the life of the lease. Loan fees
are capitalized and amortized on a level yield basis over
the term of the related loan. The Trust has recorded
deferred rent receivable of $879,000 and $1,157,000 at June
30, 1995 and December 31, 1994, respectively.
Income Taxes. The Trust qualifies as a real estate
investment trust (a "REIT") under Federal income tax law as
long as it meets certain asset, income, and ownership tests
and it distributes 95% of its taxable income annually. No
provisions for Federal income taxes have been required or
recorded to date.
American Industrial Properties REIT
Notes to Consolidated Financial Statements (continued)
June 30, 1995
(unaudited)
Note 3 - Zero Coupon Notes
In December 1993 and November 1994, the Trust partially in-
substance defeased certain of its Zero Coupon Notes due 1997
(the "Notes") totaling $16,365,000 (face amount at
maturity). At June 30, 1995, the accreted value of these
Notes was $12,361,000.
Note 4 - Litigation
As previously reported, the Trust filed a lawsuit on May 1,
1995 against The Manufacturers Life Insurance Company
("MLI") in State District Court in Dallas, Texas. The
Trust's lawsuit alleges that MLI, by declaring the Trust in
default and threatening acceleration of the notes, has
unlawfully sought to coerce the Trust into relinquishing
certain of its rights and further alleges that MLI has
engaged in acts of bad faith and conspiracy. The lawsuit
was subsequently amended to name as additional defendants
Fidelity Management and Research Company and certain
affiliates (the "Fidelity Entities"). The Trust is seeking
recovery of damages and injunctive relief to prevent MLI and
the Fidelity Entities from continuing to violate the Trust's
rights.
Due to the circumstances resulting in this litigation, the
Trust elected not to make the semi-annual interest payment
due on May 27, 1995. On June 13, 1995, the lender declared
the entire principal amount outstanding of $45,239,000 and
all accrued interest thereon immediately due and payable.
The lender further indicated that effective June 13, 1995,
interest on the principal amount outstanding would accrue at
the default rate of 11.7% as provided in the Note Purchase
Agreement. Although management disagrees with the
imposition of the default rate by the lender based on the
circumstances resulting in the litigation, generally
accepted accounting principles require that interest be
accrued at the default rate. Accordingly, the accompanying
financial statements include accrued interest based on the
default rate from June 13, 1995. In the event that the loan
is determined to be immediately due and payable, and is not
ultimately modified or restructured through the favorable
resolution of the litigation or otherwise, the Trust will be
forced to consider such action as it deems necessary to
protect the interests of the Trust and its shareholders,
including seeking protection under applicable bankruptcy laws.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The table below provides a reconciliation of net loss, funds
from operations ("FFO") and funds available for distribution
("FAD") for the three months and six months ended June 30, 1995
and 1994. Management believes that the presentation of FFO and
FAD will enhance the reader's understanding of the Trust's
financial condition as well as provide comparability to other
real estate investment trusts. Neither FFO or FAD should be
considered an alternative to net income as an indicator of the
Trust's operating performance or to cash flows from operations as
a measure of liquidity. The determination of FFO is based on the
definition adopted by the National Association of Real Estate
Investment Trusts which is net income (computed in accordance
with generally accepted accounting principles), adjusted to
exclude gains or losses from debt restructuring and sales of
property, depreciation and amortization and to include
adjustments for unconsolidated partnerships and joint ventures.
FAD is generally more indicative of the Trust's ability to make
distributions as it includes the effect of the Trust's capital
expenditures.
(000) (000)
Three Months Six Months Ended
Ended
June 30, June 30,
1995 1994 1995 1994
<TABLE>
<S> <C> <C> <C> <C>
Net loss $(762) $(1,290) $(1,698) $(2,465)
Loss on sales of
real estate 0 0 191 0
Extraordinary loss on
extinguishment of debt 55 0 55 0
Depreciation and
amortization 721 846 1,446 1,665
Amortization of
original issue
discount on
Zero Coupon
Notes due 1997 0 376 0 751
Funds from
operations (FFO) 14 (68) (6) (49)
Capitalized
improvements and
leasing commisions (336) (535) (496) (869)
Funds available for
distribution (FAD) $(322) (603) $(502) $(918)
</TABLE>
The net loss of the Trust decreased by $767,000 when
comparing the first six months of 1995 results to the same period
in 1994. This decrease resulted from the following: i)
increased net operating income from property operations as
overall occupancy and rental rates continue to improve; ii) a
decrease in Trust administrative expenses due primarily to the
high level of expenses related to contested proxy costs incurred
in the first half of 1994; iii) a decrease in depreciation and
amortization expense due to the sale of the Quadrant property in
February 1995; iv) the effect of the November 1994 financing and
the defeasance of the Trust's zero coupon notes; v) a loss
related to the sale of the Quadrant property in February 1995;
and vi) a prepayment penalty associated with the payoff of a
mortgage loan in May 1995.
FFO for the six months ended June 30, 1995 increased by
$43,000 from the same period in 1994 as a result of the
increased net operating income of the properties, the decrease in
the Trust administrative expenses, and the November 1994
financing discussed previously. FAD for the six months ended
June 30, 1995 improved significantly from the year earlier period
due to the same factors affecting FFO and the timing of capital
expenditures such as tenant improvements and leasing commissions.
These expenditures are indicative of the level of leasing and,
over time, will decrease as the portfolio occupancy stabilizes.
The overall occupancy of the Trust's portfolio on June 30,
1995 was 95%. On a same property basis, overall occupancy
increased to 95% at June 30, 1995 from 92% at June 30, 1994.
Same property revenue increased by 8% and net operating income
increased by 13% when comparing the six months ended June 30,
1995 to the same period in 1994. The increase in net operating
income resulted from increased revenues due to improving
occupancy and rental rates, as well as a slight decrease in
operating expenses.
Liquidity and Capital Resources
At June 30, 1995, the Trust had approximately $7.8 million
in unrestricted cash reserves. These reserves could be decreased
significantly should the Trust elect to purchase additional real
estate properties or effect a refinancing or reduction of
existing debt.
As more fully described in Part II, Item 1. Legal
Proceedings, the Trust is currently involved in litigation with
its unsecured lender. Effective June 13, 1995, the lender
declared the entire principal amount of $45,239,000 and accrued
interest immediately due and payable and began accruing interest
on the outstanding principal amount at the default rate of 11.7%.
Although management disagrees with the imposition of the default
rate by the lender based on the circumstances resulting in the
litigation, generally accepted accounting principles require that
the Trust accrue interest at the default rate. Management
intends to vigorously defend against the actions of the
defendants and believes that the Trust's claims will ultimately
be resolved favorably to the Trust. However, there is no
assurance as to the ultimate resolution of this litigation.
Accordingly, in the event that the loan is determined to be
immediately due and payable, and is not ultimately modified or
restructured through the favorable resolution of the litigation
or otherwise, the Trust will be forced to consider such action as
it deems necessary to protect the interests of the Trust and its
shareholders, including seeking protection under applicable
bankruptcy laws. The costs of pursuing this litigation and
defending against the actions of the defendants are expected to
be significant and could adversely affect the Trust's resources
and liquidity.
In December 1993, the Trust announced the suspension of
quarterly distributions until such time as the Trust's Zero
Coupon Notes were fully defeased and such distributions could be
made from the positive cash flow of the Trust. Although the Zero
Coupon Notes have been fully defeased as described below, the
Trust does not anticipate having the sustainable positive cash
flow with which to initiate a distribution during calendar year
1995. It is uncertain when, and in what amount, such
distributions will resume in the future.
The initial capitalization of the Trust included
$179,698,000 face amount at maturity of Zero Coupon Notes due
1997 (the "Notes") secured by first or second liens on all of the
Trust's properties. In November 1994, the Trust completed a
$14,500,000 refinancing of two properties. The proceeds of this
refinancing were used to partially in-substance defease a portion
of the outstanding Notes. This partial defeasance resulted in
the release to the Trust of approximately $7.1 million in
restricted funds previously held by the Trustee as well as the
release of the liens securing the Notes which encumbered the
Trust's properties. Although the defeasance of the Notes will
result in reducing the net losses of the Trust, the defeasance
will negatively impact the Trust's FFO and FAD as the
amortization of the original issue discount on the Notes, which
did not effect FFO or FAD, is effectively replaced with current-
pay interest expense on the new financing, which does impact FFO
and FAD. At June 30, 1995, the face amount at maturity and the
accreted value of the defeased Notes were $16,365,000 and
$12,361,000, respectively.
The Trust intends to continue efforts to recapitalize its
debt structure. Should such an opportunity materialize, the
Trust may seek to retire existing debt obligations with proceeds
from secured debt financings, property sales, cash on hand or a
combination of these sources. Such a transaction may require the
Trust to utilize a significant portion of its cash reserves.
During the second quarter of 1995, the Trust elected to
convert the interest rate on $14,424,000 in mortgage debt from a
variable rate to a fixed rate. The Trust anticipates annual
savings of approximately $100,000 from this transaction based on
current interest rates. At June 30, 1995, the Trust had
$17,685,000 in mortgage debt outstanding. Of this amount,
$1,948,000 represented variable rate financing (with a weighted
average interest rate of 11.0%) and $15,737,000 represented fixed
rate financing (with a weighted average interest rate of 8.62%).
Capitalized improvements and leasing commissions were
$496,000 for the six months ended June 30, 1995 as compared to
$869,000 for the same period in 1994. This decrease is primarily
related to the significant increase in overall occupancy which
occurred during the first half of 1994.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings.
On May 1, 1995, the Trust filed a lawsuit against The
Manufacturers Life Insurance Company ("MLI") in the 134th
Judicial District Court in Dallas, Texas. The suit alleges that
MLI, which on April 21, 1995, had declared the Trust in default
for non-monetary violations of the Note Purchase Agreement, had
unlawfully sought to coerce the Trust into relinquishing certain
of its rights. Specifically, the suit alleges that MLI and
certain other entities had engaged in acts of bad faith and
conspiracy in an attempt to force the Trust to consent to the
transfer of the notes to a third party.
On May 26, 1995, a First Amended Petition, Application for
Declaratory Judgment, and Application for Injunctive Relief was
filed, naming Fidelity Management and Research Company, Fidelity
Galileo Fund L.P., Belmont Capital Partners II, L.P., Fidelity
Puritan Trust, and Fidelity Management Trust Company (together,
the "Fidelity Entities") as additional defendants.
On June 26, 1995, a Second Amended Petition, Application for
Declaratory Judgment, and Application for Injunctive Relief was
filed, specifying damages to the Trust of up to $20,000,000.
Item 3.Defaults Upon Senior Securities.
On April 21, 1995, the Trust received a notice of default
from The Manufacturers Life Insurance Company ("MLI") in
connection with its unsecured notes payable in the outstanding
principal balance of $45,239,000. The notice of default alleged
that the Trust had violated certain non-monetary covenants and
agreements and gave the Trust thirty days to remedy such
defaults. A lawsuit was filed by the Trust on May 1, 1995 as
described in Item 1 above. Due to the circumstances resulting in
this litigation, the Trust elected not to make the semi-annual
interest payment in the approximate amount of $2 million due MLI
on May 27, 1995. Pursuant to a notice of acceleration issued by
MLI on June 13, 1995, MLI declared the entire principal amount of
the notes due and payable together with accrued interest thereon.
The notice of acceleration also states that interest will accrue
at the default rate of 11.7% as of June 13, 1995. Although
management disagrees with the imposition of the default rate by
the lender based on the circumstances resulting in the
litigation, generally accepted accounting principles require that
the Trust accrue interest at the default rate. As of June 30,
1995, the Trust has $45,239,000 in principal indebtedness to MLI
and approximately $2,409,000, inclusive of the default interest,
in accrued interest thereon.
Item 6.Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27.1 * Financial Data Schedule
99.1 * First Amended Petition,
Application for Declaratory
Judgment, and Application for
Injunctive Relief
99.2 * Second Amended Petition,
Application for Declarator
Judgme and Application for
Injunctive Relief
* Filed herewith
(b) Reports on Form 8-K
Current Report on Form 8-K dated April 21, 1995,
reporting Item 5.
Current Report on Form 8-K dated May 30, 1995,
reporting Item 5.
Current Report on Form 8-K dated June 13, 1995,
reporting Item 5.
Current Report on Form 8-K dated June 19, 1995,
reporting Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN INDUSTRIAL PROPERTIES REIT
(Registrant)
Date:July 28, 1995 /s/ MARC A. SIMPSON
Marc A. Simpson,
Vice President and Chief Financial Officer
(principal accounting and financial
officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 8499
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 100802
<DEPRECIATION> (22244)
<TOTAL-ASSETS> 89788
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 908
0
0
<OTHER-SE> 21590
<TOTAL-LIABILITY-AND-EQUITY> 89788
<SALES> 0
<TOTAL-REVENUES> 5939
<CGS> 0
<TOTAL-COSTS> 7391
<OTHER-EXPENSES> (191)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2962
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (55)
<CHANGES> 0
<NET-INCOME> (1698)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
CAUSE NO. 95-4181-G
AMERICAN INDUSTRIAL IN THE DISTRICT COURT OF
PROPERTIES REIT,
Plaintiff,
v. DALLAS COUNTY, TEXAS
THE MANUFACTURERS LIFE
INSURANCE COMPANY, FIDELITY
MANAGEMENT & RESEARCH
CORPORATION, FIDELITY GALILEO
FUND, L.P., BELMONT CAPITAL
PARTNERS II, L.P., FIDELITY
PURITAN TRUST, and FIDELITY
MANAGEMENT TRUST CO.,
Defendants. 134TH JUDICIAL DISTRICT
FIRST AMENDED PETITION, APPLICATION FOR DECLARATORY
JUDGMENT, AND APPLICATION FOR INJUNCTIVE RELIEF
COMES NOW American Industrial Properties REIT (the "Trust")
and files this its Original Petition, Application for Declaratory
Judgment, and Application for Injunctive Relief, and would
respectfully show as follows:
I.
PARTIES
1. The Trust is a real estate investment trust
organized and existing under the laws of the State of Texas
with its principal place of business in Dallas County,
Texas. The managers of the Trust are citizens of Texas.
2. The Manufacturers Life Insurance Company ("MLI") is
a Canadian corporation or life insurance company doing business
in the State of Texas. MLI has appeared and answered herein.
3. Fidelity Management & Research Corporation is
a Massachusetts corporation doing business in the State of
Texas, which may be served by serving its registered agent,
Practice Hall Corporation System, 400 N. St. Paul St.,
Dallas, Texas 75201.
4. Fidelity Galileo Fund, L.P. is a Delaware
limited partnership which has conducted business in the State of Texas
and has, by itself or through its agents, committed tortious
activity in the State of Texas made the subject of this suit.
Fidelity, therefore, is subject to jurisdiction of this court
pursuant to Section 17.041 et. seq. of the Texas Civil Practice &
Remedies Code. Service may be accomplished by serving the Texas
Secretary of State, who will then forward the process to
defendant's home office address, 82 Devonshire Street, Boston,
Massachusetts 02109.
5. Belmont Capital Partners II, L.P. is a Delaware
limited partnership which has conducted business in the State of Texas
and has, by itself or through its agents, committed tortious
activity in the State of Texas made the subject of this suit.
Fidelity, therefore, is subject to jurisdiction of this court
pursuant to Section 7.041 et. seq. of the Texas Civil Practice &
Remedies Code. Service may be accomplished by serving the Texas
Secretary of State, who will then forward the process to
defendant's home office address, 82 Devonshire Street, Boston,
Massachusetts 02109, Attn: Michael Forrester.
6. Fidelity Puritan Trust is an investment company
and/or Massachusetts Business Trust which has conducted business in the
State of Texas and has, by itself or through its agents,
committed tortious activity in the State of Texas made the
subject of this suit. Fidelity, therefore, is subject to
jurisdiction of this court pursuant to Section 17.041 et. seq. of
the Texas Civil Practice & Remedies Code. Service may be
accomplished by serving the Texas Secretary of State, who will
then forward the process to defendant's home office address, 82
Devonshire Street, Boston, Massachusetts 02109, Attn: Tom Lavin.
7. Fidelity Management Trust Co. is a Massachusetts
bank and trust company which has conducted business in the State of
Texas and has, by itself or through its agents, committed
tortious activity in the State of Texas made the subject of this
suit. Fidelity, therefore, is subject to jurisdiction of
this court pursuant to Section 17.041 et. seq. of the
Texas Civil Practice & Remedies Code. Service may be accomplished by
serving the Texas Secretary of State, who will then forward
the process to defendant's home office address, 82 Devonshire
Street, Boston, Massachusetts 02109, Attn: Michael Forrester.
8. The entities described in paragraphs 3-7 are
referred to collectively as the "Fidelity Entities."
II.
JURISDICTION AND VENUE
9. This Court has jurisdiction over Defendants as they
regularly and systematically conducts business in the State of
Texas, and/or the acts which gave rise to the claims asserted in
this lawsuit occurred, in whole or in part, in Texas. Moreover,
pursuant to the agreements that are at issue in this lawsuit, MLI
has consented to suit in the State of Texas with respect to the
matters asserted herein. The amount in controversy is within the
jurisdictional limits of this Court.
10. Venue in Dallas County is proper pursuant to Texas
Civil Practice & Remedies Code 15.001, 15.036, and 15.037 as
all or part of the causes of action asserted herein accrued in
Dallas County, and because, upon information and belief, MLI
maintains an agent or representative in Dallas County. Moreover,
pursuant to the agreements that are at issue in this lawsuit, MLI
has agreed to venue in this county with respect to the matters
asserted herein.
III.
BACKGROUND
A. The MLI Notes and Agreement
11. MLI is the holder of certain promissory notes,
executed by the Trust (the "Notes"). In connection with execution of the
Notes, the Trust and MLI executed a Note Purchase Agreement,
dated as of February 27, 1992 (the "Agreement"). The Notes call
for semi-annual interest payments, with the principal balance
not becoming due and payable until November 1997. The
Agreement governs various aspects of the relationship between
MLI and the Trust, including any potential transfer of the
Notes by MLI. The Trust has performed all material obligations
under the Notes and the Agreement.
B. MLI's Refusal to Provide Information to the Trust
12. During the past year, MLI has advised the Trust
of MLI's efforts to sell the Notes. In accordance with
paragraph 8.3 of the Agreement, the Trust must consent to
transfer of the Notes. Depending upon the characteristics
of the proposed purchaser, the Trust must act reasonably in
deciding whether to grant its consent. Accordingly, the Trust
has requested from MLI certain basic information regarding
prospective purchasers of the Notes, to permit the Trust to
make an informed decision in exercising its rights under
the Agreement. MLI, however, has repeatedly refused to
provide basic information essential to allow the Trust to
exercise its rights under the Agreement.
13. For example, MLI has advised the Trust that it
had entered into an agreement with the Fidelity Entities for
a potential sale of the Notes. Despite repeated requests by
the Trust for information, MLI and the Fidelity Entities have
refused to provide to the Trust critical information
regarding the Fidelity entities.
C. MLI's Scheme to Unlawfully Coerce the Trust
14. Rather than provide the Trust with the basic,
essential information it has requested, MLI and the Fidelity Entities have
decided to pursue a course of unlawful, coercive conduct intended
to force the Trust to relinquish its rights under the Agreement.
More specifically, even though the Trust has performed all
material obligations under the Notes and the Agreement, MLI, by
letter dated April 21, 1995, declared the Trust in default under
the Agreement and threatened to accelerate the maturity of the
Notes if the alleged defaults are not cured within 30 days of the
date of the letter. The alleged defaults are all non-monetary in
nature. Furthermore, the alleged defaults all relate to matters
that, in fact, are not defaults under the Agreement, or they
relate to technical defaults that are not material, or have been
waived or cured. MLI has no good faith or reasonable basis for
declaring the Trust in default or for threatening to accelerate
the Notes.
15. Additionally, upon information and belief, MLI has
joined with the Fidelity Entities and other individuals
(including, but not limited to potential purchasers of the Notes)
in an attempt to force the Trust to liquidate and/or change the
ownership or control of the Trust through a pattern of coercion,
duress and tortious interference. Upon information and belief,
as part of its joint efforts with these individuals or entities,
MLI has improperly disclosed confidential and proprietary
information concerning the Trust to these other individuals
and/or entities. The Trust has not consented and does not
consent to such improper disclosures. Nor are these disclosures
permitted by the Agreement.
16. MLI's bad faith declaration of default and threat
to accelerate the Notes has been part of the scheme to coerce the
Trust into relinquishing its rights under the Agreement, and to
unlawfully force the Trust to consent to a transfer of the Notes
to the Fidelity Entities. Upon information and belief, the
Fidelity Entities, in concert with others, intend to wrongfully
force a liquidation of the Trust and/or to change the ownership
and control of the Trust through economic coercion and other
unfair business practices. If MLI, the Fidelity Entities and the
other individuals or entities in which they are acting in
concert, succeed in their unlawful scheme, the Trust and its
shareholders will suffer severe damages.
17. MLI's actions to date, as described above, have
caused, and continue to threaten to cause, substantial, immediate, and
irreparable damages to the Trust for which there is no adequate
remedy at law.
18. All conditions precedent to the Trust's bringing
this action have occurred or have been waived.
IV.
CAUSES OF ACTION
A. Tortious Interference
19. Plaintiff incorporates the allegations contained in
paragraphs 1 through 18 herein as if fully set forth.
20. The actions of MLI described above have interfered
and/or threatened to interfere with the Trust's potential
business relationships, including potential contracts to obtain
additional capital for its business, and also threatened to
interfere with the Trust's ability to fulfill its existing
contracts with creditors. MLI knew or reasonably should have
known that its actions would result in such interference, and
such interference has proximately and substantially damaged the
Trust in an amount within the jurisdictional limits of this
Court. MLI's actions have been knowing, intentional, and
malicious, and there is no reasonable or good faith basis for its
actions. Accordingly, the Trust hereby seeks recovery of its
actual damages, and punitive damages, for MLI's tortious
interference.
21. The actions of the Fidelity Entities, and those
acting in concert with them, have interfered with the Trust's existing
contractual rights under the Notes and the Agreement. The
Fidelity Entities, and those acting in concert with them, have
acted knowingly and intentionally to injure the Trust, to take
for themselves what belongs to the Trust and its shareholders.
This tortious conduct has proximately injured the Trust and
caused damages within the jurisdictional limits of this Court,
for which the Trust now sues. Additionally, the Trust seeks an
award of punitive damages.
B. Economic Coercion
22. Plaintiff incorporates the allegations contained in
paragraphs 1 through 18 herein as if fully set forth.
23. MLI has no right to declare a default, to threaten
to accelerate the Notes, to force the Trust into agreeing to an
unreasonable transfer of the Notes, or to engage in a concerted
scheme to liquidate the Trust and/or to otherwise change its
ownership and control. Such actions by MLI immediately and
substantially threaten the continued viability of the Trust, and
they threaten to substantially destroy the free will of the
Trust. Moreover, MLI's coercion has already proximately caused
substantial damages to the Trust in an amount within the
jurisdictional limits of this Court, for which the Trust hereby
seeks recovery. Additionally, because MLI's actions have been
knowing, intentional, and malicious, the Trust also seeks an
award of punitive damages.
C. Breach of Contract
24. Plaintiff incorporates the allegations contained in
paragraphs 1 through 18 herein as if fully set forth.
25. MLI's actions described above are in violation of
its obligations under the Notes and the Agreement. Furthermore, by
making demands for performance under the Notes and Agreement to
which MLI is not entitled, MLI has anticipatorily breached the
Notes and Agreement. These breaches have proximately and
substantially damaged the Trust in an amount within the
jurisdictional limits of this Court for which the Trust hereby
seeks recovery.
D. Civil Conspiracy
26. Plaintiff incorporates the allegations contained in
paragraphs 1 through 18 herein as if fully set forth.
27. MLI, in concert with the Fidelity Entities and
others, have agreed to pursue a scheme to accomplish an unlawful purpose.
Alternatively, MLI in concert with the Fidelity Entities
and others, have agreed to engage in a scheme to accomplish
lawful ends through unlawful means. Accordingly, MLI has
engaged in a civil conspiracy to injure and damage the Trust.
As a direct result of this conspiracy, the Trust has been
injured and damaged in an amount within the jurisdictional
limits of this Court for which the Trust hereby seeks recovery.
Additionally, because MLI and the Fidelity Entities' actions
have been knowing, intentional and malicious, the Trust also
seeks an award of punitive damages.
E. Application for Declaratory Judgment
28. Plaintiff incorporates the allegations contained
in paragraphs 1 through 18 herein as if fully set forth.
29. The dispute over whether MLI has the right to declare
a default, accelerate the Notes, demand that the Trust consent to
transfer of the Notes without providing adequate information to
permit the Trust to determine whether to consent to the proposed
transfer, and otherwise participate in a concerted scheme to
liquidate and/or change the ownership or control of the Trust is
a continuing and ongoing dispute which is ripe for resolution by
the Court. Pursuant to Texas Civil Prac. & Rem. Code 37.001
et. seq., the Trust hereby requests a declaratory judgment that:
(1) the Trust has not defaulted under the Agreement or the Notes;
(2) that MLI's bad faith declaration of default to coerce the
Trust to relinquish its rights under the Agreement is an
anticipatory breach; and (3) the Trust is entitled to recover the
damages it has incurred and will incur in the future as a result
of Defendant's breach of the Agreement.
F. Application for Injunctive Relief
30. Plaintiff incorporates the allegations contained
in paragraphs 1 through 18 herein as if fully set forth.
31. The actions of MLI in wrongfully declaring a
default under the Agreement, threatening to accelerate the Notes,
attempting to coerce the Trust to grant its consent to transfer
of the Notes without providing adequate information to permit the
Trust to determine whether to consent to the proposed transfer,
and otherwise participating in a scheme to force a liquidation
and/or change in ownership and control of the Trust have caused,
and continue to threaten to cause, substantial, immediate, and
irreparable damages for which the Trust has no adequate remedy at
law. Additionally, the Fidelity Entities' participation in this
wrongful scheme has caused and threatens to cause substantial,
immediate and irreparable damages for which the Trust has no
adequate remedy at law. Moreover, MLI's wrongful disclosure of
confidential and proprietary information concerning the Trust has
caused, and continues to threaten to cause, substantial,
immediate and irreparable damages for which the Trust has no
adequate remedy at law. Accordingly, the Trust hereby requests
that the Court enter preliminary and permanent injunctions which
enjoin MLI from engaging in such wrongful conduct.
G. Attorneys' Fees
32. Plaintiff incorporates the allegations contained
in paragraphs 1 through 18 herein as if fully set forth.
33. Due to the wrongful acts of MLI as described
herein, the Trust has retained the law firm of Liddell, Sapp, Zivley,
Hill & LaBoon, L.L.P. ("Liddell Sapp") to represent it and to
prosecute this action on the Trust's behalf. The Trust has
further agreed to pay Liddell Sapp its reasonable attorneys'
fees, expenses, and costs for doing so. Pursuant to the terms of
the Agreement and the Notes, and pursuant to Chapters 37 and 38
of the Texas Civil Prac. & Rem. Code, and to any other applicable
law, the Trust seeks an award of its costs and reasonable and
necessary attorneys' fees and expenses from MLI.
V.
JURY DEMAND
34. The Trust hereby requests a trial by jury.
WHEREFORE, PREMISES CONSIDERED, the Trust respectfully
requests that MLI and the Fidelity Entities be cited to
appear and answer herein, and that after an injunction
hearing and/or trial on the merits, the Court enter
judgment in the Trust's favor for the following:
1. Actual and punitive damages as set forth herein;
2. A declaration of rights as set forth herein;
3. Preliminary and permanent injunctions as set
forth herein;
4. Its reasonable attorneys' fees, costs,
and expenses associated with the litigation;
5. Pre and post judgment interest to the
maximum extent allowed by law;
6. Costs of court; and
7. Such other and further relief to which the Trust may
be justly entitled.
Respectfully submitted,
LIDDELL, SAPP, ZIVLEY, HILL &
LaBOON, L.L.P.
/s/ Craig L. Weinstock
Craig L. Weinstock
State Bar No. 21097300
Mark C. Taylor
State Bar No. 19713225
Roger B. Cowie
State Bar No. 00783886
2200 Ross Avenue, Suite
900 Dallas, Texas, 75201
(214) 220-4800
(Telephone) (214) 220-
4899 (Telecopier)
ATTORNEYS FOR AMERICAN
INDUSTRIAL PROPERTIES REIT
CERTIFICATE OF SERVICE
The foregoing First Amended Petition, Application
for Declaratory Judgment, and Application for Injunctive
Relief was served on counsel for Defendant, on May 26, 1995,
via telecopier and certified mail, return receipt requested.
/s/ Mark C. Taylor
MARK C. TAYLOR
CAUSE NO. 95-4181-G
AMERICAN INDUSTRIAL IN THE DISTRICT COURT OF
PROPERTIES REIT,
Plaintiff,
v. DALLAS COUNTY, TEXAS
THE MANUFACTURERS LIFE
INSURANCE COMPANY, FIDELITY
MANAGEMENT & RESEARCH
CORPORATION, FIDELITY GALILEO
FUND, L.P., BELMONT CAPITAL
PARTNERS II, L.P., FIDELITY
PURITAN TRUST, and FIDELITY
MANAGEMENT TRUST CO.,
Defendants. 134TH JUDICIAL DISTRICT
SECOND AMENDED PETITION, APPLICATION FOR DECLARATORY
JUDGMENT, AND APPLICATION FOR INJUNCTIVE RELIEF
COMES NOW American Industrial Properties REIT (the "Trust")
and files this its Second Amended Petition, Application for
Declaratory Judgment, and Application for Injunctive Relief, and
would respectfully show as follows:
I.
PARTIES
1. The Trust is a real estate investment trust organized
and existing under the laws of the State of Texas with its
principal place of business in Dallas County, Texas. The
managers of the Trust are citizens of Texas.
2. The Manufacturers Life Insurance Company ("MLI") is a
Canadian corporation or life insurance company doing business in
the State of Texas. MLI has appeared and answered herein.
3. Fidelity Management & Research Corporation is a
Massachusetts corporation doing business in the State of Texas,
which may be served by serving its registered agent, Practice
Hall Corporation System, 400 N. St. Paul St., Dallas, Texas
75201.
4. Fidelity Galileo Fund, L.P. is a Delaware limited
partnership which has conducted business in the State of Texas
and has, by itself or through its agents, committed tortious
activity in the State of Texas made the subject of this suit.
Fidelity, therefore, is subject to jurisdiction of this court
pursuant to Section 17.041 et. seq. of the Texas Civil Practice &
Remedies Code. Service may be accomplished by serving the Texas
Secretary of State, who will then forward the process to
defendant's home office address, 82 Devonshire Street, Boston,
Massachusetts 02109.
5. Belmont Capital Partners II, L.P. is a Delaware limited
partnership which has conducted business in the State of Texas
and has, by itself or through its agents, committed tortious
activity in the State of Texas made the subject of this suit.
Fidelity, therefore, is subject to jurisdiction of this court
pursuant to Section 7.041 et. seq. of the Texas Civil Practice &
Remedies Code. Service may be accomplished by serving the Texas
Secretary of State, who will then forward the process to
defendant's home office address, 82 Devonshire Street, Boston,
Massachusetts 02109, Attn: Michael Forrester.
6. Fidelity Puritan Trust is an investment company and/or
Massachusetts Business Trust which has conducted business in the
State of Texas and has, by itself or through its agents,
committed tortious activity in the State of Texas made the
subject of this suit. Fidelity, therefore, is subject to
jurisdiction of this court pursuant to Section 17.041 et. seq. of
the Texas Civil Practice & Remedies Code. Service may be
accomplished by serving the Texas Secretary of State, who will
then forward the process to defendant's home office address, 82
Devonshire Street, Boston, Massachusetts 02109, Attn: Tom Lavin.
7. Fidelity Management Trust Co. is a Massachusetts bank
and trust company which has conducted business in the State of
Texas and has, by itself or through its agents, committed
tortious activity in the State of Texas made the subject of this
suit. Fidelity, therefore, is subject to jurisdiction of this
court pursuant to Section 17.041 et. seq. of the Texas Civil
Practice & Remedies Code. Service may be accomplished by serving
the Texas Secretary of State, who will then forward the process
to defendant's home office address, 82 Devonshire Street, Boston,
Massachusetts 02109, Attn: Michael Forrester.
8. The entities described in paragraphs 3-7 are referred
to collectively as the "Fidelity Entities."
II.
JURISDICTION AND VENUE
9. This Court has jurisdiction over Defendants as they
regularly and systematically conducts business in the State of
Texas, and/or the acts which gave rise to the claims asserted in
this lawsuit occurred, in whole or in part, in Texas. Moreover,
pursuant to the agreements that are at issue in this lawsuit, MLI
has consented to suit in the State of Texas with respect to the
matters asserted herein. The amount in controversy is within the
jurisdictional limits of this Court.
10. Venue in Dallas County is proper pursuant to Texas
Civil Practice & Remedies Code 15.001, 15.036, and 15.037 as
all or part of the causes of action asserted herein accrued in
Dallas County, and because, upon information and belief, MLI
maintains an agent or representative in Dallas County. Moreover,
pursuant to the agreements that are at issue in this lawsuit, MLI
has agreed to venue in this county with respect to the matters
asserted herein.
III.
BACKGROUND
A. The MLI Notes and Agreement
11. In or around 1988, MLI acquired certain zero coupon
bonds (the "MLI Zeros") by or through a brokerage firm named
Printon, Kane. MLI paid approximately $31 million to acquire the
MLI Zeros which were due in 1997, and had a total face amount of
approximately $105 million dollars. By their terms, the MLI
Zeros did not require the Trust to pay interest to MLI, at
maturity, however, all principal and accreted interest was due
and payable.
12. Approximately one year later, MLI concluded that it was
apparent that the MLI Zeros could not pay their full face amount
at maturity. Accordingly, MLI began negotiating a "swap" of the
MLI Zeros for a series of unsecured notes that paid interest on a
current basis.
13. As a result of these negotiations, MLI became the
holder of certain promissory notes, executed by the Trust (the
"Notes"). In connection with execution of the Notes, the Trust
and MLI executed a Note Purchase Agreement, dated as of February
27, 1992 (the "Agreement"). At the end of 1992, the Trust paid
off two of the Notes early. The remaining Notes call for semi-
annual interest payments, with the principal balance not becoming
due and payable until November 1997. The Agreement governs
various aspects of the relationship between MLI and the Trust,
including restrictions on any potential transfer of the Notes by
MLI.
B. MLI's Refusal to Provide Information to the Trust
14. During the past year, MLI has advised the Trust of
MLI's efforts to sell the Notes. Pursuant to paragraph 8.3 of
the Agreement, the Trust must not unreasonably withhold its
consent to a transfer to a Qualified Institutional Investor. The
Trust's right to reasonably withhold its consent is a valuable
right it bargained for under the Agreement. Accordingly, the
Trust has requested from MLI certain basic information regarding
prospective purchasers of the Notes, to permit the Trust to make
an informed decision in exercising its rights under the
Agreement. MLI, however, has refused to provide information
concerning the price, terms and conditions of the purchase, and
potential transferees, investment goals and objectives with
respect to the Notes, the prior business and investment
activities of the Fidelity Entities, and the materials used to
communicate to investors the investment strategies and objectives
of the Fidelity Entities. For example, MLI has advised the Trust
that it had entered into an agreement with the Fidelity Entities
for a potential sale of the Notes. Despite repeated requests by
the Trust for information, MLI and the Fidelity Entities have
refused to provide to the Trust critical information regarding
the Fidelity Entities.
15. Upon information and belief, the Notes are more
valuable to the Fidelity Entities if they are in default, or if
the Fidelity Entities could declare a default shortly after the
transfer of the Notes. A defaulted note would allow Fidelity to
attempt to obtain a quick return on its investment by forcing a
liquidation of the Trust, thus maximizing the return to the
Fidelity Entities. Upon information and belief, MLI was aware
that the Fidelity Entities desired such a scenario, and embarked
on a course of conduct, as described more particularly below, to
create or manufacture a default when none existed, in order to
obtain the highest possible price for the transfer of the Notes.
C. MLI's Scheme to Unlawfully Coerce the Trust
16. Rather than provide the Trust with the basic, essential
information it has requested, MLI and the Fidelity Entities have
decided to pursue a course of unlawful, coercive conduct to
manufacture a default under the Agreement in a concerted effort
to force the Trust to relinquish its rights under the Agreement,
including the right to withhold consent to a transfer of the
Notes. More specifically, even though the Trust performed all
material obligations under the Notes and the Agreement, MLI, by
letter dated April 21, 1995, declared the Trust in default under
the Agreement and threatened to accelerate the maturity of the
Notes if the alleged defaults were not cured within 30 days of
the date of the letter. The alleged defaults were all non-
monetary in nature. Furthermore, the alleged defaults all
related to matters that, in fact, are not defaults under the
Agreement, or they relate to technical defaults that were not
material, or had been waived or cured. MLI had no good faith or
reasonable basis for declaring the Trust in default or for
threatening to accelerate the Notes.
17. Additionally, upon information and belief, MLI joined
with the Fidelity Entities in an attempt to force the Trust to
liquidate and/or change the ownership or control of the Trust
through a pattern of coercion, duress and tortious interference.
Upon information and belief, as part of its joint efforts with
these individuals or entities, MLI has improperly disclosed
confidential and proprietary information concerning the Trust to
these other individuals and/or entities. The Trust has not
consented and does not consent to such improper disclosures, nor
are these disclosures permitted by the Agreement.
18. MLI's bad faith declaration of default, its refusal,
along with the Fidelity Entities, to provide information to the
Trust, and threat to accelerate, and acceleration of, the Notes
has been part of the concerted scheme with the Fidelity Entities
to coerce the Trust into relinquishing its rights under the
Agreement, and to unlawfully force the Trust to consent to a
transfer of the Notes to the Fidelity Entities. Upon information
and belief, MLI and the Fidelity Entities, intend to wrongfully
force a liquidation of the Trust and/or to change the ownership
and control of the Trust through economic coercion and other
unfair business practices, including the manufacture of a default
under the Agreement, the threat to accelerate, and acceleration
of, the maturity of the Notes, the refusal to provide information
concerning the Fidelity Entities and the terms of the proposed
transfer, and the attempts to force the Trust to relinquish its
rights to give consent to a proposed transfer. If MLI, the
Fidelity Entities and the other individuals or entities in which
they are acting in concert, succeed in their unlawful scheme, the
Trust and its shareholders will suffer severe damages.
19. MLI's and the Fidelity Entities' actions to date, as
described above, have caused, and continue to threaten to cause,
substantial, immediate, and irreparable damages to the Trust for
which there is no adequate remedy at law.
20. All conditions precedent to the Trust's bringing this
action have occurred or have been waived.
IV.
CAUSES OF ACTION
A. Tortious Interference
21. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
22. The actions of the Fidelity Entities have interfered
with the Trust's existing contractual rights under the Notes and
the Agreement. The Fidelity Entities, and those acting in
concert with them, have acted knowingly and intentionally to
injure the Trust, to take for themselves what belongs to the
Trust and its shareholders. This tortious conduct has
proximately injured the Trust and caused damages up to $20
million for which the Trust now sues.
B. Economic Coercion
23. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
24. MLI has no right to declare a default, to threaten to
accelerate the Notes, to force the Trust into agreeing to an
unreasonable transfer of the Notes, or to engage in a concerted
scheme to liquidate the Trust and/or to otherwise change its
ownership and control. Such actions by MLI immediately and
substantially threaten the continued viability of the Trust, and
they threaten to substantially destroy the free will of the
Trust. Moreover, MLI's coercion has already proximately caused
substantial damages to the Trust up to $20 million, for which the
Trust hereby seeks recovery. Additionally, because MLI's actions
have been knowing, intentional, and malicious, the Trust also
seeks an award of punitive damages.
C. Breach of Contract
25. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
26. MLI's actions described above are in violation of its
obligations under the Notes and the Agreement. Furthermore, by
making demands for performance under the Notes and Agreement to
which MLI is not entitled, MLI has anticipatorily breached the
Notes and Agreement. These breaches have proximately and
substantially damaged the Trust up to $20 million for which the
Trust hereby seeks recovery.
D. Civil Conspiracy
27. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
28. MLI, in concert with the Fidelity Entities and others,
have agreed to pursue a scheme to accomplish an unlawful purpose.
Alternatively, MLI in concert with the Fidelity Entities and
others, have agreed to engage in a scheme to accomplish lawful
ends through unlawful means. Accordingly, MLI and Fidelity have
engaged in a civil conspiracy to injure and damage the Trust. As
a direct result of this conspiracy, the Trust has been injured
and damaged up to $20 million for which the Trust hereby seeks
recovery. Additionally, because MLI and the Fidelity Entities'
actions have been knowing, intentional and malicious, the Trust
also seeks an award of punitive damages.
E. Application for Declaratory Judgment
29. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
30. The dispute over whether MLI has the right to declare a
default, accelerate the Notes, demand that the Trust consent to
transfer of the Notes without providing adequate information to
permit the Trust to determine whether to consent to the proposed
transfer, and otherwise participate in a concerted scheme to
liquidate and/or change the ownership or control of the Trust is
a continuing and ongoing dispute which is ripe for resolution by
the Court. Pursuant to Texas Civil Prac. & Rem. Code 37.001
et. seq., the Trust hereby requests a declaratory judgment that:
(1) the Trust has not defaulted under the Agreement or the Notes;
(2) that MLI's bad faith declaration of default to coerce the
Trust to relinquish its rights under the Agreement is an
anticipatory breach; and (3) the Trust is entitled to recover the
damages it has incurred and will incur in the future as a result
of Defendant's breach of the Agreement.
F. Application for Injunctive Relief
31. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
32. The actions of MLI in wrongfully declaring a default
under the Agreement, threatening to accelerate the Notes,
attempting to coerce the Trust to grant its consent to transfer
of the Notes without providing adequate information to permit the
Trust to determine whether to consent to the proposed transfer,
and otherwise participating in a scheme to force a liquidation
and/or change in ownership and control of the Trust have caused,
and continue to threaten to cause, substantial, immediate, and
irreparable damages for which the Trust has no adequate remedy at
law. Additionally, the Fidelity Entities' participation in this
wrongful scheme has caused and threatens to cause substantial,
immediate and irreparable damages for which the Trust has no
adequate remedy at law. Moreover, MLI's wrongful disclosure of
confidential and proprietary information concerning the Trust has
caused, and continues to threaten to cause, substantial,
immediate and irreparable damages for which the Trust has no
adequate remedy at law. Accordingly, the Trust hereby requests
that the Court enter preliminary and permanent injunctions which
enjoin MLI from engaging in such wrongful conduct.
G. Attorneys' Fees
33. Plaintiff incorporates the allegations contained in
paragraphs 1 through 20 herein as if fully set forth.
34. Due to the wrongful acts of MLI as described herein,
the Trust has retained the law firm of Liddell, Sapp, Zivley,
Hill & LaBoon, L.L.P. ("Liddell Sapp") to represent it and to
prosecute this action on the Trust's behalf. The Trust has
further agreed to pay Liddell Sapp its reasonable attorneys'
fees, expenses, and costs for doing so. Pursuant to the terms of
the Agreement and the Notes, and pursuant to Chapters 37 and 38
of the Texas Civil Prac. & Rem. Code, and to any other applicable
law, the Trust seeks an award of its costs and reasonable and
necessary attorneys' fees and expenses from MLI.
V.
JURY DEMAND
35. The Trust hereby requests a trial by jury.
WHEREFORE, PREMISES CONSIDERED, the Trust respectfully
requests that MLI and the Fidelity Entities be cited to appear
and answer herein, and that after an injunction hearing and/or
trial on the merits, the Court enter judgment in the Trust's
favor for the following:
1. Actual and punitive damages as set forth herein;
2. A declaration of rights as set forth herein;
3. Preliminary and permanent injunctions as set forth
herein;
4. Its reasonable attorneys' fees, costs, and
expenses associated with the litigation;
5. Pre and post judgment interest to the maximum
extent allowed by law;
6. Costs of court; and
7. Such other and further relief to which the Trust may be
justly entitled.
Respectfully submitted,
LIDDELL, SAPP, ZIVLEY, HILL &
LaBOON, L.L.P.
/s/ Craig L. Weinstock
Craig L. Weinstock
State Bar No. 21097300
Mark C. Taylor
State Bar No. 19713225
Roger B. Cowie
State Bar No. 00783886
2200 Ross Avenue, Suite 900
Dallas, Texas, 75201
(214) 220-4800 (Telephone)
(214) 220-4899 (Telecopier)
ATTORNEYS FOR AMERICAN INDUSTRIAL
PROPERTIES REIT
CERTIFICATE OF SERVICE
The foregoing First Amended Petition, Application for
Declaratory Judgment, and Application for Injunctive Relief was
served on counsel for Defendant, on June 26, 1995, via telecopier
and certified mail, return receipt requested.
/s/ Mark C. Taylor
MARK C. TAYLOR
VERIFICATION
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned notary, on this day appeared
Charles Wolcott, President of American Industrial Properties
REIT, who, upon his oath, stated that he has personal knowledge
of the matters set forth in paragraphs 1, 11-20, and 32, except
where such matters are pleaded upon information and belief, and
such matters are true and correct.
CHARLES WOLCOTT
STATE OF TEXAS
COUNTY OF DALLAS
The foregoing instrument was acknowledged before me this
____ day of __________________, 1995 by CHARLES WOLCOTT.
Notary Public in and for
the State of Texas
Printed Name of Notary
My Commission Expires:
