UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
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 of organization) (I.R.S. Employer
Identification Number)
6220 North Beltline, Suite 205
Irving, Texas 75063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(214) 550-6053
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Shares of Beneficial Interest New York Stock Exchange
Par Value $0.40 Per Share
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulations S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form
10-K or any amendment to this Form 10-K. X
The aggregate market value of the voting stock held by
non-affiliates of the registrant was $14,747,525 as of March
22, 1996. The aggregate market value has been computed by
reference to the closing price at which the stock was sold
on the New York Stock Exchange on March 22, 1996.
9,075,400 Shares of Beneficial Interest were
outstanding as of March 22, 1996.
AMERICAN INDUSTRIAL PROPERTIES REIT
For The Year Ended December 31, 1995
TABLE OF CONTENTS
FORM 10-K
Securities and Exchange Commission Item Number and Description
Page
PART I.
Item 1. Business 1
General 1
Revenue and Loss from
Real Estate Operations 2
Geographic Analysis of Revenue 2
Competition and Conflicts of Interest 3
Employees 3
Item 2. Properties 3
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote
of Shareholders 7
PART II.
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Managements' Discussion and Analysis of
Financial Condition and
Results of Operations 9
Results of Operations 9
Liquidity and Capital Resources 11
Item 8. Financial Statements and
Supplementary Data 13
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 13
PART III.
Item 10. Trust Managers and Executive Officers
of the Trust 13
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and
Related Transactions 16
PART IV.
Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K 16
SIGNATURES 19
Index to Consolidated Financial Statements and Financial
Statement Schedule F-1
PART I.
ITEM 1. Business
General
American Industrial Properties REIT (the "Trust"), a Texas
real estate investment trust, was organized as Trammell Crow
Real Estate Investors on September 26, 1985 by the issuance
of 13,400 Shares of Beneficial Interest (the "Shares"). On
November 27, 1985, the Trust issued 9,062,000 in additional
Shares and commenced operations. The Trust's investment
objective is to maximize the total return to its
Shareholders through the acquisition, leasing, management
and disposition of industrial real estate properties.
The Trust was initially advised by Trammell Crow Ventures,
Ltd. (the "Advisor"), an affiliate of the Trammell Crow
Company and related entities (the "TCC Entities"), under an
advisory agreement that provided for the payment of an
annual advisory fee and reimbursements for certain expenses
as well as transaction fees for asset acquisitions and
dispositions. In June 1993, the Trust terminated its
agreement with the Advisor and converted to self-
administration. The name of the Trust was changed to
American Industrial Properties REIT and its ticker symbol on
the New York Stock Exchange was changed to "IND" to reflect
the Trust's industrial property focus. In October 1993,
Shareholders voted to remove the finite life term of the
Trust as contained in the original Declaration of Trust,
thereby making the Trust a perpetual life entity.
The Trust is engaged in the operation of developed
industrial real estate properties and one retail real estate
property. The Trust leases space in its properties to a
variety of tenants. The industrial properties are leased
for office, office-showroom, warehouse, distribution,
research and development, and light assembly purposes. The
retail property is leased to retail merchandise
establishments, restaurants, and a cinema. No single tenant
accounts for more than 10% of the Trust's consolidated gross
revenue. Rents and tenant reimbursements related to Tamarac
Square, the Trust's retail property, were approximately 30%,
31% and 30% of the Trust's total revenues in 1995, 1994 and
1993, respectively. On December 31, 1995, the Trust's
portfolio consisted of 14 industrial properties located in
California, Maryland, Minnesota, Texas, Washington and
Wisconsin, and one retail property located in Colorado.
As part of its initial capitalization in 1985, the Trust
issued $179,698,000 (face amount at maturity) of Zero Coupon
Notes due 1997 (the "Notes"). In 1991, the Trust began an
effort to retire the outstanding Notes, which were accreting
at 12%. The Trust utilized net proceeds from property sales
and issuance of certain unsecured notes payable to
substantially reduce the amount of Notes outstanding during
1991, 1992 and 1993, thereby reducing the amount of
outstanding Notes to $19,491,000 (face amount at maturity)
at December 31, 1993. On December 31, 1993, the Trust
partially in-substance defeased $12,696,000 (face amount at
maturity) of the outstanding Notes with proceeds from
disposal of short term investments. During the first half
of 1994, the Trust purchased $239,000 (face amount at
maturity) of Notes and submitted the Notes to the Trustee
for cancellation. In November 1994, $3,669,000 (face amount
at maturity) of the outstanding Notes were partially in-
substance defeased with the proceeds from a refinancing of
certain of the Trust's properties. In December 1994, the
Trust purchased the remaining non-defeased Notes outstanding
of approximately $2,887,000 (face amount at maturity) in the
open market and submitted the Notes to the Trustee for
cancellation. As a result of the 1994 defeasance, the liens
securing the Notes on each of the Trust's properties were
released.
In connection with the retirement of certain Notes, the
Trust issued $53,234,000 in unsecured promissory notes in
February 1992. The terms of these unsecured notes included
an 8.8% fixed rate of interest, semi-annual interest only
payments commencing May 1993, the deferral of interest due
prior to May 1993, and a mandatory principal payment on or
before November 27, 1993. On December 31, 1992, the Trust
used $11,648,000 of the net sales proceeds from its 1992
sales of real estate to make a principal and interest
payment on the 8.8% unsecured notes which included the
mandatory principal payment due November 27, 1993. The
unsecured notes mature November 27, 1997 and can be prepaid
at any time prior to maturity without penalty. See Item 3.
Legal Proceedings.
The Trust has expressed its desire to geographically focus
its operations in the interior of the country. As such, the
Trust may attempt to sell certain properties and reinvest
such proceeds in properties in targeted markets. In
December 1993, the Trust purchased an industrial
distribution property in Dallas, Texas. In February 1995,
the Trust sold its industrial distribution property in Ft.
Lauderdale, Florida and in August 1995, the Trust purchased
an industrial distribution property in Arlington, Texas.
The Trust has historically qualified as a real estate
investment trust ("REIT") for federal income tax purposes
and intends to maintain its REIT qualification in the
future. In order to preserve its REIT status, the Trust
must meet certain criteria with respect to assets, income,
and shareholder ownership. In addition, the Trust is
required to distribute at least 95% of taxable income (as
defined) to its Shareholders.
The Trust is currently involved in significant litigation.
See Item 3. Legal Proceedings.
Revenue and Loss from Real Estate Operations
The breakdown of revenue and loss from real estate
operations for each of the years ended December 31, 1995,
1994, and 1993 is as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Rents and reimbursements from unaffiliated tenants:
Industrial $ 7,885 $ 7,639 $ 6,944
Retail 3,525 3,441 3,182
Rents and tenant reimbursements 11,410 11,080 10,126
Interest income 369 146 515
Total revenue 11,779 11,226 10,641
Property operating expenses (3,851) (3,952) (4,134)
Depreciation and amortization (2,847) (3,133) (3,140)
Interest expense and amortization of original issue
discount on Zero Coupon Notes due 1997 (6,415) (5,270) (6,055)
Administrative expenses (2,404) (2,532) (2,433)
Provisions for possible losses on real estate (600) (650) -
Loss from real estate operations $ (4,338) $ (4,311) $ (5,121)
</TABLE>
Geographic Analysis of Revenue
The geographic breakdown of the Trust's rents and tenant
reimbursements for each of the years ended December 31,
1995, 1994, and 1993 is as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
Market 1995 1994 1993
Baltimore industrial $ 577 $ 583 $ 597
Dallas industrial (a) 2,575 2,259 1,628
Ft. Lauderdale industrial (b) 71 384 451
Houston industrial 1,387 1,197 1,391
Los Angeles industrial 922 936 916
Milwaukee industrial 906 982 700
Minneapolis industrial 824 721 684
Seattle industrial 623 577 587
Denver retail 3,525 3,441 3,182
Other - - (10)
Total rents and tenant reimbursements $ 11,410 $ 11,080 $ 10,126
</TABLE>
_____________________
(a) One property was purchased in December 1993 and one
property was purchased in August 1995.
(b) The Ft. Lauderdale property was sold in
February 1995.
Competition and Conflicts of Interest
The Trust owns industrial properties in Baltimore, Dallas,
Houston, Los Angeles, Milwaukee, Minneapolis, and Seattle,
and one retail property in Denver. The principal
competitive factors in these markets are price, location,
quality of space, and amenities. In each case, the Trust
owns a small portion of the total similar space in the
market and competes with owners of other space for tenants.
Each of these markets is highly competitive, and other
owners of property may have competitive advantages not
available to the Trust.
TCC Entities are employed as property managers on twelve
of the Trust's fifteen properties. TCC Entities, which also
own or manage additional properties in each market in which
the Trust owns properties, may have relationships and
interests that conflict with those of the Trust. Although
the Trust actively monitors this situation, there is no
assurance that a potential conflict would be resolved in
favor of the Trust. Each of the property management
agreements with the TCC Entities is cancelable with thirty
days notice.
Employees
The Trust currently employs six people on a full-time
basis. Information regarding executive officers of the
Trust is set forth in Item 10 of Part III of this Form 10-K
and is incorporated herein by reference.
ITEM 2. Properties
As of December 31, 1995, the Trust owned 15 real estate
properties consisting of 14 industrial developments and one
enclosed specialty retail mall. The Trust sold one
industrial property in January 1993 and another industrial
property in February 1995. The Trust purchased one
industrial property in December 1993 and another industrial
property in August 1995. A description of the properties
owned by the Trust as of December 31, 1995, as well as
related leased occupancy and mortgage indebtedness, is
presented below.
Baltimore Industrial
Patapsco Industrial Center
Patapsco Industrial Center is a five-building, two
phase industrial park located in Linthicum Heights,
Maryland, a suburb of Baltimore. The project comprises
approximately 95,000 square feet of net rentable space.
As of December 31, 1995, leased occupancy was 83%. The
Trust is currently soliciting offers for the sale of
Patapsco Industrial Center and anticipates consummation
of the sale in the second quarter of 1996.
The Trust is a 99.99% general partner of the limited
partnership that currently owns Patapsco Industrial
Center. The limited partner's interest is held by a
wholly-owned subsidiary of the Trust.
Dallas Industrial
Beltline Business Center
Beltline Business Center consists of three industrial
buildings located in Irving, Texas, a suburb of Dallas,
that are 100% finished for office space and, together,
comprise approximately 61,000 square feet of net rentable
space. The Trust's corporate offices, comprising
approximately 2,500 square feet of space, are located in
this property. As of December 31, 1995, leased occupancy
(including space leased to the Trust) was 94%.
Gateway 5 and 6
Gateway 5 and 6 consists of two industrial buildings
located in Irving, Texas comprising approximately 79,000
square feet of net rentable space. As of December 31,
1995, leased occupancy was 100%.
Meridian Street Warehouse
The Meridian Street Warehouse, purchased in August
1995, is an industrial distribution property in
Arlington, Texas comprising approximately 72,000 square
feet of net rentable space. As of December 31, 1995,
leased occupancy was 100%.
Northgate II
Northgate II consists of four industrial buildings
located within a 21-building industrial park in Dallas,
Texas. The project consists of approximately 236,000
square feet of net rentable space. As of December 31,
1995, leased occupancy was 98%.
Northview Distribution Center
Northview Distribution Center consists of two
industrial buildings located in Dallas, Texas. The
project consists of approximately 175,000 square feet of
net rentable space. As of December 31, 1995, leased
occupancy was 100%. Northview Distribution Center is
subject to a mortgage with a principal amount outstanding
of $2,224,000 as of December 31, 1995.
The Trust is a 99% limited partner in the limited
partnership which owns Northview Distribution Center. A
wholly-owned subsidiary of the Trust is the 1% general
partner.
Houston Industrial
Plaza Southwest
Plaza Southwest consists of five industrial buildings
in Houston, Texas comprising approximately 149,000 square
feet of net rentable space. As of December 31, 1995,
leased occupancy was 79%.
Commerce Park
Commerce Park consists of two industrial buildings in
Houston, Texas comprising approximately 87,000 square
feet of net rentable space. As of December 31, 1995,
leased occupancy was 100%.
Westchase Park
Westchase Park consists of two industrial buildings in
Houston, Texas comprising approximately 47,000 square
feet of net rentable space. As of December 31, 1995,
leased occupancy was 95%.
Los Angeles Industrial
Huntington Drive Center
Huntington Drive Center consists of a two-story office
building and an industrial building comprising
approximately 62,000 square feet of net rentable space
located in Monrovia, California, a suburb of Los Angeles.
As of December 31, 1995, leased occupancy was 95%.
Milwaukee Industrial
Northwest Business Park
Northwest Business Park consists of three industrial
buildings comprising approximately 143,000 square feet of
net rentable space located in Menomonee Falls, Wisconsin,
a suburb of Milwaukee. As of December 31, 1995, leased
occupancy was 92%. Phase I of Northwest Business Park is
subject to a mortgage with a principal amount outstanding
of $1,302,000 at December 31, 1995.
Minneapolis Industrial
Burnsville
Burnsville consists of one industrial building
comprising approximately 46,000 square feet of net
rentable space located in Burnsville, Minnesota, a suburb
of Minneapolis. As of December 31, 1995, leased
occupancy was 98%. Burnsville is subject to a first
mortgage with a principal amount outstanding of
$1,940,000 as of December 31, 1995. In 1995, pursuant to
an extension option in the loan agreement, the Trust
elected to extend the maturity of the first mortgage to
May 1998.
Cahill
Cahill consists of one industrial building comprising
approximately 60,000 square feet of net rentable space
located in Edina, Minnesota, a suburb of Minneapolis. As
of December 31, 1995, leased occupancy was 100%.
Seattle Industrial
Springbrook Business Park
Springbrook Business Park consists of one industrial
building located in Kent, Washington, a suburb of
Seattle, comprising approximately 81,000 square feet of
net rentable space. As of December 31, 1995, leased
occupancy was 100%.
Denver Retail
Tamarac Square
Tamarac Square, located in Denver Colorado, consists of
an enclosed specialty retail mall of approximately
139,000 net rentable square feet with an adjacent
convenience center of approximately 33,000 net rentable
square feet, two free-standing buildings of approximately
8,000 net rentable square feet each, a separate free-
standing building of approximately 9,000 net rentable
square feet and two ground leases comprising
approximately 4.91 acres. During 1993, the Trust
completed a $2 million renovation of Tamarac Square. As
of December 31, 1995, leased occupancy was 88%. Tamarac
Square is subject to a mortgage with a principal amount
outstanding of $12,110,000 as of December 31, 1995.
The Trust is a 99% limited partner in the limited
partnership which owns Tamarac Square. A wholly-owned
subsidiary of the Trust is the 1% general partner.
The Trust has been notified of the existence of limited
underground petroleum based contamination at a portion of
Tamarac Square. The source of the contamination is
apparently related to underground storage tanks ("USTs")
located on adjacent property. The owner of the adjacent
property has indemnified the Trust against costs related
to the remediation of such contamination. The
responsible party for the adjacent USTs has submitted a
corrective Action Plan to the Colorado Department of
Public Health and Environment ("Department"). The plan
was approved by the Department and is intended to address
the identified contamination. The Plan estimates
completion within approximately three (3) years.
ITEM 3. Legal Proceedings
The Manufacturers Life Insurance Company
On May 1, 1995, the Trust filed a lawsuit against The
Manufacturers Life Insurance Company ("MLI"), the holder of
the Trust's $45,239,000 8.8% unsecured notes payable, 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 breached the Note Purchase Agreement
between MLI and the Trust and had unlawfully sought to
coerce the Trust into relinquishing certain of its rights.
Specifically, the suit alleges, among other things, 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 Trust's notes held by MLI to a third
party. The suit was subsequently amended to name 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 and to specify
damages to the Trust of up to $20,000,000, plus an
unspecified amount for punitive damages.
Based on the facts surrounding this lawsuit, the Trust
elected not to make a scheduled semi-annual interest payment
on May 27, 1995. MLI thereafter declared the entire
principal amount and all accrued interest on the unsecured
notes due and payable and began accruing interest, effective
June 13, 1995, at the 11.7% default rate specified in the
Note Purchase Agreement.
On October 3, 1995, The Manufacturers Life Insurance
Company (U.S.A.), Inc. ("MLI-USA") intervened in the lawsuit
asserting ownership of one of the notes. On the same day,
MLI and MLI-USA filed counterclaims against the Trust
seeking recovery of all amounts due under the notes. On
October 19, 1995, the Trust filed answers to these
counterclaims.
On October 18, 1995, MLI filed an Application for
Temporary Restraining Order and Injunctions in the lawsuit,
seeking to enjoin the Trust from paying a scheduled
distribution to its shareholders on October 23, 1995. On
October 20, 1995, the court, after hearing argument, denied
MLI's Application.
On October 19, 1995, a Third Amended Petition, Application
for Declaratory Judgment, and Application for Injunctive
Relief was filed by the Trust, stating that MLI had
wrongfully declared a default and wrongfully accelerated the
maturity of the notes.
Although there can be no assurance as to the outcome of
the litigation, 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. Although the Trust has, on occasion, entered into
negotiations with MLI regarding the settlement of this
litigation, including the possible purchase by the Trust of
the unsecured notes at a discount, there is no assurance
that such negotiations will be successful. Accordingly, in
the event that the loan is determined to be immediately due
and payable, and is not otherwise modified or restructured,
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.
Paul O. Koether and Pure World, Inc.
On January 8, 1996, the Trust filed a lawsuit in federal
court in Dallas, Texas, against Pure World, Inc. and Paul O.
Koether. The suit alleges, among other things, violations
under federal and state securities law for material
misrepresentations and omissions made by the defendants in
filings made with the Securities and Exchange Commission
regarding undisclosed meetings and correspondence between
the defendants and representatives of MLI, the Trust's
largest unsecured creditor, regarding the proposed purchase
at a discount of the Trust's unsecured notes held by MLI.
The Trust seeks injunctive relief preventing future
discussions with MLI regarding the purchase of the Trust's
unsecured notes, further attempts to gain control of the
Trust by the defendants and any further purchases of shares
in the Trust by the defendants until proper disclosures are
made. In addition, the Trust seeks a declaratory judgment
regarding enforcement of the share ownership restrictions
contained in the Trust's Bylaws and injunctive relief
preventing the voting of shares accumulated in excess of the
share ownership limitations contained in the Bylaws. The
Trust also seeks recovery of distributions paid on shares
accumulated in excess of these share ownership limitations.
On January 30, 1996, the defendants filed an answer,
counterclaims and a third party complaint. The third party
complaint was filed against the Trust Managers of the Trust.
In their counterclaim, the defendants are requesting that
certain Bylaw amendments be stricken, that the court issue
an injunction until an additional independent Trust Manager
is appointed, that a receiver be appointed for the assets
and business of the Trust, and that the Trust recover
certain funds from the Trust Managers. The Trust filed a
Motion to Dismiss, which the court granted in part,
requiring the defendants to replead their counterclaim.
Although management believes these counterclaims to be
without merit, no assurance can be given regarding the
ultimate outcome of this litigation. 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.
Robert Strougo
On February 22, 1996, a class action and derivative
complaint was filed against the Trust and its Trust Managers
by an alleged shareholder of the Trust, Robert Strougo. The
suit alleges, among other claims, interference with
shareholders' franchise rights and breach of fiduciary duty
and seeks recovery of unspecified damages and attorneys'
fees. Strougo has filed a Motion to Transfer his case to
the court in which the lawsuit referred to as "Paul O.
Koether and Pure World, Inc." is pending. Although
management believes that this suit is without merit, no
assurance can be given regarding the ultimate outcome of
this litigation and its financial effect upon the Trust.
ITEM 4. Submission of Matters to a Vote of Shareholders
Pursuant to a proxy statement dated November 13, 1995, the
Annual Meeting of Shareholders was held on December 13, 1995
for purposes of election of Trust Managers and ratification
of the selection of independent auditors. Representatives
of a major Shareholder of the Trust, Pure World, Inc.,
proposed their own nominees for election as Trust Managers
and proposed amendments to the Trust's Bylaws. No nominee
achieved the two-thirds vote of all outstanding Shares
required for election as a Trust Manager or the majority
vote of all outstanding Shares required for re-election.
Accordingly, the existing Trust Managers have continued in
their capacity as Trust Managers. Item 5 of Form 8-K dated
January 5, 1996 (File No. 1-9016) reporting the Shareholder
voting results of the Annual Meeting is hereby incorporated
by reference herein.
PART II.
ITEM 5. Market for Registrant's Common Equity and
Related Shareholder Matters
The Trust's Shares are listed and traded on the New York
Stock Exchange (the "NYSE") under the symbol "IND". The
following table sets forth for the periods indicated the
high and low sales price of the Trust's Shares, and the cash
distributions declared per Share:
<TABLE>
<S> <C> <C> <C>
Quarter ended High Low Distributions
December 31, 1995 2 1/2 1 5/8 $.04
September 30, 1995 2 1 3/8 .00
June 30, 1995 1 5/8 1 1/8 .00
March 31, 1995 1 1/2 1 1/4 .00
December 31, 1994 1 7/8 1 1/4 .00
September 30, 1994 1 3/4 1 1/4 .00
June 30, 1994 2 1/8 1 5/8 .00
March 31, 1994 2 1/2 1 3/4 .00
</TABLE>
In December 1993, the Trust announced a suspension of
quarterly distributions to Shareholders until such time as
the Zero Coupon Notes were fully defeased and distributions
could be supported by the positive cash flow of the Trust.
Based upon the liquidity of the Trust and its improving
property operations, the Trust reinstituted a distribution
during the fourth quarter of 1995. A distribution of $0.04
per share was declared on October 2, 1995, payable on
October 23, 1995 to shareholders of record on October 11,
1995. The Trust intends to evaluate future distributions on
a quarterly basis.
As of March 22, 1996, the closing sale price per Share on
the NYSE was $1 5/8. On such date, there were 9,075,400
outstanding Shares held by 1,898 Shareholders of record.
ITEM 6. Selected Financial Data
The following table sets forth selected financial data for
the Trust and its subsidiaries for each of the five years in
the period ended December 31, 1995. This information
should be read in conjunction with the discussion set forth
in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated
Financial Statements of the Trust and accompanying Notes
included elsewhere in this report.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1995 1994 1993 1992 1991
(in thousands except share and per share data)
Operating data:
Total revenues $11,779 $11,226 $10,641 $15,139 $16,488
Loss from real estate operations(a) (4,338) (4,311) (5,121) (18,719) (13,786)
Net loss(a) (4,584) (4,655) (7,867) (17,593) (9,162)
Per share:
Loss from real estate operations(a) $(0.48) $(0.47) $(0.57) $(2.06) $(1.52)
Net loss(a) (0.51) (0.51) (0.87) (1.94) (1.01)
Distributions paid 0.04 - 0.16 0.20 0.42
Balance sheet data:
Total assets $89,382 $92,550 $88,297 $110,446 $147,877
Total debt 62,815 65,613 57,078 68,578 87,141
Shareholders' equity 19,248 24,196 28,851 38,171 57,579
</TABLE>
(a) Loss from real estate operations and net loss for 1995,
1994, 1992 and 1991 include provisions for possible
losses on real estate of $600,000, $650,000,
$14,094,000 and $9,371,000, respectively.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction
with Item 6. Selected Financial Data and the Consolidated
Financial Statements of the Trust and accompanying Notes
included elsewhere in this report.
Results of Operations
Comparison of 1995 to 1994
Property revenues increased from $11,080,000 in 1994 to
$11,410,000 in 1995, resulting from the stabilization in
occupancy of the Trust's portfolio and improving rental
rates in selected markets. Property operating expenses
decreased from $3,952,000 in 1994 to $3,851,000 in 1995,
primarily due to the net effect of a sale of a property in
February 1995 and the purchase of a property in August 1995.
Property net operating income increased from $7,128,000 in
1994 to $7,559,000 in 1995, an increase of 6.0%. On a same
property basis, net operating income increased from
$6,927,000 in 1994 to $7,474,000 in 1995, an increase of
7.9%. Overall leased occupancy of the portfolio was 93.7%
at December 31, 1995 compared to 93.2% at December 31, 1994.
Loss from real estate operations increased from $4,311,000
in 1994 to $4,338,000 in 1995 as a result of the increase in
net operating income and an increase in interest income of
$223,000 (due to higher invested balances resulting from the
non-payment of interest to the Trust's unsecured lender), a
decrease in total administrative expenses of $128,000 (as a
result of two proxy contests in 1994 versus one in 1995), a
net increase in interest expense of $1,215,000 (due to the
November 1994 refinancing transaction and the default rate
interest accrued by the Trust in 1995 of $724,000), a
decrease in depreciation and amortization of $356,000 (due
to the Trust's property transactions in 1995), and a
decrease in provision for possible losses on real estate of
$50,000 (due to the timing of writedowns related to
properties held for sale).
During 1995, the Trust recognized a loss on the sale of
its Quadrant property of $191,000 and an extraordinary loss
of $55,000 related to the prepayment of an outstanding
mortgage loan. In 1994, the Trust recognized an
extraordinary loss of $344,000 on the partial in-substance
defeasance of Zero Coupon Notes due 1997.
During 1995, the Trust incurred approximately $980,000 in
expenses related to litigation, a proxy contest in
connection with issues before the shareholders at the
Trust's annual meeting and attempted recapitalization costs,
compared to approximately $1,027,000 in 1994. During 1994,
the Trust had no litigation expenses but incurred costs
related to two proxy contests. These expenses will cease
upon the resolution of outstanding litigation and in the
absence of additional proxy contests.
The Trust recorded a provision for possible loss on real
estate related to its Patapsco property at December 31, 1995
of $600,000. This provision follows a $650,000 provision
made at December 31, 1994. The Trust began marketing this
property in early 1995 and currently anticipates its sale in
the second quarter of 1996.
Comparison of 1994 to 1993
During 1994, property revenues increased to $11,080,000
from $10,126,000 in 1993 as a result of the purchase of a
property in December 1993 and an overall increase in
occupancy of the Trust's portfolio. As a result, property
net operating income increased from $5,992,000 in 1993 to
$7,128,000 in 1994. On a same property basis, net operating
income increased from $5,941,000 in 1993 to $6,684,000 in
1994, an increase of 12.5%. Overall leased occupancy at
December 31, 1994 was 93.2%, compared to 89.2% a year
earlier.
Loss from real estate operations improved from $5,121,000
in 1993 to $4,311,000 in 1994 as a result of the improvement
in net operating income and a decrease in interest income of
$369,000 (related to the Trust's partial in-substance
defeasance in December 1993), a decrease in amortization of
original issue discount on Zero Coupon Notes due 1997 of
$972,000 (due to the defeasance of the Zero Coupon Notes due
1997) and a provision for possible losses on real estate of
$650,000 in 1994. The net loss of the Trust decreased from
$7,867,000 in 1993 to $4,655,000 in 1994 as a result of
these factors as well as an extraordinary loss recorded in
1993 of $2,530,000 related to the partial in-substance
defeasance of Zero Coupon Notes due 1997. In 1994, the
Trust recorded an extraordinary loss of $344,000 related to
another partial in-substance defeasance of Zero Coupon Notes
due 1997. During 1994, a significant increase in interest
rates had a favorable effect on the costs of defeasing the
remaining Notes.
Total Trust administration and overhead expenses were
$2,532,000 in 1994 as compared to $2,433,000 in 1993.
Included in the 1994 amount was approximately $1,027,000
related to two proxy contests and attempted recapitalization
costs. The 1993 amount includes $716,000 paid to the
Trust's former advisor (including a $435,000 termination
fee) as well as $411,000 related to a nonroutine proxy
solicitation and special meeting of shareholders and certain
recapitalization costs.
In the fourth quarter of 1994, the Trust reclassified two
of its properties from held for investment to held for sale
and recorded a provision for possible losses on real estate
of $650,000. No such provision was recorded in 1993.
Analysis of Cash Flows
Cash flow used in operating activities in 1995 was
$769,000. This amount reflects the results of operations,
including interest expense. As a result of the Trust's MLI
litigation (see Item 3. Legal Proceedings), no interest was
paid in 1995 on the Trust's $45,239,000 8.8% unsecured notes
payable. The resulting increase in accrued interest of
$4,674,000 is reflected in cash flow from financing
activities. Accrued interest includes the accrual of
default rate interest approximating $724,000 at December 31,
1995.
Cash flow from investing activities in 1995 was $144,000,
representing the amounts expended on capitalized
improvements and leasing commissions and the acquisition of
the Meridian property in August 1995, as well as net
proceeds from the sale of the Quadrant property in February
1995.
Cash flow from financing activities in 1995 was
$1,457,000. This amount reflects the retirement of the
mortgage debt on the Quadrant property and on the Patapsco
property which is currently held for sale. This amount also
reflections a distribution to shareholders, a prepayment
penalty on the retirement of the Patapsco mortgage debt and
the previously discussed increase in accrued interest of
$4,674,000.
Funds from Operations
In March 1995, the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") issued its White Paper on
Funds from Operations ("FFO") which clarified the treatment
of certain items in determining FFO and recommended
additional supplemental disclosures. The Trust has adopted
the recommendation of NAREIT for fiscal year 1995 and
restated its FFO calculation for prior years. The changes
promulgated by NAREIT eliminate the add back of depreciation
and amortization of non real estate items, including the
amortization of deferred financing costs, in determining
FFO. The revised definition of FFO is net income (loss)
computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt
restructuring and sales of property, plus real estate
related depreciation and amortization and after adjustments
for unconsolidated partnerships and joint ventures. In
addition, NAREIT recommends that extraordinary items or
significant non-recurring items that distort comparability
should not be considered in arriving at FFO. Accordingly,
the Trust does not include the default rate interest accrued
on its $45.2 million in unsecured notes payable in the
determination of FFO. Funds Available for Distribution
("FAD") is also presented as it more accurately portrays the
ability of the Trust to make distributions since it reflects
capital expenditures. 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. FFO and FAD are
calculated as follows:
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1995(a) 1994(a)(b) 1993(b)
(in thousands except share and per share data)
Net loss $(4,584) $(4,655) $(7,867)
Add back:
Extraordinary loss on extinguishment of debt 55 - -
Loss on sales of real estate 191 - 216
Provision for possible losses on real estate 600 650 -
Real estate depreciation and amortization 2,771 3,102 3,096
Default rate interest accrual 724 - -
Extraordinary loss on partial in-substance
defeasance of Zero Coupon Notes . - 344 2,530
Funds from Operations $(243) $(559) $(2,025)
Non-cash effect of straight-line rents on FFO $(161) $(156) $251
Funds from Operations $(243) $(559) $(2,025)
Capitalized improvements and leasing commissions(c) (1,023) (1,476) (1,814)
Funds available for distribution $(1,266) $(2,035) $(3,839)
Per share:
Funds from operations $(0.03) $(0.06) $(0.22)
Funds available for distribution $(0.14) $(0.22) $(0.42)
Number of Shares outstanding (000) 9,075.4 9,075.4 9,075.4
</TABLE>
-------------------------------------------
(a)The Trust sold one property in February 1995 and purchased
one property in August 1995. The property sold in
February 1995 contributed $201,000 to 1994 FFO and the
property purchased in August 1995 contributed $36,000
to 1995 FFO.
(b)The Trust purchased one property in December 1993 which
contributed $420,000 to 1994 FFO.
(c) Capitalized improvements and leasing commissions is
classified as follows for the year ending December 31,
1995:
<TABLE>
<S> <C> <C>
Amount PSF
Tenant improvements - new tenants $ 343 $ 2.58
Tenant improvements - renewing tenants 184 1.30
Leasing costs - new tenants 168 1.16
Leasing costs - renewing tenants 107 0.55
Expansions and major renovations 221 0.13
Total $1,023
</TABLE>
Liquidity and Capital Resources
The principal sources of funds for the Trust's liquidity
requirements are funds generated from operations of the
Trust's real estate assets and unrestricted cash reserves.
As of December 31, 1995, the Trust had $7,694,000 in
unrestricted cash on hand. The Trust presently anticipates
that these cash reserves will provide sufficient funds for
all currently known liabilities and commitments relating to
the Trust's operations during 1996, with the exception of an
adverse resolution of the MLI litigation and the Trust's
obligations with respect to the MLI indebtedness (see ITEM
3. Legal Proceedings). Should this litigation and the
Trust's obligations with respect to the MLI indebtedness be
resolved on a basis unfavorable to the Trust, 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 in the MLI litigation
and the litigation with Paul O. Koether and Pure World, Inc.
referred to in Item 3. Legal Proceedings are expected to be
significant and could adversely affect the Trust's resources
and liquidity.
Due to the facts surrounding the MLI litigation, the Trust
did not make any interest payments in 1995 on its
$45,239,000 8.8% unsecured notes payable. The Trust
currently does not anticipate making any interest payments
on this debt until the related litigation is resolved. In
the absence of a resolution to this litigation, the Trust
anticipates that it will generate positive cash flow during
1996, thus increasing unrestricted cash reserves. As of
December 31, 1995, the accrued interest on this debt,
including default interest accrued at 11.7% since June 13,
1995, is $5,078,000.
The unrestricted cash reserves of the Trust could be
decreased significantly should the Trust elect to purchase
additional real estate properties or effect a refinancing or
reduction of existing debt, including the unsecured debt
described above. The Trust intends to continue efforts to
recapitalize its debt structure and, 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.
In November 1994, the Trust completed a $14,500,000
refinancing of two of its properties, Tamarac Square in
Denver, Colorado, and Northview Distribution Center in
Dallas, Texas. The proceeds of this financing were used to
partially in-substance defease a portion of the outstanding
Zero Coupon Notes. This partial defeasance resulted in the
release to the Trust of approximately $7.1 million in
restricted funds previously held by the Trustee. The terms
of each loan, as modified in June 1995, include a fixed
interest rate of 8.40%, 25-year principal amortization,
certain prepayment penalties, and maturity in December 2001.
Based upon the Trust's liquidity and the improving
performance of the Trust's properties, the Trust declared a
distribution of $0.04 per share in October 1995. This was
the first distribution by the Trust since November 1993. In
February 1996, the Trust paid a distribution of $0.04 per
share. The Trust intends to evaluate future distributions
on a quarterly basis.
The Trust currently has borrowings secured by mortgages on
the properties totaling $17,576,000. Of this amount,
approximately $1,940,000 represents variable rate financing
with a weighted average interest rate of 10.75% and
$15,636,000 represents fixed rate financing with a weighted
average interest rate of 8.62%. The overall weighted
average interest rate on the Trust's mortgage debt is 8.85%.
Annual debt service on these borrowings amounts to
$1,778,000 (see the Notes to Consolidated Financial
Statements for additional detail concerning the terms of the
mortgage notes payable).
The nature of the Trust's operating properties, which
generally provide for leases with a term of between three
and five years, results in an approximate turnover rate of
25% to 30% of the Trust's tenants and related revenue
annually. Such turnover requires capital outlays related to
tenant improvements and leasing commissions in order to
maintain or improve the Trust's occupancy levels. These
costs amounted to $1,023,000 in the year ended December 31,
1995 and $1,476,000 in the year ended December 31, 1994.
These costs have historically been funded out of the Trust's
operating cash flow and cash reserves. The Trust has made
no commitments for additional capital expenditures beyond
those related to normal leasing and releasing activity and
related escrows. No capital improvements or renovations of
significance are anticipated in the near future for any of
the Trust's properties, with the possible exception of a
large retail lease at the Trust's retail property. Such a
lease, if agreed to, could result in expenditures for tenant
improvements in excess of $500,000.
Management intends to pursue a strategy designed to lower
the Trust's cost of capital and enable the Trust to make
additional investments in industrial properties through the
use of additional equity and/or debt financings. In order
for the Trust to issue additional equity for this purpose
(in excess of the 924,600 Shares currently authorized but
unissued), the Trust will need to increase its authorized
Share limit and/or have the ability to issue additional
classes of stock (such as preferred stock), either of which
would require an amendment of the Declaration of Trust by
the affirmative vote of holders of two-thirds of the
outstanding Shares. In the event the Trust determines to
pursue equity financing through an increase of its
authorized Share limit as described above, there can be no
assurance that the requisite shareholder vote will be
attained. Further, there can be no assurance that any such
equity or debt financing will be available to the Trust in
the future.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed
in the Index to Financial Statements and Financial Statement
Schedule appearing on Page F-1 of this Form 10-K.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III.
ITEM 10. Trust Managers and Executive Officers of the Trust
The persons who serve as Trust Managers and executive
officers of the Trust, their ages and their respective
positions are as follows:
<TABLE>
<S> <C> <C>
Name Age Position(s) and Office(s) Held
William H. Bricker 64 Trust Manager
Robert E. Giles 48 Trust Manager
Charles W. Wolcott 43 Trust Manager, President
and Chief Executive Officer
Marc A. Simpson 41 Vice President and Chief
Financial Officer, Secretary
and Treasurer
David B. Warner 37 Vice President and Chief
Operating Officer
</TABLE>
William H. Bricker, Trust Manager. Mr. Bricker has
served as President of DS Energy Services Incorporated
and has consulted in the energy field and
international trade sine 1987. In May 1987, Mr.
Bricker retired as the Chairman and Chief Executive
Officer of Diamond Shamrock Corporation where he held
various management positions from 1969 through May
1987. Mr. Bricker is a director of the LTV
Corporation, the Eltech Systems Corporation and the
National Paralysis Foundation. He received his
Bachelor of Science and Masters of Science degrees
from Michigan State University.
Robert E. Giles, Trust Manager. Mr. Giles was
appointed as a Trust Manger on March 15, 1996. Mr.
Giles is currently the owner and President of Robert
E. Giles Interests, Inc., a real estate consulting and
development firm. Mr. Giles was a Vice-President
with the J.E. Roberts Companies, Inc. from 1994 to
1995. From 1990 to 1994, Mr. Giles was President and
a Director of National Loan Bank, a publicly held
company created through the merger of Chemical Bank
and Texas Commerce Bank. Mr. Giles holds Bachelors
and Masters degrees from the University of Texas at
Austin and the University of Texas at Arlington,
respectively.
Charles W. Wolcott, Trust Manager, President and
Chief Executive Officer. Mr. Wolcott was hired as the
President and Chief Executive Officer of the Trust on
May 4, 1993. For the six months immediately prior to
his election as President of the Trust, Mr. Wolcott
was engaged in developing various personal business
enterprises. Mr. Wolcott was President and Chief
Executive Officer for Trammell Crow Asset Services, a
real estate asset and portfolio management affiliate
of Trammell Crow Company, from 1990 to 1992. He
served as Vice President and Chief Financial and
Operating Officer of the Trust from 1988 to 1991.
From 1988 to 1990, Mr. Wolcott was a partner in
Trammell Crow Ventures Operating Partnership. Prior
to joining the Trammell Crow Company in 1984, Mr.
Wolcott was President of Wolcott Corporation, a firm
engaged in the development and management of
commercial real estate properties. Mr. Wolcott
graduated from the University of Texas at Austin in
1975 with a Bachelor of Science degree and received a
Masters of Business Administration degree from Harvard
University in 1977.
Marc A. Simpson, Vice President and Chief Financial
Officer, Secretary and Treasurer. Mr. Simpson was
hired as the Vice President and Chief Financial
Officer, Secretary and Treasurer of the Trust on March
7, 1994. From November 1989 to March 1994, Mr.
Simpson was a Manager in the Financial Advisory
Services group of Coopers & Lybrand. Prior to that
time, he served as Controller of Pacific Realty
Corporation, a real estate development company. Mr.
Simpson graduated with a Bachelor of Business
Administration from Midwestern State University in
1978, and received a Masters of Business
Administration from Southern Methodist University in
1990.
David B. Warner, Vice President and Chief Operating
Officer. Mr. Warner was hired as Vice President and
Chief Operating Officer of the Trust on May 24, 1993.
From 1989 through the date of his accepting a position
with the Trust, Mr. Warner was Director of the Equity
Investment Group for The Prudential Realty Group.
From 1985 to 1989, he served in the Real Estate
Banking Group of NCNB Texas National Bank. Mr. Warner
graduated from the University of Texas at Austin in
1981 with a degree in Finance and received a Master of
Business Administration from the same institution in
1984.
The Trust Managers have appointed two committees, the
Audit Committee and the Compensation Committee. Both the
Audit and Compensation Committees include only Trust
Managers which are independent of management and who are
free from any relationship that would interfere with the
exercise of their independent judgment. The Audit Committee
appoints the independent public accountants for the Trust
subject to the approval of the Shareholders at the Annual
Meeting and consults with the accountants on the Trust's
audited financial statements and on the efficacy of the
Trust's internal control systems. The Compensation
Committee establishes guidelines for compensation and
benefits of the executive officers of the Trust based upon
achievement of objectives and other factors, including
review of compensation to executive officers of comparable
entities and recommendations of independent compensation
consultants. During 1995, Mr. Bricker was the sole
independent Trust Manager and member of these committees.
The Trust does not have a Nominating Committee.
ITEM 11. Executive Compensation
In 1995, the Trust paid its independent Trust Manager an
annual fee of $20,000 for services as a Trust Manager plus
$1,000 for each meeting of the Trust Managers or a committee
of the Trust Managers attended in person. In addition,
Trust Managers are reimbursed for their expenses incurred in
connection with their duties as Trust Managers. In addition
to the annual fee, Mr. Bricker received $17,000 in 1995 for
attendance at Trust Manager and committee meetings. Mr.
Wolcott did not receive any compensation for his services as
a Trust Manager.
The following table sets forth certain information
regarding the compensation paid to the Trust's executive
officers during the three years ended December 31, 1995:
<TABLE>
<S> <C> <C> <C> <C>
Summary Compensation Table
Fiscal Annual Compensation
Name and Principal Position Year Salary Bonus Other
Charles W. Wolcott 1995 $189,000 $72,000 (c) $7,040 (e)
President and Chief Executive Officer 1994 $180,000 $62,100 (d) $7,222 (f)
1993 $115,000 $50,000 $4,463
Marc A. Simpson.... 1995 $105,000 $40,000 (c) $6,838 (e)
Vice-President and Chief Financial Officer 1994 $ 81,859 $34,500 (d) $4,095 (f)
1993 (a) (a) (a)
David B. Warner... 1995 $100,000 $43,000 (c) $6,312 (e)
Vice-President and Chief Operating Officer 1994 $92,000 $34,500 (d) $4,429 (f)
1993 (b) (b) (b)
</TABLE>
- --------------------------------
(a) Mr. Simpson was not employed by the Trust in 1993.
(b) Mr. Warner's salary and bonus for 1993 did not exceed $100,000.
(c) Represents bonus payments for 1995 paid in January 1996.
(d) Represents bonus payments for 1994 paid in February 1995.
(e) Represents company contribution to the Retirement and
Profit Sharing Plan in January 1996.
(f) Represents company contribution to the Retirement and
Profit Sharing Plan in February 1995.
The Trust has adopted a Retirement and Profit Sharing Plan
(the "Plan") for the benefit of employees of the Trust.
Employees who were employed by the Trust on November 1,
1993, and who have attained the age of 21 are immediately
eligible to participate in the Plan. All other employees of
the Trust are eligible to participate in the Plan after they
have completed six months of service with the Trust and
attained the age of 21.
On March 13, 1996, the Trust entered into Bonus and
Severance Agreements with each of Messrs. Wolcott, Simpson
and Warner. These agreements formalized the Trust's policy
of providing an annual incentive bonus of up to fifty
percent of the employee's base salary upon the achievement
of certain objectives established by the Compensation
Committee. In addition, the agreements generally provide
that if the employee is terminated within one year after a
Change in Control (as defined), the employee will be
entitled to receive an amount equal to one times the
employee's annual base salary, continuation of health and
welfare benefits for up to one year and the prorated amount
of any annual incentive bonus earned through the date of
termination. The agreements are effective through March 13,
1999.
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth certain information as to
the number of Trust Shares beneficially owned by (a) each
person (including any "group" as that term is used in
Section 13 (d) of the Exchange Act) who is known by the
Trust to own beneficially 5% or more of the Shares, (b) each
Trust Manager, (c) each executive officer of the Trust, and
(d) all executive officers of the Trust and Trust Managers
as a group.
<TABLE>
<S> <C> <C>
Amount of Shares Percentage
Beneficially Owned of Shares
Names of Beneficial Owners as of March 22, 1996 Outstanding
William H. Bricker 2,000 (1)
Charles W. Wolcott 55,500 (1)
Marc A. Simpson 10,500 (1)
David B. Warner 4,000 (1)
Pure World, Inc.
c/o Natalie I. Koether
P.O. Box 97
Far Hills, NJ 07931 888,000 9.785% (2)
Black Bear Realty, Ltd.
c/o Marc C. Krantz
1375 East 9th Street
Cleveland, OH 44114 910,800 10.036% (3)
All Trust Managers and
executive officers as a group 72,000 (1)
</TABLE>
______________
(1)Ownership is less than 1% of the outstanding Shares.
(2)Information obtained from Amendment No. 11 to Schedule 13D of
Pure World, Inc. dated October 24, 1995.
(3)Information obtained from Amendment No. 5 to
Schedule 13D of Black Bear Realty, Ltd., Richard M.
Osborne Trust, Christopher L. Jarratt and Jarratt
Associates, Inc. dated January 10, 1996.
ITEM 13. Certain Relationships and Related Transactions
None.
PART IV.
ITEM 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K
(a) (1) and (2) Financial Statements and Financial
Statement Schedule:
See Index to Consolidated Financial Statements and
Financial Statement Schedule appearing on page F-1 of
this Form 10-K
(3) Exhibits:
Exhibit No. Description
3.1 Second Amended and Restated Declaration of Trust
(incorporated herein by reference from Exhibit 4.1
to the Trust's Form 10-Q for the quarter ended
September 30, 1993; File No. 1-9016)
3.2 Fourth Amended and Restated Bylaws of the Trust
(incorporated herein by reference from Exhibit 3.1
to Form 8-K of the Trust dated October 3, 1995;
File No. 1-9016).
3.3 Amendment to Fourth Amended and Restated Bylaws of
the Trust (incorporated herein by reference from
Exhibit No. 99.1 to Form 8-K of the Trust dated
November 13, 1996; File No. 1-9016).
4.1 Indenture dated November 15, 1985 between the Trust
and IBJ Schroder Bank & Trust Company (incorporated
herein by reference from Exhibit 10.4 to Form S-4
of American Industrial Properties REIT, Inc. dated
March 16, 1994; File No. 33-74292)
10.1 401(k) Retirement and Profit Sharing Plan
(incorporated herein by reference from Exhibit 10.5
to Amendment No. 1 to Form S-4 of American
Industrial Properties REIT, Inc. dated March 4,
1994; File No. 33-74292)
10.2 Amendments to 401(k) Retirement and Profit Sharing
Plan (incorporated herein by reference from Exhibit
10.4 to Form 10-K of the Trust dated March 27,
1995)
10.3 Note Purchase Agreement dated February 27, 1992
between the Trust and Manufacturers Life Insurance
Company (incorporated herein by reference from
Exhibit 10.6 to Form S-4 of American Industrial
Properties REIT, Inc. dated January 31, 1994; File
No. 33-74292)
10.4 Addendum to $19,143,646.92 Unsecured Promissory
Note due November 27, 1997 (incorporated herein by
reference from Exhibit 10.6 to Form 10-K of the
Trust dated March 27, 1995)
10.5 Agreement and Assignment of Partnership Interest,
Amended and Restated Agreement and Certificate of
Limited Partnership and Security Agreement for
Patapsco Center - Linthicum Heights, Maryland
(incorporated herein by reference from Exhibit 10.8
to Amendment No. 1 to Form S-4 of American
Industrial Properties REIT, Inc. dated March 4,
1994; File No. 33-74292)
10.6 Note dated November 15, 1994 in the original
principal amount of $12,250,000 with AIP Properties
#1 L.P. as Maker and AMRESCO Capital Corporation as
Payee (incorporated herein by reference from
Exhibit 99.1 to Form 8-K of the Trust dated
November 22, 1994; File No. 1-9016)
10.7 Mortgage, Deed of Trust and Security Agreement
dated November 15, 1994 between AIP Properties #1
L.P. and AMRESCO Capital Corporation (incorporated
herein by reference from Exhibit 99.2 to Form 8-K
of the Trust dated November 22, 1994; File No. 1-
9016)
10.8 Loan Modification Agreement modifying the note
dated November 15, 1994 in the original principal
amount of $12,250,000 (incorporated herein by
reference from Exhibit 99.2 to Form 8-K of the
Trust dated June 23, 1995; File No. 1-9016)
10.9 Note dated November 15, 1994 in the original
principal amount of $2,250,000 with AIP Properties
#2 L.P. as Maker and AMRESCO Capital Corporation as
Payee (incorporated herein by reference from
Exhibit 99.3 to Form 8-K of the Trust dated
November 22, 1994; File No. 1-9016)
10.10 Mortgage, Deed of Trust and Security Agreement
dated November 15, 1994 between AIP Properties #2
L.P. and AMRESCO Capital Corporation (incorporated
herein by reference from Exhibit 99.4 to Form 8-K
of the Trust dated November 22, 1994; File No. 1-
9016)
10.11 Loan Modification Agreement modifying the note
dated November 15, 1994 in the original principal
amount of $2,250,000 (incorporated herein by
reference from Exhibit 99.1 to Form 8-K of the
Trust dated June 23, 1995; File No. 1-9016)
10.12 *Bonus and Severance Agreement dated March 13, 1996,
between the Trust and Charles W. Wolcott
10.13 *Bonus and Severance Agreement dated March 13, 1996,
between the Trust and Marc A. Simpson
10.14 *Bonus and Severance Agreement dated March 13, 1996,
between the Trust and David B. Warner
21.1 Listing of Subsidiaries (incorporated herein by
reference from Exhibit 21.1 to Form 10-K of the
Trust dated March 27, 1995; File No. 1-9016)
22.1 Form 8-K dated January 8, 1996 reporting
Shareholder voting results at annual meeting
(incorporated herein by reference from Form 8-K of
the Trust dated January 8, 1996; File No. 1-9016)
27.1 *Financial Data Schedule
__________
* Filed herewith
(b) Reports on Form 8-K:
The following information summarizes the events
reported on Form 8-K during the quarter ended December
31, 1995:
Date Filed Date of Earliest Event
with SEC Reported on Form 8-K Description
October 3, 1995 October 3, 1995 Item 5.Adoption
of Fourth
Amended and
Restated Bylaws
November 15, 1995 November 13, 1995 Item 5. Amendment
to Bylaws
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 29, 1996.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ CHARLES W. WOLCOTT
Charles W. Wolcott,
Trust Manager, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Signatures Title Date
/s/ WILLIAM H. BRICKER Trust Manager March 29, 1996
William H. Bricker
/s/ ROBERT E. GILES Trust Manager March 29, 1996
Robert E. Giles
/s/ CHARLES W. WOLCOTT Trust Manager, March 29, 1996
Charles W. Wolcott President and Chief Executive
Officer (Principal
Executive Officer)
/s/ MARC A. SIMPSON Vice President March 29, 1996
Marc A. Simpson and Chief Financial Officer,
Secretary and Treasurer
(Principal Accounting
and Financial Officer)
American Industrial Properties REIT
Index to Consolidated Financial Statements and
Financial Statement Schedule
Page
Report of Independent Auditors F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994, and 1993 F-3
Consolidated Balance Sheets as of
December 31, 1995 and 1994 F-4
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
Schedule III - Consolidated Real Estate
and Accumulated Depreciation F-13
Notes to Schedule III F-14
All other financial statements and schedules not listed
have been omitted since the required information is
either included in the Financial Statements and the Notes
thereto as included herein or is not applicable or
required.
REPORT OF INDEPENDENT AUDITORS
Trust Managers and Shareholders
American Industrial Properties REIT:
We have audited the accompanying consolidated balance
sheets of American Industrial Properties REIT (the "Trust")
as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period
ended December 31, 1995. Our audits also included the
consolidated financial statement schedule listed in the
Index at Item 14(a). These financial statements and
schedule are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of the Trust as of
December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects
the information set forth therein.
The accompanying financial statements have been
prepared assuming that American Industrial Properties REIT
will continue as a going concern. As more fully described
in Note 8, the Trust has been declared in default on its
8.8% notes payable and, to date, has not arranged a long-
term refinancing of the notes payable. In addition, the
Trust is involved in two other legal matters, the ultimate
outcome of which cannot presently be determined. These
conditions raise substantial doubt about the Trust's ability
to continue as a going concern. Management's plans in
regard to these matters are also described in Note 8. The
financial statements do not include any adjustments to
reflect the possible future effects on the recoverability
and classification of assets or the amounts and
classification of liabilities that may result from the
outcome of this uncertainty.
Dallas, Texas
February 20, 1996
/s/ Ernst & Young LLP
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1995 1994 1993
REVENUES
Rents $ 8,676 $ 8,397 $ 7,811
Tenant reimbursements 2,734 2,683 2,315
Interest income 369 146 515
11,779 11,226 10,641
REAL ESTATE EXPENSES
Property operating expenses:
Property taxes 1,397 1,421 1,408
Property management fees 428 442 422
Utilities 478 501 458
General operating 795 705 865
Repairs and maintenance 431 656 614
Other property operating expenses 322 227 367
Depreciation and amortization 2,777 3,133 3,140
Interest on 8.8% notes payable 4,707 4,001 3,981
Interest on mortgages payable 1,778 850 683
Amortization of original issue
discount on Zero Coupon Notes
due 1997 - 419 1,391
Administrative expenses:
Trust administration and overhead 1,424 1,505 1,306
Litigation, refinancing and proxy costs 980 1,027 411
Fees paid to Advisor - - 716
Provision for possible losses
on real estate 600 650 -
16,117 15,537 15,762
Loss from real estate operations (4,338) (4,311) (5,121)
Loss on sales of real estate (191) - (216)
Extraordinary loss on
extinguishment of debt (55) - -
Extraordinary loss on partial
in-substance defeasance of Zero
Coupon Notes due 1997 - (344) (2,530)
NET LOSS $(4,584) $(4,655) $(7,867)
PER SHARE DATA
Loss from real estate operations $ (0.48) $ (0.47) $ (0.57)
Loss on sales of real estate (0.02) - (0.02)
Extraordinary loss on
extinguishment of debt (0.01) - -
Extraordinary loss on partial
in-substance defeasance of Zero
Coupon Notes due 1997 - (0.04) (0.28)
Net Loss $ (0.51) $ (0.51) $ (0.87)
Distributions Paid $ 0.04 $ 0.00 $ 0.16
Number of shares outstanding 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>
December 31,
1995 1994
Real estate:
Held for investment $ 97,091 $ 95,033
Held for sale 4,806 8,810
101,897 103,843
Accumulated depreciation (23,441) (21,859)
Net real estate 78,456 81,984
Cash and cash equivalents:
Unrestricted 7,694 6,919
Restricted 659 602
Total cash and cash equivalents 8,353 7,521
Other assets, net 2,573 3,045
Total Assets $ 89,382 $ 92,550
Liabilities:
8.8% notes payable $ 45,239 $ 45,239
Mortgage notes payable 17,576 20,374
Accrued interest 5,178 504
Accounts payable, accrued expenses
and other liabilities 1,620 1,682
Tenant security deposits 521 555
Total Liabilities 70,134 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) (106,265) (101,317)
Total Shareholders' Equity 19,248 24,196
Total Liabilities and
Shareholders' Equity $ 89,382 $ 92,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except number of shares)
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares of Shares of
Beneficial Beneficial Additional Retained
Interest Interest Paid-In Earnings
Number Amount Capital (Deficit) Total
Balance at January 1, 1993 9,075,400 $908 $124,605 ($87,342) $38,171
Net loss (7,867) (7,867)
Distributions to shareholders (1,453) (1,453)
Balance at December 31, 1993 9,075,400 908 124,605 (96,662) 28,851
Net loss (4,655) (4,655)
Balance at December 31, 1994 9,075,400 908 124,605 (101,317) 24,196
Net loss (4,584) (4,584)
Distributions to shareholders (364) (364)
Balance at December 31, 1995 9,075,400 $908 $124,605 ($106,265) $19,248
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,584) $ (4,655) $ (7,867)
Adjustments to reconcile net loss
to net cash provided
by (used in) operating activities:
Amortization of original issue
discount on Zero Coupon Notes
due 1997 - 419 1,391
Depreciation 2,479 2,622 2,830
Amortization of deferred
financing costs 70 - -
Other amortization 298 511 310
Losses on sales of real estate 791 650 216
Extraordinary losses 55 344 2,530
Changes in operating assets
and liabilities:
Decrease (increase) in other assets 183 (256) (68)
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities and
tenant security deposits (61) 373 (784)
Net Cash Provided By (Used In)
Operating Activities (769) 8 (1,442)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized improvements and
leasing commissions (1,023) (1,476) (1,814)
Acquisition of real estate (1,309) - (3,289)
Net proceeds from sales
of real estate 2,476 - 6,758
Net Cash (Used In) Provided By
Investing Activities 144 (1,476) 1,655
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage
notes payable (2,798) (1,283) (4,915)
Distributions to shareholders (364) - (1,453)
Prepayment penalty on extinguishment
of debt (55) - -
Increase in accrued interest 4,674 - -
Proceeds from mortgage financing - 14,500 -
Partial in-substance defeasance of
Zero Coupon Notes - (3,106) (10,189)
Partial repurchase of
Zero Coupon Notes - (2,241) (316)
Net Cash Provided By (Used In)
Financing Activities 1,457 7,870 (16,873)
Net Increase (Decrease) in Cash
and Cash Equivalents 832 6,402 (16,660)
Cash and Cash Equivalents at
Beginning of Year 7,521 1,119 17,779
Cash and Cash Equivalents at
End of Year $ 8,353 $ 7,521 $ 1,119
Cash Paid for Interest $ 1,741 $ 4,718 $ 4,664
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Notes to Consolidated Financial Statements
December 31, 1995
Note 1 -- Significant Accounting Policies:
General.
American Industrial Properties REIT (formerly Trammell
Crow Real Estate Investors) (the "Trust") is a Texas real
estate investment trust which, as of December 31, 1995,
owned and operated 15 commercial real estate properties
consisting of 14 industrial properties and one retail
property. The Trust was formed September 26, 1985 and
commenced operations on November 27, 1985. The Trust
converted to self-administration effective June 13, 1993.
Pursuant to the Trust's 1993 Annual Meeting of Shareholders,
amendments to the Trust's Declaration of Trust and Bylaws
were approved which, among other things, officially changed
the name of the Trust to American Industrial Properties REIT
and removed the Trust's limited term restriction, converting
the Trust from a finite life entity scheduled to liquidate
in 1997 to a perpetual life entity.
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.
Use of Estimates.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results may differ significantly from such estimates
and assumptions.
Real Estate.
The Trust carries its real estate at lower of depreciated
cost or net realizable value. In accordance with Statement
of Financial Accounting Standards No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, issued in March 1995, the Trust records
impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the related carrying
amounts. In addition, the Trust records impairment losses
on assets held for sale when the estimated sales proceeds,
after estimated selling costs, is less than the carrying
value of the related asset. (See Note 3.)
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.
Cash and Cash Equivalents.
Cash equivalents include demand deposits and all highly
liquid instruments purchased with an original maturity of
three months or less. Restricted amounts reflect escrow
deposits held by third parties for the payment of taxes and
insurance and reserves held by third parties for property
repairs or tenant improvements.
Other Assets.
Other assets primarily consists of deferred rent
receivable (see Rents and Tenant Reimbursements.), prepaid
commissions and loan fees. Leasing commissions are
capitalized and amortized on a straight line basis over the
life of the lease. Loan fees are capitalized and amortized
to interest expense on a level yield basis over the term of
the related loan.
Prior to the defeasance of the outstanding Zero Coupon
Notes in 1994 (see Note 5), the issuance costs of the Zero
Coupon Notes were being amortized over 12 years.
Unamortized issuance costs at the date of defeasance were
written off and reflected in the loss on defeasance.
Rents and Tenant Reimbursements.
Rental income, including contractual rent increases or
delayed rent starts, is recognized on a straight-line basis
over the lease term. The Trust has recorded deferred rent
receivable (representing the excess of rental revenue
recognized on a straight line basis over actual rents
received under the applicable lease provisions) of $810,000
and $1,157,000 at December 31, 1995 and 1994, respectively.
Several tenants in the retail property are also required
to pay as rent a percentage of their gross sales volume, to
the extent such percentage rent exceeds their base rents.
Such percentage rents amounted to $269,000, $245,000 and
$230,000 for the years ended December 31, 1995, 1994, and
1993, respectively. In addition to paying base and
percentage rents, most tenants are required to reimburse the
Trust for operating expenses in excess of a negotiated base
amount.
Tamarac Square, the Trust's only retail property, has
rental revenues in excess of 10% of the total revenues of
the Trust. Rental revenues and tenant reimbursements from
Tamarac totaled $3,525,000, $3,441,000, and $3,182,000 in
1995, 1994, and 1993, respectively.
Income Tax Matters.
The Trust operates as a real estate investment trust
("REIT") for federal income tax purposes. Under the REIT
provisions, the Trust is required to distribute 95% of REIT
taxable income and is allowed a deduction for dividends paid
during the year. The Trust had a taxable loss in each of
the years ending December 31, 1995, 1994, and 1993.
Accordingly, no provision for income taxes has been
reflected in the financial statements.
The Trust has a net operating loss carryforward from 1995
and prior years of approximately $35,500,000. The losses
may be carried forward for up to 15 years. The present
losses will expire beginning in the year 2004. Management
intends to operate the Trust in such a manner as to continue
to qualify as a REIT and to continue to distribute cash flow
in excess of taxable income. Therefore, no tax benefit
related to the potential utilization of accumulated net
operating losses has been reflected in the financial
statements.
Earnings and profits, which will determine the taxability
of distributions to Shareholders, will differ from that
reported for financial reporting purposes due primarily to
differences in the basis of the assets and the estimated
useful lives used to compute depreciation.
Concentrations.
The Trust owns industrial properties in Baltimore, Dallas,
Houston, Los Angeles, Milwaukee, Minneapolis, and Seattle,
and one retail property in Denver. The principal
competitive factors in these markets are price, location,
quality of space, and amenities. In each case, the Trust
owns a small portion of the total similar space in the
market and competes with owners of other space for tenants.
Each of these markets is highly competitive, and other
owners of property may have competitive advantages not
available to the Trust.
The Trust maintains its unrestricted and restricted cash
in accounts at financial institutions. The combined account
balances at each institution periodically exceed the Federal
Deposit Insurance Corporation ("FDIC") insurance coverage
and, as a result, there is a concentration of credit risk
related to amounts on deposit in excess of FDIC insurance
coverage. At December 31, 1995, the Trust had cash balances
with banks in excess of the FDIC's insured limits totaling
$2,084,000.
Reclassification.
Certain amounts in prior years financial statements have
been reclassified to conform with the current year
presentation.
Note 2 -- Transactions with Parties in Interest:
Trammell Crow Ventures, Ltd., an affiliate of the Trammell
Crow Company, served as advisor (the "Advisor") to the Trust
through June 13, 1993. Effective June 13, 1993, the Trust
terminated the Advisory Agreement with the Advisor and paid
to the Advisor a one-time termination fee of $435,000.
Certain other affiliates of the Trammell Crow Company (the
"TCC Entities") continue to manage twelve of the Trust's
fifteen properties. The TCC Entities are not considered
party in interest relationships by the Trust.
During 1993, the Trust paid fees to the Advisor of
$716,000, representing fees and reimbursements pursuant to
the Advisory Agreement, disposition fees from the sale or
disposition of Trust real estate assets, and certain other
fees for services provided to the Trust. In addition,
affiliates of the Advisor were paid $202,000 in 1993
pursuant to property management agreements.
Note 3 -- Real Estate and Provisions for Possible Losses
on Real Estate:
On February 27, 1995, the Trust sold its industrial
property in Ft. Lauderdale, Florida for net sales proceeds
of $1,250,000 after payment of the related mortgage debt.
The Trust also acquired a 72,000 square foot industrial
distribution property in Arlington, Texas on August 30, 1995
for total consideration of approximately $1,309,000.
On December 10, 1993, the Trust purchased a 175,000 square
foot multi-tenant industrial distribution property in
Dallas, Texas for total consideration of approximately
$3,400,000.
In January 1993, the Trust sold an industrial property in
Dallas, Texas for $7,500,000. The sale resulted in a loss
for financial statement purposes of $216,000.
At December 31, 1995 and 1994, real estate was comprised
of the following:
<TABLE>
<S> <C> <C>
1995 1994
Held for investment:
Land $ 17,526 $ 17,264
Buildings and improvements 79,565 77,771
97,091 95,035
Held for sale:
Land 897 1,687
Buildings and improvements 3,909 7,121
4,806 8,808
Total $ 101,897 $ 103,843
</TABLE>
In December 1994, the Trust reclassified two properties to
held for sale from held for investment and recorded a
provision for possible loss on real estate of $650,000. In
February 1995, one of these properties was sold. The
remaining property continues to be classified as held for
sale at December 31, 1995. An additional provision for
possible loss on real estate was recorded in the fourth
quarter of 1995 in the amount of $600,000. The net
operating income of the property held for sale at December
31, 1995 was approximately $420,000 in 1995.
At December 31, 1995, fourteen of the Trust's properties
were classified as held for investment and one property was
classified as held for sale. If unforeseen factors should
cause a reclassification of the Trust's real estate held for
investment to held for sale, significant adjustments to
reduce the depreciated cost of the real estate to net
realizable value could be required.
Note 4 -- 8.8% Notes Payable:
To finance the February 27, 1992 repurchase of
$106,322,000 (face amount at maturity) of Zero Coupon Notes
due 1997 (see Note 5), the Trust issued $53,234,000 of
unsecured notes payable due November 1997 (the "8.8% Notes
Payable"). These notes bear interest at 8.8% per annum,
payable semiannually commencing May 27, 1993. The terms of
the 8.8% Notes Payable allow for prepayment, in full or in
part, at any time prior to maturity without penalty.
On May 1, 1995, the Trust initiated litigation against the
holder of these notes (see Note 8). Due to the
circumstances surrounding the litigation, the Trust has
elected not to make scheduled interest payments in May and
November of 1995. The noteholder has declared the entire
principal amount and all accrued interest on the notes due
and payable and, effective June 13, 1995, began accruing
interest on the principal amount at the 11.7% default rate
provided for in the Note Purchase Agreement.
Note 5 -- Zero Coupon Notes:
As part of its original capitalization in 1985, the Trust
issued $179,698,000 (face amount at maturity) of Zero Coupon
Notes due 1997 (the "Notes"). These Notes, which were
collateralized by first and second mortgage liens on each of
the Trust's real estate properties, accreted at 12%,
compounded semiannually. In 1991, the Trust began a program
to retire the outstanding Notes, resulting in a reduction of
the outstanding Notes to $19,491,000 (face amount at
maturity) at December 31, 1993. On December 31, 1993, the
Trust effected a partial in-substance defeasance on
$12,696,000 (face amount at maturity) of the Notes and
recorded an extraordinary loss of $2,530,000.
During the first half of 1994, the Trust purchased
$239,000 (face amount at maturity) of Notes and submitted
the Notes to the Trustee for cancellation. In November
1994, the Trust refinanced two of its properties and
completed a partial in-substance defeasance on $3,669,000
(face amount at maturity) of Notes and recorded an
extraordinary loss of $344,000. In December 1994, the Trust
purchased the remaining non-defeased Notes outstanding of
approximately $2,887,000 (face amount at maturity) in the
open market and submitted the Notes to the Trustee for
cancellation. The legal defeasance of the Notes resulted in
the release of the Zero Coupon Note mortgage liens which
encumbered each of the Trust's properties.
The accreted value of the Notes defeased at December 31,
1995 and 1994 was $13,104,000 and $11,665,000, respectively.
Note 6 -- Mortgages Payable:
At December 31, 1995, four of the Trust's properties were
subject to liens securing mortgage notes payable totaling
$17,576,000. Of this amount $1,940,000 represented a note
with a variable interest rate of prime plus 2% (at December
31, 1995, the prime rate was 8.5%) and $15,636,000
represented notes with fixed interest rates ranging from
8.40% to 11.0%.
During 1995, the Trust retired debt related to the
property held for sale. In connection with the early
retirement, a prepayment penalty of $55,000 was incurred,
which has been disclosed as an extraordinary item in the
statement of operations.
Principal payments due during each of the next five years
are as follows: $231,000 in 1996, $252,000 in 1997,
$2,171,000 in 1998, $1,471,000 in 1999, $271,000 in 2000 and
$13,180,000 thereafter.
The Bylaws of the Trust, the note purchase agreement
relating to the 8.8% Notes Payable, and certain mortgages
payable contain various borrowing restrictions and operating
performance covenants. With the exception of the note
purchase agreement relating to the 8.8% Notes Payable (see
Note 8), the Trust is in compliance with all such
restrictions and covenants as of December 31, 1995.
Note 7 -- Environmental Matters:
The Trust has been notified of the existence of limited
underground petroleum based contamination at a portion of
Tamarac Square, the Trust's Denver retail property. The
source of the contamination is apparently related to
underground storage tanks ("USTs") located on adjacent
property. The owner of the adjacent property has
indemnified the Trust against costs related to the
remediation of such contamination. The responsible party
for the adjacent USTs has submitted a corrective Action Plan
to the Colorado Department of Public Health and Environment
("Department"). The plan was approved by the Department and
is intended to address the identified contamination. The
Plan estimates completion within approximately three (3)
years.
With the exception of Tamarac Square, the Trust has not
been notified, and is not otherwise aware, of any material
non-compliance, liability or claim relating to hazardous or
toxic substances in connection with any of its properties.
Note 8 -- Litigation:
On May 1, 1995, the Trust initiated a lawsuit against the
holder of its 8.8% unsecured notes payable ("MLI"),
alleging, among other things, that MLI and others had
engaged in acts of bad faith and conspiracy. This suit was
subsequently amended to name additional defendants and to
specify damages. Based on the facts surrounding this
lawsuit, the Trust elected not to make a scheduled semi-
annual interest payment on May 27, 1995. MLI thereafter
declared the entire principal amount due and payable and
began accruing interest, effective June 13, 1995, at the
11.7% default rate specified in the Note Purchase Agreement.
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. Although the
Trust has, on occasion, entered into negotiations with MLI
regarding the settlement of this litigation, including the
possible purchase by the Trust of the unsecured notes at a
discount, there is no assurance that such negotiations will
be successful. Accordingly, in the event that the loan is
determined to be immediately due and payable, and is not
otherwise modified or restructured, 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.
On January 8, 1996, the Trust filed a lawsuit in federal
court in Dallas, Texas against a major shareholder of the
Trust, alleging, among other things, violations of federal
and state securities laws. On January 30, 1996, the
defendants filed a counterclaim against the Trust,
requesting that certain Bylaw amendments be stricken, that a
receiver be appointed for the assets and business of the
Trust and that the Trust recover certain funds from the
Trust Managers. Although management believes these
counterclaims to be without merit, no assurance can be given
regarding the ultimate outcome of this litigation. 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.
On February 22, 1996, a shareholder of the Trust filed a
class action and derivative complaint against the Trust and
its Trust Managers, alleging interference with shareholders'
franchise rights and breach of fiduciary duty. The suit
seeks recovery of unspecified damages and attorneys' fees.
In management's opinion, the liabilities, if any, that may
ultimately result from this lawsuit are not expected to have
a materially adverse effect on the consolidated financial
position of the Trust.
On occasion, and in the normal course of business, the
Trust is involved in legal actions relating to the ownership
and operations of its properties. In management's opinion,
the liabilities, if any, that may ultimately result from
such legal actions are not expected to have a materially
adverse effect on the consolidated financial position of the
Trust.
Note 9 -- Retirement and Profit Sharing Plan:
During 1993, the Trust adopted a retirement and profit
sharing plan which qualifies under section 401(k) of the
Internal Revenue Code. All existing Trust employees at
adoption and subsequent employees who have completed six
months of service are eligible to participate in the plan.
Subject to certain limitations, employees may contribute up
to 15% of their salary. The Trust may make annual
discretionary contributions to the plan. Contributions by
the Trust related to the years ended December 31, 1995 and
1994 were $25,000 and $20,000, respectively.
Note 10 -- Operating Leases:
The Trust's properties are leased to others under
operating leases with expiration dates ranging from 1996 to
2011. Future minimum rentals on noncancellable tenant
leases at December 31, 1995 are as follows:
<TABLE>
Year Amount
<S> <C>
1996 $ 7,919,000
1997 6,387,000
1998 4,993,000
1999 2,910,000
2000 1,838,000
Thereafter 2,408,000
$26,455,000
</TABLE>
Note 11 -- Distributions:
The Trust's distributions of $363,000 ($0.04 per share) in
1995 and $1,453,000 ($0.16 per share) in 1993 represent a
return of capital to Shareholders (to the extent of the
Shareholder's basis in the Shares.) The Trust did not pay
any distributions in 1994.
Note 12 -- Per Share Data:
All per share data is based on 9,075,400 Shares
outstanding for each of the years presented.
Note 13 -- Fair Value of Financial Instruments:
Accounts receivable, accounts payable and accrued expenses
and other liabilities are carried at amounts that reasonably
approximate their fair values. The fair values of the
Trust's mortgage notes payable are estimated using
discounted cash flow analyses, based on the Trust's
incremental borrowing rates for similar types of borrowing
arrangements. The carrying values of such mortgage notes
payable reasonably approximate their fair values.
SCHEDULE III
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
($000's)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Encum- Initial Initial
brances Cost Cost Writedowns
Description at Bldings & Capitalized and
12/31/95 Land Imprvmnts Imprvmnts Retirements Allowances
Industrial Properties:
Texas--
Beltline Business Ctr $1,303 $5,213 $386 ($5) ($3,516)
Commerce Park 1,108 4,431 527 (2,014)
Gateway 5 & 6 935 3,741 664 (1,861)
Northgate II 2,153 8,612 699 (4,122)
Northview $2,224 658 2,631 38
Plaza Southwest 1,312 5,248 685
Westchase 697 2,787 252 (74) (1,158)
Meridian 262 1,047
California--
Huntington Drive 1,559 6,237 706
Maryland--
Patapsco 1,147 4,588 321 (1,250)
Minnesota--
Burnsville 1,940 761 3,045 389 (17) (1,563)
Cahill 625 2,498 357
Washington--
Springbrook 1,008 4,032 239 (436)
Wisconsin--
Northwest Business Pk 1,302 1,296 5,184 749 (131)
Retail Property:
Colorado--
Tamarac Square 12,110 6,799 27,194 4,147 (241)
Trust Home Office 15
_______ _______ _______ ______ _____ _______
Total $17,576 $21,623 $86,488 $10,174 ($468) ($15,920)
</TABLE>
SCHEDULE III, continued
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
($000's)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Gross Amt Gross Amt Gross Amt Gross Amt
Carried Carried Carried Carried
At December At December At December At December
31, 1995 31, 1995 31, 1995 31, 1995
Bldings & Accum. Date of Date
Description Land Imprvmnts Total Deprec. Construction Acquired
Industrial Properties:
Texas--
Beltline Business Ctr $600 $2,781 $3,381 $1,237 1984 1985
Commerce Park 705 3,347 4,052 1,118 1984 1985
Gateway 5 & 6 563 2,916 3,479 1,097 1984-85 1985
Northgate II 1,329 6,013 7,342 2,203 1982-83 1985
Northview 658 2,669 3,327 145 1980 1993
Plaza Southwest 1,312 5,933 7,245 1,530 1970-74 1985
Westchase 465 2,039 2,504 708 1983 1985
Meridian 262 1,047 1,309 9 1981 1995
California--
Huntington Drive 1,559 6,943 8,502 1,781 1984-85 1985
Maryland--
Patapsco 897 3,909 4,806 1,127 1980-84 1985
Minnesota--
Burnsville 432 2,183 2,615 862 1984 1986
Cahill 625 2,855 3,480 798 1981 1986
Washington--
Springbrook 921 3,922 4,843 1,087 1984 1986
Wisconsin--
Northwest Business Pk 1,296 5,802 7,098 1,481 1983-86 1986
Retail Property:
Colorado--
Tamarac Square 6,799 31,100 37,899 8,245 1976-79 1985
Trust Home Office 15 15 13 N/A various
_______ _______ _______ _______
Total $18,423 $83,474 $101,897 $23,441
</TABLE>
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO SCHEDULE III
December 31 1995
($000)
Reconciliation of Real Estate:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Balance at beginning of year $103,843 $103,710 $108,036
Additions during period:
Improvements 752 1,024 887
Acquisitions 1,309 - 3,289
105,904 104,734 112,212
Deductions during period
Dispositions 3,402 - 8,187
Writedowns 600 650 -
Asset Retirements 5 241 315
Balance at close of period $101,897 $103,843 $103,710
</TABLE>
Reconciliation of Accumulated Depreciation:
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
Balance at beginning of year $21,859 $19,315 $18,036
Additions during period:
Depreciation expense for period 2,479 2,622 2,830
24,338 21,937 20,866
Deductions during period
Accum. depreciation of
real estate sold 897 - 1,551
Asset Retirements - 78 -
Balance at close of period $23,441 $21,859 $19,315
</TABLE>
Tax Basis:
The income tax basis of real estate, net of accumulated tax
depreciation, is approximately $97,426 at December 31, 1995.
Depreciable Life:
Depreciation is provided by the straight-line method over the
estimated useful lives which are as follows:
Buildings and capital improvements. 40 years
Tenant improvements. 10 years
BONUS AND SEVERANCE AGREEMENT
This Bonus and Severance Agreement (this "Agreement") is
made and entered into as of this 13th day of March, 1996, by and
between American Industrial Properties REIT, a Texas real estate
investment trust (the "Trust") and Charles W. Wolcott
("Executive").
RECITALS
WHEREAS, Executive is currently employed by the Trust as
President and Chief Executive Officer;
WHEREAS, to encourage Executive to remain employed with the
Trust, the Trust desires to provide Executive with an opportunity
for incentive bonus compensation and certain severance
compensation in the event of a Change in Control (as defined
below) of the Trust on the terms and conditions set forth herein;
WHEREAS, the Trust and Employee each recognize and hereby
acknowledge that Executive's employment with the Trust is and
shall continue to be terminable at will, without prior notice, by
either the Trust or Executive; and
WHEREAS, the Trust and Executive each hereby acknowledge
that this Agreement is not intended to be, and shall not be
construed as, an express or implied contract of employment
between the Trust and Executive;
NOW, THEREFORE, for and in consideration of the mutual
promises hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Trust and Executive
hereby agree as follows:
AGREEMENTS
1. Termination Following a Change in Control. (a) In the
event of the occurrence of a Change in Control, the Executive's
employment may be terminated by the Trust during the Severance
Period (as defined below) without the Executive becoming entitled
to the benefits provided by Section 2 only upon the occurrence
of: (i) the Executive's death; or (ii) Cause (as defined below).
If the Executive's employment is terminated by the Trust during
the Severance Period, other than pursuant to Section 1(a)(i), or
1(a)(ii), the Executive will be entitled to the benefits provided
by Section 2.
(b) On or after the occurrence during the Severance Period
of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for
termination exists or has occurred, including without limitation
the Executive's acceptance and/or commencement of other
employment), the Executive may terminate his employment with the
Trust and become entitled to the benefits provided by Section 2:
(i) failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the Trust
which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Trust Manager of
the Trust (or any successor thereto) if the Executive had been a
Trust Manager of the Trust immediately prior to the Change in
Control;
(ii) a significant adverse change in the nature or
scope of the authorities, powers, functions, responsibilities or
duties attached to the position with the Trust which the
Executive held immediately prior to the Change in Control, a
reduction in the aggregate of the Executive's base pay and
incentive pay received from the Trust, or the termination or
denial of the Executive's rights to Employee Benefits (as defined
below) or a reduction in the scope or value thereof, except for
any such termination or denial, or reduction in the scope of
value, of any Employee Benefits applicable generally to all
recipients of or participants in such Employee Benefits;
(iii) the determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all events
will be presumed to have been made in good faith unless otherwise
shown by the Trust by clear and convincing evidence) that a
change in circumstances has occurred following a Change in
Control, including without limitation a change in the scope of
the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has
rendered the Executive substantially unable aid carry out, has
substantially hindered the Executive's performance of, or has
caused the Executive to suffer a substantial reduction in, any of
the authorities, powers, functions, responsibilities, or duties
attached to the position held by the Executive immediately prior
to the Change in Control, which situation is not remedied within
five calendar days after written notice to the Trust from the
Executive of such determination;
(iv) the liquidation, dissolution, merger,
consolidation, or reorganization of the Trust or transfer of all
or substantially all of its business and/or assets, unless the
successor or successors (by liquidation, merger, consolidation,
reorganization, transfer or otherwise) to which all or
substantially all of the Trust's business and/or assets have been
transferred (directly or by operation of law) assumes all duties
and obligations of the Trust under this Agreement;
(v) the Trust relocates its principal executive
offices, or requires the Executive to have the Executive's
principal location of work changed, to any location which is in
excess of 25 miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel away
from the Executive's office in the course of discharging the
Executive's responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of the Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, the Executive's prior written consent;
and/or
(vi) without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Trust or
any successor thereto.
(c) A termination by the Trust pursuant to Section 1(a) or
by the Executive pursuant to Section 1(b) will not affect any
rights which the Executive may have pursuant to any other
agreement, policy, plan, program or arrangement of the Trust
providing Employee Benefits (except as provided in Section 1(a)),
which rights will be governed by the terms thereof.
2. Severance Benefits. (a) If, following the occurrence
of a Change in Control, the Trust terminates the Executive's
employment during the Severance Period other than pursuant to
Section 1(a), or if the Executive terminates the Executive's
employment pursuant to Section 1(b), the Trust will pay to the
Executive the Severance Benefit (as defined below) in immediately
available funds, in United States Dollars, within five business
days after the Termination Date. In addition, for the remainder
of the Severance Period, but in no event for less than one year,
the Trust will arrange to provide the Executive Employee Benefits
that are welfare benefits (but not stock option, stock purchase,
stock appreciation, or similar compensatory benefits)
substantially similar to those which the Executive was receiving
or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination,
or denial described in Section 1(b)(ii)), except that the level
of any such Employee Benefits to be provided to the Executive may
be reduced in the event of a corresponding reduction applicable
generally to all recipients of or participants in such Employee
Benefits, and the Severance Period will be considered service
with the Trust for the purpose of determining service credits and
benefits due and payable to the Executive under the Trust's
retirement income, supplemental executive retirement, and other
benefit plans of the Trust applicable to the Executive, the
Executive's dependents, or the Executive's beneficiaries
immediately prior to the Termination Date. If and to the extent
that any benefit described in the immediately preceding sentence
is not or cannot be paid or provided under any policy, plan,
program or arrangement of the Trust then the Trust will itself
pay or provide for the payment of such Employee Benefits to the
Executive, and, if applicable, the Executive's dependents and
beneficiaries. Without otherwise limiting the purposes or effect
of Section 3, Employee Benefits otherwise receivable by the
Executive pursuant to this Section 2(a) will be reduced to the
extent comparable welfare benefits are actually received by the
Executive from another employer during the Severance Period
following the Executive's termination date.
( b) The Trust shall have a right of set-off in respect of
any claim, debt or obligation against any payment to or benefit
for the Executive provided for in this Agreement.
(c) Notwithstanding any other provision hereof, the
parties' respective rights and obligations under this Section 2
and under Section 5 will survive any termination or expiration of
this Agreement following a Change in Control or the termination
of the Executive's employment following a Change in Control for
any reason whatsoever.
3. Mitigation Obligation. Executive will be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment and any profits, income, earnings or
other benefits from any source whatsoever shall serve as a
reduction in the amount of payments to be made by the Trust
hereunder.
4. Certain Additional Payments by the Trust. (a)
Notwithstanding anything in this Agreement to the contrary, in
the event it is determined (as hereafter provided) that any
payment or distribution by the Trust to or for the benefit of the
Executive, whether paid or payable or distributed or
distributable pursuant aid the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (any such
payment or distribution, a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (or any successor provision
thereto), by reason of being considered "contingent on a change
in ownership or control" of the Trust, within the meaning of
Section 280G of the Code (or any successor provision thereto) or
to any similar tax imposed by state or local law, or any interest
or penalties with respect to such tax (such tax or taxes,
together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive
will be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"); provided, however, that no
Gross-up Payment will be made with respect to the Excise Tax, if
any, attributable to (A) any incentive stock option ("ISO")
granted prior to the execution of this Agreement or (B) any stock
appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (A) of this sentence.
The Gross-Up Payment will be in an amount such that, after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any
Excise Tax imposed upon the Gross-Up Payment, the Executive will
have received an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
( b) Subject to the provisions of Section 4(f), all
determinations required to be made under this Section 4,
including whether an Excise Tax is payable by the Executive and
the amount of such Excise Tax and whether a Gross-Up Payment is
required to be paid by the Trust to the Executive and the amount
of such Gross-Up Payment, if any, will be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by
the Executive in the Executive's sole discretion. The Executive
will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Trust and the
Executive within 30 calendar days after the Executive's
termination date, and any such other time or times as may be
requested by the Trust or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the
Trust will pay the required Gross-Up Payment to the Executive
within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If
the Accounting Firm determines that no Excise Tax is payable by
the Executive, it will, at the same time as it makes such
determination, furnish the Trust and the Executive an opinion
that the Executive has substantial authority not to report any
Excise Tax on the Executive's federal, state, or local income or
other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Trust
should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that
the Trust exhausts or fails to pursue its remedies pursuant to
Section 9(f) and the Executive thereafter is required to make a
payment of any Excise Tax, the Executive will direct the
Accounting Firm to determine the amount of the Underpayment that
has occurred and to submit its determination and detailed
supporting calculations to both the Trust and the Executive as
promptly as possible. Any such Underpayment will be promptly
paid by the Trust to, or for the benefit of, the Executive within
five business days after receipt of such determination and
calculations.
(c) The Trust and the Executive will each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Trust or the Executive, as the
case may be, reasonably requested by the Accounting Firm, and
otherwise cooperate with the Accounting Firm in connection with
the preparation and issuance of the determinations and
calculations contemplated by Section 4(b). Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will
be binding upon the Trust and the Executive.
(d) The federal, state and local income or other tax
returns filed by the Executive will be prepared and filed on a
consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Executive. The
Executive will make proper payment of the amount of any Excise
Payment and, at the request of the Trust, provided to the Trust
true and correct copies (with any amendments) of the Executive's
federal income tax return as filed with the Internal Revenue
Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Trust, evidencing
such payment. If prior to the filing of the Executive's federal
income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive will within
five business days pay to the Trust the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 4(b) will be borne by the Trust. If such
fees and expenses are initially paid by the Executive, the Trust
will reimburse the Executive the full amount of such fees and
expenses within five business days after receipt from the
Executive of a statement therefor and reasonable evidence of the
Executive's payment thereof.
(f) The Executive will notify the Trust in writing of any
claim by the Internal Revenue Service or any other taxing
authority that, if successful, would require the payment by the
Trust of a Gross-Up Payment. Such notification will be given as
promptly as practicable but no later than 10 business days after
the Executive actually receives notice of such claim and the
Executive will further apprise the Trust of the nature of such
claim and the date on which such claim is requested to be paid
(in each case, to the extent known by the Executive). The
Executive will not pay such claim prior to the earlier of (i) the
expiration of the 30-calendar day period following the date on
which the Executive gives such notice to the Trust and (ii) the
date that any payment of amount with respect to such claim is
due. If the Trust notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim,
the Executive will:
(A) provide the Trust with any written records or
documents in the Executive's possession relating to such claim
reasonably requested by the Trust;
(B) take such action in connection with
contesting such claim as the Trust may reasonably request in
writing from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Trust;
(C) cooperate with the Trust in good faith in
order effectively to contest such claim; and
(D) permit the Trust to participate in any
proceedings relating to such claims;
provided, however, that the Trust will bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and will indemnify and
hold harmless the Executive, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 4(f), the Trust
will control all proceedings taken in connection with the contest
of any claim contemplated by this Section 4(f) and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim (provided, however, that the Executive
may participate therein at the Executive's own cost and expense)
and may, at its option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive will prosecute such contest
to a determination before any administrative tribunal, in a court
of initial jurisdiction, and in one or more appellate courts, as
the Trust may determine; provided, however, that if the Trust
directs the Executive to pay the tax claimed and sue for a
refund, the Trust will advance the amount of such payment to the
Executive on an interest-free basis and will indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise
Tax or income or other tax, including interest or penalties with
respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount.
The Trust's control of any such contested claim will be limited
to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive will be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Trust pursuant to Section 4(f), the Executive
receives any refund with respect to such claim, the Executive
will (subject to the Trust's complying with the requirements of
Section 4(f)) pay to the Trust the amount of such refund
(together with any interest paid or credited thereon after any
taxes applicable thereto) within 30 calendar days after such
receipt and the Trust's satisfaction of all accrued obligations
under this Agreement. If, after the receipt by the Executive of
any amount advanced by the Trust pursuant to Section 4(f), a
determination is made that the Executive will not be entitled to
any refund with respect to such claim and the Trust does not
notify the Executive in writing of its intent to contest such
determination prior to the expiration of 30 calendar days after
such determination, then such advance will be forgiven and will
not be required to be repaid and the amount of any such advance
will offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid by the Trust to the Executive
pursuant to this Section 4.
5. Legal Fees and Expenses; Security. It is the intent of
the Trust that the Executive not be required to incur legal fees
and the related expenses associated with the interpretation,
enforcement or defense of the Executive's rights to compensation
upon a Change in Control by litigation or otherwise because the
cost and expense thereof would substantially detract from the
benefits intended to be extended to the Executive hereunder.
Accordingly, if it should appear to the Executive that the Trust
has failed to comply with any of its obligations under this
Agreement or in the event that the Trust or any other person
takes or threatens to take any action to declare the agreement to
pay Executive compensation upon a Change in Control void or
unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive
the benefits provided or intended to be provided to the Executive
hereunder, the Trust irrevocably authorizes the Executive from
time to time to retain counsel of the Executive's choice, at the
expense of the Trust as hereinafter provided, to advise and
represent the Executive in connection with any such
interpretation, enforcement or defense, including without
limitation the initiation or defense of any litigation or other
legal action, whether by or against the Trust or any Trust
Manager, officer, stockholder, or other person affiliated with
the Trust, in any jurisdiction. Notwithstanding any existing or
prior attorney-client relationship between the Trust and such
counsel, the Trust irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel,
and in that connection the Trust and the Executive agree that a
confidential relationship will exist between the Executive and
such counsel. Without regard to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the
Trust will pay and be solely financially responsible for any and
all attorneys' and related fees and expenses incurred by the
Executive in connection with any of the foregoing.
6. Employment Rights; Termination Prior to Change in
Control. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Trust or the
Executive to have the Executive remain in the employ of the Trust
prior to or following any Change in Control. Any termination of
the employment of the Executive or the removal of the Executive
from any office or position in the Trust following the
commencement of any discussion with a third person that results
in a Change in Control within 180 calendar days after such
termination or removal will be deemed to be a termination or
removal of the Executive after a Change in Control for purposes
of this Agreement.
7. Certain Defined Terms. In addition to terms defined
elsewhere herein, the following terms have the following meanings
when used herein with initial capital letters:
(a) "Change in Control" means the occurrence during the
term of this Agreement of any of the following events:
(i) the Trust is merged, consolidated, or
reorganized into or with another corporation or other legal
entity, and as a result of such merger, consolidation or
reorganization less than a majority of the combined voting power
of the then-outstanding securities of such corporation or entity
immediately after such transaction are held in the aggregate by
the holders of the then-outstanding securities entitled to vote
generally in the election of Trust Managers of the Trust (the
"Voting Stock") immediately prior to such transaction;
(ii) the Trust sells or otherwise transfers all or
substantially all of its assets to another corporation or other
legal entity and, as a result of such sale or transfer, less than
a majority of the combined voting power of the then-outstanding
securities of such other corporation or entity immediately after
such sale or transfer is held in the aggregate by the holders of
Voting Stock of the Trust immediately prior to such sale or
transfer;
(iii) there is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report or item
therein), each as promulgated pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any
person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of securities representing over 9.8% of the
combined voting power of the Voting Stock of the Trust or could
become the owner of over 9.8% of the Trust's Common Shares of
Beneficial Interest through the conversion of the Trust's debt or
equity securities;
(iv) the Trust files a report or proxy statement
with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) that
a change in control of the Trust has occurred or will occur in
the future pursuant to any then-existing contract or transaction;
or
(v) if, during any period of two consecutive
years, individuals who at the beginning of any such period
constitute the Trust Managers of the Trust cease for any reason
to constitute at least a majority thereof; provided, however,
that for purposes of this clause (v), each Trust Manager who is
first elected, or first nominated for election by the Trust's
shareholders, by a vote of at least two-thirds of the Trust
Managers of the Trust (or a committee thereof) then still in
office who were Trust Managers of the Trust at the beginning of
any such period will be deemed to have been a Trust Manager of
the Trust at the beginning of such period.
Notwithstanding the foregoing provisions of Section
13(a)(iii) or 13(a)(iv), unless otherwise determined in a
specific case by majority vote of the Board of Trust Managers of
the Trust, a "Change in Control" will not be deemed to have
occurred for purposes of Section 13(a)(iii) or 13(a)(iv) solely
because (A) the Trust, (B) an entity in which the Trust, directly
or indirectly, beneficially owns 50% or more of the voting
securities (a "Subsidiary"), or (C) any employee stock ownership
plan or any other employee benefit plan of the Trust or any
Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule
14D-1, Form 8-K, or Schedule 14A (or any successor schedule,
form, or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of Voting Stock,
whether in excess of 9.8% or otherwise, or because the Trust
reports that a change in control of the Trust has occurred or
will occur in the future by reason of such beneficial ownership.
(b) "Cause" means the following grounds for termination:
(i) any act by Executive of fraud or sexual harassment with
respect to any aspect of the Trust's business; (ii) drug or
alcohol abuse or behavior that impedes Executive's job
performance; (iii) failure by Executive to perform hereunder
after notice of such failure and explanation of such failure of
performance, which is reasonably determined by the Board of Trust
Managers to be materially injurious to the business or interests
of the Trust; (iv) misappropriation of funds or any corporate
opportunity; or (v) conviction of Executive of a crime of moral
turpitude (or a plea of nolo contendere thereto).
(c) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all
employee retirement income and welfare benefit policies, plans,
programs or arrangements in which the Executive is entitled to
participate, including without limitation any stock option, stock
purchase, stock appreciation, savings, pension, supplemental
executive retirement or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or
other life, health, medical/hospital, or other insurance (whether
funded by actual insurance or self-insured by the Trust),
disability, salary continuation, expense reimbursement, and other
employee benefit policies, plans, programs or arrangements that
may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter by the
Trust, providing perquisites, benefits and service credit for
benefits at least as great in the aggregate as are payable
thereunder prior to a Change in Control.
(d) If Executive becomes entitled to Severance Benefits
within one year from the date of the Change in Control, the term
"Severance Benefit" shall mean an amount equal to one times (i)
the Executive's annualized base salary rate as of the date of the
first event constituting a Change in Control or, if higher, (ii)
the Executive's highest base salary received for any year in the
three full calendar years immediately preceding the first event
constituting a Change in Control.
(e) "Severance Period" means the period of time commencing
on the date of an occurrence of each Change in Control and
continuing until the earliest of (i) the expiration of one year
after each occurrence of an event constituting a Change in
Control, (ii) the Executive's death, or (iii) the Executive's
attainment of age 65.
8. Bonus Compensation. (a) The Trust shall pay Executive an
annual incentive bonus (the "annual incentive bonus") for each
calendar year during the term or any renewal of this Agreement,
subject to certain conditions. Such annual incentive bonus, if
any, shall be payable to Executive within 30 days after the end
of each calendar year or as soon as practicable thereafter during
the term or any renewal of this Agreement. Each such annual
incentive bonus shall be calculated as follows: for every
incremental specified increase (the "Increase Multiple") in funds
from operations per share earned by the Trust in each calendar
year during the term or any renewal of this Agreement, Executive
shall receive an additional fixed percentage of Executive's base
salary (the "Bonus Percentage") as incentive bonus compensation
(the "incentive bonus compensation"). In no event, however,
shall such incentive bonus compensation exceed 25% of Executive's
base salary for each such calendar year. For purposes of
calculating annual incentive bonuses, the term "funds from
operations" shall mean net income per share of the Trust
(computed in accordance with generally accepted accounting
principles), excluding financing costs and gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization and other non-cash items. The Increase Multiple and
the Bonus Percentage shall be determined by the Compensation
Committee of the Trust for each calendar year for which an
incentive bonus is calculated, and this Agreement shall be deemed
to be automatically amended and modified to include such Increase
Multiple and Bonus Percentage for the calculation of each annual
incentive bonus payable hereunder. The Increase Multiple and the
Bonus Percentage shall be established by the Compensation
Committee as soon as practicable after the business plan for the
next year is presented to the Board of Trust Managers, but by no
later than December 31 of each year.
( b) In addition to the annual incentive bonus, Executive shall
be entitled to receive an annual achievement bonus ("annual
achievement bonus") of up to 15% of Executive's base salary
during the year in which the annual achievement bonus is awarded.
Executive shall be entitled to receive an annual achievement
bonus each year that the Trust achieves specific targets
established annually by the Compensation Committee of the Trust.
The targets will be established by the Compensation Committee as
soon as practicable after the business plan for the next year is
presented to the Board of Trust Managers, but by no later than
December 31. At such time as the Compensation Committee
establishes the specific targets, it shall set forth in a
committee resolution what percentage of the amount of Executive's
base salary shall be received by Executive as an annual
achievement bonus if the specific targets are achieved. Any
annual achievement bonus payable to Executive shall be paid
within 30 days after the end of the calendar year as to which
such annual achievement bonus relates.
(c) In addition to receiving the annual incentive bonus and
annual achievement bonus, Executive shall be eligible to receive
annually a merit bonus ("merit bonus") at the discretion of the
Compensation Committee. The merit bonus may not exceed 10% of
Executive's base salary for the year in which the merit bonus is
awarded. The Compensation Committee shall determine if Executive
should be awarded a merit bonus based upon (i) an evaluation of
Executive's work by his direct supervisor, and (ii) the
recommendation of the President and Chief Executive Officer of
the Trust. The Compensation Committee shall determine whether
the President and Chief Executive Officer should receive a merit
bonus without being required to review an evaluation or receiving
any recommendations as described above. It is currently
contemplated that any merit bonus will be awarded in December of
each year.
9. Payment of Bonus Compensation. The Trust and Executive
each hereby acknowledge that the employment of Executive is
terminable at the will of either the Trust or Executive without
notice to the other for any reason whatsoever or no reason, and
that this Agreement and the bonus compensation provided for
herein is not intended to and shall not create a presumption of
an employment contract or constitute an express or implied
contract of employment between the Trust and Executive.
Accordingly, Executive acknowledges and agrees that except as
specifically set forth in this Agreement, in the event of the
expiration of this Agreement or the expiration of any renewal
hereof, Executive shall not be entitled to receive, and the Trust
shall not be obligated to pay to Executive, any further bonus
compensation; provided, however, that in the event Executive's
employment is terminated for any reason prior to the expiration
of this Agreement or any renewal hereof, Executive shall be
entitled to receive any previously unpaid bonus payable to
Executive pursuant to Section 8 hereof for each calendar year
during the term of this Agreement, and including the calendar
year in which such termination occurs, prorated for the portion
of such year which elapsed prior to the date such termination
becomes effective. Any and all such payments shall be subject to
deduction and withholding authorized or required by applicable
law.
10. Additional Benefits. Nothing in this Agreement shall
be deemed to render Executive ineligible to (i) participate in
any employee benefit plan of the Trust, including, but not
limited to, any stock option plan of the Trust, or (ii) receive
additional cash or stock or other type of bonuses from the Trust.
11. Term. The term of this Agreement shall be deemed to
commence and be effective as of the date of this Agreement and
shall continue for a three-year term to and including March 13,
1999, unless earlier terminated in accordance with the provisions
hereof. At any time within sixty days of the end of such term or
any renewal term, the parties hereto may renew this Agreement in
writing for additional terms of one year.
12. Termination. Except with respect to the provisions of
this Agreement that provide for payments to be made to Executive
after termination of employment, this Agreement shall terminate
automatically without further action by either of the parties
hereto upon the death or permanent disability of Executive or the
termination of Executive's employment with the Trust for any
reason or no reason, in accordance with Executive's status as an
employee at will. As used herein, the term "permanent
disability" means physical or mental disability or both that is
determined by the Trust, in its sole discretion, to substantially
impair the ability of Executive to perform the day-to-day
functions normally performed by Executive if the disability is
suffered (or is reasonably expected to be suffered) by Executive
for a period of not less than six consecutive calendar months.
Notwithstanding the foregoing, Executive (or his estate, heirs or
personal representatives, as applicable) shall be entitled to
receive accrued bonus compensation as set forth in Section 9
hereof, but shall not be entitled to severance compensation
except to the extent that a Change in Control of the Trust occurs
179 days or less prior to the termination of this Agreement.
13. Representation by Executive. Executive hereby
represents and warrants to the Trust that there are no agreements
or understandings that would make unlawful his execution or
delivery of this Agreement.
14. Notices. All notices, renewals and other
communications required or permitted under this Agreement must be
in writing and shall be deemed to have been given if delivered or
mailed, by certified mail, first class postage prepaid, to the
parties at the addresses set forth in this Agreement, as the same
may be changed in writing by the parties from time to time.
15. Entire Agreement. The parties expressly agree that
this Agreement is contractual in nature and not a mere recital,
and that it contains all the terms and conditions of the
agreement between the parties with respect to the matters set
forth herein. All prior negotiations, agreements, arrangements,
understandings and statements between the parties relating to the
matters set forth herein that have occurred at any time or
contemporaneously with the execution of this Agreement are
superseded and merged into this completely integrated Agreement.
The Recitals set forth above shall be deemed to be part of this
Agreement.
16. Governing Law. This Agreement was negotiated and is
performable in Dallas County, Texas and shall be governed by the
laws of the State of Texas without giving effect to principles of
conflicts of law.
17. Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or
future law, such provisions shall be fully severable, and this
Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part
hereof, the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance
herefrom, and in lieu of such provision, there shall be added
automatically as a part of this Agreement, a legal, valid and
enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the
Trust and Executive hereby request the court or any arbitrator to
whom disputes relating to this Agreement are submitted to reform
the otherwise unenforceable covenant in accordance with the
proceeding provision.
18. Counterparts. This Agreement may be executed in
multiple identical counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute but
one and the same instrument. In making proof of this Agreement,
it shall not be necessary to produce or account for more than one
counterpart executed by the party sought to be charged with
performance hereunder.
19. Assignment and Delegation. All rights, covenants and
agreements of the Trust set forth in this Agreement shall, unless
otherwise provided herein, be binding upon and inure to the
benefit of the Trust's respective successors and assigns. All
rights, covenants and agreements of Executive set forth in this
Agreement shall, unless otherwise provided herein, not be
assignable by Executive, and shall be considered personal to
Executive for all purposes.
IN WITNESS WHEREOF, the undersigned have executed and
delivered this Agreement as of the date first set forth above.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ Marc A. Simpson
Marc A. Simpson
Vice President and Chief Financial Officer
Notice Address: 6220 North Beltline
Suite 205
Irving, Texas 75063-2656
EXECUTIVE:
/s/ Charles W. Wolcott
Notice Address: 3832 Hanover
Dallas, TX 75225
BONUS AND SEVERANCE AGREEMENT
This Bonus and Severance Agreement (this "Agreement") is
made and entered into as of this 13th day of March, 1996, by and
between American Industrial Properties REIT, a Texas real estate
investment trust (the "Trust") and Marc A. Simpson
("Executive").
RECITALS
WHEREAS, Executive is currently employed by the Trust as
Vice President and Chief Financial Officer;
WHEREAS, to encourage Executive to remain employed with the
Trust, the Trust desires to provide Executive with an opportunity
for incentive bonus compensation and certain severance
compensation in the event of a Change in Control (as defined
below) of the Trust on the terms and conditions set forth herein;
WHEREAS, the Trust and Employee each recognize and hereby
acknowledge that Executive's employment with the Trust is and
shall continue to be terminable at will, without prior notice, by
either the Trust or Executive; and
WHEREAS, the Trust and Executive each hereby acknowledge
that this Agreement is not intended to be, and shall not be
construed as, an express or implied contract of employment
between the Trust and Executive;
NOW, THEREFORE, for and in consideration of the mutual
promises hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Trust and Executive
hereby agree as follows:
AGREEMENTS
1. Termination Following a Change in Control. (a) In the
event of the occurrence of a Change in Control, the Executive's
employment may be terminated by the Trust during the Severance
Period (as defined below) without the Executive becoming entitled
to the benefits provided by Section 2 only upon the occurrence
of: (i) the Executive's death; or (ii) Cause (as defined below).
If the Executive's employment is terminated by the Trust during
the Severance Period, other than pursuant to Section 1(a)(i), or
1(a)(ii), the Executive will be entitled to the benefits provided
by Section 2.
(b) On or after the occurrence during the Severance Period
of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for
termination exists or has occurred, including without limitation
the Executive's acceptance and/or commencement of other
employment), the Executive may terminate his employment with the
Trust and become entitled to the benefits provided by Section 2:
(i) failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the Trust
which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Trust Manager of
the Trust (or any successor thereto) if the Executive had been a
Trust Manager of the Trust immediately prior to the Change in
Control;
(ii) a significant adverse change in the nature or
scope of the authorities, powers, functions, responsibilities or
duties attached to the position with the Trust which the
Executive held immediately prior to the Change in Control, a
reduction in the aggregate of the Executive's base pay and
incentive pay received from the Trust, or the termination or
denial of the Executive's rights to Employee Benefits (as defined
below) or a reduction in the scope or value thereof, except for
any such termination or denial, or reduction in the scope of
value, of any Employee Benefits applicable generally to all
recipients of or participants in such Employee Benefits;
(iii) the determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all events
will be presumed to have been made in good faith unless otherwise
shown by the Trust by clear and convincing evidence) that a
change in circumstances has occurred following a Change in
Control, including without limitation a change in the scope of
the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has
rendered the Executive substantially unable aid carry out, has
substantially hindered the Executive's performance of, or has
caused the Executive to suffer a substantial reduction in, any of
the authorities, powers, functions, responsibilities, or duties
attached to the position held by the Executive immediately prior
to the Change in Control, which situation is not remedied within
five calendar days after written notice to the Trust from the
Executive of such determination;
(iv) the liquidation, dissolution, merger,
consolidation, or reorganization of the Trust or transfer of all
or substantially all of its business and/or assets, unless the
successor or successors (by liquidation, merger, consolidation,
reorganization, transfer or otherwise) to which all or
substantially all of the Trust's business and/or assets have been
transferred (directly or by operation of law) assumes all duties
and obligations of the Trust under this Agreement;
(v) the Trust relocates its principal executive
offices, or requires the Executive to have the Executive's
principal location of work changed, to any location which is in
excess of 25 miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel away
from the Executive's office in the course of discharging the
Executive's responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of the Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, the Executive's prior written consent;
and/or
(vi) without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Trust or
any successor thereto.
(c) A termination by the Trust pursuant to Section 1(a) or
by the Executive pursuant to Section 1(b) will not affect any
rights which the Executive may have pursuant to any other
agreement, policy, plan, program or arrangement of the Trust
providing Employee Benefits (except as provided in Section 1(a)),
which rights will be governed by the terms thereof.
2. Severance Benefits. (a) If, following the occurrence
of a Change in Control, the Trust terminates the Executive's
employment during the Severance Period other than pursuant to
Section 1(a), or if the Executive terminates the Executive's
employment pursuant to Section 1(b), the Trust will pay to the
Executive the Severance Benefit (as defined below) in immediately
available funds, in United States Dollars, within five business
days after the Termination Date. In addition, for the remainder
of the Severance Period, but in no event for less than one year,
the Trust will arrange to provide the Executive Employee Benefits
that are welfare benefits (but not stock option, stock purchase,
stock appreciation, or similar compensatory benefits)
substantially similar to those which the Executive was receiving
or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination,
or denial described in Section 1(b)(ii)), except that the level
of any such Employee Benefits to be provided to the Executive may
be reduced in the event of a corresponding reduction applicable
generally to all recipients of or participants in such Employee
Benefits, and the Severance Period will be considered service
with the Trust for the purpose of determining service credits and
benefits due and payable to the Executive under the Trust's
retirement income, supplemental executive retirement, and other
benefit plans of the Trust applicable to the Executive, the
Executive's dependents, or the Executive's beneficiaries
immediately prior to the Termination Date. If and to the extent
that any benefit described in the immediately preceding sentence
is not or cannot be paid or provided under any policy, plan,
program or arrangement of the Trust then the Trust will itself
pay or provide for the payment of such Employee Benefits to the
Executive, and, if applicable, the Executive's dependents and
beneficiaries. Without otherwise limiting the purposes or effect
of Section 3, Employee Benefits otherwise receivable by the
Executive pursuant to this Section 2(a) will be reduced to the
extent comparable welfare benefits are actually received by the
Executive from another employer during the Severance Period
following the Executive's termination date.
( b) The Trust shall have a right of set-off in respect of
any claim, debt or obligation against any payment to or benefit
for the Executive provided for in this Agreement.
(c) Notwithstanding any other provision hereof, the
parties' respective rights and obligations under this Section 2
and under Section 5 will survive any termination or expiration of
this Agreement following a Change in Control or the termination
of the Executive's employment following a Change in Control for
any reason whatsoever.
3. Mitigation Obligation. Executive will be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment and any profits, income, earnings or
other benefits from any source whatsoever shall serve as a
reduction in the amount of payments to be made by the Trust
hereunder.
4. Certain Additional Payments by the Trust. (a)
Notwithstanding anything in this Agreement to the contrary, in
the event it is determined (as hereafter provided) that any
payment or distribution by the Trust to or for the benefit of the
Executive, whether paid or payable or distributed or
distributable pursuant aid the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (any such
payment or distribution, a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (or any successor provision
thereto), by reason of being considered "contingent on a change
in ownership or control" of the Trust, within the meaning of
Section 280G of the Code (or any successor provision thereto) or
to any similar tax imposed by state or local law, or any interest
or penalties with respect to such tax (such tax or taxes,
together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive
will be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"); provided, however, that no
Gross-up Payment will be made with respect to the Excise Tax, if
any, attributable to (A) any incentive stock option ("ISO")
granted prior to the execution of this Agreement or (B) any stock
appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (A) of this sentence.
The Gross-Up Payment will be in an amount such that, after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any
Excise Tax imposed upon the Gross-Up Payment, the Executive will
have received an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
( b) Subject to the provisions of Section 4(f), all
determinations required to be made under this Section 4,
including whether an Excise Tax is payable by the Executive and
the amount of such Excise Tax and whether a Gross-Up Payment is
required to be paid by the Trust to the Executive and the amount
of such Gross-Up Payment, if any, will be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by
the Executive in the Executive's sole discretion. The Executive
will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Trust and the
Executive within 30 calendar days after the Executive's
termination date, and any such other time or times as may be
requested by the Trust or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the
Trust will pay the required Gross-Up Payment to the Executive
within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If
the Accounting Firm determines that no Excise Tax is payable by
the Executive, it will, at the same time as it makes such
determination, furnish the Trust and the Executive an opinion
that the Executive has substantial authority not to report any
Excise Tax on the Executive's federal, state, or local income or
other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Trust
should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that
the Trust exhausts or fails to pursue its remedies pursuant to
Section 9(f) and the Executive thereafter is required to make a
payment of any Excise Tax, the Executive will direct the
Accounting Firm to determine the amount of the Underpayment that
has occurred and to submit its determination and detailed
supporting calculations to both the Trust and the Executive as
promptly as possible. Any such Underpayment will be promptly
paid by the Trust to, or for the benefit of, the Executive within
five business days after receipt of such determination and
calculations.
(c) The Trust and the Executive will each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Trust or the Executive, as the
case may be, reasonably requested by the Accounting Firm, and
otherwise cooperate with the Accounting Firm in connection with
the preparation and issuance of the determinations and
calculations contemplated by Section 4(b). Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will
be binding upon the Trust and the Executive.
(d) The federal, state and local income or other tax
returns filed by the Executive will be prepared and filed on a
consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Executive. The
Executive will make proper payment of the amount of any Excise
Payment and, at the request of the Trust, provided to the Trust
true and correct copies (with any amendments) of the Executive's
federal income tax return as filed with the Internal Revenue
Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Trust, evidencing
such payment. If prior to the filing of the Executive's federal
income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive will within
five business days pay to the Trust the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 4(b) will be borne by the Trust. If such
fees and expenses are initially paid by the Executive, the Trust
will reimburse the Executive the full amount of such fees and
expenses within five business days after receipt from the
Executive of a statement therefor and reasonable evidence of the
Executive's payment thereof.
(f) The Executive will notify the Trust in writing of any
claim by the Internal Revenue Service or any other taxing
authority that, if successful, would require the payment by the
Trust of a Gross-Up Payment. Such notification will be given as
promptly as practicable but no later than 10 business days after
the Executive actually receives notice of such claim and the
Executive will further apprise the Trust of the nature of such
claim and the date on which such claim is requested to be paid
(in each case, to the extent known by the Executive). The
Executive will not pay such claim prior to the earlier of (i) the
expiration of the 30-calendar day period following the date on
which the Executive gives such notice to the Trust and (ii) the
date that any payment of amount with respect to such claim is
due. If the Trust notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim,
the Executive will:
(A) provide the Trust with any written records or
documents in the Executive's possession relating to such claim
reasonably requested by the Trust;
(B) take such action in connection with
contesting such claim as the Trust may reasonably request in
writing from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Trust;
(C) cooperate with the Trust in good faith in
order effectively to contest such claim; and
(D) permit the Trust to participate in any
proceedings relating to such claims;
provided, however, that the Trust will bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and will indemnify and
hold harmless the Executive, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 4(f), the Trust
will control all proceedings taken in connection with the contest
of any claim contemplated by this Section 4(f) and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim (provided, however, that the Executive
may participate therein at the Executive's own cost and expense)
and may, at its option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive will prosecute such contest
to a determination before any administrative tribunal, in a court
of initial jurisdiction, and in one or more appellate courts, as
the Trust may determine; provided, however, that if the Trust
directs the Executive to pay the tax claimed and sue for a
refund, the Trust will advance the amount of such payment to the
Executive on an interest-free basis and will indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise
Tax or income or other tax, including interest or penalties with
respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount.
The Trust's control of any such contested claim will be limited
to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive will be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Trust pursuant to Section 4(f), the Executive
receives any refund with respect to such claim, the Executive
will (subject to the Trust's complying with the requirements of
Section 4(f)) pay to the Trust the amount of such refund
(together with any interest paid or credited thereon after any
taxes applicable thereto) within 30 calendar days after such
receipt and the Trust's satisfaction of all accrued obligations
under this Agreement. If, after the receipt by the Executive of
any amount advanced by the Trust pursuant to Section 4(f), a
determination is made that the Executive will not be entitled to
any refund with respect to such claim and the Trust does not
notify the Executive in writing of its intent to contest such
determination prior to the expiration of 30 calendar days after
such determination, then such advance will be forgiven and will
not be required to be repaid and the amount of any such advance
will offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid by the Trust to the Executive
pursuant to this Section 4.
5. Legal Fees and Expenses; Security. It is the intent of
the Trust that the Executive not be required to incur legal fees
and the related expenses associated with the interpretation,
enforcement or defense of the Executive's rights to compensation
upon a Change in Control by litigation or otherwise because the
cost and expense thereof would substantially detract from the
benefits intended to be extended to the Executive hereunder.
Accordingly, if it should appear to the Executive that the Trust
has failed to comply with any of its obligations under this
Agreement or in the event that the Trust or any other person
takes or threatens to take any action to declare the agreement to
pay Executive compensation upon a Change in Control void or
unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive
the benefits provided or intended to be provided to the Executive
hereunder, the Trust irrevocably authorizes the Executive from
time to time to retain counsel of the Executive's choice, at the
expense of the Trust as hereinafter provided, to advise and
represent the Executive in connection with any such
interpretation, enforcement or defense, including without
limitation the initiation or defense of any litigation or other
legal action, whether by or against the Trust or any Trust
Manager, officer, stockholder, or other person affiliated with
the Trust, in any jurisdiction. Notwithstanding any existing or
prior attorney-client relationship between the Trust and such
counsel, the Trust irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel,
and in that connection the Trust and the Executive agree that a
confidential relationship will exist between the Executive and
such counsel. Without regard to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the
Trust will pay and be solely financially responsible for any and
all attorneys' and related fees and expenses incurred by the
Executive in connection with any of the foregoing.
6. Employment Rights; Termination Prior to Change in
Control. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Trust or the
Executive to have the Executive remain in the employ of the Trust
prior to or following any Change in Control. Any termination of
the employment of the Executive or the removal of the Executive
from any office or position in the Trust following the
commencement of any discussion with a third person that results
in a Change in Control within 180 calendar days after such
termination or removal will be deemed to be a termination or
removal of the Executive after a Change in Control for purposes
of this Agreement.
7. Certain Defined Terms. In addition to terms defined
elsewhere herein, the following terms have the following meanings
when used herein with initial capital letters:
(a) "Change in Control" means the occurrence during the
term of this Agreement of any of the following events:
(i) the Trust is merged, consolidated, or
reorganized into or with another corporation or other legal
entity, and as a result of such merger, consolidation or
reorganization less than a majority of the combined voting power
of the then-outstanding securities of such corporation or entity
immediately after such transaction are held in the aggregate by
the holders of the then-outstanding securities entitled to vote
generally in the election of Trust Managers of the Trust (the
"Voting Stock") immediately prior to such transaction;
(ii) the Trust sells or otherwise transfers all or
substantially all of its assets to another corporation or other
legal entity and, as a result of such sale or transfer, less than
a majority of the combined voting power of the then-outstanding
securities of such other corporation or entity immediately after
such sale or transfer is held in the aggregate by the holders of
Voting Stock of the Trust immediately prior to such sale or
transfer;
(iii) there is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report or item
therein), each as promulgated pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any
person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of securities representing over 9.8% of the
combined voting power of the Voting Stock of the Trust or could
become the owner of over 9.8% of the Trust's Common Shares of
Beneficial Interest through the conversion of the Trust's debt or
equity securities;
(iv) the Trust files a report or proxy statement
with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) that
a change in control of the Trust has occurred or will occur in
the future pursuant to any then-existing contract or transaction;
or
(v) if, during any period of two consecutive
years, individuals who at the beginning of any such period
constitute the Trust Managers of the Trust cease for any reason
to constitute at least a majority thereof; provided, however,
that for purposes of this clause (v), each Trust Manager who is
first elected, or first nominated for election by the Trust's
shareholders, by a vote of at least two-thirds of the Trust
Managers of the Trust (or a committee thereof) then still in
office who were Trust Managers of the Trust at the beginning of
any such period will be deemed to have been a Trust Manager of
the Trust at the beginning of such period.
Notwithstanding the foregoing provisions of Section
13(a)(iii) or 13(a)(iv), unless otherwise determined in a
specific case by majority vote of the Board of Trust Managers of
the Trust, a "Change in Control" will not be deemed to have
occurred for purposes of Section 13(a)(iii) or 13(a)(iv) solely
because (A) the Trust, (B) an entity in which the Trust, directly
or indirectly, beneficially owns 50% or more of the voting
securities (a "Subsidiary"), or (C) any employee stock ownership
plan or any other employee benefit plan of the Trust or any
Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule
14D-1, Form 8-K, or Schedule 14A (or any successor schedule,
form, or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of Voting Stock,
whether in excess of 9.8% or otherwise, or because the Trust
reports that a change in control of the Trust has occurred or
will occur in the future by reason of such beneficial ownership.
(b) "Cause" means the following grounds for termination:
(i) any act by Executive of fraud or sexual harassment with
respect to any aspect of the Trust's business; (ii) drug or
alcohol abuse or behavior that impedes Executive's job
performance; (iii) failure by Executive to perform hereunder
after notice of such failure and explanation of such failure of
performance, which is reasonably determined by the Board of Trust
Managers to be materially injurious to the business or interests
of the Trust; (iv) misappropriation of funds or any corporate
opportunity; or (v) conviction of Executive of a crime of moral
turpitude (or a plea of nolo contendere thereto).
(c) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all
employee retirement income and welfare benefit policies, plans,
programs or arrangements in which the Executive is entitled to
participate, including without limitation any stock option, stock
purchase, stock appreciation, savings, pension, supplemental
executive retirement or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or
other life, health, medical/hospital, or other insurance (whether
funded by actual insurance or self-insured by the Trust),
disability, salary continuation, expense reimbursement, and other
employee benefit policies, plans, programs or arrangements that
may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter by the
Trust, providing perquisites, benefits and service credit for
benefits at least as great in the aggregate as are payable
thereunder prior to a Change in Control.
(d) If Executive becomes entitled to Severance Benefits
within one year from the date of the Change in Control, the term
"Severance Benefit" shall mean an amount equal to one times (i)
the Executive's annualized base salary rate as of the date of the
first event constituting a Change in Control or, if higher, (ii)
the Executive's highest base salary received for any year in the
three full calendar years immediately preceding the first event
constituting a Change in Control.
(e) "Severance Period" means the period of time commencing
on the date of an occurrence of each Change in Control and
continuing until the earliest of (i) the expiration of one year
after each occurrence of an event constituting a Change in
Control, (ii) the Executive's death, or (iii) the Executive's
attainment of age 65.
8. Bonus Compensation. (a) The Trust shall pay Executive an
annual incentive bonus (the "annual incentive bonus") for each
calendar year during the term or any renewal of this Agreement,
subject to certain conditions. Such annual incentive bonus, if
any, shall be payable to Executive within 30 days after the end
of each calendar year or as soon as practicable thereafter during
the term or any renewal of this Agreement. Each such annual
incentive bonus shall be calculated as follows: for every
incremental specified increase (the "Increase Multiple") in funds
from operations per share earned by the Trust in each calendar
year during the term or any renewal of this Agreement, Executive
shall receive an additional fixed percentage of Executive's base
salary (the "Bonus Percentage") as incentive bonus compensation
(the "incentive bonus compensation"). In no event, however,
shall such incentive bonus compensation exceed 25% of Executive's
base salary for each such calendar year. For purposes of
calculating annual incentive bonuses, the term "funds from
operations" shall mean net income per share of the Trust
(computed in accordance with generally accepted accounting
principles), excluding financing costs and gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization and other non-cash items. The Increase Multiple and
the Bonus Percentage shall be determined by the Compensation
Committee of the Trust for each calendar year for which an
incentive bonus is calculated, and this Agreement shall be deemed
to be automatically amended and modified to include such Increase
Multiple and Bonus Percentage for the calculation of each annual
incentive bonus payable hereunder. The Increase Multiple and the
Bonus Percentage shall be established by the Compensation
Committee as soon as practicable after the business plan for the
next year is presented to the Board of Trust Managers, but by no
later than December 31 of each year.
( b) In addition to the annual incentive bonus, Executive shall
be entitled to receive an annual achievement bonus ("annual
achievement bonus") of up to 15% of Executive's base salary
during the year in which the annual achievement bonus is awarded.
Executive shall be entitled to receive an annual achievement
bonus each year that the Trust achieves specific targets
established annually by the Compensation Committee of the Trust.
The targets will be established by the Compensation Committee as
soon as practicable after the business plan for the next year is
presented to the Board of Trust Managers, but by no later than
December 31. At such time as the Compensation Committee
establishes the specific targets, it shall set forth in a
committee resolution what percentage of the amount of Executive's
base salary shall be received by Executive as an annual
achievement bonus if the specific targets are achieved. Any
annual achievement bonus payable to Executive shall be paid
within 30 days after the end of the calendar year as to which
such annual achievement bonus relates.
(c) In addition to receiving the annual incentive bonus and
annual achievement bonus, Executive shall be eligible to receive
annually a merit bonus ("merit bonus") at the discretion of the
Compensation Committee. The merit bonus may not exceed 10% of
Executive's base salary for the year in which the merit bonus is
awarded. The Compensation Committee shall determine if Executive
should be awarded a merit bonus based upon (i) an evaluation of
Executive's work by his direct supervisor, and (ii) the
recommendation of the President and Chief Executive Officer of
the Trust. The Compensation Committee shall determine whether
the President and Chief Executive Officer should receive a merit
bonus without being required to review an evaluation or receiving
any recommendations as described above. It is currently
contemplated that any merit bonus will be awarded in December of
each year.
9. Payment of Bonus Compensation. The Trust and Executive
each hereby acknowledge that the employment of Executive is
terminable at the will of either the Trust or Executive without
notice to the other for any reason whatsoever or no reason, and
that this Agreement and the bonus compensation provided for
herein is not intended to and shall not create a presumption of
an employment contract or constitute an express or implied
contract of employment between the Trust and Executive.
Accordingly, Executive acknowledges and agrees that except as
specifically set forth in this Agreement, in the event of the
expiration of this Agreement or the expiration of any renewal
hereof, Executive shall not be entitled to receive, and the Trust
shall not be obligated to pay to Executive, any further bonus
compensation; provided, however, that in the event Executive's
employment is terminated for any reason prior to the expiration
of this Agreement or any renewal hereof, Executive shall be
entitled to receive any previously unpaid bonus payable to
Executive pursuant to Section 8 hereof for each calendar year
during the term of this Agreement, and including the calendar
year in which such termination occurs, prorated for the portion
of such year which elapsed prior to the date such termination
becomes effective. Any and all such payments shall be subject to
deduction and withholding authorized or required by applicable
law.
10. Additional Benefits. Nothing in this Agreement shall
be deemed to render Executive ineligible to (i) participate in
any employee benefit plan of the Trust, including, but not
limited to, any stock option plan of the Trust, or (ii) receive
additional cash or stock or other type of bonuses from the Trust.
11. Term. The term of this Agreement shall be deemed to
commence and be effective as of the date of this Agreement and
shall continue for a three-year term to and including March 13,
1999, unless earlier terminated in accordance with the provisions
hereof. At any time within sixty days of the end of such term or
any renewal term, the parties hereto may renew this Agreement in
writing for additional terms of one year.
12. Termination. Except with respect to the provisions of
this Agreement that provide for payments to be made to Executive
after termination of employment, this Agreement shall terminate
automatically without further action by either of the parties
hereto upon the death or permanent disability of Executive or the
termination of Executive's employment with the Trust for any
reason or no reason, in accordance with Executive's status as an
employee at will. As used herein, the term "permanent
disability" means physical or mental disability or both that is
determined by the Trust, in its sole discretion, to substantially
impair the ability of Executive to perform the day-to-day
functions normally performed by Executive if the disability is
suffered (or is reasonably expected to be suffered) by Executive
for a period of not less than six consecutive calendar months.
Notwithstanding the foregoing, Executive (or his estate, heirs or
personal representatives, as applicable) shall be entitled to
receive accrued bonus compensation as set forth in Section 9
hereof, but shall not be entitled to severance compensation
except to the extent that a Change in Control of the Trust occurs
179 days or less prior to the termination of this Agreement.
13. Representation by Executive. Executive hereby
represents and warrants to the Trust that there are no agreements
or understandings that would make unlawful his execution or
delivery of this Agreement.
14. Notices. All notices, renewals and other
communications required or permitted under this Agreement must be
in writing and shall be deemed to have been given if delivered or
mailed, by certified mail, first class postage prepaid, to the
parties at the addresses set forth in this Agreement, as the same
may be changed in writing by the parties from time to time.
15. Entire Agreement. The parties expressly agree that
this Agreement is contractual in nature and not a mere recital,
and that it contains all the terms and conditions of the
agreement between the parties with respect to the matters set
forth herein. All prior negotiations, agreements, arrangements,
understandings and statements between the parties relating to the
matters set forth herein that have occurred at any time or
contemporaneously with the execution of this Agreement are
superseded and merged into this completely integrated Agreement.
The Recitals set forth above shall be deemed to be part of this
Agreement.
16. Governing Law. This Agreement was negotiated and is
performable in Dallas County, Texas and shall be governed by the
laws of the State of Texas without giving effect to principles of
conflicts of law.
17. Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or
future law, such provisions shall be fully severable, and this
Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part
hereof, the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance
herefrom, and in lieu of such provision, there shall be added
automatically as a part of this Agreement, a legal, valid and
enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the
Trust and Executive hereby request the court or any arbitrator to
whom disputes relating to this Agreement are submitted to reform
the otherwise unenforceable covenant in accordance with the
proceeding provision.
18. Counterparts. This Agreement may be executed in
multiple identical counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute but
one and the same instrument. In making proof of this Agreement,
it shall not be necessary to produce or account for more than one
counterpart executed by the party sought to be charged with
performance hereunder.
19. Assignment and Delegation. All rights, covenants and
agreements of the Trust set forth in this Agreement shall, unless
otherwise provided herein, be binding upon and inure to the
benefit of the Trust's respective successors and assigns. All
rights, covenants and agreements of Executive set forth in this
Agreement shall, unless otherwise provided herein, not be
assignable by Executive, and shall be considered personal to
Executive for all purposes.
IN WITNESS WHEREOF, the undersigned have executed and
delivered this Agreement as of the date first set forth above.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ Charles W. Wolcott
Charles W. Wolcott
President and Chief Executive Officer
Notice Address: 6220 North Beltline
Suite 205
Irving, Texas 75063-2656
EXECUTIVE:
/s/ Marc A. Simpson
Notice Address: 3308 Ridgecrest
Flower Mound, TX 75028
BONUS AND SEVERANCE AGREEMENT
This Bonus and Severance Agreement (this "Agreement") is
made and entered into as of this 13th day of March, 1996, by and
between American Industrial Properties REIT, a Texas real estate
investment trust (the "Trust") and David B. Warner ("Executive").
RECITALS
WHEREAS, Executive is currently employed by the Trust as
Vice President and Chief Operating Officer;
WHEREAS, to encourage Executive to remain employed with the
Trust, the Trust desires to provide Executive with an opportunity
for incentive bonus compensation and certain severance
compensation in the event of a Change in Control (as defined
below) of the Trust on the terms and conditions set forth herein;
WHEREAS, the Trust and Employee each recognize and hereby
acknowledge that Executive's employment with the Trust is and
shall continue to be terminable at will, without prior notice, by
either the Trust or Executive; and
WHEREAS, the Trust and Executive each hereby acknowledge
that this Agreement is not intended to be, and shall not be
construed as, an express or implied contract of employment
between the Trust and Executive;
NOW, THEREFORE, for and in consideration of the mutual
promises hereinafter contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Trust and Executive
hereby agree as follows:
AGREEMENTS
1. Termination Following a Change in Control. (a) In the
event of the occurrence of a Change in Control, the Executive's
employment may be terminated by the Trust during the Severance
Period (as defined below) without the Executive becoming entitled
to the benefits provided by Section 2 only upon the occurrence
of: (i) the Executive's death; or (ii) Cause (as defined below).
If the Executive's employment is terminated by the Trust during
the Severance Period, other than pursuant to Section 1(a)(i), or
1(a)(ii), the Executive will be entitled to the benefits provided
by Section 2.
(b) On or after the occurrence during the Severance Period
of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for
termination exists or has occurred, including without limitation
the Executive's acceptance and/or commencement of other
employment), the Executive may terminate his employment with the
Trust and become entitled to the benefits provided by Section 2:
(i) failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the Trust
which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Trust Manager of
the Trust (or any successor thereto) if the Executive had been a
Trust Manager of the Trust immediately prior to the Change in
Control;
(ii) a significant adverse change in the nature or
scope of the authorities, powers, functions, responsibilities or
duties attached to the position with the Trust which the
Executive held immediately prior to the Change in Control, a
reduction in the aggregate of the Executive's base pay and
incentive pay received from the Trust, or the termination or
denial of the Executive's rights to Employee Benefits (as defined
below) or a reduction in the scope or value thereof, except for
any such termination or denial, or reduction in the scope of
value, of any Employee Benefits applicable generally to all
recipients of or participants in such Employee Benefits;
(iii) the determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all events
will be presumed to have been made in good faith unless otherwise
shown by the Trust by clear and convincing evidence) that a
change in circumstances has occurred following a Change in
Control, including without limitation a change in the scope of
the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has
rendered the Executive substantially unable aid carry out, has
substantially hindered the Executive's performance of, or has
caused the Executive to suffer a substantial reduction in, any of
the authorities, powers, functions, responsibilities, or duties
attached to the position held by the Executive immediately prior
to the Change in Control, which situation is not remedied within
five calendar days after written notice to the Trust from the
Executive of such determination;
(iv) the liquidation, dissolution, merger,
consolidation, or reorganization of the Trust or transfer of all
or substantially all of its business and/or assets, unless the
successor or successors (by liquidation, merger, consolidation,
reorganization, transfer or otherwise) to which all or
substantially all of the Trust's business and/or assets have been
transferred (directly or by operation of law) assumes all duties
and obligations of the Trust under this Agreement;
(v) the Trust relocates its principal executive
offices, or requires the Executive to have the Executive's
principal location of work changed, to any location which is in
excess of 25 miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel away
from the Executive's office in the course of discharging the
Executive's responsibilities or duties hereunder at least 20%
more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of the Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, the Executive's prior written consent;
and/or
(vi) without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Trust or
any successor thereto.
(c) A termination by the Trust pursuant to Section 1(a) or
by the Executive pursuant to Section 1(b) will not affect any
rights which the Executive may have pursuant to any other
agreement, policy, plan, program or arrangement of the Trust
providing Employee Benefits (except as provided in Section 1(a)),
which rights will be governed by the terms thereof.
2. Severance Benefits. (a) If, following the occurrence
of a Change in Control, the Trust terminates the Executive's
employment during the Severance Period other than pursuant to
Section 1(a), or if the Executive terminates the Executive's
employment pursuant to Section 1(b), the Trust will pay to the
Executive the Severance Benefit (as defined below) in immediately
available funds, in United States Dollars, within five business
days after the Termination Date. In addition, for the remainder
of the Severance Period, but in no event for less than one year,
the Trust will arrange to provide the Executive Employee Benefits
that are welfare benefits (but not stock option, stock purchase,
stock appreciation, or similar compensatory benefits)
substantially similar to those which the Executive was receiving
or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination,
or denial described in Section 1(b)(ii)), except that the level
of any such Employee Benefits to be provided to the Executive may
be reduced in the event of a corresponding reduction applicable
generally to all recipients of or participants in such Employee
Benefits, and the Severance Period will be considered service
with the Trust for the purpose of determining service credits and
benefits due and payable to the Executive under the Trust's
retirement income, supplemental executive retirement, and other
benefit plans of the Trust applicable to the Executive, the
Executive's dependents, or the Executive's beneficiaries
immediately prior to the Termination Date. If and to the extent
that any benefit described in the immediately preceding sentence
is not or cannot be paid or provided under any policy, plan,
program or arrangement of the Trust then the Trust will itself
pay or provide for the payment of such Employee Benefits to the
Executive, and, if applicable, the Executive's dependents and
beneficiaries. Without otherwise limiting the purposes or effect
of Section 3, Employee Benefits otherwise receivable by the
Executive pursuant to this Section 2(a) will be reduced to the
extent comparable welfare benefits are actually received by the
Executive from another employer during the Severance Period
following the Executive's termination date.
( b) The Trust shall have a right of set-off in respect of
any claim, debt or obligation against any payment to or benefit
for the Executive provided for in this Agreement.
(c) Notwithstanding any other provision hereof, the
parties' respective rights and obligations under this Section 2
and under Section 5 will survive any termination or expiration of
this Agreement following a Change in Control or the termination
of the Executive's employment following a Change in Control for
any reason whatsoever.
3. Mitigation Obligation. Executive will be required to
mitigate the amount of any payment provided for in this Agreement
by seeking other employment and any profits, income, earnings or
other benefits from any source whatsoever shall serve as a
reduction in the amount of payments to be made by the Trust
hereunder.
4. Certain Additional Payments by the Trust. (a)
Notwithstanding anything in this Agreement to the contrary, in
the event it is determined (as hereafter provided) that any
payment or distribution by the Trust to or for the benefit of the
Executive, whether paid or payable or distributed or
distributable pursuant aid the terms of this Agreement or
otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar
right, the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (any such
payment or distribution, a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (or any successor provision
thereto), by reason of being considered "contingent on a change
in ownership or control" of the Trust, within the meaning of
Section 280G of the Code (or any successor provision thereto) or
to any similar tax imposed by state or local law, or any interest
or penalties with respect to such tax (such tax or taxes,
together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive
will be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"); provided, however, that no
Gross-up Payment will be made with respect to the Excise Tax, if
any, attributable to (A) any incentive stock option ("ISO")
granted prior to the execution of this Agreement or (B) any stock
appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (A) of this sentence.
The Gross-Up Payment will be in an amount such that, after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any
Excise Tax imposed upon the Gross-Up Payment, the Executive will
have received an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
( b) Subject to the provisions of Section 4(f), all
determinations required to be made under this Section 4,
including whether an Excise Tax is payable by the Executive and
the amount of such Excise Tax and whether a Gross-Up Payment is
required to be paid by the Trust to the Executive and the amount
of such Gross-Up Payment, if any, will be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by
the Executive in the Executive's sole discretion. The Executive
will direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Trust and the
Executive within 30 calendar days after the Executive's
termination date, and any such other time or times as may be
requested by the Trust or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the
Trust will pay the required Gross-Up Payment to the Executive
within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If
the Accounting Firm determines that no Excise Tax is payable by
the Executive, it will, at the same time as it makes such
determination, furnish the Trust and the Executive an opinion
that the Executive has substantial authority not to report any
Excise Tax on the Executive's federal, state, or local income or
other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any
determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Trust
should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that
the Trust exhausts or fails to pursue its remedies pursuant to
Section 9(f) and the Executive thereafter is required to make a
payment of any Excise Tax, the Executive will direct the
Accounting Firm to determine the amount of the Underpayment that
has occurred and to submit its determination and detailed
supporting calculations to both the Trust and the Executive as
promptly as possible. Any such Underpayment will be promptly
paid by the Trust to, or for the benefit of, the Executive within
five business days after receipt of such determination and
calculations.
(c) The Trust and the Executive will each provide the
Accounting Firm access to and copies of any books, records and
documents in the possession of the Trust or the Executive, as the
case may be, reasonably requested by the Accounting Firm, and
otherwise cooperate with the Accounting Firm in connection with
the preparation and issuance of the determinations and
calculations contemplated by Section 4(b). Any determination by
the Accounting Firm as to the amount of the Gross-Up Payment will
be binding upon the Trust and the Executive.
(d) The federal, state and local income or other tax
returns filed by the Executive will be prepared and filed on a
consistent basis with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Executive. The
Executive will make proper payment of the amount of any Excise
Payment and, at the request of the Trust, provided to the Trust
true and correct copies (with any amendments) of the Executive's
federal income tax return as filed with the Internal Revenue
Service and corresponding state and local tax returns, if
relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Trust, evidencing
such payment. If prior to the filing of the Executive's federal
income tax return, or corresponding state or local tax return, if
relevant, the Accounting Firm determines that the amount of the
Gross-Up Payment should be reduced, the Executive will within
five business days pay to the Trust the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations
contemplated by Section 4(b) will be borne by the Trust. If such
fees and expenses are initially paid by the Executive, the Trust
will reimburse the Executive the full amount of such fees and
expenses within five business days after receipt from the
Executive of a statement therefor and reasonable evidence of the
Executive's payment thereof.
(f) The Executive will notify the Trust in writing of any
claim by the Internal Revenue Service or any other taxing
authority that, if successful, would require the payment by the
Trust of a Gross-Up Payment. Such notification will be given as
promptly as practicable but no later than 10 business days after
the Executive actually receives notice of such claim and the
Executive will further apprise the Trust of the nature of such
claim and the date on which such claim is requested to be paid
(in each case, to the extent known by the Executive). The
Executive will not pay such claim prior to the earlier of (i) the
expiration of the 30-calendar day period following the date on
which the Executive gives such notice to the Trust and (ii) the
date that any payment of amount with respect to such claim is
due. If the Trust notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim,
the Executive will:
(A) provide the Trust with any written records or
documents in the Executive's possession relating to such claim
reasonably requested by the Trust;
(B) take such action in connection with
contesting such claim as the Trust may reasonably request in
writing from time to time, including without limitation accepting
legal representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Trust;
(C) cooperate with the Trust in good faith in
order effectively to contest such claim; and
(D) permit the Trust to participate in any
proceedings relating to such claims;
provided, however, that the Trust will bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and will indemnify and
hold harmless the Executive, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 4(f), the Trust
will control all proceedings taken in connection with the contest
of any claim contemplated by this Section 4(f) and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim (provided, however, that the Executive
may participate therein at the Executive's own cost and expense)
and may, at its option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive will prosecute such contest
to a determination before any administrative tribunal, in a court
of initial jurisdiction, and in one or more appellate courts, as
the Trust may determine; provided, however, that if the Trust
directs the Executive to pay the tax claimed and sue for a
refund, the Trust will advance the amount of such payment to the
Executive on an interest-free basis and will indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise
Tax or income or other tax, including interest or penalties with
respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of
the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount.
The Trust's control of any such contested claim will be limited
to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive will be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Trust pursuant to Section 4(f), the Executive
receives any refund with respect to such claim, the Executive
will (subject to the Trust's complying with the requirements of
Section 4(f)) pay to the Trust the amount of such refund
(together with any interest paid or credited thereon after any
taxes applicable thereto) within 30 calendar days after such
receipt and the Trust's satisfaction of all accrued obligations
under this Agreement. If, after the receipt by the Executive of
any amount advanced by the Trust pursuant to Section 4(f), a
determination is made that the Executive will not be entitled to
any refund with respect to such claim and the Trust does not
notify the Executive in writing of its intent to contest such
determination prior to the expiration of 30 calendar days after
such determination, then such advance will be forgiven and will
not be required to be repaid and the amount of any such advance
will offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid by the Trust to the Executive
pursuant to this Section 4.
5. Legal Fees and Expenses; Security. It is the intent of
the Trust that the Executive not be required to incur legal fees
and the related expenses associated with the interpretation,
enforcement or defense of the Executive's rights to compensation
upon a Change in Control by litigation or otherwise because the
cost and expense thereof would substantially detract from the
benefits intended to be extended to the Executive hereunder.
Accordingly, if it should appear to the Executive that the Trust
has failed to comply with any of its obligations under this
Agreement or in the event that the Trust or any other person
takes or threatens to take any action to declare the agreement to
pay Executive compensation upon a Change in Control void or
unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, the Executive
the benefits provided or intended to be provided to the Executive
hereunder, the Trust irrevocably authorizes the Executive from
time to time to retain counsel of the Executive's choice, at the
expense of the Trust as hereinafter provided, to advise and
represent the Executive in connection with any such
interpretation, enforcement or defense, including without
limitation the initiation or defense of any litigation or other
legal action, whether by or against the Trust or any Trust
Manager, officer, stockholder, or other person affiliated with
the Trust, in any jurisdiction. Notwithstanding any existing or
prior attorney-client relationship between the Trust and such
counsel, the Trust irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel,
and in that connection the Trust and the Executive agree that a
confidential relationship will exist between the Executive and
such counsel. Without regard to whether the Executive prevails,
in whole or in part, in connection with any of the foregoing, the
Trust will pay and be solely financially responsible for any and
all attorneys' and related fees and expenses incurred by the
Executive in connection with any of the foregoing.
6. Employment Rights; Termination Prior to Change in
Control. Nothing expressed or implied in this Agreement will
create any right or duty on the part of the Trust or the
Executive to have the Executive remain in the employ of the Trust
prior to or following any Change in Control. Any termination of
the employment of the Executive or the removal of the Executive
from any office or position in the Trust following the
commencement of any discussion with a third person that results
in a Change in Control within 180 calendar days after such
termination or removal will be deemed to be a termination or
removal of the Executive after a Change in Control for purposes
of this Agreement.
7. Certain Defined Terms. In addition to terms defined
elsewhere herein, the following terms have the following meanings
when used herein with initial capital letters:
(a) "Change in Control" means the occurrence during the
term of this Agreement of any of the following events:
(i) the Trust is merged, consolidated, or
reorganized into or with another corporation or other legal
entity, and as a result of such merger, consolidation or
reorganization less than a majority of the combined voting power
of the then-outstanding securities of such corporation or entity
immediately after such transaction are held in the aggregate by
the holders of the then-outstanding securities entitled to vote
generally in the election of Trust Managers of the Trust (the
"Voting Stock") immediately prior to such transaction;
(ii) the Trust sells or otherwise transfers all or
substantially all of its assets to another corporation or other
legal entity and, as a result of such sale or transfer, less than
a majority of the combined voting power of the then-outstanding
securities of such other corporation or entity immediately after
such sale or transfer is held in the aggregate by the holders of
Voting Stock of the Trust immediately prior to such sale or
transfer;
(iii) there is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report or item
therein), each as promulgated pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any
person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial
owner (as the term "beneficial owner" is defined under Rule 13d-3
or any successor rule or regulation promulgated under the
Exchange Act) of securities representing over 9.8% of the
combined voting power of the Voting Stock of the Trust or could
become the owner of over 9.8% of the Trust's Common Shares of
Beneficial Interest through the conversion of the Trust's debt or
equity securities;
(iv) the Trust files a report or proxy statement
with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) that
a change in control of the Trust has occurred or will occur in
the future pursuant to any then-existing contract or transaction;
or
(v) if, during any period of two consecutive
years, individuals who at the beginning of any such period
constitute the Trust Managers of the Trust cease for any reason
to constitute at least a majority thereof; provided, however,
that for purposes of this clause (v), each Trust Manager who is
first elected, or first nominated for election by the Trust's
shareholders, by a vote of at least two-thirds of the Trust
Managers of the Trust (or a committee thereof) then still in
office who were Trust Managers of the Trust at the beginning of
any such period will be deemed to have been a Trust Manager of
the Trust at the beginning of such period.
Notwithstanding the foregoing provisions of Section
13(a)(iii) or 13(a)(iv), unless otherwise determined in a
specific case by majority vote of the Board of Trust Managers of
the Trust, a "Change in Control" will not be deemed to have
occurred for purposes of Section 13(a)(iii) or 13(a)(iv) solely
because (A) the Trust, (B) an entity in which the Trust, directly
or indirectly, beneficially owns 50% or more of the voting
securities (a "Subsidiary"), or (C) any employee stock ownership
plan or any other employee benefit plan of the Trust or any
Subsidiary either files or becomes obligated to file a report or
a proxy statement under or in response to Schedule 13D, Schedule
14D-1, Form 8-K, or Schedule 14A (or any successor schedule,
form, or report or item therein) under the Exchange Act
disclosing beneficial ownership by it of shares of Voting Stock,
whether in excess of 9.8% or otherwise, or because the Trust
reports that a change in control of the Trust has occurred or
will occur in the future by reason of such beneficial ownership.
(b) "Cause" means the following grounds for termination:
(i) any act by Executive of fraud or sexual harassment with
respect to any aspect of the Trust's business; (ii) drug or
alcohol abuse or behavior that impedes Executive's job
performance; (iii) failure by Executive to perform hereunder
after notice of such failure and explanation of such failure of
performance, which is reasonably determined by the Board of Trust
Managers to be materially injurious to the business or interests
of the Trust; (iv) misappropriation of funds or any corporate
opportunity; or (v) conviction of Executive of a crime of moral
turpitude (or a plea of nolo contendere thereto).
(c) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all
employee retirement income and welfare benefit policies, plans,
programs or arrangements in which the Executive is entitled to
participate, including without limitation any stock option, stock
purchase, stock appreciation, savings, pension, supplemental
executive retirement or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or
other life, health, medical/hospital, or other insurance (whether
funded by actual insurance or self-insured by the Trust),
disability, salary continuation, expense reimbursement, and other
employee benefit policies, plans, programs or arrangements that
may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter by the
Trust, providing perquisites, benefits and service credit for
benefits at least as great in the aggregate as are payable
thereunder prior to a Change in Control.
(d) If Executive becomes entitled to Severance Benefits
within one year from the date of the Change in Control, the term
"Severance Benefit" shall mean an amount equal to one times (i)
the Executive's annualized base salary rate as of the date of the
first event constituting a Change in Control or, if higher, (ii)
the Executive's highest base salary received for any year in the
three full calendar years immediately preceding the first event
constituting a Change in Control.
(e) "Severance Period" means the period of time commencing
on the date of an occurrence of each Change in Control and
continuing until the earliest of (i) the expiration of one year
after each occurrence of an event constituting a Change in
Control, (ii) the Executive's death, or (iii) the Executive's
attainment of age 65.
8. Bonus Compensation. (a) The Trust shall pay Executive an
annual incentive bonus (the "annual incentive bonus") for each
calendar year during the term or any renewal of this Agreement,
subject to certain conditions. Such annual incentive bonus, if
any, shall be payable to Executive within 30 days after the end
of each calendar year or as soon as practicable thereafter during
the term or any renewal of this Agreement. Each such annual
incentive bonus shall be calculated as follows: for every
incremental specified increase (the "Increase Multiple") in funds
from operations per share earned by the Trust in each calendar
year during the term or any renewal of this Agreement, Executive
shall receive an additional fixed percentage of Executive's base
salary (the "Bonus Percentage") as incentive bonus compensation
(the "incentive bonus compensation"). In no event, however,
shall such incentive bonus compensation exceed 25% of Executive's
base salary for each such calendar year. For purposes of
calculating annual incentive bonuses, the term "funds from
operations" shall mean net income per share of the Trust
(computed in accordance with generally accepted accounting
principles), excluding financing costs and gains (or losses) from
debt restructuring and sales of property, plus depreciation and
amortization and other non-cash items. The Increase Multiple and
the Bonus Percentage shall be determined by the Compensation
Committee of the Trust for each calendar year for which an
incentive bonus is calculated, and this Agreement shall be deemed
to be automatically amended and modified to include such Increase
Multiple and Bonus Percentage for the calculation of each annual
incentive bonus payable hereunder. The Increase Multiple and the
Bonus Percentage shall be established by the Compensation
Committee as soon as practicable after the business plan for the
next year is presented to the Board of Trust Managers, but by no
later than December 31 of each year.
( b) In addition to the annual incentive bonus, Executive shall
be entitled to receive an annual achievement bonus ("annual
achievement bonus") of up to 15% of Executive's base salary
during the year in which the annual achievement bonus is awarded.
Executive shall be entitled to receive an annual achievement
bonus each year that the Trust achieves specific targets
established annually by the Compensation Committee of the Trust.
The targets will be established by the Compensation Committee as
soon as practicable after the business plan for the next year is
presented to the Board of Trust Managers, but by no later than
December 31. At such time as the Compensation Committee
establishes the specific targets, it shall set forth in a
committee resolution what percentage of the amount of Executive's
base salary shall be received by Executive as an annual
achievement bonus if the specific targets are achieved. Any
annual achievement bonus payable to Executive shall be paid
within 30 days after the end of the calendar year as to which
such annual achievement bonus relates.
(c) In addition to receiving the annual incentive bonus and
annual achievement bonus, Executive shall be eligible to receive
annually a merit bonus ("merit bonus") at the discretion of the
Compensation Committee. The merit bonus may not exceed 10% of
Executive's base salary for the year in which the merit bonus is
awarded. The Compensation Committee shall determine if Executive
should be awarded a merit bonus based upon (i) an evaluation of
Executive's work by his direct supervisor, and (ii) the
recommendation of the President and Chief Executive Officer of
the Trust. The Compensation Committee shall determine whether
the President and Chief Executive Officer should receive a merit
bonus without being required to review an evaluation or receiving
any recommendations as described above. It is currently
contemplated that any merit bonus will be awarded in December of
each year.
9. Payment of Bonus Compensation. The Trust and Executive
each hereby acknowledge that the employment of Executive is
terminable at the will of either the Trust or Executive without
notice to the other for any reason whatsoever or no reason, and
that this Agreement and the bonus compensation provided for
herein is not intended to and shall not create a presumption of
an employment contract or constitute an express or implied
contract of employment between the Trust and Executive.
Accordingly, Executive acknowledges and agrees that except as
specifically set forth in this Agreement, in the event of the
expiration of this Agreement or the expiration of any renewal
hereof, Executive shall not be entitled to receive, and the Trust
shall not be obligated to pay to Executive, any further bonus
compensation; provided, however, that in the event Executive's
employment is terminated for any reason prior to the expiration
of this Agreement or any renewal hereof, Executive shall be
entitled to receive any previously unpaid bonus payable to
Executive pursuant to Section 8 hereof for each calendar year
during the term of this Agreement, and including the calendar
year in which such termination occurs, prorated for the portion
of such year which elapsed prior to the date such termination
becomes effective. Any and all such payments shall be subject to
deduction and withholding authorized or required by applicable
law.
10. Additional Benefits. Nothing in this Agreement shall
be deemed to render Executive ineligible to (i) participate in
any employee benefit plan of the Trust, including, but not
limited to, any stock option plan of the Trust, or (ii) receive
additional cash or stock or other type of bonuses from the Trust.
11. Term. The term of this Agreement shall be deemed to
commence and be effective as of the date of this Agreement and
shall continue for a three-year term to and including March 13,
1999, unless earlier terminated in accordance with the provisions
hereof. At any time within sixty days of the end of such term or
any renewal term, the parties hereto may renew this Agreement in
writing for additional terms of one year.
12. Termination. Except with respect to the provisions of
this Agreement that provide for payments to be made to Executive
after termination of employment, this Agreement shall terminate
automatically without further action by either of the parties
hereto upon the death or permanent disability of Executive or the
termination of Executive's employment with the Trust for any
reason or no reason, in accordance with Executive's status as an
employee at will. As used herein, the term "permanent
disability" means physical or mental disability or both that is
determined by the Trust, in its sole discretion, to substantially
impair the ability of Executive to perform the day-to-day
functions normally performed by Executive if the disability is
suffered (or is reasonably expected to be suffered) by Executive
for a period of not less than six consecutive calendar months.
Notwithstanding the foregoing, Executive (or his estate, heirs or
personal representatives, as applicable) shall be entitled to
receive accrued bonus compensation as set forth in Section 9
hereof, but shall not be entitled to severance compensation
except to the extent that a Change in Control of the Trust occurs
179 days or less prior to the termination of this Agreement.
13. Representation by Executive. Executive hereby
represents and warrants to the Trust that there are no agreements
or understandings that would make unlawful his execution or
delivery of this Agreement.
14. Notices. All notices, renewals and other
communications required or permitted under this Agreement must be
in writing and shall be deemed to have been given if delivered or
mailed, by certified mail, first class postage prepaid, to the
parties at the addresses set forth in this Agreement, as the same
may be changed in writing by the parties from time to time.
15. Entire Agreement. The parties expressly agree that
this Agreement is contractual in nature and not a mere recital,
and that it contains all the terms and conditions of the
agreement between the parties with respect to the matters set
forth herein. All prior negotiations, agreements, arrangements,
understandings and statements between the parties relating to the
matters set forth herein that have occurred at any time or
contemporaneously with the execution of this Agreement are
superseded and merged into this completely integrated Agreement.
The Recitals set forth above shall be deemed to be part of this
Agreement.
16. Governing Law. This Agreement was negotiated and is
performable in Dallas County, Texas and shall be governed by the
laws of the State of Texas without giving effect to principles of
conflicts of law.
17. Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or
future law, such provisions shall be fully severable, and this
Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part
hereof, the remaining provisions of this Agreement shall remain
in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance
herefrom, and in lieu of such provision, there shall be added
automatically as a part of this Agreement, a legal, valid and
enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the
Trust and Executive hereby request the court or any arbitrator to
whom disputes relating to this Agreement are submitted to reform
the otherwise unenforceable covenant in accordance with the
proceeding provision.
18. Counterparts. This Agreement may be executed in
multiple identical counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute but
one and the same instrument. In making proof of this Agreement,
it shall not be necessary to produce or account for more than one
counterpart executed by the party sought to be charged with
performance hereunder.
19. Assignment and Delegation. All rights, covenants and
agreements of the Trust set forth in this Agreement shall, unless
otherwise provided herein, be binding upon and inure to the
benefit of the Trust's respective successors and assigns. All
rights, covenants and agreements of Executive set forth in this
Agreement shall, unless otherwise provided herein, not be
assignable by Executive, and shall be considered personal to
Executive for all purposes.
IN WITNESS WHEREOF, the undersigned have executed and
delivered this Agreement as of the date first set forth above.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ Charles W. Wolcott
Charles W. Wolcott
President and Chief Executive Officer
Notice Address: 6220 North Beltline
Suite 205
Irving, Texas 75063-2656
EXECUTIVE:
/s/ David B. Warner
Address: 841 Falcon
Coppell, TX 75019
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