UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported):January 30, 1996
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of Registrant as specified in its charter)
Texas 1-9016 75-6335572
State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6220 North Beltline Road, Suite 205
Irving, Texas 75063-2656
(Address of principal executive offices) (Zip code)
(214) 550-6053
(Registrant's telephone number, including area code)
Item 5. Other Events
On January 30, 1996, Paul O. Koether and Pure World, Inc.
("Defendants") filed an answer, counterclaims and a third party
complaint in response to the lawsuit filed by the Trust against
the Defendants on January 8, 1996 alleging fraud and violations
of federal and state securities laws. The third party complaint
was filed against the Trust Managers of the Trust, Charles W.
Wolcott and William H. Bricker. In their filing, Defendants ask,
among other things, 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 Messrs. Bricker and Wolcott.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(c) Exhibits
99.1 Defendant's Answer and Pure World,
Inc.'s Counterclaims and Third Party Complaint and
Jury Demand
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ Charles W. Wolcott
Charles W. Wolcott
President and Chief Executive
Officer
DATE: February 6, 1996
Index to Exhibits
Sequentially
Exhibit No. Description
Numbered Page
*99.1 Defendant's Answer, Counterclaims and
Third Party Complaint 5
____________
* Filed herewith.
IN THE UNITED STATES DISTRICT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
AMERICAN INDUSTRIAL SS
PROPERTIES REIT, SS
SS
Plaintiff, SS
SS Civil Action
V. SS No. 3:96-CV-0068-H
SS (Jury Trial Demanded)
PURE WORLD, INC. and PAUL 0.
KOETHER, SS
SS
Defendants. SS
SS
SS
PURE WORLD, INC., SS
SS
Counter-plaintiff, SS
SS
V. SS
SS
AMERICAN INDUSTRIAL SS
PROPERTIES REIT, SS
SS
Counter-defendant. SS
SS
SS
PURE WORLD, INC.,
individually and on behalf
of AMERICAN INDUSTRIAL SS
PROPERTIES REIT, SS
SS DEFENDANTS', ANSWER AND
Third party plaintiffs, PURE WORLD, INC.'S
SS COUNTERCLAIMS AND
V. SS THIRD PARTY COMPLAINT
SS AND JURY DEMAND
CHARLES W. WOLCOTT and SS
WILLIAM H. BRICKER, SS
SS
Third party defendants.SS
SS
DEFENDANT'S ANSWER AND PURE WORLD, INC.'S
COUNTERCLAIMS AND THIRD PARTY COMPLAINT AND JURY DEMAND
Subject to Defendants' Motion to Strike, filed prior to this
pleading, Defendants Pure World, Inc. ("Pure World') and Paul 0.
Koether file this their original Answer to the Complaint filed
herein by Plaintiff American Industrial properties REIT ("AIP" or
the "Trust"); and pursuant to Rules 13 and 14 of the Federal Rules
of Civil Procedure, Counter-plaintiff and Third Party Plaintiff
Pure World, Inc. files its Counterclaims against AIP and its Third-
party Complaint against Third-Party Defendants Charles W. Wolcott
("Wolcott") and William H. Bricker ("Bricker").
I.
CONTEXT OF THIS DISPUTE
Plaintiff's Complaint casts this action as an attempt by AIP,
a real estate investment trust, to discipline a shareholder for
filing and circulating incomplete disclosure statements and proxy
materials. In fact, it is but another step by AIP's incumbent
Trust Managers, Wolcott and Bricker, to intimidate all
shareholders and further entrench themselves in control of the
Trust, in contravention of law and of AIP's own Declaration of
Trust.
As detailed in Pure World's counterclaims and third-party
complaint, Bricker and Wolcott:
Have presided over a decline in the market price of AIP stock
from $15 per share in 1985 to approximately $2 per share today,
and total losses in excess of $46 million, while voting themselves
hefty increases in compensation;
Have directed AIP through three expensive, energy-draining
and unsuccessful proxy contests since Wolcott became Chief
Executive Officer in 1993;
Have purported unilaterally, without shareholder approval, to
amend the Trust's bylaws at least six different times, in each
case to reduce their own accountability to the Trust's
shareholders or to further entrench themselves in control;
Continue to cling to, and refuse to relinquish, their Trust
Manager positions, even though they have failed to receive the
votes required for re-election in the last two proxy contests; and
By their continuing actions, threaten the viability and
solvency of the Trust.
Pure World, Inc., which now owns approximately 9.785% of
AIP's stock, has been a leader in the effort to restore leadership
and accountability to the Trust for the benefit of all
shareholders. This suit is an attempt by Bricker and Wolcott, in
the name of AIP and with its resources, to intimidate Pure World
and other shareholders and to mask and delay consideration of the
real issues underlying the incumbents' mismanagement of the Trust.
Accordingly, Pure World not only joins Paul Koether in
answering the Complaint, but also brings its counterclaims against
AIP and third-party complaint against Bricker and Wolcott. Pure
World seeks preliminary and permanent injunctive relief to prevent
the imminent collapse of the Trust and restore control to the
Trust's shareholders; and it seeks damages, on behalf of AIP, to
restore to the Trust monies improperly expended by Bricker and
Wolcott for their own compensation and entrenchment.
II.
ANSWER TO NUMBERED PARAGRAPHS OF COMPLAINT
Defendants respond to the numbered paragraphs of the
Complaint as follows:
1. Subject to and without waiving their Motion to Strike,
Defendants admit that Pure World, Inc. is a corporation and that
Paul Koether is its Chairman, President, and largest shareholder,
but aver that Pure World, Inc. is a publicly traded company, is
listed on the NASDAQ exchange, and has approximately five thousand
shareholders. Defendants further admit that AIP has petitioned
this Court for injunctive relief and damages, but deny that
Plaintiff is entitled to such relief. Defendants deny all of the
remaining allegations contained in paragraph 1 of the Complaint.
2. Defendants admit the allegations contained in the first
sentence of paragraph 2 of the Complaint. Defendants are without
knowledge or information sufficient to form a belief as to the
truth of the allegations contained in the second sentence of
paragraph 2 of the Complaint.
3. Defendants admit that Pure World, Inc. is a Delaware
corporation with its principal place of business in New Jersey.
Defendants further admit that Pure World, Inc. occasionally
engages in business in Texas, and that it does not maintain a
regular place of business or designated agent for service of
process in Texas; but Defendants deny that Pure World, Inc.
engages in business "as set forth below" in the Complaint.
Defendants are without knowledge or information sufficient to form
a belief as to the truth of the allegations contained in the third
sentence of paragraph 3 of the Complaint.
4. Defendants admit that Paul Koether is a citizen of New
Jersey, that Mr. Koether occasionally engages in business in
Texas, and that Mr. Koether does not maintain a regular place of
business or designated agent for service of process in Texas, but
deny that Mr. Koether engages in business "as set forth below" in
the Complaint. Defendants are without knowledge or information
sufficient to form a belief as to the truth of the allegations
contained in the third sentence of paragraph 4 of the Complaint.
5. Defendants do not dispute that this Court has subject matter
jurisdiction over this action. Defendants admit that AIP purports
to assert claims arising under the laws of the United States and
that this is an action between citizens of different states. The
remaining allegations contained in paragraph 5 of the Complaint
are legal conclusions to which no response is required. However,
Defendants deny the allegations of paragraph 5 of the Complaint to
the extent they may be deemed to allege that Defendants have
engaged in unlawful or improper conduct.
6. Defendants do not dispute that venue is proper in this
district. Defendants admit that they occasionally transact
business in this district. The remaining allegations contained in
Paragraph 6 of the Complaint are legal conclusions to which no
response is required. However, Defendants deny the allegations of
paragraph 6 of the Complaint to the extent they may be deemed to
constitute allegations that Defendants engaged in unlawful or
improper conduct.
7. Defendants admit that Pure World, Inc. is a corporation and
that Paul Koether is its Chairman, President, and largest
shareholder. Subject to and without waiving their motion to
strike, Defendants deny the remaining allegations contained in
paragraph 7 of the Complaint.
8. Paragraph 8 of the Complaint is subject to a motion to
strike previously filed by Defendants herein. Pursuant to Rule 12
of the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
9. Paragraph 9 of the Complaint is subject to a motion to strike
previously filed by Defendants herein. Pursuant to Rule 12 of
the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
10. Paragraph 10 of the Complaint is subject to a motion to
strike previously filed by Defendants herein. Pursuant to Rule 12
of the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
11. Paragraph 11 of the Complaint is subject to a motion to
strike previously filed by Defendants herein. Pursuant to Rule 12
of the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
12. Paragraph 12 of the Complaint is subject to a motion to
strike previously filed by Defendants herein. Pursuant to Rule 12
of the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
13. Paragraph 13 of the Complaint is subject to a motion to
strike previously filed by Defendants herein. Pursuant to Rule 12
of the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
14. Paragraph 14 of the Complaint is subject to a motion to
strike previously filed by Defendants herein. Pursuant to Rule 12
of the Federal Rules of Civil Procedure, no response to this
paragraph is required at this time.
15. Defendants admit that Pure World, Inc. (which was then known
as American Holdings, Inc.) began acquiring shares of AIP in
December 1993; that in January 1994, Pure World, Inc. owned
approximately 5% of AIP's outstanding shares; and that Pure World,
Inc. now owns approximately 9.785% of AIP's outstanding shares.
Defendants further admit that Pure World. Inc. has acquired
shares of AIP for capital appreciation and has so stated in its
public disclosures, including its Schedule 13Ds, but aver that
when the purpose of Pure World, Inc.'s investment has changed,
Pure World, Inc. has so stated in its public disclosures,
including its Schedule 13Ds. Defendants deny the remaining
allegations contained in paragraph 15 of the Complaint.
16. Defendants deny the allegations contained in paragraph 16 of
the Complaint.
17. Defendants admit that AIP is managed by Trust managers, but
deny that the
current Trust Managers are managing AIP in accordance with the
Texas Real Estate Investment Trust Act (the "Texas REIT Act").
Defendants admit that plaintiff has correctly quoted a portion of
the Texas REIT Act in the second sentence of paragraph 17 of the
Complaint. Defendants admit that, under AIP's current bylaws, a
two-thirds vote of AIP's outstanding shares is required for the
shareholders to elect a successor Trust Manager. Defendants deny
the remaining allegations contained in paragraph 17 of the
Complaint.
18. Defendants deny the allegations contained in the first
sentence of paragraph 18 of the Complaint. Defendants admit the
allegations contained in the second sentence of paragraph 18 of
the Complaint. Defendants admit that Pure World, Inc. did not
obtain the two-thirds vote required to elect its own nominees, but
aver that the incumbent Trust Managers also failed to obtain the
vote required to be re-elected.
19. Defendants admit that in 1995 Pure World, Inc. engaged in a
proxy contest to replace the current Trust Managers and that Pure
World, Inc.'s nominees did not obtain the votes of two-thirds of
the outstanding shares, but aver that the nominees of Pure World,
Inc. obtained a larger number of shareholder votes than the
incumbent Trust Managers. Defendants deny all of the remaining
allegations contained in paragraph 19 of the Complaint.
20. Defendants deny the allegations contained in paragraph 20 of
the Complaint.
21. Defendants admit that plaintiff has correctly quoted a
segment of AIP-s bylaws in the second sentence of paragraph 21 of
the Complaint. Defendants are without knowledge or information
sufficient to form a belief as to the truth of the remaining
allegations contained in paragraph 21 of the Complaint.
22. Defendants deny the allegations contained in paragraph 22 of
the Complaint.
23. Defendants deny the allegations contained in paragraph 23 of
the Complaint.
24. Defendants deny the allegations contained in Paragraph 24 of
the Complaint.
25. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 24
of the Complaint.
26. Defendants deny the allegations contained in paragraph 26 of
the Complaint.
27. Defendants deny the allegations contained in paragraph 27 of
the Complaint.
28. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 27
of the Complaint.
29. Defendants deny the allegations contained in paragraph 29 of
the Complaint.
30. Defendants deny the allegations contained in Paragraph 30 of
the Complaint.
31. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 30
of the Complaint.
32. Defendants deny the allegations contained in paragraph 32 of
the Complaint.
33. Defendants deny the allegations contained in paragraph 33 of
the Complaint.
34. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 33
of the Complaint.
35. Defendants deny the allegations contained in paragraph 35 of
the Complaint.
36. Defendants deny the allegations contained in paragraph 36 of
the Complaint.
37. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 36
of the Complaint.
38. Defendants deny the allegations contained in paragraph 38 of
the Complaint.
39. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 38
of the Complaint.
40. Defendants admit that AIP has requested a declaration
regarding the status of what it describes as "Excess Shares," but
deny that AIP is entitled to relief under Chapter 37, et seq. of
the Texas Civil Practice and Remedies Code or pursuant to the
Federal Declaratory Judgment Act. Defendants are without
knowledge or information sufficient to form a belief as to the
truth of the allegations contained in the second sentence of
paragraph 40 of the Complaint. Defendants admit that AIP makes
the contentions set forth in the third and fourth sentences of
paragraph 40 of the Complaint. Defendants are without knowledge
or information regarding the meaning of AIP's contentions
sufficient to form a belief as to the truth of the allegations
contained in the fifth and sixth sentences of paragraph 40 of the
Complaint.
41. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 39
of the Complaint.
42. Defendants deny the allegations contained in paragraph 42 of
the Complaint.
43. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 42
of the Complaint.
44. Defendants deny the allegations contained in the first and
second sentences of paragraph 44 of the Complaint. Defendants
admit that AIP purports to request injunctive relief as set forth
in the third and fourth sentences of paragraph 44 of the
Complaint, but deny that AIP is entitled to such relief.
45. Responding to the allegations in the first sentence of
paragraph 45 of the Complaint, Defendants deny that a dispute
exists between AIP and the Defendants, and aver that the dispute
is between the incumbent Trust Managers (Wolcott and Bricker) and
Pure World, Inc.; Defendants further aver that Wolcott and
Bricker, in the name of AIP, have retained the law firm of
Liddell, Sapp, Zively, Hill & LaBoon, L.L.P. to prosecute this
action. Defendants are without knowledge or information
sufficient to form a belief as to the truth of the allegations
contained in the second sentence of paragraph 45 of the Complaint,
but deny that it is appropriate for AIP to pay attorneys' fees for
prosecuting this action. Defendants admit that AIP seeks an award
of its costs and attorneys' fees, but deny that AIP is entitled to
such award under any Texas or federal statute or other applicable
law.
46. Defendants adopt and incorporate herein by reference their
responses to the allegations contained in paragraphs 1 through 45
of the Complaint.
47. Defendants deny that AIP is entitled to any of the relief
requested in paragraph 47 of the Complaint.
48. Defendants admit that AIP has demanded a trial by jury.
III.
AFFIRMATIVE DEFENSES
49. Plaintiff has failed to state a claim upon which relief may
be granted.
50. Plaintiff lacks standing to bring some or all of the claims
set forth in the Complaint.
51. Defendants had no duty to make the disclosures alleged in the
Complaint.
52. Defendant Pure World, Inc. made all disclosures required by
Sections 13(d) and 14(a) of the Securities and Exchange Act of
1934, 15 U.S.C. SSSS 78m(d), 78n(a), and rules promulgated
thereunder, and by Section 33 of the Texas Securities Act, TEX.
REV. CIV. STAT. ANN. Art. 581-33.
53. Plaintiff has failed to plead fraud with the particularity
required by law.
54. Plaintiff's claims should be dismissed, because Bricker's and
Wolcott's decision to cause the Trust to file this lawsuit was
ultra vires.
55. Plaintiffs claims are barred, in whole or in part, by the
doctrine of unclean hands.
56. Plaintiff's claims are barred, in whole or in part, by the
doctrine of laches.
57. Plaintiff's claims based on alleged violations of AIP's
bylaws are barred because the bylaw provisions allegedly violated
are unlawful and without effect.
58. Upon information and belief, Plaintiff and its attorneys
do not have knowledge, information or belief, formed after
reasonable inquiry, that the Complaint is well grounded in
fact and is warranted by existing law or a nonfrivolous argument
for the extension, modification, or reversal of existing law or
the establishment of new law. Further, upon information and
belief, the Complaint was interposed for improper purpose, to
harass the Defendants or to cause unnecessary delay or needless
increase in the cost of litigation.
59. The damages allegedly suffered by Plaintiff, or to be
suffered, were not and would not be caused by any action of
Defendants, but rather by the mismanagement, negligence or
culpable conduct of Plaintiff or its current Trust Managers.
IV.
COUNTERCLAIMS AND THIRD PARTY CLAIMS
A. PARTIES
60. American Industrial Properties REIT ("AIP") is a real estate
investment trust, organized and existing under the laws of the
state of Texas, with a registered office and principal place of
business in Dallas County, Texas. Shares of AIP are publicly
traded on the New York Stock Exchange. AIP has appeared in this
action and is represented by counsel. These counterclaims may
therefore be served upon AIP's counsel of record, Craig L.
Weinstock, at Liddell, Sapp, Zively, Hill and LaBoon, L.L.P., 900
Texas Commerce Tower, 2200 Ross Avenue, Dallas, Texas 75201.
61. Wolcott, a citizen of the state of Texas, is President and
Chief Executive Officer of AIP. Wolcott is one of AIP's two Trust
Managers. Service of these third party claims may be made upon
Wolcott at American Industrial Properties REIT, 6220 North
Beltline Rd., Suite 205, Irving, Texas 75063-2656.
62. Bricker, a citizen of the state of Texas, is AIP's other
Trust Manager. Service of these third party claims may be made
upon Bricker at 16475 Dallas Parkway, Suite 350, Dallas, Texas
75248.
63. Pure World, Inc. ("Pure World') is a Delaware corporation
with its principal place of business in New Jersey. Pure World
owns 888,000 shares of AIP, approximately 9.785 % of the 9,075,400
shares outstanding. Pure World has been a continuous shareholder
of AIP since its purchase of shares in December of 1993. Until
September 27, 1995, Pure World was named American Holdings, Inc.;
its name was changed to reflect Pure World's business in the
manufacture and distribution of botanical extracts. Pure World
has approximately five thousand shareholders, and its shares are
publicly traded on the NASDAQ market.
B. JURISDICTION AND VENUE
64. The Court has subject matter jurisdiction over these
counterclaims and this third party complaint under 28 U.S.C. SS
1332, because the claims are between citizens of different states
and the matter in controversy in these claims exceeds the sum or
value of $50,000, exclusive of interest and costs. In addition,
the Court has supplemental jurisdiction over the counterclaims and
third-party complaint under 28 U.S.C. SS 1367(a), as the claims
are so related to the claims asserted in plaintiff's complaint
that they are part of the same case or controversy.
65. Venue over the counterclaims and third party complaint is
proper in this district, as plaintiff's suit was brought in this
district. Venue is further proper in this district under 28
U.S.C. SS 1391(a) and 1391(b), because the events or omissions
giving rise to the counterclaims and third party complaint
occurred in this district. Venue over the derivative claims is
proper in this district under 28 U.S.C. SS 1401, because AIP could
have directly sued the third party defendants in this district.
C. FACTS
AIP's Financial Decline Under Bricker and Wolcott
66. AIP was formed on or about September 26, 1985, under the name
of Trammell Crow Real Estate Investors. On or about November 27,
1985, approximately 9,062,000 shares of AIP were sold to investors
at an initial public offering at a price of $15.00 per share.
67. Bricker and Wolcott have had a long-standing association with
AIP. Bricker was a Trust Manager of AIP at its genesis in
September of 1985, and he has remained so ever since. Wolcott has
been an officer and/or Trust Manager of AIP, except for a brief
hiatus, from 1988 or earlier until the present day. From 1988
through 1991, Wolcott held the position of Vice President and
Chief Financial and Operating Officer of AIP. In May 1993,
Wolcott became President and Chef Executive Officer of AIP, and in
August 1993, he became one of its Trust Managers.
68. Although Wolcott and Bricker have long been managers of AIP,
they are far from major shareholders. As of November 17, 1995,
Wolcott owns 55,500 shares (approximately 0.6%) of AIP's 9,075,400
outstanding shares; Bricker owns only 2,000 shares. Considering
that the current market price of AIP's shares is $2.00 Per share,
Wolcott and Bricker's minimal investment in AIP gives them little
incentive to manage AIP in a manner that favors the interests of
the shareholders.
69. Under the direction of Wolcott and Bricker, AIP has suffered
enormous losses; its total losses, from 1985 to the present,
exceed $46 million. As a result of these losses, the total equity
in AIP has steadily and dramatically fallen. Although total
equity was $57.5 million on December 31, 1991, it had sunk to
$21.6 million by September 30, 1995, and continues to plummet.
Based upon AIP's history of poor performance, industry analysts
have labeled AIP "one of the industry's biggest disasters" and
"one of the worst performing of the breed [of REITS]."
70. The market has taken note of this poor performance: the value
of AIP's shares has declined dramatically. From a high of $15.75
per share, share values have dipped to a present value of $2.00
per share. Since 1989, share values of AIP have significantly
underperformed the S&P 500 stock index and the NAREIT Equity REIT
index, a nationally recognized real estate industry index.
71. The financial decline of AIP is also manifest from its
virtual abandonment of dividend payments. Shortly after its
formation, the Trust had paid dividends of $1.18 per share, per
year. By 1992, dividends had been slashed to an annual rate of
$0.32 per share, and by late 1993, dividends had been abandoned
altogether. Ironically, while embroiled in potentially
lifethreatening litigation and while continuing to lose large sums
of money, the Trust has issued dividends of $0.04 per share twice
in the last four months.
72. At the same time that the Trust has suffered massive
operating losses, Wolcott has increased his own exorbitant salary
and paid himself enormous bonuses. In 1993, Wolcott's annual
salary was $150,000; in 1994, it was raised to $180,000.
Notwithstanding Alps consistently poor financial performance.
Wolcott paid himself a bonus of $50,000 at the end of 1993; at the
end of 1994, Wolcott paid himself a bonus of $62,100. Bricker, as
the only other Trust Manager and the sole member of the
Compensation Committee, is in a position to prevent Wolcott from
paying himself these huge salaries, but he has not done so.
73. Bricker has also reaped significant compensation. In 1995,
for example, Bricker earned $20,000 in trustee fees, plus $1,000
for each meeting of the Trust Managers and each committee meeting
that he attends. However, Bricker has made clear where AIP ranks
on his list of priorities; in response to a shareholder question
at the 1995 Annual Meeting, he stated: "I do have a job. And I do
make a living other than screwing around with this."
The Manufacturers Life Notes
74. On or about February 27, 1992, AIP borrowed approximately $45
Million from The Manufacturers Life Insurance Company ("MLI").
This loan is evidenced by certain promissory notes executed by AIP
on or about February 27, 1992, and is unsecured. In connection
with its execution of the notes, AIP also executed a note purchase
agreement, which sets forth various terms and conditions of the
loan. Upon information and belief, one of the conditions of the
note purchase agreement prohibits AIP from granting a security
interest in any of its properties to any other lender, without
prior approval of MLI.
75. Upon information and belief, at least twice during the term
of AIP's loan with MLI, AIP's interest payments were late and AIP
was in danger of default.
76. In or about late 1994, AIP borrowed approximately $14.5
million from Amresco Management, Inc. ("Amresco"), which AIP
secured by granting to Amresco mortgages on certain industrial
properties owned by AIP. AIP failed to receive the consent of MLI
before encumbering these properties, in possible violation of its
note purchase agreement with MLI.
77. In or about early 1995, MLI declared AIP in default on its
loan and threatened to accelerate the maturity of the note. AIP
responded by suing MLI in state court in Dallas County, Texas,
alleging that MLI's declaration of AIP's default was made in bad
faith. Two days later, on May 3, 1995, Bricker and Wolcott
informed AIP's shareholders of the declaration of default and of
the lawsuit that AIP had filed against MLI.
78. On or about May 27, 1995, Bricker and Wolcott caused AIP to
withhold a semiannual interest payment owed from AIP to MLI on
that date. As a result, on or about June 13, 1995, MLI
accelerated the maturity of the note, declaring that the entire
principal amount and all accrued interest was immediately due.
MLI also informed AIP that interest on the amount outstanding
would begin to accrue at a default rate of 11.7%.
79. The imprudent actions of AIP's Trust Managers have gotten AIP
into an expensive and acrimonious lawsuit with AIP's largest
creditor. The possible exposure from this lawsuit significantly
exceeds AIP's available assets; the MLI lawsuit therefore carries
a clear risk to the future solvency of AIP. Bricker and Wolcott
admitted this risk in a form 10-Q that they filed with the
Securities and Exchange Commission on November 2, 1995; the form
states that "[i]n the event that the loan is determined to be
immediately due and payable . . . the Trust will be forced to
consider.....seeking protection under applicable bankruptcy laws."
The Trust Managers' War of Entrenchment:
The Assault on AIP's Declaration of Trust and Bylaws
80. On or about October 22, 1993, the Second Amended and Restated
Declaration of Trust (the "Declaration of Trust") was implemented
after the alleged approval of the votes of eighty percent of the
outstanding shares of AIP. The Declaration of Trust, as
implemented in October of 1993, remains in effect to this day.
81. Article twelve of the Declaration of Trust presumes that a
single shareholder may hold more than 30% of the shares of AIP,
and provides for
cumulative voting where such a condition exists.
82. Article fourteen of the Declaration of Trust prohibits AIP
from declaring a dividend "when the Trust is unable to pay its
debts . . . or when payment of such dividend would result in the
Trust being unable to pay its debts."
83. Article eighteen of the Declaration of Trust provides that a
majority of the Trust Managers shall be "Independent Trust
Managers," who are not employees of the Trust or affiliated with
employees of the Trust.
84. Article nineteen of the Declaration of Trust provides that
certain of AIP's actions must be approved by a majority of the
Independent Trust Managers, including, among other things, any
decision by AIP to borrow funds that "would cause the aggregate
borrowings of the Trust to exceed an amount equal to 300% of the
Trust's net assets." A majority of the Independent Trust Managers
must determine that the investment policies of the Trust are in
the best interests of shareholders. A majority of the Independent
Trust Managers must approve the compensation paid to AIP's
officers, and ensure that such compensation is "reasonable in
relation to the nature and quality of services performed."
85. On or about October 22, 1993, the Second Amended and
Restated Bylaws (the "Second Amended Bylaws") of AIP were
implemented after the vote of a majority of the outstanding shares
of AIP.
86. The Second Amended Bylaws provide that "there shall be not
less than three nor more than five" Trust Managers. Trust
Managers are elected at annual meetings of shareholders and serve
until the next annual meeting.
87. The Second Amended Bylaws provide that "a majority of the
Trust Managers . . . shall at all times be Independent Trust
Managers." In case of the "resignation, removal or death of an
Independent Trust Manager," the position may remain vacant no
longer than sixty days. The Second Amended Bylaws limit the
compensation of Independent Trust Managers to "$15,000 per year
... plus $500 for each meeting of the Trust Managers or a
committee of the Trust Managers attended in person."
88. The Second Amended Bylaws do not limit the number of
shares that may be owned by an individual shareholder.
89. Section 10.7 of the Second Amended Bylaws provides that
"[t]he bylaws of the trust may be amended or repealed, and new
bylaws may be adopted, by the affirmative vote of the holders of a
majority of the trust's outstanding shares." The Second Amended
Bylaws do not authorize the Trust Managers to amend the bylaws
without shareholder approval.
90. The Second Amended Bylaws are the most recent bylaws of the
Trust to be approved by the vote of a majority of the Trust's
shares.
91. Beginning in early 1994, Wolcott and Bricker began adopting a
series of amendments to AIP's bylaws without shareholder approval.
These amendments attempted to reduce Wolcott's and Bricker's
accountability to AIP's shareholders, further entrench Wolcott and
Bricker in control of AIP and assure that no other candidates for
Trust Manager ever would obtain enough votes to be elected.
92. On or about February 1, 1994, Bricker and Wolcott adopted the
first of many bylaw amendments without the consent of AIP's
shareholders. The February 1, 1994, amendment prohibits
individual shareholders from owning shares "with an aggregate
value in excess of 9.8% of the aggregate value of all outstanding
shares." This illegally adopted amendment was designed as an anti-
takeover device to cement the Trust Managers' positions in control
of AIP.
93. On or about April 4, 1994, the Trust Managers adopted another
amendment to the bylaws without the consent of AIP's shareholders.
This amendment retroactively eliminates a requirement that the
Trust Managers furnish to AIP's shareholders summary reports by an
independent appraisal firm disclosing the results of year-end
appraisals of the current market value of AIP's real estate
investments. This amendment was enacted by the Trust Managers in
response to Pure World's demand that the Trust Managers comply
with this preexisting appraisal requirement. This illegally
adopted amendment was designed to reduce the accountability of
Wolcott and Bricker to AIP's shareholders.
94. On or about October 7, 1994, the Trust Managers adopted
another amendment to the bylaws without the consent of AIP's
shareholders. This amendment provides that vacant Trust Manager
positions can be filled by a majority vote of the Trust Managers
or by the affirmative vote of two-thirds of the outstanding shares
of AIP. For all practical purposes, this amendment renders it
impossible for shareholders to elect a replacement for an empty
Trust Manager position, vesting this power solely in the existing
Trust Managers. This amendment was designed to entrench Wolcott
and Bricker in control of AIP by assuring that no other candidates
for Trust Manager would ever obtain enough votes to be elected.
95. On or about February 2, 1995, the Trust Managers illegally
adopted the Third Amended and Restated Bylaws ("Third Amended
Bylaws") of AIP without the consent of AIP's shareholders. The
Third Amended Bylaws incorporate the previous illegal bylaw
amendments and further amend the bylaws to cement the position of
Wolcott and Bricker as Trust Managers. Many of these amendments
were enacted in the fallout of a November 1994 proxy contest
between Pure World and the Trust Managers.
96. The Third Amended Bylaws contain new provisions that govern
the Trust Manager position. These amended bylaws provide that
"[t]here shall at all times be no less than two (2) nor more than
seven (7) Trust Managers who . . . shall be elected annually by
the shareholders." These Bylaws also provide that [a] majority of
the Trust Managers and a majority of any committee of Trust
Mangers shall at all times be Independent Trust Managers;
provided, however, if the number of Trust Managers shall be two
(2), only one (1) of such Trust Managers shall be required to be
an Independent Trust Manager. Wolcott and Bricker illegally
enacted these provisions to ratify their decision not to fill an
Independent Trust Manager position made vacant as a result of a
November 1994, proxy contest and election.
97. The Third Amended Bylaws establish a double standard for the
election of Trust Managers, allowing incumbent Trust Managers to
be re-elected by the affirmative vote of a majority of outstanding
shares but requiring that new Trust Managers receive the support
of two-thirds of the outstanding shares to be elected. To add
insult to injury, these bylaws further soften the election
requirements for incumbent Trust Managers, purporting to allow
those incumbent Trust Managers "not re-elected by a majority vote
. . . [to] remain in office until [their] successor[s] are elected
and qualified." These provisions were designed to ensure that no
candidates for Trust Manager other than Wolcott and Bricker would
ever obtain enough votes to be elected.
98. The Third Amended Bylaws allow Trust Managers to set their
own salaries, effectively abolishing the previous limit on the
compensation of Independent Trust Managers to $15,000 per year.
99. Article XI of the Third Amended Bylaws provides that "the
power to alter, amend, or repeal these Bylaws or to adopt new
Bylaws shall be vested in the Trust Managers and . . . the
shareholders, and such action shall be taken by the affirmative
vote of a majority of the Trust Managers or by the affirmative
vote of the holders of a majority of the Trust's outstanding
shares."
100. On or about October 3, 1995, the Trust Managers
illegally adopted the Fourth Amended and Restated Bylaws (the
"Fourth Amended Bylaws") of AIP without the consent of AIP's
shareholders. The Fourth Amended Bylaws incorporate the previous
illegal bylaw amendments and further amend the bylaws to cement
the position of Wolcott and Bricker as Trust Managers. Among
other things, the Fourth Amended Bylaws provide that any bylaw may
be amended by the Trust Managers by a majority vote, but certain
bylaws may be amended by shareholders only with the support of two-
thirds of the outstanding shares. Not surprisingly, those bylaws
affected include the provisions governing the election of Trust
Managers and the 9.8% limit on share ownership.
101. On or about November l3, 1995, the Trust Managers adopted
another amendment to the bylaws without the consent of AIP's
shareholders. This November 13, 1995, amendment provides that
shareholders may amend the amendment provisions of the bylaws only
by a two-thirds majority of the outstanding shares of AIP.
102. On a number of occasions, outside investors have
approached Bricker and Wolcott with offers to purchase shares in
AIP and take over management of the Trust. Most recently, on
December 26, 1995, Black Bear Realty, Ltd. ("Black Bear") offered
$3.00 per share as part of such a deal. On January 24, 1996,
Wolcott and Bricker rejected Black Bear's offer on behalf of AIP.
The Trust Managers' rejection of this offer was clearly imprudent,
and yet another example of Wolcott and Bricker placing their own
interests above the best interests of the shareholders.
The Trust Managers' War of Entrenchment:
103. Pure World has been a continuous shareholder of AIP
since December of 1993. At the time Pure World began acquiring
AIP stock, AIP had two Independent Trust Managers, Bricker and
George Jenkins, and one other Trust Manager, Wolcott.
104. In early 1994, AIP's Trust Managers scheduled a special
shareholders, meeting for May 10, 1994, where they would present a
proposal for the reorganization of the Trust. Under this
proposal, AIP would merge into a shell corporation formed under
Maryland law, AIP would adopt certain anti-takeover measures and
the Trust Managers and other employees would be granted stock
options for up to 10% of the outstanding shares of AIP.
105. In a March 8, 1994, letter, Pure World informed the
Trust Managers that it would solicit proxies in opposition to this
proposal, because the proposal was designed to entrench the
position of the Trust Managers and was not in the best interest of
the shareholders. The letter explains: "The Merger proposal
appears nothing more than a bold attempt by management to arrogate
to itself powers that currently rest with the shareholders and to
obtain a material equity interest without first seeking direct
shareholder approval."
106. Pure World authored the March 8, 1994, letter in an
attempt to convince Wolcott and Bricker to withdraw their merger
proposal. The Trust Managers' proposal could pass only with the
support of two-thirds of the outstanding shares of AIP. Such
support was obviously lacking, rendering a formal proxy contest
enormously wasteful.
107. Nonetheless, Wolcott and Bricker refused to abandon
their merger proposal. Rather, they embarked on a fierce proxy
contest, squandering tens or hundreds of thousands of dollars of
AIP's resources.
108. As predicted, on May 10, 1994, the merger proposal was
overwhelmingly defeated. Of the 9,075,400 outstanding shares of
AIP, only 3,555,423 shares, or 39.2%, voted in favor of the
proposal.
109. An annual meeting of AIP shareholders was held on
November 21, 1994, at which the shareholders voted to elect Trust
Managers for the following year's term. The record date for
shares voted at this meeting was September 29, 1994. As of that
date, there were 9,075,400 outstanding shares of stock in AIP.
110. George Jenkins, one of the two Independent Trust
Managers of AIP, resigned effective November 21, 1994, and
therefore did not seek re-election. Wolcott and Bricker nominated
a slate of candidates including themselves and a potential
replacement for Jenkins, Raymond A. Hay ("Hay"). Hay had been
appointed to serve as a Trust Manager in June of 1994, but he had
never been elected by the shareholders.
111. Dissatisfied by the mismanagement of AIP and by the
incumbents' repeated
attempts to entrench themselves, Pure World offered its own
candidates for the November 21, 1994, election of Trust
Managers. Pure World's candidates for the Trust Manager position,
were Koether, Tieman H. Dippel, Jr. ("Dippel"), and Kenneth A.
Barfield ("Barfield").
112. AIP's notice of annual meeting dated October 7, 1994,
described the ground rules for this election of Trust Managers.
Under these rules, Bricker and Wolcott, the incumbent Trust
Managers, needed the support of only a majority of the Outstanding
shares to be re-elected. The other candidates, including Koether,
Dippel, Barfield and Hay, needed the support of two-thirds of the
outstanding shares to be elected as Trust Managers. The notice of
annual meeting explained that "[i]f the requisite vote is not
obtained with respect to the election of each Trust Manager, then
Messrs. Bricker and Wolcott will continue in their capacity as
the existing Trust Managers of the Trust. If Mr. Hay does not
receive the requisite vote, a vacancy will exist. "
113. Wolcott and Bricker again engaged Pure World in a costly
proxy contest,
squandering the resources of AIP to entrench their positions as
Trust Managers. The November 21, 1994, New York
Times described the proxy contest as "[one] of the nastiest
election fights of 1994."
114. On December 5, 1994, AIP announced the results of the Trust
Manager election. Approximately 71% of the outstanding shares of
AIP had voted in this election. Of those who voted, approximately
3.62 million shares (39.9% of the outstanding shares) supported
Bricker, Wolcott and Hay, and approximately 2.46 million shares
(27.1% of the outstanding shares) supported Pure World's nominees.
Having tallied the votes, AIP announced that "[n]o nominee had
achieved the two-thirds vote of outstanding shares required for
election as a Trust Manager or the majority vote of outstanding
shares required for re-election. Accordingly, William H. Bricker
and Charles W. Wolcott will continue to serve as Trust Managers
for the Trust." The other Independent Trust Manager position was
not filled; it has since remained vacant.
115. An annual meeting of AIP shareholders was scheduled for
December 13, 1995. The record date for shares voted at this
meeting was November 9, 1995. As of that date, there were
9,075,400 outstanding shares of stock in AIP.
116. On October 11, 1995, Pure World notified the Secretary of AIP
that Pure World had nominated Richard M. Bossert, John W.
Galuchie, Jr. and Paul 0. Koether for election as Trust Managers.
Pure World also informed the Secretary of AIP that it had proposed
certain amendments to AIP's bylaws.
117. Pure World's proposed bylaw amendments attempted to undo
many of the illegal bylaw amendments adopted without shareholder
approval by the Trust Managers as part of their ongoing effort at
entrenchment. Consequently, the proposed amendments addressed the
procedure for election of Trust Managers. Under these amendments,
Trust Managers are elected by the affirmative vote of the majority
of the outstanding shares of AIP. The proposed amendments also
provide that "[a]n incumbent Trust Manager who fails to be re-
elected by the affirmative vote of the holders of a majority of
the outstanding shares of the Trust at an annual or special
meeting and also fails to receive a plurality of the votes cast at
such meeting shall resign immediately after taking all steps
necessary to elect as a successor, the Trust Manager nominee who
received a plurality of votes at such meeting."
118. Pure World's proposed bylaw amendments also addressed
the procedure for the amendment of bylaws, providing that bylaws
could "be adopted, amended, altered or repealed only by the
affirmative vote of the holders of a majority of the Trust's
outstanding shares."
119. Pure World's proposed bylaw amendments and nominees for
Trust Manager sparked a fierce proxy contest between Pure World
and the incumbent Trust Managers. In conducting this proxy
contest, Wolcott and Bricker spent AIP's money with abandon,
mailing to each shareholder at least four different solicitation
letters in the six weeks prior to the annual shareholder meeting.
Wolcott and Bricker, with AIP funds, hired a proxy solicitation
firm with a crew of telephone operators that repeatedly contacted
many of the shareholders of AIP and used high-pressure sales
tactics to solicit proxies from them.
120. In a November 17, 1995, solicitation letter, Wolcott and
Bricker informed the shareholders of their November 13, 1995,
bylaw amendments and admitted that these amendments were designed
solely for the purpose of entrenching their position as Trust
Managers. The letter reads: "Since Koether mailed his proxy
materials, the Trust Managers have taken action to amend the
Bylaws to ensure that Koether's purported Bylaw amendments would
not be used to circumvent the validly adopted Bylaws of the trust,
which require that a 66 2/3% vote is required to elect new Trust
Managers."
121. The fierce solicitation of proxies notwithstanding, only
about 71% of the outstanding shares cast votes at the annual
shareholders' meeting on December 13, 1995. Pure World's slate of
Trust Manager candidates received approximately 3.2 million votes
(35.3% of the outstanding shares and more than half of the votes
actually cast); Wolcott and Bricker received approximately 2.95
million votes (32.7% of the outstanding shares and less than half
of the votes actually cast). Under the election scheme
established by Wolcott and Bricker's illegal bylaw amendments,
neither group of Trust Manager candidates received enough votes to
be elected. To receive the votes of 66 2/3% of the outstanding
shares, a successful candidate would have needed over 95% of the
votes cast in that election.
122. Although Pure World's proposed bylaw amendments also failed
to garner the votes required for adoption, a substantial plurality
of AIP's shares actually voting supported the amendments. Pure
World's proposed amendments received approximately 3.67 million
votes (significantly more than any Trust Manager candidate), and
only 1.95 million votes were cast against the proposals.
123. Wolcott and Bricker contend that they are entitled to
hold over as Trust Managers, indefinitely or until another
candidate receives the votes of two-thirds of the outstanding
shareholders. Assuming that only about 71% of shares are voted in
future elections, as was the case in both the 1994 and 1995
elections, unseating Wolcott and Bricker would require a feat of
Herculean proportions. This led Floyd Norris, in his respected
Sunday "Market Watch" column, to describe the governance of AIP as
"a case where it appears the managers may be able to perpetuate
themselves in office forever, whatever most of their owners
think." "The Divine Right of REIT Kings," New York Times, January
7, 1996.
D. CAUSES OF ACTION
First Cause of Action:
Claim for a receivership against Wolcott, Bricker and AIP.
124. The allegations in paragraphs 60 through 123 and 134
through 166 are adopted and incorporated herein by reference.
125. Pure World, a shareholder of AIP, requests that the
court appoint a receiver for the assets and business of AIP. The
appointment of a receiver is necessary to conserve the assets and
business of AIP and to preserve the interests of all of the
shareholders of AIP.
126. The Texas Business Corporation Act provides for the
appointment of a receiver for a corporation when:
"the corporation is insolvent or in imminent danger of
insolvency,"
"the directors are deadlocked in the management of corporate
affairs,"
"the acts of the directors or those in control of the
corporation are illegal, oppressive, or fraudulent,"
"the corporate assets are being misapplied or wasted,' or
"the shareholders are deadlocked in voting power, and have
failed, for a period which includes at least two consecutive
annual meeting dates, to elect successors to directors whose terms
have expired or would have expired upon the election and
qualification of their successors."
Tex. Bus. Corp. Act SS 7.05(A) (made applicable to AIP by section
28.1O(A) of the Texas REIT Act). Although the presence of only
one of these conditions is sufficient for the appointment of a
receiver, all of the conditions but one are present here.
127. At the last two annual shareholder meetings, neither
Bricker and Wolcott nor Pure World's slate of candidates received
the votes required by the Texas REIT Act to be elected as Trust
Managers. As a result, Bricker and Wolcott have held over as
Trust Managers, most recently without even the support of a
majority of the shareholders that voted at the annual meeting.
Furthermore, an Independent Trust Manager position has remained
vacant through the last two annual shareholder meetings. These
circumstances justify the appointment of a receiver under Tex.
Bus. Corp. Act SS 7.05(e), as the shareholders have been
deadlocked in voting power for two consecutive annual meeting
dates.
128. In their roles as Trust Managers, Bricker and Wolcott
have performed oppressive, fraudulent and illegal acts. As
demonstrated by the facts set forth above and in the seventh cause
of action, infra, which are incorporated herein by reference,
Bricker and Wolcott have fraudulently managed AIP, operating it in
their own interest instead of the interest of shareholders. These
actions have breached the duty of loyalty owed by Bricker and
Wolcott to
AIP. Bricker and Wolcott performed oppressive acts by entrenching
themselves as Trust Managers when it became clear that poor
performance would likely result in their imminent removal. As
demonstrated by the facts plead in the third, fourth and fifth
causes of action, infra, which are incorporated herein by
reference, Bricker and Wolcott have also performed illegal acts,
attempting to amend the bylaws of AIP in a manner that violates
the Texas REIT Act, the preexisting bylaws and the Declaration of
Trust. Bricker and Wolcott have also operated the Trust
illegally, by failing to fill the vacant Independent Trust Manager
position as required by the Declaration of Trust. As demonstrated
by the facts plead in the sixth cause of action, infra, which are
incorporated herein by reference, Bricker and Wolcott have
fraudulently failed to make full disclosure to shareholders in
their communications with shareholders in order to entrench
themselves further and continue their oppressive and illegal
conduct. The oppressive, fraudulent and illegal acts performed by
Bricker and Wolcott justify the appointment of a receiver for the
assets and business of AIP under Tex. Bus. Corp. Act SS 7.05(c).
129. During their tenure as Trust Managers, Bricker and
Wolcott have misapplied and wasted the assets of AIP, squandering
AIP's assets on excessive salaries and bonuses, notwithstanding
the poor financial performance of the Trust. Ordinarily, the
review by Independent Trust Managers, as mandated by the
shareholder-approved Declaration of Trust, would function to check
the unreasonable compensation of AIP's officers. However, Bricker
and Wolcott have allowed an Independent Trust Manager position to
remain vacant in violation of the Declaration of Trust; this check
against overcompensation has therefore been removed. Bricker and
Wolcott have wasted the assets of AIP on proxy contests in an
attempt to entrench their positions. Bricker and Wolcott have
also brought AIP to the brink of bankruptcy by causing AIP to
default on its loan from MLI. Bricker and Wolcott's
misapplication and waste of the assets of AIP justify the
appointment of a receiver for the assets and business of AIP under
Tex. Bus. Corp. Act SS 7.05(d).
130. AIP is currently in imminent danger of insolvency as a
result of its default on a $45 million loan, the balance of which
is accruing penalty interest at the rate of 11.7%. AIP has
publicly recognized the potential of bankruptcy in documents filed
with the SEC. This imminent danger of insolvency justifies the
appointment of a receiver for the assets and business of AIP under
Tex. Bus. Corp. Act SS 7.05(a).
131. Other than the appointment of a receiver, Pure World has no
remedy either at law or at equity for the conditions detailed
above.
Second Cause of Action:
Declaratory Relief against Wolcott, Bricker and AIP
construing the Texas REIT Act,
the Declaration of Trust and the Bylaws, to require the
appointment or election of new Trust Managers
132. The allegations in paragraphs 60 through 131 are adopted
and incorporated by reference herein.
133. Bricker and Wolcott have failed in each of the past two
elections to garner the requisite number of votes to be re-elected
as Trust Managers, even under the bylaws designed to favor their
re-election. Having failed to win re-election legitimately,
Bricker and Wolcott now apparently maintain that they may remain
indefinitely and perpetually as holdover Trust Managers. Such a
construction of controlling law and the Declaration of Trust is
insupportable. Pursuant to the Federal Declaratory Judgment Act,
and Chapter 37 of the Texas Civil Practice and Remedies Code, Pure
World seeks a declaration that as holdover Trust Managers, Bricker
and Wolcott must promptly appoint or call elections to appoint
their successors, and may not continue to act as Trust Managers
any longer than necessary to consummate such appointment or
elections.
Third Cause of Action:
Injunctive and declaratory relief against Wolcott,
Bricker and AIP striking all bylaw amendments illegally adopted
by the Trust Managers without shareholder approval and prohibiting
Wolcott, Bricker and AIP from making future amendments
without shareholder approval.
134. The allegations in paragraphs 60 through 133 are adopted
and incorporated herein by reference.
135. The Second Amended Bylaws of AIP, with an effective date
of October 22, 1993, are the most recent bylaws that have been
adopted by vote of a majority of the outstanding shares of AIP.
136. Section 10.7 of the Second Amended Bylaws provides that
the bylaws "may be amended or repealed, and new bylaws may be
adopted, by the affirmative vote of the holders of a majority of
the Trust's outstanding shares." The Second Amended Bylaws do not
authorize bylaw amendments by the Trust Managers without
shareholder approval.
137. Wolcott and Bricker, acting as Trust Managers of AIP,
have illegally amended AIP's bylaws, without authority, at least
six times since the shareholders adopted the Second Amended
Bylaws. These amendments purport to change the bylaws in a number
of ways, with the purpose of entrenching the Trust Managers'
positions at AIP. These amendments, among other things:
Provide that insurgent candidates for Trust Managers may
be elected only by a vote of two-thirds of the outstanding shares
of AIP, but that incumbent candidates can be elected by a vote of
a simple majority of the outstanding shares of AIP.
Limit the right of a single shareholder to own more than
9.8 % of the outstanding shares of AIP.
Provide that amendments by shareholders to certain of
the bylaws of the Trust could be made only by a two-thirds
majority of the outstanding shares of AIP.
Repeal the specific limits on the compensation of the
Independent Trust Managers.
138. Because Wolcott and Bricker had no authority to amend AIP's
bylaws without shareholder approval, their purported amendments
are ultra vires and therefore null and void.
139. Pure World seeks injunctive and declaratory relief
striking all of the bylaw amendments illegally adopted by the
Trust Managers after the shareholders enacted the Second
Amended Bylaws. Pure World also seeks an injunction
prohibiting the Trust Managers from making further unilateral
amendments to the bylaws without shareholder approval.
Fourth Cause of Action:
Injunctive relief against Wolcott, Bricker and AIP,
striking certain bylaw amendments as illegal.
140. The allegations in paragraphs 60 through 139 are adopted
and incorporated herein by reference.
141. Several of the bylaw amendments adopted by Wolcott and
Bricker were designed to entrench them in their lucrative
positions and to hamper efforts by shareholders to hold them
accountable for their poor performance. Those amendments should
be stricken and declared void.
142. One of the most transparent attempts by Bricker and Wolcott
to insulate themselves from shareholder dissatisfaction is their
bylaw amendment explicitly adopting unlawfully discriminatory
standards for electing new Trust Managers as distinguished from re
- -electing incumbent Trust Managers. In the Fourth Amended Bylaws,
Bricker and Wolcott adopted section 3.3, which provides a
blatantly discriminatory standard. New trust managers must win
election by a two-thirds vote of all outstanding shares, while
incumbent trustees need only a bare majority. Such an uneven
playing field favoring existing management is not authorized by
either the Texas REIT Act or the Declaration of Trust. Moreover,
the provision is an inequitable usurpation of shareholders'
franchise rights, clearly contrary to established principles of
corporate democracy and obviously designed by management to
perpetuate itself in office in response to shareholder
dissatisfaction with management.
143. Not content with their appropriation of the
shareholders' franchise rights, Bricker and Wolcott sought to
insulate their illegal and inequitable conduct by placing yet
another discriminatory, supermajority hurdle into the path of
shareholders' efforts to correct the Trust Managers' actions to
entrench themselves. In article XI of the Fourth Amended Bylaws,
Bricker and Wolcott provided that shareholders must get a two-
thirds vote of outstanding shares to repeal the entrenchment bylaw
amendments passed by Bricker and Wolcott, including section 3.3.
Such a bylaw conflicts with the Texas REIT Act, the Declaration of
Trust and shareholders' established franchise rights, and is
therefore void and should be declared so.
144. Shareholders of AIP are confronted with a history of
substantial losses uninterrupted by even
modest successes, a steady decline in share value over the life of
AIP, gross mismanagement and entrenched Trust Managers. Having
brought AIP and its shareholders to their knees, Bricker and
Wolcott evidently realize that they have left shareholders with
few options for avoiding further losses and possible bankruptcy.
One possible response would be for a shareholder or group of
shareholders to acquire and vote enough shares to elect new trust
managers, despite the unlevel playing field defined in the illegal
bylaw amendments. To preempt such a potential strategy, on or
about February 1, 1994, Bricker and Wolcott adopted the illegal
bylaw amendment placing a cap of 9.8% on a person's ownership of
AIP stock. Bricker and Wolcott disingenuously state that their
rationale for this bylaw is preservation of AIP's tax status as a
REIT. While it is true that a REIT with five or fewer
stockholders holding half or more of the stock may lose its tax
character as a REIT, the bylaw is in fact another illegal effort
by Bricker and Wolcott to entrench themselves. AIP has suffered
such tremendous losses for so many years that there is no
appreciable risk -- now or in the foreseeable future -- that AIP
will have any income tax liabilities and, hence, its tax status as
a REIT is worthless. Second, this provision was adopted (and re-
adopted) in response to efforts by shareholders to change control
of AIP. The bylaw amendment is a transparently defensive maneuver
that does not benefit AIP in any way and serves only to entrench
management further and to raise the bulwarks against shareholders
attempting to save AIP and the value of their own investments.
Third, the Declaration of Trust expressly provides for cumulative
voting in the event that a shareholder acquires thirty percent
(30%) of AIP's shares. Therefore, the Declaration of Trust, which
was adopted long after the tax limitations on share ownership had
been in place, expressly contemplates that a shareholder may
lawfully acquire far more than 9.8% of the outstanding shares.
Any contrary bylaw amendment is void on that ground alone and
should be declared so.
Fifth Cause of Action:
Injunctive Relief against Wolcott, Bricker and AIP,
striking as ultra vires all actions
by Trust Managers while the Trust has lacked a majority
of Independent Trust Managers
145. The allegations in paragraphs 60 through 144 are adopted
and incorporated herein by reference.
146. The Declaration of Trust provides in article eighteen
that '[a] majority of the Trust Managers shall be Independent
Trust Managers." "Independent Trust Manager" is further defined to
mean one who does not either personally or through an employer or
affiliate perform services for the trust other than as a Trust
Manager. Since November 21, 1994, Bricker and Wolcott have been
the sole Trust Managers, though only Bricker meets the Independent
Trust Manager criteria. Not surprisingly, Bricker's and Wolcott's
disregard for Article eighteen has had precisely the effect that
the shareholders attempted to avoid in adopting the Declaration of
Trust -- self entrenchment by Trust Managers who are anxious to
feather their own nests at shareholders' expense. As demonstrated
above, the flouting of this Article eighteen has drained funds
from AIP into Wolcott's and Bricker's pockets and led to the
adoption of the several illegal, self-entrenching bylaw amendments
discussed above.
147. Bricker and Wolcott attempted to subvert the clear
directive of Article eighteen in the same manner they used
elsewhere -- by adopting an illegal bylaw that contravenes the
Declaration of Trust. Section 3.2 of the Fourth Amended Bylaws
provides that the clear mandate of Article Eighteen that '[a]
majority of Trust Managers shall be Independent Trust Managers"
really means that only one of two must be independent. Desperate
to retain their positions, Bricker and Wolcott have illegally
redefined "majority" to mean "one-half." Because Bricker and
Wolcott have violated this provision of the Declaration of Trust
at all times since January 20, 1995 -- the date by which they were
to have appointed a second Independent Trust Manager -- all
subsequent bylaws, including the Third Amended Bylaws and Fourth
Amended Bylaws, adopted solely by them, should be declared void.
Furthermore, because Bricker and Wolcott have violated this
provision of the Declaration of Trust, their decision to pursue
the lawsuit on behalf of AIP was also ultra vires; AIP's claims
against Pure World and Paul 0. Koether therefore should be
dismissed.
Sixth Cause of Action:
Material misrepresentations and omissions in proxy materials
against Bricker and Wolcott
148. The allegations in paragraphs 60 through 147 are adopted
and incorporated herein by reference.
149. In their desperation to retain their positions and
control of AIP, Bricker and Wolcott made material
misrepresentations of fact and omitted material information from
the communications they made to shareholders in the weeks
preceding the shareholders' meetings in November 1994 and December
1995. Such misrepresentations and omissions rendered the
communications materially misleading, in violation of Section
14(a) of the Securities Exchange Act of 1934, 15 U.S.C. SS 78n,
and the rules promulgated thereunder.
150. Just prior to the 1994 shareholders' meeting, Bricker
and Wolcott represented to AIP's shareholders that funds from
operations were positive by $344,000 for the quarter that ended on
September 30, 1994, and by $295,000 for the nine-month period
ending on that date, indicating that the Trust would be profitable
in 1994. In fact, the independent auditors' report, available to
shareholders only after the proxy contest, revealed that the Trust
experienced a loss for 1994, contrary to the indications given by
Bricker and Wolcott to AIP's shareholders.
151. The pattern of incomplete and false financial reporting was
repeated in the weeks prior to the December 1995 shareholders'
meeting. AIP filed 10-Q reports with the SEC on or about July 31,
1995 and October 31, 1995 for the periods ending June 30, 1995 and
September 30, 1995, respectively. In both of those reports,
Bricker and Wolcott disclosed that if the MLI loan is deemed by
the court to be in default, as alleged by MLI, then the Trust
would need to consider filing for bankruptcy. It is difficult to
imagine a fact more important to a shareholder's decision whether
to retain incumbent management than the fact that those managers
brought the Trust to the brink of bankruptcy. Yet, no mention of
insolvency or threatened bankruptcy appears in the rosy notices
sent by Bricker and Wolcott to shareholders. Rather than inform
shareholders about these risks, Bricker and Wolcott note obliquely
that "while the outcome of this process [the MLI litigation]
cannot be predicted, we will continue to pursue a course of action
that is in the best interests of the Trust's shareholders."
152. Pure World was a shareholder at the time of the above
acts, and brings this claim individually and on behalf of AIP
against Wolcott and Bricker.
153. The foregoing materially misleading statements and
omissions and, on information and belief, other materially
misleading statements and omissions have damaged AIP and Pure
World, for which Pure World seeks damages and attorneys fees.
154. Pure World has not demanded that AIP pursue this claim
against Wolcott and Bricker, because such a demand would be a
purely ritualistic act. This claim complains of wrongdoing by the
sole Trust Managers of AIP; it is highly unlikely that these Trust
Managers would cause AIP to file suit against themselves.
155. This claim is not brought collusively as an attempt to
invoke the jurisdiction of this court.
Seventh Cause of Action:
Breach of duty of loyalty against
Wolcott and Bricker
156. The allegations in paragraphs 60 through 155 are adopted
and incorporated herein by reference.
157. Wolcott and Bricker owe a duty of loyalty to the Trust,
which prohibits them from undertaking "interested" transactions.
158. Wolcott and Bricker have breached their duty of loyalty
by causing AIP to expend its assets on at least two proxy contests
in an attempt to retain their positions as AIP's Trust Managers.
These proxy expenditures were illegitimate. Incumbents may not
spend corporate funds on proxy contests involving questions of
personality instead of questions of policy. Furthermore, the
expenses charged by Wolcott and Bricker to AIP for these proxy
contests are unreasonably large.
159. Wolcott's and Bricker's efforts to entrench themselves,
including their illegal bylaw amendments, also violated their duty
of loyalty to AIP. Wolcott and Bricker amended the bylaws of the
Trust, to: limit the right of a single shareholder to own more
than 9.8% of the outstanding shares of AIP; establish an election
scheme under which it is practically impossible to unseat
incumbent Trust Managers; and deprive shareholders of the right to
amend the bylaws. These amendments and others have entrenched the
positions of the Trust Managers without any benefit to AIP.
160. Wolcott and Bricker caused AIP to file this lawsuit
against Pure World without merit and for the illegitimate purpose
of harassing Pure World to deter it and others from exercising
their rights as shareholders. Because AIP's pursuit of this
lawsuit has no legitimate purpose other than to entrench the Trust
Managers' positions, the expenditure of Trust assets on this suit
constitutes a breach of the duty of loyalty.
161. Wolcott and Bricker have allowed an Independent Trust
Manager position to remain vacant and, as a result, Wolcott has
been able to give himself handsome raises and bonuses, without the
oversight of an effective group of independent Trust Managers.
These actions both violate the Declaration of Trust and breach the
duty of loyalty.
162. Wolcott and Bricker illegally amended the bylaws,
without shareholder approval, and repealed the bylaw that limited
the compensation that may be paid to Independent Trust Managers.
As a result, Bricker has paid himself a salary greater than that
authorized by AIP's effective bylaws. This action constitutes a
breach of the duty of loyalty.
163. Pure World was a shareholder at the time of the above
acts and brings this derivative claim on behalf of AIP and against
Wolcott and Bricker.
164. Pure World has not demanded that AIP pursue this
derivative claim against Wolcott and Bricker, because such a
demand would be a purely ritualistic act. This derivative claim
complains of wrongdoing by the sole Trust Managers of AIP; it is
highly unlikely that these Trust Managers would cause AIP to file
suit against themselves.
165. This derivative claim is not brought collusively as an
attempt to invoke the jurisdiction of this court.
166. Pure World seeks, on behalf of AIP, as damages for the
breach of duty of loyalty, a return of the excessive salaries,
bonuses and benefits paid to the Trust Managers that resulted from
their actions of entrenchment. Pure World also seeks, on behalf
of AIP, all expenses that Wolcott and Bricker billed to AIP for
the 1994 and 1995 proxy contests as well as any expenses that
Wolcott and Bricker charge to AIP for prosecuting this lawsuit and
defending against these third party claims. Such damages exceed
the jurisdictional limit of this Court.
Eighth Cause of Action:
Breach of duty of care
against Wolcott and Bricker
167. The allegations in paragraphs 60 through 166 are
incorporated herein by reference.
168. Wolcott and Bricker owe a duty of care to AIP, which requires
them to be diligent and prudent in the management of the
affairs of AIP.
169. Wolcott and Bricker, through their grossly negligent
management of AIP, have breached this duty of care. The
management decisions of the Trust Managers have caused AIP to have
operating losses of millions of dollars. The market has taken
note of this poor performance; both the S&P 500 and the NAREIT
equity REIT Index have increased substantially between 1989 and
1994, while the market value of AIP's shares has fallen by more
than 50%. Industry analysts have labeled Wolcott's management
decisions "wacky."
170. Specifically, the incumbent Trust Managers' handling of the
MLI loan demonstrates gross negligence. Wolcott and Bricker
soured AIP's relations with MLI, its principal creditor, by
granting Amresco a security interest in many of AIP's properties.
As a result, MLI declared AIP in default of its loan, and Wolcott
and Bricker filed suit against MLI. The MLI lawsuit has brought
AIP to the brink of bankruptcy.
171. Wolcott's and Bricker's recent declarations of dividends
also exhibit gross negligence. Article fourteen of the
Declaration of Trust prohibits AIP from declaring a dividend when
the Trust is unable to pay debts or when payment of the dividend
would adversely impact the Trust's ability to pay its debts. The
MLI suit demonstrates clearly that AIP is unable to pay its debts,
rendering the Trust Managers' declaration of dividends illegal.
Furthermore, considering AIP's poor financial condition, any
payment of dividends is so inappropriate that it rises to the
level of gross negligence.
172. Pure World was a shareholder at the time of the above
acts and brings this derivative claim on behalf of AIP and against
Wolcott and Bricker.
173. Pure World has not demanded that AIP pursue this derivative
claim against Wolcott and Bricker, because such a demand would be
a purely ritualistic act. This derivative claim complains of
wrongdoing by the Trust Managers of AIP; it is highly unlikely
that these Trust Managers would cause AIP to file suit against
themselves.
174. This derivative claim is not brought collusively as an
attempt to invoke the jurisdiction of this court.
175. Pure World seeks, on behalf of AIP, as damages for the
breach of duty of care compensation for the financial losses
caused to Pure World by the grossly negligent actions of the
directors and the legal fees billed to AIP by its counsel in the
MLI litigation. Such damages exceed the jurisdictional limit of
this Court.
V.
RELIEF SOUGHT
176. Defendants Pure World, Inc. and Paul Koether
respectfully request that the Court dismiss the claims asserted
against them by Plaintiff AIP, deny all of the relief requested by
Plaintiff AIP against these Defendants, and award Pure World and
Paul Koether such additional relief as to which they may be
entitled, at law or in equity.
177. Counter-plaintiff and Third Party Plaintiff, Pure World,
Inc., further requests that Counter-defendant AIP and Third Party
Defendants Bricker and Wolcott be summoned to appear and answer
herein, and that the Court:
(1) Appoint a receiver for the assets and business of AIP;
(2) Grant Pure World, Inc. declaratory relief as requested
herein;
(3) Grant preliminary and permanent injunctive relief striking
all illegal bylaw amendments and prohibiting the Trust Managers
from further amending the bylaws without shareholder approval;
(4) Grant preliminary and permanent injunctive relief enjoining
the incumbent Trust Managers from further activity on behalf of
AIP until at least one additional Independent Trust Manager has
been duly appointed or elected;
(5) Enter judgment awarding Pure World, Inc. its actual damages
against Counter-defendant and Third Party Defendants, jointly and
severally;
(6) Enter judgment against Third Party Defendants Bricker and
Wolcott, awarding the Trust a recovery of the funds expended for
the unlawful compensation paid to Bricker and Wolcott and for the
improper proxy contests to entrench Bricker and Wolcott;
(7) Enter judgment for Pure World, Inc. for its reasonable
costs and attorneys fees incurred in bringing and prosecuting
this lawsuit;
(8) Enter judgment for Pure World, Inc. for prejudgment and
postjudgment interest to the maximum extent allowed by law; and
(9) Award Pure World, Inc. such other and further relief to
which it may be entitled at law or in equity.
VI.
JURY DEMAND
178. Defendants Pure World, Inc. and Paul 0. Koether demand a
trial by jury on Plaintiff's claims against them. Counter-
Plaintiff Pure World, Inc. demands a trial by jury on its claims
against Counter-Defendant American Industrial Properties REIT.
Third Party Plaintiff Pure World, Inc. demands a trial by jury on
its claims against Third Party Defendants, Charles Wolcott and
William Bricker.
Respectfully submitted,
COHAN, SIMPSON, COWLISHAW &
WULFF, L.L.P.
By: \s\ Robert M Cohan
Robert M. Cohan
State Bar No. 04506600
Kane St. John
State Bar No. 18986527
Jason Bergmann
State Bar No. 00790298
2700 One Dallas Centre
350 North St. Paul Street
Dallas, Texas 75201-4283
Telephone: (214) 754-0100
Facsimile: (214) 969-0430
ATTORNEYS FOR PURE WORLD, INC.
AND PAUL KOETHER
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing
Defendants' Answer and Pure World, Inc.'s Counterclaims and Third
Party Complaint and Jury Demand has been forwarded, via hand
delivery, to counsel for Plaintiff and Counter-Defendant, American
Industrial Properties REIT, on this 30th day of January, 1996, and
is being served upon Third Party Defendants, Charles Wolcott and
William Bricker, pursuant to Rule 4 of the Federal Rules of Civil
Procedure.
/s/ Robert M. Cohan
VERIFICATION
STATE OF NEW JERSEY SS
COUNTY OF SOMERSET SS
Paul 0. Koether, being duly sworn, deposes and says: I am the
Chairman and President of Pure World, Inc. Pure World, Inc. is
the Counter-plaintiff in this action and, individually and on
behalf of American Industrial Properties REIT, is the Third Party
Plaintiff herein.
I am authorized to make this verification for and on behalf of
Pure World, Inc.
I have read the foregoing counterclaims and third party complaint
and am familiar with the contents thereof. I verify that the
statements set forth therein are true, based upon either personal
knowledge or information contained in the files and records of
Pure World, Inc., except as to matters therein stated to be
alleged on information and belief, which matters I believe to be
true.
Paul 0. Koether
Chairman and President
Pure World, Inc.
SUBSCRIBED AND SWORN to before me this 29th day of January, 1996.
/s/ Marilyn D. Reehill
Notary Public in and for the State of New Jersey
My commission expires: 6/9/97
MARILYN D. REEHILL
NOTARY PUBLIC OF NEW JERSEY
My Commission Expires June 9,1997
