-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SiueyX68pZtCxxjzBGL7jzCGHKBoTEp+r7zlaN5E72Lc2m+v2D+PQv7jxqHFMepf 4Ich602r0+z87pZtePNz7w== 0000778437-96-000011.txt : 19960402 0000778437-96-000011.hdr.sgml : 19960402 ACCESSION NUMBER: 0000778437-96-000011 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT INC CENTRAL INDEX KEY: 0000778437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 756335572 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09016 FILM NUMBER: 96542650 BUSINESS ADDRESS: STREET 1: 6220 N BELTLINE RD STREET 2: STE 205 CITY: IRVING STATE: TX ZIP: 75063 BUSINESS PHONE: 2145506053 MAIL ADDRESS: STREET 1: 6220 N BELTLINE ROAD STREET 2: SUITE 205 CITY: IRVING STATE: TX ZIP: 75063 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INDUSTRIAL PROPERTIES REIT DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: TRAMMELL CROW REAL ESTATE INVESTORS DATE OF NAME CHANGE: 19931203 10-K405 1 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): 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)
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): 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
_____________________ (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: 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
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. 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
(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: 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
------------------------------------------- (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: 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
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: 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
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: 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)
- -------------------------------- (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. 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)
______________ (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) 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
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) 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
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) 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
The accompanying notes are an integral part of these financial statements. American Industrial Properties REIT Consolidated Statements of Cash Flows (in thousands) 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
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: 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
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: Year Amount 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
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) 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)
SCHEDULE III, continued AMERICAN INDUSTRIAL PROPERTIES REIT CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995 ($000's) 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
AMERICAN INDUSTRIAL PROPERTIES REIT NOTES TO SCHEDULE III December 31 1995 ($000) Reconciliation of Real Estate: 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
Reconciliation of Accumulated Depreciation: 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
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 EX-10.12 2 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 EX-10.13 3 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 EX-10.14 4 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 EX-27 5
5 1000 YEAR DEC-31-1995 DEC-31-1995 8,353 0 0 0 0 0 101,897 (23,441) 89,382 70,134 0 0 0 908 18,340 89,382 0 11,779 0 9,032 191 600 6,485 0 0 (4,529) 0 (55) 0 (4,584) (.51) (.51)
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