MonogramResidential Trust Inc. is pursuing legal action to deny its formerexternal manager a lucrative payday if the REIT is sold after mid-February 2017.

At issue are terms in the company's charter that grantedpreferred shares to the former manager, an affiliate of Behringer Investments.The shares have little par value, but convert to common stock if the company'sshare price rises above a certain threshold within a certain period.

Monogram has contended in the past that the measurementperiod, during which the shares can convert, ends in early 2017; Behringer hasargued that it ends roughly six months later. In an Oct. 3 filing, Monogramsaid a special committee of its board had confirmed its interpretation, fixingthe end of the conversion period at Feb. 13, 2017. As of that date, in theabsence of a conversion, the preferred stock will be canceled, the company said.

The dispute has new urgency because of that Monogram has a company sale. If thecompany were to change hands before the measurement period expires, for a pricehigher than the threshold, Behringer would be entitled to convert its preferredshares to common stock. If a deal were to close after the period expired, thepreferred shares would be worthless.

In a Sept. 15 note, Robert W. Baird analyst Drew Babin saidBehringer owns 10,000 of the preferred shares, and the hurdle price is between$11.60 and $11.90.

Depending on the company's exact share price as of theconversion, Behringer stands to gain more than 1 million common shares, andpossibly more than 3 million, with a potential value of more than $43 millionat the upper end of the share-count and price ranges, Babin said.

Monogram said in the new filing that its board's executivecommittee, which includes every board member except two who are affiliatedwith Behringer, claimed full authority to determine the mechanics of theconversion, and to resolve any claims or disputes relating to the preferredshares.

The executive committee also filed a complaint with theCircuit Court for Baltimore City, Md., seeking a judicial declaration that theboard's interpretation of the measurement period is "valid, final,conclusive and binding" on both the company and its stockholders,including Behringer.