<PAGE> 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, 1999
-----------------
OR
[ ] TRANSITION 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 0-8003
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TARRAGON REALTY INVESTORS, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 94-2432628
- --------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 PARK AVENUE, EAST BUILDING, 20TH FLOOR, NEW YORK, NY 10017
- -------------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 949-5000
--------------
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
9% SERIES A SUBORDINATED DEBENTURES DUE JUNE 30, 2003
COMMON STOCK, $.01 PAR VALUE
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 Regulation 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 this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 20, 2000, the Registrant had 7,970,801 shares of common stock
outstanding. Of the total shares outstanding, 4,954,216 were held by other than
those who may be deemed to be affiliated, for an aggregate value of $50,780,714
based on the last trade as reported by the National Association of Securities
Dealers Automated Quotation System on March 20, 2000. The basis of this
calculation does not constitute a determination by the Registrant that all of
such persons or entities are affiliates of the Registrant as defined in rule 405
of the Securities Act of 1933, as amended.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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INDEX TO
ANNUAL REPORT ON FORM 10-K
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Page
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PART I
Item 1. Business...................................................................... 3
Item 2. Properties.................................................................... 6
Item 3. Legal Proceedings............................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........................... 13
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................................ 14
Item 6. Selected Financial Data........................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... 25
Item 8. Financial Statements and Supplementary Data................................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................... 68
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 68
Item 11. Executive Compensation........................................................ 72
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 75
Item 13. Certain Relationships and Related Transactions................................ 79
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 80
Signature Page................................................................ 82
</TABLE>
2
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PART I
ITEM 1. BUSINESS
General
Tarragon Realty Investors, Inc., is a growth oriented, fully integrated real
estate development, acquisition, and management company. We control
approximately 17,000 apartment units and almost 2.5 million square feet of
commercial space located throughout the continental United States, with
concentrations in Florida, Texas, California, and Connecticut. Our primary
business and only industry segment is investing in and developing
income-producing real estate directly and through partnerships and joint
ventures. In February 2000, Tarragon elected not to be treated as a real estate
investment trust ("REIT") for federal income tax purposes in order to be able to
engage more fully in real estate operating activities.
We were incorporated in Nevada on April 2, 1997. We are the ultimate successor
in interest to Vinland Property Trust, a California business trust originally
established in July 1973, and National Income Realty Trust ("NIRT"), also a
California business trust, organized in October 1978.
In November 1998, we merged with NIRT, with Tarragon as the surviving entity. In
the merger, NIRT stockholders received 1.97 shares of Tarragon common stock for
each share of beneficial interest of NIRT they held. Immediately following the
merger, we acquired Tarragon Realty Advisors, Inc., our advisor since March 1994
and NIRT's advisor since April 1994, from William S. Friedman and his wife, Lucy
N. Friedman, for 100,000 shares of Tarragon common stock and options to acquire
350,000 additional shares at prices ranging between $13 and $16 per share. Mr.
Friedman also received options to acquire an additional 450,000 shares at prices
ranging between $12 and $15 per share in connection with his employment
agreement with Tarragon. Mr. Friedman is our President, Chief Executive Officer,
and a member of our Board of Directors, and Mr. and Mrs. Friedman are our
principal stockholders.
Tarragon's common stock is traded on the NASDAQ National Market System under the
symbol "TARR." Our principal executive offices are located at 280 Park Avenue,
East Building, 20th Floor, New York, New York 10017, telephone number
212-949-5000.
Business Plan and Investment Policy
Due to the nature and diversity of our properties and tenants, our business is
not seasonal. Our primary investment objective is to increase the value of our
real estate holdings per common share and, secondarily, to maximize funds from
operations and dividends to stockholders. As a matter of policy, cash dividends
to stockholders have been held to less than fifty percent of funds from
operations ("FFO"), as defined by the National Association of Real Estate
Investment Trusts (see ITEM 6. "SELECTED FINANCIAL DATA - Other Data" for the
definition of FFO).
Our real estate portfolio currently consists primarily of multifamily and
commercial properties, including office buildings and shopping centers, having
established income-producing capabilities. Our policy is to continuously improve
the performance and value of our existing properties through intensive
management and consistent capital improvements.
We also seek to improve the quality of our overall portfolio through development
of new projects and through selective and opportunistic acquisitions. In
selecting real estate for purchase, we consider the future prospects, location,
age and type of property, gross rentals, lease terms, financial and business
standing of tenants, operating expenses, fixed charges, land values, and
physical condition of the property. We often acquire under-managed and
under-performing multifamily projects that are not considered of institutional
quality in areas
3
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ITEM 1. BUSINESS (Continued)
Business Plan and Investment Policy (Continued)
where we presently operate to enhance the efficiency of our existing portfolio.
The actual number and mix in type of income-producing real estate and real
estate interests which we acquire will depend on the particular real estate,
market conditions, and other circumstances existing at the time of acquisition.
We also intend to invest increasing amounts in new construction and development
projects, either directly or in partnership with others.
We have financed acquisitions, development and capital improvements largely
through mortgages and internally generated funds, as well as through property
sales. We expect property sales and borrowings to provide the bulk of funds
available for investment in the future, so the availability and cost of
long-term mortgage funds are key factors in our ability to continue to make new
investments without additional equity offerings.
Currently, Tarragon has approximately 380 employees, including 280 site-level
property employees (such as property managers and maintenance staff) and 100
corporate employees. Tarragon has employment contracts only with Mr. Friedman
and Mr. Robert C. Rohdie, President and Chief Executive Officer of Tarragon
Development Corporation, a wholly-owned subsidiary of Tarragon, and a member of
our Board of Directors since February 2000. See ITEM 11. "EXECUTIVE
COMPENSATION" for the terms of their employment contracts.
Competition
Tarragon has not experienced difficulty in locating investment opportunities. We
believe that ownership of properties in which we invest is highly fragmented
among individuals, partnerships, public and private corporations, and REITs. No
single entity or person dominates the market for such properties. At any given
time, a significant number of apartment properties are available for purchase in
the various markets where we seek additional acquisitions. We believe that there
is and will continue to be a strong demand for well-maintained, affordable
housing in these markets and that the factors discussed above provide a market
where a sufficient number of attractive investment opportunities will be
available to allow Tarragon to continue to expand through acquisitions as well
as through the development of new properties. However, since the success of any
multifamily real estate investment is affected by factors outside of our
control, including general demand for apartment living, interest rates,
operating costs, and job growth, there can be no assurance that we will be
successful in our strategy to continue to expand through acquisitions and
development.
Certain Factors Associated with Real Estate and Related Investments
Tarragon is subject to the risks associated with ownership, operation, and
financing of real estate. These risks include, but are not limited to, liability
for environmental hazards; changes in general or local economic conditions;
changes in interest rates and the availability of permanent mortgage financing
which may render the acquisition, sale, or refinancing of a property difficult
or unattractive and which may make debt service burdensome; changes in real
estate and zoning laws; changes in income taxes, real estate taxes, or federal
or local economic or rent controls; floods, earthquakes, and other acts of
nature; and other factors beyond our control. The illiquidity of real estate
investments generally may impair our ability to respond promptly to changing
circumstances. We believe that some of these risks are partially mitigated by
the diversification by geographic region and property type of our real estate.
However, to the extent new investments continue to be concentrated in any
particular region or property type, the advantages of diversification may
diminish.
4
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ITEM 1. BUSINESS (Continued)
Acquisition of Joint Venture Interests
On February 7, 2000, Tarragon acquired the interests of Robert C. Rohdie and his
affiliates in ten apartment communities recently completed or currently under
construction, as well as in all joint venture development projects still in the
planning stages, for a total value of up to $10,000,000. Mr. Rohdie, Tarragon's
joint venture partner in the development of these projects, contributed his
equity interests to an operating partnership formed by Tarragon in exchange for
a preferred interest in the operating partnership and a guaranteed fixed return
of $200,000 for the first two years, increasing by $40,000 per year for the next
five years, plus an annual amount equal to the dividends payable on 96,385
shares of Tarragon common stock. In addition, upon completion and lease-up of
each of the five identified apartment communities presently under construction
or in advanced stages of development planning, Mr. Rohdie will receive an
increase in his guaranteed fixed return based upon the previously agreed value
of his equity in the completed property. After one year, Mr. Rohdie has the
right to convert his preferred interest in the operating partnership into 96,385
shares of our common stock and preferred stock with a face value of up to $8
million and a like dividend to his guaranteed fixed return from the operating
partnership. If we do not have available an issue of preferred stock outstanding
at the time of the conversion, or at our discretion, we may pay the cash value
of Mr. Rohdie's preferred interest over three years.
In connection with this transaction, Tarragon formed a new development
subsidiary to expand our real estate development and renovation program. Mr.
Rohdie joined Tarragon as President and Chief Executive Officer of Tarragon
Development Corporation and as a member of our Board of Directors effective
February 7, 2000.
Termination of REIT Status
On February 29, 2000, Tarragon filed a "Revocation of REIT Election" with the
Internal Revenue Service, effectively terminating our REIT status for the 2000
tax year. We first issued a press release announcing that we were contemplating
terminating our REIT status on October 28, 1999. The primary consideration in
the Board's decision to revoke our REIT election was the "5 or 50" rule: in
order to qualify as a REIT for federal income tax purposes, no more than 50% in
value of our outstanding common stock could be owned, actually or
constructively, by five or fewer individuals. Because our five largest
stockholders already own close to 50% of our outstanding common stock, the "5 or
50" rule limited our ability to attract institutional investors and to continue
our stock repurchase program. Our Board of Directors determined that these
actions were important to enhance stockholder value.
In addition, as a REIT, Tarragon could not engage in certain types of real
estate operations, such as condominium conversions, which the Board considered
to be attractive and potentially profitable lines of business. Because we have
substantial net operating loss carryforwards, the historical advantage of REIT
status, i.e. the ability to shield taxable income from double taxation at the
corporate and stockholder levels, appeared to be outweighed, in the Board's
judgment, by the disadvantages associated with these restrictions on operations
and share ownership.
5
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ITEM 2. PROPERTIES
At December 31, 1999, our real estate portfolio consisted of 107 properties, 33
of which were owned through partnerships, including 76 apartment communities, 10
office buildings, 13 retail buildings, seven tracts of land, and one house held
for rental. Of these properties, 93 were held for investment. The remaining 14
properties, some of which were obtained through foreclosure of collateral
securing mortgage loans receivable, were held for sale. We believe our
properties are adequately covered by liability and casualty insurance,
consistent with industry standards.
The following table summarizes certain information about our apartment and
commercial properties, including those owned through partnerships, by state. The
number of apartment units includes 506 units under construction owned through
partnerships and 320 units under construction owned directly.
Tarragon Realty Investors, Inc.
Real Estate Summarized By State
December 31, 1999
<TABLE>
<CAPTION>
Mortgage Loans Secured by Real Estate
-----------------------------------------------------------------
(dollars in thousands)
Number
of Commercial Weighted Balance
Apartment Square 12/31/99 Average Due at
Units Footage Balance Interest Maturity Maturity Dates
----------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
California 973 227,473 $ 39,293 7.48% $ 37,008 Jan-00 - Nov-29
Colorado 760 -- 19,400 9.01% 19,400 May-00 - Jun-00
Connecticut 2,580 163,986 87,740 7.64% 85,479 Jun-00 - Aug-08
Florida 5,604 463,151 194,623 8.54% 167,540 May-00 - Jan-19
Georgia 360 144,732 25,421 7.46% 23,567 May-01 - Jun-09
Illinois -- 105,363 1,850 8.48% 1,850 Jun-01
Kentucky 424 -- 8,400 7.47% 7,471 Jun-06 - Feb-09
Louisiana 320 -- 6,880 6.56% 5,907 Jan-09
Maryland 459 -- 16,472 7.88% 117 Jan-31
Michigan 169 30,650 5,399 6.96% 4,715 Mar-08
Mississippi -- 341,361 -- -- -- --
Nevada -- 39,600 2,187 8.98% 2,157 Dec-04
North Carolina -- 5,200 -- -- -- --
Ohio 504 -- 5,136 8.02% 4,416 Jan-06
Oklahoma 394 -- 7,408 7.51% 6,580 Feb-02 - Feb-10
Tennessee 832 -- 14,809 8.42% 13,965 Jun-00 - Dec-05
Texas 2,010 260,597 67,117 8.27% 59,064 Feb-00 - Dec-05
Washington DC -- 62,229 4,147 7.12% 3,959 Jun-03
Wisconsin -- 214,620 -- -- -- --
----------- ----------- ---------- ---------- -----------
15,389 2,058,962 $ 506,282 7.99% $ 443,195
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</TABLE>
Notes:
(1) This schedule includes information about number of apartment units,
commercial square footage, and mortgage loans on real estate owned both
directly and through unconsolidated joint ventures. It does not include
such information about land, the house held for rental, properties in early
stages of development, or properties we manage in which we hold no
ownership interest.
(2) Weighted average interest is based on the December 31, 1999, balance for
each mortgage loan and is computed using the stated interest rates for
fixed rate mortgages and the interest rates in effect as of December 31,
1999, for variable rate mortgages.
6
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ITEM 2. PROPERTIES (CONTINUED)
The following table lists each of our operating properties owned directly and
through partnerships and presents certain operating and mortgage loan
information for each property. The seven parcels of land, three properties with
826 apartment units currently under construction, and the house held for rental
are not reflected on this schedule. One of the parcels of land is encumbered by
a $2 million mortgage, and another is subject to a $1.1 million land loan. The
property with 320 units under construction is encumbered by a construction loan
of $13.3 million. The two properties with 506 units under construction are owned
through partnerships and are encumbered by construction loans totaling $10.9
million.
[This space intentionally left blank.]
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TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MORTGAGE LOANS SECURED BY REAL ESTATE
-------------------------------------
(DOLLARS IN THOUSANDS)
NUMBER OF PHYSICAL 12/31/99 STATED BALANCE
APARTMENT SQUARE OCCUPANCY MARKET 12/31/99 INTEREST DUE AT MATURITY
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b) BALANCE RATE(c) MATURITY DATE
- -------------------------- --------------------- --------- ------- ----------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Directly owned properties:
Apartments
Acadian Place Baton Rouge, LA 120 143,450 92% $ 5.91 $ 3,217 6.56% $ 2,759 Jan-09
Aspentree Dallas, TX 296 212,864 94% 9.61 3,784 8.33% 3,390 Nov-05
Bay West Bradenton, FL 299 323,774 71% 6.73 4,669 8.89% -- Jan-19
Bayfront Houston, TX 200 172,720 94% 8.03 4,242 5.99% 3,605 Nov-08
The Brooks Addison, TX 104 94,176 97% 8.64 3,137 7.25% 2,735 Jun-09
Bryan Hill Bethany, OK 232 193,500 91% 6.11 3,429 6.93% 2,998 Jan-08
783 8.20% 692 Feb-10
Carlyle Towers Detroit, MI 169 256,700 95% 6.72 5,399 6.96% 4,715 Mar-08
Collegewood Tallahassee, FL 162 83,700 90% 10.78 1,993 8.98% 1,867 Nov-02
Cornell Los Angeles, CA 55 30,150 98% 18.09 2,369 6.16% 2,021 Nov-08
Courtyard at the Park Miami, FL 127 106,266 100% 10.38 4,250 8.48% 4,250 Jun-01
Creekwood North Altamonte Springs, FL 180 166,500 97% 7.33 2,949 8.05% 2,678 May-06
Cross Creek Lexington, KY 144 102,258 93% 9.78 2,528 7.54% 2,367 Oct-07
Desert Winds Jacksonville, FL 152 121,056 97% 9.53 1,290 8.50% 341 Jul-10
Devonshire Denver, CO 760 512,800 94% 10.58 15,900 8.98% 15,900 Jun-00
3,500 9.13% 3,500 May-00
Diamond Loch Fort Worth, TX 138 139,354 91% 7.79 3,445 6.80% 3,005 Mar-08
English Village Memphis, TN 300 364,680 97% 6.15 5,809 7.56% 4,965 Dec-05
Fenway Hall Los Angeles, CA 53 27,175 96% 15.60 1,266 8.13% 655 Oct-08
Forest Oaks Lexington, KY 154 132,460 88% 7.64 2,868 8.16% 2,501 Jun-06
Fountainhead Kissimmee, FL 184 187,080 92% 8.82 5,650 8.98% 5,650 Jun-00
French Villa Tulsa, OK 84 84,720 96% 8.76 1,906 6.82% 1,648 Jan-09
Heather Hills Temple Hills, MD 459 401,029 95% 10.25 16,472 7.88% 117 Jan-31
Holly House North Miami, FL 57 45,417 98% 10.59 1,739 6.57% 1,498 Nov-08
Kirklevington Lexington, KY 126 99,080 98% 8.44 3,003 6.74% 2,604 Feb-09
Lake Point Memphis, TN 532 531,960 82% 5.66 9,000 8.98% 9,000 Jun-00
Landmark Tallahassee, FL 128 113,720 87% 7.47 1,500 8.98% 1,500 Jun-00
1,000 9.13% 1,000 May-00
Marina Park Miami, FL 90 83,700 98% 11.49 3,691 6.89% 3,215 Jun-08
Mariposa Manor Los Angeles, CA 41 19,710 98% 10.99 736 7.75% 730 Apr-02
Martins Landing Lakeland, FL 236 207,704 92% 8.00 4,689 7.65% 4,014 Dec-05
1,843 8.43% 1,684 Dec-05
Meadowbrook Baton Rouge, LA 200 126,736 97% 8.98 3,663 6.56% 3,148 Jan-09
Mission Trace Tallahassee, FL 96 104,400 85% 6.79 1,621 7.85% -- May-06
</TABLE>
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TARRAGON REALTY INVESTORS, INC.
SUMMARYOF OPERATING REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
MORTGAGE LOANS SECURED BY REAL ESTATE
-------------------------------------
(DOLLARS IN THOUSANDS)
NUMBER OF PHYSICAL 12/31/99 STATED BALANCE
APARTMENT SQUARE OCCUPANCY MARKET 12/31/99 INTEREST DUE AT MATURITY
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b) BALANCE RATE(c) MATURITY DATE
- -------------------------- --------------------- --------- --------- ----------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Directly owned properties:
Apartments
Mission Trace (continued) $ 212 7.60% $ -- May-06
Morningside Jacksonville, FL 112 89,200 96% 7.68 1,574 8.35% 1,474 Apr-03
Mustang Creek Arlington, TX 120 167,880 93% 7.54 4,600 8.48% 4,600 Jun-01
805 8.48% 805 Jun-01
Newport Jacksonville, FL 152 139,364 94% 9.96 4,931 8.18% 4,498 Apr-06
Palm Court Miami, FL 144 125,280 92% 9.38 2,816 9.67% 2,525 Dec-04
Palm Grove Orlando, FL 142 98,017 96% 9.07 1,251 8.50% -- Feb-12
Park Dale Gardens Dallas, TX 224 206,640 94% 7.28 2,808 8.30% 2,448 Jul-05
Park Norton Los Angeles, CA 55 21,744 95% 13.05 527 5.69% 490 Jun-05
Park Place Los Angeles, CA 39 15,640 97% 12.59 -- -- -- --
Pinecrest Ft. Lauderdale, FL 326 227,541 95% 15.70 14,152 7.96% 8,799 Apr-17
3,195 7.81% 2,794 Apr-07
Prado Bay North Bay Village, FL 124 109,756 90% 11.27 4,704 7.05% 4,124 Jan-08
The Regent Jacksonville, FL 304 288,320 89% 6.29 4,900 8.48% 4,900 Jun-01
River City Landing Jacksonville, FL 352 357,200 81% 6.80 7,743 8.98% 7,743 Jun-00
Riverside Austin, TX 145 109,068 98% 11.17 4,114 7.16% 3,627 Dec-07
877 8.09% 775 Jan-10
Silver Creek Tallahassee, FL 152 144,240 93% 7.31 1,220 8.50% -- May-12
Southern Elms Tulsa, OK 78 65,668 95% 7.91 1,290 9.68% 1,242 Feb-02
Summit on the Lake Ft. Worth, TX 198 138,262 91% 9.48 4,666 6.35% -- Aug-27
Vistas at Lake Worth Ft. Worth, TX 265 244,639 83% 9.04 9,500 8.74% 9,500 May-00
Woodcreek Jacksonville, FL 260 199,484 95% 8.43 6,986 6.79% 6,057 Sep-08
----- --------- --- --------- -------- ---- --------
APARTMENTS (d) 9,070 7,936,782 91% 8.45 216,211 8.00% 167,153
----- --------- --- --------- -------- ---- --------
Office Buildings
1505 Highway 6 Houston, TX -- 62,934 26% 14.94 2,000 8.97% 2,000 Nov-01
Emerson Center (e) Atlanta, GA -- 126,979 89% 14.88 6,915 7.38% 6,915 Feb-03
Northwest O'Hare Des Plaines, IL -- 105,363 86% 15.54 1,850 8.48% 1,850 Jun-01
Orlando Central Park Orlando, FL -- 138,574 75% 15.82 8,000 9.73% 8,000 Jun-01
Park 20 West Tallahassee, FL -- 69,065 99% 14.81 1,831 8.68% 1,415 Mar-06
Rancho Sorrento (f) San Diego, CA -- 147,973 85% 10.49 2,494 9.00% 2,400 Aug-00
2,481 8.13% 1,598 Mar-09
Tarzana Towne Plaza San Diego, CA -- 37,208 72% 21.83 2,897 9.81% 2,613 Nov-06
----- --------- --- --------- -------- ---- --------
OFFICE BUILDINGS (d) -- 688,096 79% 14.60 28,468 8.76% 26,791
----- --------- --- --------- -------- ---- --------
</TABLE>
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TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF PHYSICAL 12/31/99
APARTMENT SQUARE OCCUPANCY MARKET
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b)
- --------------------------------------- ------------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Directly owned properties:
Shopping Centers
Briarwest Houston, TX -- 25,323 86% $14.10
Emerson Center (e) Atlanta, GA -- 17,753 100% 15.52
Jackson Square Jackson, MS -- 341,361 37% 3.49
K-Mart Plaza (g) Charlotte, NC -- 5,200 100% 17.88
K-Mart Plaza Temple Terrace, FL -- 63,887 100% 3.65
Lakeview Mall Manitowoc, WI -- 214,620 33% 3.28
Mariner Plaza Panama City, FL -- 52,288 98% 6.30
Midland Plaza Midland, MI -- 30,650 100% 3.38
Midway Mills Carrollton, TX -- 72,065 87% 11.79
Northside Center (h) Gainesville, FL -- 139,337 99% 4.23
Stewart Square Las Vegas, NV -- 39,600 97% 10.78
Times Square Lubbock, TX -- 19,550 84% 6.84
University Center (i) Waco, TX -- 80,725 43% 4.85
----- --------- --- ------
SHOPPING CENTERS (d) -- 1,102,359 62% 5.31
----- --------- --- ------
TOTAL DIRECTLY OWNED (d) 9,070 9,727,237 87% $ 8.53
----- --------- --- ------
Properties owned through partnerships:
801 Pennsylvania Avenue
801 Pennsylvania Avenue Office Building Washington, DC -- 62,229 88% 28.15
Ansonia Apartments, L.P. (70%)
Autumn Ridge East Haven, CT 116 46,400 97% 14.99
Dogwood Hills Hamden, CT 46 39,698 98% 11.79
Emerald Point New London, CT 253 108,790 82% 12.78
Fox Run Ledyard, CT 172 146,028 92% 9.47
Foxon Woods East Haven, CT 78 39,000 91% 14.60
Groton Towers Groton, CT 114 75,582 92% 13.07
Gull Harbor New London, CT 65 39,390 89% 11.63
Hamden Center Hamden, CT 65 41,145 95% 13.88
Lakeview Waterbury, CT 88 74,272 98% 8.54
Meriden East Meriden, CT 66 49,698 97% 9.84
<CAPTION>
MORTGAGE LOANS SECURED BY REAL ESTATE
--------------------------------------------
(DOLLARS IN THOUSANDS)
STATED BALANCE
12/31/99 INTEREST DUE AT MATURITY
PROPERTY BALANCE RATE(c) MATURITY DATE
- --------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Directly owned properties:
Shopping Centers
Briarwest $ 1,653 9.23% $ 1,603 Nov-04
Emerson Center (e) -- -- -- --
Jackson Square -- -- -- --
K-Mart Plaza (f) -- -- -- --
K-Mart Plaza 760 8.50% 70 May-05
Lakeview Mall -- -- -- --
Mariner Plaza 1,709 7.15% 1,467 Jan-09
Midland Plaza -- -- -- --
Midway Mills 3,979 8.64% 3,465 Dec-05
Northside Center (g) 1,383 9.00% -- Nov-05
Stewart Square 2,188 8.98% 2,156 Dec-04
Times Square -- -- -- --
University Center 1,100 9.48% 1,100 Feb-00
------- ------ --------
SHOPPING CENTERS (d) 12,772 8.68% 9,861
------- ------ --------
TOTAL DIRECTLY OWNED (d) 257,451 8.11% 203,805
------- ------ --------
Properties owned through partnerships:
801 Pennsylvania Avenue
801 Pennsylvania Avenue Office Building 4,147 7.12% 3,959 Jun-03
Ansonia Apartments, L.P. (70%)
Autumn Ridge 1,459 7.25% 1,372 Dec-02
Dogwood Hills 2,009 8.00% 2,009 Nov-02
Emerald Point 3,482 8.00% 3,482 Nov-02
Fox Run 5,797 7.09% 5,012 Aug-08
Foxon Woods 1,964 7.09% 1,687 Aug-08
Groton Towers 4,180 7.60% 4,180 Aug-01
Gull Harbor 1,200 8.00% 1,200 Nov-02
Hamden Center 2,908 8.00% 2,908 Nov-02
Lakeview 2,420 8.00% 2,420 Jun-00
Meriden East 1,387 7.33% 1,304 Dec-02
</TABLE>
10
<PAGE> 11
TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF PHYSICAL 12/31/99
APARTMENT SQUARE OCCUPANCY MARKET
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b)
- ---------------------------------------- ------------------ --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Properties owned through partnerships:
Ansonia Apartments, L.P. (70%)
Ocean Reef New London, CT 163 121,272 91% $ 11.88
Parkview Naugatuck, CT 160 150,240 97% 9.33
Sagamore Hills Middletown, CT 212 160,272 89% 11.00
Sandalwood New London, CT 39 21,840 82% 11.25
Whalers' Point/Nutmeg Woods New London, CT 382 276,950 87% 11.50
Woodcliff Estates East Hartford, CT 561 371,943 84% 11.56
Antelope Pines Estates, L.P. (49%)
Antelope Pines Lancaster, CA 314 311,888 94% 7.07
Danforth National Apartments, Ltd. (80%)
The Club at Danforth Jacksonville, FL 288 305,460 92% 8.72
Larchmont Associates, L.P. (57%)
Larchmont West Toledo, OH 504 340,094 87% 6.91
Merritt 8 Acquisitions, L.L.C. (80%)
Merritt 8 Corporate Park Stratford, CT -- 163,986 97% 17.07
National Omni Associates, L.P. (70%)
5600 Collins Avenue Miami Beach, FL 289 372,939 86% 13.29
Orange National Partners, L.P. (50%)
Vineyard at Eagle Harbor Orange Park, FL 328 354,136 65% 8.58
RI Panama City, Ltd. (50%)
Harbour Green Panama City, FL 200 205,200 81% 8.68
RI Windsor, Ltd. (50%)
Mayfaire at Windsor Parke Jacksonville, FL 324 339,886 93% 9.93
Sacramento Nine (70%)
Prospect Park Office Building Rancho Cordova, CA -- 42,292 100% 18.52
<CAPTION>
MORTGAGE LOANS SECURED BY REAL ESTATE
---------------------------------------------------------
(DOLLARS IN THOUSANDS)
STATED BALANCE
12/31/99 INTEREST DUE AT MATURITY
PROPERTY BALANCE RATE(c) MATURITY DATE
- ---------------------------------------- -------- --------- ------------ --------
<S> <C> <C> <C> <C>
Properties owned through partnerships:
Ansonia Apartments, L.P. (70%)
Ocean Reef $ 5,166 8.00% $ 5,166 Nov-02
Parkview 4,848 7.60% 4,595 Jun-01
Sagamore Hills 4,343 8.00% 4,193 Jun-01
Sandalwood 1,242 8.00% 1,242 Nov-02
Whalers' Point/Nutmeg Woods 13,757 7.00% 13,478 Aug-01
Woodcliff Estates 13,577 7.00% 13,231 Jul-01
Antelope Pines Estates, L.P. (49%)
Antelope Pines 11,700 6.25% 11,700 Nov-29
Danforth National Apartments, Ltd. (80%)
The Club at Danforth 15,028 7.56% 13,077 Oct-09
Larchmont Associates, L.P. (57%)
Larchmont West 5,136 8.02% 4,416 Jan-06
Merritt 8 Acquisitions, L.L.C. (80%)
Merritt 8 Corporate Park 18,000 7.86% 18,000 Sep-01
National Omni Associates, L.P. (70%)
5600 Collins Avenue 24,800 7.65% 24,800 Feb-01
Orange National Partners, L.P. (50%)
Vineyard at Eagle Harbor 15,683 8.46% 15,683 Feb-01
RI Panama City, Ltd. (50%)
Harbour Green 9,525 7.40% 9,525 Nov-04
RI Windsor, Ltd. (50%)
Mayfaire at Windsor Parke 18,830 7.56% 16,386 Oct-09
Sacramento Nine (70%)
Prospect Park Office Building 23 7.96% -- Jan-00
</TABLE>
11
<PAGE> 12
TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF PHYSICAL 12/31/99
APARTMENT SQUARE OCCUPANCY MARKET
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b)
- -------------------------------------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Properties owned through partnerships:
Tarragon Savannah, L.P. (50%)
The Links at Georgetown Savannah, GA 250 291,626 92% $ 7.81
Woodcreek Garden Apartments, L.P.
(49%)
Woodcreek Garden Lancaster, CA 416 369,696 89% 7.96
------ ---------- --- ------
ALL PARTNERSHIP PROPERTIES (d) 5,493 4,921,952 86% 10.35
------ ---------- --- ------
ALL PROPERTIES (d) 14,563 14,649,189 87% $ 9.14
====== ========== === ======
<CAPTION>
MORTGAGE LOANS SECURED BY REAL ESTATE
---------------------------------------------------
(DOLLARS IN THOUSANDS)
STATED BALANCE
12/31/99 INTEREST DUE AT MATURITY
PROPERTY BALANCE RATE(c) MATURITY DATE
- -------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Properties owned through partnerships:
Tarragon Savannah, L.P. (50%)
The Links at Georgetown $ 14,088 7.31% $ 12,234 Jun-09
Woodcreek Garden Apartments, L.P.
(49%)
Woodcreek Garden 12,800 6.22% 12,800 Apr-04
2,000 .02% 2,000 Apr-04
-------- ----- --------
ALL PARTNERSHIP PROPERTIES (d) 221,499 7.38% 212,059
-------- ----- --------
ALL PROPERTIES (d) $478,950 7.77% $415,864
======== ===== ========
</TABLE>
(a) Represents physical occupancy as of the end of the last week of the fiscal
year ended December 31, 1999.
(b) Represents annualized market rental rate per square foot at December 31,
1999, based upon scheduled rents at that date.
(c) For variable rate mortgages, the interest rate in effect at December 31,
1999, is presented.
(d) The total lines for physical occupancy, market rent per square foot, and
interest rate represent weighted averages. The weighted average occupancy
and rent are based on the square footage in each property. The weighted
average interest rate is based on the December 31, 1999, mortgage balances.
(e) The $6.9 million mortgage is secured by both the office and retail portions
of Emerson Center.
(f) The $2.5 million mortgage scheduled to mature in August 2000 was paid off
in connection with the sale of three of the four buildings of Rancho
Sorrento in January 2000.
(g) The former K-Mart store was sold for $1.1 million in May 1999. The
remaining property consists of seven acres of land and free standing
retail.
(h) K-Mart's lease expires September 2002. K-Mart moved out in 1993 and
continues to pay the scheduled rent on the portion of the space it has not
sublet.
(i) In February 2000, the maturity date of the $1.1 million mortgage was
extended to May 2001.
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
Tarragon is a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of these claims
and litigation, individually or in the aggregate, will have a material adverse
effect on our business, financial position, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.
[This space intentionally left blank.]
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the NASDAQ National Market System under the symbol
"TARR." Prior to the merger of NIRT and Tarragon on November 24, 1998, the NIRT
shares of beneficial interest were listed on the NASDAQ National Market. At that
time, and for several years preceding that event, our common stock was listed on
the NASDAQ Small Cap Market under the symbol "VIPT." Following the merger, we
applied for and obtained the listing of our common stock on the NASDAQ National
Market effective May 3, 1999.
The following table sets forth the high and low bid quotations of our common
stock reported by the NASDAQ system for the periods indicated. Over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
High Low High Low
------- ------- ------ -------
<S> <C> <C> <C> <C>
First quarter $ 12.25 $ 11.00 $ 9.14 $ 7.99
Second quarter 13.06 10.63 10.85 8.88
Third quarter 14.00 9.88 14.02 10.66
Fourth quarter 15.63 10.00 12.31 10.00
</TABLE>
According to the transfer agent's records, at March 20, 2000, our common stock
was held by approximately 10,000 holders, including beneficial holders. On
March 20, 2000, the closing price of our common stock was $10.25.
Cash dividends per share paid to stockholders in 1999 and 1998 were as follows
(restated to give effect to the November 1998 merger):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
First quarter $.105 $.102
Second quarter .105 .102
Third quarter .105 .102
Fourth quarter .105 .105
</TABLE>
Future dividends to stockholders are dependent upon Tarragon's income, financial
condition, capital requirements, cash flow, tax status, and other factors deemed
relevant by our Board of Directors. The Board intends to continue its current
policy of paying cash dividends to stockholders in an amount not to exceed
one-half of funds from operations. Beginning in 2000, dividends to common
stockholders will be paid annually rather than quarterly, as has been the
practice in the past.
EXCHANGE OFFER
On March 22, 2000, Tarragon announced an offer to exchange one share of 10%
Cumulative Preferred Stock for each share of common stock held by its
stockholders, up to a maximum of 2,000,000 shares. This exchange offer is
scheduled to expire at 5:00 p.m., New York City time, on May 3, 2000, unless
extended.
The exchange offer is directed to those holders of Tarragon common stock who
would prefer to hold a security with a fixed dividend yield and a fixed
liquidation preference in the event of redemption or other disposition of the
security. The exchange offer is not part of any plan to "go private" and not
the first in any series of transactions designed to have a resulting effect upon
the outstanding common stock. However, to the extent shares of common stock are
exchanged for shares of 10% Cumulative Preferred Stock pursuant to the exchange
offer, the number of shares of common stock outstanding in the hands of the
public stockholders will initially decrease. Assuming the maximum of 2,000,000
shares of common stock are tendered pursuant to the exchange offer, a minimum of
3,009,118 shares of common stock will continue to remain in the hands of public
stockholders. The exchange offer should not have an adverse effect upon the
listing of our common stock on the NASDAQ National Market.
The class of 10% Cumulative Preferred Stock will be designated to consist of
2,500,000 shares. The number of shares which may be issued pursuant to the
Exchange Offer is limited to 2,000,000 shares (subject to increase in certain
events), which would result in 500,000 shares being available in the event that
we elect to accept more than the maximum for exchange, for future distribution
in connection with the acquisition of assets, or for other uses, at the
discretion of our Board of Directors.
The 10% Cumulative Preferred Stock will pay a fixed dividend of $1.20 per year,
and has a liquidation value of $12 per share. It is a class of equity and is
junior in ranking in right of payment to our outstanding indebtedness, but is
senior to common stock. It ranks on a parity as to dividends and liquidation
with all other shares of special or preferred stock which we might issue.
Shares of 10% Cumulative Preferred Stock may be redeemed at Tarragon's option at
any time after June 30, 2003, at the liquidation value plus a premium of $0.50
per share reducing by $0.10 per share each year thereafter. No mandatory
redemption or "sinking fund" is required. The 10% Cumulative Preferred Stock
has only the voting rights specifically required by law under the Nevada General
Corporation Law, and is not convertible into any other securities of Tarragon.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
Please read the following information along with the Consolidated Financial
Statements and Notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.
Because the merger of Tarragon and NIRT was treated as a reverse acquisition of
Tarragon by NIRT for accounting purposes, pre-merger historical balances and
operating information presented below are those of NIRT. Dollar amounts are in
thousands, except per share amounts.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue ................................... $ 73,756 $ 58,700 $ 52,017 $ 49,962 $ 45,240
Expenses .................................. (79,905) (61,095) (51,749) (49,176) (46,214)
----------- ----------- ----------- ----------- -----------
Income (loss) before net gain on sale
of real estate, gain on sale of
investments, gain on insurance
settlement, litigation settlement, and
extraordinary items ...................... (6,149) (2,395) 268 786 (974)
Net gain on sale of real estate ........... 11,969 2,108 4,350 3,700 533
Gain on sale of investments ............... -- 123 913 -- 412
Gain on insurance settlement .............. 231 -- -- 451 --
Litigation settlement ..................... (350) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations .............................. 5,701 (164) 5,531 4,937 (29)
Extraordinary items ....................... (444) (1,231) 61 -- 737
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ 5,257 $ (1,395) $ 5,592 $ 4,937 $ 708
=========== =========== =========== =========== ===========
PER SHARE DATA (1)
EARNINGS PER SHARE
Income (loss) from continuing
operations .............................. $ .69 $ (.02) $ .72 $ .60 $ --
Extraordinary items ....................... (.05) (.16) .01 -- .09
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ .64 $ (.18) $ .73 $ .60 $ .09
=========== =========== =========== =========== ===========
Weighted average shares (2) .................. 8,220,280 7,619,604 7,693,031 8,161,197 8,222,799
EARNINGS PER SHARE - ASSUMING DILUTION
Income (loss) from continuing
operations .............................. $ .68 $ (.02) $ .71 $ .60 $ --
Extraordinary items ....................... (.05) (.16) .01 -- .09
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ .63 $ (.18) $ .72 $ .60 $ .09
=========== =========== =========== =========== ===========
Weighted average shares -
assuming dilution (2) ..................... 8,327,120 7,619,604 7,769,296 8,197,049 8,223,800
Dividends (3) ................................ $ .42 $ .41 $ .38 $ .34 $ .31
</TABLE>
- --------------------------------------------
(1) Share and per share data have been restated to give effect to the merger of
Tarragon with NIRT on the basis of 1.97 shares of Tarragon common stock for
each share of beneficial interest of NIRT and 10% stock dividends paid by
NIRT in September 1996 and September 1997.
(2) Represents the weighted average shares of common stock used in the
computation of earnings per share and earnings per share - assuming
dilution.
(3) Dividends in 1995 through 1998 represented return of capital. Dividends in
1999 were 42% taxable to stockholders as ordinary income and 58% return of
capital.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate ........................... $305,324 $293,975 $233,936 $193,722 $195,675
Notes and interest receivable (1) ..... -- -- -- -- 6,388
Investments in and advances to
partnerships ....................... 48,834 37,356 13,839 4,739 10,780
Total assets .......................... 379,065 357,060 265,640 211,341 222,038
Notes, debentures, and interest payable 287,767 263,361 184,126 134,270 144,497
Stockholders' equity .................. 72,993 76,685 71,091 69,063 69,627
Book value per share .................. $ 9.13 $ 9.06 $ 9.47 $ 9.95 $ 10.42
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA
Cash flows provided by (used in):
Operating activities ..................... $ 9,184 $ 2,533 $ 3,261 $ 3,795 $ 2,030
Investing activities ..................... (29,393) (43,828) (43,813) (436) (5,436)
Financing activities ..................... 21,718 39,475 40,952 (1,171) 1,596
Calculation of funds from operations:
Net income (loss) ........................ $ 5,257 $ (1,395) $ 5,592 $ 4,937 $ 708
Extraordinary items ...................... 444 1,231 (61) -- (737)
Litigation settlement .................... 350 -- -- -- --
Gain on insurance settlement (2) ......... (231) -- -- (451) --
Net gain on sale of real estate .......... (11,969) (2,108) (4,350) (3,700) (533)
Gain on sale of investments .............. -- -- (215) -- --
Depreciation and amortization
of real estate assets .................. 10,979 7,602 7,225 5,374 5,959
Depreciation and amortization
of real estate assets of partnerships... 4,641 1,892 356 305 882
Distributions from partnerships
in excess of investment in the
partnerships ........................... (9) (338) (41) (899) --
-------- -------- -------- ------- -------
Funds from operations (3) ..................... $ 9,462 $ 6,884 $ 8,506 $ 5,566 $ 6,279
======== ======== ======== ======= =======
</TABLE>
- --------------------------------------------
(1) Notes and interest receivable have been classified with other assets since
December 31, 1996.
(2) The 1999 gain on insurance settlement relates to Lake Point Apartments.
Fire destroyed one building with eight units which was not rebuilt.
Insurance proceeds exceeded the sum of demolition costs, adjuster fees,
other costs, and the portion of the property's carrying value written off.
The 1996 gain on insurance settlement represents Tarragon's share of gain
realized by a partnership in which we held a 40% interest. The insurance
proceeds from the destruction of a partnership property that was not
rebuilt exceeded the basis of the property.
(3) Tarragon considers funds from operations ("FFO") to be an appropriate
measure of the performance of a real estate company. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), equals
net income (loss), computed in accordance with generally accepted
accounting principles ("GAAP"), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization of
real estate assets, and after adjustments for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect FFO on the same basis. The amortization
of deferred financing costs is not added back to net income (loss) in our
calculation, consistent with our historical method of calculating FFO. In
October 1999, NAREIT clarified the definition of FFO. Consistent with this
clarification, nonrecurring items that are not defined as extraordinary
under GAAP will be reflected in the calculation of FFO. Extraordinary items
and gains and losses from sales of depreciable operating property will
continue to be excluded from FFO.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA (Continued)
The clarification of FFO is effective January 1, 2000. Even though we have
terminated our status as a REIT, we will continue to report FFO using the
clarification beginning in the first quarter of 2000. We believe that FFO
is useful to investors as a measure of the performance of a real estate
company because, along with cash flows from operating activities,
investing activities, and financing activities, it provides investors an
understanding of our ability to incur and service debt and to make capital
expenditures. We also believe that a clear understanding of our operating
results is best gained by examining FFO along with net income (loss) as
shown in the Consolidated Financial Statements and Notes. FFO does not
represent cash generated from operating activities in accordance with
GAAP, and is not an alternative to net income as an indication of our
operating performance or to cash flow as a measure of liquidity, nor is it
necessarily indicative of cash available to fund cash needs and cash
dividends. Our calculation of FFO may be different from the methods used
by other companies and, therefore, may not be comparable to other
companies.
Effective January 1, 1997, we modified our calculation of FFO to include
the add back of amortization of leasing commissions associated with our
commercial properties. We believe this treatment is consistent with a
majority of other real estate companies. If we had calculated FFO in the
same manner for the years ended December 31, 1996 and 1995, FFO would have
been higher by $262,000 and $272,000, respectively.
Included in FFO for the years ended December 31, 1998, 1997 and 1995, are
gains totaling $123,000, $698,000, and $412,000, respectively, resulting
from the sale of investments in marketable equity securities.
Included in FFO for the year ended December 31, 1996, is a provision for
loss of $300,000 related to the write-down of Mariposa Manor to its
estimated fair value. Included in FFO for the year ended December 31,
1995, is a provision for loss credit of $425,000. The provision for loss
credit was comprised of the reversal of a $700,000 allowance provided in
1993 against Pepperkorn Office Building and a provision of $275,000 to
reduce the carrying value of K-Mart Shopping Center in Kansas City,
Missouri, to the net sale proceeds received in July 1995.
[This space intentionally left blank.]
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Please read this discussion along with the Consolidated Financial Statements and
Notes found at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Liquidity and Capital Resources
Our principal sources of cash are property operations, borrowings, and proceeds
from the sale of properties. We believe these sources will continue to meet our
cash requirements, including debt service payments, property maintenance and
improvements, development costs on construction properties, projected purchases
of operating properties, dividends, and planned repurchases of common stock.
Although we expect these sources of cash to be more than sufficient to fund
planned uses of cash, we make no assurance that the expected sales and
refinancings of properties will be completed as planned.
Net cash from property operations (rentals collected less payments for property
operations) has provided $88 million since the beginning of 1997. In 1997,
operations of properties contributed approximately $21 million. In 1998, this
source increased to $28 million, and in 1999, increased to $39 million. The
addition of 13 properties to the portfolio in connection with the merger of
Tarragon and NIRT was the primary factor in the 39% increase for 1999 over 1998.
Therefore, net cash from property operations is expected to increase at a much
lower rate in 2000.
Since the beginning of 1997, proceeds from borrowings generated $213 million
from the refinancing of mortgages on directly owned properties, construction
loan fundings, and borrowings under line of credit facilities ($4.7 million of
which was advanced by affiliates of William S. Friedman, President, Chief
Executive Officer, and a Director of Tarragon) and $8.8 million of repayment of
advances or capital distributions from partnerships in connection with
refinancing of partnership properties. The following table provides summary
information about borrowings, which are expected to continue to be a key source
of cash for Tarragon.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
(in millions)
<S> <C> <C> <C>
Proceeds from mortgage refinancing $29.5 $77.7 $77.3
Proceeds from non-mortgage financing 6.7 -- 2.2
Proceeds from construction loan fundings 12.6 1.9 --
Advances (repayment of advances)
from affiliates (1.2) 5.9 --
Payoff of existing debt (13.6) (40.2) (32.9)
Net cash proceeds from borrowings 32.2 38.8 38.5
Repayment of advances/distributions
from partnerships' financing activities 5.0 3.8 --
</TABLE>
In 1998, the refinancing of 801 Pennsylvania Avenue provided $3.8 million in
cash. In 1999, repayment of advances from partnerships' financing activities
included $1.6 million from Tarragon Savannah, $2 million from RI Windsor,
$800,000 from Danforth National Apartments, and $600,000 from RI Panama City.
The source of the funds these four partnerships paid to Tarragon was the
permanent financing on their recently constructed properties. We expect to
receive more than $15 million in 2000 from partnerships' financing activities.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
Principal payments on notes payable totaling $81.3 million are due in 2000,
including $78.3 million of balloon payments. We intend to either pay off the
loans as they come due or extend the due dates while seeking to obtain long term
refinancing. Of the balloon payments due in 2000, $39.8 million represents
amounts due under the $50 million revolving credit facility, which has two
six-month extension options. We have extended $1.1 million of the 2000 balloon
payments to 2001 and $6.9 million to 2003. We paid off $2.4 million of the 2000
balloon payments in connection with the sale of a portion of a property in
January 2000. We estimate that refinancing of directly owned properties will
generate $20 million in net cash proceeds in 2000. We believe we can arrange new
financing as needed but cannot assure that we will be successful in our efforts
or that the timing of new financing will coincide with the due dates of maturing
loans.
Since the beginning of 1997, net cash proceeds from the sale of real estate
totaled $17.8 million. We sold 11 properties and portions of two other
properties with an aggregate net carrying amount of $27.5 million and paid off
mortgages totaling $24.9 million in connection with these transactions. In the
first quarter of 2000, we sold a portion of an office park and received net cash
proceeds of $3.8 million after the payoff of a $2.5 million mortgage. We
estimate proceeds from the sale of real estate will provide an additional $18
million during 2000.
Since the beginning of 1997, we have paid $47.5 million in interest on notes and
debentures payable. Interest paid was $11.6 million in 1997 and $16.6 million in
1998. In 1999, interest paid was $19 million, reflecting a 16% increase between
1998 and 1999. This increase is predominantly due to 13 properties added to the
portfolio in connection with the merger and to the increase in mortgage debt
related to refinancings. Based on expected refinancings and acquisitions for
2000, interest payments are expected to increase 10% in 2000.
Since the beginning of 1997, Tarragon has purchased 12 operating properties and
two tracts of land (one on which construction is presently underway on a
320-unit apartment community). The aggregate cost of these acquisitions was
$56.5 million, $34.7 million of which was financed with mortgage debt, and $22.4
million of which was paid in cash. We anticipate using cash of $10 million in
2000 for the acquisition of real estate.
As discussed above, in connection with the November 1998 merger of Tarragon and
NIRT, the size of our portfolio increased by 13 operating properties. The
aggregate basis allocated to the real estate assets was $39 million, and
mortgages and debentures assumed total $28 million. The purchase consideration
was valued at $14 million, consisting of 1.2 million shares of common stock.
Since the beginning of 1997, Tarragon has made capital improvements to its
directly owned real estate of $68 million, $27 million of which was spent on
construction at our development properties. We expect to spend approximately $47
million on construction of eight apartment communities in various stages of
development in 2000, of which $34 million will be funded by construction loans.
We plan to invest approximately $10 million in capital improvements to our
directly owned operating properties in 2000.
Since the beginning of 1997, Tarragon and Robert C. Rohdie have formed nine
partnerships to build and own luxury apartment communities in Florida, Georgia,
and Alabama. Tarragon's aggregate contributions and advances through 1999 of
$18.1 million have provided substantially all of the development costs not
covered by construction loans. In February 2000, Tarragon effectively acquired
Mr. Rohdie's interests in these partnerships. The properties owned by these
partnerships were contributed to a new operating partnership that Tarragon
controls, and Mr. Rohdie received a preferred interest in this partnership
valued at up to $10 million. These properties will be consolidated beginning
February 2000.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
In 1997, Tarragon formed Ansonia Apartments, L.P., with Richard Frary, Joel
Mael, Robert Rothenberg, and Saul Spitz. Since then, Ansonia has purchased 16
apartment properties with an aggregate 2,580 units and a 160,000 square foot
historic mill for conversion to residential lofts, all located in Connecticut.
The cash required to purchase the properties was provided by Tarragon in the
form of capital contributions that earn a preferred return and have priority
over distributions to the partners. We have also made interest-bearing advances
to Ansonia for major renovations to four of its properties. Our contributions
and advances to date total $18.5 million. We expect to fund an additional $5
million to Ansonia in 2000.
In 1997, Tarragon formed National Omni Associates, L.P., which purchased a
289-unit high rise apartment building in Miami Beach, Florida, for $32 million
in February 1998. We have invested $7.2 million in this partnership. In 1999, we
implemented a condominium conversion program for this property. We plan to spend
$2 million in 2000 on improvements to this property. We have begun to offer the
condominium units for sale and have accepted contracts and non-binding
reservations for the sale of more than half of the units. Based on such
contracts and reservations, we expect to receive more than $10 million in net
cash proceeds from sales in 2000. Additionally, we bought out our partner in
National Omni in February 2000 for $850,000, and this property will be
consolidated beginning March 2000.
We have paid regular quarterly dividends since 1993. Since the beginning of
1997, cash dividends totaling $9 million (or $1.21 per share) have been paid to
stockholders. We expect to continue to pay regular dividends, but the Board has
decided to pay dividends annually rather than quarterly in the future to reduce
the associated administrative costs.
The Board of Directors has authorized a stock repurchase program. We will
continue to repurchase shares of our common stock as long as we believe the fair
market value of our net assets per share is substantially greater than the
market price of our stock. Since the beginning of 1997, Tarragon has repurchased
1.1 million shares of its common stock in open market and negotiated
transactions at an aggregate cost of $12.3 million. As of December 31, 1999,
there were 1,054,803 shares authorized for repurchase, and we plan to spend $5
million in 2000 on share repurchases.
Results of Operations
1999 COMPARED TO 1998.
The significant components of the $6.7 million increase in net operating results
between 1998 and 1999 are discussed in the following paragraphs.
The properties acquired directly in 1998 and 1999 contributed $1.3 million to
net income. This amount is comprised of increases in net rental income of $4.9
million, interest expense of $2.6 million, and depreciation of $1 million. An
increase in net rental income (rental revenue less property operating expenses)
of $3.3 million came from multifamily properties acquired in 1998. At December
31, 1999, Tarragon's directly owned multifamily properties accounted for 77% of
its real estate and included 9,070 operating apartment units. Commercial
properties acquired in 1998 and 1999 contributed $1.7 million to the increase in
net rental income. At December 31, 1999, Tarragon owned commercial properties
with an aggregate 1.8 million square feet.
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
The portfolio of 37 apartment properties with 7,602 units owned for all of 1999
and 1998 had an increase in net rental income of $2.3 million or 12%. Net rental
income as a percentage of rental revenue for the 7,602 units increased to 44%
from 43%. Rental revenue for the same store multifamily properties increased
$3.5 million, or 8%, chiefly due to higher rental rates at some of the
properties. Average monthly rental revenue per unit for the same store
properties increased 8% to $535 from $496. Property operating expenses on a same
store basis increased $1.3 million, or 5%. These properties also achieved a
decrease in vacancy losses of $1.3 million due to slightly improved occupancy
rates.
Commercial properties held in both years reported an overall increase in net
rental income of $657,000 principally due to higher rents at certain properties.
Overall occupancy levels for commercial properties held in both years remained
relatively stable in 1999 compared to 1998.
For properties held in both years, interest expense increased $2.5 million due
to long term and interim mortgage financing, including advances under revolving
credit facilities, which increased mortgage loans by $41 million during 1998 and
1999.
For properties held in both years, depreciation expense increased $2.4 million.
An increase of $1.9 million resulted from the reclassification of nine
properties from held for sale to held for investment, including adjustments to
record depreciation expense for the period during which they were classified as
held for sale. A decrease of $1.2 million resulted from ceasing depreciation of
six properties in 1998 and two properties in 1999 upon their reclassification to
held for sale. The remaining increase is primarily due to the depreciation of
capital improvements made in 1998 and 1999.
Equity in income (loss) of partnerships was $173,000 higher in 1999 compared to
1998. Several partnerships own properties that were under construction or in
lease-up in 1998 and achieved stabilized operations in 1999. Those properties
contributed $892,000 to the increased income. A decline of almost $1 million
came from 801 Pennsylvania Avenue, where income in 1998 included $873,000
resulting from refinancing of the property. Debt service requirements on the new
loan were responsible for the remaining decrease in income in 1999.
Because Tarragon acquired Tarragon Realty Advisors in 1998, we no longer pay
advisory fees. The advisory fee was an incentive fee of 16% of adjusted funds
from operations, as defined in the advisory agreement. Tarragon now pays costs
previously borne by its advisor instead of paying advisory fees, property
management fees, and acquisition and refinancing fees that were paid under the
advisory agreement. This accounts for the bulk of the $6.4 million increase in
general and administrative expenses.
During 1999, Tarragon recognized gains totaling $12 million on the sale of five
properties, portions of two other properties, and its share of the gain on the
sale of one of its joint venture properties. Tarragon also had a gain of
$231,000 from an insurance settlement and paid a $350,000 litigation settlement.
During 1998, Tarragon had gains of $2.1 million from sale of two properties and
$123,000 from sale of investments in securities.
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
Extraordinary expenses of $444,000 during 1999 and $1.2 million in 1998 were
incurred because of prepayment penalties and write-off of deferred financing
expenses in connection with refinancings of mortgage debt.
1998 COMPARED TO 1997.
The significant components of the $7 million decrease in net operating results
between 1997 and 1998 are discussed in the following paragraphs.
The properties acquired directly in 1997 and 1998 caused a $100,000 decrease in
net operating results. This amount is comprised of increases in net rental
income of $2 million, interest expense of $1.4 million, and depreciation of
$700,000. Courtyard at the Park, acquired in July 1997, accounted for $400,000
of the decrease in net operating results. This property was substantially
renovated during 1998 and incurred significant vacancy losses during this time.
For 1999, net operating results of this property improved by $327,000 over 1998
net operating results. An increase in net rental income of $1.7 million came
from multifamily properties acquired in 1997 and 1998. At December 31, 1998,
Tarragon's directly owned multifamily properties represented 76% of its real
estate and included 9,588 operating apartment units. Commercial properties
acquired in 1997 and 1998 contributed a $337,000 increase in net rental income.
At December 31, 1998, Tarragon owned commercial properties with an aggregate 1.9
million square feet.
The portfolio of 32 apartment properties with 6,581 units owned for all of 1998
and 1997 had an increase in net rental income of $1.9 million or 12%. Net rental
income as a percentage of rental revenue for the 6,581 units increased to 45%
from 43%. Rental revenue for the same store multifamily properties increased
$2.5 million, or 7%, chiefly due to higher rental rates at some of the
properties. Average monthly rental revenue per unit for the same store
properties increased 7% to $506 from $475. Property operating expenses on a same
store basis increased $617,000, or 3%. Overall occupancy levels for multifamily
properties held in both years increased slightly in 1998 compared to 1997.
Commercial properties held in both years reported an overall increase in net
rental income of $339,000 principally due to higher rents at certain properties.
Overall occupancy levels for commercial properties held in both years remained
relatively stable in 1998 compared to 1997.
For properties held in both years, interest expense increased $2.3 million due
to long term and interim mortgage financing, including advances under revolving
credit facilities, which increased mortgage loans by $63 million during 1998 and
1997.
Equity in income (loss) of partnerships was $1.5 million lower in 1998 compared
to 1997. Start-up losses at five partnership properties with a total of 1,390
units caused a $2 million decrease. Tarragon experienced an increase of almost
$1 million from these same five partnerships in 1999 as lease-up at their
properties has approached stabilization. A decrease of $600,000 resulted from
the operating losses of 5600 Collins Avenue, the sole property of National Omni
Associates. These decreases were partially offset by an increase of $873,000
resulting from the refinancing of 801 Pennsylvania Avenue. Of this amount,
$606,000 was accrued interest on Tarragon's original investment and additional
advances, and $267,000 was our 50% participation in the excess financing
proceeds. The properties owned by Ansonia Apartments, L.P., contributed $400,000
to operations in 1998 even though four of the properties were undergoing
substantial renovation.
22
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
During 1998, Tarragon recognized gains totaling $2.1 million on the sale of two
properties. In 1997, Tarragon recognized gains totaling $4.4 million on the sale
of three properties and a $54,000 loss related to the sale of a property owned
through a partnership.
During 1998, a gain of $123,000 was recognized from sale of investments in
securities. In 1997, Tarragon recognized gains of $698,000 from sale of
investments in securities and $215,000 on the sale of an investment in a
partnership.
Extraordinary expenses in 1998 of $1.2 million were incurred from prepayment
penalties and write-off of deferred financing expenses in connection with 1998
refinancings. Extraordinary items in 1997 included a gain on debt forgiveness of
$431,000 in connection with the discounted payoff of the mortgage loan on
University Center and expenses of $370,000 from prepayment penalties and
deferred financing expenses written off in connection with 1997 refinancings.
Allowance for Estimated Losses and Provisions for Losses
Tarragon periodically reviews the carrying values of properties held for sale.
Generally accepted accounting principles require the carrying value of a
property held for sale not to exceed the lower of its cost or its estimated fair
value less costs to sell. In instances where a property's estimated fair value
less costs to sell is less than its carrying value at the time of evaluation, we
provide an allowance for loss by making a charge against operations. Our review
of properties held for sale generally includes selective site inspections,
comparing the property's current rents to market rents, reviewing the property's
expenses and maintenance requirements, discussions with the property manager,
and a review of the surrounding area. We may make adjustments to estimated fair
value based on future reviews.
Tarragon also evaluates its properties held for investment for impairment
whenever events or changes in circumstances indicate that a property's carrying
value may not be recoverable. This evaluation generally consists of reviewing
the property's cash flow and current and projected market conditions, as well as
changes in general and local economic conditions. If we conclude that a property
has been impaired, we reduce its carrying value by making a charge against
current earnings in the amount by which the carrying value of the property
exceeds its estimated fair value.
Environmental Matters
Under federal, state, and local environmental laws, ordinances, and regulations,
Tarragon may be liable for removal or remediation costs, as well as other costs
(such as fines or injuries to persons and property) where our employees may have
arranged for removal, disposal, or treatment of hazardous or toxic substances.
In addition, environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties can seek recovery
from Tarragon for personal injury associated with those materials. We are not
aware of any liability relating to these matters that would have a material
adverse effect on our business, financial position, or results of operations.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Tax Matters
For the 1997 through 1999 tax years, we have elected and, in our opinion,
qualified to be taxed as a Real Estate Investment Trust, as that term is defined
in Sections 856 through 860 of the Internal Revenue Code of 1986. A REIT is
required to distribute at least 95% of its REIT taxable income, plus 95% of its
net income from foreclosure property, as defined in Section 857 of the Internal
Revenue Code of 1986, on an annual basis to stockholders. We have terminated our
status as a REIT effective as of December 1, 1999, the beginning of our 2000 tax
year, but we do not expect this to impact our current policy of paying annual
dividends to common stockholders in an amount not greater than 50% of funds from
operations.
Risks Associated with Forward-Looking Statements Included in this Form 10-K
In addition to historical information, this Form 10-K contains forward-looking
statements. Forward-looking statements are expressions of our current beliefs
and expectations, based on information currently available to us, estimates and
projections about our industry, and certain assumptions made by our management.
These statements are not historical facts. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions to identify our forward-looking statements.
Because we are unable to control or predict many of the factors that will
determine our future performance and financial results, including future
economic, competitive, and market conditions, our forward-looking statements are
not guarantees of future performance. They are subject to risks, uncertainties,
and errors in assumptions that could cause our actual results to differ
materially from those reflected in our forward-looking statements. We believe
that the assumptions underlying our forward-looking statements are reasonable.
However, you should not place undue reliance on these forward-looking
statements. They only reflect our view and expectations as of the date of this
Form 10-K. We undertake no obligation to publicly update or revise any
forward-looking statement in light of new information, future events, or
otherwise.
[This space intentionally left blank.]
24
<PAGE> 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tarragon is exposed to market risk from changes in interest rates that may
adversely affect our financial position, results of operations, and cash flows.
In seeking to minimize the risks from interest rate fluctuations, we manage
exposures through our regular operating and financing activities. We do not use
financial instruments for trading or other speculative purposes.
At December 31, 1999, Tarragon had approximately $104 million of variable rate
debt. The primary base rate is the 30-day LIBOR. Using this balance of debt, if
LIBOR or any other indexes on which the rates are based increased by 100 basis
points (1%), our pre-tax earnings and cash flows would decrease by approximately
$1 million. On the other hand, if interest rates decreased by 100 basis points,
our pre-tax earnings and cash flows would increase by approximately $1 million.
At December 31, 1999, unconsolidated partnerships had approximately $57 million
of variable rate debt. A 100 basis point increase in the index on which the
rates are based would reduce our pre-tax earnings by approximately $400,000
(based on our interests in the partnerships). A 100 basis point decrease in the
index on which the rates are based would increase our pre-tax earnings by
approximately $400,000. Assuming these partnerships distribute all of their
available cash to the partners, our cash flow would be changed by these same
amounts.
Tarragon has entered into reverse repurchase agreements with an investment bank
for three mortgage-backed securities, or MBSs, secured separately by mortgages
on three of our properties. If market interest rates increase, the value of the
MBSs generally decreases, which would require us to deposit more funds with the
investment bank (assuming no change in margin requirements). Decreases in market
interest rates generally increase the value of the MBSs and allow the release to
us of margin funds held by the investment bank (again assuming no change in
margin requirements). The repurchase price of the MBSs bears interest at a
variable rate based on LIBOR. An increase in interest rates of 100 basis points
would result in a decrease of $201,000 in our pre-tax earnings and a decrease of
$1.2 million in our cash flow. A 100 basis point decrease in interest rates
would result in an increase of $203,000 in our pre-tax earnings and an increase
of $1.1 million in our cash flow.
[This space intentionally left blank.]
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants............................ 27
Consolidated Balance Sheets -
December 31, 1999 and 1998........................................ 28
Consolidated Statements of Operations -
Years Ended December 31, 1999, 1998, and 1997..................... 29
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1999, 1998, and 1997..................... 31
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998, and 1997..................... 32
Notes to Consolidated Financial Statements.......................... 35
Schedule III - Real Estate and Accumulated Depreciation............. 61
</TABLE>
All other schedules are omitted because they are not required or are not
applicable or because the information required is included in the Consolidated
Financial Statements or Notes.
26
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Tarragon Realty Investors, Inc.
We have audited the accompanying consolidated balance sheets of Tarragon Realty
Investors, Inc., and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Tarragon Realty Investors,
Inc., and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule III is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
March 30, 2000
27
<PAGE> 28
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
(dollars in thousands)
<S> <C> <C>
Assets
Real estate held for sale (net of accumulated depreciation
of $25,282 in 1999 and $20,884 in 1998) ................................. $ 52,885 $ 79,801
Less - allowance for estimated losses ..................................... (1,156) (1,194)
--------- ---------
51,729 78,607
Real estate held for investment (net of accumulated
depreciation of $36,143 in 1999 and $31,718 in 1998) .................... 253,595 215,368
Investments in and advances to partnerships ............................... 48,834 37,356
Cash and cash equivalents ................................................. 3,951 2,442
Restricted cash ........................................................... 6,538 7,368
Other assets, net ......................................................... 14,418 15,919
--------- ---------
$ 379,065 $ 357,060
========= =========
Liabilities and Stockholders' Equity
Liabilities
Notes, debentures, and interest payable (including $5,108 in
1999 and $5,891 in 1998 due to affiliates) .............................. $ 287,767 $ 263,361
Other liabilities ......................................................... 18,305 17,014
--------- ---------
306,072 280,375
--------- ---------
Commitments and contingencies .............................................
Stockholders' equity
Common stock, $0.01 par value; authorized shares, 20,000,000; shares
outstanding, 7,993,999 in 1999 and 8,467,260 in 1998 (after deducting
2,891,713 shares in 1999 and 2,418,384 shares in 1998 held in
treasury)................................................................ 80 85
Special stock, $0.01 par value; authorized shares,
10,000,000; shares outstanding, none .................................... -- --
Paid-in capital ........................................................... 299,528 305,098
Accumulated dividends in excess of accumulated earnings ................... (226,575) (228,408)
Accumulated other comprehensive income (loss) ............................. (40) (90)
--------- ---------
72,993 76,685
--------- ---------
$ 379,065 $ 357,060
========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
28
<PAGE> 29
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Revenue
Rentals ............................................................... $ 72,977 $ 58,798 $ 50,745
Interest .............................................................. 984 739 629
Management fees ....................................................... 511 52 --
Equity in income (loss) of partnerships ............................... (716) (889) 643
-------- -------- --------
73,756 58,700 52,017
Expenses
Property operations (including $1,895 in 1998 and
$1,648 in 1997 to affiliates) ....................................... 37,763 32,963 28,596
Interest (including $360 in 1999 to affiliates) ....................... 21,458 16,599 12,602
Depreciation .......................................................... 10,645 7,349 7,022
Amortization of goodwill .............................................. 508 41 --
Advisory fee to affiliate ............................................. -- 1,048 1,438
General and administrative
Corporate (including $1,562 in 1998
and $1,411 in 1997 to affiliates) ................................. 5,687 3,095 2,091
Property ............................................................ 3,844 -- --
-------- -------- --------
79,905 61,095 51,749
-------- -------- --------
Income (loss) before net gain on sale of real estate, gain on sale of
investments, gain on insurance settlement,
litigation settlement, and extraordinary items ........................ (6,149) (2,395) 268
Net gain on sale of real estate ......................................... 11,969 2,108 4,350
Gain on sale of investments ............................................. -- 123 913
Gain on insurance settlement ............................................ 231 -- --
Litigation settlement ................................................... (350) -- --
-------- -------- --------
Income (loss) from continuing operations ................................ 5,701 (164) 5,531
Extraordinary items ..................................................... (444) (1,231) 61
-------- -------- --------
Net income (loss) ....................................................... $ 5,257 $ (1,395) $ 5,592
======== ======== ========
Other comprehensive income (loss):
Unrealized gains (losses) on marketable equity
securities ........................................................ 50 (100) 831
Realized gains on marketable equity securities ........................ -- (123) (698)
-------- -------- --------
Net income (loss) recognized in
other comprehensive income (loss) ..................................... 50 (223) 133
-------- -------- --------
Comprehensive income (loss) ............................................. $ 5,307 $ (1,618) $ 5,725
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
29
<PAGE> 30
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Earnings per share
Income (loss) from continuing operations ................ $ .69 $ (.02) $ .72
Extraordinary items ..................................... (.05) (.16) .01
------------- ------------- -------------
Net income (loss) ....................................... $ .64 $ (.18) $ .73
============= ============= =============
Weighted average shares of common stock
used in computing earnings per share .................. 8,220,280 7,619,604 7,693,031
============= ============= =============
Earnings per share - assuming dilution
Income (loss) from continuing operations ................ $ .68 $ (.02) $ .71
Extraordinary items ..................................... (.05) (.16) .01
------------- ------------- -------------
Net income (loss) ....................................... $ .63 $ (.18) $ .72
============= ============= =============
Weighted average shares of common stock used
in computing earnings per share - assuming dilution ... 8,327,120 7,619,604 7,769,296
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
30
<PAGE> 31
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Dividends Accumulated
Common Stock in Excess of Other
---------------------- Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Capital Earnings Income (Loss) Equity
---------- -------- --------- ------------ ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ........................ 6,941,746 $ 10,579 $ 277,795 $(219,311) $ -- $ 69,063
Repurchase of common stock ........................ (95,490) (145) (603) -- -- (748)
Cash dividends ($0.38 per share) .................. -- -- -- (2,949) -- (2,949)
Stock dividends ................................... 664,179 1,012 4,446 (5,458) -- --
Net income recognized in other comprehensive income
(loss) ......................................... -- -- -- -- 133 133
Net income ........................................ -- -- -- 5,592 -- 5,592
---------- -------- --------- --------- ----- --------
Balance, December 31, 1997 ........................ 7,510,435 11,446 281,638 (222,126) 133 71,091
Repurchase of common stock ........................ (504,059) (685) (5,223) -- -- (5,908)
Adjustment for change in par value ................ -- (10,828) 10,828 -- -- --
Cash dividends ($0.41 per share) .................. -- -- -- (3,198) -- (3,198)
Stock dividends ................................... 142,937 108 1,581 (1,689) -- --
Common stock issued in connection with merger ..... 1,196,556 12 14,048 -- -- 14,060
Common stock issued in connection with
acquisition of TRA ............................. 100,000 1 2,116 -- -- 2,117
Stock options exercised ........................... 21,391 31 110 -- -- 141
Net (loss) recognized in other comprehensive income
(loss) ......................................... -- -- -- -- (223) (223)
Net (loss) ........................................ -- -- -- (1,395) -- (1,395)
---------- -------- --------- --------- ----- --------
Balance, December 31, 1998 ........................ 8,467,260 85 305,098 (228,408) (90) 76,685
Repurchase of common stock ........................ (490,737) (5) (5,692) -- -- (5,697)
Cash dividends ($0.42 per share) .................. -- -- -- (3,424) -- (3,424)
Stock options exercised ........................... 17,476 -- 122 -- -- 122
Net income recognized in other comprehensive income
(loss) ......................................... -- -- -- -- 50 50
Net income ........................................ -- -- -- 5,257 -- 5,257
---------- -------- --------- --------- ----- --------
Balance, December 31, 1999 ........................ 7,993,999 $ 80 $ 299,528 $(226,575) $ (40) $ 72,993
========== ======== ========= ========= ===== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
31
<PAGE> 32
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Rentals collected............................................ $ 73,684 $ 59,108 $ 50,578
Interest collected........................................... 549 175 634
Interest paid (including $360 in 1999 to affiliates)......... (19,282) (16,610) (11,564)
Payments for property operations (including
$1,895 in 1998 and $1,648 in 1997 to affiliates)........... (34,632) (31,277) (29,886)
General and administrative expenses paid
(including $2,215 in 1998 and $1,914 in 1997
to affiliates)............................................ (9,769) (4,441) (2,134)
Advisory fee paid to affiliate............................... -- (1,154) (1,452)
Organizational costs paid.................................... -- (286) --
Litigation settlement........................................ (350) -- --
Deferred borrowing costs paid................................ (1,016) (2,982) (2,915)
------------ ------------ -------------
Net cash provided by operating activities.................. 9,184 2,533 3,261
------------ ------------ -------------
Cash Flows from Investing Activities
Acquisition of real estate .................................. (2,244) (5,495) (14,656)
Proceeds from sale of real estate............................ 9,353 2,099 6,378
Earnest money deposits refunded (paid)....................... 132 (307) (245)
Real estate improvements..................................... (22,899) (17,343) (27,349)
Collections of notes receivable.............................. 136 352 187
Investments in marketable equity securities.................. (372) (81) (2,462)
Proceeds from sale of marketable equity securities........... -- 580 2,606
Distributions from partnership's investing activities........ 2,688 -- --
Proceeds from sale of partnership interest................... -- -- 1,600
Cash and cash equivalents acquired in connection
with merger of Tarragon and NIRT
and acquisition of TRA..................................... -- 658 --
Net contributions and advances to partnerships............... (16,187) (24,291) (9,872)
------------ ------------ -------------
Net cash (used in) investing activities.................... (29,393) (43,828) (43,813)
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
32
<PAGE> 33
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Cash Flows from Financing Activities
Proceeds from borrowings ...................................... $ 48,763 $ 79,586 $ 79,477
Payments on notes payable ..................................... (18,861) (41,977) (36,034)
Repair escrow deposits, net ................................... (1,255) (784) (847)
Dividends to stockholders ..................................... (3,517) (3,388) (2,105)
Distributions from partnerships' financing activities ......... 5,057 3,758 --
Repurchase of common stock .................................... (5,697) (5,893) (748)
Proceeds from the exercise of stock options ................... 122 28 --
Margin account borrowings (repayments), net ................... (1,696) 2,254 1,209
Advances (repayment of advances) from affiliates, net ......... (1,198) 5,891 --
-------- -------- --------
Net cash provided by financing activities ........................ 21,718 39,475 40,952
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............. 1,509 (1,820) 400
Cash and cash equivalents, beginning of year ..................... 2,442 4,262 3,862
-------- -------- --------
Cash and cash equivalents, end of year ........................... $ 3,951 $ 2,442 $ 4,262
======== ======== ========
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income (loss) ........................................... $ 5,257 $ (1,395) $ 5,592
Net gain on sale of real estate ............................. (11,969) (2,108) (4,350)
Gain on sale of investments ................................. -- (123) (913)
Gain on insurance settlement ................................ (231) -- --
Write-off of deferred borrowing costs in connection
with refinancings ........................................ 444 431 299
Extraordinary gain on debt forgiveness ...................... -- -- (431)
Depreciation and amortization ............................... 13,380 8,587 7,938
Equity in (income) loss of partnerships ..................... 716 889 (643)
Interest on advances to partnerships ........................ (798) (566) --
Non-cash compensation related to stock options exercised .... 37 107 --
Changes in other assets and other liabilities, net of
effects of noncash investing and financing activities:
Decrease in interest receivable .......................... 364 3 5
Decrease (increase) in other assets ...................... 639 (4,802) (6,608)
Increase in other liabilities ............................ 806 1,673 1,962
Increase (decrease) in interest payable .................. 539 (163) 410
-------- -------- --------
Net cash provided by operating activities ........................ $ 9,184 $ 2,533 $ 3,261
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
33
<PAGE> 34
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in assets and liabilities in connection with the
purchase of real estate:
Real estate ......................................... $ 11,961 $ 13,751 $ 30,762
Other assets ........................................ 366 1,157 416
Notes and interest payable .......................... (9,950) (9,030) (15,756)
Other liabilities ................................... (133) (383) (766)
-------- -------- --------
Cash paid ......................................... $ 2,244 $ 5,495 $ 14,656
======== ======== ========
Assets disposed of and liabilities released in
connection with the sale of real estate:
Real estate ......................................... $ 15,642 $ 2,283 $ 9,572
Other assets ........................................ 412 111 29
Notes and interest payable .......................... (15,062) (2,356) (7,493)
Other liabilities ................................... (385) (47) (134)
Net gain on sale .................................... 8,746 2,108 4,404
-------- -------- --------
Cash received ..................................... $ 9,353 $ 2,099 $ 6,378
======== ======== ========
Assets acquired and liabilities assumed in connection
with the merger of Tarragon and NIRT and the
acquisition of TRA:
Real estate ......................................... $ -- $ 38,988 $ --
Cash ................................................ -- 658 --
Other assets ........................................ -- 9,598 --
Notes, debentures, and interest payable ............. -- (29,260) --
Other liabilities ................................... -- (3,807) --
-------- -------- --------
Purchase consideration ............................ $ -- $ 16,177 $ --
======== ======== ========
Real estate written off pursuant to condemnation ....... $ -- $ -- $ 2,210
Note payable written off pursuant to the
condemnation of the collateral property ............. $ -- $ -- $ 1,725
Allowance for estimated losses charged off
in connection with the write-off of real estate ..... $ -- $ -- $ 485
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
34
<PAGE> 35
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Tarragon Realty Investors,
Inc., its subsidiaries, and consolidated partnerships have been prepared in
conformity with generally accepted accounting principles ("GAAP"), the most
significant of which are described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES." The preparation of financial statements in accordance with GAAP
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Notes to Consolidated Financial Statements are an integral part
of the Consolidated Financial Statements. The data presented in the Notes to
Consolidated Financial Statements are as of December 31 of each year and for the
years then ended unless otherwise indicated. Dollar amounts in tables are in
thousands, except per share amounts. Certain balances for 1998 and 1997 have
been reclassified to conform to the 1999 presentation.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Company business. Tarragon Realty Investors, Inc., is a Nevada
corporation incorporated April 2, 1997, and the successor in interest to
National Income Realty Trust ("NIRT") and Vinland Property Trust ("Vinland").
NIRT, a California business trust, was organized on October 31, 1978, and
commenced operations on March 27, 1979, investing in income-producing real
estate through acquisitions, leases, and partnerships. Vinland was a California
business trust established July 18, 1973, and commenced operations April 2,
1974. Vinland was formed to invest in commercial and multifamily real estate. In
July 1997, Vinland merged with Tarragon, its wholly-owned subsidiary.
Effective November 23, 1998, NIRT incorporated as a California corporation and
on November 24, 1998, merged with and into Tarragon, with Tarragon as the
survivor. Pursuant to the terms of the merger, each share of beneficial interest
of NIRT was converted into 1.97 shares of Tarragon common stock.
FOR ACCOUNTING PURPOSES, THE MERGER WAS TREATED AS A REVERSE ACQUISITION OF
TARRAGON BY NIRT USING THE PURCHASE METHOD OF ACCOUNTING, AND HISTORICAL
BALANCES AND OPERATING DATA OF TARRAGON FOR PERIODS PRIOR TO THE MERGER FOUND IN
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES ARE THOSE OF NIRT. SHARE AND PER
SHARE INFORMATION HAS BEEN RESTATED RETROACTIVELY TO GIVE EFFECT TO THE 1.97 TO
1 EXCHANGE RATIO IN THE MERGER. REFERENCES TO TARRAGON IN RELATION TO DATES
PRIOR TO NOVEMBER 24, 1998, ARE INTENDED TO INCLUDE ITS PREDECESSORS, NIRT AND
VINLAND.
Immediately following the merger, Tarragon acquired Tarragon Realty Advisors,
Inc., our advisor since March 1, 1994, and NIRT's advisor since April 1, 1994,
from William S. Friedman and his wife, Lucy N. Friedman, for 100,000 shares of
Tarragon common stock and options to acquire 350,000 additional shares of our
common stock at prices ranging between $13 and $16 per share. William S.
Friedman is the President, Chief Executive Officer, and a Director of Tarragon
and also served as President, Chief Executive Officer, and a Trustee of NIRT and
as Director and Chief Executive Officer of Tarragon Realty Advisors. The
Friedman family owns approximately 34% of the outstanding shares of our common
stock. In addition to the options to acquire 350,000 additional shares received
in connection with the purchase of Tarragon Realty Advisors discussed above, Mr.
Friedman also holds options to acquire 450,000 additional shares of our common
stock at prices ranging between $12 and $15 per share.
35
<PAGE> 36
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of consolidation. The Consolidated Financial Statements include the
accounts of Tarragon, its subsidiaries, and partnerships it controls. All
significant intercompany transactions and balances have been eliminated.
Real estate and depreciation. Real estate held for sale is carried at the lower
of cost or estimated fair value less estimated costs to sell. Real estate held
for investment is carried at cost unless an impairment is determined to exist,
as discussed below. Impaired properties are written down to their estimated fair
values. Foreclosed real estate is initially recorded at new cost, defined as the
lower of the note receivable carrying amount or the fair value of the collateral
property less estimated costs of sale. We capitalize property improvements and
major rehabilitation projects that increase the value of the respective property
and have useful lives greater than one year, except for individual expenditures
less than $10,000 that are not part of a planned renovation project. Under this
policy, during 1999, expenditures of $25.5 million were capitalized, including
$16.9 million related to development properties, and property replacements of
$2.3 million were expensed. Property replacements include, but are not limited
to, such items as landscaping, exterior painting, and parking lot improvements.
Depreciation is provided against real estate held for investment by the
straight-line method over the estimated useful lives of the assets, ranging from
three to 40 years.
We capitalize interest on funds used in constructing property from the date of
initiation of construction activities through the time the property is ready for
leasing. We also capitalize property taxes and insurance costs during the
construction period. Interest, property taxes, and insurance expenditures of
$509,000, $662,000, and $945,000 were capitalized during 1999, 1998, and 1997,
respectively.
We periodically evaluate whether events or changes in circumstances indicate
that the carrying value of any of our properties held for investment may not be
recoverable. This evaluation generally consists of a review of the property's
cash flow and current and projected market conditions, as well as any changes in
general and local economic conditions. If an impairment loss exists based on the
results of this review, a loss is recognized by a charge against current
earnings and a corresponding reduction in the respective asset's carrying value.
The amount of this impairment loss is equal to the amount by which the carrying
value of the property exceeds the estimated fair value.
At least annually, we review all properties held for sale, and we determine
whether the held for sale classification remains appropriate. The factors we
consider in determining whether a change in classification to held for
investment is appropriate include: (i) the property has been held for at least
one year; (ii) we have no intent to dispose of the property within the next
twelve months; (iii) the property is a "qualifying asset" as defined in the
Internal Revenue Code of 1986; (iv) property improvements have been funded; and
(v) our financial resources are such that the property can be held long-term.
Allowance for estimated losses. Valuation allowances are provided for estimated
losses on notes receivable and properties held for sale to the extent that the
investment in the notes or properties exceeds our estimate of fair value less
estimated selling costs of the collateral securing the notes or the properties.
The provisions for losses are based on estimates, and actual losses may vary
from current estimates. The estimates are reviewed periodically. Any additional
provision we determine to be necessary or the reversal of any existing allowance
no longer required is recorded by a charge or credit to current earnings.
36
<PAGE> 37
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash equivalents. We consider all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
Restricted cash. Restricted cash represents escrow accounts, generally held by
the lenders of certain of our mortgage notes payable, for taxes, insurance, and
property repairs and replacements.
Other assets. Other assets consist primarily of notes and interest receivable,
marketable equity securities, tenant accounts receivable, deferred borrowing
costs, prepaid leasing commissions, and goodwill. Marketable equity securities
are considered to be available-for-sale and are carried at fair value, defined
as year end closing market value. Net unrealized holding gains and losses are
included in other comprehensive income (loss). Deferred borrowing costs are
amortized on the straight-line method (which approximates the effective interest
method) over the related loan terms, and such amortization is included in
interest expense. Prepaid leasing commissions are amortized to leasing
commission expense, included in property operating expenses, on the
straight-line method over the related lease terms. Goodwill was recorded in
connection with the acquisition of TRA and is being amortized on the
straight-line method over five years.
Revenue recognition on the sale of real estate. Gains on sales of real estate
are recognized when and to the extent permitted by Statement of Financial
Accounting Standards ("SFAS") No. 66. - "Accounting for Sales of Real Estate."
Until the requirements of SFAS No. 66 for full profit recognition have been met,
transactions are accounted for using the deposit, installment, cost recovery, or
financing method, whichever is appropriate.
Investments in noncontrolled partnerships. We use the equity method to account
for investments in partnerships we do not control. Under the equity method, our
initial investments are increased by our proportionate share of the
partnerships' operating income and additional advances and decreased by our
proportionate share of the partnerships' operating losses and distributions
received.
Earnings per share. Net income (loss) per share of common stock is computed
based upon the weighted average number of shares outstanding during each year.
All share and per share data have been restated to give effect to the merger of
Tarragon with NIRT on the basis of 1.97 shares of Tarragon common stock for each
share of beneficial interest of NIRT.
On December 31, 1997, we adopted SFAS No. 128 - "Reporting Earnings Per Share,"
which superseded the Accounting Principles Board's Opinion No. 15 ("APB No. 15")
- - "Earnings Per Share." This statement requires business enterprises with other
than simple capital structures to report both basic and diluted earnings per
share for each period for which a statement of operations is presented. There
was neither a cumulative effect nor any impact on our financial position as a
result of the adoption.
37
<PAGE> 38
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair value of financial instruments. SFAS No. 107 - "Disclosures About Fair
Value of Financial Instruments" requires us to disclose the estimated fair
values of our financial instrument assets and liabilities.
Disclosure about fair value of financial instruments is based on pertinent
information available to us as of December 31, 1999 and 1998. Considerable
judgment is necessary to interpret market data and develop estimated fair
values. The use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair values. For these reasons, the
estimated fair values presented may differ significantly from the actual amounts
we may realize or pay.
As of December 31, 1999 and 1998, we estimate that the carrying amounts for cash
and cash equivalents and restricted cash approximate fair value because of the
short maturities of those instruments. In addition, the carrying amounts of
notes receivable and other liabilities approximate fair value. The fair values
of notes payable are estimated by discounting future expected cash flows using
current rates for loans with similar terms and maturities. See NOTE 6. "NOTES,
DEBENTURES, AND INTEREST PAYABLE" for the disclosure of fair values of notes
payable.
Stock option plans. We measure any compensation costs associated with the issue
of stock options using the guidance provided by APB No. 25. Under APB No. 25,
compensation costs related to stock options issued pursuant to compensatory
plans are measured based on the difference between the quoted market price of
the stock at the measurement date (ordinarily the date of grant) and the
exercise price and should be charged to expense over the periods during which
the grantee performs the related services. All stock options issued to date have
exercise prices equal to the market price of the stock at the dates of grant.
See NOTE 9. "STOCK OPTIONS."
Recent Accounting Pronouncements. On January 1, 1998, we adopted SFAS No. 130 -
"Reporting Comprehensive Income." SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Accumulated other comprehensive
income (loss) presented in the accompanying Consolidated Balance Sheets and
Consolidated Statements of Stockholders' Equity represents unrealized holding
gains and losses on marketable equity securities.
On December 31, 1998, we adopted SFAS No. 131 - " Disclosures about Segments of
an Enterprise and Related Information." The provisions of this pronouncement had
no effect on our financial statements as we consider rental real estate to be
our only operating segment and manage our business accordingly.
38
<PAGE> 39
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES
Activity in the allowance for estimated losses was as follows:
<TABLE>
<CAPTION>
1999 1998
--------- -------
<S> <C> <C>
Balance January 1................ $ 1,194 $ 1,194
Amounts charged off.............. (38) -
--------- -------
Balance December 31.............. $ 1,156 $ 1,194
========= =======
</TABLE>
Amounts charged off in 1999 relate to the sale of a tract of land in Orangeburg,
South Carolina.
NOTE 3. REAL ESTATE AND DEPRECIATION
Thirteen properties (comprised of nine apartment complexes with 1,293 units and
four commercial properties with 234,407 square feet) were added to our portfolio
in connection with the November 1998 merger of Tarragon and NIRT. The bases of
the properties were determined by allocating the purchase consideration based on
the properties' relative fair values. The following table depicts the 13
properties consolidated effective with the merger. In 1999, the two properties
classified as held for sale below were sold. See discussion below.
<TABLE>
<CAPTION>
Acquisition Costs
Square -----------------
Property Location Units Footage Basis Debt
- ------------------- --------------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments
Aspentree Dallas, TX 296 212,864 $ 4,382 $ 3,839
The Brooks Addison, TX 104 94,176 2,788 1,282
Collegewood Tallahassee, FL 162 83,700 2,779 2,020
French Villa Tulsa, OK 101 104,720 2,233 1,882
Holly House North Miami, FL 57 45,417 1,987 1,760
Mission Trace Tallahassee, FL 96 104,400 2,815 2,060
Riverside Austin, TX 145 110,868 3,950 4,163
Southern Elms Tulsa, OK 78 65,159 1,520 1,311
------- ---------- ------- -------
1,039 821,304 22,454 18,317
------- ---------- ------- -------
Commercial
Briarwest Houston, TX -- 25,323 1,874 1,679
Park 20 West Tallahassee, FL -- 69,065 3,442 1,884
Tarzana Towne Plaza Tarzana, CA -- 37,208 3,355 2,924
------- ---------- ------- -------
-- 131,596 8,671 6,487
------- ---------- ------- -------
PROPERTIES HELD FOR SALE
Apartments
Phoenix Tulsa, OK 254 208,726 1,966 --
Commercial
One Turtle Creek Dallas, TX -- 102,811 5,897 1,820
------- ---------- ------- -------
254 311,537 7,863 1,820
------- ---------- ------- -------
1,293 1,264,437 $38,988 $26,624
======= ========== ======= =======
</TABLE>
39
<PAGE> 40
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
During 1999, 1998 (prior to the merger), and 1997, we purchased eight
multifamily properties with an aggregate 1,149 units and three commercial
properties with 253,796 square feet, as presented below. In connection with
these acquisitions, we paid Tarragon Realty Advisors real estate acquisition
fees totaling $393,000 and a financing fee of $20,000 prior to the acquisition
of Tarragon Realty Advisors. These properties are located in the same geographic
areas where we currently operate and were acquired in separate transactions from
unaffiliated sellers.
<TABLE>
<CAPTION>
Cost of Acquisition
Date Square -------------------
Property Location Acquired Units Footage Cash Debt
- -------------------- ---------------- --------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1999 Acquisition:
Orlando Central Park Orlando, FL May-99 -- 138,574 $ 1,701 $ 8,000
1998 Acquisitions:
Desert Winds Jacksonville, FL Jun-98 152 121,056 603 1,375
Palm Grove Orlando, FL Jun-98 142 99,684 447 1,333
Silver Creek Jacksonville, FL Jun-98 152 144,240 490 1,312
1505 Hwy 6 Houston, TX Oct-98 -- 62,934 1,695 2,000
------- --------- ------- -------
446 427,914 3,235 6,020
------- --------- ------- -------
1997 Acquisitions:
Morningside Jacksonville, FL Feb-97 112 89,200 521 1,641
Newport Plantation, FL Jun-97 152 139,364 1,526 5,058
Fountainhead Kissimmee, FL Jun-97 184 172,578 7,690 --
Courtyard at the Park Miami, FL Jul-97 127 117,250 728 2,973
Mariner Plaza Tallahassee, FL Aug-97 -- 52,288 1,458 --
Landmark Tallahassee, FL Oct-97 128 113,720 1,822 --
------- --------- ------- -------
703 684,400 13,745 9,672
------- --------- ------- -------
1,149 1,250,888 $18,681 $23,692
======= ========= ======= =======
</TABLE>
In October 1999, we purchased a 115-acre tract of land in Fort Worth, Texas, for
$2.7 million, $2 million of which was financed with a mortgage. The 43-acre
tract of land in Fort Worth, Texas, purchased in 1998, was pledged as additional
collateral on this mortgage.
In March 1998, we completed reconstruction and expansion of The Vistas at Lake
Worth in Fort Worth, Texas, to 265 apartment units at a cost of $16.5 million.
Initial operations at the property began in December 1997.
In April 1998, we purchased a 43-acre tract of land adjacent to The Vistas at
Lake Worth in Fort Worth, Texas, for $707,000, including an acquisition fee to
Tarragon Realty Advisors of $7,000. We plan to build a luxury apartment
community known as The Observatory on a portion of this tract and develop the
balance for sale as single family home lots. In May 1998, we purchased a 33-acre
tract of land in Frisco, Texas, for $4.5 million, paying $1.6 million in cash
and financing the remainder with a short-term mortgage. In connection with this
transaction, we paid Tarragon Realty Advisors an acquisition fee of $45,000 and
a financing fee of $30,000. Construction is presently underway on a portion of
the site for a 320-unit luxury apartment community known as The Vintage at
Legacy.
We added 300 units to our multifamily portfolio in July 1997 when we acquired an
additional 40% interest in English Village Partners, L.P., for $1 million. As we
now hold a 90% interest in the partnership, the operations of English Village
Apartments, located in Memphis, Tennessee, and subject to a mortgage with a
December 31, 1999, balance of $5.8 million, have been consolidated since July
1997.
40
<PAGE> 41
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
In January 1999, we sold part of the University Center parking lot for $575,000
receiving cash of $557,000 and recognizing a gain of $338,000.
In April 1999, we sold the K-Mart Shopping Center in Thomasville, Georgia, for
$1.6 million and the Phoenix Apartments for $2.7 million, recognizing gains
totalling $418,000. We received cash of $2.9 million after paying closing costs
and the mortgage on K-Mart.
In May 1999, we sold One Turtle Creek Office Complex for $9.7 million,
recognizing a gain of $3.2 million based on a post-merger carrying value of $5.9
million. This property had been purchased in March 1992 by Vinland. The carrying
value of the property was $4.1 million before the November 1998 merger of
Tarragon with NIRT. We received cash of $3.2 million after paying closing costs
and the mortgage.
Also in May 1999, we sold about 40% of our K-Mart Shopping Center in Charlotte,
North Carolina, for $1.1 million, recognizing a gain of $326,000. As part of
this sale, the $1.2 million mortgage on the entire property was paid off, which
required $156,000 in addition to the proceeds of the sale.
In August 1999, we sold Woodcreek Apartments in Denver, Colorado, for $7
million, receiving cash of $2 million and recognizing a gain of $4.3 million.
In September 1999, we sold a parcel of land in Orangeburg, South Carolina, for
$93,000, receiving cash of $85,000. In connection with this sale, no loss was
recognized in excess of amounts previously recognized.
In October 1999, we sold Woodbrier Apartments for $3 million, recognizing a gain
of $200,000. We received net cash proceeds of $778,000 after the mortgage payoff
and closing costs.
We sold Mountain View Shopping Center in Las Vegas, Nevada, and Spring Pines
Apartments in Houston, Texas, during 1998 for an aggregate sale price of $4.7
million, receiving net cash proceeds of $2.1 million and recognizing gains on
the sales totaling $2.1 million.
We sold Plaza Hills Apartments in Kansas City, Missouri, Huntington Green
Apartments in Philadelphia, Pennsylvania, and Pheasant Pointe Apartments in
Sacramento, California, during 1997 for an aggregate sale price of $14 million,
receiving net cash proceeds of $6.4 million and recognizing gains on the sales
totaling $4.4 million.
In November 1995, the city of Indianapolis, Indiana, initiated condemnation
proceedings against our K-Mart Shopping Center acquired through a deed in lieu
of foreclosure in December 1994. The shopping center was vacant at the time we
acquired it, although leased to K-Mart under a net lease expiring in 1999. The
lease was assigned by K-Mart to the city of Indianapolis in September 1995. In
March 1996, we ceased payments on the $1.7 million non-recourse mortgage loan
secured by the shopping center. In March 1997, we wrote off the property and
related debt. No loss was recognized in excess of amounts previously provided.
41
<PAGE> 42
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
Properties we believe have peaked in value or can no longer operate efficiently
within our portfolio have been placed on the market for sale. The following
table summarizes properties reclassified from held for investment to held for
sale since the beginning of 1997. We ceased depreciating the properties in the
month following their reclassification.
<TABLE>
<CAPTION>
Date
Reclassified Number of Commercial Net Carrying
To Held Number of Apartment Square Value at
For Sale Properties Units Footage Reclassification
-------------- ---------- ---------- ---------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Mar-98 12 3,406 -- $ 56.8
Sep-98 1 136 -- 1.6
Sep-98 3 -- 216,777 7.7
Dec-98 2 360 -- 5.1
Dec-98 1 -- 39,600 1.6
Jun-99 2 -- 253,336 13.4
Sep-99 1 128 -- 2.6
</TABLE>
Conversely, Tarragon has identified certain properties previously classified as
held for sale and reclassified them to held for investment. Tarragon made the
decision not to pursue selling these properties due to the availability of
favorable long term fixed rate financing. The following table summarizes
properties reclassified from held for sale to held for investment since the
beginning of 1997. We resumed depreciating these properties in the month
following their reclassification, and depreciation expense was adjusted to
record depreciation for the period of time the properties were classified as
held for sale.
<TABLE>
<CAPTION>
Date Date
Reclassified Reclassified Number of Commercial Net Carrying
To Held for To Held Number of Apartment Square Value at
Investment For Sale Properties Units Footage Reclassification
-------------- -------------- ---------- --------- ----------- ----------------
(in millions)
<S> <C> <C> <C> <C> <C>
Sep-98 Mar-98 2 320 - $ 5.7
Mar-99 Mar-98/Dec-98 4 740 - 13.3
Jun-99 Mar-98 3 424 - 7.3
Jun-99 Sep-98 1 - 72,065 3.0
Sep-99 Mar-98 1 299 - 4.5
Dec-99 Mar-98 1 224 - 2.2
</TABLE>
The estimated fair values of the properties summarized above exceeded their
carrying values at the time of determination to reclassify, so no losses were
recognized upon their reclassification. At December 31, 1999, we have 13
properties with an aggregate net carrying value of $52.9 million classified as
held for sale. Results of operations for the years ended December 31, 1999,
1998, and 1997, for properties held for sale as of December 31, 1999, were $1.8
million, $2.4 million, and $1.5 million, respectively. Operations for these
properties include rental revenue, property operating expenses, interest
expense, and depreciation expense (prior to their reclassification to held for
sale). For a listing of properties held for sale at December 31, 1999, see
Schedule III.
42
<PAGE> 43
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Investments in and advances to partnerships consisted of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
801 Pennsylvania Avenue.......................... $ 23 $ 10
Ansonia Apartments, L.P.......................... 20,752 13,383
Antelope Pines Estates, L.P...................... 415 109
Calistoga Ranch Owners, L.L.C.................... 400 --
Danforth National Apartments, Ltd................ 818 2,695
Lake Lotta Apartments, L.L.C..................... 850 --
Larchmont Associates, L.P........................ 1,929 1,837
Merritt 8 Acquisitions, L.L.C.................... 2,582 --
National Omni Associates, L.P.................... 5,874 5,902
Orange National Partners, Ltd.................... 4,009 4,203
RI Panama City, Ltd.............................. 754 1,460
RI Windsor, Ltd.................................. 384 2,898
Sacramento Nine.................................. 1,094 555
Stone Creek Associates I, L.L.C.................. -- --
Tarragon Huntsville Apartments, L.L.C............ 765 677
Tarragon Savannah I, L.P......................... 195 2,511
Tarragon Savannah II, L.P........................ 990 --
Tarragon Stoneybrook Apartments, L.L.C........... 5,918 209
Woodcreek Garden Apartments, L.P................. 1,082 907
-------- -------
$ 48,834 $37,356
======== =======
</TABLE>
We hold noncontrolling interests in each of the above partnerships as the
outside partners participate in the decision-making activities of the
partnerships. Therefore, we account for our investments in these partnerships
using the equity method.
Partnerships with affiliates of Robert C. Rohdie
In 1997, 1998 and 1999, we formed nine partnerships with affiliates of Robert C.
Rohdie. These partnerships include Danforth National Apartments, Ltd., Lake
Lotta Apartments, L.L.C., Orange National Partners, Ltd., RI Panama City, Ltd.,
RI Windsor, Ltd., Tarragon Huntsville Apartments, L.L.C., Tarragon Savannah I,
L.P., Tarragon Savannah II, L.P., and Tarragon Stoneybrook Apartments, L.L.C.
Except for Danforth, we hold 50% interests in each of these partnerships. We
hold an 80% interest in Danforth. Each of these partnerships was formed to
construct, own, and operate a luxury apartment community in Florida, Georgia, or
Alabama. These properties, with an aggregate 2,273 units, are in various stages
of construction and/or lease-up. Generally, the partnerships obtained
construction loans (guaranteed by Mr. Rohdie) to finance the construction. The
remaining costs were primarily funded by interest-bearing priority loans from
Tarragon. We have made capital contributions to these partnerships of $827,000,
and the aggregate balance of unpaid interest-bearing priority loans at December
31, 1999, is $17.3 million. In 1997, in connection with the acquisition of the
land on which The Club at Danforth was constructed, Danforth paid an acquisition
fee of $30,000 to Tarragon Realty Advisors.
43
<PAGE> 44
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
In February 2000, we effectively acquired Mr. Rhodie's interests in these
partnerships. See NOTE 19. "SUBSEQUENT ACQUISITION OF JOINT VENTURE INTERESTS."
Ansonia Apartments, L.P.
In December 1997, we formed Ansonia Apartments, L.P., with two unrelated
entities to invest in the renovation and repositioning of older, suburban
apartment properties in central and eastern Connecticut. We formed this
partnership to take advantage of the acquisition and management skills of Robert
Rothenberg, Saul Spitz, Richard Frary, and Joel Mael, the principals of our
outside partners. Tarragon has a 70% interest in this partnership. The outside
partners have a 30% interest in the partnership, subject to their obligation to
pay Tarragon 30% of the amounts it contributed to the partnership plus interest.
Between December 1997 and November 1999, Ansonia purchased sixteen operating
properties with 2,580 apartment units at an aggregate cost of $84 million, $67.5
million of which was financed through mortgages on each property. The remainder
of the aggregate purchase price was paid with funds Tarragon contributed to
Ansonia. Our contributions, with a balance of $16.7 million at December 31,
1999, earn a preferred return and will be repaid through preferential returns
from operation, refinancing, sale, or other disposition of the properties. In
connection with the acquisition and financing of these properties, Ansonia paid
Tarragon Realty Advisors fees of $38,000 in 1997 and $54,000 in 1998.
Antelope Pines Estates, L.P., and Woodcreek Garden Apartments, L.P.
In December 1998, we purchased a 49% general partner interest in Antelope Pines
Estates, L.P., which owns a 314-unit operating apartment property and in
Woodcreek Garden Apartments, L.P., which owns a 416-unit operating apartment
property, both located in Lancaster, California. We have made investments in and
advances to the partnerships of $1.5 million, which are expected to be repaid
from operations, refinancing, sale, or other disposition of the properties,
subject to preferential returns to the other partners.
Calistoga Ranch Owners, L.L.C.
In October 1999, Tarragon contributed $400,000 to the partnership and acquired a
4% interest. The partnership will acquire Calistoga Ranch Resort, a luxury
residential development with resort-type amenities on approximately 167 acres in
Napa County, California. Tarragon has agreed to lend up to $2 million to
Calistoga to consummate the closing of the purchase. For each $100,000 of the
loan amount, Tarragon will receive an additional 1% interest in the partnership.
801 Pennsylvania Avenue
In June 1995, we acquired a 50% economic interest in an office building located
at 801 Pennsylvania Avenue, Washington, D.C. This interest was acquired through
purchase of a first lien mortgage note with a face value of $8.5 million for $3
million. In accordance with the terms of the note, our $3 million investment, as
well as any additional advances made to the property, were to be repaid from
property cash flow after operating expenses, with interest at a rate of 11% per
annum. The $5.5 million remaining balance of the note plus accrued interest was
to be satisfied by payment of 50% of all funds available after property
operating expenses plus 50% of the proceeds from any sale or refinancing. In
June 1998, new first mortgage financing in the amount of $4.2 million secured by
the property was obtained. We received $3.8 million of the financing proceeds,
$2.9 million of which represented the balance of our original investment,
$606,000 of which was accrued interest, and $267,000 was our 50% participation
in excess financing proceeds.
44
<PAGE> 45
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
Larchmont Associates, L.P.
We hold a 57% interest in Larchmont Associates, L.P., which owns a 504-unit
apartment complex in Toledo, Ohio. The Larchmont interest was initially acquired
by Vinland in December 1995 in return for a cash investment of $418,000. Since
then, additional advances have been made to Larchmont, largely to fund capital
improvements. The $1.9 million aggregate balance is expected to be repaid with
interest at 18% from the operation, refinancing, sale, or other disposition of
the property.
Merritt 8 Acquisitions, L.L.C.
In August 1999, Tarragon acquired an 80% interest in Merrit 8 with an investment
of $2.6 million. The partnership purchased Merritt 8 Corporate Park, a 160,000
square foot office building in Stratford, Connecticut, at a cost of $20 million
of which $18 million was paid from a mortgage on the property. The members of
Merritt 8 had a contract to acquire for $500,000 an adjacent 19 acre parcel for
future development. In January 2000, the members formed Merritt Stratford,
L.L.C., and purchased the land.
National Omni Associates, L.P.
In December 1997, we formed Omni in which we held a 55% interest. Omni purchased
5600 Collins Avenue, a 289-unit high rise waterfront apartment building in Miami
Beach, Florida, in February 1998 and paid Tarragon Realty Advisors a $150,000
acquisition fee. The purchase price of $32 million was partially funded through
$26 million of first and second lien loans. The remainder of the purchase price
was paid with funds Tarragon contributed. In connection with the merger, our
interest increased to 70%. Our investment balance of $5.9 million at December
31, 1999, is to be repaid with interest at rates between 10% and 18% through
preferential returns from operation, refinancing, sale, or other disposition of
the property. In February 2000, we acquired our partner's interest in Omni. See
Note 18. "SUBSEQUENT EVENTS."
Sacramento Nine ("SAC 9")
Tarragon and Transcontinental Realty Investors, Inc., (successor by merger to
Continental Mortgage and Equity Trust) are partners in SAC 9, a
tenancy-in-common that owned two office buildings in the vicinity of Sacramento,
California. Tarragon has a 70% undivided interest in SAC 9. In December 1999,
SAC 9 sold one of its two properties. Tarragon recognized a gain on sale of $3.2
million and received $2.7 million in cash.
Stone Creek Associates I, L.L.C.
In December 1999, Tarragon acquired a 72% interest in Stone Creek. The
partnership will own and operate an apartment complex in Sacramento, California.
Tarragon is obligated to contribute about $1.5 million to the partnership, and
about $1 million was contributed in January 2000 when the partnership acquired
the property. Tarragon's interest will decline to 56% after receiving
distributions that repay its contribution with a preferred return of 15%.
Other partnerships
Until July 1997, we held a 50% interest in English Village Partners, L.P., at
which time we acquired an additional 40% interest in English Village, increasing
our total interest to 90%, in exchange for a capital contribution of $1 million.
As we now hold a controlling interest, the operations of English Village, have
been consolidated since July 1997. See NOTE 3. "REAL ESTATE AND DEPRECIATION."
45
<PAGE> 46
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
Until November 1997, we had a 40% interest in Indcon, L.P., which owned
industrial warehouses. In August 1997, Indcon sold a warehouse for $60,000
receiving net cash proceeds of $54,000 of which our proportionate share was
$22,000. In connection with the sale, Indcon recorded a loss on the sale
totaling $134,000, and we recorded a $54,000 loss representing our proportionate
share of the loss on sale. In November 1997, we sold our interest in the
partnership for $1.6 million cash. In connection with this sale, we recognized a
gain of $215,000.
Below are summarized financial data for the partnerships accounted for using the
equity method as of and for the periods indicated (unaudited):
<TABLE>
<CAPTION>
Other
December 31, 1999 Other Construction/
Ansonia Danforth Omni Windsor Operating Lease-Up Other Total
-------- -------- -------- -------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate ................... $ 96,429 $ 16,200 $ 33,355 $ 18,794 $ 70,299 $ 65,231 $ 844 $ 301,152
Accumulated depreciation ...... (2,543) (792) (1,379) (1,159) (2,972) (1,517) -- (10,362)
Other assets .................. 2,492 305 748 420 3,116 1,139 -- 8,220
Notes and interest payable .... (73,739) (15,028) (26,050) (18,830) (53,806) (52,011) -- (239,464)
Other liabilities ............. (5,343) (2,992) (1,595) (1,727) (3,864) (15,097) (844) (31,462)
-------- -------- -------- -------- -------- -------- -------- ---------
Partners' capital (deficit) ... $ 17,296 $ (2,307) $ 5,079 $ (2,502) $ 12,773 $ (2,255) $ -- $ 28,084
======== ======== ======== ======== ======== ======== ======== =========
Our proportionate share of
capital (deficit) .......... $ 17,296 $ (1,845) $ 5,079 $ (1,194) $ 4,357 $ (814) $ -- $ 22,879
Advances ...................... 3,456 2,663 795 1,578 2,768 13,930 765 25,955
-------- -------- -------- -------- -------- -------- -------- ---------
Investments in and advances to
partnerships ............... $ 20,752 $ 818 $ 5,874 $ 384 $ 7,125 $ 13,116 $ 765 $ 48,834
======== ======== ======== ======== ======== ======== ======== =========
Year ended December 31, 1999
Rental revenue ................ $ 12,863 $ 1,889 $ 4,466 $ 2,487 $ 10,408 $ 4,405 $ -- $ 36,518
Property operating expenses ... (6,381) (941) (2,236) (1,090) (4,784) (2,167) -- (17,599)
Interest expense .............. (4,221) (1,078) (2,049) (1,365) (3,167) (2,333) -- (14,213)
Depreciation expense .......... (1,869) (596) (765) (773) (1,584) (1,288) -- (6,875)
-------- -------- -------- -------- -------- -------- -------- ---------
Income (loss) before gain
on sale of real estate ..... 392 (726) (584) (741) 873 (1,383) -- (2,169)
Gain on sale of real estate ... -- -- -- -- 4,608 -- -- 4,608
-------- -------- -------- -------- -------- -------- -------- ---------
Net income (loss) ............. $ 392 $ (726) $ (584) $ (741) $ 5,481 $ (1,383) $ -- $ 2,439
======== ======== ======== ======== ======== ======== ======== =========
Equity in income (loss) of
partnerships ............... $ 386 $ (282) $ (584) $ (342) $ 677 $ (571) $ -- $ (716)
======== ======== ======== ======== ======== ======== ======== =========
Our proportionate share of gain
on sale of real estate ..... $ -- $ -- $ -- $ -- $ 3,226 $ -- $ -- $ 3,226
======== ======== ======== ======== ======== ======== ======== =========
December 31, 1998
Real estate ................... $ 69,271 $ 15,949 $ 32,576 $ 18,688 $ 18,420 $ 35,280 $ 35,874 $ 226,058
Accumulated depreciation ...... (675) (196) (614) (387) (3,721) (227) -- (5,820)
Other assets .................. 1,472 430 853 205 864 698 833 5,355
Notes and interest payable .... (54,530) (13,295) (26,050) (15,962) (13,102) (27,030) (26,500) (176,469)
Other liabilities ............. (2,163) (3,809) (935) (3,765) (2,597) (8,676) (2,099) (24,044)
-------- -------- -------- -------- -------- -------- -------- ---------
Partners' capital (deficit) ... $ 13,375 $ (921) $ 5,830 $ (1,221) $ (136) $ 45 $ 8,108 $ 25,080
======== ======== ======== ======== ======== ======== ======== =========
Our proportionate share of
capital (deficit) .......... $ 13,375 $ (744) $ 5,830 $ (611) $ 945 $ 221 $ 119 $ 19,135
Advances ...................... 8 3,439 72 3,509 1,457 7,953 1,783 18,221
-------- -------- -------- -------- -------- -------- -------- ---------
Investments in and advances to
partnerships ............... $ 13,383 $ 2,695 $ 5,902 $ 2,898 $ 2,402 $ 8,174 $ 1,902 $ 37,356
======== ======== ======== ======== ======== ======== ======== =========
</TABLE>
46
<PAGE> 47
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
<TABLE>
<CAPTION>
Other
Year ended December 31, 1998 Other Construction/
Ansonia Danforth Omni Windsor Operating Lease-Up Other Total
-------- -------- -------- -------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental revenue ................ $ 5,558 $ 419 $ 3,945 $ 1,338 $ 2,496 $ 1,088 $ -- $ 14,844
Property operating expenses ... (2,762) (384) (2,163) (1,071) (751) (621) -- (7,752)
Interest expense .............. (1,788) (776) (1,931) (1,496) (562) (898) -- (7,451)
Depreciation expense .......... (668) (196) (614) (348) (449) (228) -- (2,503)
------- ----- ------- ------- ------- ------- ---- --------
Net income (loss) ............. $ 340 $(937) $ (763) $(1,577) $ 734 $ (659) $ -- $ (2,862)
======= ===== ======= ======= ======= ======= ==== ========
Equity in income (loss) of
partnerships ............... $ 340 $(750) $ (648) $ (789) $ 1,362 $ (404) $ -- $ (889)
======= ===== ======= ======= ======= ======= ==== ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997 Other
Windsor Operating Total
------- --------- -------
<S> <C> <C> <C>
Rental revenue ...................... $ 225 $ 3,598 $ 3,823
Property operating expenses ......... (79) (1,340) (1,419)
Interest expense .................... (180) (649) (829)
Depreciation expense ................ (38) (481) (519)
----- ------- -------
Income (loss) before loss on sale
of real estate ................... (72) 1,128 1,056
Loss on sale of real estate ......... -- (134) (134)
----- ------- -------
Net income (loss) ................... $ (72) $ 994 $ 922
===== ======= =======
Equity in income (loss) of
partnerships ..................... $ (36) $ 679 $ 643
===== ======= =======
Our proportionate share of loss
on sale of real estate ........... $ -- $ (54) $ (54)
===== ======= =======
</TABLE>
"Other Operating" partnerships include those with fully operational properties.
"Construction/lease-up" partnerships include those with properties under
construction or recently completed. "Other" in 1999 and 1998 includes one
property held for future development, and in 1998 also includes one partnership
that began construction of its property in 1999, and two partnerships with one
property each that began operations in 1999. Equity in income of "Other
Operating" partnerships for the year ended December 31, 1998, includes $873,000
received from the refinancing of 801 Pennsylvania Avenue, as described above,
representing accrued interest on our original investment and additional advances
plus a 50% participation in the excess financing proceeds. Interest, property
taxes, and insurance expenditures of $2.2 million, $1.7 million and $631,000 in
1999, 1998, and 1997, respectively, were capitalized on properties constructed
by partnerships we account for using the equity method.
47
<PAGE> 48
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Investments in marketable equity securities consist of securities of
unaffiliated real estate companies and are available for sale. The investments
are carried at fair value and are included in "Other assets" in the accompanying
Consolidated Balance Sheets. Unrealized holding gains and losses are included in
other comprehensive income (loss).
Carrying value and cost basis of investments in marketable equity securities
were as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
----- -----
<S> <C> <C>
Carrying value......................... $510 $88
Cost basis............................. 550 178
</TABLE>
Unrealized holding gains and losses, securities sold, and realized gains on the
sale of marketable equity securities were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Unrealized holding gains .............................. $50 $ -- $ 831
Unrealized holding losses ............................. -- (100) --
Marketable equity securities sold ..................... -- 580 2,606
Cost basis of marketable equity securities sold ....... -- 457 1,908
Realized gains on sale marketable equity securities ... -- 123 698
</TABLE>
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE
Notes, debentures, and interest payable consisted of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
-------------------------- -------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage notes payable ........................... $ 270,961 $ 273,857 $ 249,381 $ 251,141
Other notes payable............................... 10,950 10,950 9,399 9,590
Debentures payable................................ 892 928 873 928
Accrued interest ................................. -- 2,032 -- 1,702
------------ --------- ----------- -----------
$ 282,803 $ 287,767 $ 259,653 $ 263,361
============ ========= =========== ===========
</TABLE>
Notes payable at December 31, 1999, bear interest at fixed rates from 5.99% to
9.81% per annum and variable rates currently ranging from 5.69% to 10.5% and
mature from 2000 through 2031. The mortgage notes are generally nonrecourse and
are collateralized by deeds of trust on real estate with an aggregate carrying
value of $292.8 million.
48
<PAGE> 49
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
Debentures are unsecured, bear interest at 9% per annum, mature June 30, 2003,
and are redeemable at any time at 100% of the principal amount together with
accrued but unpaid interest. Interest is payable semiannually in June and
December. Debentures were issued in 1993 by Vinland in connection with a
dividend to stockholders.
Other notes payable at December 31, 1999, include $5.1 million due to affiliates
of Mr. Friedman. See NOTE 12. "RELATED PARTY TRANSACTIONS." Other notes payable
also include $6.7 million obtained through line of credit facilities closed in
1999 as discussed below.
At December 31, 1999, scheduled principal payments on notes and debentures
payable are due as follows:
<TABLE>
<S> <C>
2000.................. $ 81,311
2001.................. 40,595
2002.................. 7,138
2003.................. 5,898
2004.................. 11,853
Thereafter............ 138,940
---------
$ 285,735
=========
</TABLE>
We intend to either pay off the loans as they come due or extend the due dates
while seeking to obtain long term refinancing. Of the principal payments due in
2000, $39.8 million represents amounts due under the $50 million revolving
credit facility, which has two six-month extension options. We have extended a
$1.1 million loan, scheduled to mature in 2000, to May 2001 and a $6.9 million
loan, included in 2000 scheduled principal payments, to February 2003. We paid
off a $2.4 million loan, scheduled to mature in 2000, in connection with the
sale of a portion of Rancho Sorrento Office Building in January 2000. We believe
we can arrange new financing as needed but cannot assure that we will be
successful in our efforts or that the timing of new financing will coincide with
the due dates of maturing loans.
During 1999, 1998, and 1997, we obtained permanent mortgage financing on 31
properties totaling $115.8 million, receiving net cash proceeds of $44.4 million
after the payoff of $61.5 million in existing debt. The remainder of the
financing proceeds was used to fund escrows for replacements and repairs and to
pay the associated closing costs. In connection with these financings, we paid
fees of $708,000 to Tarragon Realty Advisors.
During 1999, 1998, and 1997, we obtained interim financing secured by three
properties totaling $11.6 million (excluding fundings under the $50 million and
$35 million revolving credit facilities discussed below), receiving net cash
proceeds of $11.1 million. In connection with these financings, we paid fees of
$89,000 to Tarragon Realty Advisors. One of these properties was refinanced in
1998 with a funding under the $35 million revolving credit facility discussed
below.
In April 1999, Tarragon obtained a $6 million line of credit, secured by
treasury shares of Tarragon common stock valued at no less than two times the
outstanding balance of the line of credit. Some of the shares of common stock
were pledged by the family of Mr. Friedman as an accommodation to Tarragon, and
the remaining were treasury shares. As of December 31, 1999, we have replaced
the shares pledged by the Friedman family with treasury shares purchased under
our stock repurchase program. Advances under the line of credit bear interest at
the 30-day LIBOR plus 1.75% per annum. Terms of the line of credit require
monthly payments of interest only, with the principal due in April 2001. We
received $2.2 million in cash from this transaction, after paying off two loans
with the same lender which were also secured by shares of our common stock.
These loans included a $1.5 million note due in July 1999 and a $2.2 million
note due in January 2000.
In May 1999, Tarragon obtained a $650,000 line of credit facility secured by
2.474 acres of land in Dallas, Texas, know as Lake Highlands land and treasury
stock valued at no less than $650,000. Advances under the line of credit bear
interest at prime. Terms of the line of credit require monthly payments of
interest only, with the principal due in May 2000. Tarragon received $614,000
cash from this transaction. The line of credit is guaranteed by Mr. Friedman.
49
<PAGE> 50
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
In June 1996, Tarragon purchased the $3.1 million Fannie Mae mortgage backed
security ("Fannie Mae MBS") issued by the lender in connection with the
financing of Forest Oaks Apartments at a 1/2% discount and simultaneously
entered into a reverse repurchase agreement with an investment bank. The
investment bank purchased the Fannie Mae MBS from Tarragon for 92% of its value,
and Tarragon agreed to repurchase the MBS from the investment bank one month
later at the same price plus interest at LIBOR plus 1/2% per annum. In July
1996, Tarragon purchased the $16.8 million Government National Mortgage
Association mortgage backed security ("GNMA MBS") issued by the lender in
connection with the financing of Heather Hills Apartments at a 2.7% discount and
added this MBS to the reverse repurchase transaction with the investment bank.
As provided for in the agreement, Tarragon and the investment bank extended the
repurchase date monthly, and the repurchase price fluctuated with changes in the
values of the MBSs. In January 1997, we entered into a similar repurchase
transaction with a government sponsored enterprise which purchased the MBSs for
97% of their aggregate value, and we agreed to repurchase them one month later
at the same price plus interest at 5.4% per annum. Tarragon and the government
sponsored enterprise extended the repurchase date monthly, establishing a new
repurchase price each month. In November 1997, we purchased the $2.7 million
Fannie Mae MBS issued by the lender in connection with the financing of Cross
Creek Apartments at face value and added this MBS to the reverse repurchase
transaction. In July 1998, we renewed the reverse repurchase agreement with the
investment bank. Currently, the repurchase date is March 2000, the repurchase
price is $21.2 million, and the interest rate is 5.88%. The reverse repurchase
transaction has resulted in effective interest rates as of December 31, 1999, on
the Forest Oaks, Heather Hills, and Cross Creek financings of 6.74%, 5.96%, and
6.44%, respectively.
We are exposed to a demand for additional collateral or, in the alternative,
credit loss in the event the interest rate associated with the repurchase
transaction fluctuates in a manner that is unfavorable to our interest in the
MBSs. However, we intend to either pay off the mortgages or modify the mortgages
to increase the interest rate prior to any significant credit loss.
In connection with its acquisition of Tarragon Realty Advisors, Tarragon assumed
a $1.5 million note payable to a bank. This loan was secured by Tarragon common
stock and was paid off in April 1999 in connection with the closing of the $6
million line of credit.
During 1997, we obtained a $2.2 million loan secured initially by treasury
shares of stock. The proceeds of this loan were advanced to RI Windsor, Ltd., a
partnership in which we hold a 50% interest. See NOTE 4. "INVESTMENTS IN AND
ADVANCES TO PARTNERSHIPS." This loan was paid off in connection with the closing
of the $6 million line of credit in April 1999.
In May 1997, we accepted a commitment from GMAC Commercial Mortgage Corporation
("GMAC") for a $50 million revolving credit facility. Advances under the
facility are available to finance properties currently owned as well as new
acquisitions. The outstanding balance is limited to the lesser of 75% of the
value of the collateral properties or an amount supported by a debt service
coverage ratio of 1.25. The borrowing base may be increased by adding new or
existing properties to the collateral pool. Advances are limited to the lesser
of 75% of the appraised value of the property as stabilized or 80% of total
acquisition costs which include the purchase price of a newly acquired property
and the cost of improvements incurred between the date of
50
<PAGE> 51
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
acquisition and the date that any mortgage secured by that property is recorded.
A newly acquired property is defined as a property owned for less than one year.
The outstanding balance under the facility bears interest at the 30 day LIBOR
plus a variable spread of between 2% and 2.5% which is determined based on the
loan-to-value and debt service coverage maintained. Payment terms include
interest only monthly with the outstanding balance due at maturity, which is 36
months from the date of the first advance. We may extend the maturity by two
six-month terms, but no new fundings may occur under the facility during any
extension period. Fundings under this revolving credit facility total $47.5
million, $42 million of which were obtained in 1997, secured by first mortgages
against nine properties. We received net cash proceeds of $31.7 million ($26.3
million in 1997) from these fundings after the payoff of existing mortgages of
$13.5 million in 1997, establishing escrows for taxes, insurance, and repairs,
and paying the associated closing costs. In connection with these fundings, we
paid Tarragon Realty Advisors financing fees totaling $475,425 ($420,000 in
1997). The December 31, 1999, outstanding balance of advances under this
revolving credit facility is $39.8 million.
In June 1998, we obtained a $35 million revolving credit facility from GMAC with
substantially the same terms as the $50 million revolving credit facility
obtained in 1997. The outstanding balance under the facility bears interest at
the 30-day LIBOR plus 2%. Payment terms include interest only monthly with the
outstanding balance due at maturity, which is June 2001. Similar to the $50
million facility, the maturity of the $35 million facility may be extended by
two six-month terms, but no new fundings may occur under the facility during any
extension period. In June 1998, we obtained fundings under this revolving credit
facility of $9.5 million, which represents the December 31, 1999, outstanding
balance of advances under this revolving credit facility, secured by first
mortgages on two properties. We received net cash proceeds of $4 million from
these fundings after the payoff of existing mortgages totaling $5.1 million,
establishing escrows for taxes, insurance, and repairs, and paying the
associated closing costs. In connection with these fundings, we paid Tarragon
Realty Advisors financing fees totaling $95,000.
During 1999, we recognized extraordinary expenses related to early
extinguishment of debt of $444,000 from prepayment penalties and deferred
financing expenses written off in connection with the 1999 refinancings. Of this
amount, $196,000 represents our share of such expenses of unconsolidated
partnerships.
During 1998, we recognized $1.2 million of extraordinary expenses resulting from
prepayment penalties and the write-off of deferred financing expenses associated
with certain refinancings.
In 1997, we recognized a $431,000 extraordinary gain on early extinguishment of
debt resulting from a discounted payoff of the mortgage secured by University
Center. We also recognized extraordinary expenses of $370,000 in 1997 resulting
from prepayment penalties and the write-off of deferred financing expenses in
connection with certain refinancings.
NOTE 7. DIVIDENDS TO STOCKHOLDERS
We paid cash dividends in 1999, 1998, and 1997 of $3.4 million, $3.2 million,
and $2.9 million, respectively. The dividends paid in 1999 were reported to the
Internal Revenue Service as 42% taxable to stockholders as ordinary income and
58% return of capital. The dividends paid in 1998 and 1997 were reported to the
Internal Revenue Service as return of capital. Additionally, in September 1997,
we paid a 10% stock dividend, resulting in the issuance of 807,116 shares.
51
<PAGE> 52
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. EARNINGS PER SHARE
Following is a reconciliation of the weighted average shares of common stock
outstanding used in the computation of earnings per share and earnings per share
- - assuming dilution. The effect of stock options on weighted average shares of
common stock outstanding - assuming dilution for the year ended December 31,
1998, is not reflected below because their effect is anti-dilutive due to the
net loss in 1998.
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Weighted average shares of
common stock outstanding....... 8,220,280 7,619,604 7,693,031
Stock options..................... 106,840 -- 76,265
--------- --------- ---------
Weighted average shares of
common stock outstanding -
assuming dilution.............. 8,327,120 7,619,604 7,769,296
========= ========= =========
</TABLE>
NOTE 9. STOCK OPTIONS
With the approval of its stockholders, Tarragon adopted an Independent Director
Stock Option Plan and a Stock Option and Incentive Plan (collectively, the
"Option Plans") in November 1995. Our predecessor, NIRT, also adopted similar
Independent Trustee Share Option and Stock Option and Incentive Plans
(collectively the "NIRT Plans") in November 1995.
Pursuant to the terms of the Merger Agreement by and between Tarragon and NIRT,
the NIRT Plans were consolidated with and into the Option Plans, with the shares
of common stock available under the consolidated plans for option awards being
increased by the number of NIRT shares of beneficial interest available under
the NIRT Plans multiplied by the exchange ratio of 1.97 to 1, and the option
awards authorized by Tarragon's Independent Director Stock Option Plan (the
"Director Plan") increased by the option awards authorized by the NIRT
Independent Trustee Share Option Plan multiplied by the exchange ratio.
Under Tarragon's consolidated Director Plan, Independent Directors receive
annual awards of options to purchase up to 2,000 shares of Tarragon common stock
on January 1 of each year. The options are immediately exercisable and expire on
the earlier of the first anniversary of the date on which the director ceases to
serve as a director or ten years from the date of grant.
Under Tarragon's consolidated Stock Option and Incentive Plan, incentive stock
options have been awarded to officers and employees of Tarragon and its
subsidiaries. These stock options vest between one and five years from the date
of grant and expire between five and ten years thereafter, unless the optionee's
relationship with Tarragon terminates earlier. Incentive stock options are
awarded by the Option Committee of the Board of Directors, which is currently
comprised of Michael E. Smith, Carl B. Weisbrod, and Lawrence G. Schafran.
A total of 187,022 shares of common stock are currently available for grant
under the Director Plan, and a total of 815,110 shares of common stock are
currently available for grant under the Stock Option and Incentive Plan.
52
<PAGE> 53
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. STOCK OPTIONS (Continued)
Tarragon granted options to purchase 350,000 shares of Tarragon common stock
over a period of ten years at prices ranging between $13 and $16 per share to
William S. Friedman and Lucy N. Friedman in connection with the acquisition of
Tarragon Realty Advisors. Additionally, Tarragon granted Mr. Friedman options to
purchase 450,000 shares of Tarragon common stock over a period of ten years at
prices ranging between $12 and $15 per share in connection with a three year
employment contract entered into with Mr. Friedman. The $942,000 fair value of
these options was estimated using the Black Scholes pricing model and
represented a portion of the purchase consideration in the acquisition of
Tarragon Realty Advisors.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997
------------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Prices Options Prices Options Prices
------------ ------------ ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 1,150,878 $11.71 327,000 $ 5.51 219,300 $ 5.49
Options granted 16,000 11.00 66,740 10.22 108,488 6.59
Options consolidated in merger -- -- 74,172 8.37 -- --
Options granted in acquisition of TRA -- -- 800,000 13.81 -- --
Options exercised (20,505) 4.92 (40,785) 5.27 -- --
Options forfeited (45,478) 5.69 (76,249) 6.39 (788) $ 7.74
---------- ------ ---------- ------ -------- ------
Outstanding at December 31 1,100,895 $12.07 1,150,878 $11.71 327,000 5.51
========== ====== ========== ====== ======== ======
Exercisable at December 31 1,043,881 $12.14 1,073,911 $11.77 322,272 $ 4.99
========== ====== ========== ====== ======== ======
Weighted average grant-date fair
value of options granted:
To employees and directors $ 1.41 $ 1.53 $ 1.53
====== ====== ======
In connection with acquisition of TRA $ -- $ 1.18 $ --
====== ====== ======
</TABLE>
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------- ----------------------------
Range of Weighted Average Weighted Average Weighted Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
---------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$ 4.61 - 5.87 144,916 3.80 years $ 5.01 144,916 $ 5.01
7.00 - 10.00 81,879 4.54 years 8.45 71,345 8.24
10.80 - 15.00 774,100 8.90 years 13.27 727,620 13.41
16.00 100,000 8.90 years 16.00 100,000 16.00
--------------- --------- ------------ ------ --------- -------
$ 4.61 - 16.00 1,100,895 7.91 years $12.07 1,043,881 $ 12.14
=============== ========= ============ ====== ========= =======
</TABLE>
Subsequent to year end, in January 2000, we granted options covering 16,000
shares, all of which were immediately exercisable, pursuant to the Director
Plan. Also, 6,521 of the options outstanding at December 31, 1999, were
exercised in the first quarter of 2000.
53
<PAGE> 54
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. STOCK OPTIONS (Continued)
We apply APB No. 25 and related Interpretations in accounting for our option
plans. All stock options issued to date have exercise prices equal to the market
price at the dates of grant. Accordingly, no compensation cost has been
recognized for our stock option plans. Had compensation cost for our stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, our net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- ----------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)........... $ 5,257 $ 5,219 $ (1,395) $ (1,458) $ 5,592 $ 5,554
Earnings per share
Net income (loss)........... $ 0.64 $ 0.63 $ (0.18) $ (0.19) $ 0.73 $ 0.72
Earnings per share -
assuming dilution
Net income (loss)........... $ 0.63 $ 0.63 $ (0.18) $ (0.19) $ 0.72 $ 0.71
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------------
1999 1998 1998 1997
-------------- ------------- ------------------ -------------
Granted to Granted to Granted in Granted to
Employees Employees connection with Employees
and Directors and Directors acquisition of TRA and Directors
-------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
Dividend yield.................. 4% 4% 4% 6%
Expected volatility............. 15% 14% 13% 20%
Risk-free interest rate......... 4.84% 5.60% 5.60% 6.21%
Expected lives (in years)....... 8 8 8 3
Forfeitures..................... 5% 10% -- 10%
</TABLE>
NOTE 10. ADVISORY AGREEMENT
Prior to the acquisition of Tarragon Realty Advisors, the day-to-day operations
of Tarragon were performed by Tarragon Realty Advisors, operating under the
supervision of the Board pursuant to a written advisory agreement approved by
stockholders. Effective with the merger and the acquisition of Tarragon Realty
Advisors in November 1998, the advisory agreement was terminated.
Prior to the merger, the duties of the advisor included, among other things,
locating, investigating, evaluating, and recommending real estate investment and
sale opportunities and financing and refinancing sources. The advisor also
served as a consultant in connection with the business plan and investment
policy decisions made by the Board.
Under the advisory agreement, Tarragon paid an incentive advisory fee equal to
16% of adjusted funds from operations before deduction of the advisory fee.
Adjusted funds from operations was defined as funds from operations ("FFO"), as
defined by the National Association of Real Estate Investment Trusts, plus any
loss due to the write-down or sale of any real property or mortgage loan
acquired prior to January 1, 1989. FFO represents net income (loss), computed in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization of real estate assets, and
after
54
<PAGE> 55
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10. ADVISORY AGREEMENT (Continued)
adjustments for unconsolidated partnerships and joint ventures. Additionally,
Tarragon Realty Advisors received commissions of 1% based upon (i) acquisition
cost of real estate and (ii) mortgage loans obtained or refinanced.
Prior to the acquisition of Tarragon Realty Advisors, Tarragon had no employees.
Employees of Tarragon Realty Advisors rendered services to Tarragon, and, in
accordance with the terms of the advisory agreements, Tarragon reimbursed
Tarragon Realty Advisors for certain of those services, including, but not
limited to, accounting, legal, investor relations, data processing, and the
related departmental overhead.
For additional information regarding compensation paid to the advisor, see NOTE
12. "RELATED PARTY TRANSACTIONS."
Since the acquisition of Tarragon Realty Advisors, we no longer pay advisory,
acquisition, or refinancing fees. Instead, we pay directly the overhead costs
previously borne by Tarragon Realty Advisors. These expenses are included in
corporate general and administrative expenses in the accompanying Consolidated
Statements of Operations.
NOTE 11. PROPERTY MANAGEMENT
From April 1994 through November 1998, Tarragon paid property management fees of
4.5% of the monthly gross rents collected on multifamily properties and 1.5% to
5% of the monthly gross rents collected on commercial properties to Tarragon
Realty Advisors and/or Tarragon Management, Inc., a wholly-owned subsidiary of
Tarragon Realty Advisors. Tarragon Realty Advisors subcontracted with third
parties to provide property level management services to most of the retail and
office properties and the apartment properties located in California,
Connecticut, and Colorado. Since Tarragon acquired Tarragon Realty Advisors in
November 1998, Tarragon is no longer required to pay management fees on the
properties managed in-house, although it continues to pay management fees on
those properties under contract with outside management companies. We now pay
the overhead costs previously borne by Tarragon Management. These expenses are
included in property general and administrative expenses in the accompanying
Consolidated Statements of Operations.
Since the acquisition of Tarragon Realty Advisors, Tarragon earns management fee
income from properties owned through partnerships that are managed in-house and
from seven multifamily projects and one shopping center owned by entities
affiliated with Mr. Friedman. Fees for these services are comparable to the fees
charged by Tarragon Realty Advisors.
NOTE 12. RELATED PARTY TRANSACTIONS
Fees and expense reimbursements to Tarragon Realty Advisors and affiliates for
1998 (prior to the acquisition of Tarragon Realty Advisors) and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Fees
Advisory $ 1,048 $ 1,438
Real estate acquisition 105 234
Equity refinancing 643 773
Property management* 1,884 1,610
Commercial lease commissions 12 39
------- -------
$ 3,692 $ 4,094
======= =======
Expense reimbursements $ 2,215 $ 1,914
======= =======
</TABLE>
- ----------
* Net of property management fees paid to subcontractors.
55
<PAGE> 56
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12. RELATED PARTY TRANSACTIONS (Continued)
Notes payable at December 31, 1999, included $5.1 million advanced by affiliates
of Mr. Friedman under a two year $6 million line of credit arrangement approved
by the Board of Directors. The funds were used to facilitate investments by
Tarragon and the partnerships in which it holds interests. Advances under the
line of credit bear interest at LIBOR plus 1% per annum and are payable in
January 2001.
Tarragon received property management fees of $279,000 from properties owned by
affiliates of Mr. Friedman during 1999.
NOTE 13. INCOME TAXES
For the 1997 through 1999 tax years, Tarragon has elected and qualified to be
treated as a Real Estate Investment Trust ("REIT"), as defined in Sections 856
through 860 of the Internal Revenue Code of 1986, and, as such, has not been
taxed for federal income tax purposes on that portion of its taxable income that
was distributed to stockholders, provided that at least 95% of its REIT taxable
income, plus 95% of its taxable income from foreclosure property as defined in
Section 857 of the Internal Revenue Code, was distributed. See NOTE 7.
"DIVIDENDS TO STOCKHOLDERS." As a result of our election to be treated as a REIT
for federal income tax purposes, no deferred tax asset or liability or related
valuation allowance was recorded. No provision has been made for federal income
taxes because we believe we qualified as a REIT in the tax years through 1999.
As discussed in Note 18. "SUBSEQUENT EVENTS," in February 2000, we filed a
revocation of REIT election with the Internal Revenue Service, terminating our
status as a REIT effective December 1, 1999 (the beginning of the 2000 tax
year). Beginning December 1, 1999, the results of our operations will be subject
to income taxes. No current or deferred income tax expense was recognized in
1999 resulting from the change in tax status due to the application of net
operating loss carryforwards. A reconciliation of computed income taxes to
actual income taxes follows:
<TABLE>
<CAPTION>
Month Ended
Dec. 31, 1999
-------------
<S> <C>
Income from continuing operations $ 1,214
Statutory federal income tax rate 34%
--------
Income tax expense at statutory rate 413
Net operating loss benefit recognized (413)
--------
Income taxes $ --
========
</TABLE>
The following table discloses the components of the deferred tax amounts at
December 31, 1999:
<TABLE>
<S> <C>
Deferred tax assets - temporary differences
Equity in earnings of partnerships $ 124
Other 4
--------
Total deferred tax assets - temporary differences 128
Net operating loss carryforwards 15,959
--------
Total deferred tax assets 16,087
Deferred tax liability - temporary difference for basis in and
depreciation of real estate (151)
--------
Net deferred tax assets 15,936
Less valuation allowance (15,936)
--------
Net deferred tax amount $ --
========
</TABLE>
At December 31, 1999, Tarragon had federal net operating loss carryforwards
(NOLs) of approximately $46.9 million. If not utilized, the NOLs will expire
between years 2003 and 2019. The future availability of the NOLs may be limited
if Tarragon experiences an ownership change of more than 50 percent, as defined
by IRS regulations. Tarragon's stock is publicly traded, and we cannot assure
that future trading will not result in an ownership change, as defined by IRS
regulations, which would limit availability of the NOLs. Due to these
uncertainties regarding possible utilization of the NOLs, as well as Tarragon's
history of operating losses, a valuation allowance was recorded to fully reserve
the computed net deferred tax assets.
NOTE 14. RENTALS UNDER OPERATING LEASES
Tarragon's rental operations include the leasing of office buildings and
shopping centers subject to leases with terms greater than one year. The leases
thereon expire at various dates through 2009. The following is a schedule of
future minimum rentals on non-cancelable operating leases as of December 31,
1999:
<TABLE>
<S> <C>
2000.......................... $ 7,805
2001.......................... 6,411
2002.......................... 4,582
2003.......................... 2,694
2004.......................... 1,993
Thereafter.................... 664
--------
$ 24,149
========
</TABLE>
56
<PAGE> 57
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES
Tarragon is a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of such claims
and litigation, individually or in the aggregate, will have a material adverse
effect on our business, financial position, or results of operations.
NOTE 16. GAIN ON INSURANCE SETTLEMENT
In December 1998, fire destroyed one building with eight units at Lake Point
Apartments, a 540-unit property in Memphis, Tennessee. Tarragon reached a
settlement with the insurance company for $458,000 and decided not to rebuild
the eight-unit building. After demolition costs, adjuster fees, and other costs,
as well as writing off a portion of the property's carrying value, Tarragon
recognized a gain of $231,000 on the insurance settlement.
NOTE 17. LITIGATION SETTLEMENT
In July 1999, after reversal of a favorable lower court decision, Tarragon
settled an uninsured liability claim for $350,000.
NOTE 18. SUBSEQUENT EVENTS
In January 2000, we sold three of the four buildings (representing approximately
two-thirds of the net carrying value) of Rancho Sorrento Office Park for $6.5
million, receiving $3.8 million of net cash proceeds after the payoff of the
mortgage and other closing costs.
57
<PAGE> 58
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18. SUBSEQUENT EVENTS (Continued)
In February 2000, we purchased our partner's interest in National Omni
Associates, L.P., for $850,000. Effective with this transaction, the operations
of 5600 Collins Avenue, the partnership's sole property, will be consolidated.
Also in February 2000, we filed a revocation of REIT election with the Internal
Revenue Service, terminating our status as a REIT effective December 1, 1999
(the beginning of the 2000 tax year).
In February 2000, the mortgage secured by liens on both the retail and office
portions of Emerson Center was modified and extended. The mortgage was increased
from $6.9 million to $7.9 million, and maturity date was extended to February
2003. At closing of this transaction, Tarragon received net cash proceeds of
$900,000 after closing costs.
In March 2000, we obtained new financing of $1.7 million secured by Southern
Elms Apartments, receiving net cash proceeds of $402,000 after the payoff of the
$1.3 million existing mortgage.
Also in March 2000, we obtained a $4 million loan that bears interest at prime
plus 1% and matures in October 2000. The loan is secured by liens on two
properties and assignment of certain stock and partnership interests. We intend
to repay the loan with proceeds to be obtained from permanent mortgage financing
prior to its maturity.
NOTE 19. SUBSEQUENT ACQUISITION OF JOINT VENTURE INTERESTS
In February 2000, Tarragon acquired the interests of Robert C. Rohdie and his
affiliates in ten apartment communities recently completed or currently under
construction, as well as in all joint venture development projects still in the
planning stages, for a total value of up to $10,000,000. Mr. Rohdie, Tarragon's
joint venture partner in the development of these projects, contributed his
equity interests to an operating partnership formed by Tarragon, in exchange for
a preferred interest in the operating partnership and a guaranteed fixed return
of $200,000 for the first two years, increasing by $40,000 per year for the next
five years, plus an annual amount equal to the dividends payable on 96,385
shares of Tarragon common stock. In addition, upon completion and lease up of
each of the five identified apartment communities presently under construction
or in advanced stages of development planning, Mr. Rohdie will receive an
increase in his guaranteed fixed return based on the previously agreed value of
his equity in the completed property. After one year, Mr. Rohdie has the right
to convert his preferred interest in the operating partnership into 96,385
shares of our common stock and preferred stock with a face value of up to $8
million and a like dividend to his guaranteed fixed return from the operating
partnership. If we do not have available an issue of preferred stock outstanding
at the time of the conversion, or at our discretion, we may pay the cash value
of Mr. Rohdie's preferred interest over three years. Because Tarragon controls
the new operating partnership, its operations will be consolidated.
Mr. Rohdie's preferred interest in the operating partnership has been initially
valued at $5 million (based on the value of five of the ten properties that have
been completed). Once the remaining five properties are completed and leased up,
Mr. Rohdie will receive an additional preferred interest in the operating
partnership to be valued at up to $5 million. Mr. Rohdie's interest in the
operating partnership will be presented as a minority interest.
This transaction will be recorded using purchase method accounting. The value of
Mr. Rohdie's preferred interest in the operating partnership will be
allocated to the completed assets of the operating partnership based on relative
fair values. The initial guaranteed fixed return payable to Mr. Rohdie will be
recorded based on an annual effective yield of 8.67%.
In connection with this transaction, Tarragon formed a new development
subsidiary to expand our real estate development and renovation program. Mr.
Rohdie joined Tarragon as President and Chief Executive Officer of Tarragon
Development Corporation and as a member of our Board of Directors effective
February 7, 2000.
Pro forma results of operations for 1999 and 1998 are presented as if the
transaction had occurred as of January 1, 1998. For purposes of the pro forma
presentation, depreciation and amortization have been adjusted to their
accounting bases to be recognized in recording the transaction.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998
------- -------
(Unaudited)
<S> <C> <C>
Revenue........................................ $83,041 $63,052
Income (loss) from continuing operations....... 3,375 (1,631)
Net income (loss).............................. 2,846 (2,862)
Earnings per share
Income (loss) from continuing operations....... $ 0.41 $ (0.21)
Net income (loss).............................. 0.35 (0.37)
Earnings per share - assuming dilution
Income (loss) from continuing operations....... $ 0.40 $ (0.21)
Net income (loss).............................. 0.34 (0.37)
</TABLE>
NOTE 20. EXCHANGE OFFER
On March 22, 2000, Tarragon announced an offer to exchange one share of 10%
Cumulative Preferred Stock for each share of common stock held by its
stockholders, up to a maximum of 2,000,000 shares. This exchange offer is
scheduled to expire at 5:00 p.m., New York City time, on May 3, 2000, unless
extended.
The exchange offer is directed to those holders of Tarragon common stock who
would prefer to hold a security with a fixed dividend yield and a fixed
liquidation preference in the event of redemption or other disposition of the
security. The exchange offer is not part of any plan to "go private" and not
the first in any series of transactions designed to have a resulting effect upon
the outstanding common stock. However, to the extent shares of common stock are
exchanged for shares of 10% Cumulative Preferred Stock pursuant to the exchange
offer, the number of shares of common stock outstanding in the hands of the
public stockholders will initially decrease. Assuming the maximum of 2,000,000
shares of common stock are tendered pursuant to the exchange offer, a minimum of
3,009,118 shares of common stock will continue to remain in the hands of public
stockholders. The exchange offer should not have an adverse effect upon the
listing of our common stock on the NASDAQ National Market.
The class of 10% Cumulative Preferred Stock will be designated to consist of
2,500,000 shares. The number of shares which may be issued pursuant to the
Exchange Offer is limited to 2,000,000 shares (subject to increase in certain
events), which would result in 500,000 shares being available in the event that
we elect to accept more than the maximum for exchange, for future distribution
in connection with the acquisition of assets, or for other uses, at the
discretion of our Board of Directors.
The 10% Cumulative Preferred Stock will pay a fixed dividend of $1.20 per year,
and has a liquidation value of $12 per share. It is a class of equity and is
junior in ranking in right of payment to our outstanding indebtedness, but is
senior to common stock. It ranks on a parity as to dividends and liquidation
with all other shares of special or preferred stock which we might issue.
Shares of 10% Cumulative Preferred Stock may be redeemed at Tarragon's option at
any time after June 30, 2003, at the liquidation value plus a premium of $0.50
per share reducing by $0.10 per share each year thereafter. No mandatory
redemption or "sinking fund" is required. The 10% Cumulative Preferred Stock
has only the voting rights specifically required by law under the Nevada General
Corporation Law, and is not convertible into any other securities of Tarragon.
[This space intentionally left blank.]
58
<PAGE> 59
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 21. QUARTERLY RESULTS OF OPERATIONS
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
1999
<S> <C> <C> <C> <C>
Revenue ....................................... $ 17,872 $ 18,708 $ 18,798 $ 18,378
Expenses ...................................... (19,329) (19,489) (20,484) (20,603)
----------- ----------- ----------- -----------
(Loss) before net gain on sale of real estate,
gain on insurance settlement, litigation
settlement, and extraordinary items ........ (1,457) (781) (1,686) (2,225)
Net gain on sale of real estate ............... 338 3,923 4,310 3,398
Gain on insurance settlement .................. -- 231 -- --
Litigation settlement ......................... -- (350) -- --
----------- ----------- ----------- -----------
Income (loss) from continuing operations ...... (1,119) 3,023 2,624 1,173
Extraordinary items ........................... (4) (244) -- (196)
----------- ----------- ----------- -----------
Net income (loss) ............................. $ (1,123) $ 2,779 $ 2,624 $ 977
=========== =========== =========== ===========
Earnings per share
Income (loss) from continuing operations ...... $ (.13) $ .37 $ .32 $ .14
Extraordinary items ........................... -- (.03) -- (.02)
----------- ----------- ----------- -----------
Net income (loss) ............................. $ (.13) $ .34 $ .32 $ .12
=========== =========== =========== ===========
Weighted average shares (1) ................... 8,420,740 8,287,186 8,124,346 8,053,931
=========== =========== =========== ===========
Earnings per share - assuming dilution
Income (loss) from continuing operations ...... $ (.13) $ .36 $ .32 $ .14
Extraordinary items ........................... -- (.03) -- (.02)
----------- ----------- ----------- -----------
Net income (loss) ............................. $ (.13) $ .33 $ .32 $ .12
=========== =========== =========== ===========
Weighted average shares - assuming dilution (2) 8,420,740 8,394,791 8,217,969 8,164,885
=========== =========== =========== ===========
</TABLE>
- --------------------------
(1) Represents weighted average shares of common stock used in computing
earnings per share.
(2) Represents weighted average shares of common stock used in computing
earnings per share - assuming dilution.
59
<PAGE> 60
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 21. QUARTERLY RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
Revenue .......................................... $ 14,256 $ 14,340 $ 14,459 $ 15,645
Expenses ......................................... (14,242) (14,123) (15,075) (17,655)
----------- ----------- ----------- -----------
Income (loss) before net gain on sale
of real estate, gain on sale of investments,
and extraordinary items ........................ 14 217 (616) (2,010)
Net gain on sale of real estate .................. -- 1,275 -- 833
Gain on sale of investments ...................... 117 -- 6 --
----------- ----------- ----------- -----------
Income (loss) from continuing operations ......... 131 1,492 (610) (1,177)
Extraordinary items .............................. (262) (68) (589) (312)
----------- ----------- ----------- -----------
Net income (loss) ................................ $ (131) $ 1,424 $ (1,199) $ (1,489)
=========== =========== =========== ===========
Earnings per share
Income (loss) from continuing operations ......... $ .02 $ .20 $ (.08) $ (.15)
Extraordinary items .............................. (.04) (.01) (.08) (.04)
----------- ----------- ----------- -----------
Net income (loss) ................................ $ (.02) $ .19 $ (.16) $ (.19)
=========== =========== =========== ===========
Weighted average shares (1) ...................... 7,651,094 7,584,878 7,493,565 7,749,200
=========== =========== =========== ===========
Earnings per share - assuming dilution
Income (loss) from continuing operations ......... $ .02 $ .19 $ (.08) $ (.15)
Extraordinary items .............................. (.04) (.01) (.08) (.04)
----------- ----------- ----------- -----------
Net income (loss) ................................ $ (.02) $ .18 $ (.16) $ (.19)
=========== =========== =========== ===========
Weighted average shares -
assuming dilution (2) .......................... 7,651,094 7,710,905 7,493,565 7,749,200
=========== =========== =========== ===========
</TABLE>
- ----------
(1) Represents weighted average shares of common stock used in computing
earnings per share and has been restated to give effect to the merger of
Tarragon and NIRT on the basis of 1.97 shares of Tarragon's common stock
for each share of beneficial interest of NIRT.
(2) Represents weighted average share of common stock used in computing
earnings per share - assuming dilution and has been restated to give effect
to the merger of Tarragon and NIRT on the basis of 1.97 shares of
Tarragon's common stock for each share of beneficial interest of NIRT.
60
<PAGE> 61
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments
Acadian Place ............. $3,217 $ 897 $2,608 $2,094 $ 897 $4,702 $5,599
Baton Rouge, LA
Aspentree ................. 3,784 876 3,506 245 876 3,751 4,627
Dallas, TX
Bay West .................. 4,669 891 3,566 1,168 891 4,734 5,625
Bradenton, FL
Bayfront .................. 4,242 457 2,052 2,087 457 4,139 4,596
Houston, TX
Bryan Hills ............... 4,212 447 1,803 660 496 2,414 2,910
Bethany , OK
The Brooks ................ 3,137 558 2,230 126 558 2,356 2,914
Addison, TX
Carlyle Towers ............ 5,399 559 5,939 2,106 559 8,045 8,604
Southfield, MI
Collegewood ............... 1,993 556 2,223 61 556 2,284 2,840
Tallahassee, FL
Cornell ................... 2,369 822 1,183 184 822 1,367 2,189
Los Angeles, CA
Courtyard at the Park ..... 4,250 771 3,086 1,528 768 4,617 5,385
Miami, FL
Creekwood North ........... 2,949 532 2,127 1,149 532 3,276 3,808
Altamonte Springs, FL
Cross Creek ............... 2,528 221 883 448 225 1,327 1,552
Lexington, KY
Desert Winds .............. 1,290 351 1,399 524 354 1,920 2,274
Jacksonville, FL
Diamond Loch .............. 3,445 380 2,791 1,328 380 4,119 4,499
Fort Worth, TX
English Village ........... 5,809 1,382 5,525 2,593 1,372 8,128 9,500
Memphis, TN
Fenway Hall ............... 1,266 461 1,460 43 461 1,503 1,964
Los Angeles, CA
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments
Acadian Place ............. $1,612 1922 Mar-84 3 - 40 years
Baton Rouge, LA
Aspentree ................. 159 1974 Nov-98 3 - 40 years
Dallas, TX
Bay West .................. 1,163 1974 Nov-92 3 - 40 years
Bradenton, FL
Bayfront .................. 1,332 1971 Feb-87 3 - 40 years
Houston, TX
Bryan Hills ............... 474 1970 Nov-94 3 - 40 years
Bethany , OK
The Brooks ................ 73 1969 Nov-98 3 - 40 years
Addison, TX
Carlyle Towers ............ 2,240 1970 Nov-88 3 - 40 years
Southfield, MI
Collegewood ............... 68 1967 Nov-98 3 - 40 years
Tallahassee, FL
Cornell ................... 354 1929 Apr-90 3 - 40 years
Los Angeles, CA
Courtyard at the Park ..... 511 1972 Jul-97 3 - 40 years
Miami, FL
Creekwood North ........... 634 1973 Nov-92 3 - 40 years
Altamonte Springs, FL
Cross Creek ............... 317 1966 Nov-92 3 - 40 years
Lexington, KY
Desert Winds .............. 97 1972 Jun-98 3 - 40 years
Jacksonville, FL
Diamond Loch .............. 1,546 1978 Oct-85 3 - 40 years
Fort Worth, TX
English Village ........... 691 1973 Jul-97 3 - 40 years
Memphis, TN
Fenway Hall ............... 368 1929 Apr-90 3 - 40 years
Los Angeles, CA
</TABLE>
61
<PAGE> 62
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Forest Oaks .......... $2,868 $ 691 $2,685 $ 722 $ 691 $3,407 $4,098
Lexington, KY
Fountainhead ......... (D) 5,650 1,573 6,291 435 1,572 6,727 8,299
Kissimmee, FL
French Villa ......... 1,906 447 1,786 79 447 1,865 2,312
Tulsa, OK
Holly House .......... 1,739 397 1,590 50 397 1,640 2,037
North Miami, FL
Kirklevington ........ 3,003 490 1,961 746 490 2,707 3,197
Lexington, KY
Landmark ............. (D) 2,500 376 1,504 474 373 1,981 2,354
Tallahassee, FL
Marina Park .......... 3,691 657 2,625 1,288 671 3,899 4,570
Miami, FL
Mariposa Manor ....... 736 225 901 (292) 225 609 834
Los Angeles, CA
Martin's Landing ..... 6,532 1,038 4,201 878 1,041 5,076 6,117
Lakeland, FL
Meadowbrook .......... 3,663 307 1,230 306 306 1,537 1,843
Baton Rouge, LA
Mission Trace ........ 1,833 563 2,252 72 563 2,324 2,887
Tallahassee, FL
Morningside .......... 1,574 420 1,678 479 426 2,151 2,577
Jacksonville, FL
Mustang Creek ........ (E) 5,405 718 2,872 2,112 720 4,982 5,702
Arlington, TX
Newport .............. 4,931 1,334 5,338 1,266 1,335 6,603 7,938
Plantation, FL
Palm Court ........... 2,816 599 2,393 976 598 3,370 3,968
Miami, FL
Palm Grove ........... 1,251 322 1,316 40 322 1,356 1,678
Orlando, FL
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Forest Oaks .......... $ 500 1971 Nov-94 3 - 40 years
Lexington, KY
Fountainhead ......... (D) 513 1988 Jun-97 3 - 40 years
Kissimmee, FL
French Villa ......... 72 1971 Nov-98 3 - 40 years
Tulsa, OK
Holly House .......... 49 1968 Nov-98 3 - 40 years
North Miami, FL
Kirklevington ........ 685 1975 Nov-92 3 - 40 years
Lexington, KY
Landmark ............. (D) 159 1967 Oct-97 3 - 40 years
Tallahassee, FL
Marina Park .......... 687 1974 Apr-95 3 - 40 years
Miami, FL
Mariposa Manor ....... 105 1924 Sep-94 3 - 40 years
Los Angeles, CA
Martin's Landing ..... 803 1973 Nov-94 3 - 40 years
Lakeland, FL
Meadowbrook .......... 188 1968 Oct-95 3 - 40 years
Baton Rouge, LA
Mission Trace ........ 72 1989 Nov-98 3 - 40 years
Tallahassee, FL
Morningside .......... 254 1973 Feb-97 3 - 40 years
Jacksonville, FL
Mustang Creek ........ (E) 839 1974 May-95 3 - 40 years
Arlington, TX
Newport .............. 584 1973 Jun-97 3 - 40 years
Plantation, FL
Palm Court ........... 1,036 1971 Oct-89 3 - 40 years
Miami, FL
Palm Grove ........... 55 1971 Jun-98 3 - 40 years
Orlando, FL
</TABLE>
62
<PAGE> 63
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Park Dale Gardens ......... $ 2,808 $ 354 $1,416 $ 1,013 $ 531 $ 2,252 $ 2,783
Dallas, TX
Park Norton ............... 527 144 576 461 142 1,039 1,181
Los Angeles, CA
Park Place ................ -- 76 304 152 82 450 532
Los Angeles, CA
Pinecrest ................. 17,347 3,612 8,427 6,073 3,612 14,500 18,112
Ft. Lauderdale, FL
Prado Bay ................. 4,704 614 3,482 1,477 614 4,959 5,573
North Bay Village, FL
The Regent ................ (B) 4,900 303 1,212 5,033 303 6,245 6,548
Jacksonville, FL
River City Landing ........ (D) 7,743 1,236 5,602 6,787 1,237 12,388 13,625
Jacksonville, FL
Riverside ................. 4,991 790 3,160 92 790 3,252 4,042
Austin, TX
Silver Creek .............. 1,220 301 1,206 412 304 1,615 1,919
Jacksonville, FL
Southern Elms ............. 1,290 304 1,216 106 304 1,322 1,626
Tulsa, OK
Summit on the Lake ........ 4,666 895 3,582 770 907 4,340 5,247
Fort Worth, TX
Vintage at Legacy ......... 14,456 4,545 -- 17,970 4,986 17,529 22,515
Frisco, TX
Vistas at Lake Worth ...... 9,500 752 92 15,764 752 15,856 16,608
Fort Worth, TX
Woodcreek ................. 6,986 472 4,977 1,763 451 6,761 7,212
Jacksonville, FL
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Park Dale Gardens ......... $ 598 1975 Dec-91 3 - 40 years
Dallas, TX
Park Norton ............... 79 1924 Jun-95 3 - 40 years
Los Angeles, CA
Park Place ................ 46 1929 Sep-95 3 - 40 years
Los Angeles, CA
Pinecrest ................. 3,471 1965 Jul-90 3 - 40 years
Ft. Lauderdale, FL
Prado Bay ................. 1,380 1966 Oct-90 3 - 40 years
North Bay Village, FL
The Regent ................ (B) 666 1972 Sep-95 3 - 40 years
Jacksonville, FL
River City Landing ........ (D) 1,016 1965 Jun-96 3 - 40 years
Jacksonville, FL
Riverside ................. 101 1991 Nov-98 3 - 40 years
Austin, TX
Silver Creek .............. 77 1972 Jun-98 3 - 40 years
Jacksonville, FL
Southern Elms ............. 48 1968 Nov-98 3 - 40 years
Tulsa, OK
Summit on the Lake ........ 741 1986 Mar-94 3 - 40 years
Fort Worth, TX
Vintage at Legacy ......... -- 1999 May-98 3 - 40 years
Frisco, TX
Vistas at Lake Worth ...... 807 1970 Dec-94 3 - 40 years
Fort Worth, TX
Woodcreek ................. 2,838 1975 Nov-86 3 - 40 years
Jacksonville, FL
</TABLE>
63
<PAGE> 64
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Office Buildings
1505 Highway 6 .......... $2,000 $ 719 $2,877 $ 124 $ 719 $3,001 $3,720
Houston, TX
Orlando Central Park .... 8,000 1,888 7,605 208 1,888 7,813 9,701
Orlando, FL
Park 20 West ............ 1,831 688 2,754 61 688 2,815 3,503
Tallahassee, FL
Tarzana Towne Plaza ..... 2,897 671 2,684 24 671 2,708 3,379
Tarzana, CA
Shopping Centers
Briarwest ............... 1,653 375 1,499 -- 375 1,499 1,874
Houston, TX
Jackson Square .......... -- 1,115 4,451 47 1,113 4,500 5,613
Jackson, MS
K-Mart Plaza, ........... 760 689 1,608 (1) 689 1,607 2,296
Temple Terrace, FL
Lakeview Mall ........... -- 513 2,050 615 341 2,837 3,178
Manitowoc, WI
Mariner Plaza ........... 1,709 295 1,180 87 295 1,267 1,562
Panama City, FL
Midland Plaza ........... -- 321 748 59 321 807 1,128
Midland, MI
Midway Mills Crossing ... 3,979 588 2,365 1,496 1,227 3,222 4,449
Carrollton, TX
Northside Center ........ 1,383 1,591 3,712 244 1,611 3,936 5,547
Gainesville, FL
University Center ....... 1,100 578 2,430 712 525 3,195 3,720
Waco, TX
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Office Buildings
1505 Highway 6 .......... $ 120 1983 Oct-98 3 - 40 years
Houston, TX
Orlando Central Park .... 132 1966 May-99 3 - 40 years
Orlando, FL
Park 20 West ............ 84 1972 Nov-98 3 - 40 years
Tallahassee, FL
Tarzana Towne Plaza ..... 79 1985 Nov-98 3 - 40 years
Tarzana, CA
Shopping Centers
Briarwest ............... 51 1971 Nov-98 3 - 40 years
Houston, TX
Jackson Square .......... 349 1970 Jan-96 3 - 40 years
Jackson, MS
K-Mart Plaza, ........... 323 1979 Dec-91 3 - 40 years
Temple Terrace, FL
Lakeview Mall ........... 1,471 1968 Apr-87 3 - 40 years
Manitowoc, WI
Mariner Plaza ........... 86 1968 Aug-97 3 - 40 years
Panama City, FL
Midland Plaza ........... 174 1976 Dec-91 3 - 40 years
Midland, MI
Midway Mills Crossing ... 1,457 1986 Oct-91 3 - 40 years
Carrollton, TX
Northside Center ........ 917 1977 Dec-91 3 - 40 years
Gainesville, FL
University Center ....... 792 1959 Jul-91 3 - 40 years
Waco, TX
</TABLE>
64
<PAGE> 65
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 19999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
------------------------ TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Land
Ft. Worth, TX .................... $ 1,950 $ 2,468 $ -- $ 1 $ 2,469 $ -- $ 2,469
Vistas Observatory ............... (F) -- 707 -- 72 734 45 779
--------- -------- -------- -------- -------- -------- --------
213,057 47,922 154,219 87,597 49,062 240,676 289,738
PROPERTIES HELD FOR SALE
Apartments
Devonshire ....................... (D) 19,400 1,048 3,162 3,457 827 6,840 7,667
Denver, CO
Heather Hills .................... 16,472 643 14,562 7,287 766 21,726 22,492
Temple Hills, MD
Lake Point ....................... (D) 9,000 2,075 6,225 2,708 2,074 8,934 11,008
Memphis, TN
Office Buildings
Emerson Center ................... 6,085 131 8,781 (30) 1,048 7,834 8,882
Atlanta, GA
NW O'Hare ........................ 1,850 1,990 7,965 (2,009) 1,104 6,842 7,946
Des Plaines, IL
Rancho Sorrento .................. 4,975 1,251 12,901 882 2,231 12,803 15,034
San Diego, CA
Shopping Centers
Emerson Center ................... 830 -- 363 18 -- 381 381
Atlanta, GA
K-Mart Plaza ..................... -- 571 1,333 (754) 341 809 1,150
Charlotte, NC
Stewart Square ................... 2,188 294 1,460 716 294 2,176 2,470
Las Vegas, NV
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
PROPERTIES HELD FOR INVESTMENT
Land
Ft. Worth, TX .................... $ -- -- Oct-99 --
Vistas Observatory ............... (F) -- -- Apr-98 3 - 40 years
-------
36,143
PROPERTIES HELD FOR SALE
Apartments
Devonshire ....................... (D) 1,440 1969 Mar-89 3 - 40 years
Denver, CO
Heather Hills .................... 7,700 1976 May-86 3 - 40 years
Temple Hills, MD
Lake Point ....................... (D) 1,146 1974 May-93 3 - 40 years
Memphis, TN
Office Buildings
Emerson Center ................... 4,469 1974 Jul-86 3 - 40 years
Atlanta, GA
NW O'Hare ........................ 3,722 1972 Apr-86 3 - 40 years
Des Plaines, IL
Rancho Sorrento .................. 5,758 1980 May-86 3 - 40 years
San Diego, CA
Shopping Centers
Emerson Center ................... 34 1974 Jul-86 3 - 40 years
Atlanta, GA
K-Mart Plaza ..................... 81 1977 Dec-91 3 - 40 years
Charlotte, NC
Stewart Square ................... 839 1971 Oct-87 3 - 40 years
Las Vegas, NV
</TABLE>
65
<PAGE> 66
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
------------------------ TO ACQUISITION --------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ -------- ------------- -------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES HELD FOR SALE
Shopping Centers
Times Square ..................... $ -- $ 125 $ 499 $ 58 $ 125 $ 557 $ 682
Lubbock, TX
Other
Snyder Residence ................. -- -- 39 -- 12 27 39
Gilbert, AZ
Land
Dallas, TX ....................... -- 737 3,782 (4,412)(C) 107 -- 107
Kansas City, MO .................. -- 802 1,871 (2,364) 309 -- 309
--------- -------- -------- ------- ------- -------- --------
60,800 9,667 62,943 5,557 9,238 68,929 78,167
--------- -------- -------- ------- ------- -------- --------
$ 273,857 $ 57,589 $217,162 $93,154 $58,300 $309,605 $367,905
========= ======== ======== ======= ======= ========
Allowance for Estimated Losses (1,156)
--------
$366,749
========
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
PROPERTIES HELD FOR SALE
Shopping Centers
Times Square ..................... $ 92 1985 Jul-89 3 - 40 years
Lubbock, TX
Other
Snyder Residence ................. 1 -- -- --
Gilbert, AZ
Land
Dallas, TX ....................... -- -- Jun-86 --
Kansas City, MO .................. -- -- Dec-91 --
Allowance for Estimated Losses --------
25,282
--------
$ 61,425
========
</TABLE>
(A) Represents property improvements and write-down of properties due to
permanent impairment.
(B) Represents an advance under the $35 million revolving credit facility with
GMAC Commercial Mortgage.
(C) Basis charged against allowance previously provided.
(D) Represents an advance under the $50 million revolving credit facility with
GMAC Commercial Mortgage.
(E) $4.6 million of this balance represents an advance under the $35 million
revolving credit facility with GMAC Commercial Mortgage.
(F) This property has been pledged as additional collateral on the $1.95
million loan which financed the acquisition of the Fort Worth land.
66
<PAGE> 67
SCHEDULE III
(Continued)
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Reconciliation of real estate
Balance at January 1, ............................ $ 347,771 $ 281,163 $ 237,502
Additions
Acquired through merger ..................... -- 46,312 --
Acquisitions and improvements ............... 37,580 23,349 58,683
Deductions
Sales ....................................... (17,446) (3,053) (12,762)
Write-offs .................................. -- -- (2,260)
--------- --------- ---------
Balance at December 31, .......................... $ 367,905 $ 347,771 $ 281,163
========= ========= =========
Reconciliation of accumulated depreciation
Balance at January 1, ............................ $ 52,602 $ 46,033 $ 42,251
Additions
Depreciation ................................ 10,645 7,339 7,022
Deductions
Sale of real estate ......................... (1,804) (770) (3,190)
Write-offs .................................. (18) -- (50)
--------- --------- ---------
Balance at December 31, .......................... $ 61,425 $ 52,602 $ 46,033
========= ========= =========
</TABLE>
67
<PAGE> 68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Tarragon's Board of Directors currently consists of ten members, eight of whom
are independent. With the exception of Robert C. Rohdie, each of the current
members of the Board was elected at the last annual meeting of stockholders held
on August 18, 1999, to serve until the next annual meeting of stockholders or
until a successor has been elected or approved. Mr. Rohdie was appointed to the
Board effective February 7, 2000, following Tarragon's acquisition of his
interests in Tarragon's joint venture projects with him. Tarragon's directors
are listed below, together with their ages, terms of service, all positions held
with Tarragon and its predecessors, their principal occupations, business
experience, and all other directorships they have held with other companies over
the last five years or more. There are no family relationships between any
directors and executive officers.
CARL B. WEISBROD (55) (Independent) has served as Chairman of the Board of
Directors since December 1998. He also served as Chairman of the Board of
Trustees of NIRT from February 1994 to November 1998. He was a member of the
Board of Trustees of Vinland Property Trust from February 1994 to May 1995. He
has served as a trustee (since 1996) of the Ford Foundation, is President (since
1994) of Alliance for Downtown New York, Inc., and was President and Chief
Executive Officer (April 1990 to 1994) of the New York City Economic Development
Corporation.
WILLIAM S. FRIEDMAN (56) (Affiliated) has served as President, Chief Executive
Officer, and a Director of Tarragon since April 1997 and as a Trustee (from
March 1988), Chief Executive Officer (from December 1993), President (from
December 1988), acting Chief Financial Officer (May 1990 to February 1991),
Treasurer (August to September 1989), and acting Principal Financial and
Accounting Officer (December 1988 to August 1989) of Vinland Property Trust
(until July 1997) and NIRT (until November 1998). He has been an attorney at law
since 1971.
CHESTER BECK (70) (Independent) has been a Director of Tarragon since April
1997. He was a Trustee of Vinland Property Trust from May 1995 to July 1997.
Since March 1995, Mr. Beck has been President of Highland Funding Corp., a
mortgage brokerage firm. Prior thereto, from January 1994 to March 1995, he was
National Sales Manager of Columbia Equities Limited, a real estate financing
entity. From April 1992 to January 1994, he was Senior Vice President of
Peregine Mortgage Company, Inc., a FHA approved mortgagee specializing in
multi-family and health care project financing.
WILLIE K. DAVIS (68) (Independent) has been a Director of Tarragon since April
1997. Mr. Davis was a Trustee of Vinland Property Trust from October 1988 to
July 1997 and a Trustee of NIRT from October 1988 to March 1995. Since 1985, Mr.
Davis has been Chairman and 50% stockholder of Mid-South Financial Corporation,
a holding company for Mid-South Mortgage Company and Gibbs Mortgage Company. Mr.
Davis has been Chairman and sole stockholder of FMS, Inc., a property management
and real estate development firm, since December 1995 and served as President of
FMS from 1978 to 1995. Mr. Davis has been a Director of SouthTrust Bank of
Middle Tennessee since 1987 and a Trustee and Treasurer of Baptist Hospital,
Inc., a Tennessee general welfare not-for-profit corporation, since 1986. He was
also a Trustee or a Director (October
68
<PAGE> 69
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Board of Directors (Continued)
1988 to March 1995) of Continental Mortgage and Equity Trust, Income Opportunity
Realty Trust, and Transcontinental Realty Investors, Inc., each of which were
publicly-held real estate investment trusts.
SALLY HERNANDEZ-PINERO (46) (Independent) has been a Director of Tarragon since
December 1998. She served as a Trustee of NIRT from May 1994 to November 1998.
Since April 1999, she has been Senior Vice President of The Related Companies.
From July 1998 to April 1999, she served as Managing Director of Fannie Mae
American Communities Fund. From October 1994 to June 1998, she was Of Counsel at
Kalkines, Arky, Zall and Bernstein, New York, New York. She was Chairwoman of
the New York City Housing Authority from February 1992 to April 1994. She has
been a Director of Consolidated Edison and of Dime Savings Bank since April
1994, and she has been an attorney at law since 1978.
LANCE LIEBMAN (58) (Independent) has been a Director of Tarragon since December
1998. He also served as a Trustee of NIRT from March 1995 to November 1998. Mr.
Liebman is the William S. Beinecke Professor of Law at Columbia Law School and
the Director of Parker School of Foreign and Comparative Law. He also serves as
a Director Designate, American Law Institute. He was the Dean of Columbia Law
School from 1991 to 1996. From 1970 to 1991, he was Assistant Professor,
Professor, and Associate Dean of Harvard Law School. He has been a Director of
the Greater New York Insurance Co. (both mutual and stock companies) since 1991,
a Director of M&F Worldwide since 1995, and a Director of Brookfield Financial
Properties, Inc., since 1996. He has been an attorney at law since 1968.
ROBERT C. ROHDIE (59) (Affiliated) was appointed to the Board of Tarragon and
began serving as President and Chief Executive Officer of Tarragon Development
Corporation, a wholly owned subsidiary of Tarragon responsible for real estate
development and renovation projects, in February 2000. From 1988 through
February 2000, Mr. Rohdie was the President of Rohdhouse Investments, Inc., his
wholly owned real estate development company, which acted as Tarragon's joint
venture partner in new construction and development projects since 1997. Mr.
Rohdie has been an attorney at law since 1965.
LAWRENCE G. SCHAFRAN (61) (Independent) has been a Director of Tarragon since
December 1998. He was a Trustee of NIRT from March 1995 to November 1998. Mr.
Schafran has been Managing General Partner of L.G. Schafran & Associates, a real
estate investment and development firm in New York City, since 1984. He has been
a Director of Publicards, an Old Greenwich, Connecticut, NYSE listed holding
company that operates through subsidiaries in manufacturing services, since
1986. From 1986 to December 1997, Mr. Schafran was a Director of Capsure
Holdings Corp., a Chicago, Illinois, NYSE listed property and casualty insurer.
From March 1993 to 1996, he was a Director of Oxigene, Inc., a U.S. and Swedish
pharmaceutical developer. From January 1995 to July 1997, he was a Director of
Glasstech, Inc., a Perrysberg, Ohio, manufacturer of glass bending and tempering
equipment. From December 1993 to October 1997, he was a Director, Member (from
September 1994 to October 1997), and Chairman (from December 1994 to October
1997) of the Executive Committee of The Dart Group Corporation, a Landover,
Maryland, NASDAQ listed holding company engaged with other publicly-traded
subsidiaries in discount automotive parts and accessories (Trak Auto
Corporation), discount book stores (Crown Books Corporation), discount
supermarkets, beverages, and real estate. Since January 1996, Mr. Schafran has
been Chairman of the Board of Delta-Omega Technologies, Inc., a Broussard,
Louisiana, manufacturer and distributor of environmentally safe fire foams,
industrial cleaners, and degreasers. He has been a Director of Discovery Zone,
Inc., since December 1997, a Director of Kasper A.S.L., Ltd., since 1997, and a
Director of Comsat Corporation since 1997.
69
<PAGE> 70
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Board of Directors (Continued)
RAYMOND V.J. SCHRAG (54) (Independent) has been a Director of Tarragon since
December 1998. He was a Trustee of Vinland Property Trust from October 1988 to
May 1995 and of NIRT from October 1988 to November 1998. Mr. Schrag has been an
attorney with the Law Offices of Raymond V.J. Schrag in New York, New York,
since January 1995. He has been an attorney at law since 1973.
MICHAEL E. SMITH (57) (Independent) has been a Director of Tarragon since April
1997. Mr. Smith was a Trustee of Vinland Property Trust from October 1988 to
August 1991 and from May 1995 to July 1997. He has been Assistant Professor of
Law since August 1995 at the University of Wisconsin in Madison, Wisconsin. He
has also served as Research Director of the Remington Center at the University
of Wisconsin Law School since 1997. He served as President (1988 to 1995) and a
Director (from 1978 to 1994) of the Vera Institute of Justice, a New York
not-for-profit corporation concerned with the administration of justice. From
1987 to 1995, he was a Trustee of Prosecuting Attorneys Research Counsel, Inc.
From 1986 to 1990, he was a Trustee of New York Lawyers for the Public Interest.
From 1986 to 1993, he was a Trustee of Housing Services, Inc. From 1978 to 1995,
he was a Trustee of Manhattan Bowrey Corporation, Inc. From 1978 to 1995, he was
a Director of the Center for Alternative Sentencing and Employment Services,
Inc., formerly Court Employment Project, Inc. Mr. Smith has been a Trustee of
New York City Criminal Justice Agency, Inc., since 1978 and an attorney at law
since 1971.
Involvement in Certain Legal Proceedings
In November 1994, William S. Friedman consented to an order prohibiting him from
participating in an insured depository institution without the prior written
approval of the Director of the Office of Thrift Supervision. Mr. Friedman has
been released from any liability arising from his association with the former
San Jacinto Savings Association, a savings institution placed under
conservatorship of the Resolution Trust Corporation on November 30, 1990.
Executive Officers
Mr. Friedman, Mr. Rohdie, and the individuals listed below currently serve as
the executive officers of Tarragon. Their positions with Tarragon are not
subject to a vote of stockholders. Tarragon's employment of Mr. Friedman and Mr.
Rohdie is subject to the terms of employment agreements more fully described in
ITEM 11. "EXECUTIVE COMPENSATION." All other executive officers serve until the
first meeting of the Board of Directors following the next succeeding annual
meeting of stockholders or until their successors have been duly chosen and
qualified.
PENNY D. BARBER (35) was appointed the Chief Operating Officer of Tarragon and
the President of Tarragon Management, Inc., a wholly owned subsidiary of
Tarragon, in December 1999. Ms. Barber served as Senior Vice President and
Director of Property Management for Tarragon from December 1998 to December
1999, as well as Executive Vice President of Tarragon Management from November
1998 to December 1999. She was previously Vice President and Director of
Marketing of Tarragon Realty Advisors, Inc., from May 1998 to November 1998. She
was the National Director of Marketing & Education for Galesi Management
Corporation from October 1996 to May 1998, National Marketing Director for Anne
Sadovsky & Co. from February 1995 to September 1996, and Regional Marketing and
Training Director for Lincoln Property Company from February 1990 to January
1995.
70
<PAGE> 71
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Executive Officers (Continued)
CHRIS CLINTON (53) has been Senior Vice President - Commercial Asset Management
of Tarragon since March 1994. He also served as Senior Vice President -
Commercial Asset Management for Vinland Property Trust from March 1994 to July
1997 and for NIRT and Tarragon Realty Advisors from March 1994 to November 1998.
He was Vice President of Vinland Property Trust and of NIRT from October 1988 to
March 1994.
ERIN D. DAVIS (38) has been Executive Vice President and Chief Financial Officer
of Tarragon since December 1998. She previously served as Vice President and
Chief Accounting Officer for Tarragon from April 1997 to November 1998, of
Vinland Property Trust from September 1996 to July 1997, and of NIRT from
September 1996 to November 1998. She served as Accounting Manager of Vinland,
NIRT, and Tarragon Realty Advisors, Inc., from June 1995 to August 1996. She was
a Senior Associate at the national public accounting firm of BDO Seidman from
January 1993 to June 1995 and has been a Certified Public Accountant since 1990.
PETER LARSEN (58) has served as Senior Vice President - Acquisitions of Tarragon
since July 1997. From July 1997 to November 1998, he was Senior Vice President,
and, from April 1996 through June 1997, he was Vice President of NIRT and
Tarragon Realty Advisors. He previously worked as an Independent Consultant from
January 1995 to June 1996.
KATHRYN MANSFIELD (39) has been Executive Vice President of Tarragon since
December 1998 and Secretary and Corporate Counsel of Tarragon since May 1998.
She previously served as Vice President for Tarragon, NIRT, and Tarragon Realty
Advisors from May 1998 to December 1998. Prior to joining Tarragon, she was Vice
President and Senior Counsel for C.B. Richard Ellis, Inc., formerly CB
Commercial Real Estate Group, Inc., from October 1994 through May 1998. She has
been an attorney at law since 1984.
LORI D. MEYER (39) has served as Senior Vice President - Deputy Director of
Property Management of Tarragon since December 1998. She is also Senior Vice
President (since November 1998) and Controller (since February 1996) of Tarragon
Management, Inc., a wholly owned subsidiary of Tarragon. From February 1996 to
November 1998, she served as Vice President of Tarragon Management. From
February 1990 to January 1995, she was the Assistant Controller of South West
Property Trust, Inc., in Dallas, Texas. She has been a Certified Public
Accountant since 1996.
TODD C. MINOR (41) has been Senior Vice President (since December 1998) and
Treasurer (since April 1997) of Tarragon. Mr. Minor was also the Treasurer of
Vinland Property Trust from December 1996 through July 1997 and of NIRT from
December 1996 through November 1998. He served as Senior Vice President -
Mortgage Servicing and Financing from May 1995 to November 1996, Senior Vice
President - Finance from March 1994 to April 1995, and Vice President from April
1991 to July 1993 of Vinland Property Trust and NIRT and Senior Vice President
of Tarragon Realty Advisors from March 1994 through November 1998.
CHARLES RUBENSTEIN (41) has been Executive Vice President of Tarragon since
December 1998 and General Counsel since September 1998. He was also Senior Vice
President for Tarragon, NIRT, and Tarragon Realty Advisors from September 1998
to December 1998. Prior to joining Tarragon, he was employed as General Counsel
for Simpson Housing Limited Partnership in Denver, Colorado, from January 1996
to February 1998 and as a Real Estate Associate with the law firm of Andrews &
Kurth, L.L.P., in New York, New York, from October 1987 to November 1995. He has
been an attorney at law since 1984.
71
<PAGE> 72
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Executive Officers (Continued)
JOHN C. STRICKLIN (53) has served as Managing Director - Real Estate
Transactions for Tarragon since November 1998. He previously served as Executive
Vice President from May 1995 to April 1996 and as Senior Vice President - Real
Estate from May 1994 to April 1995 of NIRT and as Vice President - Real Estate
from February 1994 to April 1995 of Vinland Property Trust. Mr. Stricklin acted
as Special Assistant to the President of Basic Capital Management, Inc., from
April 1996 to November 1998.
ITEM 11. EXECUTIVE COMPENSATION
Independent Director Compensation.
Our independent Directors receive annual compensation of $15,000 per year plus
reimbursement of expenses for their service on the Board. Mr. Weisbrod, as
Chairman of the Board, receives an additional $25,000 per year as compensation
for his services as Chairman. Except for the Chairman of the Board, independent
Directors also receive $2,000 per year for each committee of the Board on which
they serve, $1,000 per year for each committee that they chair, and $1,000 per
day for any special services rendered on Tarragon's behalf, plus reimbursement
of expenses. Directors who are also officers of Tarragon receive no separate
compensation for their services as director.
Tarragon's Independent Director Stock Option Plan (the "Director Plan") provides
for automatic annual grants of options to independent Directors serving on the
Board on the first day of each new fiscal year. The exercise price of all
options granted under the Director Plan is equal to the market price on the
grant date. The options are immediately exercisable and expire on the earlier of
the first anniversary of the date on which a director ceases to be a director or
ten years from the date of grant.
Pursuant to the terms of the Director Plan, each of our incumbent independent
Directors received an option to purchase 2,000 shares of Tarragon common stock
on January 1, 1999, and an option to purchase an additional 2,000 shares on
January 1, 2000. A total of 187,022 shares of common stock are currently
available for grant under the Director Plan.
Summary Compensation Table
We did not have any employees or pay any compensation to executive officers
prior to our acquisition of Tarragon Realty Advisors on November 24, 1998. Our
executive officers were compensated solely by Tarragon Realty Advisors until
that date. They performed a variety of services for Tarragon Realty Advisors,
and the amount of their compensation was determined solely by it. Following our
acquisition of Tarragon Realty Advisors, we began paying compensation to
executive officers and employees. However, none of our executive officers earned
or received compensation in excess of $100,000 from Tarragon in fiscal year
1998.
The following table reflects the compensation paid to our Chief Executive
Officer in fiscal years 1998 and 1999 and paid to each of our four most highly
compensated executive officers (the "named executive officers") in 1999 for
services rendered to Tarragon and its subsidiaries.
72
<PAGE> 73
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Awards
Annual Securities Underlying
Name Principal Position Compensation Options/SARs
(Number of Shares)
Year Salary Bonus
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
President 1998 $ 28,846 450,000 (1)
William S. Friedman Chief Executive Officer --
Director 1999 $300,000 --
--
Charles Rubenstein Executive Vice President
General Counsel 1999 $153,000 $ 50,000 --
Todd C. Minor Senior Vice President
Treasurer 1999 $128,000 $ 25,000 --
John Stricklin Managing Director -
Real Estate Transactions 1999 $130,000 $ 15,000 --
Executive Vice President
Kathryn Mansfield Secretary
Corporate Counsel 1999 $103,000 $ 30,000 --
</TABLE>
(1) Mr. Friedman received options for 175,000 shares of common stock as part of
the consideration in the acquisition of Tarragon Realty Advisors.
Aggregated Option / SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table shows the stock options exercised during 1999 by each of our
named executive officers and the fiscal year-end value of their unexercised
options on an aggregated basis.
AGGREGATED OPTION / SAR EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of securities Value of unexercised
Shares acquired on Value Realized underlying in-the-money
Name exercise ($) unexercised options/SARs at
(#) options/SARs at fiscal year end
fiscal year end ($)
(#)
-------------------- --------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William S. Friedman -- -- 625,000/-0- -0-/-0-
Charles Rubenstein -- -- 3,000/12,000 -0-/-0-
Todd C. Minor 5,000 $ 17,166 10,498/-0- $49,629/-0-
John Stricklin -- -- 4,000/16,000 -0-/-0-
Kathryn Mansfield -- -- 7,266/5,734 $4,167/$2,083
</TABLE>
73
<PAGE> 74
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
Employment Contracts
Tarragon entered into an employment agreement with William S. Friedman in
November 1998 in connection with our acquisition of Tarragon Realty Advisors
from Mr. Friedman and his wife, Lucy N. Friedman. Mr. Friedman's employment
agreement is for a term of four years at an annual salary of $300,000, includes
a broad covenant not to compete with Tarragon during the term of the agreement
and for a period of three years following termination, and includes a right of
first refusal in favor of Tarragon with regard to any real estate investment
opportunity that comes to his attention. Mr. Friedman also received immediately
exercisable stock options to purchase 250,000 shares of Tarragon common stock at
an exercise price of $12 per share and 200,000 shares of Tarragon common stock
at an exercise price of $15 per share in connection with his employment
agreement.
Mr. Friedman's employment with Tarragon may be terminated at any time by mutual
agreement of the parties on terms to be negotiated and reduced to writing at the
time of termination. In the event that Mr. Friedman dies during the initial or
any renewal term of his employment agreement, his estate is entitled to the
greater of the compensation which would have been payable to him over the
remainder of the initial term of the agreement or through the end of the then
current calendar year if in a renewal term or the value of any other benefits
available to them under any benefit plan Tarragon then has in effect. In the
event that Mr. Friedman's employment is terminated during the initial or any
renewal term of his employment agreement for any reason other than the mutual
agreement of the parties or his death, Tarragon is obligated to continue to pay
him $25,000 per month for the greater of the balance of the initial term of the
agreement or through the end of the then current calendar year if in a renewal
term and the number of months he observes the restrictive covenants and
agreement not to compete contained in his employment agreement, but in any event
not more than 36 months from the date of termination.
Tarragon entered into an employment agreement with Robert C. Rohdie effective
February 1, 2000, following Tarragon's acquisition of Mr. Rohdie's interests in
our joint venture projects with him. Mr. Rohdie's employment agreement is for a
term of three years at an annual salary of $200,000. It also includes a broad
covenant not to compete with Tarragon during the term of the agreement and for a
period of one year following termination and a right of first refusal in favor
of Tarragon with regard to any real estate investment opportunity that comes to
his attention. Mr. Rohdie's employment with Tarragon may be terminated at any
time by mutual agreement of the parties on terms to be negotiated and reduced to
writing at the time of termination. In the event that Mr. Rohdie's employment
with Tarragon is terminated by the Board without cause during the initial or any
renewal term of his agreement, Tarragon is obligated to continue to pay him
$16,666 per month for the lesser of the remaining number of months in the
initial term of the agreement or the then annual renewal term of the agreement
and the number of months he observes the restrictive covenants and agreement not
to compete contained in his employment agreement, but in any event not more than
12 months from the date of termination.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee consists of Lance Liebman, Carl B.
Weisbrod, and Raymond V.J. Schrag, who are all independent members of our Board
of Directors. None of the members of the committee are current or former
employees of Tarragon.
74
<PAGE> 75
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information concerning the holdings of each
person known to Tarragon to be the beneficial owner of more than five percent of
our common stock, of each director and named executive officer, and of all of
Tarragon's directors and executive officers as a group as of the close of
business on March 20, 2000. All information with respect to beneficial ownership
was furnished to Tarragon by the respective director, officer, or stockholder.
Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- ------------------------------------ ----------------------------- --------------
<S> <C> <C>
Lucy N. Friedman 3,054,732 (2)(3)(4) 37.5%
280 Park Avenue (5)(6)
East Building, 20th Floor
New York, New York 10017
</TABLE>
(1) Percentage is based upon 7,970,801 shares of common stock outstanding at
March 20, 2000.
(2) Includes 1,889,068 shares owned by Mrs. Friedman directly and 175,000
shares covered by a presently exercisable option.
(3) Includes 116,676 shares owned by Lucy N. Friedman's spouse, William S.
Friedman.
(4) Includes 74,299 shares owned by Mrs. Friedman's minor sons, Gideon and
Samuel Friedman. Mrs. Friedman disclaims beneficial ownership of such
shares.
(5) Includes 124,738 shares owned by Tarragon Capital Corporation, of which
Mrs. Friedman and Mr. Friedman are executive officers and directors;
131,344 shares owned by Tarragon Partners, Ltd., of which Mrs. Friedman and
Mr. Friedman are limited partners and Tarragon Capital is the general
partner; and 543,607 shares owned by Beachwold Partners, L.P., in which
Mrs. Friedman and Mr. Friedman are the general partners and their four
children are the limited partners.
(6) Does not include 90,504 shares owned by Mrs. Friedman's adult son, Ezra
Friedman, and 66,343 shares owned by Mrs. Friedman's adult daughter, Tanya
Friedman. Mrs. Friedman disclaims beneficial ownership of such shares.
75
<PAGE> 76
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Security Ownership of Management
<TABLE>
<CAPTION>
Amount and Nature Percent of
of Beneficial Class (1)
Name of Beneficial Owner Ownership
- ---------------------------- ----------------------------- ----------
<S> <C> <C>
William S. Friedman 3,504,732(2)(3)(4)(5)(6) 40.8%
Sally Hernandez-Pinero 17,672(7) *
Lance Liebman 19,848(8) *
L. G. Schafran 17,672(9) *
Raymond V.J. Schrag 68,420(10) *
Carl B. Weisbrod 19,777(11) *
Chester Beck 15,007(12) *
Willie K. Davis 8,200(13) *
Michael E. Smith 6,500(14) *
Robert C. Rohdie 45,323(15) *
Kathryn Mansfield 8,266(16) *
Todd C. Minor 15,498(17) *
Charles D. Rubenstein 3,000(18) *
John Stricklin 10,794(19) *
All Directors and Executive 3,807,963(2)(3)(4)(5)(6) 43.5%
Officers as a group (7)(8)(9)(10)(11)
(19 individuals) (12)(13)(14)(15)
(16)(17)(18)(19)
</TABLE>
* Less than 1%.
76
<PAGE> 77
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Security Ownership of Management (Continued)
(1) Percentages are based upon 7,970,801 shares of common stock outstanding at
March 20, 2000.
(2) Includes 116,676 shares owned by Mr. Friedman directly and 625,000 shares
covered by two separate presently exercisable options.
(3) Includes 1,889,068 shares owned by Mr. Friedman's spouse, Lucy N. Friedman.
Mr. Friedman disclaims beneficial ownership of all such shares.
(4) Includes 124,738 shares owned by Tarragon Capital Corporation, 131,344
shares owned by Tarragon Partners, Ltd., and 543,607 shares owned by
Beachwold Partners, L.P.
(5) Includes 74,299 shares owned by Mr. Friedman's minor sons, Gideon and
Samuel Friedman. Mr. Friedman disclaims beneficial ownership of such
shares.
(6) Does not include 90,504 shares owned by Mr. Friedman's adult son, Ezra
Friedman, and 66,343 shares owned by Mr. Friedman's adult daughter, Tanya
Friedman. Mr. Friedman disclaims beneficial ownership of such shares.
(7) Includes 17,672 shares covered by six separate presently exercisable
options.
(8) Includes 2,176 shares owned by Mr. Liebman directly and 17,672 shares
covered by six separate presently exercisable options.
(9) Includes 17,672 shares covered by six separate presently exercisable
options.
(10) Includes 44,338 shares owned by Mr. Schrag directly and 17,672 shares
covered by six separate presently exercisable options. Also includes 6,410
shares owned by Mr. Schrag's wife individually and as custodian for his
minor son, Ben. It does not include 1,410 shares owned by Mr. Schrag's
adult daughter, Rebecca, as to which shares Mr. Schrag disclaims any
beneficial ownership.
(11) Includes a total of 5,105 shares owned by Mr. Weisbrod directly (3,000 of
such shares acquired by virtue of a stock option exercise on January 1,
1999) and 14,672 shares covered by six separate presently exercisable
options.
(12) Includes 9,507 shares owned by Mr. Beck directly and 5,500 shares covered
by six separate presently exercisable options.
(13) Includes a total of 4,200 shares owned by Mr. Davis directly (1,500 of such
shares acquired by virtue of a stock option exercise on May 11, 1999) and
4,000 shares covered by two separate presently exercisable options.
(14) Includes 1,000 shares owned by Mr. Smith directly and 5,500 shares covered
by six separate presently exercisable options.
77
<PAGE> 78
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Security Ownership of Management (Continued)
(15) Includes 44,673 shares owned by Rohdhouse Investments, Inc., a Florida
corporation owned by Mr. Rohdie, and 650 shares owned by his spouse. See
also ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for a
discussion of Mr. Rohdie's interest in an operating partnership with
Tarragon.
(16) Includes 1,000 shares owned by Ms. Mansfield and her spouse as custodian
for their minor children, Colin and Ashlyn. Also includes 7,266 shares
covered by two presently exercisable options.
(17) Includes 5,000 shares acquired by Mr. Minor by virtue of a stock option
exercise on January 28, 1999, and 10,498 shares covered by five separate
presently exercisable options.
(18) Includes 3,000 shares covered by a presently exercisable option.
(19) Includes 6,794 shares owned by Mr. Stricklin directly and 4,000 shares
covered by a presently exercisable option.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires that our directors, executive
officers, and persons holding more than ten percent of our common stock file
initial reports of ownership of the common stock and reports of any changes in
that ownership to the SEC. Specific due dates for these reports have been
established, and Tarragon is required to report any failure to file by these
dates during fiscal 1999.
To our knowledge, based solely upon the written representations of our incumbent
directors, executive officers, and ten percent stockholders and copies of the
reports that they have filed with the SEC, these filing requirements were
satisfied during 1999 except that a report on Form 4 for Mr. Rohdie, reflecting
two transactions in the month of December 1999 (before he became an officer or
director of Tarragon) was filed late.
78
<PAGE> 79
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1999, affiliates of William S. Friedman and his wife, Lucy N. Friedman, made
advances to Tarragon pursuant to the terms of a $6 million unsecured line of
credit. Advances under the line of credit bear interest at the lower of LIBOR
plus 1% per annum or the lowest rate at which credit is offered to Tarragon by
any third party. The outstanding balance of the advances as of December 31,
1999, was $5.1 million, including interest accrued during the year of $360,000.
In 1999, Tarragon managed seven apartment properties and one commercial
property owned by affiliates of Mr. Friedman and received management fees
totalling $279,000 for these services.
During 1999, as an accommodation to Tarragon, the family of Mr. Friedman
pledged Tarragon common stock as collateral for a $6 million line of credit
facility obtained by Tarragon. As of December 31, 1999, the shares pledged by
the Friedman family have been replaced with treasury shares purchased under our
stock repurchase program.
On February 7, 2000, Tarragon acquired the interests of Robert C. Rohdie and his
affiliates in ten apartment communities recently completed or currently under
construction, as well as in all joint venture development projects still in the
planning stages, for a total value of up to $10,000,000. Mr. Rohdie, who was
Tarragon's joint venture partner in the development of these projects,
contributed his equity interests to an operating partnership formed by Tarragon
in exchange for a preferred interest in the operating partnership and a
guaranteed fixed return of $200,000 for the first two years, increasing by
$40,000 per year for the next five years, plus an annual amount equal to the
dividends payable on 96,385 shares of Tarragon common stock. In addition, upon
completion and lease up of each of the five identified apartment communities
presently under construction or in advanced stages of development planning, Mr.
Rohdie will receive an increase in his guaranteed fixed return based on the
agreed value of his equity in the completed property. After one year, Mr. Rohdie
has the right to convert his preferred interest in the operating partnership
into 96,385 shares of our common stock and preferred stock with a face value of
up to $8 million and a like dividend to his guaranteed fixed return from the
operating partnership. If we do not have available an issue of preferred stock
outstanding at the time of the conversion, or at our discretion, we may pay Mr.
Rohdie the cash value of his preferred interest over three years. In connection
with this acquisition transaction, Tarragon formed a new development subsidiary
to expand our real estate development and renovation program, and Mr. Rohdie
joined Tarragon as President and Chief Executive Officer of Tarragon Development
Corporation and as a member of our Board of Directors effective February 7,
2000.
We believe that the foregoing transactions were at least as advantageous to us
as we could have obtained from unrelated third parties.
79
<PAGE> 80
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
Report of Independent Public Accountants - Arthur Andersen LLP
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations -
Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or because the
required information is shown in the Consolidated Financial Statements or the
notes thereto.
3. Exhibits
The following documents are filed as Exhibits to this report:
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated June 5, 1998, by and
between Tarragon Realty Investors, Inc., and National Income
Realty Trust (incorporated by reference to Exhibit 3.6 to
Registration Statement No. 333-60527 on Form S-4).
2.2 Stock Purchase Agreement dated June 5, 1998, among Tarragon
Realty Investors, Inc., Tarragon Realty Advisors, Inc.,
William S. Friedman, and Lucy N. Friedman (incorporated by
reference to Exhibit 3.7 to Registration Statement No.
333-60527 on Form S-4).
3.1 Articles of Incorporation of Tarragon Realty Investors, Inc.
(incorporated by reference to Exhibit 3.2 to Form 8-K dated
July 10, 1997).
80
<PAGE> 81
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Exhibit
Number Description
3.2 Bylaws of Tarragon Realty Investors, Inc. (incorporated by
reference to Exhibit 3.3 to Form 8-K dated July 10, 1997).
4.1 Indenture Agreement dated September 15, 1993, between Vinland
Property Trust and American Stock Transfer and Trust Company
(incorporated by reference to Exhibit 4.7 to Registration
Statement No. 33-66294 on Form S-11).
10.1* Limited Liability Company Agreement of Tarragon Development
LLC dated February 7, 2000, between Tarragon Realty
Investors, Inc., and The Rhodie Family LLC.
10.2* Employment Agreement dated February 7, 2000, between Tarragon
Realty Investors, Inc., and Robert C. Rhodie.
21.1* Subsidiaries of the Registrant.
27.1* Financial Data Schedule.
* Filed herewith
(b) No reports on Form 8-K were filed during the fourth quarter covered
by this report or with respect to events occurring after the period
covered by this report but prior to the filing of this report.
81
<PAGE> 82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TARRAGON REALTY INVESTORS, INC.
Dated: March 30, 2000 By: /s/ William S. Friedman
-------------------- -----------------------------------
William S. Friedman
President, Chief Executive Officer,
and Director
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 date indicated.
<TABLE>
<CAPTION>
Signature Capacities In Which Signed Date
<S> <C> <C>
/s/ Carl B. Weisbrod Director and Chairman of the Board March 30, 2000
- ------------------------------- --------------
Carl B. Weisbrod
/s/ William S. Friedman President, Chief Executive Officer, March 30, 2000
- ------------------------------- and Director --------------
William S. Friedman (Principal Executive Officer)
/s/ Erin D. Davis Executive Vice President and March 30, 2000
- ------------------------------- Chief Financial Officer --------------
Erin D. Davis (Principal Financial and
Accounting Officer)
/s/ Chester Beck Director March 30, 2000
- ------------------------------- --------------
Chester Beck
/s/ Willie K. Davis Director March 30, 2000
- ------------------------------- --------------
Willie K. Davis
/s/ Sally Hernandez-Pinero Director March 30, 2000
- ------------------------------- --------------
Sally Hernandez-Pinero
/s/ Lance Liebman Director March 30, 2000
- ------------------------------- --------------
Lance Liebman
/s/ Robert C. Rohdie Director March 30, 2000
- ------------------------------- --------------
Robert C. Rohdie
/s/ Lawrence G. Schafran Director March 30, 2000
- ------------------------------- --------------
Lawrence G. Schafran
/s/ Raymond V.J. Schrag Director March 30, 2000
- ------------------------------- --------------
Raymond V. J. Schrag
/s/ Michael E. Smith Director March 30, 2000
- ------------------------------- --------------
Michael E. Smith
</TABLE>
82
<PAGE> 83
TARRAGON REALTY INVESTORS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated June 5, 1998, by and
between Tarragon Realty Investors, Inc., and National Income
Realty Trust (incorporated by reference to Exhibit 3.6 to
Registration Statement No. 333-60527 on Form S-4).
2.2 Stock Purchase Agreement dated June 5, 1998, among Tarragon
Realty Investors, Inc., Tarragon Realty Advisors, Inc.,
William S. Friedman, and Lucy N. Friedman (incorporated by
reference to Exhibit 3.7 to Registration Statement No.
333-60527 on Form S-4).
3.1 Articles of Incorporation of Tarragon Realty Investors, Inc.
(incorporated by reference to Exhibit 3.2 to Form 8-K dated
July 10, 1997).
3.2 Bylaws of Tarragon Realty Investors, Inc. (incorporated by
reference to Exhibit 3.3 to Form 8-K dated July 10, 1997).
4.1 Indenture Agreement dated September 15, 1993, between Vinland
Property Trust and American Stock Transfer and Trust Company
(incorporated by reference to Exhibit 4.7 to Registration
Statement No. 33-66294 on Form S-11).
10.1* Limited Liability Company Agreement of Tarragon Development
LLC dated February 7, 2000, between Tarragon Realty
Investors, Inc., and The Rhodie Family LLC.
10.2* Employment Agreement dated February 7, 2000, between Tarragon
Realty Investors, Inc., and Robert C. Rhodie.
21.1* Subsidiaries of the Registrant.
27.1* Financial Data Schedule.
</TABLE>
* Filed herewith
83
<PAGE> 1
EXHIBIT 10.1
================================================================================
LIMITED LIABILITY COMPANY AGREEMENT
OF
TARRAGON DEVELOPMENT COMPANY LLC
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINED TERMS ........................................................................................................1
Act ........................................................................................................1
Adjusted Capital Account Deficit..........................................................................................1
Adjusted Property ........................................................................................................1
Affiliate ........................................................................................................1
Agreed Value ........................................................................................................2
Agreement ........................................................................................................2
Assignee ........................................................................................................2
Available Cash ........................................................................................................2
Book-Tax Disparities......................................................................................................3
Business Day ........................................................................................................3
Capital Account ........................................................................................................3
Capital Contribution......................................................................................................3
Carrying Value ........................................................................................................3
Certificate of Formation..................................................................................................3
Class A Members ........................................................................................................3
Member Unit or Unit.......................................................................................................3
Class B Members ........................................................................................................4
Member Unit or Unit.......................................................................................................4
Class B Members ........................................................................................................4
Member Unit or Unit.......................................................................................................4
Class D Members ........................................................................................................4
Member Unit or Unit.......................................................................................................4
Code ........................................................................................................4
Common REIT Shares........................................................................................................4
Company ........................................................................................................4
Company Minimum Gain......................................................................................................4
Company Record Date.......................................................................................................4
Completion Threshold......................................................................................................4
Contributed Property......................................................................................................5
Depreciation ........................................................................................................5
Event of Dissolution......................................................................................................5
Fiscal Year ........................................................................................................5
Immediate Family ........................................................................................................5
Incapacity or Incapacitated...............................................................................................5
Indemnitee ........................................................................................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
IRS ........................................................................................................6
Liquidating Transaction...................................................................................................6
Liquidator ........................................................................................................6
Managing Member ........................................................................................................6
Member's and the Class D Members..........................................................................................6
Member Consent ........................................................................................................6
Member Interest ........................................................................................................6
Member Minimum Gain.......................................................................................................6
Member Nonrecourse Debt...................................................................................................7
Member Nonrecourse Deductions.............................................................................................7
Net Income ........................................................................................................7
Net Loss ........................................................................................................7
Nonrecourse Deductions....................................................................................................7
Nonrecourse Liability.....................................................................................................7
Percentage Interest.......................................................................................................7
Person ........................................................................................................7
Preferred Allocation Account..............................................................................................7
Preferred Distribution Account............................................................................................8
Preferred REIT Shares.....................................................................................................8
Preferred Return ........................................................................................................8
Property ........................................................................................................8
Recapture Income ........................................................................................................8
Recourse Liabilities......................................................................................................8
REIT Shares ........................................................................................................8
Regulations ........................................................................................................9
Securities Act ........................................................................................................9
704(c) Value ........................................................................................................9
Subsidiary .........................................................................................................
Substituted Member........................................................................................................9
Unit Adjustment Factor....................................................................................................9
Unrealized Gain .......................................................................................................10
Unrealized Loss .......................................................................................................10
Value .......................................................................................................10
ARTICLE II
ORGANIZATIONAL MATTERS...................................................................................................11
Section 2.1 Formation; Application of Act................................................................................11
Section 2.2 Name .......................................................................................................11
Section 2.3 Registered Office and Agent; Principal Office................................................................11
Section 2.4 Term .......................................................................................................11
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE III
PURPOSE .......................................................................................................11
Section 3.1 Purpose and Business.........................................................................................11
Section 3.2 Powers.......................................................................................................12
ARTICLE IV
CAPITAL CONTRIBUTIONS,, ISSUANCE OF UNITS; CAPITAL ACCOUNTS..............................................................12
Section 4.1 Capital Contributions of the Members.........................................................................12
Section 4.2 No Preemptive Rights.........................................................................................13
Section 4.3 Capital Accounts of the Members..............................................................................13
ARTICLE V
DISTRIBUTIONS .......................................................................................................15
Section 5.1 Requirement and Characterization of Distribution.............................................................15
Section 5.2 Amounts Withheld.............................................................................................15
Section 5.3 Distribution Upon Liquidation................................................................................15
ARTICLE VI
ALLOCATIONS .......................................................................................................15
Section 6.1 Allocations For Capital Account Purposes.....................................................................15
Section 6.2 Special Allocation Rules.....................................................................................17
Section 6.3 Allocation for Tax Purposes..................................................................................18
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS....................................................................................18
Section 7.1 Management...................................................................................................18
Section 7.2 Certificate of Formation.....................................................................................19
Section 7.3 Restriction on Managing Member's Authority...................................................................19
Section 7.4 Responsibility for Expenses..................................................................................20
Section 7.5 Outside Activities of the Managing Member....................................................................20
Section 7.6 Contracts with Affiliates....................................................................................20
Section 7.7 Indemnification..............................................................................................20
Section 7.8 Liability of the Managing Member.............................................................................22
Section 7.9 Other Matters Concerning the Managing Member.................................................................22
Section 7.10 Title to Company Assets.....................................................................................23
Section 7.11 Reliance by Third Parties...................................................................................23
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF NON-MANAGING MEMBERS...........................................................................23
Section 8.1 Management of Business.......................................................................................23
Section 8.2 Outside Activities of Members................................................................................24
Section 8.3 Priority Among Members.......................................................................................24
Section 8.4 Rights of Members Relating to the Company...................................................................24
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C>
Section 8.5 ERISA Matters................................................................................................25
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS...................................................................................25
Section 9.1 Records and Accounting.......................................................................................25
Section 9.2 Fiscal Year..................................................................................................25
ARTICLE X
TAX MATTERS .......................................................................................................26
Section 10.1 Preparation of Tax Returns..................................................................................26
Section 10.2 Tax Elections...............................................................................................26
Section 10.3 Tax Matters Partner.........................................................................................26
Section 10.4 Organizational Expenses.....................................................................................28
Section 10.5. Withholding................................................................................................28
ARTICLE XI
TRANSFERS AND WITHDRAWALS................................................................................................28
Section 11.1 Transfer....................................................................................................28
Section 11.2 Transfer of Class C Units...................................................................................28
Section 11.3 Non-Managing Members' Rights to Transfer....................................................................29
Section 11.4 Substituted Members.........................................................................................29
Section 11.5 Assignees...................................................................................................30
Section 11.6 General Provisions..........................................................................................30
Section 11.7 Conversion Rights of the Class A Members....................................................................31
Section 11.8 Conversion Rights of the Class B Members....................................................................33
Section 11.9 Conversion Rights of the Class D Members....................................................................35
ARTICLE XII
ADMISSION OF MEMBERS.....................................................................................................36
Section 12.1 Admission of Successor Managing Member......................................................................36
Section 12.2 [Intentionally Left Blank]..................................................................................36
Section 12.3 Amendment of Agreement and Certificate of Formation.........................................................36
ARTICLE XIII
DISSOLUTION AND LIQUIDATION..............................................................................................36
Section 13.1 Dissolution.................................................................................................36
Section 13.2 Winding Up..................................................................................................36
Section 13.3 Compliance with Timing Requirements of Regulations; Allowance for Contingent or Unforeseen
Liabilities or Obligation................................................................................................38
Section 13.4 Deemed Distribution and Recontribution......................................................................38
Section 13.6 Notice of Dissolution.......................................................................................38
Section 13.7 Cancellation of Certificate of Formation....................................................................39
Section 13.8 Reasonable Time for Winding-Up..............................................................................39
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE XIV
MISCELLANEOUS PROVISIONS.................................................................................................39
Section 14.1 Board of Directors of the Managing Member...................................................................39
Section 14.2 Default.....................................................................................................39
ARTICLE XV
GENERAL PROVISIONS.......................................................................................................40
Section 15.1 Address and Notice..........................................................................................40
Section 15.2 Titles and Captions.........................................................................................40
Section 15.3 Pronouns and Plurals........................................................................................40
Section 15.4 Further Action..............................................................................................40
Section 15.5 Binding Effect..............................................................................................40
Section 15.6 Waiver of Partition.........................................................................................40
Section 15.7 Dispute Resolution..........................................................................................40
Section 15.8 Entire Agreement............................................................................................42
Section 15.9 Remedies Not Exclusive......................................................................................42
Section 15.10 Time.......................................................................................................42
Section 15.11 Creditors..................................................................................................42
Section 15.12 Waiver.....................................................................................................42
Section 15.13 Amendment..................................................................................................42
Section 15.14 Execution Counterparts.....................................................................................42
Section 15.15 Applicable Law.............................................................................................42
Section 15.16 Invalidity of Provisions...................................................................................43
</TABLE>
v
<PAGE> 7
LIMITED LIABILITY COMPANY AGREEMENT
OF
TARRAGON DEVELOPMENT COMPANY LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT, dated as of the 7th day of
February, 2000, of Tarragon Development Company LLC, a Delaware limited
liability company (the "COMPANY"), is entered into by and among Tarragon Realty
Investors, Inc., a Nevada corporation, as the Managing Member (the "MANAGING
MEMBER") and The Rohdie Family LLC, a Delaware limited liability company
("ROHDIE LLC").
W I T N E S S E T H:
WHEREAS, the Members (as defined herein) desire to form the Company as
a limited liability company under the Act, and desire to enter into this
Agreement to set forth the agreement of the Members for the operation of the
Company.
NOW, THEREFORE, in consideration of the premises, the mutual promises
and agreements herein made, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
agree as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Limited Liability Company Act of the State of Delaware,
as it may be amended from time to time, and any successor to such statute.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year (a) increased by any amounts which such Member is
obligated to restore pursuant to any provision of this Agreement or is deemed to
be obligated to restore pursuant to the penultimate sentences of Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (b) decreased by the items
described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-l(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.3 (d) hereof.
"Affiliate" means, with respect to a Person, (i) any Person that
controls, is controlled by, or is under common control with, such Person, (ii)
any Immediate Family of any Person, and (iii) any officer, partner, member,
director or trustee of any Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting
<PAGE> 8
securities, by contract or otherwise; and the terms "affiliated," "controlling"
and "controlled" have meanings correlative to the foregoing.
"Agreed Value" means (a) in the case of any Contributed Property set
forth in Exhibits A and B and as of the time of its contribution to the Company,
the Agreed Value of such property as set forth in Exhibits A and B; (b) in the
case of any Contributed Property not set forth in Exhibits A and B, the 704(c)
Value of such property as of the time of its contribution to the Company,
reduced by any liabilities either assumed by the Company upon such contribution
or to which such property is subject when contributed; and (c) in the case of
any property distributed to a Member by the Company, the Company's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Member upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the regulations promulgated thereunder.
"Agreement" means this Limited Liability Company Agreement (as defined
in Section 18-101(7) of the Act), as it may be amended, supplemented or restated
from time to time in accordance with the terms hereof.
"Assignee" means a Person to whom one or more Member Interests have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Member, and who has the rights set forth in Section 11.5.
"Available Cash" means with respect to any period for which such
calculation is being made, (a) all cash revenues and funds received by the
Company from whatever source (excluding the proceeds of any Capital
Contribution) plus the amount of any reduction (including, without limitation, a
reduction resulting because the Managing Member determines such amounts are no
longer necessary) in reserves of the Company, which reserves are referred to in
clause (b)(iv) below;
(b) less the sum of the following (except to the extent made
with the proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments
made during such period by the Company,
(ii) all cash expenditures (including capital
expenditures) made by the Company during such period.
(iii) investments in any entity (including loans made
thereto) to the extent that such investments are not otherwise
described in clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves
established during such period which the Managing Member
determines is necessary or appropriate in its sole and
absolute discretion.
2
<PAGE> 9
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Company.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Member's share of the Company's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Members Capital Account balance as maintained pursuant to Section
4.3 and the hypothetical balance of such Member's Capital Account computed as if
it had been maintained strictly in accordance with federal income tax accounting
principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York City, New York are authorized or required by
law to close.
"Capital Account" means the Capital Account maintained for a Member
pursuant to Section 4.3 hereof.
"Capital Contribution" means, with respect to any Member, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Member
contributes or is deemed to contribute to the Company pursuant to Section 4.1
hereof and which shall be treated by the Company as a contribution to the
Company pursuant to Section 721(a) of the Code.
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property (or in the case of an
Adjusted Property, the fair market value of such property at the time of its
latest adjustment under Section 4.3(d)) reduced (but not below zero) by all
Depreciation with respect to such property charged to the Members' Capital
Accounts and (b) with respect to any other Company Property, the adjusted basis
of such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Section 4.3 hereof.
"Certificate of Formation" means the Certificate of Formation relating
to the Company filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Class A Members" means those Persons admitted to the Company as Class
A Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith, or admitted to the Company as
a Class A Member upon conversion of the Class D Member Units as provided herein.
"Class A Unit" or "Class A Member Unit" means a fractional, undivided
share of the Member Interests of all Class A Members issued pursuant to Section
4.1 as set forth on Exhibit A attached hereto, as such Exhibit may be amended
from time to time in accordance with the terms of this Agreement.
3
<PAGE> 10
"Class B Members" means those Persons admitted to the Company as Class
B Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith, or admitted to the Company as
a Class B Member upon conversion of the Class D Member Units as provided herein.
"Class B Unit" or "Class B Member Unit" means a fractional, undivided
share of the Member Interests of all Class B Members issued pursuant to Section
4.1 as set forth on Exhibit A attached hereto, as such Exhibit may be amended
from time to time in accordance with the terms of this Agreement.
"Class C Members" means those Persons admitted to the Company as Class
C Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith.
"Class C Unit" or "Class C Member Unit" means the Member Interests of
all Class C Members issued pursuant to Section 4.1 as set forth on Exhibit A
attached hereto, as such Exhibit may be amended from time to time in accordance
with the terms of this Agreement.
"Class D Members" means those Persons admitted to the Company as Class
D Members as set forth in Exhibit A attached hereto, as such Exhibit may be
amended from time to time in accordance herewith.
"Class D Unit" or "Class D Member Unit" means the Member Interests of
all Class D Members issued pursuant to Section 4.1 as set forth on Exhibit A
attached hereto, as such Exhibit may be amended from time to time in accordance
with the terms of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common REIT Shares" means the common stock of the Managing Member.
"Company" means the limited liability company formed under the Act and
continued pursuant to this Agreement, and any successor thereto.
"Company Minimum Gain" has the meaning set forth in Regulation Section
1.704-2(b)(2), and the amount of Company Minimum Gain, as well as any net
increase or decrease in Company Minimum Gain, for a Fiscal Year shall be
determined in accordance with the rules of Regulation Section 1.704-2(d).
"Company Record Date" means the record date established by the Managing
Member for the distribution of Available Cash pursuant to Section 5.1 hereof.
"Completion Date" means, with respect to the real property owned by
each limited liability company set forth on Exhibit B, the date which follows
the completion of such project and is the earlier of (1) that date that is
twelve (12) months after such property first obtains
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occupancy of 80% of the apartment units, or (2) the date that is six (6) months
after the date that permanent (as opposed to construction) financing encumbers
such property.
"Contributed Property" means each property or other asset (but
excluding cash), in such form as may be permitted by the Act contributed or
deemed contributed to the Company. Once the Carrying Value of a Contributed
Property is adjusted pursuant to Section 4.3(d) hereof, such property shall no
longer constitute a Contributed Property for purposes of Section 4.3(d) hereof,
but shall be deemed an Adjusted Property for such purposes.
"Depreciation" means for each fiscal year or other period, an amount
equal to the federal income tax depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Carrying Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount determined in accordance with Regulation
Section 1.704-3(d) provided, however, that if the federal income tax
depreciation, amortization, or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Carrying
Value using any reasonable method selected by the Managing Member.
"Event of Dissolution" has the meaning set forth in Section 13.1.
"Fiscal Year" means the fiscal year of the Company, which shall be the
calendar year.
"Immediate Family" means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers and
sisters and trusts for the benefit of any of the foregoing.
"Incapacity" or "Incapacitated" means, (a) as to any individual Member,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (b) as to any
corporation which is a Member, the filing of a certificate of dissolution, or
its equivalent, for the corporation; (c) as to any partnership or limited
liability company which is a Member, the dissolution and commencement of winding
up of the partnership or limited liability company, (d) as to any estate which
is a Member, the distribution by the fiduciary of the estate's entire interest
in the Company; (e) as to any trustee of a trust which is a Member, the
termination of the trust (but not the substitution of a new trustee); or (f) as
to any Member, the bankruptcy of such Member. For purposes of this definition,
bankruptcy of a Member shall be deemed to have occurred when the Member (i)
makes an assignment for the benefit of creditors, (ii) files a voluntary
petition in bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has
entered against him an order of relief in any bankruptcy or insolvency
proceeding, (iv) files a petition or answer seeking for himself any
reorganization, arrangement composition, readjustment liquidation, dissolution
or similar relief under any statute, law or regulation, (v) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against him in any proceeding of this nature, (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Member or of all or any substantial part of his properties,
(vii) the Member is the debtor in any proceeding seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, which has not been dismissed within
120 days after the
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commencement thereof or (viii) the appointment without the Member's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within 90 days after the appointment or such appointment is not vacated within
90 days after the expiration of any such stay.
"Indemnitee" means (a) any Person made a party to a proceeding by
reason of his status as (i) the Managing Member, (ii) any other Member or (iii)
a director, officer, Member, employee, agent or attorney of the Company or a
Member, and (b) such other Persons (including Affiliates of the Managing Member
or the Company) acting in good faith on behalf of the Company as determined by
the Managing Member in its good faith judgment other than for any action by such
Person involving fraud, willful misconduct or gross negligence.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States, or any successor agency performing
the same functions.
"Liquidating Transaction" means any sale or other disposition of all or
substantially all of the assets of the Company or a related series of
transactions that, taken together, results in the sale or other disposition of
all or substantially all of the assets of the Company.
"Liquidator" has the meaning set forth in Section 13.2.
"Managing Member" means Tarragon Realty Investors, Inc., and any
successor thereto as the Managing Member of the Company; provided, however, that
in the event Tarragon Realty Investors, Inc. is Incapacitated and only for so
long a period as such Incapacity exists, then the Class A Members and Class B
Members shall be entitled to appoint a Co-Managing Member and each decision
required to be made hereunder by the Managing Member shall only be made by the
unanimous consent of the Managing Member and such Co-Managing Member.
"Members" shall mean the Class A Members, the Class B Members, Class C
Members and the Class D Members and any Person named as a Class A Member, Class
B Member, Class C Member or Class D Member in Exhibit A attached hereto, as such
Exhibit may be amended from time to time in accordance herewith, or any
Substituted Member admitted to the Company in accordance herewith, in such
Person's capacity as a Member in the Company.
"Member Consent" means the consent of all of Members.
"Member Interest" means an ownership interest in the Company
representing a fractional part of the Member Interests of all Members and
includes any and all benefits to which the holder of such a Member Interest may
be entitled as provided in the Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. A Class A
Member Interest may be expressed as a number of Class A Member Units, a Class B
Member Interest may be expressed as a number of Class B Member Units, and a
Class D Member Interest may be expressed as a number of Class D Member Units.
"Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt equal to the Company Minimum Gain that would result if such
Member Nonrecourse Debt
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were treated as a Nonrecourse Liability, determined in accordance with
Regulation Section 1.704-2(i)(3).
"Member Nonrecourse Debt" has the meaning set forth in Regulation
Section 1.704-2(b)(4) and the amount of Member Nonrecourse Deductions with
respect to a Member Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulation Section 1.704-2(i)(2).
"Member Nonrecourse Deductions" has the meaning set forth in Regulation
Section 1.704-2(i)(1), and the amount of Member Nonrecourse Deductions with
respect to a Member Nonrecourse Debt for a Fiscal Year shall be determined in
accordance with the rules of Regulation Section 1.704-2(i)(2).
"Net Income" means for any taxable period, the excess, if any, of the
Company's items of income and gain for such taxable period over the Company's
items of loss and deduction for such taxable period. The items included in the
calculation of Net Income shall be determined in accordance with Section 4.3.
Once an item of income, gain, loss or deduction that has been included in the
initial computation of Net Income is subjected to the special allocation rules
in Sections 6.2 and 6.3, Net Income or the resulting Net Loss, whichever the
case may be, shall be recomputed without regard to such item.
"Net Loss" means for any taxable period, the excess, if any, of the
Company's items of loss and deduction for such taxable period over the Company's
items of income and gain for such taxable period. The items included in the
calculation of Net Loss shall be determined in accordance with Section 4.3. Once
an item of income, gain, loss or deduction that has been included in the initial
computation of Net Loss is subjected to the special allocation rules in Section
6.2 and 6.3, Net Loss or the resulting Net Income, whichever the case may be,
shall be recomputed without regard to such item.
"Nonrecourse Deductions" has the meaning set forth in Regulation
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal
Year shall be determined in accordance with the rules of Regulation Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulation Section
1.752-1(a)(2).
"Percentage Interest" means, as to a Class A Member, Class B Member,
Class C Member or Class D Member, its interest in such class of interest in the
Company as set forth on Exhibit A as amended from time to time.
"Person" means an individual or a corporation, Company, trust,
unincorporated organization, association or other entity.
"Preferred Allocation Account" means a separate account that shall be
maintained with respect to each Class A Member and Class B Member, the initial
amount of which shall be zero and which shall be increased by each Preferred
Return that is credited to such Member and which
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shall be reduced by all allocations of Net Income to such Member pursuant to
Section 6.1 of this Agreement.
"Preferred Distribution Account" means a separate account that shall be
maintained with respect to each Class A Member and Class B Member, the initial
amount of which shall be zero and which shall be increased quarterly by the
amount of the Preferred Return that is credited to such Member for such quarter
and which shall be reduced by the amounts of all distributions to such Member
pursuant to Sections 5.1(a) of this Agreement for such year.
"Preferred REIT Shares" means the preferred stock of the Managing
Member; provided, however, that notwithstanding the terms of Preferred REIT
Shares at any time or in the event Preferred REIT Shares are not in existence,
each Preferred REIT Share shall be deemed to have a liquidation preference of
$10 and shall be deemed to have a dividend equal to five (5%) per cent of the
face value thereof for the first and second year after the date of issuance, a
dividend equal to six (6%) per cent of the face value thereof for the third year
after the date of issuance, a dividend equal to seven (7%) per cent of the face
value thereof for the fourth year after the date of issuance, a dividend equal
to eight (8%) per cent of the face value thereof for the fifth year after the
date of issuance, a dividend equal to nine (9%) per cent of the face value
thereof for the sixth year after the date of issuance, a dividend equal to ten
(10%) per cent of the face value thereof for the sixth seventh year after the
date of issuance and for every year thereafter.
"Preferred Return" means (i) with respect to a Class A Member, an
amount equal to the dividends which would have been payable to a Class A Member
during the applicable period assuming such Class A Member held Preferred REIT
Shares during such period equal in number to the amount of Class A Member Units
issued to such Member as of the beginning of such fiscal quarter provided,
however, in the event that Class A Member Units are issued during a fiscal
quarter, the dividends payable to such Class A Member shall be determined on a
daily basis; and (ii) with respect to a Class B Member, an amount equal to the
dividends which would be payable to a Class B Member assuming such Class B
Member held Common REIT Shares equal in number to the product of (1) the amount
of Class B Member Units issued to such Member, and (2) the Unit Adjustment
Factor.
"Property" shall mean the membership interests in the limited liability
companies and partnership interests in the limited partnerships set forth on
Exhibit D to this Agreement and any other property, real or personal
subsequently acquired by the Company.
"Recapture Income" means any gain recognized by the Company (computed
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Company, which gain
is characterized under Code Sections 751, 1245 and 1250 as ordinary income
because it represents the recapture of deductions previously taken with respect
to such property or asset.
"Recourse Liabilities" has the meaning set forth in Regulation Section
1.752-1(a)(1).
"REIT Shares" means Common REIT Shares and/or the Preferred REIT Shares
as the context may require.
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"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Securities Act" means the Securities Act of 1933, as amended.
"704(c) Value" of any Contributed Property means the fair market value
of such Contributed Property or other consideration at the time of contribution
as determined by the Members using such reasonable method of valuation as they
may adopt or as otherwise set forth herein.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (a) the voting power of the voting equity
securities or (b) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Member" means a Person who is admitted as a Member to the
Company pursuant to Section 11.4.
"Unit Adjustment Factor" means initially 1.0; provided (a) that in the
event that the Managing Member (i) declares or pays a dividend on its
outstanding REIT Shares in REIT Shares or makes a distribution to all holders of
its outstanding REIT Shares in REIT Shares, (ii) subdivides its outstanding REIT
Shares, or (iii) combines its outstanding REIT Shares into a smaller number of
REIT Shares, the Unit Adjustment Factor shall be adjusted by multiplying the
Unit Adjustment Factor then in effect by a fraction, the numerator of which
shall be the number of REIT Shares issued and outstanding on the record date for
such dividend, distribution, subdivision or combination (assuming for such
purposes that such dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which shall be the actual
number of REIT Shares (determined without the above assumption) issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination; and (b) provided, if the Managing Member issues rights, options or
warrants or other securities to all holders of REIT Shares entitling them to
subscribe for or purchase REIT Shares (including securities to purchase, or
which are convertible into, or exchangeable for, REIT Shares) at a price per
REIT Share less than 94% (100% if a stand-by underwriter is used and charges the
Managing Member a commission) of the Value of a REIT Share on the record date
for the determination of shareholders entitled to receive such rights, options
or warrants, then the Unit Adjustment Factor shall be to equal the number
determined by multiplying (I) the Unit Adjustment Factor in effect immediately
prior to the opening of business on the date fixed for such determination by
(II) a fraction, the numerator of which shall be the sum of (A) the number of
REIT Shares outstanding on the close of business on such date and (B) the number
of additional REIT Shares offered for subscription or purchase pursuant to such
rights, options or warrants, and the denominator of which shall be the sum of
(A) the number of REIT Shares outstanding on the close of business on such date
and (B) the number of REIT Shares that the aggregate proceeds to the Managing
Member from the exercise of such rights, option or warrants for REIT Shares
would purchase at 94% of such Value (or 100% in the case of a stand-by
underwriting). In determining whether any rights, options or warrants entitle
the holders of REIT Shares to subscribe for or purchase
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REIT Shares at less than 94% of such Value (or 100% in the case of a stand-by
underwriting), there shall be taken into account any consideration received by
the Managing Member upon issuance and upon exercise of such rights, options or
warrants, the value of such consideration, if other than cash, to be fairly and
reasonably determined by the Board of Directors of the Managing Member. Any
adjustment to the Unit Adjustment Factor shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event.
"Unrealized Gain" attributable to any item of Company Property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such Property (as determined under Section 4.3 hereof) as of such date,
over (b) the Carrying Value of such Property (prior to any adjustment to be made
pursuant to Section 4.3 hereof) as of such date.
"Unrealized Loss" attributable to any item of Company Property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such Property (prior to any adjustment to be made pursuant to Section 4.3
hereof) as of such date, over (b) the fair market value of such Property (as
determined under Section 4.3 hereof) as of such date.
"Value" means, with respect to a REIT Share, the average of the daily
market price for the twenty (20) consecutive trading days immediately preceding
the valuation date. The market price for each such trading day shall be: (a) if
the REIT Shares are listed or admitted to trading on any securities exchange or
the NASDAQ-National Market System, the closing price, regular way, on such day,
or if no such sale takes place on such day, the average of the closing bid and
asked prices on such day, (b) if the REIT Shares are not listed or admitted to
trading on any securities exchange or the NASDAQ-National Market System, the
last reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the Managing Member, or (c) if the REIT
Shares are not listed or admitted to trading on any securities exchange or the
NASDAQ-National Market System and no such last reported sale price or closing
bid and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reliable quotation source designated
by the Managing Member, or if there shall be no bid and asked prices on such
day, the average of the high bid and low asked prices, as so reported on the
most recent day (not more than 20 days prior to the date in question) for which
prices have been so reported; provided, that if there are no bid and asked
prices reported during the 20 days prior to the date in question, the Value of
the REIT Shares shall be determined by the board of directors of the Managing
Member acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
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ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Formation; Application of Act.
(a) Form of the Company. The Members do hereby form the
Company as a limited liability company according to all of the terms and
provisions of this Agreement and otherwise in accordance with the Act.
(b) Application of Act. The Company is a limited liability
company pursuant to the provisions of the Act and upon the terms and conditions
set forth in this Agreement. Except as expressly provided herein to the
contrary, the rights and obligations of the Members and the administration and
termination of the Company shall be governed by the Act. No Member has any
interest in any Company property, and the Member Interest of each Member shall
be personal property for all purposes.
Section 2.2 Name. The name of the Company is Tarragon Development
Company LLC. The Company's business may be conducted under any other name or
names deemed advisable by the Managing Member. The words "Limited Liability
Company", "LLC" or similar words or letters shall be included in the Company's
name where necessary for the purposes of complying with the laws of any
jurisdiction that so requires. The Managing Member in its sole and absolute
discretion may change the name of the Company at any time and from time to time
and shall promptly notify the Members of such change; provided that the name of
the Company may not be changed to include the name, or any variant thereof, of
any Member without the written consent of that Member.
Section 2.3 Registered Office and Agent; Principal Office. The address
of the registered office of the Company in the State of Delaware is located at 9
East Loockerman Street, Dover, Delaware 19901, and the registered agent for
service of process on the Company in the State of Delaware at such registered
office is National Registered Agents, Inc. The principal office of the Company
is located at 280 Park Avenue, East Building, 20th Floor, New York, New York
10017, or such other place as the Managing Member may from time to time
designate by notice to the Members. The Company may maintain offices at such
other place or places within or outside the State of New York as the Managing
Member deems advisable.
Section 2.4 Term. The term of the Company shall commence on the date of
the filing of the Certificate of Formation with the Delaware secretary of State
and shall continue until it is dissolved pursuant to the provisions of Article
XIII or as otherwise required by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
business to be conducted by the Company is (a) acquire, own, operate, administer
and sell or otherwise dispose of the Property; (b) to conduct any business that
may be lawfully conducted by a limited liability
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company organized pursuant to the Act; and (c) to do anything necessary or
incidental to the foregoing in accordance with the terms of this Agreement.
Section 3.2 Powers. The Company is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF UNITS;
CAPITAL ACCOUNTS
Section 4.1 Capital Contributions of the Members.
(a) Initial Capital Contributions. At the time of the
execution of this Agreement, the Members shall make or shall have made the
Capital Contributions set forth in Exhibit A to this Agreement. The Members
shall have the Member Interests, Class A Member Units, Class B Member Units,
Class C Member Units, Class D Member Units and/or Percentage Interests in the
Company as set forth in Exhibit A as a result of such contributions.
(b) Additional Capital Contributions or Assessments.
(i) Except as required by law or as set forth in
subsections (ii) below, no Member shall be assessed or be required to
contribute additional funds or other property to the Company. Any
additional funds required by the Company, as reasonably determined by
the Managing Member to not be available from operations or from lenders
on commercially reasonable terms, may, at the option of the Managing
Member and without an obligation to do so, be contributed by the
Managing Member as additional Capital Contributions.
(ii) The Managing Member shall contribute to the
capital of the Company each year, at the time distributions will be
made in accordance with Section 5.1, an amount of cash equal to the
excess, if any, of the amount described in Section 5.1(a) and Section
5.1 (b) at such time over the amount of Available Cash at such time.
(c) Return of Capital Contributions. Except as otherwise
expressly provided herein, the Capital Contribution of each Member will be
returned to that Member only in the manner and to the extent provided in Article
V and Article XIII hereof, and no Member may withdraw from the Company or
otherwise have any right to demand or receive the return of its Capital
Contribution to the Company (as such), except as specifically provided herein.
Under circumstances requiring a return of any Capital Contribution, no Member
shall have the right to receive property other than cash, except as specifically
provided herein. No Member shall be entitled to interest on any Capital
Contribution or Capital Account notwithstanding any disproportion therein as
between the Members. Except as specifically provided herein, the
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Managing Member shall not be personally liable for the return of any portion of
the Capital Contribution of any Member, and the return of such Capital
Contributions shall be made solely from Company assets.
(d) Liability of Members. No Member shall have any personal
liability to contribute money to, or in respect of, the liabilities or the
obligations of the Company, nor shall any Member be personally liable for any
obligations of the Company. No Member shall be required to make any
contributions to the capital of the Company other than its Capital Contribution
or to restore a negative balance in its Capital Account or otherwise.
Section 4.2 No Preemptive Rights. Except as specifically provided in
this Agreement no Person shall have any preemptive, preferential or other
similar right with respect to (a) additional Capital Contributions or loans to
the Company or (b) issuance or sale of any Membership Interests.
Section 4.3 Capital Accounts of the Members.
(a) General. The Company shall maintain for each Member a
separate Capital Account in accordance with the rules of Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions made by such Member to the Company pursuant to this
Agreement and (ii) all items of company income and gain (including income and
gain exempt from tax) computed in accordance with Section 4.3(b) hereof and
allocated to such Member pursuant to Sections 6.1 and 6.2 of this Agreement and
decreased by (x) the amount of cash or Agreed Value of all actual and deemed
distributions of cash or property made to such Member pursuant to this Agreement
and (y) all items of Company deduction and loss computed in accordance with
Section 4.3(b) hereof and allocated to such Member pursuant to Section 6.1 and
6.2 of this Agreement.
(b) Income, Gains, Deductions, and Losses. For purposes of
computing the amount of any item of income, gain, loss or deduction to be
reflected in the Members' Capital Accounts, unless otherwise specified in this
Agreement, the determination, recognition and classification of any such item
shall be the same as its determination, recognition and classification for
federal income tax purposes determined in accordance with Section 703(a) of the
Code (for this purpose all items of income, gain, loss or deduction required to
be stated separately pursuant to Section 703(a)(1) of the Code shall be included
in taxable income or loss), with the following adjustments:
(1) Except as otherwise provided in Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Company; provided, that the amounts of any
adjustments to the adjusted bases of the assets of the Company made pursuant to
Section 734 of the Code as a result of the distribution of property by the
Company to a Member (to the extent that such adjustments have not previously
been reflected in the Members' Capital Accounts) shall be reflected in the
Capital Accounts of the Members in the manner and subject to the limitations
prescribed in Regulation Section 1.704-1(b)(2)(iv)(m).
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(2) The computation of all items of income, gain,
loss and deduction shall be made without regard to the fact that items described
in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not includible in gross
income or are neither currently deductible nor capitalized for federal income
tax purposes.
(3) Any income, gain or loss attributable to the
taxable disposition of any Company property shall be determined as if the
adjusted basis of such property as of such date of disposition were equal in
amount to the Company's Carrying Value, with respect to such property as of such
date.
(4) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such fiscal
year.
(5) In the event the Carrying Value of any Company
asset is adjusted pursuant to Section 4.3(d) hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the disposition of
such asset.
(6) Any items specially allocated under Section 6.3
hereof shall not be taken into account.
(c) Transfer of Member Interests. A transferee of a Member
Interest shall succeed to a pro rata portion of the Capital Account of the
transferor.
(d) Unrealized Gains and Losses.
(1) Consistent with the provisions of Regulation
Section 1.704-1(b)(2)(iv)(f), and as provided in Section 4.3(d)(2), the Carrying
Values of all Company assets shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Company property, as of
the times of the adjustments provided in Section 4.3(d)(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property and allocated pursuant to Section 6.1 of this Agreement.
(2) Such adjustments shall be made as of the
following times: (i) immediately prior to the acquisition of an additional
interest in the Company by any new or existing Member in exchange for more than
a deminimis Capital Contribution; (ii) immediately prior to the distribution by
the Company to a Member of more than a deminimis amount of property as
consideration for an interest in the Company; and (iii) immediately prior to the
liquidation of the Company or the Managing Member's interest in the Company
within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g).
(3) In accordance with Regulation Section
1.704-1(b)(2)(iv)(e), the Carrying Value of Company assets distributed in kind
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Company property, as of the time any such
asset is distributed.
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(4) In determining such Unrealized Gain or Unrealized
Loss the aggregate cash amount and fair market value of all Company assets
(including cash or cash equivalent) shall be determined by the Managing Member
using such fair and reasonable method of valuation as it may adopt or in the
case of a liquidating distribution pursuant to Article XIII of this Agreement,
be determined and allocated by the Liquidator using such reasonable methods of
valuation as it may adopt. The Managing Member, or the Liquidator, as the case
may be, shall allocate such aggregate value among the assets of the Company (in
such fair and reasonable manner as it determines to arrive at fair market value
for individual properties).
(e) Modification by Managing Member. The provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulation Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distribution. On the
last Business Day of December of each fiscal year, the Company shall distribute
Available Cash generated by the Company during the preceding twelve month
period, together with the amount of cash described in Section 4.1(b)(ii), in the
following order of priority:
(a) First, to the Class A Members, pro rata, to the
extent of the balance in each Class A Member's Preferred
Distribution Account;
(b) Next, to the Class B Members, pro rata, to the
extent of the balance in each Class B Member's Preferred
Distribution Account; and
(c) Next, the balance if any, pro rata, to the Class
C Members in accordance with their Percentage Interests.
Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code
or any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to the Managing Member, or
any other Members or Assignees shall be promptly paid, solely out of funds of
the Company, by the Managing Member to the appropriate taxing authority and
treated as amounts distributed to the Managing Member or such Members, or
Assignees pursuant to Section 5.1 for all purposes under this Agreement.
Section 5.3 Distribution Upon Liquidation. Proceeds from a Liquidating
Transaction shall be distributed to the Members in accordance with Section 13.2.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Members
among themselves, the Company's items of income, gain, loss and deduction
(computed in accordance with Section 4.3
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hereof) shall be allocated among the Members for each taxable year (or portion
thereof) as provided herein below.
(a) Net Income. After giving effect to the, special
allocations set forth in Section 6.2 below, Net Income shall be allocated:
(i) First, to the Class C Members to the extent that,
on a cumulative basis, Net Losses previously allocated to the
Class C Members pursuant to Section 6.1(b) exceed Net Income
previously allocated to the Class C Members pursuant to this
Section 6.1(a);
(ii) Second, to the Class A Members, pro rata, in an
amount equal to their Preferred Allocation Account and to the
Class B Members, pro rata, in an amount equal to their
Preferred Allocation Account.
(iii) Third, to the Class C Members, pro rata, in
accordance with their Percentage Interests.
(b) Net Losses. After giving effect to the special allocations
set forth in Section 6.2 below, Net Losses shall be allocated:
(i) First to the Class C Members to the extent of any
prior allocation of Net Income pursuant to Section 6.1 (a);
(ii) Second, to the Class C Members until the balance
of the Capital Accounts of the Class B Members shall equal
zero;
(iii) Third, to the Class C Members in accordance
with their Percentage Interests.
(c) Nonrecourse Liabilities. For purposes of Regulation
Section 1.752-3(a)(3), the Members agree that excess Nonrecourse Liabilities of
the Company shall be allocated to the Members in accordance with their
Percentage Interests. Notwithstanding the foregoing, the Managing Member agrees
to use its reasonable efforts consistent with the business plan of the Company
to keep sufficient indebtedness outstanding encumbering the assets of the
Company to maintain the present allocation and ratio of such indebtedness among
the Members for Federal income tax purposes.
(d) Gains. Any gains allocated to the Members upon the sale or
other taxable disposition of any Company asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to Section
6.2 below, be characterized as Recapture Income in the same proportions and to
the same extent as such Members have been allocated any deduction directly or
indirectly giving rise to the treatment of such gains as Recapture Income
pursuant to the principles of Regulation Sections 1.1245-1(e) and 1.1250-1(f).
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Section 6.2 Special Allocation Rules. Notwithstanding any other
provision of the Agreement, the following special allocations shall be made in
the following order:
(a) Minimum Gain Chargeback. Notwithstanding any other
provisions of Article VI, if there is a net decrease in Company Minimum Gain
during any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years) in
an amount equal to such Member's share of the net decrease in Company Minimum
Gain, as determined under Regulation Section 1.704-2(g). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Regulation Section
1.704-2(f)(6). This Section 6.2 is intended to comply with the minimum gain
chargeback requirements in Regulation Section 1.704-2(f) and for purposes of
this Section 6.2(a) only, each Member's Adjusted Capital Account Deficit shall
be determined prior to any other allocations pursuant to Section 6.1 of the
Agreement with respect to such fiscal year and without regard to any decreasing
Member Minimum Gain during such fiscal year.
(b) Member Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2(a) hereof), if there is a net
decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt during
any Company fiscal year, each Member who has a share of the Member Minimum Gain
attributable to such Member Non-recourse Debt determined in accordance with
Regulation Section 1.704-2(i)(5), shall be specially allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Member's share of the net decrease in Member Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Regulation Section 1.704-2(i)(5). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulation Section 1.704-2(i)(4). This Section
6.2(b) is intended to comply with the minimum gain chargeback requirement in
such Section of the Regulation, and shall be interpreted consistently therewith.
Solely for purposes of this Section 6.2(b) each Member's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant to
Article VI with respect to such fiscal year, other than allocations pursuant to
Section 6.2(a) hereof,
(c) Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations or distributions described in
Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 6.2(a) and 6.2(b) hereof, such Member has an Adjusted Capital
Account Deficit, items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit created by
such adjustments, allocations or distributions as quickly as possible.
(d) [Intentionally Left Blank]
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(e) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Nonrecourse Debt to
which such Member Nonrecourse Deductions are attributable in accordance with
Regulation Section 1.704-2(i)(2).
(f) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment decreases the basis of the asset) or loss (if
the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
Section 6.3 Allocation for Tax Purposes.
(a) General. Except as otherwise provided in this Section 6.3,
for federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Members in the same manner as its correlative item
of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.1
and 6.2 of this Agreement.
(b) To Eliminate Book-Tax Disparities. In an attempt to
eliminate Book-Tax Disparities attributable to a Contributed Property or
Adjusted Property, items of income, gain, loss, and deduction shall be allocated
for federal income tax purposes among the Members using the remedial method
described in Regulation Section 1.704-3(d).
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
(a) Powers of Managing Member. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Company are exclusively vested in the Managing Member, and no other
Member shall have any right to participate in or exercise control or management
power over the business and affairs of the Company in its capacity as a Member.
(b) No Approval Required for Powers. Except as set forth
herein, each of the Members agrees that the Managing Member is authorized to
execute, deliver and perform agreements and transactions on behalf of the
Company without any further act, approval or vote of the Members.
(c) Insurance. At all times from and after the date hereof,
the Managing Member may cause the Company to obtain and maintain casualty,
liability and other insurance on the properties of the Company and liability
insurance for the Indemnitees hereunder,
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(d) Reserves. At all times from and after the date hereof, the
Managing Member may cause the Company to establish and maintain reserves
(including any reserves required by the terms of any management agreement
relating to any Company property) in such amounts as the Managing Member in its
sole and absolute discretion, deems appropriate and reasonable from time to
time.
Section 7.2 Certificate of Formation. To the extent that such action is
determined by the Managing Member to be reasonable and necessary or appropriate,
the Managing Member shall file amendments to and restatements of the Certificate
of Formation and do all the things to maintain the Company as a limited
liability company (or other entity in which the Members have limited liability)
under the laws of the State of Delaware and each other jurisdiction in which the
Company may elect to do business or own property. Within five Business Days
after filing, the Managing Member will deliver or mail a copy of the Certificate
of Formation, as it may be amended or restated from time to time, to each
Member. The Managing Member shall use all reasonable efforts to cause to be
filed such other certificates or documents as may be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited liability company (or other entity in which the Members have limited
liability) in the State of Florida and any other jurisdiction in which the
Company may elect to do business or own property.
Section 7.3 Restriction on Managing Member's Authority. The Managing
Member may not, without Member Consent, take any action in contravention of this
Agreement including, without limitation:
(a) take any action that would make it impossible to carry on
the ordinary business of the Company, except as expressly provided elsewhere in
this Agreement;
(b) possess Company property, or assign any rights in specific
Company property, for other than a Company purpose except as otherwise provided
in this Agreement;
(c) admit a Person as a Member, except otherwise provided in
this Agreement; or
(d) sell or approve the sale of property in which the Company
has a direct or indirect interest, in a taxable transaction, until the earlier
of (i) five (5) years from the date the property met the Completion Date; or
(ii) the death of Robert C. Rohdie. Notwithstanding any provision of this
Agreement to the contrary, the Managing Member shall not be required to obtain
Member Consent of sales of property having a value of less than $1,000,000 or
pursuant to a condemnation or threat thereof.
(e) The Members acknowledge that the Managing Member may admit
additional members into any subsidiary entity owned by the Company provided that
the admittance of such member is not a sale and is not taxable to the Company or
the Members.
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Section 7.4 Responsibility for Expenses.
(a) No Compensation. Except as provided in this Section 7.4
and elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments, and allocations to which it may be entitled),
the Managing Member shall not be compensated for its services as Managing Member
of the Company.
(b) Responsibility for Ownership and Operation Expenses. The
Company shall be responsible for and shall pay all expenses relating to the
Company's ownership of its assets, and the operation of, or for the benefit of,
the Company. The Managing Member shall be reimbursed on a monthly basis, or such
other basis as the Managing Member may determine in its sole and absolute
discretion, for all expenses it incurs relating to the Company's ownership of
its assets and the operation of, or for the benefit of, the Company. Such
reimbursements shall be in addition to any reimbursement to the Managing Member
as a result of indemnification pursuant to Section 7.7 hereof.
Section 7.5 Outside Activities of the Managing Member. Nothing herein
contained shall prevent or prohibit the Managing Member or any employee or other
Affiliate of the Managing Member from entering into, engaging in or conducting
any other activity or performing for a fee any service including (without
limiting the generality of the foregoing) engaging in any business dealing with
real property of any type or location, including, without limitation, property
of a type similar to those properties owned by the Company, its Subsidiaries,
and/or its Affiliates or any other Person in which the Company has an equity
investment; acting as a director, officer or employee of any corporation, as a
trustee of any trust, as a general partner of any partnership, or as an
administrative official of any other business entity; or receiving compensation
for services to, or participating in profits derived from, the investments of
any such corporation, trust, partnership or other entity, regardless of whether
such activities are competitive with the Company, and nothing herein shall
require the Managing Member or any employee or Affiliate thereof to offer any
interest in such activities to the Company or any Member.
Section 7.6 Contracts with Affiliates. Except as contemplated herein,
neither the Managing Member nor any of its Affiliates shall (i) sell, transfer
or convey any property to, or purchase any property from, the Company, directly
or indirectly, or (ii) enter into any agreement for the provision of services to
the Company, except in both such cases, pursuant to transactions or agreements
that are on terms that are fair and reasonable to the Company and on terms no
less favorable to the Company than those which could be obtained from
unaffiliated third parties. In entering into such transactions with Affiliates,
the Managing Member shall not allocate expenses and similar items
disproportionately between the Managing Member and the Company.
Section 7.7 Indemnification.
(a) General. The Company shall indemnify each Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate
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to the Company in which any Indemnitee may be involved, or is threatened to be
involve as a party or otherwise, unless it is established that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty; (ii) the Indemnitee actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. The termination of any proceeding by judgment, order
or settlement does not create a presumption that the Indemnitee did not meet the
requisite standard of conduct set forth in this Section 7.7(a). The termination
of any proceeding by conviction or upon a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment creates a
rebuttable presumption that the Indemnitee acted in a manner contrary to that
specified in this Section 7.7(a). Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Company.
(b) In Advance of Final Disposition. Reasonable expenses
incurred by an Indemnitee who is a party to a proceeding may be paid or
reimbursed by the Company in advance of the final disposition of the proceeding
upon receipt by the Company of (i) a written affirmation by the Indemnitee of
the Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Company as authorized in this Section 7.7 has been met;
and (ii) a written undertaking by or on behalf of the Indemnitee to repay the
amount if it shall ultimately be determined that the standard of conduct has not
been met.
(c) Other Than by This Section. The indemnification provided
by this Section 7.7 shall be in addition to any other rights to which an
Indemnitee or any other Person may be entitled under any agreement, pursuant to
any vote of the Members, as a matter of law or otherwise, and shall continue as
to an Indemnitee who has ceased to serve in such capacity.
(d) Insurance. The Company may purchase and maintain
insurance, on behalf of the Indemnitees and such other Persons as the Managing
Member shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the Company's
activities, regardless of whether the Company would have the power to indemnify
such Person against such liability under the provisions of this Agreement.
(e) No Personal Liability for Members. In no event may an
Indemnitee subject the Members to personal liability by reason of the
indemnification provisions set forth in this Agreement.
(f) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
(g) Binding Effect. The provisions of this Section 7.7 are for
the benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit of
any other Persons.
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Section 7.8 Liability of the Managing Member.
(a) General. Notwithstanding anything to the contrary set
forth in this Agreement, the Managing Member shall not be liable for monetary
damages to the Company, any other Members or any Assignees for losses sustained
or liabilities incurred as a result of errors in judgment or of any act or
omission if the Managing Member acted in good faith; provided, however, that the
Managing Member shall be so liable to the Company for losses sustained or
liabilities incurred as a result of the Managing Member's gross negligence,
fraud or willful misconduct.
(b) No Obligation to Consider Interests of Members. The
Members expressly acknowledge that the Managing Member is acting on behalf of
the Company and the Managing Member collectively, that the Managing Member is
under no obligation to consider the separate interests of the other Members in
deciding whether to cause the Company to take (or decline to take) any actions
which the Managing Member has undertaken in good faith on behalf of the Company,
and that the Managing Member shall not be liable for monetary damages for losses
sustained, liabilities incurred, or benefits not derived by Members in
connection with such decisions. Nothing contained herein shall be deemed to
waive the Managing Member's obligation to act in good faith and with loyalty to
the Members.
(c) Acts of Agents. Subject to its obligations and duties as
Managing Member set forth in Section 7.1(a) hereof, the Managing Member may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents. The Managing Member shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by it in good faith.
(d) Effect of Amendment. Any amendment, modification or repeal
of this Section 7.8 or any provision hereof shall be prospective only and shall
not in any way affect the limitations on the Managing Member's liability to the
Company and the Members under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the Managing Member.
(a) Reliance on Documents. The Managing Member may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
(b) Reliance on Consultants and Advisers. The Managing Member
may consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisers selected by it, and any
act taken or omitted to be taken in reliance upon and in accordance with the
opinion of such Persons as to matters which such Managing Member reasonably
believes to be within such Person's professional or expert
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competence shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
(c) Action Through Officers and Attorneys. The Managing Member
shall have the right, in respect of any of its powers or obligations hereunder,
to act through any of its duly authorized officers and a duly appointed attorney
or attorneys-in-fact. Each such attorney shall, to the extent provided by the
Managing Member in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the Managing Member hereunder.
Section 7.10 Title to Company Assets. Title to Company assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Company as an entity, and no Member, individually or
collectively, shall have any ownership interest in such Company assets or any
portion thereof.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Company shall be
entitled to assume that the Managing Member has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the Company
and to enter into any contracts on behalf of the Company, and such Person shall
be entitled to deal with the Managing Member as if it were the Company's sole
party in interest, both legally and beneficially. Each Member hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the Managing Member in connection
with any such dealing. In no event shall any Person dealing with the Managing
Member or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the Managing Member or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Company by the Managing Member or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (a) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in fall force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Company and (c) such
certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Company.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF NON-MANAGING MEMBERS
Section 8.1 Management of Business. Except as otherwise expressly
provided herein, no Member or Assignee (other than the Managing Member, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the Managing Member, the Company or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Company's business, transact any business in the
Company's name or have the power to sign documents for or otherwise bind the
Company. The
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transaction of any such business by the Managing Member, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the Managing
Member, the Company or any of its Affiliates, in their capacity as such, shall
not affect, impair or eliminate the limitations on the liability of the Members
or Assignees in their capacities as such under this Agreement.
Section 8.2 Outside Activities of Members. Subject to any agreements
entered into by a Member or its Affiliates with the Managing Member, the Company
or a Subsidiary, the following rights shall govern outside activities of
Members: (a) any Member (other than the Managing Member) and any officer,
director, employee, agent, trustee, Affiliate, partner, member, beneficiary or
shareholder of any such Member shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Company, including business interests and activities in direct competition with
the Company, the Managing Member or their Affiliates; (b) neither the Company
nor any Members shall have any rights by virtue of this Agreement in any
business ventures of any Member or Assignee; (c) none of the Members nor any
other Person shall have any rights by virtue of this Agreement or the Company
relationship established hereby in any business ventures of any other Person,
and such Person shall have no obligation pursuant to this Agreement, to offer
any interest in any such business ventures to the Company, any Member or any
such other Person, even if such opportunity is of a character which, if
presented to the Company, any Member or such other Person, could be taken by
such Person; (d) the fact that a Member may encounter opportunities to purchase,
otherwise acquire, lease, sell or otherwise dispose of real or personal property
and may take advantage of such opportunities himself or introduce such
opportunities to entities in which it has or has not any interest shall not
subject such Member to liability to the Company or any of the other Members on
account of the lost opportunity, and (e) except as otherwise specifically
provided herein, nothing contained in this Agreement shall be deemed to prohibit
a Member or any Affiliate of a Member from dealing or otherwise engaging in
business, with Persons transacting business with the Company or from providing
services relating directly or indirectly to the purchase, sale, rental,
management or operation of real or personal property (including real estate,
brokerage services) and receiving compensation therefor, from any Persons who
have transacted business with the Company or other third parties.
Section 8.3 Priority Among Members. Except as expressly provided in
this Agreement (including the Exhibits hereto), no Member or Assignee shall have
priority over any other Member or Assignee as to the return of Capital
Contributions or, except to the extent provided by Sections 6.2 or 6.3 hereof,
or otherwise expressly provided in this Agreement as to profits, losses or
distributions.
Section 8.4 Rights of Members Relating to the Company. In addition to
other rights provided by this Agreement or by the Act, each Member shall be
provided the following without demand, except as otherwise provided below, at
the Company's expense:
(1) promptly after becoming available, a copy of the
Company's federal state and local income tax returns for each Fiscal Year,
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(2) upon demand and for a purpose reasonably related
to such Member's interest as a Member in the Company, a current list of the name
and last known business, residence or mailing address of each Member;
(3) a copy of this Agreement and the Certificate of
Formation and all amendments hereto and thereto, together with executed copies
of all powers of attorney pursuant to which this Agreement, the Certificate of
Formation and all amendments hereto and thereto have been executed; and
(4) upon demand, true and full information regarding
the amount of cash and a description and statement of any other property or
services contributed by each Member and which each Member has agreed to
contribute in the future, and the date on which each became a Member.
Section 8.5 ERISA Matters. Each of the Members hereby covenants that it
will conduct its operations and limit its ownership such that such party will
not be deemed to hold "plan assets" within the meaning of 29 C.F.R. Section
2510.3-101 or otherwise under the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.
(a) The Managing Member shall keep or cause to be kept at the
principal office of the Company appropriate books and records with respect to
the Company's business, including, without limitation, all books and records
necessary to provide to the Members any information, lists and copies of
documents required to be provided pursuant to Sections 8.4 or 9.3 hereof. Any
records maintained by or on behalf of the Company in the regular course of its
business may be kept on, or be in the form of, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the
records so maintained are convertible into clearly legible written form within a
reasonable period of time. The books of the Company shall be maintained for
financial purposes on an accrual basis in accordance with generally accepted
accounting principles and for tax reporting purposes on the accrual basis.
(b) Each Member shall have the right, upon reasonable request,
to inspect and copy during normal business hours, at such Member's expense, any
of the Company's records and to obtain a copy of the Company's Federal, state,
and local income tax or information returns for each year.
Section 9.2 Fiscal Year. The fiscal year of the Company shall be the
calendar year.
Section 9.3 Annual Reports. As soon as practicable, but in no event
later than March 31 of each year, the Managing Member shall cause to be mailed
to each Member as of the close of the Fiscal Year, an annual report containing
financial statements of the Company presented in
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accordance with generally accepted accounting principles consistently applied,
audited by a nationally recognized firm of independent public accountants.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The Managing Member shall
arrange for the preparation and timely filing of all returns of Company income,
gains, deductions, losses and other items required of the Company for federal
and state income tax purposes and shall use all reasonable efforts to furnish,
within 90 days of the close of each taxable year, the tax information required
and such other tax information reasonably requested by Members for federal and
state income tax reporting purposes and a copy of the Company's tax return.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
Managing Member shall, in its reasonable discretion, determine whether to make
any available election pursuant to the Code based upon the Managing Members
determination as to whether such election is in the best interests of the
Members; provided, however, that the Managing Member shall make the election
under Section 754 of the Code in accordance with applicable regulations
thereunder and shall do so effective for its first taxable year if so requested
by a Member or if the Managing Member determines such election to be in its
interests.
Section 10.3 Tax Matters Partner.
(a) General. The Managing Member shall be the "Tax Matters
Partner" of the Company for federal income tax purposes. Pursuant to Section
6223(c) of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Company, the Tax Matters Partner
shall provide the Members notice of such receipt and shall furnish the IRS with
the name, address and profit interest of each of the Members; provided, however,
that such information is provided to the Company by the Members.
(b) Powers. The Tax Matters Partner is authorized upon prior
written consent of the Members, but not required:
(1) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings for the adjustment of
Company items required to be taken into account by a Member for income tax
purposes (such administrative proceedings being referred to as a "tax audit" and
such judicial proceedings being referred to as "judicial review"), and in the
settlement agreement the Tax Matters Partner may expressly state that such
agreement shall bind all Members, except that such settlement agreement shall
not bind any Member (i) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the Tax Matters
Partner shall not have the authority to enter into a settlement agreement on
behalf of such Member or (ii) who is a "notice Member" (as defined in Section
6231 of the Code) or a member of a "notice group" (as defined in Section
6223(b)(2) of the
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Code), and, to the extent provided by law, the Managing Member shall cause each
Member to be designated a notice Member;
(2) in the event that a notice of a final
administrative adjustment at the Company level of any item required to be taken
into account by a Member for tax purposes (a "final adjustment") is mailed or
otherwise given to the Tax Matters Partner, to seek judicial review of such
final adjustment, including the filing of a petition for readjustment with the
Tax Court or the United States Claims Court, or the filing of a complaint for
refund with the District Court of the United States for the district in which
the Company's principal place of business is located;
(3) to intervene in any action brought by any other
Member for judicial review of a final adjustment;
(4) to file a request for an administrative
adjustment with the IRS at any time and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading (petition, complaint or
other document) for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend
the period for assessing any tax which is attributable to any item required to
be taken into account by a Member for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Members
of the Company in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by
the Tax Matters Partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
Tax Matters Partner, and the provisions relating to indemnification of the
Managing Member set forth in Section 7.7 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such.
(c) Tax Returns. The Tax Matters Partner shall, upon the
request of any Member, provide such Member with copies of any tax returns,
elections, or any returns or documents to be filed with the IRS at least ten
business days prior to the date such filing is required.
(d) Reimbursement. The Tax Matters Partner shall receive no
compensation for its services. All third-party costs and expenses incurred by
the Tax Matters Partner in performing its duties as such (including legal and
accounting fees) shall be borne by the Company. Nothing herein shall be
construed to restrict the Company from engaging an accounting firm and a law
firm to assist the Tax Matters Partner in discharging his duties hereunder, so
long as the compensation paid by the Company for such services is reasonable.
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Section 10.4 Organizational Expenses. The Company shall elect to deduct
expenses, if any, incurred by it in organizing the Company ratably over a sixty
(60) month period as provided in Section 709 of the Code.
Section 10.5 Withholding. Each Member hereby authorizes the Company to
withhold from or pay on behalf of or with respect to such Member any amount of
federal, state, local, or foreign taxes that the Company is required to withhold
or pay with respect to any amount distributable or allocable to such Member
pursuant to this Agreement including, without limitation, any taxes required to
be withheld or paid by the Company pursuant to Section 1441, 1442, 1445, or 1446
of the Code. Any such amount paid on behalf of or with respect to a Member shall
constitute a loan by the Company to such Member, which loan shall be repaid by
such Member within 15 days after notice from the Managing Member that such
payment must be made unless (a) the Company withholds such payment from a
distribution which would otherwise be made to the Member or (b) the Managing
Member determines, in its sole and absolute discretion, that such payment may be
satisfied out of the available funds of the Company which would, but for such
payment, be distributed to the Member. Any amounts withheld pursuant to the
foregoing clauses (a) or (b) shall be treated as having been distributed to such
Member and shall be promptly paid, solely out of funds of the Company, by the
Managing Member to the appropriate taxing authority.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
(a) Definition. The term "transfer " when used in this Article
XI with respect to a Member Interest shall be deemed to refer to a transaction
by which the Member purports to assign its Member Interest to another Person,
and includes a sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise. The term
"transfer" when used in this does not include any conversion of all or a portion
of a Class A Member Interest pursuant to Section 11.7 hereof.
(b) Requirements. No Member Interest shall be transferred, in
whole or in part, except in accordance, with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Member Interest not
made in accordance with this Article XI shall be null and void.
Section 11.2 Transfer of Class C Units. At any time and from time to
time after the date which is one (1) year after the date of this Agreement, the
Managing Member may freely transfer any of its Class C Member Units or withdraw
as Managing Member; provided, however, that for a period of five (5) years from
the date of this Agreement the Managing Member shall be prohibited from
transferring any of its Class C Member Units if such transfer results in a
termination of the Company for Federal income tax purposes pursuant to Code
Section 708(b). Notwithstanding the foregoing, the Managing Member may, from and
after the date of this Agreement, freely transfer any of its Class C Member
Units to a wholly owned subsidiary of the
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Managing Member or to an Affiliate of the Managing Member. Any transfer or
purported transfer of the Managing Member's Class C Member Units not made in
accordance with this Section 11.2 shall be null and void. Notwithstanding any
permitted transfer of its Class C Member Units or withdrawal as Managing Member
hereunder, the Managing Member shall remain subject to Section 7.7, Section 7.8
and Section 12.1 of this Agreement unless such transferee Managing Member
provides substantially similar rights to the other Members and the other Members
expressly approve such rights in writing. Nothing contained in this Section 11.2
shall entitle the Managing Member to withdraw as Managing Member unless a
successor Managing Member has been appointed and approved by the other Members.
Section 11.3 Non-Managing Members' Rights to Transfer.
(a) General. Member Interests owned by Members other than the
Managing Member may be freely transferred. In order to effect any transfer under
this Section 11.3 the transferring Member must deliver to the Managing Member a
duly executed copy of the instrument making such transfer and such instrument
must evidence the written acceptance, by the assignee of all of the terms and
conditions of this Agreement and represent that such assignment was made in
accordance with all applicable Laws and regulations.
(b) Incapacitated Members. If a Member is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Member's estate shall have all the rights of a
Member, but not more rights than those enjoyed by other Members for the purpose
of settling or managing the estate and such power as the Incapacitated Member
possessed to transfer all or any part of his or its interest in the Company. The
Incapacity of a Member, in and of itself, shall not dissolve or terminate the
Company.
(c) Transfers Causing Termination. Regardless of whether the
Managing Member is required to provide or has provided its consent under Section
11.3(a), no transfer of any Member Interests shall be effective if such transfer
would, in the opinion of counsel for the Company, result in the termination of
the Company for federal income tax purposes, in which event such transfer shall
be made effective as of the first fiscal quarter in which such termination would
not occur, if the Member making such transfer continues to desire to effect the
transfer. The foregoing sentence shall only apply if the Managing Member
reasonably determines that such termination will have a material adverse effect
on the Company or any Member and shall not apply to transfers of Class C Member
Units by the Managing Member after the fifth anniversary of the date of this
Agreement.
Section 11.4 Substituted Members.
(a) Substitution of Transferee. A Member shall have the right
to substitute a transferee as a Member in his place but only if such transferee
is a permitted transferee under Section 11.3, in which event such substitution
shall occur if the Member so provides.
(b) Rights and Duties of Substituted Members. A transferee who
has been admitted as a Substituted Member in accordance with this Article XI
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Member under this Agreement.
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(c) Amendment of Exhibit A. Upon the admission of a
Substituted Member, the Managing Member shall amend Exhibit A to reflect the
name, address, the class of Member Interest and the Percentage Interest of such
Substituted Member and to eliminate or adjust if necessary, the name, address
and interest of the predecessor of such Substituted Member.
Section 11.5 Assignees. If a transferee under Section 11.4(a) is not a
Substituted Member, such transferee shall be considered an Assignee for purposes
of this Agreement. An Assignee shall be entitled to all the rights of an
assignee of a membership interest under the Act, the right to receive
distributions from the Company and the share of Net Income, Net Losses, gain,
loss and Recapture Income attributable to the Member Interests assigned to such
transferee, but shall not be, deemed to a holder of a Member Interest for any
other purpose under this Agreement and shall not be entitled to vote such Member
Interest in any manner presented to the Members for a vote (such Member Interest
being deemed to have been voted on such matter in the same proportion as all
Member Interests held by Members are voted). In the event any such transferee
desires to make a further assignment of any such Member Interest, such
transferee shall be subject to all the provisions of this Article XI to the same
extent and in the same manner as any Member desiring to make an assignment of
Member Interest.
Section 11.6 General Provisions.
(a) Withdrawal of Member. No Member may withdraw from the
Company other than as a result of a permitted transfer of all of such Member's
Interest in accordance with this Article XI.
(b) Transfer of All Units by Member. Any Member who shall
transfer all of his Member Interest in a transfer permitted pursuant to this
Article XI shall cease to be a Member.
(c) Timing of Transfers. Transfers pursuant to this Article XI
may only be made on the first day of a calendar month, unless the Managing
Member otherwise agrees.
(d) Allocation When Transfer Occurs. If any Member Interest is
transferred during any quarterly segment of the Company's fiscal year in
compliance with the provisions of this Article XI, Net Income, Net Losses, each
item thereof and all other items attributable to such interest for such fiscal
year shall be divided and allocated between the transferor Member and the
transferee Member by taking into account their varying interests during the
fiscal year in accordance with Section 706(d) of the Code, using the interim
closing of the books method. Solely for purposes of making such allocations,
each of such items for the calendar month in which the transfer or conversion
occurs shall be allocated to the Person who is a Member as of midnight on the
last day of said month. All distributions of Available Cash with respect to
which the Company Record Date is before the date of such transfer or conversion
shall be made to the transferor Member, and all distributions of Available Cash
thereafter shall be made to the transferee Member.
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Section 11.7 Conversion Rights of the Class A Members.
(a) Delivery of Conversion Notices. Any one or more Class A
Members may, subject to the limitations set forth in this Section 11.7, deliver
to the Managing Member written notice(s) (the "Exercise Notice(s)") that such
Class A Member elects to exercise the conversion right set forth in this Section
11.7 with respect to all of its Class A Member Units. The Exercise Notice shall
specify the specific number of Class A Member Units that the Class A Member
intends to convert into Preferred REIT Shares or into cash; provided, however,
that a Class A Member may not elect to convert its Class A Member Units into
cash until a date that is at least six (6) years from the date hereof. Once
delivered, the Exercise Notice shall be irrevocable, subject to payment by the
Managing Member of Preferred REIT Shares and/or cash in respect of such Class A
Member Units in accordance with the terms hereof.
(b) Limitation on Exercise of Conversion Rights. The
conversion right of the Class A Members may be exercised at any time and from
time to time after the date which is one (1) year after the date of this
Agreement, subject to the following limitations:
(i) A Class A Member shall not have the right to
exercise its conversion right hereunder into Preferred REIT
Shares but shall be paid in cash for its Class A Member Units
as hereinafter set forth if, in the opinion of counsel
selected by the Managing Member, in its sole and absolute
discretion, such exercise and/or issuance of any Preferred
REIT Shares may or would (A) violate the Managing Member's
Articles of Incorporation, as amended from time to time, (B)
cause the Managing Member to fail any one or more of the REIT
Requirements or (C) constitute a violation of applicable
securities laws; and
(ii) The conversion rights of the Class A Members
shall be subject to a Registration Rights Agreement (attached
hereto as Exhibit C-1) which shall (A) include a one time
demand right and piggyback registration rights and (B) provide
for the reimbursement of such Class A Member's fair share of
expenses.
(c) Computation of Number of Preferred REIT Shares or Amount
of Cash.
(i) A Class A Member shall be entitled to convert its
Class A Member Units, increased by the amount of Class A
Member Units it would receive if the Class D Member Units
owned by such Member had been converted in part into Class A
Member Units pursuant to Section 11.9, into the amount of
Preferred Common REIT Shares equal to the product of (A) the
number of Class A Units held by such Member plus the amount of
Class A Member Units it would receive if the Class D Member
Units owned by such Member had been converted into Class A
Member Units, and (B) the quotient of (i) 10, divided by (ii)
the liquidation preference of a Preferred REIT Share.
Notwithstanding the foregoing, if and to the extent the Class
A Member is entitled to a Preferred Return of 10% per annum at
the time of conversion with respect to all or a portion of its
Class A Member Units and if the Preferred REIT Shares to be
issued pursuant hereto to
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the Class A Member have a dividend rate of less than 10%, then
the Class A Member shall be issued that number of Preferred
REIT Shares so that its cumulative annual dividend will be
equal to the Preferred Return previously received with respect
to such Class A Member Units; provided, however, if the
Preferred REIT Shares have a dividend rate of 8% or less at
the time of conversion, the Preferred REIT Shares shall be
deemed for purposes hereof to have a dividend rate of 8%.
Notwithstanding the foregoing, if and to the extent the Class
A Member is entitled to a Preferred Return of less than 10%
per annum with respect to all or a portion of its Class A
Member Units, then the Class A Member shall be issued that
number of Preferred REIT Shares so that its cumulative annual
dividend will be equal to the Preferred Return previously
received with respect to such Class A Member Units; provided,
however, if the Preferred REIT Shares have a dividend rate of
10% or more, the Preferred REIT Shares shall be deemed for
purposes hereof to have a dividend rate of 10%.
(ii) If any fraction of a Preferred REIT Share would,
except for the provisions of this Section 11.7(c), be issuable
on the conversion of any Class A Member Units (or specified
portion thereof), the Managing Member shall pay an amount in
cash equal to the Value (determined as of the trading day
immediately preceding the date upon the closing of the
conversion is to occur), multiplied by such fraction.
(iii) Notwithstanding anything to the contrary
herein, the Managing Member shall have the right, in lieu of
issuing Preferred REIT Shares to the Class A Member, to pay
cash to the Class A Member. If the Class A Member is entitled
to receive cash on conversion pursuant to this Section 11.7,
the Class A Member shall receive cash in an amount equal to
the aggregate liquidation preference of the Preferred REIT
Shares that would be issued to the Class A Member if the Class
A Member had converted into Preferred REIT Shares pursuant to
this Section 11.7 plus accrued and unpaid dividends. If the
Managing Member elects or is required to pay cash to the Class
A Member pursuant to this Section 11.7, such cash shall be
paid 25% ninety (90) after the closing described in subsection
(d) below, 25% on the one year anniversary thereof, 25% of the
two year anniversary thereof and the balance thereof on the
three year anniversary thereof, in each case with all interest
accrued and unpaid to date on such amounts determined at the
rate then applicable to the Preferred REIT Shares. Interest
shall be payable annually on each anniversary thereof until
the balance is paid in full.
(iv) In the event that Preferred REIT Shares are not
in existence at the time that the Conversion Notice is
delivered, the Managing Member shall notify the Class A Member
within thirty (30) days of delivery of the Conversion Notice
whether the Managing Member elects to (1) pay to the Class A
Member cash in exchange for its Class A Membership Units as
aforesaid (assuming that the Preferred REIT Shares had the
terms and conditions of the preferred stock described in the
Certificate of Designation attached hereto as Exhibit E), or
(2)
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register within six (6) months from the date thereof Preferred
REIT Shares having substantially the terms and conditions of
the preferred stock described in the Certificate of
Designation attached hereto as Exhibit E. If the Managing
Member elects to register Preferred REIT Shares as aforesaid,
the Managing Member shall use reasonable efforts to consummate
such registration as promptly as possible within such six
month period, and, upon such registration, shall issue
Preferred REIT Shares to the Class A Member on the terms and
conditions set forth herein as if the Conversion Notice were
tendered on the date of such registration.
(v) If and when Preferred REIT Shares exist, the
Managing Member shall reserve an amount of such stock as
treasury shares as necessary to fulfill its obligations
hereunder.
(d) Closing; Delivery of Election Notice. The closing of the
conversion of the Class A Member Units shall, unless otherwise mutually agreed,
be held at the principal offices of the Managing Member, on the date agreed to
by the Managing Member and the exercising Class A Member, which date shall in no
event be later than: (i) ten (10) business days after the date of delivery of
the Exercise Notice to the Managing Member or (ii) the first date upon which all
legal and other conditions with respect to such conversion have been satisfied
(which shall include the expiration or termination of any applicable waiting
periods).
(e) Closing Deliveries. At the closing of the conversion of
the Class A Member Units, (i) the exercising Class A Members shall execute and
deliver (A) proper instruments of transfer and assignment of the applicable
Class A Member Units and (B) representations and warranties with respect to
their due authority to transfer all of the right, title and interest in and to
such Class A Member Units to the Managing Member and, with respect to the status
of the Class A Member Units, that such Class A Member Units are free and clear
of all liens, claims and encumbrances whatsoever, and (ii) the Managing Member
shall (A) if Preferred REIT Shares are to be issued, execute and deliver
representations and warranties with respect to its due authority to issue the
Preferred REIT Shares to be received in the conversion; and deliver a stock
certificate or certificates evidencing the Preferred REIT Shares to be issued
and registered in the name(s) of the Exercising Class A Member (s) or its or
their designee(s), and (B) if any cash is to be paid, deliver a check in the
amount of any cash due to the Exercising Class A Member (s) at such closing.
Section 11.8 Conversion Rights of the Class B Members.
(a) Delivery of Conversion Notices. Any one or more Class B
Members may, subject to the limitations set forth in this Section 11.8, deliver
to the Managing Member Exercise Notice(s) that such Class B Members elect to
exercise the conversion right set forth in this Section 11.8 with respect to all
or any portion of their Class B Member Units. The Exercise Notice shall specify
the specific number of Class B Member Units that the Class B Member intends to
convert into Common REIT Shares or into cash; provided, however, that a Class B
Member may not elect to convert its Class B Member Units into cash until a date
that is at least six (6) years from the date hereof. Once delivered, the
Exercise Notice shall be irrevocable,
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subject to payment by the Managing Member of Common REIT Shares and/or cash in
respect of such Class B Member Units in accordance with the terms hereof.
(b) Limitation on Exercise of Conversion Rights. The
conversion right of the Class B Members may be exercised at any time and from
time to time after the date which is one (1) year after the date of this
Agreement, subject to the following limitations:
(i) A Class B Member shall not have the right to
exercise its conversion right hereunder but shall be paid in
cash for its Class B Member Units as hereinafter set forth if,
in the opinion of counsel selected by the Managing Member, in
its sole and absolute discretion, such exercise and/or
issuance of any REIT Shares may or would (A) violate the
Managing Member's Articles of Incorporation, as amended from
time to time, (B) cause the Managing Member to fail any one or
more of the REIT Requirements or (C) constitute a violation of
applicable securities laws; and
(ii) The conversion rights of the Class B Members
shall be subject to a Registration Rights Agreement (attached
hereto as Exhibit C-2) which shall (A) include unlimited
demand rights and piggyback registration rights and (B)
provide for the reimbursement of such Class B Member's fair
share of expenses.
(c) Computation of Number of REIT Shares.
(i) A Class B Member shall be entitled to convert
each Class B Member Units then held by it, plus the amount of
Class B Member Units it would receive if the Class D Member
Units owned by such Member had been converted in part into
Class B Member Units pursuant to Section 11.9, into the amount
of Common REIT Shares equal to the product of (x) one, and (y)
the Unit Adjustment Factor.
(ii) If any fraction of a Common REIT Share would,
except for the provisions of this Section 11.8(c), be issuable
on the conversion of any Class B Member Units (or specified
portion thereof), the Managing Member shall pay an amount in
cash equal to the Value (determined as of the trading day
immediately preceding the date upon the closing of the
conversion is to occur), multiplied by such fraction.
(iii) The Managing Member shall reserve an amount of
Common REIT Shares as treasury shares as necessary to fulfill
its obligations hereunder.
(iv) Notwithstanding anything to the contrary herein,
if the Class B Member is entitled to cash under this Section
11.8, the Managing Member shall be required to pay cash to the
Class B Member in an amount equal to the product of the (i)
Value and (ii) the number of Common REIT Shares that would be
issued to the Class B Member but for the requirement to pay
cash. If the Managing
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Member is required to pay cash to the Class B Member pursuant
to this Section 11.8, such cash shall be paid 25% ninety (90)
after the closing described in subsection (d) below, 25% on
the one year anniversary thereof, 25% of the two year
anniversary thereof and the balance thereof on the three year
anniversary thereof, in each case with all interest accrued to
date on such amounts determined at the rate then applicable to
the Preferred REIT Shares.
(d) Closing; Delivery of Election Notice. The closing of the
conversion of the Class B Member Units shall, unless otherwise mutually agreed,
be held at the principal offices of the Managing Member, on the date agreed to
by the Managing Member and the exercising Class B Member, which date shall in no
event be later than: (i) ten (10) business days after the date of delivery of
the Exercise Notice to the Managing Member or (ii) the first date upon which all
legal and other conditions with respect to such conversion have been satisfied
(which shall include the expiration or termination of any applicable waiting
periods).
(e) Closing Deliveries. At the closing of the conversion of
the Class B Member Units, (i) the exercising Class B Members shall execute and
deliver (A) proper instruments of transfer and assignment of the applicable
Class B Member Units and (B) representations and warranties with respect to
their due authority to transfer all of the right, title and interest in and to
such Class B Member Units to the Managing Member and, with respect to the status
of the Class B Member Units, that such Class B Member Units are free and clear
of all liens, claims and encumbrances whatsoever, and (ii) the Managing Member
shall (A) if Common REIT Shares are to be issued, execute and deliver
representations and warranties with respect to its due authority to issue the
Common REIT Shares to be received in the conversion; and deliver a stock
certificate or certificates evidencing the Common REIT Shares to be issued and
registered in the name(s) of the Exercising Class B Member (s) or its or their
designee(s), and (B) if any cash is to be paid for any fraction of an Equivalent
Share Amount, deliver a check in the amount of any cash due to the Exercising
Class B Member (s) at such closing.
Section 11.9 Conversion Rights of the Class D Members. At the time the
Completion Date occurs with respect to each respective apartment property owned
by each of the entities set forth on Exhibit B, the Class D Member Units shall
automatically convert into the number of Class A Member Units and Class B Member
Units set forth on Exhibit B without any affirmative action by the Class D
Member holding such Class D Member Units. The Completion Date shall be deemed to
be the date such Class A Member Units and Class B Member Units are issued with
respect to the provisions of this Agreement, including, without limitation, the
definition of "Preferred REIT Share," "Preferred Return" and "Preferred
Distribution Account." Upon the date of such conversion, Exhibit A attached
hereto shall automatically be amended to reflect the issuance of the Class A
Member Units and Class B Member Units without any affirmative action by the
Class D Member. If there is a dispute between the Managing Member and the Class
D Member as to when the Completion Date occurs, the Class D Member or its
representative shall have the right to review the books and records of the
Company as contemplated by Article IX hereof, and the Managing Member shall
cooperate with the Class D Members in connection with
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such review including, without limitation, providing the Class D Member with
copies of all documentation reasonably requested by the Class D Member.
ARTICLE XII
ADMISSION OF MEMBERS
Section 12.1 Admission of Successor Managing Member. A successor to all
of the Managing Member's Class C Units pursuant to Section 11.2 hereof who is
proposed to be admitted as a successor Managing Member shall be admitted to the
Company as the Managing Member, effective upon such transfer. Any such
transferee shall carry on the business of the Company without dissolution. In
each case, the admission shall be subject to the successor Managing Member
executing and delivering to the Company an acceptance of all of the terms and
conditions of this Agreement and such other documents or instruments as may be
required to effect the admission. Notwithstanding the foregoing, during the one
(1) year period in which the Class A Members and/or Class B Members have no
right to convert their Membership Units pursuant to Sections 11.7 and 11.8,
respectively, such Members shall have the right to consent to the admission of
the successor Managing Member, provided, however, that such consent shall not be
unreasonably withheld or denied.
Section 12.2 [Intentionally Left Blank].
Section 12.3 Amendment of Agreement and Certificate of Formation. For
the admission to the Company of any Member, the Managing Member shall take all
steps necessary and appropriate under the Act to amend the records of the
Company and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate of Formation and may for this
purpose exercise the power of attorney granted pursuant to Article XVI hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Company shall not be dissolved by the
admission of Substituted Members or by the admission of a successor Managing
Member in accordance with the terms of this Agreement. The Company shall
dissolve, and its affairs shall be wound up, upon the first to occur of any of
the following (each an "Event of Dissolution"):
(a) Judicial Dissolution Decree - Entry of a decree of
judicial dissolution of the Company pursuant to the provisions of the Act; and
(b) Sale of Company's Assets - the sale or disposition of all
or substantially all of the assets and properties of the Company in accordance
with this Agreement.
Section 13.2 Winding Up.
(a) General. Immediately prior to the occurrence of an Event
of Dissolution or as soon as possible immediately thereafter, the Company shall
be required to issue a notice of
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pending liquidation of the Company to the Members. Upon the occurrence of an
Event of Dissolution, the Company shall continue solely for the purposes of
winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors and Members. No Member shall take any
action that is inconsistent with or not necessary to or appropriate for, the
winding up of the Company's business and affairs. The Managing Member (or, in
the event there is no remaining Managing Member, any Person elected by Member
Consent (the "Liquidator")) shall be responsible for overseeing the winding up
and dissolution of the Company and shall take full account of the Company's
liabilities and property and the Company property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Company's debts and liabilities to creditors other than the Members;
(2) Second, to the payment and discharge of all of
the Company's debts and liabilities to the Members, pro rata in accordance with
amounts owed to each such Member;
(3) Third, to the Class A Member in an amount equal
to the aggregate liquidation preference of the Preferred REIT Shares that would
be issued to the Class A Member if the Class A Member had converted into
Preferred REIT Shares pursuant to Section 11.7 plus accrued and unpaid
dividends; and
(4) The balance, if any, to the Members in accordance
with the provisions of Section 4.1.
The Managing Member shall not receive any additional
compensation for any services performed pursuant to this Article XIII.
(b) Where Immediate Sale of Company's Assets Impractical.
Notwithstanding the provisions of Section 13.2(a) hereof which require
liquidation of the assets of the Company, but subject to the order of priorities
set forth therein, if, prior to or upon dissolution of the Company, the
Liquidator determines that an immediate sale of part or all of the Company's
assets would be impractical or would cause undue loss to the Members, the
Liquidator may, in its fair and reasonable discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy liabilities
of the Company (including to those Members that are creditors) or, with the
consent of all Members, distribute to the Members, in lieu of cash, as tenants
in common and in accordance with the provisions of Section 13.2(a) hereof,
undivided interests in such Company assets as the Liquidator deems not suitable
for liquidation. Any such distributions in kind shall be made only if, in the
good faith judgment of the Liquidator, such distributions in kind are in the
best interest of the Members, and shall be subject to such conditions relating
to the disposition and management of such properties as the Liquidator deems
reasonable and equitable and to any agreements governing the operation of such
properties at such time. The Liquidator shall determine the fair market value of
any property distributed in kind using such reasonable method of valuation as it
may adopt.
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Section 13.3 Compliance with Timing Requirements of Regulations;
Allowance for Contingent or Unforeseen Liabilities or Obligation.
Notwithstanding anything to the contrary in this Agreement in the event the
Company is "liquidated" within the meaning of Regulation Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XIII
to the Managing Member and Members who have positive Capital Accounts in
compliance with Regulation Section 1.704-1(b)(2)(ii)(b) (including any timing
requirements therein). In the discretion of the Managing Member, a pro rata
portion of the distributions that would otherwise be made to the Members
pursuant to this Article XIII may be: (i) distributed to a liquidating trust
established for the benefit of the Members for the purposes of liquidating
Company assets, collecting amounts owed to the Company, and paying any
contingent or unforeseen liabilities or obligations of the Company or of the
Managing Member arising out of or in connection with the Company (the assets of
any such trust shall be distributed to the Members from time to time, in the
reasonable discretion of the Managing Member, in the same proportions as the
amount distributed to such trust by the Company would otherwise have been
distributed to the Members pursuant to this Agreement); or (ii) withheld to
provide a reasonable reserve for Company liabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations owed to the
Company; provided, that such withheld amounts shall be distributed to the
Members as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution. Notwithstanding
any other provision of this Article XIII (but subject to Section 13.3), in the
event the Company is liquidated within the meaning of Regulation Section
1.704-l(b)(2)(ii)(g) but if no Event of Dissolution has occurred, the Company's
property shall not be liquidated, the Company's liabilities shall not be paid or
discharged, and the Company's affairs shall not be wound up. Instead the Company
shall be deemed to have distributed the Property in kind to the Members, who
shall be deemed to have assumed and taken such property subject to all Company
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the Members shall be deemed to have recontributed the
Company property in kind to the Company, which shall be deemed to have, assumed
and taken such property subject to all such liabilities.
Section 13.5 Rights of Members. Except as specifically provided in this
Agreement each Member shall look solely to the assets of the Company for the
return of his Capital Contribution and shall have no right or power to demand or
receive property other than cash from the Company. Except as specifically
provided in this Agreement, no Member shall have priority over any other Member
as to the return of his Capital Contributions, distributions, or allocations.
Section 13.6 Notice of Dissolution. In the event an Event of
Dissolution or an event occurs that would, but for provisions of Section 13.1
result in a dissolution of the Company, the Managing Member shall, within 30
days thereafter, provide written notice thereof to each of the Members and to
all other parties with whom the Company regularly conducts business (as
determined in the discretion of the Managing Member) and shall publish notice
thereof in a newspaper of general circulation in each place in which the Company
regularly conducts business (as determined in the discretion of the Managing
Member).
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Section 13.7 Cancellation of Certificate of Formation. Upon the
completion of the liquidation of the Company as provided in Section 13.2 hereof,
the Company shall be terminated and the Certificate of Formation and all
qualifications of the Company as a foreign entity in jurisdictions other than
the State of Delaware shall be canceled and such other actions as may be
necessary to terminate the Company shall be taken.
Section 13.8 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the Company
and the liquidation of its assets pursuant to Section 13.2 hereof, in order to
minimize any losses otherwise attendant upon such winding-up, and the provisions
of this Agreement shall remain in effect between the Members during the period
of liquidation.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
Section 14.1 Board of Directors of the Managing Member. For so long as
Rohdie LLC and/or Robert C. Rohdie, personally, owns, directly or indirectly, a
Membership Interest in the Company, William S. Friedman agrees to commit to vote
his stock ownership in the Managing Member to have Robert C. Rohdie appointed to
a seat on the Board of Directors of the Managing Member.
Section 14.2 Default. In the event that the Managing Member does not
deliver the required shares upon conversion pursuant to the terms of Sections
11.7 and 11.8 hereof or the Common REIT Shares issued pursuant to Section 11.8
are not timely registered pursuant to the Registration Rights Agreement attached
hereto as Exhibits C-1 and C-2, an event of default shall be deemed to occur for
which the Class A Member Units and/or Class B Member Units tendered for
conversion shall be purchased by the Managing Member for cash in an amount equal
to the aggregate liquidation preference of the Preferred REIT Shares and/or
Value of the Common REIT Shares that would be issued to the Class A Member or
Class B Member if such Class A Member Units or Class B Member Units had
converted, plus accrued and unpaid dividends plus an amount equal to one (1%)
percent of the aggregate amount owed to the Members for each month that the
amount remains unpaid. If the Managing Member is required to pay cash pursuant
to this Section 14.2, such cash shall be paid 25% ninety (90) after the closing,
25% on the one year anniversary thereof, 25% of the two year anniversary thereof
and the balance thereof on the three year anniversary thereof, in each case with
all interest accrued and unpaid to date on such amounts determined at the rate
then applicable to the Preferred REIT Shares. Interest shall be payable annually
on each anniversary thereof until the balance is paid in full.
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<PAGE> 46
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Address and Notice. All notices and demands, under this
Agreement shall be in writing, and may be either delivered personally (which
shall include deliveries by courier) by U.S. mail or a nationally recognized
overnight courier, by telefax, telex or other wire transmission (with request
for assurance of receipt in a manner appropriate with respect to communications
of that type; provided that a confirmation copy is concurrently sent by a
nationally recognized express courier for overnight delivery) or mailed, postage
prepaid, by certified or registered mail, return receipt requested, directed to
the parties at their respective addresses set forth on Exhibit A attached
hereto, as it may be amended from time to time, and, if to the Company, such
notices and demands sent in the aforesaid manner must be delivered at its
Principal place of business set forth above. Unless delivered personally or by
telefax, telex or other wire transmission as above (which shall be effective on
the date of such delivery or transmission), any notice shall be deemed to have
been made three (3) days following the date so mailed. Any party hereto may
designate a different address to which notices and demands shall thereafter be
directed by written notice given in the same manner and directed to the Company
at its office hereinabove set forth.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
Section 15.6 Waiver of Partition. The Members hereby agree that the
Company properties are not and will not be suitable for partition. Accordingly,
each of the Members hereby irrevocably waives any and all rights (if any) that
it may have to maintain any action for partition of any of the Company
properties.
Section 15.7 Dispute Resolution.
(a) Mediation. In the event of a dispute, any dissatisfied
Member will provide notice of the dispute to all of the other Members. The
Members will then arrange a meeting to
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<PAGE> 47
discuss the dispute within ten (10) days of receipt of notice of the dispute. If
the dispute cannot be resolved among the Members within thirty (30) days of the
meeting to discuss the dispute, then any Member may submit the dispute to
non-binding mediation by notice to all of the other Members (the "Mediation
Notice"). The Member sending such notice shall then have ten (10) days to make a
request to a reputable and nationally recognized agency in the State of Florida
which specializes in mediation to select a mediator to assist in resolving the
dispute. The costs of the mediator will be shared equally by the Members and all
decisions as to date, time and location of mediation meetings shall be made by
the mediator. If the dispute cannot be resolved through mediation within ninety
(90) days of the Mediation Notice, then, and only then, will the provisions of
sub-Section (b) apply.
(b) Initiating Arbitration; Selection of Arbitrators. If the
dispute cannot be resolved pursuant to sub-Section (a), any Member(s) may submit
any dispute to arbitration by giving written notice to the other Member(s) along
with the name of an arbitrator. Within thirty (30) days after receipt of a
request to arbitrate a dispute, the other Member(s) must appoint an arbitrator.
Fifteen (15) days thereafter the two appointed arbitrators will select a third
arbitrator. If a Member(s), who is by this sub-Section (b) is required to
appoint an arbitrator, fails to make such appointment within the thirty (30) day
period, the Member(s) originally instigating the arbitration will be authorized
to appoint the second arbitrator. If the two appointed arbitrators fail to
select a third arbitrator within the fifteen (15) day period, the Members will
mutually select the third arbitrator. If the Members are unable to agree within
fifteen (15) days thereafter as to appointment of the third arbitrator, then any
Member may, upon at least five (5) days prior written notice to the other
Member(s), request the American Arbitration Association to choose such third
arbitrator. All arbitrators will be impartial and unrelated, directly or
indirectly, so far as employment or services is concerned, to any Member or to
any Affiliate or to any Person directly or indirectly related to the Members or
to any Affiliate. In an arbitration proceeding involving the management and
operation of the Company, the arbitrators must have substantial knowledge and
experience in the management and operation of similar real estate ventures. In
any arbitration proceedings involving any other specialized area of knowledge or
competence, the arbitrators must have substantial knowledge and experience in
such specialized area as, for example, in any dispute involving accounting
procedures the arbitrators will be independent certified public accountants. The
arbitration proceeding will otherwise be governed by the International
Commercial Arbitration Rules of the American Arbitration Association then in
force. The place of arbitration will be Orange County, Florida.
(c) Procedures; Limitations. The three (3) arbitrators will
investigate the facts and will hold a hearing at which the Members may present
evidence and arguments, be represented by counsel and conduct cross-examination.
In determining any question, matter or dispute before them, the arbitrators will
apply the provisions of this Agreement, without varying therefrom in any
respect. They will not have the power to add to, modify or change any of the
provisions of this Agreement. The three (3) arbitrators will render a written
decision upon the matter presented to them by a majority vote within thirty (30)
days after the date upon which the last arbitrator is appointed, and that
decision will be final and binding on the Members. Judgment upon the decision
rendered in such arbitration may be entered by any court having jurisdiction
thereof. No Member will be considered in default hereunder during the pendency
of arbitration
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<PAGE> 48
proceedings relating to a disputed default. If the three (3) arbitrators fail to
render a decision within the ninety (90) day period, then, to the extent
permitted by law, any Member will have the right to institute an action or
proceeding in such court as may be appropriate in the circumstances, and, upon
the institution of such action, the arbitration proceeding will be terminated
and will be of no further force and effect. The arbitrators will determine in
what proportion the Members will bear the fees and expenses of the third
arbitrator and each Member will bear the fees and expenses of the arbitrator,
legal counsel and other consultants selected by that Member.
Section 15.8 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior agreements or understandings among them with respect to the
matters contained herein and it may not be modified or amended in any manner
other than pursuant to Article XIV.
Section 15.9 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise. Each party hereto has the right to demand
specific performance of any obligation of another party hereunder. The
prevailing party in any action hereunder shall be entitled to recover costs and
reasonable attorneys' fees.
Section 15.10 Time. Time is of the essence of this Agreement.
Section 15.11 Creditors. None of the provisions of this Agreement shall
be for the benefit of, or shall be enforceable by, any creditor of the Company.
Section 15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant duty, agreement or condition of this Agreement or to
exercise any right or remedy consequent upon a breach thereof shall constitute
waiver of any such breach or any other covenant, duty, agreement or condition.
Section 15.13 Amendment. This Agreement may be amended only with Member
Consent.
Section 15.14 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that such parties are not signatories to
the original or the same counterpart.
Section 15.15 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
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Section 15.16 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
TARRAGON REALTY INVESTORS, INC.
(Managing Member)
By: /s/ William S. Friedman
--------------------------------------
Name: William S. Friedman
Title: President
ROHDIE FAMILY LLC
By: /s/ Robert C. Rohdie
--------------------------------------
Name: Robert C. Rohdie
Title: Manager
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<PAGE> 50
EXHIBIT A
MEMBERS, CONTRIBUTIONS AND
COMPANY INTERESTS
<TABLE>
<CAPTION>
Agreed Value of Percentage
Name and Address of Member Contributed Property Member Units Interest
- -------------------------- -------------------- ------------ ----------
<S> <C> <C> <C>
Class A Members:
The Rohdie Family LLC $ 4,000,000 400,000 100%
433 Hampton Crest
Heathrow, Florida 32746
Class B Members:
The Rohdie Family LLC $ 1,000,000 98,159.51 100%
433 Hampton Crest
Heathrow, Florida 32746
Class C Members:
Tarragon Realty Investors, Inc. $ 10,000,000 1,000,000 100%
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
Class D Member
The Rohdie Family LLC $ 5,000,000 (See Exhibit B) 100%
433 Hampton Crest -----------
Heathrow, Florida 32746
TOTAL $ 20,000,000
============
</TABLE>
A-1
<PAGE> 51
EXHIBIT B
SCHEDULE OF UNITS TO BE ISSUED
UPON COMPLETION DATE
<TABLE>
<CAPTION>
Units to be Issued on the
Membership Interest Agreed Completion Date
Contributed Value Class A Class B
------------ ----- ------- -------
<S> <C> <C> <C>
1. Tarragon Huntsville $500,000 40,000 9,815.95
Apartments, L.L.C.
2. Tarragon Savannah LP $1,000,000 80,000 19,631.90
3. Tarragon Stoneybrook
Apartments, L.L.C. $1,750,000 140,000 34,355.83
4. Lake Lotta Apartments,
L.L.C. $1,250,000 100,000 24,539.88
5. Vintage At Legacy
Lakes II, L.P. $500,000 40,000 9,815.95
---------- ------- ---------
TOTALS: $5,000,000 400,000 98,159.51
========== ======= =========
</TABLE>
B-1
<PAGE> 52
EXHIBIT C-1
REGISTRATION RIGHTS AGREEMENT
C-1
<PAGE> 53
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 7, 2000 by and between Tarragon Realty Investors,
Inc., a Nevada corporation (the "Company"), and The Rohdie Family LLC, a
Delaware limited liability company (a "Holder).
WHEREAS, on the date hereof, the Holder is receiving Class A Member
Units ("Units") in Tarragon Development Company LLC, a Delaware limited
liability company (the "LLC");
WHEREAS, in connection therewith, the Company has agreed to grant to
Holder the Registration Rights (as defined in Section 1 hereof);
WHEREAS, the LLC and Holder have agreed that the Holder shall not,
among other things, present Units for conversion during the one-year period
following the issuance of such Units to Holder; and
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 16. REGISTRATION RIGHTS
At any time following one year following the issuance of the Units, if
Holder receives shares of preferred stock ("Preferred Stock") of the Company
upon conversion of Units (the "Conversion Shares" which term shall include any,
and all Preferred Stock issued by reason of any stock split, stock dividend or
distribution in respect of Conversion Shares) pursuant to the terms of the
limited liability company agreement of the LLC, as amended (the "LLC
Agreement"), Holder shall be entitled to offer the Conversion Shares for sale
pursuant to a shelf registration statement set forth herein.
16.1(a) Registration Procedure. Subject to Sections 1.1(c) and
1.3 hereof, if Holder desires to exercise its one time Registration Rights with
respect to any or all of the Conversion Shares, Holder shall deliver to the
Company a written notice (a "Registration Notice") informing the LLC and the
Company of such exercise and specifying the number of shares to be offered by
Holder (such shares to be offered being referred to herein as the "Registrable
Securities"'). Such notice may be given at any time on or after the date the
notice of conversion is delivered by Holder to the Company pursuant to the LLC
Agreement, but must be given at least ten (10) business days prior to the
consummation of the sale of Registrable Securities. Upon receipt of the
Registration Notice, the Company, if it has not already caused the Registrable
Securities to be included as part of an existing and currently effective shelf
registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the Securities and Exchange
Commission (the "SEC") (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1), will cause to be
filed with the SEC as soon as reasonably practicable after receiving the
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<PAGE> 54
Registration Notice a new registration statement and related prospectus (a "New
Registration Statement") that complies as to form in with applicable SEC rules
providing for the sale by Holder of the Registrable Securities, and shall
(subject to Section 1.3 hereof) use its best efforts to cause such New
Registration Statement to be declared effective by the SEC as soon as
practicable. (As used herein, "Registration Statement" and "Prospectus" refer to
the Shelf Registration Statement and related prospectus (including any
preliminary prospectus) or the New Registration Statement and related prospectus
(including any preliminary prospectus), whichever is utilized by the Company to
satisfy Holder's Registration Rights pursuant to this Section 1, including in
each case any documents incorporated therein by reference). Holder shall provide
in a timely manner information regarding the proposed distribution by Holder of
the Registrable Securities and such other information reasonably requested by
the Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company shall (subject to Section 1.3 hereof) use
its best efforts to keep the Registration Statement and Prospectus current and
effective (including the preparation and filing of any amendments and
supplements necessary for that purpose) until the earlier of (i) the date on
which Holder consummates the sale of all of the Registrable Securities
registered under the Registration Statement, or (ii) the date on which all of
the Registrable Securities are eligible for sale pursuant to Rule 144(k) (or any
successor provision) under the Securities Act of 1933, as amended (the "Act").
The Company shall provide to Holder a reasonable number of copies of the
Registration Statement and the Prospectus and any amendments or supplements
thereto.
1.1(b) Offers and Sales. All offers and sales by Holder under
the Registration Statement referred to in this Section 1.1 shall be completed
within the period during which the Registration Statement is required to remain
effective pursuant to Section 1.1(a), and upon expiration of period Holder will
not offer or sell any Registrable Securities under the Registration Statement.
If directed by the Company, Holder will return all undistributed copies of the
Prospectus in its possession upon the expiration of such period.
1.1(c) Limitations on Registration Rights. The Registration
Right of the Holder with respect to the Units shall be a one time right as set
forth in the LLC Agreement. The exercise of the one time Registration Right
shall be with respect to a minimum of the total number of Conversion Shares held
by Holder at such time plus the number of Conversion Shares that may be issued
upon conversion of Units by Holder. Subject to the provision in the LLC
Agreement preventing the conversion before the first anniversary date of the
date of such LLC Agreement, the right of Holder to deliver a Registration Notice
commences upon the date a Holder delivers a notice of conversion pursuant to the
LLC Agreement. The right of Holder to deliver a Registration Notice shall expire
on the date on which all of the Conversion Shares held by Holder or issuable
upon conversion of Units held by Holder are eligible for sale pursuant to Rule
144(k) (or any successor provision) under the Act. The Registration Rights
granted pursuant to this Section 1.1 may not be exercised as part of any
underwritten public offering by the Company or by Holder without the prior
written consent of the Company.
16.2 Piggy-Back Registration Rights. If the Company, at any time or
from time during the term of the LLC Agreement, authorizes a registration of any
securities under the Securities Act on Form S-1, S-2, or S-3 (or any
registration form promulgated by the SEC in substitution of
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<PAGE> 55
one of those forms), it shall include in that registration all of the Conversion
Shares that Holder elects to register for public sale, to the extent permitted
by the applicable registration form and any underwriters in the offering. The
Company shall notify Holder of each proposed registration as soon as practicable
prior to filing the registration statement, and, if it receives from Holder a
written request within 15 days after that notice, the Company shall include in
its registration the number of Conversion Shares specified in Holder's
registration request. If the registration will involve an underwritten
distribution of securities by the Company, subject to the provisions of the
following paragraph, (i) the Company shall include in the underwriting all the
Conversion Shares that Holder is entitled to include in the registration, (ii)
the Holder shall sell the registered Conversion Shares through the underwriter
or syndicate of underwriters selected by the Company, and (iii) the Holder shall
enter into an underwriting agreement with the underwriter or syndicate of
underwriters selected by the Company, which will provide (among other things)
for the Company, the Holder, and each underwriter (and each person who controls
each underwriter within the meaning of Section 15 of the Securities Act) to
grant to each other (and to each person who controls each of them within the
meaning of Section 15 of the Securities Act) reciprocal indemnification against
liabilities under the Securities Act, subject to such limitations as are
appropriate to reflect the parties' respective interests in the underwriting.
In connection with any offering involving an underwriting of shares of
securities being issued by the Company for its own account or for the account of
others, the Company shall not be required to include any of the Conversion
Shares in the registration statement unless the Holder accepts and agrees to the
terms of the underwriters selected by the Company. If the total number of
Conversion Shares the Holder requests to be included in any offering involving
an underwriting of securities being issued by the Company for its own account or
for the account of others (the "Requested Shares") exceeds the number the
underwriters reasonably believe is compatible with the success of the offering,
the Company shall only be required to include in the offering, after the
inclusion of all of the securities the Company desires to sell, so many
Requested Shares as the underwriters believe will not jeopardize the success of
the offering. In such case, the Requested Shares to be included shall be
apportioned among all holders pro rata according to the number of shares owned
by each holder entitled to participate in such offering.
The Company is not required to include any of the Conversion Shares in
a registration that covers any of the following: (A) securities proposed to be
issued in exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common Stock;
(C) securities to be issued pursuant to a transaction registered on Form S-4 (or
any registration form promulgated by the SEC in substitution of that form); or
(D) a stock option, stock bonus, stock purchase, or other employee benefit or
compensation plan or securities issued or issuable pursuant to any such plan.
16.3 Suspension of Offering. Upon any notice by the Company, either
before or after a Holder has delivered a Registration Notice, that a negotiation
or consummation of a transaction by the Company or its subsidiaries is pending
or an event has occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the Registration Statement of material
information which the Company has a bona fide business purpose for keeping
confidential and the nondisclosure of which in the Registration Statement might
cause
3
<PAGE> 56
the Registration Statement to fail to comply with applicable disclosure
requirements (a "Materiality Notice"), then the Company will promptly prepare,
file, pursue to effectiveness, and deliver to Holder a supplemented or amended
Prospectus that corrects the misstatement(s) or omission(s) referred to above,
and Holder agrees that it will immediately discontinue offers and sales of the
Registrable Securities under the Registration Statement until Holder receives
copies of, a supplemented or amended Prospectus; provided, that the Company may
delay, suspend or withdraw the Registration Statement for such reason for no
more than ninety (90) days after delivery of the Materiality Notice at any one
time. If so directed by the Company, Holder will deliver to the Company all
copies of the Prospectus covering the Registrable Securities current at the time
of receipt of such notice.
16.4 Expenses. The Company shall pay all expenses incident to the
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Registration Statement and Prospectus, and the
preparation of stock certificates, and (iii) fees and disbursements of counsel
for the Company and of the independent public accountants of the Company. Holder
shall be responsible for the payment of any underwriters' fees, discounts or
commissions or any brokerage and sales commissions relating to the Registrable
Securities and the fees and disbursements of Holder's counsel, and any transfer
taxes relating to the sale or disposition of the Registrable Securities by
Holder.
16.5 Qualification. The Company shall cooperate with the underwriter to
register or qualify the Registrable Securities, by the time the applicable
Registration Statement is declared effective by the SEC, under all applicable
state securities or "blue sky" laws of such jurisdictions as Holder shall
reasonably request in writing, to keep each such registration or qualification
effective during the period such Registration Statement is required to be kept
effective or, during the period offers or sales are being made by Holder after
delivery of a Registration Notice to the Company, whichever is shorter, and to
do any and all other acts and things which may be reasonably necessary or
advisable to enable Holder to consummate the disposition in each such
jurisdiction of the Registrable Securities owned by Holder; provided, however,
that the Company shall not be required to (x) qualify generally to do business
in any jurisdiction or to register as a broker or dealer in such jurisdiction
where it would not otherwise be required to qualify but for this Section 1; (y)
subject itself to taxation in any such jurisdiction; or (z) submit to the
general service of process in any such jurisdiction.
16.6 Additional Agreements of the Company. If the Company is required
to register any of the Conversion Shares pursuant to this Agreement, the Company
shall:
(a) If any event occurs that necessitates, in the opinion of Holder's
legal counsel, an amendment or supplement to any prospectus in order to make the
prospectus not misleading in light of the circumstances existing at the time it
is delivered to Holder, (i) amend or supplement the prospectus to the extent
required so that the prospectus, as amended or supplemented, will not contain an
untrue statement of a material fact or omit to state a material fact necessary,
in order to make the statements therein, in light of the circumstances existing
at the time the
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<PAGE> 57
prospectus is delivered to a purchaser, not misleading, and (ii) furnish to
Holder a reasonable number of copies of both any amendment or supplement to the
prospectus that it prepares, and any filing pursuant to Section 13(a), 13(c), or
14 under Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
it makes, to effectuate the amendment or supplement the prospectus;
(b) During the period when a prospectus is required to be delivered
under the Securities Act, reasonably promptly provide to the Holder upon request
each document filed by the Company with the SEC pursuant to Section 13(a),
13(c), or 14 of the Exchange Act;
(c) Promptly notify Holder in writing of the following: (i) the date
when the registration statement or any post-effective amendment to it becomes
effective, and the date when any amendment to the registration statement or
supplement to a prospectus is filed with the SEC; (ii) the issuance by the SEC
of a stop order suspending the effectiveness of the registration statement or
the initial proceedings for that purpose; (iii) the suspension of qualification
of any Conversion Shares for sale in any jurisdiction or the initiation of any
proceedings for that purpose; and (iv) the Company's intention to file an
amendment to the registration statement, or a supplement to any prospectus, that
differs from the prospectus on file when the registration statement became
effective and including documents deemed to be incorporated by reference into a
prospectus;
(d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment;
(e) Within a reasonable time prior to the filing of any registration
statement, any prospectus, any amendment to a registration statement or
amendment or supplement to a prospectus, provide copies of such document to
Holder and to counsel to Holder and to the underwriter or underwriters of any
underwritten offering of Conversion Shares, if any; and
(f) Use its best efforts to list the Conversion Shares on each
securities exchange or automated quotation system on which such class of
securities are then listed, or if such securities are not already so listed, use
reasonable efforts to list the Conversion Shares on an exchange or automated
quotation system, if such listing is then permitted under the rules of such
exchange or automated quotation system.
16.7 Lockup Agreement. In consideration of the Company agreeing to its
obligations under this Agreement, the Holder agrees in connection with any
registration of any Registrable Securities, at the request of the Company or the
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities without the
prior written consent of the Company or underwriters (as the case may be) for
such period of time (not to exceed 180 days) from the effective date of such
registration as the Company and the underwriters may specify, so long as the
Holder or unit holders holding more than 1% of the Common Stock of the Company
and all officers and directors of the Company are bound by a comparable
obligation.
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16.8 Preferred Stock. The Company represents and warrants to the Holder
that, at the time of issuance thereof, the Conversion Shares will be validly
issued, fully paid and non-assessable, free and clear of any mortgage, pledge,
lien, encumbrance, security interest, claim or rights of any third party of any
nature whatsoever.
SECTION 17. INDEMNIFICATION; LLC
17.1 Indemnification by the Company. The Company shall indemnify and
hold harmless Holder, each member, officer and manager of Holder, and each
person, if any, who controls Holder within the meaning of Section 15 of the Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Act, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental, agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or (ii) such Holder's
failure to deliver an amended or supplemental Prospectus provided by the Company
to the Holder for such purpose if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred.
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17.2 Indemnification by Holder. Holder (and each permitted assignee of
Holder, on a several basis) severally agrees to indemnify and hold harmless the
Company, and each of its directors and officers (including each director and
officer of the Company who signed a Registration Statement), and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:
(a) against any and. all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which such
Holder's Registrable Securities were Registered under the Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of such
Holder; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental Prospectus provided by the Company to such
Holder for such purpose if such loss, liability, claim, damage or expense would
not have arisen had such delivery occurred. Notwithstanding the provisions of
this Section 2.2, Holder and any permitted assignee shall not be required to
indemnify the Company, its officers, directors or control persons with respect
to any amount in excess of the amount of the total proceeds to such Holder or
such permitted assignee, as the case may be, from sales of the Registrable
Securities of such Holder under the Registration Statement, and no Holder shall
be liable under this Section 2.2 for any statements or omissions of any other
Holder.
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17.3 Conduct of Indemnification Proceedings. The indemnified party
shall give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity provided in Section
2.1 or 2.2 above, unless and to the extent it did not otherwise learn of such
action and the lack of notice by the indemnified party results in the forfeiture
by the indemnifying party of substantial rights and defenses, and (ii) shall
not, in any event, relieve the indemnifying party from any obligations to the
indemnified party other than the indemnification obligation provided under
Section 2.1 or 2.2 above. If the indemnifying party so elects within a
reasonable time after receipt of such notice, the indemnifying party may assume
the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
however, that the indemnifying party will not settle any such action or
proceeding without the written consent of the indemnified party unless, as a
condition to such settlement, the indemnifying party secures the unconditional
release of the indemnified party; and provided further, that if the indemnified
party reasonably determines that a conflict of interest exists where it is
advisable for the indemnified party to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such action or proceeding as a result of the proviso to the preceding
sentence, the indemnifying party's counsel shall be entitled to conduct the
indemnifying party's defense and counsel for the indemnified party shall be
entitled to conduct the defense of the indemnified party, it being understood
that both such counsel will cooperate with each other to conduct the defense of
such action or proceeding as efficiently as possible. If the indemnifying party
is not so entitled to assume the defense of such action or does not assume such
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party. If any indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and expenses
of counsel for the indemnified party incurred thereafter in connection with such
action or proceeding.
17.4 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms, the Company and the
subject Holder shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative fault of
but also the relative benefits to
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the Company on the one hand and such Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro-rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, no Holder shall be required
to contribute any amount in excess of the amount of the total proceeds to such
Holder from sales of the Registrable Securities of such Holder under the
Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 2.4, each member, officer and
manager of and each person, if any, who controls, a Holder within the meaning of
Section 15 of the Act shall have the same rights to contribution as such Holder,
and each director of the Company, each officer of the Company who signed a
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act shall have the same rights to contribution
as the Company.
SECTION 18. RULE 144 COMPLIANCE
The Company will use its best efforts to timely file the reports
required to be filed by the Company under the Securities Act and the Exchange
Act so as to enable Holder to sell Registrable Securities pursuant to Rule 144
under the Securities Act. In connection with any sale, transfer or other
disposition by Holder of any Registrable Securities pursuant to Rule 144 under
the Securities Act, the Company shall cooperate with Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as Holder may reasonably request at least ten (10)
business days prior to any sale of Registrable Securities hereunder.
SECTION 19. MISCELLANEOUS
19.1 Integration; Amendment. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior oral or written
agreements, commitments and understandings among the parties with respect to the
matters set forth herein. Except as otherwise expressly provided in this
Agreement, no amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the Company
and the affected Holder.
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19.2 Waivers. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.
19.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provides that this Agreement may not be assigned by any Holder (other
than to a member of Holder's immediate family, trust established for the benefit
of such Holder or immediate family member(s) of such Holder, a beneficiary of
Holder, or a partnership or corporation controlled by Holder, a beneficiary of
Holder or immediate family member(s) of Holder), and any other attempted
assignment hereof by any Holder will be void and of no effect.
19.4 Notices. All notices called for under this Agreement shall be in
writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth opposite their names in Schedule A hereto, or to any
other address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 4.4 for the service of notices; provided, however, that notices
of a change of address shall be effective only upon receipt thereof. Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given and received on the day it was received; provided, however, that if
such day is not a business day then the notice shall be deemed to have been
given and received on the business day next following such day. Any notice sent
by facsimile transmission shall be deemed to have been given and received on the
business day next following the transmission.
19.5 Specific Performance. The parties hereto acknowledge that the
obligations undertaken by them hereunder are unique and that there would be no
adequate remedy at law if any party falls to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.
19.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of Delaware, but not
including the choice of law rules thereof.
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19.7 Headings. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
19.8 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the person or entity may require.
19.9 Execution in Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
19.10 Severability. If fulfillment of any provision of this Agreement,
at the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be modified only to the extent
necessary to render same effective or (if necessary) be held ineffective, as
though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
TARRAGON REALTY INVESTORS, INC.
By: /s/ William S. Friedman
--------------------------------------
Name: William S. Friedman
Title: President
HOLDER:
THE ROHDIE FAMILY LLC
By: /s/ Robert C. Rohdie
--------------------------------------
Name: Robert C. Rohdie
Title: Manager
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SCHEDULE A
ADDRESSES
Tarragon Realty Investors, Inc.
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
The Rohdie Family LLC
433 Hampton Crest
Heathrow, Florida 32746
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EXHIBIT C-2
REGISTRATION RIGHTS AGREEMENT
C-2
<PAGE> 67
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 7, 2000 by and between Tarragon Realty Investors,
Inc., a Nevada corporation (the "Company"), and The Rohdie Family LLC, a
Delaware limited liability company (a "Holder).
WHEREAS, on the date hereof, the Holder is receiving Class B member
units ("Units") in Tarragon Development Company LLC, a Delaware limited
liability company (the "LLC");
WHEREAS, in connection therewith, the Company has agreed to grant to
Holder the Registration Rights (as defined in Section 1 hereof);
WHEREAS, the LLC and Holder have agreed that the Holder shall not,
among other things, present Units for conversion during the one-year period
following the issuance of such Units to Holder; and
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 20. REGISTRATION RIGHTS
At any time following one year following the issuance of the Units, if
Holder receives shares of common stock ("Common Stock") of the Company upon
conversion of Units (the "Conversion Shares" which term shall include any, and
all Common Stock issued by reason of any stock split, stock dividend or
distribution in respect of Conversion Shares) pursuant to the terms of the
limited liability company agreement of the LLC, as amended (the "LLC
Agreement"), Holder shall be entitled to offer the Conversion Shares for sale
pursuant to a shelf registration statement set forth herein.
20.1(a) Registration Procedure. Subject to Sections 1.1(c) and
1.3 hereof, if at any time Holder desires to exercise its Registration Rights
with respect to any or all of the Conversion Shares, Holder shall deliver to the
LLC a written notice (a "Registration Notice") informing the LLC and the Company
of such exercise and specifying the number of shares to be offered by Holder
(such shares to be offered being referred to herein as the "Registrable
Securities"'). Such notice may be given at any time on or after the date a
notice of conversion is delivered by Holder to the Company pursuant to the LLC
Agreement, but must be given at least ten (10) business days prior to the
consummation of the sale of Registrable Securities. Upon receipt of the
Registration Notice, the Company, if it has not already caused the Registrable
Securities to be included as part of an existing and currently effective shelf
registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the Securities and Exchange
Commission (the "SEC") (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1) and that is
effective, will cause to be filed with the SEC as soon as reasonably practicable
after receiving the
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Registration Notice a new registration statement and related prospectus (a "New
Registration Statement") that complies as to form in with applicable SEC rules
providing for the sale by Holder of the Registrable Securities, and shall
(subject to Section 1.3 hereof) use its best efforts to cause such New
Registration Statement to be declared effective by the SEC as soon as
practicable. (As used herein, "Registration Statement" and "Prospectus" refer to
the Shelf Registration Statement and related prospectus (including any
preliminary prospectus) or the New Registration Statement and related prospectus
(including any preliminary prospectus), whichever is utilized by the Company to
satisfy Holder's Registration Rights pursuant to this Section 1, including in
each case any documents incorporated therein by reference). Holder shall provide
in a timely manner information regarding the proposed distribution by Holder of
the Registrable Securities and such other information reasonably requested by
the Company in connection with the preparation of and for inclusion in the
Registration Statement. The Company shall (subject to Section 1.3 hereof) use
its best efforts to keep the Registration Statement and Prospectus current and
effective (including the preparation and filing of any amendments and
supplements necessary for that purpose) until the earlier of (i) the date on
which Holder consummates the sale of all of the Registrable Securities
registered under the Registration Statement, or (ii) the date on which all of
the Registrable Securities are eligible for sale pursuant to Rule 144(k) (or any
successor provision) under the Securities Act of 1933, as amended (the "Act").
The Company shall provide to Holder a reasonable number of copies of the
Registration Statement and the Prospectus and any amendments or supplements
thereto.
1.1(b) Offers and Sales. All offers and sales by Holder under
the Registration Statement referred to in this Section 1.1 shall be completed
within the period during which the Registration Statement is required to remain
effective pursuant to Section 1.1(a), and upon expiration of period Holder will
not offer or sell any Registrable Securities under the Registration Statement.
If directed by the Company, Holder will return all undistributed copies of the
Prospectus in its possession upon the expiration of such period.
1.1(c) Limitations on Registration Rights. The Registration
Rights of the Holder with respect to the Units shall be unlimited and may be
exercised at any time and from time to time by the Holder as set forth in the
LLC Agreement. Subject to the provision in the LLC Agreement preventing the
conversion before the first anniversary date of the date of such LLC Agreement,
the right of Holder to deliver a Registration Notice commences upon the date a
Holder delivers a notice of conversion pursuant to the LLC Agreement. The right
of Holder to deliver a Registration Notice shall expire on the date on which all
of the Conversion Shares held by Holder or issuable upon conversion of Units
held by Holder are eligible for sale pursuant to Rule 144(k) (or any successor
provision) under the Act. The Registration Rights granted pursuant to this
Section 1.1 may not be exercised as part of any underwritten public offering by
the Company or by Holder without the prior written consent of the Company.
20.2 Piggy-Back Registration Rights. If the Company, at any time or
from time during the term of the LLC Agreement, authorizes a registration of any
securities under the Securities Act on Form S-1, S-2, or S-3 (or any
registration form promulgated by the SEC in substitution of one of those forms),
it shall include in that registration any of the Conversion Shares that Holder
elects to register for public sale, to the extent permitted by the applicable
registration form and
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any underwriters in the offering. The Company shall notify Holder of each
proposed registration as soon as practicable prior to filing the registration
statement, and, if it receives from Holder a written request within 15 days
after that notice, the Company shall include in its registration the number of
Conversion Shares specified in Holder's registration request. If the
registration will involve an underwritten distribution of securities by the
Company, subject to the provisions of the following paragraph, (i) the Company
shall include in the underwriting all the Conversion Shares that Holder is
entitled to include in the registration, (ii) the Holder shall sell the
registered Conversion Shares through the underwriter or syndicate of
underwriters selected by the Company, and (iii) the Holder shall enter into an
underwriting agreement with the underwriter or syndicate of underwriters
selected by the Company, which will provide (among other things) for the
Company, the Holder, and each underwriter (and each person who controls each
underwriter within the meaning of Section 15 of the Securities Act) to grant to
each other (and to each person who controls each of them within the meaning of
Section 15 of the Securities Act) reciprocal indemnification against liabilities
under the Securities Act, subject to such limitations as are appropriate to
reflect the parties' respective interests in the underwriting.
In connection with any offering involving an underwriting of shares of
securities being issued by the Company for its own account or for the account of
others, the Company shall not be required to include any of the Conversion
Shares in the registration statement unless the Holder accepts and agrees to the
terms of the underwriters selected by the Company. If the total number of
Conversion Shares the Holder requests to be included in any offering involving
an underwriting of securities being issued by the Company for its own account or
for the account of others (the "Requested Shares") exceeds the number the
underwriters reasonably believe is compatible with the success of the offering,
the Company shall only be required to include in the offering, after the
inclusion of all of the securities the Company desires to sell, so many
Requested Shares as the underwriters believe will not jeopardize the success of
the offering. In such case, the Requested Shares to be included shall be
apportioned among all holders pro rata according to the number of shares owned
by each holder entitled to participate in such offering.
The Company is not required to include any of the Conversion Shares in
a registration that covers any of the following: (A) securities proposed to be
issued in exchange for assets or securities of another corporation; (B) debt
securities not convertible into, or exchangeable for, shares of Common Stock;
(C) securities to be issued pursuant to a transaction registered on Form S-4 (or
any registration form promulgated by the SEC in substitution of that form); or
(D) a stock option, stock bonus, stock purchase, or other employee benefit or
compensation plan or securities issued or issuable pursuant to any such plan.
20.3 Suspension of Offering. Upon any notice by the Company, either
before or after a Holder has delivered a Registration Notice, that a negotiation
or consummation of a transaction by the Company or its subsidiaries is pending
or an event has occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the Registration Statement of material
information which the Company has a bona fide business purpose for keeping
confidential and the nondisclosure of which in the Registration Statement might
cause the Registration Statement to fail to comply with applicable disclosure
requirements (a "Materiality Notice"), then the Company will promptly prepare,
file, pursue to effectiveness, and
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deliver to Holder a supplemented or amended Prospectus that corrects the
misstatement(s) or omission(s) referred to above, and Holder agrees that it will
immediately discontinue offers and sales of the Registrable Securities under the
Registration Statement until Holder receives copies of, a supplemented or
amended Prospectus; provided, that the Company may delay, suspend or withdraw
the Registration Statement for such reason for no more than ninety (90) days
after delivery of the Materiality Notice at any one time. If so directed by the
Company, Holder will deliver to the Company all copies of the Prospectus
covering the Registrable Securities current at the time of receipt of such
notice.
20.4 Expenses. The Company shall pay all expenses incident to the
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Registration Statement and Prospectus, and the
preparation of stock certificates, and (iii) fees and disbursements of counsel
for the Company and of the independent public accountants of the Company. Holder
shall be responsible for the payment of any underwriters' fees, discounts or
commissions or any brokerage and sales commissions relating to the Registrable
Securities and the fees and disbursements of Holder's counsel, and any transfer
taxes relating to the sale or disposition of the Registrable Securities by
Holder.
20.5 Qualification. The Company shall cooperate with the underwriter to
register or qualify the Registrable Securities, by the time the applicable
Registration Statement is declared effective by the SEC, under all applicable
state securities or "blue sky" laws of such jurisdictions as Holder shall
reasonably request in writing, to keep each such registration or qualification
effective during the period such Registration Statement is required to be kept
effective or, during the period offers or sales are being made by Holder after
delivery of a Registration Notice to the Company, whichever is shorter, and to
do any and all other acts and things which may be reasonably necessary or
advisable to enable Holder to consummate the disposition in each such
jurisdiction of the Registrable Securities owned by Holder; provided, however,
that the Company shall not be required to (x) qualify generally to do business
in any jurisdiction or to register as a broker or dealer in such jurisdiction
where it would not otherwise be required to qualify but for this Section 1; (y)
subject itself to taxation in any such jurisdiction; or (z) submit to the
general service of process in any such jurisdiction.
20.6 Additional Agreements of the Company. If the Company is required
to register any of the Conversion Shares pursuant to this Agreement, the Company
shall:
(a) If any event occurs that necessitates, in the opinion of Holder's
legal counsel, an amendment or supplement to any prospectus in order to make the
prospectus not misleading in light of the circumstances existing at the time it
is delivered to Holder, (i) amend or supplement the prospectus to the extent
required so that the prospectus, as amended or supplemented, will not contain an
untrue statement of a material fact or omit to state a material fact necessary,
in order to make the statements therein, in light of the circumstances existing
at the time the prospectus is delivered to a purchaser, not misleading, and (ii)
furnish to Holder a reasonable number of copies of both any amendment or
supplement to the prospectus that it prepares, and
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any filing pursuant to Section 13(a), 13(c), or 14 under Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that it makes, to effectuate the
amendment or supplement the prospectus;
(b) During the period when a prospectus is required to be delivered
under the Securities Act, reasonably promptly provide to the Holder upon request
each document filed by the Company with the SEC pursuant to Section 13(a),
13(c), or 14 of the Exchange Act;
(c) Promptly notify Holder in writing of the following: (i) the date
when the registration statement or any post-effective amendment to it becomes
effective, and the date when any amendment to the registration statement or
supplement to a prospectus is filed with the SEC; (ii) the issuance by the SEC
of a stop order suspending the effectiveness of the registration statement or
the initial proceedings for that purpose; (iii) the suspension of qualification
of any Conversion Shares for sale in any jurisdiction or the initiation of any
proceedings for that purpose; and (iv) the Company's intention to file an
amendment to the registration statement, or a supplement to any prospectus, that
differs from the prospectus on file when the registration statement became
effective and including documents deemed to be incorporated by reference into a
prospectus;
(d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement or the lifting of any
suspension of the qualification of any of the Registrable Securities for sale in
any jurisdiction, at the earliest possible moment;
(e) Within a reasonable time prior to the filing of any registration
statement, any prospectus, any amendment to a registration statement or
amendment or supplement to a prospectus, provide copies of such document to
Holder and to counsel to Holder and to the underwriter or underwriters of any
underwritten offering of Conversion Shares, if any; and
(f) Use its best efforts to list the Conversion Shares on each
securities exchange or automated quotation system on which such class of
securities are then listed, or if such securities are not already so listed, use
reasonable efforts to list the Conversion Shares on an exchange or automated
quotation system, if such listing is then permitted under the rules of such
exchange or automated quotation system.
20.7 Lockup Agreement. In consideration of the Company agreeing to its
obligations under this Agreement, the Holder agrees in connection with any
registration of any Registrable Securities, at the request of the Company or the
underwriter, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities without the
prior written consent of the Company or underwriters (as the case may be) for
such period of time (not to exceed 180 days) from the effective date of such
registration as the Company and the underwriters may specify, so long as the
Holder or unit holders holding more than 1% of the Common Stock of the Company
and all officers and directors of the Company are bound by a comparable
obligation.
20.8 Common Stock. The Company represents and warrants to the Holder
that, at the time of issuance thereof, the Conversion Shares will be validly
issued, fully paid and
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non-assessable, free and clear of any mortgage, pledge, lien, encumbrance,
security interest, claim or rights of any third party of any nature whatsoever.
SECTION 21. INDEMNIFICATION; LLC
21.1 Indemnification by the Company. The Company shall indemnify and
hold harmless Holder, each member, officer and manager of Holder, and each
person, if any, who controls Holder within the meaning of Section 15 of the Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Act, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental, agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or (ii) such Holder's
failure to deliver an amended or supplemental Prospectus provided by the Company
to the Holder for such purpose if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred.
21.2 Indemnification by Holder. Holder (and each permitted assignee of
Holder, on a several basis) severally agrees to indemnify and hold harmless the
Company, and each of its
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<PAGE> 73
directors and officers (including each director and officer of the Company who
signed a Registration Statement), and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, as follows:
(a) against any and. all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which such
Holder's Registrable Securities were Registered under the Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of such
Holder; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above; provided, however, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental Prospectus provided by the Company to such
Holder for such purpose if such loss, liability, claim, damage or expense would
not have arisen had such delivery occurred. Notwithstanding the provisions of
this Section 2.2, Holder and any permitted assignee shall not be required to
indemnify the Company, its officers, directors or control persons with respect
to any amount in excess of the amount of the total proceeds to such Holder or
such permitted assignee, as the case may be, from sales of the Registrable
Securities of such Holder under the Registration Statement, and no Holder shall
be liable under this Section 2.2 for any statements or omissions of any other
Holder.
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21.3 Conduct of Indemnification Proceedings. The indemnified party
shall give reasonably prompt notice to the indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have under the indemnity provided in Section
2.1 or 2.2 above, unless and to the extent it did not otherwise learn of such
action and the lack of notice by the indemnified party results in the forfeiture
by the indemnifying party of substantial rights and defenses, and (ii) shall
not, in any event, relieve the indemnifying party from any obligations to the
indemnified party other than the indemnification obligation provided under
Section 2.1 or 2.2 above. If the indemnifying party so elects within a
reasonable time after receipt of such notice, the indemnifying party may assume
the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified party, which approval shall not be unreasonably withheld; provided,
however, that the indemnifying party will not settle any such action or
proceeding without the written consent of the indemnified party unless, as a
condition to such settlement, the indemnifying party secures the unconditional
release of the indemnified party; and provided further, that if the indemnified
party reasonably determines that a conflict of interest exists where it is
advisable for the indemnified party to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such action or proceeding as a result of the proviso to the preceding
sentence, the indemnifying party's counsel shall be entitled to conduct the
indemnifying party's defense and counsel for the indemnified party shall be
entitled to conduct the defense of the indemnified party, it being understood
that both such counsel will cooperate with each other to conduct the defense of
such action or proceeding as efficiently as possible. If the indemnifying party
is not so entitled to assume the defense of such action or does not assume such
defense, after having received the notice referred to in the first sentence of
this paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the indemnifying
party will not be liable for any settlement effected without the written consent
of the indemnifying party. If any indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and expenses
of counsel for the indemnified party incurred thereafter in connection with such
action or proceeding.
21.4 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms, the Company and the
subject Holder shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative fault of
but also the relative benefits to
8
<PAGE> 75
the Company on the one hand and such Holder on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro-rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, no Holder shall be required
to contribute any amount in excess of the amount of the total proceeds to such
Holder from sales of the Registrable Securities of such Holder under the
Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 2.4, each member, officer and
manager of and each person, if any, who controls, a Holder within the meaning of
Section 15 of the Act shall have the same rights to contribution as such Holder,
and each director of the Company, each officer of the Company who signed a
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act shall have the same rights to contribution
as the Company.
SECTION 22. RULE 144 COMPLIANCE
The Company will use its best efforts to timely file the reports
required to be filed by the Company under the Securities Act and the Exchange
Act so as to enable Holder to sell Registrable Securities pursuant to Rule 144
under the Securities Act. In connection with any sale, transfer or other
disposition by Holder of any Registrable Securities pursuant to Rule 144 under
the Securities Act, the Company shall cooperate with Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as Holder may reasonably request at least ten (10)
business days prior to any sale of Registrable Securities hereunder.
SECTION 23. MISCELLANEOUS
23.1 Integration; Amendment. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth herein
and supersedes and renders of no force and effect all prior oral or written
agreements, commitments and understandings among the parties with respect to the
matters set forth herein. Except as otherwise expressly provided in this
Agreement, no amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the Company
and the affected Holder.
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23.2 Waivers. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.
23.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provides that this Agreement may not be assigned by any Holder (other
than to a member of Holder's immediate family, trust established for the benefit
of such Holder or immediate family member(s) of such Holder, a beneficiary of
Holder, or a partnership or corporation controlled by Holder, a beneficiary of
Holder or immediate family member(s) of Holder), and any other attempted
assignment hereof by any Holder will be void and of no effect.
23.4 Notices. All notices called for under this Agreement shall be in
writing and shall be deemed given upon receipt if delivered personally or by
facsimile transmission and followed promptly by mail, or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the addresses set forth opposite their names in Schedule A hereto, or to any
other address or addressee as any party entitled to receive notice under this
Agreement shall designate, from time to time, to others in the manner provided
in this Section 4.4 for the service of notices; provided, however, that notices
of a change of address shall be effective only upon receipt thereof. Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given and received on the day it was received; provided, however, that if
such day is not a business day then the notice shall be deemed to have been
given and received on the business day next following such day. Any notice sent
by facsimile transmission shall be deemed to have been given and received on the
business day next following the transmission.
23.5 Specific Performance. The parties hereto acknowledge that the
obligations undertaken by them hereunder are unique and that there would be no
adequate remedy at law if any party falls to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.
23.6 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of Delaware, but not
including the choice of law rules thereof.
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23.7 Headings. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
23.8 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural, as the identity
of the person or entity may require.
23.9 Execution in Counterparts. To facilitate execution, this Agreement
may be executed in as many counterparts as may be required. It shall not be
necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of
each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties.
23.10 Severability. If fulfillment of any provision of this Agreement,
at the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be modified only to the extent
necessary to render same effective or (if necessary) be held ineffective, as
though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
TARRAGON REALTY INVESTORS, INC.
By: /s/ William S. Friedman
--------------------------------------
Name: William S. Friedman
Title: President
HOLDER:
THE ROHDIE FAMILY LLC
By: /s/ Robert C. Rohdie
--------------------------------------
Name: Robert C. Rohdie
Title: Manager
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SCHEDULE A
ADDRESSES
Tarragon Realty Investors, Inc.
280 Park Avenue
East Building, 20th Floor
New York, New York 10017
The Rohdie Family LLC
433 Hampton Crest
Heathrow, Florida 32746
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<PAGE> 79
EXHIBIT D
SCHEDULE OF CONTRIBUTED ENTITIES
1. Orange National Partners, Ltd.
2. Tarragon Savannah LP
3. Tarragon Huntsville Apartments, L.L.C.
4. Tarragon Savannah LP II
5. Danforth National Apartments, Ltd.
6. Tarragon Stoneybrook Apartments, L.L.C.
7. RI Windsor, Ltd.
8. RI Panama City, Ltd.
9. Lake Lotta Apartments, L.L.C.
10. Vintage At Legacy Lakes II, L.P.
D-1
<PAGE> 80
EXHIBIT E
CERTIFICATE OF DESIGNATION
E-1
<PAGE> 81
TARRAGON REALTY INVESTORS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RELATIVE
PARTICIPATING OR OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF OF
SPECIAL STOCK
BY RESOLUTION OF THE BOARD OF DIRECTORS
We, William S. Friedman, President, and Kathryn Mansfield, Secretary of
TARRAGON REALTY INVESTORS, INC., a corporation organized and existing under the
Business Corporation Law of the State of Nevada, in accordance with the
provisions of Section 78.195 of the Nevada Revised Statutes thereof, DO HEREBY
CERTIFY:
THAT, pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation of TARRAGON REALTY
INVESTORS, INC. (the "Corporation"), and pursuant to the provisions of
NRS 78.1955 (which section provides that no stockholder action is
required in order to effectuate this designation), said Board of
Directors by unanimous written consent dated February 25, 2000, adopted
certain recitals and resolutions providing for the designations,
preferences and relative participating, optional or other special
rights and qualifications, limitations or restrictions thereof, of a
series of Special Stock of the Corporation, specifically the 10%
Cumulative Preferred Stock, which recitals and resolutions are as
follows:
WHEREAS, Article Fourth of the Articles of Incorporation of
the Corporation authorizes the Corporation to issue not more than
10,000,000 shares of Special Stock, $.01 par value per share (the
"Special Stock") and 20,000,000 shares of Common Stock, $0.01 par value
per share (the "Common Stock"), which Special Stock may be issued from
time to time in one or more series and shall be designated as the Board
of Directors may determine to have such voting powers, preferences,
limitations and relative rights with respect to the shares of each
series of the class of Special Stock of the Corporation as expressly
provided in a resolution or resolutions providing for the issuance of
such series adopted by the Board of Directors which is vested with the
authority in respect thereof; and
WHEREAS, no shares of such Special Stock have been previously
designated hereof; and
WHEREAS, the Board of Directors now desires to amend the
Articles of Incorporation to designate one series of the Special Stock.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority
granted to the Board of Directors by Article Fourth of the Articles of
Incorporation, as amended, the Board of Directors hereby further amends
the Articles of Incorporation to provide for the issuance of one single
series of Special Stock consisting of the number of shares in such
series as set forth below and, subject to the provisions of Article
Fourth of the Articles of Incorporation, as amended, of the
Corporation, hereby fixes and determines with respect to such series
the following designations, preferences and relative participating,
optional or other special rights, if any, and qualifications,
limitations or restrictions thereof:
<PAGE> 82
1. DESIGNATION. The distinctive designation of such series
shall be the 10% Cumulative Preferred Stock and each share of the 10%
Cumulative Preferred Stock shall have a par value of $0.01 per share
and a preference on liquidation under paragraph 6 below of up to $12
per share. The 10% Cumulative Preferred Stock is sometimes referred to
herein as the "Preferred Stock."
2. NUMBER OF SHARES. The number of shares which shall
constitute the 10% Cumulative Preferred Stock shall be such number as
may actually be issued by the Corporation, not to exceed a maximum of
2,500,000 shares, which number may be decreased (but not below the
number then outstanding), from time to time by the Board of Directors,
subject to the provisions hereof.
3. DIVIDENDS AND DIVIDEND RATE. Holders of record on the
fifteenth day of each March, June, September and December of each year
of shares of the 10% Cumulative Preferred Stock shall be entitled to
receive dividends, when and as declared by the Board of Directors of
the Corporation and to the extent permitted under the Nevada General
Corporation Law, payable quarterly on each March 31, June 30, September
30 and December 31 of each year, beginning on September 15, 2000 (each
a "Dividend Reference Date" and, collectively, the "Dividend Reference
Dates"), in preference to and with priority over dividends upon all
"Junior Securities" (as defined in paragraph 6 below). Except as
otherwise provided herein, dividends on each share of 10% Cumulative
Preferred Stock will accrue (but not compound) cumulatively on a daily
basis at the rate per share of ten percent (10%) per annum ($0.30 per
calendar quarter) from and including the date of issuance to and
including the date on which the "Redemption Price" (as defined in
paragraph 4 below) of such share is paid, whether or not such dividends
have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of
such dividends. For purposes of this paragraph 3, the date on which the
Corporation initially issues any share is its date of issuance,
regardless of the number of times transfer of such share is made on the
stock records maintained by or for the Corporation and regardless of
the number of certificates that may be issued to evidence such share
(whether by reason of transfer of such share or for any other reason).
Notwithstanding any other requirement of this paragraph unless the
holder of the 10% Cumulative Preferred Stock requests of the
Corporation payment of dividends in a form other than cash, any and all
quarterly dividends on the 10% Cumulative Preferred Stock shall be
satisfied by payment of cash. So long as any shares of 10% Cumulative
Preferred Stock are outstanding, the Corporation will not declare or
pay any dividends on Junior Securities (other than dividends in respect
of Common Stock payable in shares of Common Stock) or make, directly or
indirectly, any other distribution of any sort in respect of Junior
Securities, or any payment on account of the purchase or other
acquisition of the Junior Securities, unless on the date of such
declaration in the case of a dividend, or on such date of distribution
or payment, in the case of such distribution or other payment (a) all
dividends on the 10% Cumulative Preferred Stock for all past
quarter-yearly dividend periods have been paid in full and the full
dividends for the then current quarter-yearly period shall have been
paid or declared in a sum sufficient for the payment thereof set apart,
and (b) after giving effect to such payment of dividends, other
distributions, purchase or redemption, the aggregate capital of the
Corporation applicable to all capital stock of the Corporation then
outstanding, plus the earned and capital surplus of the Corporation
shall exceed the aggregate amount payable on involuntary dissolution,
liquidation or winding up of the Corporation on all shares of the 10%
Cumulative Preferred Stock and all stock ranking prior to or on a
parity with the 10% Cumulative Preferred Stock as to dividends or
assets outstanding after the payment of
<PAGE> 83
such dividends, other distributions, purchase or redemption. Dividends
shall not be paid or declared and set apart for payment on any series
of Special Stock for any dividend period (including the 10% Cumulative
Preferred Stock) unless dividends have been or are, contemporaneously,
paid and declared and set apart for payment on all outstanding series
of Special Stock entitled thereto for all dividend periods terminating
on the same or earlier date. If at any time the Corporation pays less
than the total amount of dividends then accrued with respect to the 10%
Cumulative Preferred Stock, such payment will be distributed ratably
among the then holders of 10% Cumulative Preferred Stock so that an
amount equal is paid with respect to each outstanding share.
4. REDEMPTION. The Corporation may, at any time after issuance
thereof and after June 30, 2003 and from time to time thereafter, at
the election of the Board of Directors of the Corporation redeem any or
all of the 10% Cumulative Preferred Stock then outstanding by written
notice given not less than twenty (20) nor more than sixty (60) days
before the date fixed for redemption (the "Redemption Date"). If
mailed, such notice shall be deemed to be delivered when deposited in
the United States Mail, postage prepaid, addressed to the holder of
shares of 10% Cumulative Preferred Stock at his address as it appears
on the stock transfer records of the Corporation. Such notice shall set
forth (a) the shares to be so redeemed, (b) the date fixed for
redemption, (c) the applicable Redemption Price, and (d) the place at
which the holder(s) may obtain payment of the applicable Redemption
Price upon surrender of the share certificate(s). If less than all
shares of 10% Cumulative Preferred Stock at any time outstanding shall
be called for redemption, such shares shall be redeemed pro rata by lot
drawn or other manner deemed fair in the sole discretion of the Board
of Directors to redeem one or more such shares without redeeming all
such shares of 10% Cumulative Preferred Stock. If such notice of
redemption shall have been so mailed, on or before the Redemption Date,
the Corporation may provide for payment of a sum sufficient to redeem
the applicable number of shares of 10% Cumulative Preferred Stock
called for redemption either (i) by setting aside the sum required to
be paid as the Redemption Price by the Corporation, separate and apart
from its other funds, in trust for the account of the holder(s) of the
shares of 10% Cumulative Preferred Stock to be redeemed or (ii) by
depositing such sum in a bank or trust company (either located in the
state where the principal executive office of the Corporation is
maintained, such bank or trust company having a combined surplus of at
least $10,000,000 according to its latest statement of condition, or
such other bank or trust company as may be permitted by the Articles of
Incorporation, as amended, or by law) as a trust fund, with irrevocable
instructions and authority to the bank or trust company to give or
complete the notice of redemption and to pay, on or after the
Redemption Date, the applicable Redemption Price on surrender of
certificates evidencing the share(s) of 10% Cumulative Preferred Stock
so called for redemption and, in either event, from and after the
Redemption Date (A) the share(s) of 10% Cumulative Preferred Stock
deemed to be redeemed, (B) such setting aside or deposit shall be
deemed to constitute full payment for such share(s), (C) such share(s)
so redeemed shall no longer be deemed to be outstanding, (D) the
holder(s) thereof shall cease to be a stockholder of the Corporation
with respect to such share(s), and (E) such holder(s) shall have no
rights with respect thereto except the right to receive their
proportionate share of the funds set aside pursuant hereto or deposited
upon surrender of their respective certificates. Any interest on the
funds so deposited shall be paid to the Corporation. Any and all such
redemption deposits shall be irrevocable except to the following
extent: any funds so deposited which shall not be required for the
redemption of any shares of 10% Cumulative Preferred Stock because of
any prior sale or purchase by the Corporation other than through the
redemption process, subsequent to the date of deposit but prior to the
Redemption Date, shall be repaid to the Corporation forthwith and any
balance of the funds so deposited and unclaimed by
<PAGE> 84
the holder(s) of any shares of 10% Cumulative Preferred Stock entitled
thereto at the expiration of one calendar year from the Redemption Date
shall be repaid to the Corporation upon its request or demand therefor
and after any such repayment the holder(s) of the share(s) so called
for redemption shall look only to the Corporation for payment of the
Redemption Price thereof. In addition to the redemption under this
paragraph 4, the Corporation may redeem or repurchase shares of the 10%
Cumulative Preferred Stock (i) from any holder(s) thereof who consents
in writing to such redemption (ii) pursuant to any offer by the
Corporation to purchase or acquire share(s) from holders of less than a
specified number of share(s) or "round lots" (i.e., an "odd lot" or "99
or less" offer) and/or (iii) open market or negotiated purchases, and
in each of clauses (i), (ii) and/or (iii), the provisions of this
paragraph 4 will not apply to any such consented redemption or purchase
by the Corporation. All shares of 10% Cumulative Preferred Stock
redeemed may either be held in the treasury subject to reissuance or
shall be canceled and retired and no shares shall be issued in place
thereof, but such shares shall be restored to the status of authorized
but unissued shares of Special Stock. The "Redemption Price" (herein so
called) shall be an amount equal to (i) the "Liquidation Value" (as
defined in paragraph 6 below) of $12 per share, plus (ii) the amount of
all accrued but unpaid dividends thereon to the Redemption Date, which
shall include all cumulative dividends in arrears and also the
proportionate part of the dividend accrued since the last Dividend
Reference Date preceding the Redemption Date and whether or not earned
or declared, but without interest, plus (iii) the following amount per
share during the periods set forth below:
<TABLE>
<CAPTION>
IF REDEMPTION OCCURS DURING THE
TWELVE MONTH PERIOD ADDITIONAL PREMIUM
ENDING JUNE 30 OF PER SHARE
<S> <C>
2004 $0.50
2005 $0.40
2006 $0.30
2007 $0.20
2008 $0.10
</TABLE>
provided that from and after July 1, 2008 there shall be no premium as
a part of the Redemption Price.
5. SINKING FUND. The Corporation shall not be required to
maintain any so-called "Sinking Fund" for the retirement on any basis
of the 10% Cumulative Preferred Stock.
6. RIGHTS ON LIQUIDATION. In the event of any liquidation,
dissolution or winding-up of the Corporation, and after paying and
providing for the payment of all creditors of the Corporation, the
holders of shares of the 10% Cumulative Preferred Stock then
outstanding shall be entitled, before any distribution or payment is
made upon any "Junior Securities" (defined to be and mean the Common
Stock and any other equity security of any kind which the Corporation
at any time has issued, issues or is authorized to issue if the 10%
Cumulative Preferred Stock has priority over such securities as to
dividends or upon liquidation), to receive a liquidation preference in
an amount in cash equal to the aggregate Liquidation Value of all
shares of 10% Cumulative Preferred Stock then outstanding, whether any
such liquidation, dissolution or winding up is voluntary or involuntary
and the holders of the 10% Cumulative Preferred Stock then outstanding,
whether any such liquidation, dissolution or winding up is voluntary or
involuntary and the holders of the 10% Cumulative Preferred Stock
<PAGE> 85
shall not be entitled to any other or further distributions of assets.
The term "Liquidation Value" shall be and mean, as of any particular
date, an amount per share of 10% Cumulative Preferred Stock equal to
the Redemption Price if such share were so redeemed in accordance with
the provisions of paragraph 5 above, but in no event shall exceed $12
per share, plus any accrued and unpaid cumulative dividends. If, upon
any dissolution, liquidation or winding-up of the affairs of the
Corporation, the net assets available for distribution shall be
insufficient to permit payment to the holders of all outstanding shares
of all series of Special Stock of the amounts to which they
respectively shall be entitled, then the assets of the Corporation to
be distributed to such holders will be distributed ratably among them
based upon the amounts payable on the shares of each such series of
Special Stock in the event of voluntary or involuntary dissolution,
liquidation or winding-up, as the case may be, in proportion to the
full preferential amounts, together with any and all arrearages to
which they are respectively entitled. Upon any such liquidation,
dissolution or winding-up of the Corporation, after the holders of
Special Stock have been paid in full the amounts to which they are
entitled, the remaining assets of the Corporation may be distributed to
the holders of Junior Securities, including Common Stock, of the
Corporation. The Corporation will mail written notice of such
liquidation, dissolution or winding-up, not less than twenty (20) nor
more than fifty (50) days prior to the payment date stated therein to
each record holder of 10% Cumulative Preferred Stock. Neither the
consolidation nor merger of the Corporation into or with any other
corporation or corporations, nor the sale or transfer by the
Corporation of all or any part of its assets, nor a reduction of the
capital stock of the Corporation, nor the purchase or redemption by the
Corporation of any shares of its Special Stock or Common Stock or any
other class of its stock will be deemed to be a liquidation,
dissolution or winding-up of the Corporation within the meaning of this
paragraph 6.
7. RANKING. The 10% Cumulative Preferred Stock shall rank on a
parity as to dividends and upon liquidation, dissolution or winding up
with all other shares of Special Stock issued by the Corporation;
provided, however, that the Corporation shall not issue any shares of
Special Stock of any series which are superior to the 10% Cumulative
Preferred Stock as to dividends or rights upon liquidation, dissolution
or winding up of the Corporation as long as any shares of the 10%
Cumulative Preferred Stock are issued and outstanding, without the
prior written consent of the holders of a majority of such shares of
10% Cumulative Preferred Stock then outstanding voting separately as a
class.
8. VOTING RIGHTS. The holders of the shares of 10% Cumulative
Preferred Stock shall only have the voting rights specifically required
by law under the Nevada General Corporation Law, and shall have the
following additional voting rights subject to and after compliance with
any applicable laws and rules or actual requirements of any exchange
upon which any securities of the Corporation are listed:
(a) Except as may otherwise be specifically required by law
under the Nevada General Corporation Law, the holders of the
shares of 10% Cumulative Preferred Stock shall not have the
right to vote such stock, directly or indirectly, at any
meeting of the stockholders of the Corporation and such shares
of stock shall not be counted in determining the total number
of outstanding shares to constitute a quorum at any meeting of
stockholders.
(b) In the event that, under any circumstance, the holders of
the 10% Cumulative Preferred Stock are required by law to vote
upon any matter, the approval of such series
<PAGE> 86
shall be deemed to have been obtained upon the affirmative
vote of the holders of only a majority of the shares of the
10% Cumulative Preferred Stock then outstanding.
(c) Except as set forth herein, or as otherwise provided by
the Articles of Incorporation, as amended, or by law, holders
of the 10% Cumulative Preferred Stock shall have no special
voting rights and their consent shall not be required for the
taking of any corporate action.
9. NO CONVERSION RIGHTS. The 10% Cumulative Preferred Stock
may not be converted into any other securities of the Corporation.
10. LIMITED RIGHT TO ELECT DIRECTOR. If and when, at any time,
six consecutive quarterly dividends, in whole or in part, on the 10%
Cumulative Preferred Stock shall be in arrears, then the holders of the
shares of 10% Cumulative Preferred Stock, voting separately as a class,
shall be entitled, at any annual meeting of stockholders or special
meeting held in place thereof, or at a special meeting of the holders
of the shares of the 10% Cumulative Preferred Stock called as
hereinafter provided, to elect one (1) director and, except as
otherwise provided in the Articles of Incorporation, as amended, the
holders of shares of Common Stock and any other class of stock of the
Corporation, to the extent it shall have the right to vote, shall be
entitled to elect all remaining members of the Board of Directors, but
the holders of Common Stock and any other class of stock of the
Corporation shall not be entitled to vote in the election of the
director of the Corporation so to be elected by the holders of shares
of 10% Cumulative Preferred Stock. Such right of the holders of shares
of 10% Cumulative Preferred Stock to elect one (1) director may be
exercised until dividends in default on the outstanding shares of 10%
Cumulative Preferred Stock have been paid in full or funds sufficient
therefor set aside, and when so paid or provided for, then the right of
the holders of shares of 10% Cumulative Preferred Stock to elect such
director shall cease, but subject always to the same provisions for the
vesting of such voting rights in the case of any such future dividend
default or defaults. At any time after such voting power shall have
vested in the holders of the outstanding shares of 10% Cumulative
Preferred Stock, the Secretary of the Corporation may, and upon the
written request of holders of record of 25% or more of the shares of
10% Cumulative Preferred Stock then outstanding addressed to him at the
principal office of the Corporation shall, call a special meeting of
the holders of shares of 10% Cumulative Preferred Stock for the
election of the director to be elected by them as herein provided, to
be held within sixty (60) days after delivery of such request and at
the place and upon the notice provided by law and in the Bylaws for the
holding of meetings of stockholders; provided, however, that the
Secretary shall not be required to call such special meeting in the
case of any such request received less than 120 days before the date
fixed for the next ensuing annual meeting of stockholders. No such
special meeting and no adjournment thereof shall be held on a date less
than 30 days before the annual meeting of stockholders or special
meeting held in place thereof next succeeding the time when the holders
of the 10% Cumulative Preferred Stock become entitled to elect one (1)
director as above provided. If at any annual or special meeting or any
adjournment thereof the holders of at least a majority of the shares of
10% Cumulative Preferred Stock then outstanding shall be present or
represented by proxy then, by vote of the holders of at least a
majority of the shares of 10% Cumulative Preferred Stock present or so
represented at such meeting, the authorized number of directors of the
Corporation shall be increased by one (1) and the holders of shares of
10% Cumulative Preferred Stock shall be entitled to elect the
additional director so provided for. The director so elected shall
serve until the next annual meeting or until his successor shall be
elected and shall qualify; provided, however, that whenever the holders
of shares of 10% Cumulative
<PAGE> 87
Preferred Stock shall be divested of voting power as above provided,
the term of office of the person elected as director by the holders of
shares of 10% Cumulative Preferred Stock as a class shall forthwith
terminate and the number of the Board of Directors shall be reduced
accordingly.
If, during any interval between any special meeting of the
holders of shares of 10% Cumulative Preferred Stock for the election of
one (1) director to be elected by them as provided in the preceding
paragraph and the next ensuing annual meeting of stockholders, or
between annual meeting of stockholders for the election of directors,
and while the holders of shares of 10% Cumulative Preferred Stock shall
be entitled to elect one (1) director, the director so elected by the
holders of shares of 10% Cumulative Preferred Stock shall resign or
die, a majority of the directors then in office though less than a
quorum shall designate the successor to fill the vacancy thereby
created; provided, however, that if a successor shall not be designated
to fill the vacancy created by the resignation or death of the director
elected by the holders of shares of 10% Cumulative Preferred Stock as
herein above provided, within forty (40) days after the creation of
such vacancy the Secretary of the Corporation shall call a special
meeting of the holders of shares of 10% Cumulative Preferred Stock and
such vacancy shall be filled at such special meeting as herein above
provided. Any director elected by the holders of the shares of 10%
Cumulative Preferred Stock or designated to fill a vacancy may be
removed from office only by the vote of the holders of a majority of
the outstanding shares of 10% Cumulative Preferred Stock at a special
meeting of the holders of shares of 10% Cumulative Preferred Stock
called for the purpose of removing such director. Upon the written
request of holders of 25% or more of the shares of 10% Cumulative
Preferred Stock then outstanding addressed to him at the principal
office of the Corporation, the Secretary shall, within ten (10)
calendar days after delivery to him of such request, call a special
meeting of the holders of shares of 10% Cumulative Preferred Stock for
such purpose to be held within sixty (60) days after delivery of such
request; provided, however, that the Secretary shall not be required to
call a special meeting in the case of any request received less than
120 calendar days before the date fixed for the next ensuing annual
meeting of stockholders. The holders of shares of 10% Cumulative
Preferred Stock voting separately as a class shall be entitled to fill
any vacancy created by the removal of the director at any meeting at
which such removal shall have been approved or if such vacancy is not
so filled, it may be filled as provided above.
11. REACQUIRED SHARES. Any shares of 10% Cumulative Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever may be retired and canceled promptly after the acquisition
thereof. All such shares shall, upon cancellation, become authorized
but unissued shares of Special Stock and may be re-issued as part of a
new series of Special Stock subject to the conditions and restrictions
on issuance set forth in the Articles of Incorporation, as amended, or
as otherwise required by law.
IN WITNESS WHEREOF, said TARRAGON REALTY INVESTORS, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
William S. Friedman, its President and Kathryn Mansfield, its Secretary as of
the ________ day of ____________, 2000.
TARRAGON REALTY INVESTORS, INC.
By:
--------------------------------------
Name: William S. Friedman
President
<PAGE> 88
By:
--------------------------------------
Name: Kathryn Mansfield
Secretary
THE STATE OF TEXAS......... )
......... )
COUNTY OF DALLAS......... )
On _____________, 2000 personally appeared before me a Notary Public,
William S. Friedman, President of TARRAGON REALTY INVESTORS, INC., and Kathryn
Mansfield, Secretary of TARRAGON REALTY INVESTORS, INC., who acknowledged that
they executed the above instrument.
-------------------------------
Notary Public, State of Texas
My Commission expires:
- ---------------------------------
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into
effective as of the 7th day of February, 2000 by and between TARRAGON REALTY
INVESTORS, INC., a Nevada corporation ("TRII") and ROBERT C. ROHDIE, an
individual (herein called "Employee").
W I T N E S S E T H:
WHEREAS, TRII is engaged in the business of investing in equity
interests in real estate and financing real estate and real estate related
activities through mortgage loans including first, wrap-around and junior
mortgage loans and has elected to be treated as a real estate investment trust,
but has from time to time in the past and may again in the future engage in any
and all aspects of the real estate business including acquisition, development
and construction (all collectively the "Real Estate Business");
WHEREAS, TRII desires to employ Employee as a senior executive officer
and Employee is willing to accept such employment, all under the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
promises and covenants contained herein, and other good and valuable
consideration, the receipt, sufficiency and adequacy of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
1. Adoption of Recitals. The parties hereby adopt and confirm the foregoing
recitals in the same manner as if fully recopied herein for all purposes.
2. Employment. TRII agrees to employ Employee for the term of this Agreement as
set forth in Section 3 below, and Employee agrees to accept such employment and
to serve TRII in the capacity of President and Chief Executive Officer of
Tarragon Development Corporation, a wholly owned subsidiary of TRII, and to fill
such other positions of responsibility and description as the Board of Directors
of TRII may from time to time determine, all upon the terms and conditions
herein set forth.
3. Term. The term of Employee's employment shall commence on the Effective Date
of this Agreement and shall continue for three (3) full calendar years
thereafter, expiring on February 6, 2003 (the "Initial Period"). Thereafter,
this Agreement shall automatically renew and continue on a year-to-year basis
unless terminated by written notice of non-renewal from either party to this
Agreement to the other party, delivered at least thirty (30) calendar days prior
to the expiration of the Initial Period or thirty (30) calendar days prior to
the termination of any subsequent annual extension of such period of employment,
unless otherwise previously terminated as set forth herein.
1
<PAGE> 2
4. Compensation. In consideration of services to be rendered by Employee during
the term of this Agreement, TRII shall compensate Employee as follows:
a. Base Compensation. While Employee is in the employ of TRII under the
provisions of this Agreement, TRII shall pay to Employee a base
compensation at the rate of $200,000 per annum during each year of the
Initial Period, payable no less frequently than 1/12th per month;
during each annual period after the Initial Period, TRII shall pay to
Employee a base compensation at the rate of $200,000 per annum,
payable no less frequently than 1/12th per month, or at such higher
rate of base compensation as may be set from time to time by the Board
of Directors.
b. Bonus. Employee may receive, in addition to his base compensation,
such bonuses as may be deemed appropriate by the Board of Directors of
the Company, in their sole discretion.
c. Other Benefits. During the term of this Agreement, TRII will provide
for Employee the following:
i. Health Insurance; Benefit Plans. TRII will allow Employee to
participate in any benefit plan of TRII or any of its subsidiaries
covering health/major medical insurance and any self-funded retirement
or "401-k" plan on the same basis as any other senior executive
officer of the Company.
ii. Other Insurance. TRII will provide life insurance and disability
insurance for Employee on the same basis or pursuant to the same
arrangements now or hereafter existing for the benefit of senior
executive officers of TRII and its subsidiaries and Employee generally
at any time during the term of this Agreement.
iii. Vacation and Other Benefits. Employee shall be entitled to participate
in benefits generally extended from time to time to senior executive
officers of TRII and its subsidiaries and reasonable vacations
consistent with TRII and its subsidiaries' policies.
5. Duties; Extent of Services. Employee shall devote substantially all of his
business time, attention and energy to TRII and its subsidiaries and shall not,
during the term of employment, be actively engaged in any competitive managerial
or employment capacity in any other business activity for gain, profit or other
pecuniary advantage; provided, however, that the foregoing does not prohibit
Employee from making investments that do not materially interfere with the
performance of his duties for TRII and its subsidiaries and, provided, further,
that TRII recognizes that Employee has certain other business interests in real
estate which may require some devotion of time by Employee. Within such
parameters, Employee shall serve TRII and its subsidiaries in such responsible
capacities as the Board of Directors or other senior executive officers of TRII
may, from time to time, determine and in such capacities shall serve TRII and
its subsidiaries faithfully and to the best of his ability discharge the duties
undertaken by him
2
<PAGE> 3
hereunder under the direction of the Board of Directors and other senior
executive officers of TRII, subject at all times to the discretion and control
of the Board of Directors of TRII. Employee shall also serve as a member of the
Board of Directors, and shall perform the duties of a director and/or member of
any committee of directors of TRII to which Employee is elected or selected.
Employee agrees that he shall not, during the term of this Agreement, whether as
an employee, director, officer, shareholder, owner, partner or otherwise,
directly or indirectly, engage in any business or businesses competitive to that
conducted by TRII or any of its subsidiaries or affiliates. Nothing herein
contained shall prevent Employee from owning or dealing in stocks or interests
of any entity actively traded on a recognized exchange which may be so
competitive (without participating in the management or control of such entity),
provided that Employee's holdings shall not at any time exceed five percent (5%)
of the outstanding equity voting securities of such entity. Employee may from
time to time request permission of the Board of Directors of TRII to engage in
other business activities (which may include service as a director of other
entities) which do not interfere with or prevent his faithful performance of the
responsibilities assigned to him by the Board of Directors or other senior
executive officers of TRII. Any such permission granted must be in writing to
become effective and be pursuant to and approved at a duly constituted meeting
of the Board of Directors. Notwithstanding the foregoing or anything else to the
contrary contained herein, it is recognized that Employee is an equity owner of
and/or directly involved with businesses and entities listed and described on
Exhibit "1" annexed hereto (all of which are collectively sometimes referred to
herein as the "Rohdie Entities"). The continuation of Employee's ownership
and/or involvement with the Rohdie Entities, including Employee's active
participation in the respective operations of the Rohdie Entities, shall not be
deemed to be a conflict with, or breach or violation of this Agreement or to
create, by itself, any right of termination or cancellation of this Agreement.
6. Termination. Employee's employment hereunder may be terminated at any time
during the term of this Agreement, but only on the terms and conditions set
forth below, provided, however, that notwithstanding such termination or any
other provision of this Agreement, the provisions of Sections 8, 9, 10 and 11
shall survive the term and termination of this Agreement and Employee and TRII
shall continue to be bound thereby:
a. Mutual Agreement. Employee's employment hereunder may be terminated at
any time by mutual agreement on terms to be negotiated and reduced to
writing at the time of such termination.
b. Death. Employee's employment hereunder and this Agreement shall
terminate automatically upon the death of Employee.
c. Disability. Employee's employment hereunder shall terminate and this
Agreement shall terminate automatically upon the total disability of
Employee. For purposes of this Agreement "total disability" shall be
deemed to have occurred if in the sole judgment of TRII, acting in
good faith by a vote of at least 80% in number of the members of the
Board of Directors, Employee shall have been unable to perform the
duties of employment due to mental or physical incapacity for a period
of 90 consecutive calendar days.
3
<PAGE> 4
d. Cause. TRII may terminate Employee for "Cause." For purposes of this
Agreement, the term "Cause" shall be deemed to be conduct by Employee
constituting "mismanagement" (defined below), willful misconduct or
fraud during the term of this Agreement directly involving TRII and
the determination made in good faith by a vote of at least 50% in
number of the members of the Board of Directors of TRII or the
occurrence of events which, in the determination made in good faith by
a vote of at least 50% in number of the members of the Board of
Directors of TRII render Employee unable to devote full time and
undivided attention to his duties under this Agreement (other than
death, disability or illness). The term "gross mismanagement" shall be
and mean (i) that Employee shall be convicted of, or shall admit in
writing or publicly, to a crime involving the business or property of
TRII or any of its subsidiaries, (ii) the absence other than by reason
of illness, injury or vacation from his duties without the consent of
TRII for more than thirty (30) consecutive days, (iii) the negligence
by Employee in the performance of his duties under this Agreement or
otherwise willfully failing to comply with the terms and conditions of
this Agreement, or (iv) the engagement by Employee in any activity
that would, in the reasonable opinion of at least 50% of the members
of the Board of Directors of TRII, constitute a direct conflict of
interest with TRII and/or its business, except for matters involving
the Rohdie Entities. In the event of any such termination for Cause of
Employee's employment hereunder, such termination shall not affect any
of TRII's or Employee's other rights and/or remedies and any such
termination for Cause may be made by TRII upon notification to the
Employee in writing of the occurrence of any of the events specified
in this paragraph within fifteen (15) calendar days prior to such
termination.
e. Requested Resignation. The employment of Employee may be terminated
without Cause by a vote of at least 80% in number of the members of
the Board of Directors of TRII.
f. Employee's Voluntary Resignation. The employment of Employee will be
terminated in the event of Employee's voluntary written resignation
from employment.
7. Effects of Termination. Upon severance or termination of employment of
Employee for any reason and without regard to any attribution of fault to any
person, Employee shall, upon such severance or termination:
a. return to TRII and its subsidiaries all items of property owned or
leased by TRII and its subsidiaries in Employee's possession
including, without limitation, all credit cards, cash advances, work
papers, computer programs or tapes, computers, customer lists, keys to
facilities, vehicles or other items of transportation; and
b. have such other rights to which Employee may be entitled under the
provisions of this Agreement.
Notwithstanding any subpart of this Section 7, upon severance or termination of
employment, Employee will make himself available, when reasonably requested, for
testimony in any lawsuit or administrative proceeding that may be brought
against TRII and/or its subsidiaries after
4
<PAGE> 5
severance or termination of his employment. In the event Employee is called upon
to render such services, TRII agrees to reasonably compensate Employee for such
services.
8. Compensation upon Termination. If the employment of Employee under this
Agreement is terminated pursuant to the provisions of paragraph (a) under
Section 6 above, the terms of the negotiated mutual settlement shall encompass
and provide for the compensation, if any, to be paid to Employee and no further
compensation will be payable to Employee except as specifically provided
therein. In the event of the termination of this Agreement by reason of
paragraph (b) or (c) of Section 6 above, this Agreement shall terminate and no
further compensation shall be paid to Employee other than the base compensation
accrued through the date of termination, and such other benefits specifically
provided to Employee or his heirs under any benefit plan then in effect
involving the Employee. In the event of termination of this Agreement by reason
of paragraphs (d) or (f) under Section 6 above, this Agreement shall terminate
and no further compensation shall be paid to Employee other than the base
compensation accrued through the date of termination. In the event of
termination of this Agreement by reason of paragraph (e) under Section 6 above,
Employee shall receive on a monthly basis from TRII a payment of $16,666 per
month for the lesser of (x) the remaining number of months in the Initial Period
or, if such Initial Period has passed, then the then annual renewal term of this
Agreement, or (y) the equivalent number of months covered by Section 10 below
which are observed by Employee, not to exceed 12 calendar months.
9. Disclosure of Information. The Employee hereby acknowledges that he has had
and will continue to have access to certain trade secrets and confidential
information of TRII and its subsidiaries and affiliates (all collectively the
"Entities") and that such information constitutes the valuable, special and
unique property of the Entities. Employee will not, during or after the term of
employment hereunder, disclose any such trade secrets or confidential
information to any person or entity for any reason or purpose whatsoever, except
as may be required by law.
10. Restrictive Covenant; Agreement Not to Compete. Employee and TRII agree that
the covenants, agreements and restrictions contained herein are necessary to
protect the business good will, business interests and proprietary rights of
TRII and that the parties to this Agreement have independently discussed,
reviewed and had the opportunity to consult legal counsel about this Agreement
and have stipulated that the covenant contained in this Section 10 is an
integral part of an enforceable agreement, specifically the Agreement, and the
covenants contained herein were made at the same time that the Agreement was
consummated by the parties hereto, and that the covenants contained herein are
fair and reasonable in (i) geographical area, (ii) length of time, and (iii)
scope of activity being restrained. Employee expressly agrees that while this
Agreement is in effect, and following the termination of employment with TRII
pursuant to Section 6 above, for a period of one calendar year following the
date of termination, Employee shall not, except as provided below, "engage,"
directly or indirectly, in a "Competing Business." For purposes of the foregoing
sentence, the term "engage" shall mean and include activities that directly
further the business of any business enterprise (regardless of whether it is a
corporation, partnership, sole proprietorship, limited liability or other
business association entity) which
5
<PAGE> 6
constitutes a "Competing Business" whether Employee serves as a principal,
owner, director, consultant, stockholder or employee of any such business
enterprise. "Competing Business" shall mean a business enterprise regardless of
how constituted as a sole proprietorship, corporation, limited liability
company, general or limited partnership or otherwise which is engaged in the
business of investing in equity interests in real estate and financing real
estate and real estate related activities through mortgage loans including
first, wrap-around and junior mortgage loans in the geographical areas or states
where TRII is actively engaged in such business during the period covered by
this Agreement or at the termination hereof, as applicable. For the purposes of
this Agreement, the term "Person" means any individual, corporation,
partnership, unincorporated association, firm, trust, joint stock company, joint
venture or other entity of whatever nature. For the purposes of this Agreement,
the term "affiliate" means, with respect to any Person, any Person that directly
or indirectly controls, or is controlled by or is under common control with,
such designated Person and, without limiting the generality of the foregoing,
shall include any Person who, directly or indirectly, is the legal or beneficial
owner of or controls 10% or more of any class of equity securities of the
designated Person. For the purpose of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise. Notwithstanding the foregoing, Employee shall not be
deemed to be engaged in a Competing Business solely by reason of:
a. ownership of an economic interest in a Competing Business on the
Effective Date of this Agreement or continuing to hold such interest
after the date of this Agreement or receipt of any payments in respect
of such economic interest; or
b. continuing or becoming, after termination of this Agreement, an
officer, director, consultant or employee of any of the Rohdie
Entities or performing services or duties after termination of this
Agreement requested by any of the Rohdie Entities (other than, in each
instance specified in this paragraph, those which require Employee to
render assistance to a Competing Business that furthers its
competitive position in the areas specified in the definition of
"Competing Business"); or
c. beneficial ownership as an investment, acquired after the date of this
Agreement, of not more than 5% of the equity securities of any entity
that constitutes a "Competing Business" if such entity is subject to
the reporting requirements imposed by Sections 13 or 15 of the
Securities Exchange Act of 1934, as amended.
It is intended that the restrictions set forth in this section shall not be held
invalid or unenforceable because of the scope of the territory or actions
subject thereto or restricted thereby for the period of time within which such
restriction is operative, but any judgment of any court of
6
<PAGE> 7
competent jurisdiction may redefine or further limit the territory included in
the definition of "Competing Business," increase the exceptions set forth in the
immediately preceding paragraph and/or reduce the period of time during which
such restriction is enforceable.
11. Agreement Not to Solicit Employees. Following termination of employment with
TRII hereunder, Employee agrees that for a period of one (1) calendar year,
Employee will not, either alone or on behalf of any business engaged in a
"Competing Business" solicit or induce, or in any manner attempt to solicit or
induce, any person employed by, or an agent of, TRII or its affiliates to
terminate his or her contract of employment or agency (including those employees
at will), as the case may be, with TRII or one of its affiliates (other than
Employee's secretary or direct assistant).
12. Injunctive Relief; Independent Covenants. The covenants contained in
Sections 8, 9, 10 and 11 are independent and separate and, in the event any
provision contained in this Agreement is declared invalid or illegal, the other
provisions shall not be affected or impaired thereby and shall remain valid and
enforceable. In the event of a breach or threatened breach by Employee of any of
Sections 9, 10 or 11 of this Agreement, TRII shall be entitled to an injunction
to prevent irreparable injury to TRII or any of its affiliates. In the event of
a breach by TRII of Section 8 of this Agreement, the Employee shall be entitled
to an injunction to prevent irreparable injury to the Employee. Nothing herein
contained shall be construed as prohibiting any of TRII or any affiliate or the
Employee from pursuing any other remedies available to them for such breach or
threatened breach, including recovery of damages.
13. Right of First Refusal. While Employee is in the employ of TRII under the
provisions of this Agreement, regardless of whether any such duty or obligation
might exist absent this Agreement, Employee shall provide to TRII the right to
first acquire or engage in (and Employee shall refrain from acting with respect
to, until the expiration of ten calendar days following the date of written
notice to TRII by Employee of such opportunity) any opportunity relating to any
aspect of the real estate business received by Employee in any manner from any
source, in a manner which might directly or indirectly confer a benefit of any
kind upon Employee or the Rohdie Entities in all instances where such knowledge,
information or opportunity is received in the first instance by Employee from
his activities on behalf of TRII or its Subsidiaries, or while Employee is
directly and exclusively engaged in performing his duties as a director or
officer of TRII in TRII's business and is received as a direct result of such
activities, or in a written communication the express terms of which evidence
that it is intended to be received, and it was in fact intended to be received,
only by an officer or director of TRII in that capacity, unless otherwise
approved by a majority of the disinterested members of the Board of Directors of
TRII. The Employee also hereby agrees to apprise TRII in writing of such
opportunities in the real estate business and to impart to TRII such knowledge,
information, advice, and expertise relating to possible opportunities in the
real estate business as he may receive after the date of this Agreement. In the
event TRII fails to notify Employee of its election to exercise any such right
of first refusal within ten (10) calendar days following receipt of such notice,
TRII shall be deemed to have elected not to exercise such right of first
refusal. The right of first refusal
7
<PAGE> 8
contained herein shall remain in full force and effect throughout the term of
this Agreement except with respect to those real estate opportunities for which
TRII has elected not to exercise such right of first refusal. In the event that
TRII ever elects not to exercise its right of first refusal and the real estate
opportunity is then available to Employee, Employee may take up such opportunity
on such basis as he deems appropriate without further obligation to TRII, so
long as such real estate opportunity does not interfere with the covenant of
Employee in Section 5 above to devote substantially all of his business time,
attention and energy to TRII and its subsidiaries.
14. Management of Real Estate Assets. During the term of this Agreement,
Employee will utilize his best lawful efforts to transfer to TRII and/or its
subsidiaries the right and opportunity to manage any real estate assets now or
hereafter controlled by Employee or his family which are of a type and in a
location where TRII is then managing one or more similar properties on terms
mutually acceptable to Employee and TRII.
15. Notices. Any notice or other communication required or permitted to be given
by this Agreement or any other document or instrument referred to herein or
executed in connection herewith must be given in writing (which may be by
telecopy, followed by mail or personal delivery) and must be personally
delivered or mailed by prepaid, certified or registered mail, to the party to
whom such notice or communication is directed, at the address of such party set
forth opposite his or its name on the signature page to this Agreement. Subject
to the other provisions of this Agreement, any party may change its address (or
re-designate the person to whom such notice shall be delivered) for purposes of
this Agreement by giving notice of such change to the other party pursuant to
this section. In all instances, any notice or other communication required or
permitted to be given by this Agreement shall only be effective upon actual
receipt thereof by the person intended to receive same.
16. Modification or Waiver. This Agreement may be amended, modified or
superseded and any of the terms, covenants, representations, warranties or
conditions herein may be waived, but only by a written instrument executed by
the parties hereto. No waiver of any nature, in any one or more instance, shall
be deemed to be or be construed as a further or continued waiver of any
condition or any breach of any other term, covenant, representation or warranty
in this Agreement. This Agreement and each provision hereof may not be waived,
altered, amended or modified, except in writing, duly executed by the parties
hereto. No failure to exercise and no delay in exercising, any right or power
hereunder shall operate as a waiver thereof.
17. Benefit. This Agreement shall inure to the benefit of and be binding upon
Employee, his heirs and personal representatives and TRII, its successors and
assigns. Neither this Agreement nor the rights and obligations created hereunder
may be assigned by either party without the prior written consent of the other
party.
18. Further Cooperation. To the extent that either TRII's or Employee's further
approval or other action is deemed necessary or desirable by the other party in
order to effectuate the terms and conditions of this Agreement and the matters
set forth herein, the parties hereby agree to
8
<PAGE> 9
execute all reasonable documents and take all actions reasonably requested by
the other party to effectuate the terms and conditions of this Agreement.
19. Governing Law and Enforcement. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Texas, the
state in which it was negotiated, executed and delivered, without regard to any
principals of law involving conflicts of laws. Should any clause, sentence,
section or paragraph of this Agreement be judicially or administratively
declared to be invalid, unenforceable or void under the laws of the State of
Texas or the United States of America, or any agency or subdivision thereof,
such decision shall not have the effect of invalidating or voiding the remainder
of this Agreement and the parties hereto agree that the part or parts of this
Agreement so held to be invalid, unenforceable or void shall be deemed to have
been deleted here from and the remainder shall have the same force and effect as
if such part or parts had never been included herein. In the event any party
hereto shall fail to perform any of its obligations under this Agreement, such
party hereby agrees to pay all reasonable expenses, including reasonable
attorneys' fees, which may be incurred by any party hereto which is successful
in enforcing this Agreement.
20. Entire Agreement; Counterparts. This Agreement and the agreements referred
to herein constitute the entire agreement between the parties hereto concerning
the subject matter hereof, and supersedes all prior memoranda, correspondence,
conversations, and agreements. This Agreement may be executed in several
identical counterparts that together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
TARRAGON REALTY INVESTORS, INC.
By: /s/ William S. Friedman
------------------------------
William S. Friedman
President
/s/ Robert C. Rohdie
------------------------------
Robert C. Rohdie, individually
9
<PAGE> 10
EXHIBIT "1"
List and Description of Rohdie Entities
10
<PAGE> 1
Exhibit 21.1
TARRAGON REALTY INVESTORS, INC.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries and partnership interests of
Tarragon Realty Investors, Inc., and the state or other jurisdiction of
organization or incorporation (indention means direct parent relationship):
<TABLE>
<CAPTION>
Jurisdiction of
Organization or
Name of Entity Incorporation
- -------------- ------------------
<S> <C>
18607 Ventura Associates, Ltd. (59%) California
Acadian Place Apartments, L.L.C. (99%) Louisiana
Acadian Place Holdings, L.L.C. Louisiana
Acadian Place Apartments, L.L.C. (1%) Louisiana
Antelope Pines Estates, L.P. (1%) California
Aspentree National Associates (99%) Texas
Larchmont Associates, L.P. (99%) Maryland
Carlyle Tower National Associates, L.P. (99%) Michigan
Collegewood Property, Inc. Florida
Consolidated Capital Properties, II (99.5%) Texas
Bryan Hill Associates, Ltd. (99%) Georgia
English Village Partners (90%) California
Consolidated Century Centre Associates (99%) California
Cornell National, L.L.C. California
Danforth National Apartments, Ltd. (79%) Florida
Emerson Center Company (50%) Georgia
Forest Oaks National, Inc. Texas
Lamplighter Associates (99%) Georgia
Fountainhead Apartments National, Ltd. (99%) Florida
Fountainhead, Inc. (50%) Florida
Fountainhead Apartments National, Ltd. (1%) Florida
French Villa Apartments, L.L.C. Oklahoma
French Villa National Associates (99%) Oklahoma
Heather Limited Partnership (99%) Maryland
Heron Cove, Inc. Florida
National Omni Associates, L.P. (45.5%) Delaware
Palm Grove Gardens, Ltd. (90%) Florida
Silver Creek Apartments, Ltd. (90%) Florida
Kirklevington Apartments I, LLC Kentucky
Lake Lotta Apartments, LLC (50%) Florida
Lake Point National, Inc. Tennessee
Tarragon Lake Point, L.P. (1%) Tennessee
Marina Park National Partners (90%) Florida
Martin's Landing Associates, Ltd. (99%) Georgia
Midway Mills Partners, L.P. (99%) Texas
Morningside National, Inc. Florida
</TABLE>
84
<PAGE> 2
Exhibit 21.1 (Continued)
TARRAGON REALTY INVESTORS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Organization or
Name of Entity Incorporation
- -------------- ------------------
<S> <C>
Mountain View National, Inc. Nevada
Danforth National Apartments, Ltd. (1%) Florida
Mountain View National, L.P. (1%) Nevada
Orange National Partners, Ltd. (1%) Florida
RI Panama City, Ltd. (1%) Florida
RI Windsor, Ltd. (1%) Florida
Tarragon Savannah, L.P. (1%) Georgia
Tarragon Savannah Limited Partnership II Georgia
Mountain View National, L.P. (99%) Nevada
Mustang National, Inc. Texas
Mustang Creek National, L.P. (1%) Texas
National Income Realty Investors, Inc. Nevada
Bayfront National Associates, L.P. (1%) Texas
Bryan Hill Associates, Ltd. (1%) Georgia
Carlyle Tower National Associates, L.P. (1%) Michigan
Consolidated Capital Properties II (.5%) Texas
Consolidated Century Centre Associates, L.P. (1%) California
Emerson Center Company (50%) Georgia
Heather Limited Partnership (1%) Maryland
Houston Highway South, L.P. (1%) Texas
JS Acquisition Corp. Nevada
Lamplighter Associates, Ltd. (1%) Georgia
Marina Park National Partners (10%) Florida
Martin's Landing Associates, Ltd. (1%) Georgia
Midway Mills Partners, L.P. (1%) Texas
Observatory Partners, L.P. (.1%) Texas
PB Acquisition Corp. Nevada
Ansonia Apartments, L.P. (70%) Delaware
Autumn Ridge Partners Connecticut
Lakeview Apartments, Ltd. Connecticut
Meriden East Partners Connecticut
Rancho Sorrento Leasing Corp. Nevada
Meadow Brook Apartments, LLC Louisiana
Regency Green National Corp. Nevada
Houston Highway South, L.P. (99%) Texas
Regent Circle, L.L.C. (1%) Florida
Summit on the Lake Associates, Ltd. (1%) Texas
Tarragon Lake Point, L.P. (99%) Tennessee
Vistas at Lake Worth, L.P. (1%) Texas
Westdale National Associates, L.P. (1%) Texas
Woodbrier National, L.P. (1%) Oklahoma
Woodcreek National Associates, L.P. (1%) Colorado
</TABLE>
85
<PAGE> 3
Exhibit 21.1 (Continued)
TARRAGON REALTY INVESTORS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Organization or
Name of Entity Incorporation
- -------------- ------------------
<S> <C>
National Omni Associates, L.P. (24.5%) Florida
Newport Plantation, L.C. (90%) Florida
Orange National Partners, Ltd. (49%) Florida
Orlando Central Park Tarragon, L.L.C. Florida
Plaza Hills National, Inc. Missouri
Regent Circle, L.L.C. (99%) Florida
RI Panama City, Ltd. (49%) Florida
RI Windsor, Ltd. (49%) Florida
Southern Elms National Associates, L.P. (99%) Oklahoma
Stewart Square National, Inc. Nevada
Summit on the Lake Associates, Ltd. (99%) Texas
Tarragon Briarwest, Inc. Texas
Tarragon Briarwest Partners (1%) Texas
Tarragon Briarwest Partners (99%) Texas
Tarragon Development Corporation Nevada
Tarragon Development LLC (66%) Delaware
Tarragon Diamond Loch, Inc. Texas
Tarragon Huntsville Apartments, L.L.C. (50%) Alabama
Tarragon Limited, Inc. Nevada
Bayfront National Associates, L.P. (99%) Texas
Mustang Creek National, L.P. (99%) Texas
Observatory Partners, L.P. (99.9%) Texas
Parkdale Gardens National Corp. Texas
Tarragon 820, L.P. (99.9%) Texas
Tarragon Brooks, L.P. (99.9%) Texas
Tarragon Time Square I, L.P. (99.9%) Texas
Tarragon University I, L.P. (99.9%) Texas
Vinland Aspentree, Inc. Texas
Vinland Riverside Partners, L.P. (99%) Texas
Vintage at Legacy Lakes II, L.P. (99.9%) Texas
Tarragon Mariner Plaza, Inc. Florida
Tarragon Merritt 8, Inc. Connecticut
Member of Meritt 8 Acquisitions, LLC (80%) Connecticut
Tarragon O'Hare Office Park, Inc. Illinois
Tarragon Management, Inc. Texas
Tarragon Savannah, L.P. (49%) Georgia
Tarragon Savannah Limited Partnership II (49%) Georgia
Tarragon Stoneybrook Apartments, L.L.C. (50%) Florida
Tarragon Time Square, Inc. Texas
Tarragon Time Square I, L.P. (.1%) Texas
Tarragon Turtle, Inc. Texas
Tarragon 820, L.P. (.1%) Texas
Tarragon University, Inc. Texas
Tarragon University I, L.P. (.1%) Texas
</TABLE>
86
<PAGE> 4
Exhibit 21.1 (Continued)
TARRAGON REALTY INVESTORS, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Organization or
Name of Entity Incorporation
- -------------- ------------------
<S> <C>
Texas National Construction, Inc. Texas
TRI Antelope, Inc. Nevada
Antelope Pines Estates, L.P. (48%) California
TRI Woodcreek, Inc. Nevada
Woodcreek Garden Apartments, L.P. (48%) California
TTP Investors, Inc. California
18607 Ventura Associates, Ltd. (1%) California
Vinland Holly House, Inc. Florida
Vinland Oakbrook, Inc. Texas
Tarragon Brooks, L.P. (.1%) Texas
Vinland Park 20, Inc. Florida
Vinland Property Investors, Inc. Nevada
Aspentree National Associates, L.P. (1%) Texas
French Villa National Associates, L.P. (1%) Oklahoma
Southern Elms National Associates, L.P. (1%) Oklahoma
Vinland Aspentree, Inc. Texas
Vinland Riverside Partners, L.P. (1%) Texas
Vintage at Legacy Lakes National, L.P. (99%) Texas
Vintage National, Inc. Texas
Vintage at Legacy Lakes National, L.P. (1%) Texas
Vintage at Legacy Lakes II, L.P. (.1%) Texas
Vistas at Lake Worth, L.P. (99%) Texas
Westdale National Associates, L.P. (99%) Texas
Woodbrier National, L.P. (99%) Oklahoma
Woodcreek Garden Apartments, L.P. (1%) California
Woodcreek National Associates, L.P. (99%) Colorado
</TABLE>
87
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,951
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> (1,156)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 367,905
<DEPRECIATION> (61,425)
<TOTAL-ASSETS> 379,065
<CURRENT-LIABILITIES> 0
<BONDS> 287,767
0
0
<COMMON> 80
<OTHER-SE> 72,913
<TOTAL-LIABILITY-AND-EQUITY> 379,065
<SALES> 0
<TOTAL-REVENUES> 73,756
<CGS> 0
<TOTAL-COSTS> 37,763
<OTHER-EXPENSES> 10,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,458
<INCOME-PRETAX> 5,701
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,701
<DISCONTINUED> 0
<EXTRAORDINARY> (444)
<CHANGES> 0
<NET-INCOME> 5,257
<EPS-BASIC> .64
<EPS-DILUTED> .63
</TABLE>
