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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13951
------------------------------------
LEXFORD RESIDENTIAL TRUST
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 31-4427382
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
41 SOUTH HIGH STREET, SUITE 2410
COLUMBUS, OHIO 43215
(Address of Principal Executive Offices including Zip Code)
(614) 242-3850
(Registrant's Telephone Number, including Area Code)
------------------------------------
Indicate by check X 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
--- ---
As of May 13, 1998 there were 9,359,956 common shares of beneficial interest
issued and outstanding.
Exhibit Index on page 26
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LEXFORD RESIDENTIAL TRUST
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
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Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998
(Unaudited) and December 31, 1997 (Audited) 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 31, 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 (Unaudited) 6-7
Notes to Consolidated Financial Statements 8-16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17-25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27-28
Signatures 29
</TABLE>
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<TABLE>
<CAPTION>
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 (UNAUDITED) AND
DECEMBER 31, 1997 (AUDITED)
March 31, December 31,
1998 1997
--------------- ----------------
ASSETS
<S> <C> <C>
Rental Properties (Note 2):
Land......................................................................... $ 54,928,419 $ 23,124,313
Buildings, Improvements and Fixtures........................................... 475,614,266 138,244,903
--------------- ----------------
530,542,685 161,369,216
Accumulated Depreciation....................................................... (12,625,269) (9,151,786)
--------------- ----------------
517,917,416 152,217,430
Investments in and Advances to Unconsolidated Partnerships, net of an allowance
of $1.2 and $2.6 million at March 31, 1998 and December 31, 1997,
Respectively (Note 1).......................................................... 21,004,695 57,111,374
Cash............................................................................. 8,237,522 2,568,890
Accounts Receivable, Affiliates (net of an allowance of $426,507 and $941,521 at
March 31, 1998 and December 31, 1997, Respectively), Residents and Other
(Note 4)....................................................................... 3,276,017 4,898,993
Furniture, Fixtures and Other, Net............................................... 1,771,943 1,719,521
Funds Held in Escrow (Note 1).................................................... 22,566,879 11,887,936
Intangible Assets (Note 1)....................................................... 6,949,201 9,200,531
Net Assets of Third Party Management Business Held for Sale (Note 1)............. 1,833,968 0
Prepaids and Other (Note 1)...................................................... 4,404,595 1,992,921
--------------- ----------------
$ 587,962,236 $ 241,597,596
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and Revolving/Term Debt
Non Recourse Mortgages (Note 3)................................................$ 457,761,800 $ 142,636,874
Revolving/Term Debt............................................................ 21,760,340 7,361,682
--------------- ----------------
479,522,140 149,998,556
--------------- ----------------
Accounts Payable................................................................. 802,553 1,287,753
Accrued Interest, Real Estate and Other Taxes.................................... 10,569,434 3,719,625
Other Accrued Expenses........................................................... 10,377,279 8,241,526
Other Liabilities................................................................ 14,557,825 3,503,640
Deferred Compensation (Note 1)................................................... 9,680,181 0
--------------- ----------------
Total Liabilities.............................................................. 525,509,412 166,751,100
--------------- ----------------
Shareholders' Equity (Note 1):
Preferred Shares, $.01 par value, 5,000,000 Shares Authorized, Unissued........ 0 0
Common Shares, $.01 par value, 50,000,000 Shares Authorized, 9,216,593
and 8,493,648 Shares Issued and Outstanding, at March 31, 1998 and
and December 31, 1997, Respectively......................................... 92,165 84,936
Additional Paid-in Capital..................................................... 62,755,543 54,137,777
Retained Earnings.............................................................. 13,735,580 20,623,783
Less Cost of Treasury Shares (Note 1).......................................... (14,130,464) 0
--------------- ----------------
62,452,824 74,846,496
--------------- ----------------
$ 587,962,236 $ 241,597,596
=============== ================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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<CAPTION>
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
Three Months Ended March 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Revenues:
Rental Revenues................................................... $ 25,693,798 $ 10,187,032
Fee Based......................................................... 2,397,924 4,043,255
Interest, Principally from Unconsolidated Partnerships............ 1,106,383 2,602,255
---------------- ----------------
29,198,105 16,832,542
---------------- ----------------
Expenses:
Property Operating and Maintenance ............................... 8,305,797 3,397,651
Real Estate Taxes and Insurance................................... 2,085,062 983,217
Property Management............................................... 3,923,337 4,054,479
Administration.................................................... 1,514,421 1,041,717
Non-recurring Costs (Note 1)...................................... 1,808,180 250,000
Interest - Non-Recourse Mortgages................................. 7,887,391 3,447,086
Interest - Revolving/Term Debt.................................... 161,396 169,929
Depreciation and Amortization..................................... 4,190,091 1,465,070
Provision for Loss on Sale of
Third Party Management Business (Note 1)....................... 6,300,000 0
---------------- ----------------
36,175,675 14,809,149
---------------- ----------------
Income/(Loss) Before Gain on Disposal of Assets and Income Taxes...... (6,977,570) 2,023,393
Provision for Income Taxes: (Note 1)
Credited to Additional Paid-in Capital............................ 0 (715,800)
Current........................................................... 0 (100,000)
Gain on Disposal of Assets - Net .................................... 89,367 68,445
---------------- ----------------
Net Income/(Loss)..................................................... $ (6,888,203) $ 1,276,038
================ ================
Basic Earnings Per Share:
Net Income/(Loss)................................................. $ (0.80) $ 0.16
================ ===============
Diluted Earnings Per Share:
Net Income/(Loss)................................................. $ (0.80) $ 0.16
================ ===============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS
ENDED MARCH 31, 1998
(UNAUDITED)
Common Shares
--------------------------
Less Cost
Additional Retained of Treasury
Shares Amount Paid-in Capital Earnings Shares Total
------------ ------------ --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 8,493,648 $ 84,936 $ 54,137,777 $ 20,623,783 $ 0 $ 74,846,496
Adjust for unvested shares held in 292,443
the Rabbi Trust (Note 1) 2,924 4,447,359 (4,450,283) 0
Establish Deferred Compensation
liability for 722,664 vested shares
held in the Rabbi Trust (Note 1) (9,680,181) (9,680,181)
Contingent shares issued in
connection with Lexford
Properties, Inc. acquisition
released in exchange for
forfeiture of 600,000 shares
(Note 1) 300,000 3,000 2,997,000 3,000,000
Exercise of options under non-
qualified stock option plan 13,934 139 11,312 11,451
Trustee Retirement Plan Shares 44,000 440 651,310 651,750
Share Compensation and Trustee
Restricted Stock Plan vested
shares (Note 1) 72,568 726 510,785 511,511
Net Loss for the period (6,888,203) (6,888,203)
--------- ------------ ----------------- -------------- ------------ -------------
Balance, March 31, 1998 9,216,593 $ 92,165 $ 62,755,543 $ 13,735,580 $(14,130,464) $ 62,452,824
========= ============ ================= ============== ============ =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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<CAPTION>
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
Three Months Ended March 31,
1998 1997
----------------- ----------------
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Cash Flows provided by Operating activities:
Net Income/(Loss).................................................................... $ (6,888,203) $ 1,276,038
Adjustments to reconcile Net Income/(Loss) to Net Cash
provided by Operating activities:
Depreciation................................................................... 3,624,654 1,288,410
Amortization................................................................... 565,437 176,660
Provision for Loss on Sale of Third Party Management Business.................. 6,300,000 0
Provision for losses on Accounts Receivable.................................... 676,369 29,225
Income from Disposal of Assets................................................. (89,367) (68,445)
Provisions for Income Taxes Credited to Additional Paid-In Capital............. 0 715,800
Share Compensation Credited to Additional Paid-In Capital and Common Shares.... 1,163,261 151,418
Changes in Operating Assets and Liabilities:
Investments in and Advances to Unconsolidated Partnerships..................... 2,710,058 701,901
Accounts Receivable and Other Assets........................................... (218,105) 2,458,240
Accounts Payable and Other Liabilities......................................... 956,101 (1,382,190)
----------------- ----------------
Net Cash provided by Operating activities................................................ 8,800,205 5,347,057
----------------- ----------------
Cash Flows provided by/(used in) Investing activities:
Proceeds from sale of Assets......................................................... 117,079 64,031
Capital Expenditures................................................................. (311,536) (122,775)
Repayment from (Advances to)Unconsolidated Partnerships and Other.................... (119,543) (128,090)
Investments in Unconsolidated Partnerships........................................... (3,409,112) 0
Purchase of 287 Unconsolidated Partnerships, Net of Cash Acquired.................... (10,584,504) 0
Capital Expenditures - Real Estate................................................... (1,401,888) (170,160)
----------------- ----------------
Net Cash (used in) Investing activities.................................................. (15,709,504) (356,994)
----------------- ----------------
Cash Flows provided by/(used in) Financing activities:
Proceeds from the exercise of Stock Options.......................................... 11,451 12,288
Proceeds from Revolving/Term Debt and Other.......................................... 14,740,108 0
Principal Payment on Revolving/Term Debt and Other................................... (341,450) (4,778,044)
Payments on Mortgages - principal amortization....................................... (1,545,674) (504,976)
Payments on Mortgages - lump sum..................................................... (286,504) 0
----------------- ----------------
Net Cash provided by/(used in) Financing activities...................................... 12,577,931 (5,270,732)
----------------- ----------------
Increase/(Decrease)in Cash .............................................................. 5,668,632 (280,669)
Cash at Beginning of Year................................................................ 2,568,890 3,593,121
----------------- ----------------
Cash at End of Period.................................................................... $ 8,237,522 $ 3,312,452
================= ================
Supplemental Disclosure of Cash Flow Information
Cash Payments for Interest........................................................... $ 7,990,978 $ 3,652,954
================= ================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first quarter of 1998, the Company acquired the entire ownership
interest in 287 Unconsolidated Partnerships. Such acquisitions resulted in the
following increases (decreases) to the Company's balance sheet (SEE NOTE 2):
<TABLE>
<CAPTION>
(In thousands)
--------------
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NON-CASH EFFECTS:
Investments in and Advances to Unconsolidated Partnerships............................. $ (61,180)
Land and Building...................................................................... $ 367,771
Accounts Receivable and Other Assets................................................... $ 16,966
Mortgages.............................................................................. $ 316,857
Accounts Payable and Other Liabilities................................................. $ 13,077
CASH EFFECTS:
Cash paid to prior partners ........................................................... $ (16,962)
Net cash acquired ..................................................................... $ 6,377
----------------
$ (10,585)
================
</TABLE>
On March 13, 1998, the Company negotiated a settlement with the prior
shareholders of Lexford Properties, Inc. whereby 300,000 out of an aggregate of
900,000 common shares of beneficial interest subject to forfeiture, per the
terms of the merger agreement dated August 1, 1996, were released in exchange
for the forfeiture of the remaining 600,000 shares (SEE NOTE 1).
7
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LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
In December 1997, Lexford, Inc. announced that it would seek to
qualify and elect to be taxed as a real estate investment trust for Federal
income tax purposes ("REIT") in 1998. In connection with this decision, Lexford,
Inc. established a new entity known as Lexford Residential Trust (the
"Company"). On March 3, 1998, the shareholders of Lexford, Inc. approved the
merger of Lexford, Inc. with and into the Company. The terms of the merger
transaction provided that each share of Lexford, Inc.'s issued and outstanding
common stock be canceled and converted to two common shares of beneficial
interest in the Company. The merger transaction was consummated on March 18,
1998 and the Company has therefore acquired all of the assets and assumed all of
the liabilities of the former Lexford, Inc. The consolidated financial
statements include the accounts of Lexford Residential Trust, formerly known as
Lexford, Inc. and Cardinal Realty Services, Inc., and its wholly owned
subsidiaries and partnerships (collectively the "Company"). The Company, for
consolidated financial statement purposes, includes limited partnerships and
other legal entities which own multifamily apartment communities (the "Rental
Properties") in which the Company, in turn, owns 100% equity interest. The
Company also holds equity ownership or significant economic interests in
multifamily apartment communities in its capacity as general partner or property
manager, respectively, in various limited partnerships (the "Unconsolidated
Partnerships"). The Rental Properties and the Unconsolidated Partnerships are
collectively referred to as the "Properties." The accounts of the Unconsolidated
Partnerships are not included within the Company's consolidated financial
statements but are accounted for under the equity method. All significant
intercompany balances and transactions have been eliminated in this
consolidation. The accompanying consolidated financial statements, except for
the Consolidated Balance Sheet as of December 31, 1997, are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for a complete financial statement presentation. The consolidated
financial statements, the notes hereto and the capitalized terms included herein
should be read in conjunction with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
The interim consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
Business Overview
- -----------------
The Company is a fully integrated REIT which owns, manages and
opportunistically acquires apartment communities. As of March 31, 1998, the
Company has whole ownership interest in 398 Rental Properties comprising 26,355
residential units, a partial equity interest in 104 Unconsolidated Partnerships
comprising 7,055 residential units and a significant economic interest as
property manager in 14 Unconsolidated Partnerships comprising 2,995 residential
units. Effective as of April 1, 1998, the Company acquired the entire equity
interest in 37 former Unconsolidated Partnerships comprising 39 Properties and
2,574 residential units. The combined 516 Properties are located at 402 sites
throughout the midwestern and southeastern United States. The Company is the
seventh largest multifamily REIT in terms of equity ownership of units, with a
strong focus in the value-conscious segment of the apartment industry. The
8
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LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Company's Properties generally consist of relatively smaller apartments
communities, averaging approximately 90 units per site. The Company's primary
mission is to become the leading multifamily REIT operating in the
value-conscious segment. The value-conscious segment consists of renters who
prefer clean, attractive living accommodations without unnecessary amenities at
rental rates below the median rent in the relevant housing market. The Company
seeks to serve this segment by maintaining competitively priced rental
structures, as represented by its typical monthly rent that currently ranges
from $350 to $550 per apartment unit.
Third Party Management Business
- -------------------------------
In the first quarter of 1998 the Company was also engaged in providing
management services to third party owners of multifamily apartment communities
(the "Third Party Management Business"). Because of Internal Revenue Code
limitations on the nature and the amount of non-qualified REIT income, the
Company contributed the majority of its assets related to the Third Party
Management Business to a newly formed corporation in exchange for all of the
preferred stock of such corporation on February 20, 1998. Effective as of April
1, 1998, the Company sold all its preferred equity interest in the Third Party
Management Business. The Company has retained a majority of the executive
officers dedicated to the Company's property management activities and its
proprietary interest in property management training programs and systems and
management agreements for 14 Unconsolidated Partnerships in which the Company
currently does not own an equity interest. As a result of these transactions,
the Company has classified the Third Party Management Business as Held for Sale
in the first quarter of 1998 (SEE "SALE OF THIRD PARTY MANAGEMENT BUSINESS").
Fresh Start Accounting
- ----------------------
The Company adopted a method of accounting referred to as fresh start
("Fresh Start") reporting as of September 11, 1992 (the "Effective Date") as a
result of the Company's judicial plan of reorganization (the "Plan of
Reorganization"). The Company prepared financial statements on the basis that a
new reporting entity was created with assets and liabilities recorded at their
estimated fair values as of the Effective Date. At the Effective Date, to the
extent the non-recourse debt secured by certain assets owned by the Company
exceeded the estimated fair value of the respective Rental Property, the Company
reduced the contractual amount of the related non-recourse mortgage debt by the
amount of the deficiency (the "Mortgage Deficiency"). The contractual mortgage
balance, net of any applicable Mortgage Deficiency, is referred to as the
"Carrying Value" of the mortgage (SEE NOTE 3).
Funds Held in Escrow and Other Assets
- -------------------------------------
Funds Held in Escrow at March 31, 1998 include funds of $19.6 million
held in escrow for the benefit of Rental Properties for improvements and
deferred maintenance, real estate taxes, insurance and resident security
deposits.
Intangible Assets at March 31, 1998 is primarily comprised of goodwill
related to the acquisition of the Third Party Management Business and management
contracts on a portfolio of properties, net of amortization of approximately
$114,000 (SEE "SALE OF THIRD PARTY MANAGEMENT BUSINESS"). In addition,
Intangible Assets includes deferred financing costs of $2.5 million at March 31,
1998. The deferred financing costs relate to mortgage refinancings on the Rental
Properties and are amortized over the terms of the respective loans.
9
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LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Prepaids and Other assets at March 31, 1998 include $1.8 million of
deferred offering costs. In addition, Prepaids and Other assets consists of $1.6
million of prepaid insurance and real estate taxes, approximately $277,000 of
utility and other deposits and approximately $665,000 of other prepaid expenses.
Investments in and Advances to Unconsolidated Partnerships
- ----------------------------------------------------------
Investments in and Advances to Unconsolidated Partnerships represent
the Company's general partners' interest in and advances to Unconsolidated
Partnerships. The carrying value represents the allocation of the estimated fair
value of the underlying real estate assets as of the Effective Date or, if
later, date of purchase or investment. The contractual amounts of the
receivables are significantly more than the recorded carrying values.
Prior to November 1, 1997, the Company accounted for its investments by
the cost method. Effective November 1, 1997, based on Lexford, Inc.'s Board of
Directors' decision to seek to acquire ownership of third party equity interests
in substantially all of the Unconsolidated Partnerships, the Company began
accounting for its investments on the equity method. The Company's share of net
income of the Unconsolidated Partnerships, amounted to approximately $3,400 for
the first quarter of 1998, and is classified and combined with fee based
revenues in the consolidated statement of income.
In the first quarter of 1998, the Company invested in a joint venture
with a developer for the construction of an apartment community. The investment
of $3.4 million is included in Investments in and Advances to Unconsolidated
Partnerships at March 31, 1998.
Reclassifications
- -----------------
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
Provision for Income Taxes
- --------------------------
The Company intends to elect to be taxed as a REIT under sections 856
through 860 of the Internal Revenue Code, commencing with its taxable year
beginning January 1, 1998. As a REIT, the Company generally will not be subject
to Federal Income Tax on income it distributes to shareholders as long as it
distributes at least 95% of its REIT taxable income and satisfies a number of
organizational ownership and operational requirements. In addition, primarily
due to its organization as a Maryland real estate investment trust, the Company
believes it will not be subject to state income taxes in jurisdictions where the
Properties are located. Therefore, the Consolidated Statement of Income for the
three months ended March 31, 1998 does not include a provision for Federal or
state income taxes.
Sale of Third Party Management Business
- ---------------------------------------
Due to the non-qualified REIT income generated by the Third Party
Management Business, the Company classified this business as Held for Sale in
the first quarter of 1998 and closed the sale of the business effective as of
April 1, 1998. The Company, however, retained a majority of Lexford Properties,
Inc.'s former executive officers, training programs and property management
systems to facilitate improved
10
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LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
management of the Company's Properties as well as management agreements for 14
Unconsolidated Partnerships. As a result of the decision to sell and in order to
facilitate such sale of the Third Party Management Business, the Company has
taken the following actions:
The original merger agreement for the acquisition of Lexford
Properties, Inc. (the former owner of the Third Party Management
Business) included a provision that approximately $9.0 million, or
900,000 shares (valued at the time of acquisition), of the purchase
price was subject to forfeiture in whole or in part in the event the
Third Party Management Business did not achieve certain profitability
criteria by December 31, 1999. On March 13, 1998, the Company
negotiated a settlement with the prior shareholders of Lexford
Properties, Inc. whereby 300,000 of the 900,000 shares subject to
forfeiture were released in exchange for the forfeiture of the
remaining 600,000 shares. The release of the 300,000 shares resulted in
a $3.0 million charge in the first quarter of 1998.
The Company adjusted the carrying value of goodwill associated with the
original acquisition of the Third Party Management Business by writing
off $2.0 million of goodwill. Due to the reclassification of the Third
Party Management Business as Held for Sale, the Company recorded a $1.3
million reserve for sale/disposal costs associated with this sale. The
above charges totaling $6.3 million have been classified as Provision
for Loss on Sale of Third Party Management Business.
Lexford Properties, Inc. formed a subsidiary, Lexford Property
Management, Inc. ("LPM") and contributed all of its interests in its
management contracts for multifamily apartment communities owned
entirely by third parties (other than its management contracts
acquired in December 1997 on a portfolio of 14 Unconsolidated
Partnerships) to LPM in exchange for all of LPM's issued and
outstanding preferred stock.
Effective as of April 1, 1998, the Company sold its entire preferred
stock interest in LPM to a company formed to acquire the Third Party Management
Business by FSC Realty LLC, a company affiliated with Stanley R. Fimberg, a
consultant to, and Trustee of, the Company at the time of the sale, Ralph V.
Williams, a consultant to the Company at the time of the sale and Bruce
Woodward, an executive officer of Lexford Properties, Inc. at the time of the
sale. As a result of the sale, each of Messrs. Fimberg, Williams and Woodward
severed their respective consulting and employment relationships with the
Company. Mr. Fimberg remains a Trustee of the Company. Each of Messrs. Fimberg,
Williams and Woodward were also former beneficial equity owners of Lexford
Properties, Inc. prior to the Company's original acquisition of the Third Party
Management Business in August 1996. The Company received a promissory note in
the principal amount of $1.83 million payable over a ten year period which bears
interest at 6% per annum until April 1, 2000 and 11% per annum thereafter, in
exchange for all of the outstanding preferred stock of LPM. Mr. Fimberg did not
participate in the Company's decision to sell the Third Party Management
Business. Management believes that the terms for the sale of the Third Party
Management Business are representative of terms which would have been available
from an unrelated purchaser.
Non-recurring Costs
- -------------------
Non-recurring Costs were approximately $1.8 million for the three
months ended March 31, 1998. Approximately $1.6 million of the charge related to
the retirement plan for four Trustees who retired April 15, 1998. Each retiring
Trustee received a package consisting of the right to receive a cash payment of
11
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LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
$225,000 (the "Retirement Payment"), vesting of all non-vested common share
awards and the opportunity to continue participation in the Company's Executive
Deferred Compensation Plan and the Executive Deferred Compensation Rabbi Trust
(the "Rabbi Trust") for up to five years. The retiring Trustees were also
afforded the opportunity to defer receipt of all or any portion of the
Retirement Payment and direct that the deferred portion be contributed to the
Rabbi Trust and invested in the Company's common shares for their benefit. In
connection with their participation in the Trustee Retirement Plan, two of the
retiring Trustees elected to defer receipt of a total of $400,000 of Retirement
Payments in such manner. The majority of the remaining $200,000 of Non-recurring
Costs relates to severance costs associated with terminated employees.
Rabbi Trust
- -----------
The Company established the Rabbi Trust in 1997. The Rabbi Trust was
established to permit executive officers and trustees to defer taxes on awards
of Company shares. The Rabbi Trust is restricted to holding Company shares or
cash equivalents. In March 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board ("EITF") reached a tentative conclusion on Issue No.
97-14, Accounting for Deferred Compensation Arrangements. The EITF concluded
that the deferred compensation liability and the securities must be consolidated
by the Company and carried on the Company's balance sheet. Further, the
Company's common shares held in the Rabbi Trust should be accounted for as
treasury shares by the Company. The Company has applied EITF No. 97-14 on a
prospective basis commencing in the first quarter of 1998. At March 31, 1998,
722,664 vested shares in the Company's Rabbi Trust are included in weighted
average shares outstanding for earnings per share purposes and 292,443
non-vested shares held in the Rabbi Trust are excluded from weighted average
shares outstanding for earnings per share purposes.
Earnings Per Share
- ------------------
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform with the Statement 128
requirements. Earnings per share amounts have also been restated to reflect the
two for one share exchange resulting from the merger of Lexford, Inc. with and
into the Company.
The following table shows the amounts used in computing basic and
diluted earnings per share as well as weighted average numbers of shares
outstanding and the effect on income of restricted common shares and stock
option dilutive potential.
12
<PAGE> 13
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
<TABLE>
<CAPTION>
March 31,
1998 1997
------------- ------------
<S> <C> <C>
Numerator for Basic and Diluted Earnings Per Share:
Net Income/(Loss) $ (6,888,203) $ 1,276,038
============= ============
Denominator:
Denominator for Basic Earnings Per Share -
Weighted Average Shares 8,589,187 7,895,270
Effect of Dilutive Securities:
Stock Options (1) 0 231,626
Time Vesting Restricted Share Awards 57,825 61,334
------------- ------------
Dilutive Potential Common Shares 57,825 292,960
------------- ------------
Denominator for Diluted Earnings Per Share -
Adjusted Weighted Average Shares 8,647,012 8,188,230
============= ============
Basic Earnings Per Share:
Net Income/(Loss) $ (0.80) $ 0.16
============= =============
Diluted Earnings Per Share:
Net Income/(Loss) $ (0.80) $ 0.16
============= =============
<FN>
(1) Stock Options for 257,258 shares were excluded from diluted
earnings per share for the period ended March 31, 1998 because the
Company recognized a net loss for the quarter.
</TABLE>
In August 1996, the Company issued 1.4 million shares in connection
with the acquisition of Lexford Properties, Inc., 900,000 shares of which were
subject to forfeiture in whole or in part. The 900,000 contingent shares were
excluded from the weighted average shares outstanding. On March 13, 1998, the
Company negotiated a settlement whereby 300,000 of the contingent shares were
released in exchange for the forfeiture and cancellation of the remaining
600,000 shares. The 300,000 shares released are included in the weighted average
shares outstanding during the first quarter of 1998 (SEE "SALE OF THIRD PARTY
MANAGEMENT BUSINESS").
NOTE 2 PROPERTY ACQUISITIONS
In conjunction with its determination to elect REIT status, the Company
initiated a consolidation plan, the purpose of which was to minimize third party
equity interests in the Unconsolidated Partnerships owning apartment communities
(the "Consolidation Plan"). Through the first quarter of 1998, the Company had
acquired the entire equity ownership interest in 287 former Unconsolidated
Partnerships. The acquisition of the 287 former Unconsolidated Partnerships was
effective as of January 31, 1998. Therefore, the results of operations of the
287 Properties for the two months ended March 31, 1998 are included in the
consolidated financial statements of the Company.
Effective as of April 1, 1998, the Company acquired the entire
ownership interest in an additional 37 Unconsolidated Partnerships that owned 39
Properties, which are accounted for under the equity method in the first quarter
of 1998. The Company has commenced making cash payments to the former partners
of the 287 former Unconsolidated Partnerships totaling $21.3 million, and will
be making cash payments of $13.9 million to the partners of the 37 former
Unconsolidated Partnerships acquired effective as of April 1, 1998. The acquired
former Unconsolidated Partnerships are now classified as Rental Properties.
13
<PAGE> 14
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 PROPERTY ACQUISITIONS (cont'd)
The acquisition of the 287 former Unconsolidated Partnerships was
recorded as a purchase. The purchase price of $378.1 million was comprised of
$21.3 million to purchase former partners' equity interests, $39.9 million of
carrying value of investments in and advances to the 287 former Unconsolidated
Partnerships and the assumption of $316.9 million of non-recourse mortgage debt
on the acquired Properties (SEE NOTE 5).
NOTE 3 MORTGAGE DEBT
As of the Effective Date, the mortgages on certain Rental Properties
were restated to estimated fair value (the "Carrying Value") if the Fresh Start
value of the respective Rental Property was less than the outstanding principal
amount of its mortgage. The difference between the Carrying Value of each such
mortgage and the full unpaid principal amount thereof is characterized as a
"Mortgage Deficiency" for Fresh Start purposes. Although the value of the Rental
Properties may have increased since the Effective Date, the Carrying Values of
the mortgages and the Rental Properties have not been adjusted. Interest expense
is recorded based on the Carrying Value of the mortgage using the effective
interest rate method. Mortgages which have been originated or assumed following
the Effective Date are recorded as liabilities on the Consolidated Balance
Sheets in their full principal amount. Typically, each Rental Property is
secured by a separate mortgage loan. The mortgage loans on a portfolio of 26
Rental Properties contain cross collateral and cross default provisions;
however, all of the mortgage loans secured by the Rental Properties are
non-recourse to the Company.
The outstanding non-recourse mortgage debt on the Rental Properties,
including the mortgage debt assumed in relation to the acquisition of the 287
former Unconsolidated Partnerships at March 31, 1998 and December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------------- ---------------
<S> <C> <C>
Contractual Mortgage Payable $ 465,309,694 $ 150,284,725
Mortgage Deficiency (7,547,894) (7,647,851)
-------------- --------------
$ 457,761,800 $ 142,636,874
============== ==============
</TABLE>
Approximately $169.6 million of the contractual mortgage debt is
prepayable at March 31, 1998. Subject to available financing, the Company
intends to prepay the subject mortgage debt. Any prepayment of mortgage debt at
the contractual value will result in an extraordinary charge equal to the amount
of Mortgage Deficiency associated with such debt.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company manages all but one of the Unconsolidated Partnerships. The
Company also provides various ancillary services, including renter's insurance
to residents. The Company earned fee based revenues from the Unconsolidated
Partnerships of approximately $1.5 million and $3.0 million for the three months
ended March 31, 1998 and 1997, respectively. The Company also earned a majority
of its interest income on its receivables (including second mortgages) from the
Unconsolidated Partnerships. Approximately $167,000 and $1.9 million of the
Accounts Receivable were due from the Unconsolidated Partnerships as of March
31, 1998 and December 31, 1997, respectively. The decline in the accounts
receivable is due in part to the acquisition of the 287 former Unconsolidated
Partnerships and is also due to the timing of the
14
<PAGE> 15
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 RELATED PARTY TRANSACTIONS (cont'd)
billing and collection of annual insurance premiums collected and paid by the
Company on behalf of the Unconsolidated Partnerships. Fee Based Revenues and
Accounts Receivable related to the Rental Properties are eliminated in
consolidation.
The Company advanced to Unconsolidated Partnerships approximately
$120,000 in the first three months of 1998 as compared to approximately $128,000
in the first three months of 1997. These advances were debited to Investments in
and Advances to Unconsolidated Partnerships (SEE NOTE 1 "INVESTMENTS IN AND
ADVANCES TO UNCONSOLIDATED PARTNERSHIPS").
NOTE 5 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
The unaudited pro forma condensed consolidated income statements are
based upon a combination (giving effect to appropriate intercompany eliminations
and adjustments) of (a) the historical financial statements of the Company and
(b) the combined statements of revenue and expenses of the 326 acquired
Properties, giving pro forma effect to the acquisition of the 324 former
Unconsolidated Partnerships. The unaudited pro forma condensed consolidated
income statements are presented as if the above transactions had occurred at the
beginning of each period presented. The unaudited pro forma condensed
consolidated income statements include, in the opinion of management, all
adjustments necessary to present fairly the Company's pro forma results of
operations and are based upon available information and certain assumptions
considered reasonable under the circumstances. The unaudited pro forma condensed
consolidated income statements do not purport to present what the Company's
results of operations would actually have been had such events in fact occurred
at the beginning of the periods indicated above or to project the Company's
results of operations for any future date or period.
<TABLE>
<CAPTION>
Three Months Ended March 31,
Pro Forma Condensed Consolidated Income Statements 1998 1997
- -------------------------------------------------------------- (unaudited) (unaudited)
(In thousands) (In thousands)
-------------- -------------
REVENUES:
<S> <C> <C>
Rental Revenues $ 36,603 $ 35,121
Fee Based and Interest Income 2,397 2,564
-------------- -------------
39,000 37,685
EXPENSES: -------------- -------------
Property Operating and Maintenance 11,586 11,286
Real Estate Taxes and Insurance 2,965 3,258
Property Management 3,923 4,054
Administration 1,515 1,039
Non-recurring Costs 1,808 250
Interest 11,693 12,027
Depreciation and Amortization 5,944 5,476
Provision for Loss on Sale of Third Party Management Business 6,300 0
-------------- -------------
45,734 37,390
-------------- -------------
Income/(Loss) before Gain on Disposal of Assets and Income Taxes (6,734) 295
Provision for Income Taxes 0 (139)
Gain on Disposal of Assets 89 68
-------------- -------------
Net Income/(Loss) $ (6,645) $ 224
============== =============
Basic Earnings/(Loss) Per Share $ (0.77) $ 0.03
============== =============
Diluted Earnings/(Loss) Per Share $ (0.77) $ 0.03
============== =============
</TABLE>
15
<PAGE> 16
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
(cont'd)
The pro forma income statements for the three months ended March 31,
1998 and 1997 assume that all 324 Partnerships acquired in 1998 were purchased
as of January 1, 1998, and 1997, respectively.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion explains material changes in the Company's
results of operations, comparing the three months ended March 31, 1998 and 1997,
respectively, and significant developments affecting the Company's financial
condition since the end of 1997. The following discussion should be read in
conjunction with the historical financial statements of the Company.
RESULTS OF OPERATIONS
RENTAL REVENUES are derived from the Rental Properties which own and
operate apartment communities. Rental Revenues increased approximately $15.5
million, or 152%, for the three months ended March 31, 1998, as compared to the
same period in 1997. The majority of the increase, $15.3 million, or 150%, is
related to the acquisition of the 287 former Unconsolidated Partnerships
effective as of January 31, 1998. On a comparable unit basis (111 Rental
Properties in operation for both periods), the average monthly rent collected
per occupied unit during the three month period increased from $427 in 1997 to
$435 in 1998.
FEE BASED REVENUES are comprised of management services and
investment management revenues generated from services provided to
Unconsolidated Partnerships, third party owners and residents at the Properties.
Management services revenues principally relate to property management and
accounting services provided to the Unconsolidated Partnerships and property
management services provided to third party property owners (SEE NOTE 1 OF NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS "SALE OF THIRD PARTY MANAGEMENT
BUSINESS"). The Company's wholly-owned subsidiary, Lexford Properties, Inc.,
also provides ancillary services to the Unconsolidated Partnerships, including a
"Preferred Resource" discount buying program and laundry services. Lexford
Properties enters into group buying, volume discount contracts with major
vendors. Lexford Properties receives a discount from vendors for every purchase
made through the Preferred Resource program, as well as a rebate from residents'
use of laundry equipment. Investment management revenues consist of partnership
administration fees as well as fees generated from loan refinancing and
restructuring.
The following are the major components of management services
revenues and investment management fee-based revenues for the three months ended
March 31, 1998 as compared to the same period in 1997 (certain amounts
previously reported have been reclassified herein between management services
and Preferred Resource for all periods presented):
17
<PAGE> 18
<TABLE>
<CAPTION>
Three Months Ended
March 31
(In thousands)
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Management Services:
Property Management Services:
Unconsolidated Partnerships $ 1,169 $ 2,227
Third Party 861 1,039
Preferred Resource Revenues 226 440
------------- -------------
Total Management Services Revenues 2,256 3,706
------------- -------------
Investment Management:
Partnership Administration & Other Fees 142 288
Loan Refinancing and Restructuring Fees 0 49
------------- -------------
Total Investment Management Fee Revenues 142 337
------------- -------------
Total Fee Based Revenues $ 2,398 $ 4,043
============= =============
</TABLE>
FEE BASED REVENUES decreased approximately $1.6 million, or 41%, for
the three months ended March 31, 1998, as compared to the same period in 1997.
The decrease for the three month period was almost entirely due to the
elimination of fee based revenues related to the acquisition of the 287 former
Unconsolidated Partnerships effective as of January 31, 1998. Preferred Resource
revenues decreased approximately $214,000 for the three months ended March 31,
1998, as compared to the same period in 1997. The decrease was due to the
classification of vendor rebates on purchases made during February and March
1998 on the 287 former Unconsolidated Partnerships as an offset to maintenance
expense instead of revenues.
INTEREST INCOME decreased approximately $1.5 million, or 58%, for the
three months ended March 31, 1998, as compared to the same period in 1997.
Interest Income is primarily derived from the interest collected or accrued on
the recorded value of Investments in, and Advances to, Unconsolidated
Partnerships (SEE NOTE 1 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The
decrease in Interest Income was primarily due to the acquisition of the 287
former Unconsolidated Partnerships effective as of January 31, 1998.
PROPERTY OPERATING AND MAINTENANCE increased approximately $4.9
million, or 144%, for the three months ended March 31, 1998, as compared to the
same period in 1997. The majority of the increase is related to the acquisition
of the 287 former Unconsolidated Partnerships effective as of January 31, 1998.
On a comparable unit basis, Property Operating and Maintenance expense from the
111 Rental Properties in operation for both periods increased approximately
$282,000, or 8.7%, due to a write-down of approximately $400,000 in insurance
claim receivables.
REAL ESTATE TAXES AND INSURANCE expense increased approximately $1.1
million, or 112%, for the three months ended March 31, 1998, as compared to the
same period in 1997. The increase was due to the acquisition of the 287 former
Unconsolidated Partnerships effective as of January 31, 1998. Real Estate Taxes
and Insurance expense from the 111 Rental Properties in operation for both
periods decreased approximately $61,000, or 6.2%, for the three months ended
March 31, 1998 as compared to the same period in 1997. The decrease related to
reduced insurance premiums upon the renewal of insurance policies.
18
<PAGE> 19
PROPERTY MANAGEMENT expense decreased approximately $131,000 for the
three months ended March 31, 1998, as compared to the same period in 1997.
Property Management expense remained relatively constant as a result of the
comparability of the Properties managed during both periods. The Company records
Property Management expense for all Properties under management, including all
Unconsolidated Partnerships and Rental Properties.
ADMINISTRATION EXPENSES increased approximately $472,000 for the
three months ended March 31, 1998, as compared to the same period in 1997. The
increase in administration expenses was primarily due to compensation and
relocation costs in relation to hiring the Company's Senior Vice President,
General Counsel and Secretary.
NON-RECURRING COSTS were approximately $1.8 million for the three
months ended March 31, 1998. Approximately $1.6 million of the charge related to
the retirement plan for four Trustees who retired April 15, 1998. Each retiring
Trustee received a package consisting of the right to receive a cash payment of
$225,000 (the "Retirement Payment"), vesting of all non-vested common share
awards and the opportunity to continue participation in the Company's Deferred
Compensation Plan and Rabbi Trust for up to five years. The retiring Trustees
were also afforded the opportunity to defer receipt of all or any portion of the
Retirement Payment and direct that the deferred portion be contributed to the
Rabbi Trust and invested in the Company's common shares for their benefit. In
connection with their participation in the Trustee Retirement Plan, two of the
retiring Trustees elected to defer receipt of a total of $400,000 of Retirement
Payments in such manner. The majority of the remaining $200,000 of Non-recurring
Costs relates to severance costs associated with terminated employees.
INTEREST EXPENSE for mortgages on the Rental Properties increased
approximately $4.4 million for the three months ended March 31, 1998, as
compared to the same period in 1997. The majority of the increase was due to the
acquisition of the 287 former Unconsolidated Partnerships effective as of
January 31, 1998. On a comparable unit basis, Interest Expense from the 111
Rental Properties in operation for both periods remained relatively constant at
$3.4 million. Interest Expense on the Company's revolving and term credit line
decreased approximately $8,500 for the three month comparative periods. This
decrease is due primarily to the decline in the average principal amount
outstanding under the Company's credit facility. Although $21.7 million was
outstanding at March 31, 1998 as compared to $7.4 million at March 31, 1997, the
increase in the principal amount outstanding did not occur until the end of the
first quarter in conjunction with the acquisition of the 287 former
Unconsolidated Partnerships.
DEPRECIATION AND AMORTIZATION EXPENSE increased approximately $2.7
million for the three months ended March 31, 1998, as compared to the same
period in 1997. The increase is due primarily to a non-recurring $307,000
amortization adjustment to the value of a land lease and approximately $2.3
million is related to depreciation on the 287 former Unconsolidated Partnerships
acquired effective as of January 31, 1998.
PROVISION FOR LOSS ON SALE OF THIRD PARTY MANAGEMENT BUSINESS was
$6.3 million for the three months ended March 31, 1998. Due to the
non-qualifying REIT income generated by the Third Party Management Business, the
Company classified this business as Held for Sale in the first quarter of 1998
and closed the sale of the business effective as of April 1, 1998. The Company,
however, retained management contracts for 14 Unconsolidated Partnerships
acquired in December 1997, a majority of Lexford Properties, Inc.'s former
executive officers, training programs and property management systems to
facilitate improved management of the Company's Properties. As a result of the
decision to sell and in order to facilitate such sale of the Third Party
Management Business, the Company has taken the following actions:
19
<PAGE> 20
The original merger agreement for the acquisition of Lexford
Properties, Inc. (the former owner of the Third Party Management
Business) included a provision that approximately $9.0 million, or
900,000 shares (valued at the time of acquisition), of the purchase
price was subject to forfeiture in whole or in part in the event the
Third Party Management Business did not achieve certain profitability
criteria by December 31, 1999. On March 13, 1998, the Company
negotiated a settlement with the prior shareholders of Lexford
Properties, Inc. whereby 300,000 of the 900,000 shares subject to
forfeiture were released in exchange for the forfeiture of the
remaining 600,000 shares. The release of the 300,000 shares resulted
in a $3.0 million charge in the first quarter of 1998.
The Company adjusted the carrying value of goodwill associated with
the original acquisition of the Third Party Management Business by
writing off $2.0 million of goodwill. Due to the reclassification of
the Third Party Management Business as Held for Sale, the Company
recorded a $1.3 million reserve for sale/disposal costs associated
with this sale.
Lexford Properties, Inc. formed a subsidiary, Lexford Property
Management, Inc. ("LPM"), and contributed all of its interests in its
management contracts for multifamily apartment communities owned
entirely by third parties (other than its management contracts on a
portfolio of 14 properties acquired in December 1997) to LPM in
exchange for all of LPM's issued and outstanding preferred stock.
Effective as of April 1, 1998, the Company sold its entire preferred
stock interest in LPM to a company formed to acquire the Third Party Management
Business by FSC Realty, LLC, a company affiliated with Stanley R. Fimberg, a
consultant to, and Trustee of, the Company at the time of the sale, Ralph V.
Williams, a consultant to the Company at the time of the sale and Bruce
Woodward, an executive officer of Lexford Properties, Inc. at the time of the
sale. As a result of the sale, each of Messrs. Fimberg, Williams and Woodward
severed their respective consulting and employment relationships with the
Company. Mr. Fimberg remains a Trustee of the Company. Each of Messrs. Fimberg,
Williams and Woodward were also former beneficial equity owners of Lexford
Properties, Inc. prior to the Company's original acquisition of the Third Party
Management Business in August 1996.The Company received a promissory note in the
principal amount of $1.83 million payable over a ten year period which bears
interest at 6% per annum until April 1, 2000 and 11% per annum thereafter, in
exchange for all of the outstanding preferred stock of LPM. Mr. Fimberg did not
participate in the Company's decision to sell the Third Party Management
Business. Management believes that the terms for the sale of the Third Party
Management Business are representative of terms which would have been available
from an unrelated purchaser.
INCOME FROM DISPOSAL OF ASSETS increased approximately $21,000 for
the three months ended March 31, 1998, as compared to the same period in 1997.
This income is derived from the net disposition proceeds in excess of the
aggregate recorded value of these assets. Income from Disposal of Assets is not
a recurring, long term source of revenue.
Earnings before Interest, Taxes, Depreciation and Amortization
EBITDA is computed as net income before disposal of properties and
minority interests plus interest expense, taxes and depreciation and
amortization. Recurring EBITDA is computed as EBITDA, as adjusted for
non-recurring items. Adjusted EBITDA is computed as Recurring EBITDA plus
principal payments of receivables from Unconsolidated Partnerships less interest
on Rental Property mortgage debt. Management believes that, in addition to cash
flows and net income, Recurring EBITDA is a useful financial performance measure
for assessing the operating performance of an equity REIT because, together with
net income and cash flows, Recurring EBITDA provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures and
20
<PAGE> 21
to make distributions to shareholders. To evaluate Recurring EBITDA and the
trends it depicts, the components of Recurring EBITDA, such as rental and other
revenues, operating and maintenance expenses, real estate taxes and general and
administrative expenses, should be considered. Excluded from Recurring EBITDA
are financing costs such as interest expense as well as depreciation and
amortization, each of which can significantly affect a REIT's results of
operations and liquidity and should be considered in evaluating a REIT's
operating performance. Further, Recurring EBITDA does not represent net income
or cash flows provided by (used in) operating, financing and investing
activities as defined by Generally Accepted Accounting Principles ("GAAP") and
does not necessarily indicate that cash flows will be sufficient to fund cash
needs. It should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as a measure
of liquidity.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(In thousands)
-------------------------
1998 1997
----------- ----------
<S> <C> <C>
EBITDA $ 5,261 $ 7,106
- ------ ----------- ----------
Provision for Loss on Sale of Third Party Management Business 6,300 0
Loan Fees 0 (49)
Reserve for Non-Operating Receivables 400 0
Non-recurring Costs 1,808 250
----------- ----------
Recurring EBITDA 13,769 7,307
- ---------------- ----------- ----------
Interest on Mortgage Loans to Rental Properties (7,887) (3,447)
Second Mortgage Principal Amortization 212 0
=========== ==========
Adjusted EBITDA $ 6,094 $3,860
- --------------- =========== ==========
</TABLE>
Adjusted EBITDA increased approximately $2.2 million, or 56.0%, for the
three months ended March 31, 1998, as compared to the same period in 1997. The
increase in Adjusted EBITDA was primarily related to the acquisition of the 287
former Unconsolidated Partnerships.
Funds from Operations
Funds from Operations ("Funds from Operations" or "FFO") is calculated
in accordance with the White Paper on FFO approved by the Board of Governors of
the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 (net income (loss) in accordance with GAAP, excluding gains (or losses)
from debt restructuring and sales of property, plus real estate related
depreciation and amortization (excluding amortization of deferred financing
costs and after similar adjustments for unconsolidated partnerships and joint
ventures)), further adjusted by the Company to eliminate expenses attributable
to certain non-cash share awards and compensation, operations from sold
properties and certain non-recurring expenditures. In addition to cash flows and
net income, management considers FFO to be an additional measure of the
performance of an equity REIT because, together with net income and cash flows,
FFO provides investors with an additional basis to evaluate the ability of an
entity to fund acquisitions and other capital expenditures and to make
distributions to shareholders. However, FFO does not measure whether cash flow
is sufficient to fund all of an entity's cash needs including principal
amortization, capital improvements and distributions to shareholders. FFO does
not actually represent the cash made available to investors during any
particular period. FFO also does not represent cash flows provided by (used in)
operating, investing or financing activities as determined in accordance with
GAAP. FFO should not be considered as an alternative to net income as an
indicator of the Company's operating performance or to cash flows as a measure
of liquidity. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation of FFO.
21
<PAGE> 22
<TABLE>
<CAPTION>
Funds From Operations
---------------------
For the Three Months Ended
March 31,
(In thousands)
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net Income/(Loss) $ (6,888) $ 1,276
----------- -----------
Real Estate Depreciation 3,473 1,150
Income from Asset Disposals (89) (68)
Non-Cash Share Compensation 511 151
Non-Recurring Items 1,808 250
Provision for Loss on Sale of
Third Party Management Business 6,300 0
Reserve for Non-Operating Receivables 400 0
Amortization Associated with Land
Lease and Goodwill 388 77
Capitalization of Replacement
Items Recorded in the Third Quarter of 1997 0 204
Provision for Income Taxes 0 816
----------- -----------
$ 5,903 $ 3,856
=========== ===========
</TABLE>
FFO increased approximately $2.0 million, or 53.0%, as compared to the
same period in 1997. The increase in FFO was principally due to the acquisition
of the 287 former Unconsolidated Partnerships effective as of January 31, 1998.
Same Store Property Operating Results
The following table summarizes the unaudited combined operating
results, excluding management and other fees charged by the Company, of the
Properties the Company owns or has ownership interest in, for the three months
ended March 31, 1998 and 1997 (SEE RESULTS OF OPERATIONS--RENTAL REVENUES):
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
March 31, March 31,
1998 1997
--------- -----------
Statistical information
- -----------------------
<S> <C> <C>
Properties 501 501
Units 32,973 32,973
Average Economic Occupancy 91.5% 90.9%
Average Physical Occupancy 93.2% 92.0%
Average Rent Collected/Unit/Month $432 $426
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Information (In thousands)
Revenues
Rental Income $ 39,869 $ 38,731
Other Property Income 1,972 1,244
------------- --------------
Total Revenues 41,841 39,975
------------- --------------
Expenses
Property Operating and Maintenance 12,725 12,785
Real Estate Taxes and Insurance 3,535 3,819
Major Maintenance (1) 725 696
Other 563 191
------------- --------------
Total Expenses 17,548 17,491
------------- --------------
Net Operating Income 24,293 22,484
------------- --------------
Interest - Mortgage 12,433 12,786
Depreciation and Amortization 6,183 5,806
------------- --------------
Income after Certain Expenses $ 5,677 $ 3,892
============= ==============
Capital Expenditures $ 2,325 $ 1,734
============= ==============
<FN>
(1) The March 31, 1997 Major Maintenance and Capital Expenditures line
items have been adjusted as if the capitalization policy that was
revised in the third quarter of 1997 to include capitalization of
certain replacement items had been in effect during the first quarter
of 1997.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
---------
The following discussion regarding liquidity and capital resources
should be read in conjunction with the Company's Consolidated Balance Sheets as
of March 31, 1998 and December 31, 1997 and the Consolidated Statements of Cash
Flows for the three months ended March 31, 1998 and 1997.
The Company anticipates that cash flow from its operations and
borrowings available under the Company's credit facility should be adequate to
meet the foreseeable capital and liquidity requirements of the Company.
The principal sources of liquidity for the Company are cash flow from
its operations and borrowing available under the Company's credit facility. The
Company's Net Cash Provided by Operating Activities increased approximately $3.5
million for the three months ended March 31, 1998, as compared to the same
period in 1997. The increase was due primarily to the acquisition of 287 former
Unconsolidated Partnerships effective as of January 31, 1998.
The other factors impacting the Company's cash flow in 1998 as compared
to the same period in 1997 are discussed in "Results of Operations."
23
<PAGE> 24
REIT Election
-------------
After careful consideration and consultation with its legal, tax and
financial advisers, the Company announced on December 19, 1997 that it would
seek to elect to be taxed as a REIT. To help facilitate REIT qualification and
to position itself to meet the expectations which management believes the
capital markets apply to REITs, the Company engaged in the following
transactions (collectively referred to as the "REIT Conversion"): (i) the merger
of the Company's predecessor, Lexford, Inc., with and into the Company (SEE NOTE
1 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND PART II, ITEM 4), and
(ii) the sale of the Third Party Management Business. The REIT Conversion was
structured so as to allow the Company to carry on the pre-existing business of
owning and managing multifamily residential apartment communities but at the
same time to take advantage of favorable Federal income tax consequences
available to REITs. In addition, the Company believes the market valuations and
access to capital markets are more favorable to REITs as compared to the
traditional "C" corporation real estate operating companies. The Company
believes its REIT status will enhance its ability to pursue its growth strategy.
Credit Facility
---------------
On September 30, 1997 the Company entered into an Amended and Restated
Loan and Security Agreement with the Provident Bank. The amended revolving
credit facility ("Facility"), is for $35 million and represents an increase to
and replacement of all former revolving credit facilities with The Provident
Bank (the "Bank"). The scheduled term of the Facility expires March 30, 2000,
although the Company may elect from time to time to convert all or any portion
of the principal amount outstanding under the Facility into a five year term
loan. Revolving loans outstanding under the Facility bear interest at a variable
interest rate equal to the Bank's prime rate of interest, currently 8.5%, minus
1%. As of the end of the first quarter the outstanding balance under the
Facility was $17.3 million. The increase was due to the costs to acquire the 287
former Unconsolidated Partnerships. The Company's former $7.0 million revolving
line of credit for acquisitions and Property debt restructuring (the
"Acquisition Line") was converted into a term loan which matures in March 2001
and has a 7.25% fixed interest rate with monthly installments of principal and
interest of $139,435. As of the end of the first quarter, the unpaid principal
balance outstanding under the Acquisition Line was approximately $4.4 million.
In the first quarter of 1998, the Company reached an agreement with the Bank to
increase the Facility by $5.0 million to $40.0 million.
The Company has obtained a commitment letter from BankBoston, N.A. for
a two-year unsecured revolving line of credit level in the amount of up to
$150.0 million ("New Credit Facility"), subject to customary terms and
conditions, including the execution and delivery of definitive documentation and
the Company's receiving new equity capital in the gross amount of at least
$240.0 million. Pursuant to such commitment letter, borrowings under the New
Credit Facility would bear interest at a floating rate equal to, at the
Company's option, BankBoston, N.A.'s base rate or LIBOR plus 1.25% to 1.5% per
annum depending upon the Company's leverage ratio.
The Company's ability to borrow under the New Credit Facility would be
subject to the Company's ongoing compliance with a number of financial and other
covenants. The New Credit Facility will require that the Company maintain, among
other things: (i) a ratio of total liabilities to total assets (defined as a
multiple of EBITDA); (ii) a ratio of secured debt to total assets of not more
than .47 to 1 until June 29, 1999 and .40 to 1 thereafter; (iii) a ratio of
EBITDA (less non-cash charges and extraordinary items) to total interest expense
(including capitalized interest and preferred share dividends) of at least 2 to
1; and (iv) a ratio of net operating cash flow to fixed charges of at least 1.75
to 1. The New Credit Facility also will,
24
<PAGE> 25
except under certain circumstances, (x) limit the Company's ability to make
distributions of not more than 90% of its annual FFO; (y) prohibit the
incurrence of recourse debt; and (z) limit the Company's investments, other than
100% ownership of income producing real estate, to not more than 15% of total
assets. The Company intends to use the New Credit Facility principally for
acquisitions, to repay selected mortgage indebtedness and for working capital
purposes.
Capital Expenditures
--------------------
The Company's non-real estate capital expenditures for the three months
ended March 31, 1998 amounted to approximately $312,000 funded from cash flow
and borrowings under the Company's credit facility. The Company anticipates that
its capital needs in the future can be satisfied out of cash flow from
operations or the Company's credit facility.
The Company's capital expenditures for the three months ended March 31,
1998 amounted to approximately $1.4 million for the Rental Properties. In
addition, approximately $298,000 of Major Maintenance and Replacement costs were
expensed in the first quarter of 1998. These expenditures were funded from cash
flow and maintenance escrow funds. The Company has identified 224 Properties
(approximately 15,000 units) for which it believes disciplined capital spending
will yield substantial rent and occupancy increases and attractive return on
investment. Subject to available financing, the Company plans to invest
approximately $36.0 million over the next five years on such Properties in
excess of its targeted annual capital and major maintenance spending of $400 per
unit.
25
<PAGE> 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
(a) As a result of the merger of the Company's predecessor, Lexford,
Inc., with and into the Company effected March 18, 1998, each share of
Lexford, Inc. common stock previously outstanding was cancelled and
converted into the right to receive two common shares of beneficial
interest in the Company (the "Common Shares"). For a description of the
rights of holders of Common Shares, reference is made to the text set
forth under the captions "Description of Trust Shares" and "Comparison
of Rights of Shareholders of the Company and Shareholders of the Trust"
within the Company's Registration Statement on Form S-4, Registration
No. 333-44251. A copy of such text is filed herewith as Exhibit 4.1.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held a special meeting of shareholders on March 3, 1998. At
the meeting, the Company's shareholders:
- Approved a proposal (the "Merger Proposal") to merge the
Company's predecessor, Lexford, Inc., with and into the Company.
The votes cast for, against, withheld and abstained on the Merger
Proposal were as follows:
3,802,289 votes were cast for the Merger Proposal, with 4,226 against
and 13,260 abstentions.
Item 5. Other Information
-----------------
This Form 10-Q contains certain forward-looking statements regarding
prospects for (i) proposed mortgage loan repayments and capital improvements to
Rental Properties, contingent, in all cases, upon available financing, (ii)
possible improvements in net operating income from the Properties, (iii) the
terms of the proposed New Credit Facility, and (iv) the Company's foreseeable
capital and liquidity requirements and sources. The forward-looking statements
represent management's good faith evaluations based, among other things, upon
existing market, financial and economic conditions, as well as the continuing
availability and satisfaction of conditions precedent to proposed financing
arrangements and the physical condition of the Rental Properties. There can be
no assurance that the forward-looking statements will prove to be correct. Any
differences in actual results or developments may be material.
26
<PAGE> 27
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE
------------ --------------------------------------------- ---------------------------------------
<S> <C> <C>
4.1 Statements re: Changes in Securities Filed as an Exhibit to this Form 10-Q
4.2 Declaration of Trust of Lexford Residential Incorporated by reference to Annex B
Trust ("Declaration") to the Company's Registration
Statement on Form S-4, Registration
No. 333-44251 (the "S-4 Registration
Statement")
4.3 Articles of Amendment to the Declaration Filed as an Exhibit to this Form 10-Q
dated March 14, 1998
4.4 By-laws of Lexford Residential Trust Incorporated by reference to Annex B
to S-4 Registration Statement
10.1 First Amendment, dated February 1, 1998, to Filed as an Exhibit to this Form 10-Q
Amended and Restated Loan Agreement dated
as of September 30, 1997 among The
Provident Bank and the Company and its
material subsidiaries
10.2 Promissory Note, dated February 1, 1998, Filed as an Exhibit to this Form 10-Q
issued by the Company and its material
subsidiaries in favor of The Provident Bank
10.3 Corporation Record of Proceedings of the Filed as an Exhibit to this Form 10-Q
Incorporator Shareholders and Directors of
Lexford Property Management, Inc., dated
February 20, 1998
10.4 Stock Purchase Agreement, dated as of April Filed as an Exhibit to this Form 10-Q
1, 1998, among the Company, the shareholders
of Lexford Property Management, Inc., and the
purchasers of the shares of Lexford Property
Management, Inc. and their affiliates.
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE
- ------------- ------------------------------------------------- --------------------------------------
<S> <C> <C>
10.5 Promissory Note, dated April 1, 1998, issued Filed as an Exhibit to this Form 10-Q
by Brentwood-Lexford Properties, LLC and
Lexford Property Management, Inc., in favor
of Lexford Properties, Inc.
11.1 Statement re: computation of Per Share See Note 1 of Notes to Consolidated
Earnings Financial Statements
27 Financial Data Schedule Filed as an Exhibit to this Form 10-Q
(b) Reports on Form 8-K
<FN>
(1) Report of Acquisition of 180 former Unconsolidated Partnerships filed February 17, 1998*
(2) Report of Acquisition of 107 former Unconsolidated partnerships filed March 2, 1998*
(3) Company's 1997 Audited Consolidated Financial Statements filed March 20, 1998
under cover of Form 8-K
*Rule 3-14 Audited Combined Financial Statements for 326 Rental Properties
referred to in these Reports on Form 8-K (and an additional 39 Rental Properties
previously owned by 37 Unconsolidated Partnerships acquired effective as of
April 1, 1998), were subsequently filed as part of a Report on Form 8-K filed on
April 20, 1998.
</TABLE>
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEXFORD RESIDENTIAL TRUST
(Registrant)
Dated: May 14, 1998 By: /s/ John B. Bartling, Jr.
----------------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated: May 14, 1998 By: /s/ Mark D. Thompson
----------------------------------------------
Mark D. Thompson
Executive Vice President and Chief Financial
Officer
(Principal Accounting Officer)
Dated: May 14, 1998 By: /s/ Ronald P. Koegler
----------------------------------------------
Ronald P. Koegler
Vice President and Controller
29
<PAGE> 1
Exhibit 4.1
DESCRIPTION OF TRUST SHARES
GENERAL
The Declaration of Trust authorizes the issuance of up to 110,000,000
shares of beneficial interest consisting of 50,000,000 Trust Shares, 5,000,000
Preferred Shares, 50,000,000 Excess Trust Shares and 5,000,000 Excess Preferred
Shares. Upon completion of the Merger, Lexford expects that approximately
4,900,200 Trust Shares, no Preferred Shares and no Excess Shares will be issued
and outstanding.
The following description of the Trust Shares, Preferred Shares, Excess
Shares and of certain provisions of the Declaration of Trust and Bylaws is a
summary of and is qualified in its entirety by reference to the Declaration of
Trust and the Bylaws, copies of which are attached hereto as Annexes B and C,
respectively.
The Declaration of Trust provides that, subject to the provisions of any
class or series of shares of the Trust then outstanding, the Trust Shareholders
are entitled to vote only on those matters which the Declaration of Trust, the
Bylaws or Title 8 expressly require be voted on by the Trust Shareholders, those
matters that the Trust Board has duly submitted to the Trust Shareholders and
those matters properly brought before a meeting by a Trust Shareholder pursuant
to the Bylaws. Except with respect to the foregoing matters, no action taken by
the Trust Shareholders at any meeting shall in any way bind the Trustees. Trust
Shareholders will not be entitled to cumulatively vote their shares in the
election of the Trust's Trustees.
Both Title 8 and the Declaration of Trust provide that no Trust Shareholder
will be personally liable for any obligation of the Trust solely by reason of
being a Trust Shareholder. Pursuant to the Declaration of Trust, the Trust must
indemnify a Trust Shareholder against any claim or liability to which the Trust
Shareholder may become subject solely by reason of his or her being or having
been a Trust Shareholder, and the Trust shall appoint counsel for, defend, and
bear the expenses and costs of such defense, for each Trust Shareholder in
connection with any such claim or liability. The obligations of the Trust to
indemnify or defend any Trust Shareholder or pay his or her expenses do not
extend to any liability or obligation of the Trust Shareholder under the
business combination provisions or the control share acquisition provisions of
Maryland law, the ownership limitations or control share provisions of the
Declaration of Trust, or certain provisions of the Securities Act or the
Exchange Act. A Trust Shareholder is not entitled to indemnification with
respect to a suit by or on behalf of the Trust or by any other Trust Shareholder
for money damages (i) for an improper benefit or profit in money, property or
services, or (ii) for active and deliberate dishonesty that was material to the
cause of action adjudicated in the proceeding.
The Declaration of Trust authorizes the Trustees to classify or reclassify
any unissued shares of the Trust by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications or terms or conditions of redemption of such
shares.
<PAGE> 2
Application has been made to have the Trust Shares approved for listing on
the NYSE, subject to official notice of issuance, upon the consummation of the
Merger.
Trust Shares
Each outstanding Trust Share entitles the holder to one vote on all matters
submitted to a vote of Trust Shareholders, including the election of Trustees.
There is no cumulative voting in the election of Trustees which means that the
holders of a majority of the outstanding Trust Shares entitled to vote on the
election of Trustees can elect all of the Trustees then standing for election.
Holders of Trust Shares, other than Excess Shares, are entitled to such
distributions as may be declared from time to time by the Trustees in cash or
other assets of the Trust, in securities of the Trust or from any other legally
available source as the Trustees shall in their discretion determine. The
Trustees shall endeavor to declare and pay such distributions as are necessary
for the Trust to qualify, and continue to qualify, as a REIT under the Code. See
"Distribution Policy."
Holders of Trust Shares have no conversion, redemption or preemptive rights
to subscribe for any securities of the Trust. All the Trust Shares issuable in
the Merger will be duly authorized, validly issued, fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of the
affairs of the Trust, holders of Trust Shares will be entitled to share ratably
in the assets of the Trust remaining after provision for payment of liabilities
to creditors and preferential rights of the Preferred Shares.
Preferred Shares
The Preferred Shares authorized by the Declaration of Trust may be issued
from time to time in one or more classes or series in such amounts and with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or distributions, qualifications and
terms or conditions of redemption as may be fixed by the Trustees. Under certain
circumstances, the issuance of Preferred Shares could have the effect of
delaying, deferring or preventing a change of control of the Trust and may
adversely affect the voting and other rights of the holders of Trust Shares.
Currently, there are and upon consummation of the Merger, there will be, no
Preferred Shares outstanding and the Trust has no present plans to issue any
Preferred Shares. See "Risk Factors -- Risks Related to Declaration of Trust and
Bylaws of the Trust and Maryland Law."
Excess Shares
The Declaration of Trust provides that no holder may own, or be deemed to
own under the applicable attribution rules of the Code, Trust Shares or
Preferred Shares in excess of the Beneficial Ownership Limitations or the
Constructive Ownership Limitations and that no purported transfer of Trust
Shares or Preferred Shares may be given effect if it results in ownership of all
of the outstanding Trust Shares and Preferred Shares by fewer than 100 persons
(collectively, the "Ownership Restrictions"). In the event of a purported
transfer or other event that would, if effective, result in ownership of Trust
Shares or Preferred Shares in violation of the Ownership Restrictions, the
shares in excess of the Ownership Restrictions will be designated Excess Shares
and, in accordance with the Declaration of Trust, transferred automatically to
the Special Trust (as defined in the Declaration of Trust).
The Excess Shares will be held by the Special Trust for the exclusive
benefit of one or more charitable beneficiaries whose ownership of the Trust
Shares or Preferred Shares will not violate the Ownership Restrictions and which
is an organization described in Sections 170(b)(1)(A) and 170(c)(2) of the Code
(a "Charitable Beneficiary"). The Trust will appoint a trustee of the Special
Trust who is unaffiliated with the Trust or with any person involved in the
transfer which required a designation of Excess Shares.
Holders of Excess Shares shall not benefit economically from ownership of
any Excess Shares held in the Special Trust, shall have no rights to dividends
and shall not possess any rights to vote. The trustee shall have all voting
power and rights to dividends with respect to the Excess Shares, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any
distribution paid prior to the discovery by the Trust that the Excess Shares
have been transferred to the Special Trust must be paid to the trustee upon
demand.
<PAGE> 3
As soon as reasonably practicable, and in an orderly fashion so as not to
affect in a materially adverse manner the market price of the Excess Shares, the
trustee will sell the Excess Shares to a person whose ownership of the Excess
Shares will not violate the Ownership Restrictions. The transferee in the
transaction that resulted in the designation and transfer of Excess Shares to
the Special Trust will receive the lesser of (i) the price paid by the
transferee in such transaction and (ii) the price received by the trustee (net
of any commissions and other expenses of sale) in the sale of the Excess Shares.
Any net sales proceeds in excess of the amount paid to the transferee will
immediately be paid to the Charitable Beneficiary.
Upon sale of the Excess Shares, such Excess Shares will be automatically
exchanged for an equal number of Trust Shares or Preferred Shares (depending on
the type and class or series of shares that were originally designated as such
Excess Shares).
RESTRICTIONS ON TRANSFER
For the Trust to qualify as a REIT for Federal income tax purposes, it must
meet certain requirements concerning the ownership of its outstanding shares.
Specifically, not more than 50% in value of the Trust's outstanding shares may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year
(other than the first year of the Trust's existence as a REIT) or during a
proportionate part of a shorter taxable year, and the Trust must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year (other
than the first REIT year) or during a proportionate part of a shorter taxable
year. See "Federal Income Tax Considerations -- Requirements for Qualification
as a REIT."
Because the Trust expects to qualify as a REIT, the Declaration of Trust
limits the ownership of the Trust's equity securities. The Declaration of Trust
generally provides that, subject to certain exceptions set forth in the
Declaration of Trust, no person may own shares of the Trust in violation of the
Ownership Restrictions. The Trust Board may, but is not required to, waive the
Beneficial Ownership Limitations or the Constructive Ownership Limitations if it
determines that greater ownership will not jeopardize the Trust's status as a
REIT. As a condition of that waiver, the Trust Board may require opinions of
counsel satisfactory to it and undertakings or representations from the
applicant with respect to preserving the REIT status of the Trust.
If any purported transfer of equity securities of the Trust or any other
event would otherwise result in any person or entity violating the Ownership
Restrictions, that transfer will be void and of no force or effect as to the
number of shares in excess of the Ownership Restrictions, and the purported
transferee (the "Prohibited Transferee") will acquire no right or interest (or,
in the case of any event other than a purported transfer, the person or entity
holding record title to shares in excess of the Ownership Restrictions (the
"Prohibited Owner") will cease to own any right or interest) in the Excess
Shares. In addition, if any purported transfer of shares of the Trust or any
other event would cause the Trust to become "closely held" under the Code or
otherwise to fail to qualify as a REIT under the Code, that transfer will be
void and of no force or effect as to the number of shares in excess of the
number that could have been transferred without that result, and the Prohibited
Transferee will acquire no right or interest (or, in the case of any event other
than a transfer, the Prohibited Owner will cease to own any right or interest)
in the Excess Shares. Also, if any purported transfer of shares of the Trust or
any other event would otherwise cause the Trust to own, or be deemed to own by
virtue of the applicable attribution provisions of the Code, 10% or more, by
vote or value, of the ownership interests in any lessee or in any sublessee,
that transfer or event will be void and of no force or effect as to the number
of shares in excess of the number that could have been transferred or affected
by that event without that result, and the Prohibited Transferee will acquire no
right or interest (or, in the case of any event other than a transfer, the
Prohibited Owner will cease to own any right or interest) in the Excess Shares.
Any Excess Shares arising from a prohibited transfer described above will
be transferred automatically to the Special Trust for the exclusive benefit of a
Charitable Beneficiary.
All certificates representing Trust Shares and Preferred Shares will bear a
legend referring to the restrictions described above.
<PAGE> 4
Every owner of a certain percentage of the outstanding shares of the Trust
(such percentage being set forth in the Treasury Regulations according to the
number of shareholders of record) will be required to file no later than January
30 of each year a written notice with the Trust containing the information
specified in the Declaration of Trust. In addition, each Trust Shareholder will
be required, upon demand, to disclose to the Trust in writing such information
as the Trust may request in order to determine the effect, if any, of that Trust
Shareholder's actual and constructive ownership of shares on the Trust's status
as a REIT and to ensure compliance with the Ownership Restrictions.
The Ownership Restrictions may have the effect of precluding an acquisition
of control of the Trust without approval of the Trust Board. See
"-- Anti-takeover Effects of Certain Charter Provisions and Laws."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND LAWS
In addition to the Ownership Restrictions and the Trust Board's authority
to designate and issue Preferred Shares described above, certain features of the
Declaration of Trust, the Bylaws and Maryland law, which are further described
below, may have the effect of deterring third parties from making takeover bids
for control of the Trust or may be used to hinder or delay a takeover bid
thereby decreasing the chance of the Trust Shareholders realizing a premium over
market price for their Trust Shares as a result of such bids and may have the
effect of preventing challenges for control of the Trust Board. See "Risk
Factors -- Risks Related to Declaration of Trust and Bylaws of the Trust and
Maryland Law."
Limitations on Shareholder Actions. The Declaration of Trust provides that
Trust Shareholder action may only be taken at a meeting of the Trust
Shareholders. Thus, a holder of a majority of the voting power could not take
action to replace the Trust Board, or any class thereof, without a meeting of
the Trust Shareholders. Furthermore, under the provisions of the Declaration of
Trust and Bylaws, special meetings of the Trust Shareholders may only be called
by the Trust Board. Therefore, a Trust Shareholder, even one who holds a
majority of the voting power, may not replace sitting Trustees before the next
annual meeting of Trust Shareholders. The Bylaws may only be amended by the
Trust Board and the Declaration of Trust may not be amended without Trust Board
approval; therefore none of the provisions of the Declaration of Trust or the
Bylaws which inhibit or prevent takeover bids may be changed without the consent
of the Trust Board.
Advance Notice Provisions. The Bylaws provide for an advance notice
procedure for the nomination, other than by the Trust Board, of candidates for
election as Trustees as well as for other Trust Shareholder proposals to be
considered at annual or other meetings of Trust Shareholders. In general, notice
of intent to nominate a Trustee or raise matters at meetings must be received by
the Trust not less than 120 days before the first anniversary of the mailing of
the Trust's proxy statement for the previous year's annual meeting, and must
contain certain information concerning the person to be nominated or the matters
to be brought before the meeting and concerning the Trust Shareholder submitting
the proposal.
Classified Board; Removal of Trustees. The Declaration of Trust and Bylaws
provide that the Trust Board will be divided into three classes with staggered
three year terms. At each annual meeting of Trust Shareholders after the initial
classification and election, the terms of one class of Trustees will expire and
the newly nominated Trustees of that class will be elected for a term of three
years. The Trust Board will be able to determine the total number of Trustees
constituting the full Trust Board and the number of Trustees in each class, but
the total number of Trustees may not exceed 17 nor may the number of Trustees in
any class exceed six. Subject to these rules, the classes of Trustees need not
have equal numbers of members. No reduction in the total number of Trustees or
in the number of Trustees in a given class will have the effect of removing a
Trustee from office or reducing the term of any then sitting Trustee. Trust
Shareholders may only remove Trustees for cause. If the Trust Board increases
the number of Trustees in a class, it will be able to fill the vacancies created
for the full remaining term of a Trustee in that class even though the term may
extend beyond the next annual meeting. The Trustees will also be able to fill
any other vacancies for the full remaining term of the Trustee whose death,
resignation or removal caused the vacancy.
A person who has a majority of the voting power at a given meeting will not
in any one year be able to replace a majority of the Trustees since only one
class of Trustees will stand for election in any one year. As a result, at least
two annual meeting elections will be required to change the majority of the
Trustees by the
<PAGE> 5
requisite vote of Trust Shareholders. The purpose of classifying the Trust Board
is to provide for a continuing body, even in the face of a person who
accumulates a sufficient amount of voting power, whether by ownership or proxy
or a combination, to have a majority of the voting power at a given meeting and
who may seek to take control of the Trust without paying a fair premium for
control to all the holders of Trust Shares. This will allow the Trust Board time
to negotiate with such a person and to protect the interests of the other Trust
Shareholders who may constitute a majority of the Trust Shares not actually
owned by such person. However, it may also have the effect of deterring third
parties from making takeover bids for control of the Trust or may be used to
hinder or delay a takeover bid thereby decreasing the chance of the Trust
Shareholders realizing a premium over market price for their Trust Shares as a
result of such bids.
Moreover, the Declaration of Trust provides that a Trustee may be removed
with or without cause by a majority of the remaining Trustees. Accordingly, even
if the Trust Shareholders were able to replace an entire class of Trustees, such
Trustees could be removed by the vote of the Trustees of the other classes, if
they constitute a majority of all the Trustees. This may also have the effect of
preventing proxy contests for control of the Trust Board and entrenching
management.
Control Share Act. Certain "control share acquisitions" are regulated by
Subtitle 7 of Title 3 of the Corporations and Associations Article of the
Annotated Code of Maryland (the "Maryland Control Share Act"). These provisions
generally require that "control shares" of the Trust acquired in an acquisition
that would leave the Trust Shareholder, directly or indirectly, exercising or
directing the exercise of (i) one-fifth or more but less than one-third of the
voting power, (ii) one-third or more but less than a majority of the voting
power, or (iii) a majority or more of the voting power (a "Control Share
Acquisition"), have no voting rights except to the extent such voting rights are
approved by the Trust Shareholders at a meeting by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter, excluding all
"interested shares." Pursuant to the Declaration of Trust, the Trustees are
under no obligation to call a special meeting of the Trust Shareholders to vote
on the voting rights to be accorded to the "control shares" if the Trustees
determine, (i) that the required acquiring person statement made in connection
with the proposed Control Share Acquisition was not made in good faith, (ii)
that the proposed Control Share Acquisition would not be in the best interests
of the Trust and the Trust Shareholders, or (iii) that the proposed Control
Share Acquisition could not be consummated for financial or legal reasons,
including, but not limited to, any adverse impact the proposed Control Share
Acquisition would have upon the Trust's ability to continue to comply with the
REIT provisions of the Code or Title 8.
Business Combination Act. Under Subtitle 6 of Title 3 of the Corporations
and Associations Article of the Annotated Code of Maryland (the "Maryland
Business Combination Act"), certain "business combinations" (including, but not
limited to, a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland real estate investment trust and any person who
beneficially owns, directly or indirectly, 10% or more of the voting power of
the trust's shares (an "Interested Shareholder") or any affiliate of an
Interested Shareholder are, subject to certain exceptions, (i) prohibited for a
period of five years from the time the person became an Interested Shareholder
and (ii) then must be recommended by the board of trustees and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the trust and (b) two-thirds of the votes
entitled to be cast by holders of outstanding voting shares other than shares
held by the Interested Shareholder who will (or whose affiliate will) be a party
to the business combination unless, among other things, the Trust Shareholders
receive a statutorily calculated minimum price for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for his or her shares. The Maryland Business Combination
Act could have the effect of discouraging offers to acquire the Trust and of
increasing the difficulty of consummating any such offer.
<PAGE> 6
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF THE COMPANY AND SHAREHOLDERS OF THE TRUST
GENERAL
The Company is organized as a corporation under the laws of the State of
Ohio and the Trust is organized as a real estate investment trust under the laws
of the State of Maryland. As an Ohio corporation, Lexford is subject to the
OGCL, which is a general corporation statute dealing with a wide variety of
matters, including elections, tenure, duties and liabilities of directors and
officers; dividends and other distributions; meetings of shareholders; and
extraordinary actions, such as amendments to the articles of incorporation and
regulations, mergers, sales of all or substantially all of the assets and
dissolution. As a Maryland real estate investment trust, the Trust is governed
by Title 8 and certain other provisions of the Annotated Code of Maryland. Title
8 covers some of the same matters covered by the OGCL, including the powers of a
trust; liabilities of a trust, shareholders, and trustees; amendment and
restatement of the Declaration of Trust; and mergers of a trust with other
entities. There are many matters that are addressed in the OGCL that are not
dealt with in Title 8, and it is a general practice for a real estate investment
trust to address a number of these matters through detailed provisions in its
declaration of trust.
The discussion of the material differences between the rights of
shareholders of Lexford and shareholders of the Trust set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the OGCL, Title 8 and other provisions of Maryland law that are
referred to and also to the Amended Articles of Incorporation (the "Articles")
and Regulations of Lexford and the Declaration of Trust, attached hereto as
Annex B, and Bylaws, attached hereto as Annex C, of the Trust. Copies of these
documents have been filed as exhibits to the Registration Statement of which
this Prospectus/Proxy Statement is a part. See "Available Information."
BOARD OF DIRECTORS AND BOARD OF TRUSTEES
The OGCL states that the business of a corporation is managed by its Board
of Directors. The Articles and Regulations of Lexford provide that the number of
directors of Lexford shall be as fixed by the Lexford Board from time to time
(provided that the total number of directors be no less than nine or more than
12) which number has been fixed by the Lexford Board at 11. The Lexford Board is
divided into three classes as nearly equal in number as possible, with the term
of office of one class expiring in each year. The OGCL provides that, since
neither the Articles nor Regulations of Lexford state otherwise, vacancies may
be filled by a majority of the directors then in office, even though they may
constitute less than a majority of the whole Lexford Board. However, the
Regulations of Lexford specifically provide that the Lexford Board may not fill
a vacancy created by the Lexford Board's action in increasing the number of
directors.
Under the Declaration of Trust, the business of the Trust is managed by the
Trust Board. The Trust Board is substantially similar to the Lexford Board with
respect to its power and authority. The Declaration of Trust provides that the
number of Trustees of the Trust will initially be three, but may be decreased or
increased by the Trust Board to not more than 17 or less than three, unless
there are less than three Trust Shareholders, in which case, there shall be no
less Trustees than Trust Shareholders. Any vacancy (including a vacancy created
by an increase in the number of Trustees) may be filled for the remainder of the
Trustee's term, at any regular meeting or at any special meeting of the Trustees
called for that purpose, by a majority of the Trustees. Under the Declaration of
Trust, the Trustees are divided into three classes, not to exceed six trustees
in any one class, with the term of one class expiring at each annual meeting of
Trust Shareholders. At each annual meeting of Trust Shareholders, one class of
Trustees will be elected for a term of three years and the Trustees in the other
two classes will continue in office. See "The Merger -- Management of the Trust"
and "Description of Trust Shares -- Anti-takeover Effects of Certain Charter
Provisions and Laws."
The Declaration of Trust requires a Trustee to perform his duties as a
Trustee, including his duties as a member of a committee of the Trust Board on
which he serves, in good faith in a manner he reasonably believes to be in the
best interests of the Trust, and with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In performing his
duties, a Trustee is entitled to rely on any
<PAGE> 7
information, opinion, report, or statement, including any financial statement or
other financial data, prepared or presented by: (i) an officer or employee of
the Trust whom the Trustee reasonably believes to be reliable and competent in
the matters presented; (ii) a lawyer, public accountant, or other person, as to
a matter which the Trustee reasonably believes to be within the person's
professional or expert competence; or (iii) a committee of the Trust Board on
which the Trustee does not serve, as to a matter within its designated
authority.
The OGCL imposes substantially similar fiduciary duties on directors of a
corporation as the Declaration of Trust imposes on the Trustees.
MEETINGS OF SHAREHOLDERS
Annual Meetings. The Regulations provide that Lexford shall have an annual
meeting of Lexford Shareholders on the first Tuesday in May of each year, if not
a legal holiday. The Bylaws require an annual meeting of Trust Shareholders to
be set by the Trust Board.
Special Meetings. Under the OGCL, a special meeting of shareholders of an
Ohio corporation may be called by the holders of at least 25% of the outstanding
shares of the corporation (unless the regulations specify another percentage,
which may not exceed 50%), the Board of Directors, the Chairman of the Board, or
the President. Under Lexford's Regulations, a special meeting of Lexford
Shareholders may be called by the same groups as under the OGCL, but may only be
called by the holders of at least 50% of the outstanding shares of Lexford
Common Stock. Under the Trust's Bylaws, a special meeting of Trust Shareholders
may be called only by the Trust Board. Accordingly, holders of Trust Shares will
have no right to call meetings of Trust Shareholders.
Action by Written Consent. The OGCL provides that unless the articles or
regulations provide otherwise, any action which may be taken at a meeting of
shareholders may be taken without a meeting if a written consent to the action
is signed by all the holders of the outstanding stock entitled to vote on the
matter. Lexford's Articles and Regulations do not provide for action by written
consent.
As soon as the Company ceases to be the sole Trust Shareholder, the
Declaration of Trust prohibits the taking of Trust Shareholder action without a
meeting.
ADVANCE NOTICE FOR SHAREHOLDER NOMINATIONS FOR TRUSTEE OR DIRECTOR AND OTHER
SHAREHOLDER PROPOSALS
Lexford's Regulations require a shareholder who wishes to nominate a person
for the Lexford Board to deliver to Lexford notice of the nomination, along with
the nominee's consent to serve if elected, at least 60 calendar days and not
more than 90 calendar days before the meeting where the Directors are to be
elected. Lexford's Regulations also require the same advance notice with respect
to proposals of new business to be acted upon at an annual meeting of the
Lexford Shareholders.
The Bylaws of the Trust require notice, written acceptance of a nomination
and the nominee's agreement to serve if elected, at least 120 days before the
anniversary of the mailing of the notice of the prior annual meeting of Trust
Shareholders in order for a Trust Shareholder to nominate a Trustee. With
respect to a special meeting to elect Trustees, the Bylaws require such notice
not less than 20 days before the mailing of the notice of the special meeting.
The Bylaws require the same advance notice required for Trust Shareholder's
proposals of new business as required under Rule 14a-8 of the Exchange Act,
which requires 120 days advance notice for Trust Shareholder proposals. The
Bylaws have detailed requirements for the contents of such notice of Trustee
nominations or Trust Shareholder proposals.
AMENDMENT OF ARTICLES OF INCORPORATION AND DECLARATION OF TRUST
Pursuant to the OGCL, an amendment to a corporation's articles of
incorporation must be approved by the holders of two-thirds of the outstanding
shares entitled to vote thereon, unless such articles of incorporation require
otherwise. The OGCL permits shareholders to amend the articles without the
approval of the Board of Directors. Lexford's Articles provide that the holders
of a majority of the outstanding stock entitled to vote may amend the Articles.
Under Title 8 and the Declaration of Trust, the Trustees, by a two-
<PAGE> 8
thirds vote, may at any time amend the Declaration of Trust solely to enable the
Trust to qualify as a REIT under the Code or as a real estate investment trust
under Title 8, without the approval of the Trust Shareholders. The Trust Board
may also amend the Declaration of Trust to set the terms of one or more series
of Preferred Shares of the Trust without Trust Shareholder approval. Other
amendments to the Declaration of Trust require the vote of a majority of the
outstanding shares of the Trust after the proposed amendment is first set forth
in a resolution and declared advisable by the Trust Board.
AMENDMENT OF THE REGULATIONS AND THE BYLAWS
The OGCL provides that only shareholders of a corporation have the power to
amend a corporation's code of regulations. Lexford's Regulations may be amended
by the affirmative vote of the holders of a majority of the shares of Lexford
Common Stock at an annual or special meeting duly called for such purpose.
Lexford's Regulations may not be amended without a meeting of Lexford
Shareholders.
The Declaration of Trust and the Bylaws provide that the power to amend,
repeal, or adopt new Bylaws is vested exclusively in the Trust Board.
DISSOLUTION OF LEXFORD OR THE TRUST; TERMINATION OF REIT STATUS
Under the OGCL, a corporation may be dissolved if two-thirds of the
outstanding stock of the corporation votes for the proposed dissolution at a
shareholders' meeting called for the purpose of acting upon such resolution,
unless a lesser percentage is specified in the articles of incorporation.
Director approval of the dissolution is not required under the OGCL. Lexford's
Articles provide that a majority of Lexford Shareholders may dissolve the
Company. Under the OGCL, the Lexford Board may effect a dissolution in only five
very specific instances, (i) when Lexford is in bankruptcy or has made a general
assignment for the benefit of creditors, (ii) by leave of the court, when a
receiver has been appointed in a suit in which the affairs of Lexford are to be
wound up, (iii) when substantially all of the assets have been sold at a
judicial sale or otherwise, (iv) when Lexford's Articles have been canceled for
failure to file or pay franchise or excise taxes, or (v) when the period of
existence provided for in Lexford's Articles has expired.
The Declaration of Trust permits the dissolution of the Trust if the Trust
Board finds such dissolution advisable and adopts a resolution of dissolution,
which resolution must be approved by the affirmative vote of the holders of not
less than a majority of the outstanding Trust Shares entitled to vote on the
matter at a meeting called for that purpose. In addition, the Declaration of
Trust permits the Trustees to terminate the status of the Trust as a REIT under
the Code at any time, with or without the vote of the holders of Trust Shares.
LIMITATIONS OF LIABILITY
Pursuant to the OGCL, the liability of directors of a corporation for
monetary damages for breach of fiduciary duty is eliminated, except for (i) acts
or omissions undertaken with deliberate intent to cause injury to the
corporation or undertaken with reckless disregard for the best interests of the
corporation, (ii) unlawful dividends or distributions or redemptions or
purchases of stock, or (iii) any transaction from which the directors derived an
improper personal benefit.
Pursuant to Title 8 and the Declaration of Trust, the liability of Trustees
and officers of the Trust to the Trust or to any Trust Shareholder for money
damages has been eliminated, except for (i) actual receipt of an improper
personal benefit in money, property or services and (ii) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. As a result, Trustees may not be liable for certain actions that they
would have been liable for as directors of Lexford.
A Trustee may not be liable to the Trust or Trust Shareholders for errors
in judgment or other acts or omissions not amounting to willful misconduct,
since provision has been made in the Declaration of Trust for exculpation of a
Trustee in such circumstances. Therefore, Trust Shareholders will have a more
limited right of action than they would have absent the limitation in the
Declaration of Trust.
<PAGE> 9
INDEMNIFICATION
Pursuant to the OGCL and Lexford's Regulations, Lexford is required to
indemnify any director, officer, employee or agent of Lexford sued in his or her
capacity as such if the individual acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to Lexford's best interest and, with
respect to a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Such indemnification covers judgments, fines and amounts
paid in settlement, except that in any suit by or in the right of Lexford no
indemnification may be made in respect of (i) any claim, issue or matter as to
which such person is adjudged to be liable for negligence or misconduct in the
performance of his or her duties to Lexford unless determined by a court to be
fair and reasonable, and (ii) any action or suit when the only liability
asserted against the director is for unlawful dividends or distributions or
redemptions or purchases of stock. The OGCL requires Lexford to reimburse, in
advance of a final disposition, expenses (including attorneys' fees) for a
director of Lexford if he or she agrees (i) to repay such amounts to Lexford if
it is determined by a court that the actions or omissions involve deliberate
intent to injure Lexford or reckless disregard for the best interests of
Lexford, and (ii) to reasonably cooperate with Lexford concerning the action,
proceeding or suit. The OGCL permits Lexford to reimburse, in advance of a final
disposition, expenses for a director, officer, employee or agent of Lexford if
he or she agrees to repay such amount to Lexford if it is ultimately determined
that he or she is not entitled to indemnification. Under the OGCL,
indemnification is determined to be proper by (i) a majority vote of a quorum
made up of disinterested directors, (ii) independent legal counsel, (iii) the
shareholders, or (iv) the court.
Under the Declaration of Trust, the Trust is required to indemnify any
Trustee or officer, and may indemnify any employee or agent (i) against
reasonable expenses incurred by him or her in the successful defense (on the
merits or otherwise) of any proceeding to which he or she is made a party by
reason of such status or (ii) against judgments, penalties, fines, settlements,
and reasonable expenses actually incurred in connection with a proceeding that
he or she may become subject to by reason of such status unless it is
established that (a) the act or omission was material to the matter giving rise
to the claim and was committed in bad faith or was the result of active and
deliberate dishonesty, (b) he or she actually received an improper personal
benefit in money, property or services or (c) in the case of a criminal
proceeding, he or she had reasonable cause to believe that his or her act or
omission was unlawful. The Trust is also required by the Declaration of Trust to
pay or reimburse, in advance of a final disposition, reasonable expenses of a
Trustee or officer, and may choose to do so for an employee or agent, that is
made a party to a proceeding by reason of his or her status as such upon receipt
of a written affirmation by the Trustee, officer, employee, or agent of his or
her good faith belief that he or she has met the applicable standard for
indemnification under the Declaration of Trust and a written undertaking to
repay such expenses if it shall ultimately be determined that the applicable
standard was not met. Under the Declaration of Trust, indemnification is
determined to be proper by (i) a majority vote of a quorum made up of
disinterested Trustees, (ii) special legal counsel selected by a majority vote
of a quorum made up of disinterested Trustees, or (iii) a majority vote of the
Trust Shareholders entitled to vote on the matter at a meeting called for such
purpose, voting as a single class.
The Declaration of Trust provides for indemnification of a Trustee or
officer by the Trust for liabilities he or she incurs in dealings with third
parties on behalf of the Trust. To the extent that the indemnification
provisions purport to include indemnification for liabilities arising under the
Securities Act, the Trust has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is contrary to public
policy as expressed in the Securities Act and is therefore unenforceable.
MERGERS, ACQUISITIONS AND CERTAIN OTHER TRANSACTIONS
The OGCL provides that a merger or consolidation or sale of all or
substantially all of the assets by an Ohio corporation generally requires the
affirmative vote of holders of shares representing at least two-thirds of the
shareholder voting power of the corporation unless the corporation's articles of
incorporation provide for approval by a different percentage not less than a
majority. Lexford's Articles provide that a majority of the voting power of the
Company may approve a merger or consolidation or sale of all or substantially
all of the assets, so long as it does not involve an interested shareholder
transaction under the OGCL or the Articles' provisions relating to Control Share
Acquisitions or related party transactions.
<PAGE> 10
Lexford's Articles contain certain restrictions, which generally prohibit,
without Lexford Shareholder approval, a person from making an acquisition that
would leave the Lexford Shareholder, directly or indirectly, exercising or
directing the exercise of (i) one-fifth or more but less than one-third of the
voting power, (ii) one-third or more but less than a majority of the voting
power, or (iii) a majority or more of the voting power ("Control Share
Acquisition Restrictions"). The Articles do not require the directors to call a
special meeting to vote on the proposed acquisition of shares if (i) the notice
given by the shareholders was not given in good faith, (ii) the proposed
acquisition would not be in the best interests of Lexford and its shareholders
or (iii) the proposed acquisition could not be consummated for legal or
financial reasons. The OGCL also contains control share acquisition provisions,
but permit a corporation's articles of incorporation to specifically opt-out of
their protections, which Lexford chose to do and in its place provided these
Control Share Acquisition Restrictions in its Articles.
The OGCL prohibits an "interested shareholder" from engaging in a wide
range of "business combinations," including, but not limited to, mergers,
consolidations and certain sales of assets. An "interested shareholder" is a
shareholder who, directly or indirectly, exercises or directs the exercise of
10% or more of the voting power of the corporation. These prohibitions do not
apply under certain circumstances, including, but not limited to, the following:
(i) if the directors of the corporation have approved the transactions or the
"interested shareholder's" acquisition of shares of the corporation prior to the
date the "interested shareholder" became a shareholder of the corporation, and
(ii) if the shareholders, by approval of two-thirds of the voting power, amend
the articles of incorporation to specify that this provision of the OGCL is not
to apply to the corporation. The prohibition is for three years following the
date that the "interested shareholder" became a shareholder of the company.
After the initial three-year moratorium has expired, the transaction can only
proceed if (i) the acquisition of shares that made a person an "interested
shareholder" was approved by the Board of Directors prior to such time the
acquisition was made, (ii) the transaction is approved by the affirmative vote
of the holders of shares representing at least two-thirds of the voting power
and by the holders of at least a majority of the voting shares not beneficially
owned by the "interested shareholder" or an affiliate or associate, or (iii) the
transaction meets certain statutory tests designed to ensure that it is
economically fair to all shareholders. These provisions of the OGCL only apply
to an "issuing public corporation" which is an Ohio corporation with 50 or more
shareholders that has its principal place of business, principal executive
offices or substantial assets within the State of Ohio. The Company currently is
an "issuing public corporation."
The Articles also have provisions related to certain "related party
transactions." A "related party" is generally a shareholder who is the
beneficial owner of five percent or more of the voting power of the Company.
These provisions prohibit a "related party" from entering into certain
transactions, including, but not limited to, mergers and consolidations, unless
the transaction is (i) approved by the affirmative vote of at least 80% of the
voting power entitled to elect directors and at least sixty-six and two-thirds
percent of such voting power, excluding Lexford Common Stock held by the
"related party" or its affiliates, officers and employee-directors of Lexford,
or (ii) expressly approved by two-thirds of the "Continuing Directors" (as
defined in the Articles).
Title 8 provides that a merger involving a real estate investment trust
generally requires approval by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter, unless the declaration of trust
specifies a lower percentage, but not less than a majority. The Declaration of
Trust specifies that a majority of the votes entitled to be cast will approve a
merger. Title 8 does not address the requirements for approval of a disposition
of all or substantially all of the assets of a trust. However, the Declaration
of Trust does require that if the Trustees intend to dispose of all or
substantially all of the assets of the Trust outside the ordinary course of
business, for consideration other than money or the assumption of debt and not
pursuant to a dissolution, then, at a meeting called for that purpose, the
holders of not less than a majority of the Trust Shares entitled to vote on the
matter must approve the transaction. No dissenters', appraisal or similar rights
are available under Title 8 to Trust Shareholders who dissent from the approval
of any sale of all or substantially all of the assets of the Trust. Under the
Declaration of Trust, the transfer of all or substantially all of the assets of
the Trust to a wholly-owned subsidiary of the Trust is not deemed to be a sale
requiring Trust Shareholder approval.
<PAGE> 11
The Declaration of Trust contains provisions inhibiting certain "control
share acquisitions," in accordance with the Maryland Control Share Act. These
provisions generally require that "control shares" of the Trust acquired in a
Control Share Acquisition, have no voting rights except to the extent such
voting rights are approved by the Trust Shareholders at a meeting by the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter, excluding all "interested shares." Pursuant to the Declaration of Trust,
the Trustees are under no obligation to call a special meeting of Trust
Shareholders to vote on the voting rights to be accorded to the "control shares"
if the Trustees determine, (i) that the required acquiring person statement made
in connection with the proposed Control Share Acquisition was not made in good
faith, (ii) that the proposed Control Share Acquisition would not be in the best
interests of the Trust and the Trust Shareholders, or (iii) that the proposed
Control Share Acquisition could not be consummated for financial or legal
reasons, including, but not limited to, any adverse impact the proposed Control
Share Acquisition would have upon the Trust's ability to continue to qualify as
a REIT under the Code or Title 8. See "Risk Factors -- Risks Related to
Declaration of Trust and Bylaws of the Trust and Maryland Law" and "Description
of Trust Shares -- Anti-Takeover Effects of Certain Charter Provisions and
Laws."
Under the Maryland Business Combination Act, certain "business
combinations" (including, but not limited to, a merger, consolidation, share
exchange, or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate investment
trust and an Interested Shareholder, or any affiliate of an Interested
Shareholder are, subject to certain exceptions, (i) prohibited for a period of
five (5) years from the time the person became an Interested Shareholder and
(ii) then must be recommended by the board of trustees and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the trust and (b) two-thirds of the votes
entitled to be cast by holders of outstanding voting shares of the trust other
than shares held by the Interested Shareholder who will (or whose affiliate
will) be a party to the business combination, unless, among other things, the
holders of trust shares receive a statutorily calculated minimum price for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Shareholder for his or her shares. The
Maryland Business Combination Act will not apply to any real estate investment
trust whose original declaration of trust includes a provision, or whose
shareholders adopt, by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by holders of outstanding voting shares of the trust and
(ii) two-thirds of the votes entitled to be cast by holders of outstanding
voting shares of the trust who are not Interested Shareholders or any affiliates
of Interested Shareholders, an amendment to its declaration of trust expressly
electing not to be governed by the Maryland Business Combination Act. In the
event that a Maryland real estate investment trust did not include such an opt
out provision in its original declaration of trust and its shareholders
subsequently adopted an amendment to its declaration of trust including an opt
out provision, such amendment would not take effect until eighteen (18) months
after its adoption by the shareholders, and would not apply to any "business
combination" between the trust and an Interested Shareholder (or an affiliate of
an Interested Shareholder) who became an Interested Shareholder prior to the
vote of trust shareholders. The Declaration of Trust does not contain a
provision that opts out of the Maryland Business Combination Act. The Maryland
Business Combination Act could have the effect of discouraging offers to acquire
the Trust and of increasing the difficulty of consummating any such offer. See
"Risk Factors -- Risks Related to Declaration of Trust and Bylaws of the Trust
and Maryland Law" and "Description of Trust Shares -- Anti-Takeover Effects of
Certain Charters Provisions and Laws."
RESTRICTIONS ON INVESTMENT AND USE
Under Title 8, a Maryland real estate investment trust must hold, either
directly or through other entities, at least 75% of the value of its assets in
real estate assets, mortgages or mortgage related securities, government
securities, cash and cash equivalent items (including high-grade short term
securities and receivables) and may not use or apply land for farming,
agriculture, horticulture or similar purposes to satisfy such requirement. In
addition, any entity wishing to qualify as a REIT for Federal income tax
purposes has to meet certain asset, income and distribution requirements. There
are no such limits for corporations, such as Lexford, organized under the OGCL
(unless such a corporation seeks to qualify as a REIT for Federal income tax
purposes). See "Risk Factors -- Risk Related to REIT Status" and "Federal Income
Tax Considerations -- Requirements for Qualification as a REIT."
<PAGE> 12
DIVIDENDS AND OTHER DISTRIBUTIONS
The OGCL provides that dividends may be paid in cash, property or shares of
a corporation's capital stock. The OGCL provides that a corporation must pay
dividends out of surplus, dividends cannot be made if the corporation is
insolvent or there is reasonable belief that the corporation would be rendered
insolvent by the payment of the dividend and the corporation must notify its
shareholders if a dividend is paid out of capital surplus.
The Declaration of Trust provides that the Trustees will "endeavor to
declare and pay" such distributions as shall be necessary for the Trust to
remain a REIT under the Code. The payment of distributions by the Trustees are
not limited by any rules concerning the capital or surplus of the Trust or the
par value of the Trust Shares. However, the Trustees may not declare or pay any
distributions, if the Trust is insolvent, or would be rendered insolvent by such
distribution, or if such distribution would be fraudulent as to the creditors of
the Trust. See "Distribution Policy" and "Risk Factors -- Risks Related to REIT
Status."
REMOVAL OF DIRECTORS AND TRUSTEES
The OGCL provides that, if the shareholders are not permitted to cumulate
their votes in the election of directors and unless the governing documents of a
corporation provide otherwise, directors may be removed, with or without cause,
by the affirmative vote of the holders of a majority of the voting power of the
corporation with respect to the election of directors. Lexford's Articles do not
permit cumulative voting in the election of directors. The Articles further
provide that a director may be removed, with or without cause, at a duly called
annual or special meeting, the notice of which states that the removal of a
director or directors is among the purposes of the meeting, by the affirmative
vote of at least 80% of the voting power of the corporation with respect to the
election of directors, voting together as a single class.
Title 8 provides that, unless the declaration of trust provides otherwise,
the shareholders of a real estate investment trust may remove any trustee, with
or without cause, by the affirmative vote of a majority of all the votes
entitled to be cast for the election of trustees. The Declaration of Trust
provides that, subject to the holders of one or more classes or series of
Preferred Shares to elect one or more Trustees, a Trustee may be removed at any
time, (i) only with cause, at a meeting of the Trust Shareholders, by the
affirmative vote of the holders of not less than a majority of the Trust Shares
then outstanding and entitled to vote generally in the election of Trustees, or
(ii) with or without cause, by the affirmative vote of a majority of the
remaining members of the Trust Board.
CUMULATIVE VOTING
Neither Lexford's Articles nor the Declaration of Trust permit cumulative
voting in the election of directors or Trustees.
PREEMPTIVE RIGHTS
Neither Lexford's Articles nor the Declaration of Trust grant any
preemptive rights to their respective shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the OGCL, dissenting shareholders are entitled to appraisal rights in
connection with the lease, sale, exchange, transfer or other disposition of all
or substantially all of the assets of a corporation and in connection with
certain amendments to a corporation's articles of incorporation. Shareholders of
an Ohio corporation being merged into or consolidated with another corporation
are also entitled to appraisal rights. In addition, shareholders of an acquiring
corporation are entitled to appraisal rights in any merger, combination or
majority share acquisition in which such shareholders are entitled to voting
rights. The OGCL also provides shareholders of an acquiring corporation with
voting rights if the acquisition involves the transfer of shares of the
acquiring corporation entitling the recipients thereof to exercise one-sixth or
more of the voting power of
<PAGE> 13
such acquiring corporation immediately after the consummation of the
transaction. See "The Merger -- Rights of Dissenting Shareholders."
Title 8 provides dissenters' rights for any shareholder who objects to a
merger involving the real estate investment trust to the same extent as a
Maryland corporation's shareholder would enjoy such rights. The shareholder has
the right to demand and receive payment of the fair value of their shares,
unless (i) the shares are listed on a national securities exchange or are
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. on the record
date for determining shareholders entitled to vote on the merger, or (ii) the
shares are those of the successor entity, provided that the merger does not
alter the contract rights of the shares as expressly set forth in the charter
documents, and provided that the shares are converted in whole or in part in the
merger into stock in the successor entity or cash, scrip, or other rights or
interests arising out of the provisions for the treatment of fractional shares.
The Declaration of Trust permits dissenters' rights only to the extent of those
rights provided for in Title 8.
INSPECTION OF BOOKS AND RECORDS
The OGCL provides that any shareholder of the corporation, upon written
demand stating the specific purpose thereof, shall have the right to examine in
person or by agent or attorney at any reasonable time and for any reasonable and
proper purpose the articles of incorporation, its regulations, its books and
records of accounts, minutes, and records of shareholders, and voting trust
agreements, if any, and to make copies or extracts thereof.
Under Title 8, any shareholder may inspect and copy during usual business
hours the bylaws of the trust, minutes of proceedings of shareholders, annual
statements of affairs of the trust, and voting trust agreements, if any. In
addition, any shareholder may make a written request upon a Maryland real estate
investment trust for a statement showing all securities issued by the trust
during a specified period of not more than 12 months before the date of request.
Within twenty days after the request, the trust will have available a list
containing (i) the number of securities issued during the specified period, (ii)
the consideration received per share, and (iii) the value of any consideration
other than money received, as set by the board of trustees. Title 8 also
provides that one or more shareholders who together have been the record holders
of at least 5% of the outstanding shares of any class of the trust for at least
six months can (i) upon written request, inspect and copy during usual business
hours the trust's books of account and its stock ledger, (ii) present to any
officer or resident agent of the trust a written request for a statement of its
affairs, and (iii) if the trust does not maintain a stock ledger at its
principal office, present to any officer or resident agent of the trust a
written request for a list of the shareholders of the trust. The Declaration of
Trust does not provide any additional rights of inspection for Trust
Shareholders.
<PAGE> 1
EXHIBIT 4.3
LEXFORD RESIDENTIAL TRUST
ARTICLES OF AMENDMENT
Lexford Residential Trust, a Maryland real estate investment trust (the
"Trust"), hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
FIRST: The Declaration of Trust of the Trust is hereby amended by
striking out the definitions of "Constructive Ownership Limit" and "Ownership
Limit" set forth in Section 6.1(A) thereof and inserting in lieu thereof the
following:
"Constructive Ownership Limit" shall mean 9.2% of the outstanding
Common Equity Shares or 9.8% of the outstanding Equity Shares of any class of
Preferred Shares.
"Ownership Limit," with respect to the Common Shares, shall mean 9.2%
of the outstanding Common Equity Shares of the Trust; provided, however, if
there is more than one Existing Holder on the Adoption Date, the Ownership Limit
shall be the lower of (i) the foregoing percentage and (ii) the highest
percentage (divided by five minus the number of the then-Existing Holders) of
Common Equity Shares that could be Beneficially Owned by Persons other than
Existing Holders without creating the possibility that five Beneficial Owners of
Common Shares (including all of the then-Existing Holders) could Beneficially
Own in the aggregate, more than 49.9% of the outstanding Common Equity Shares
(taking into account any potential forfeitures of Common Shares), and, with
respect to any class or series of Preferred Shares, shall mean 9.8% of the
outstanding Preferred Equity Shares of such class or series.
SECOND: The amendment to the Declaration of Trust of the Trust as
hereinabove set forth has been duly resolved and adopted by the unanimous vote
of the board of trustees of the Trust pursuant to the authority conferred upon
the board of trustees by Sections 6.1(J) and 8.2 of the Declaration of Trust of
the Trust as well as Section 8-501 of the Corporations and Associations Article
of the Annotated Code of Maryland.
IN WITNESS WHEREOF: Lexford Residential Trust, has caused these
Articles of Amendment to be signed in its name and on its behalf by its
Executive Vice President and attested by its Secretary on March 14, 1998.
<PAGE> 2
THE UNDERSIGNED, Executive Vice President of Lexford Residential Trust,
who executed on behalf of said Trust the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Trust, the foregoing Articles of Amendment to be the act of said
Trust and further certifies that, to the best of his knowledge, information, and
belief, the matters and facts set forth therein with respect to the approval
thereof are true in all material respects, under the penalties of perjury.
ATTEST: LEXFORD RESIDENTIAL TRUST:
/s/ Bradley A. Van Auken /s/ Mark D. Thompson
- ----------------------------- ----------------------------
Bradley A. Van Auken Mark D. Thompson
Senior Vice President, Executive Vice President
General Counsel & Secretary
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
------------------
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
This First Amendment to Amended and Restated Loan and Security
Agreement (this "Agreement") is entered into to be effective the 1st day of
February, 1998, among THE PROVIDENT BANK (the "Bank") and CARDINAL REALTY
SERVICES, INC., CARDINAL APARTMENT MANAGEMENT GROUP, INC., CARDINAL GP VIII
CORPORATION, CARDINAL GP X CORPORATION, CARDINAL APARTMENT SERVICES, INC.,
CARDINAL GP XII CORPORATION, CARDINAL INDUSTRIES DEVELOPMENT CORPORATION,
CARDINAL ANCILLARY INSURANCE AGENCY, INC., AN OHIO CORPORATION, CARDINAL
ANCILLARY INSURANCE AGENCY, INC., A DELAWARE CORPORATION, CARDINAL INDUSTRIES
OF FLORIDA SERVICES CORPORATION, CARDINAL INDUSTRIES OF GEORGIA SERVICES
CORPORATION, CARDINAL INDUSTRIES OF TEXAS, INC., CARDINAL INDUSTRIES SERVICES
CORPORATION, CARDINAL REALTY COMPANY, CARDINAL REGULATORY OF KENTUCKY, INC.,
CARDINAL REGULATORY OF WEST VIRGINIA, INC., CII OF PENNSYLVANIA, INC., R/E
MANAGEMENT SERVICES, INC., WALKER PLACE LIMITED LIABILITY COMPANY, LEXFORD
PROPERTIES OF COLORADO, INC., LEXFORD NORTHWEST, INC., CARDINAL GP XIII
CORPORATION, CARDINAL GP XIV CORPORATION, CARDINAL GP XV CORPORATION, CARDINAL
GP XVI CORPORATION, CARDINAL GP XVII CORPORATION, CARDINAL GP XVIII
CORPORATION, CARDINAL GP XIX CORPORATION, FKA CARDINAL GP XIX CORPORATION,
PREMIERE MANAGEMENT COMPANY, INC., LEAF ASSET MANAGEMENT, INC., LEXFORD
PROPERTIES, INC., AND LEXFORD RESIDENTIAL TRUST jointly and severally (herein
each a "Company" or collectively, the "Companies").
R E C I T A L S:
I. The Companies (except for the REIT (as defined herein)) and the
Bank entered into an Amended and Restated Loan and Security Agreement dated
September 30, 1997, (the "Loan Agreement") and various loan documents executed
in connection therewith (the "Loan Documents"), including but not limited to a
Cognovit Promissory Note for a revolving line of credit in the maximum amount
of $35,000,000.00 (the "Note"); and
II. Lexford Properties, Inc. ("Lexford") intends to convert from a
corporation to a Maryland real estate investment trust to be known as Lexford
Residential Trust (the "REIT") and, subject to the conditions set forth herein,
the Bank has consented to such conversion; and
III. The REIT will remain liable for all of the obligations of Lexford
under the Loan Agreement, the Loan Documents and the Note; and
IV. The Bank has agreed to lend the REIT the additional sum of
$5,000,000.00 on the terms set forth below.
V. The Companies are (a) consolidating syndicated properties to
include acquiring beneficial ownership of limited partnership interests in its
Syndicated
<PAGE> 2
Partnerships formerly held by third parties and (b) conveying the assets of
Lexford Properties, Inc. ("LPI") related to the conduct of LPI's third party
multifamily residential real property fee management business (including,
without limitation, all Equipment, Accounts, Intangibles, Instruments, Chattel
Paper, Deposits, and Stock owned by LPI related to such business) pursuant to
the terms of that certain Bill of Sale, Assignment and Assumption Agreement
dated February 20, 1998 by and between LPI and Lexford Property Management,
Inc., an Ohio Corporation (the "Bill of Sale").
VI. Terms used without definition in this Agreement have the meanings
given them in the Loan Agreement.
.
NOW, THEREFORE the Loan Agreement is amended as follows:
1. CONSENT OF BANK. Provided that Lexford obtains the approval of its
shareholders if required by law, and provided further that Lexford obtains all
necessary governmental and regulatory consents, including but not limited to
the approval of the SEC, the Bank hereby consents to the conversion of Lexford
to a Maryland real estate investment trust to be known as Lexford Residential
Trust. The Companies agree that all of the obligations of Lexford shall be
assumed by the REIT and that the REIT shall be jointly and severally liable to
the Bank for all indebtedness of the Companies pursuant to the Loan Agreement
as amended by this Amendment to the Loan Agreement as if the REIT were an
original party to said Agreements, including the Note and a term loan due March
1, 2001 in the original amount of $7,000,000, together with interest at the
rate of 7.25% per annum and a principal balance of $4,623,419.79 as of January
31, 1998 (the "Term Loan"). Furthermore, the Bank consents to (a) the fact that
the Companies are consolidating syndicated properties by way of acquiring
beneficial ownership of limited partnership interests in the Syndicated
Partnerships formerly held by third parties and (b) LPI's consummation of the
transactions contemplated by the Bill of Sale (the "Third Party Management
Sale"). In furtherance of its consent to the Third Party Management Sale, Bank
hereby releases and forever discharges all assets conveyed by LPI to Lexford
Property Management, Inc. pursuant to the Bill of Sale from the lien of the
Security Interest in favor of Bank thereon created and granted by the Loan
Agreement. At LPI's reasonable request and at LPI's expense, Bank will take all
such further action and execute and deliver all such further documents,
agreements, and instruments as may be necessary to evidence or give public
notice of Bank's release of Security Interest effected by this Agreement.
2. ADDITIONAL LOANS. The Bank, subject to the terms and conditions hereof, will
make an additional revolving line of credit loan of $5,000,000 (the "New Loan")
to the Companies to be used for working capital. The New Loan will bear
interest at the Bank's prime interest rate less one percent (1%) and will be
evidenced by a Promissory Note (the "New Note") in the form attached hereto as
Exhibit A. The New Loan shall be secured by the security interests provided in
the Loan Agreement or any other security agreements, pledge agreements or other
security instruments executed prior to the date hereof or in connection with
the Loan Agreement, this Amendment or executed after the date hereof among the
Bank and the Companies and shall be subject to all other terms and conditions
set forth in the Loan Agreement.
2
<PAGE> 3
3. THE REVOLVING LINE OF CREDIT LOAN. The Companies and the Bank agree that the
Revolving Line of Credit Loan is secured by the security interests provided in
the Loan Agreement or any other security agreements, pledge agreements or other
security instruments executed prior to the date hereof or in connection with
the Loan Agreement, this Amendment or executed after the date hereof among the
Bank and the Companies.
4. EFFECT ON LOAN AGREEMENT. The Companies acknowledge that the modifications
contained in this Amendment shall not be construed to operate to release,
discharge, modify or affect the original liability of the Companies under the
Loan Agreement, the Note or the Term Note. The Companies further acknowledge
that all of the terms and conditions of the Loan Agreement, including but not
limited to, the Company Business Covenants in Section 5 of the Loan Agreement
remain unmodified and in full force and effect. The Companies hereby reaffirm
and restate each of the Warranties and Representations set forth in Section 4
of the Loan Agreements as if fully rewritten in this Amendment.
5. SURVIVAL, SUCCESSORS, AND ASSIGNS. All warranties, representations, and
covenants made by the Companies herein or on any certificate or other
instrument delivered by it or on its behalf under this Amendment shall be
considered to have been relied upon by the Bank and shall survive the closing
of the New Loan or this Amendment regardless of any investigation made by the
Bank on its behalf. All statements in any such certificate or other instrument
shall constitute warranties and representations by the Companies. This
Amendment shall inure to the benefit of and be binding upon the heirs,
successors and assigns of each of the parties.
6. AMENDMENT AND WAIVER, DUPLICATE ORIGINALS. This Agreement may be amended,
and the observance of any term of this Agreement may be waived, with (and only
with) the written consent of the Companies and the Bank; PROVIDED HOWEVER that
nothing herein shall change the Bank's sole discretion (as set forth the Loan
Agreement) to make advances, determinations, decisions, or to take or refrain
from taking other actions. No delay or failure or other course of conduct by
the Bank in the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same preclude any
other or further exercise thereof, or the exercise of any other power or right.
Two or more duplicate originals of this Amendment may be signed by the parties,
each of which shall be an original but all of which together shall constitute
one and the same instrument.
7. ENFORCEABILITY AND GOVERNING LAW. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No delay or omission on
the part of the Bank in exercising any right shall operate as a waiver of such
right or any other right. All of the Bank's rights and remedies, whether
evidenced hereby or by any other agreement or instruments, shall be cumulative
and may be exercised singularly or concurrently. This Amendment shall be
governed by and construed in
3
<PAGE> 4
accordance with the laws of the State of Ohio. The Companies agree that any
legal suit, action or proceeding arising out of or relating to this Agreement
may be instituted in a state or federal court of appropriate subject matter
jurisdiction in the State of Ohio; waive any objection which they may have now
or hereafter to the venue of any suit, action, or proceeding in any such court;
and irrevocably submit to the jurisdiction of any such court in any such suit,
action, or proceeding.
8. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AMENDMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION (1) ARISING UNDER THE LOAN AGREEMENT, THIS AMENDMENT OR ANY
OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
9. ADVERTISING. The Companies agree that the Bank may advertise or otherwise
disclose for marketing purposes the extent and nature of the credit extended or
to be extended and other services provided to the Companies by the Bank in
connection with or relating in any way to the New Loan. The Companies have the
right of advance inspection and approval of all advertising (using their name)
not to be unreasonably withheld or delayed.
10. SINGULAR AND PLURAL; JOINT AND SEVERAL LIABILITY. As used in this
Agreement, the singular shall include the plural, the plural the singular and
the use of masculine, feminine, or neuter gender shall include all genders, as
the context may require. Reference in this Agreement to any one or more of the
Companies shall mean all of the Companies, jointly and severally; therefore the
obligations of the Companies in this Agreement shall be the joint and several
liability of each such Company.
11. WARRANT OF ATTORNEY. With full knowledge of all constitutional rights, if
any payment under the Note, the Term Note or the New Note is not received by
the Bank on or before the date when due, or should default be made in the
performance or observance of the covenants and agreements of this Agreement or
any of the other loan documents evidencing the Loan, after any applicable
notice or period of grace, the Companies hereby authorize and empower any
attorney of any court of record within the United States of
4
<PAGE> 5
America or elsewhere to appear for the Companies and, with or without complaint
filed, confess judgment or a series of judgments against the Companies in favor
of the Bank as of any time, present, or future, for the then due and unpaid
balance or balances of the principal, interest, late charges, and collections
expenses evidenced by the Note, or any part thereof, together with the costs of
the suit, and to waive and release all errors in said proceedings and petitions
in error and the right to appeal from the judgment rendered, on which judgment
or judgments one or more executions may issue forthwith; and for so doing this
Agreement or a copy thereof verified by affidavit shall be a sufficient
warrant. The foregoing warrant of attorney shall survive any judgment rendered
pursuant to the Note, and if any such judgment be vacated for any reason, the
Bank nevertheless may thereafter use the foregoing warrant of attorney to
obtain an additional judgment or judgments against the Companies.
SIGNED AND ACKNOWLEDGED:
The Provident Bank
By: /s/ William R. Mcnamara
--------------------------------
William R. McNamara
Its: Vice President
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Realty Services, Inc.
By: /s/ John B. Bartling
--------------------------------
John B. Bartling,
Its: Chief Executive Officer
5
<PAGE> 6
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Apartment Management Group, Inc.
By: /s/ John B. Bartling
---------------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP VIII Corporation
By: /s/ John B. Bartling
--------------------------------
John B. Bartling,
Its: Chief Executive Officer
6
<PAGE> 7
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP X Corporation
By: /s/ John B. Bartling
--------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Apartment Services, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
7
<PAGE> 8
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries Development Corporation
By: /s/ John B. Bartling
----------------------------------------
John B. Bartling,
Its: Chief Executive Officer
8
<PAGE> 9
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Ancillary Insurance Agency, Inc.,
an Ohio Corporation
By: /s/ John B. Bartling
---------------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Ancillary Insurance Agency, Inc.,
A Delaware Corporation
By: /s/ John B. Bartling
---------------------------------------
John B. Bartling,
Its: Chief Executive Officer
9
<PAGE> 10
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries of Florida Services
Corporation
By: /s/ John B. Bartling
------------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries of Georgia Services
Corporation
By: /s/ John B. Bartling
------------------------------------
John B. Bartling,
Its: Chief Executive Officer
10
<PAGE> 11
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries of Texas, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries Services
Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
11
<PAGE> 12
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Realty Company
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Regulatory of Kentucky, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
12
<PAGE> 13
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Regulatory of West Virginia, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
CII of Pennsylvania, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
13
<PAGE> 14
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
R/E Management Services, Inc.
BY: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Walker Place Limited Liability Company
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
14
<PAGE> 15
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Properties of Colorado, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Northwest, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
15
<PAGE> 16
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XIII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XIV Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
16
<PAGE> 17
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XV Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XVI Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
17
<PAGE> 18
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XVII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XVIII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
18
<PAGE> 19
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal LP XIX Corporation,
fka Cardinal GP XIX Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Premiere Management Company, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
19
<PAGE> 20
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
LEAF Asset Management, Inc.
By: /S/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Properties, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
20
<PAGE> 21
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Residential Trust.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
21
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
The Provident Bank Loan No. ______
Note No. ______
$ 5,000,000.00 Columbus, Ohio February 1, 1998
The undersigned, for value received, promises to pay to the order of THE
PROVIDENT BANK, a state banking corporation ("Bank" which term shall include
subsequent holders hereof), at any of its offices, the sum of Five Million and
00/100 Dollars ($5,000,000.00), (the "Maximum Credit") or so much thereof as is
loaned by the holder pursuant to the provisions hereof, together with interest
until maturity (whether by acceleration or otherwise) at the rate equal to one
percent (1%) below the Prime Rate, as defined herein, charged by the Bank,
computed on the basis of a year of 360 days for the actual number of days
elapsed, and after default hereunder, demand or maturity, whether at stated
maturity or by acceleration, at a rate four (4) percentage points greater than
the stated rate (the "Default Rate"). Interest shall be due and payable monthly
on the first business day of each calendar month, commencing March 1, 1998, and
at maturity. Principal shall be due and payable one hundred eighty days (180)
after the date hereof.
The undersigned hereby states that the purpose of the loan evidenced by this
Note is further identified in Subsection 2.2 in the Amended and Restated Loan
and Security Agreement dated September 30, 1997 and the First Amendment to the
Amended and Restated Loan and Security Agreement commencing February 1, 1998.
If any payment of principal or interest is not paid when due, or in
the event of insolvency, bankruptcy, business failure, default in the payment
of other obligations or receivership of or concerning any maker, guarantor or
endorser hereof, this Note shall, at the option of its holder, become
immediately due and payable, without demand or notice. The undersigned shall
promptly provide such financial information as the holder shall reasonably
request from time to time. It shall also be a Default under this Note in the
event of the dissolution of any corporation, real estate investment trust or
partnership, borrower or guarantor.
As collateral security for the payment of the amounts from time to
time owing hereunder, Borrower and all indorsers hereby grants to the holder a
security interest in (i) all property in which the holder now or hereafter
holds a security interest pursuant to any and all assignments, pledges and
security agreements between the undersigned and the holder and (ii) all
accounts, securities and properties now or hereafter in the possession of the
holder and in which the undersigned or any indorsers have any interest. Upon
this Note becoming due under any of its terms and provisions, and not being
fully paid and satisfied, the total sum then due hereunder may, at any time and
from time to time, be charged against any account or accounts maintained with
the holder hereof by any of the undersigned or any endorser, without notice to
or further consent from any of them, and the undersigned and all endorsers
agree to be and remain jointly and severally liable for all remaining
indebtedness represented by this Note in excess of the amount or amounts so
applied. The undersigned and the holder intend that this indebtedness shall be
secured by any and all mortgages heretofore or hereafter granted by the
undersigned in favor of the holder.
<PAGE> 2
Prime Rate is that annual percentage rate of interest which is
established by The Provident Bank from time to time as its prime rate, whether
or not such rate is publicly announced, and which provides a base to which loan
rates may be referenced. Prime rate is not necessarily the lowest lending rate
of The Provident Bank. A rate based on the prime rate will change each time and
as of the date that the prime rate changes. If any payment of principal or
interest is not paid when due or if the undersigned shall otherwise default in
the performance of its obligations hereunder or under any other note or
agreement with the holder, the holder at its option, may charge and collect, or
add to the unpaid balance hereof, a late charge up to the greater of $250.00 or
.1% of the unpaid balance of this Note at the time of such delinquency for each
such delinquency to cover the extra expense incident to handling delinquent
accounts, or increase the interest rate on the unpaid balance to the Default
Rate. The holder may charge interest at the rate provided herein on all
interest and other amounts owing hereunder which are not paid when due.
The undersigned, all endorsers hereof, any other party hereto, and any
guarantor hereof (collectively "Obligors") each (i) waive(s) presentment,
demand, notice of demand, protest and notice of dishonor and any other notice
required to be given by law in connection with the delivery, acceptance,
performance, default or enforcement of this Note, or any endorsement or
guaranty of this Note; and (ii) consent(s) to any and all delays, extensions,
renewals or other modifications of this Note or waivers or any term hereof or
release or discharge by the holder of any of Obligors or release, substitution
or exchange of security for the payment hereof or the failure to act on the
part of the holder or any indulgence shown by the holder, from time to time and
in one or more instances, (without notice to or further assent from any of
Obligors) and agree(s) that no such action, failure to act or failure to
exercise any right or remedy, on the part of the holder shall in any way affect
or impair the obligations of any Obligors or be construed as a waiver by the
holder of, or otherwise affect, any of the holder's rights under this Note,
under any endorsement or guaranty of this Note or under any document or
instrument evidencing any security for payment of this Note. The undersigned
and all endorsers further agree to reimburse the holder for all advances,
charges, costs and expenses, including reasonable attorney's fees, incurred or
paid in exercising any right, power or remedy conferred by this Note, or in the
enforcement thereof. If the undersigned are more than one (1), the liability of
the undersigned hereon is joint and several, and the term "undersigned", as
used herein, means any one or more of them.
The undersigned and all endorsers authorize any attorney at law,
including an attorney engaged by the holder, to appear in any court or record
in the State of Ohio or any other State or Territory of the United States,
after the indebtedness evidenced hereby, or any part thereof, becomes due and
waive the issuance and service of process and confess judgment against any one
or more than one of the undersigned and all endorsers in favor of the holder,
for the amount then appearing due, together with costs of suit and, thereupon,
to release all errors and waive all rights of appeal and stay of execution, but
no such judgment or judgments against any one of the undersigned shall be a bar
to a subsequent judgment or judgments against any one or more than one of such
persons against whom judgment has not been obtained hereon. This warrant of
attorney to confess judgment is a joint and several warrant or attorney. The
foregoing warrant of attorney shall survive any judgment; and if any judgment
be vacated for any reason, the holder
2
<PAGE> 3
hereof nevertheless may thereafter use the foregoing warrant of attorney to
obtain an additional judgment or judgments against the undersigned and all
indorsers or any one or more of them. The undersigned and all indorsers hereby
expressly waive any conflict of interest that the holder's attorney may have in
confessing such judgment against such parties and expressly consent to the
confessing attorney receiving a legal fee from the holder for confessing such
judgment against such parties.
THE PROVISIONS OF THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF OHIO. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE HOLDER TO
EXTEND CREDIT TO BORROWER AND AFTER HAVING THE OPPORTUNITY TO CONSULT COUNSEL
THE UNDERSIGNED AND ALL INDORSERS HEREBY EXPRESSLY WAIVE THE RIGHT TO TRIAL BY
JURY IN ANY LAWSUIT OR PROCEEDING RELATED TO THIS NOTE OR ARISING IN ANY WAY
FROM ANY INDEBTEDNESS OR OTHER TRANSACTIONS INVOLVING THE HOLDER AND THE
UNDERSIGNED. THE UNDERSIGNED HEREBY DESIGNATE(S) ALL COURTS OF RECORD SITTING
IN COLUMBUS, OHIO AND HAVING JURISDICTION OVER THE SUBJECT MATTER, STATE AND
FEDERAL, AS FORUMS WHERE ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR
ARISING FROM OR OUT OF THIS NOTE, ITS MAKING, VALIDITY OR PERFORMANCE, MAY BE
PROSECUTED AS TO ALL PARTIES, THEIR SUCCESSORS AND ASSIGNS, AND BY THE
FOREGOING DESIGNATION THE UNDERSIGNED CONSENT(S) TO THE JURISDICTION AND VENUE
OF SUCH COURTS.
SIGNED AND ACKNOWLEDGED:
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Realty Services, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
3
<PAGE> 4
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Apartment Management Group,
Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP VIII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
4
<PAGE> 5
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP X Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Apartment Services, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
5
<PAGE> 6
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries Development
Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
6
<PAGE> 7
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Ancillary Insurance Agency,
Inc., an Ohio Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Ancillary Insurance Agency, Inc.,
A Delaware Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
7
<PAGE> 8
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries of Florida
Services Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries of Georgia
Services Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
8
<PAGE> 9
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries of Texas, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Industries Services Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
9
<PAGE> 10
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Realty Company
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Regulatory of Kentucky, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
10
<PAGE> 11
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal Regulatory of West
Virginia, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
CII of Pennsylvania, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
11
<PAGE> 12
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
R/E Management Services, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Walker Place Limited Liability
Company
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
12
<PAGE> 13
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Properties of Colorado, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Northwest, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
13
<PAGE> 14
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XIII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XIV Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
14
<PAGE> 15
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XV Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XVI Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
15
<PAGE> 16
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XVII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XVIII Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
16
<PAGE> 17
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Cardinal GP XIX Corporation,
fka Cardinal GP XIX Corporation
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Premiere Management Company, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
17
<PAGE> 18
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
LEAF Asset Management, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Properties, Inc.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
18
<PAGE> 19
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
Lexford Residential Trust.
By: /s/ John B. Bartling
---------------------------------
John B. Bartling,
Its: Chief Executive Officer
19
<PAGE> 1
EXHIBIT 10.3
STOCK SUBSCRIPTION
------------------
February 20, 1998
The undersigned, on its own behalf, does hereby subscribe for the
number of preferred shares, no par value (the "Preferred Shares") of Lexford
Property Management, Inc., an Ohio corporation, set forth opposite its name and
does hereby agree to contribute all the assets set forth on Schedule I attached
hereto as payment in full for all such Preferred Shares.
The undersigned, on its own behalf, does hereby warrant and represent
that:
A. It is aware of the fact that no federal or state agency has made any
finding or determination as to the fairness for public or private investment,
nor any recommendation or endorsement of the Preferred Shares for investment.
B. It recognizes that the Corporation has only recently been organized
and has no meaningful financial or operating history and, further, that the
Preferred Shares, as an investment, involve a high degree of risk.
C. It is aware of the fact that there is no public market for the
Preferred Shares and that it may not be possible to readily liquidate its
investment at any time.
D. It is aware that the Articles of Incorporation of the Corporation
provide that the Shareholders have no preemptive rights to subscribe to future
issuances, if any, of any class of shares of the Corporation, whether such
shares be now or hereafter authorized.
E. The Preferred Shares to be purchased by it will be purchased (i) for
its own account entirely, and (ii) for investment and not with a view to, or for
resale in connection with, any distribution thereof.
Please Print or Type
Signature of Number of Mailing Address for
Shareholder Shares Shareholder Records
----------- --------- ---------------------
LEXFORD PROPERTIES, INC. The Huntington Center
Suite 2410
By: /s/ Bradley A. Van Auken 950 41 South High Street
------------------------ Columbus, Ohio 43215
Its Senior Vice President
<PAGE> 2
SCHEDULE I TO STOCK SUBSCRIPTION
CONTRIBUTED PROPERTY
FIXED ASSETS
------------
(i) all leasehold interests in real estate (including, without
limitation, fixtures and improvements) which is located in Houston or Seattle
(the "Third Party Offices");
(ii) all inventories and supplies in the Third Party Offices OTHER THAN
those pertaining to the human resources/training group;
(iii) all equipment, furniture, spare parts and supplies, computers,
computer terminals, computer interface hardware and all related peripheral and
support equipment, and all other tangible personal property in the Third Party
Offices OTHER THAN those pertaining primarily to the human resources/training
group or primarily utilized by Pat Holder, Mark Culwell, Tom Huth or their
direct administrative support personnel;
(iv) all lists and records pertaining to customer accounts (whether
past or current), personnel and agents and all other books, ledgers, files,
documents, correspondence and business records relating to the Third Party
Contracts (as defined below);
(v) all creative materials (including, without limitation, photographs,
films, art work, color separations and the like), advertising and promotional
material and all other printed or written materials;
(vi) all transferable permits, licenses, certificates and approvals
relating to the Third Party Business;
(vii) all rights to receive mail and other communications addressed to
Seller and relating to the Third Party Business (as defined below) or the
Purchased Assets including, without limitation, accounts receivable payments;
and
(viii) all goodwill as a going concern and associated with the items
listed above.
INTANGIBLE ASSETS
-----------------
(i) all accounts receivable;
(ii) all prepayments and prepaid expenses to the extent Buyer will
obtain the benefit thereof;
<PAGE> 3
(iii) all rights existing under agreements for the management of real
estate in which Lexford, Inc. or any of its subsidiaries does NOT have a direct
or indirect equity interest together with all rights existing under those
certain Management Agreements between Lexford and Hidden Pointe Properties,
L.P., a Georgia limited partnership (the "Third Party Contracts");
(iv) the entire membership interest in Lexford Guilford GP LLC and
Lexford Guilford LP LLC;
(v) all claims, refunds, causes of action, rights of recovery and
rights of set-off of every kind and nature relating to the Third Party
Contracts;
(vi) all computer software packages used in the conduct of the business
relating to the Third Party Contracts (the "Third Party Business") including,
without limitation, those licensed by Seller, subject to, and in accordance
with, the terms of the licensing agreements therefor;
(vii) 1,000 shares of common stock of Lexford Northwest, Inc., a Texas
corporation; and
(viii) 80,000 shares of common stock of Lexford Properties of Colorado,
Inc.
<PAGE> 4
BILL OF SALE, ASSIGNMENT
AND ASSUMPTION AGREEMENT
This Bill of Sale, Assignment and Assumption Agreement (this
"Agreement") is entered into as of the 20th day of February, 1998, by and
between Lexford Properties, Inc., a Texas corporation ("Lexford"), and Lexford
Property Management, Inc., an Ohio corporation (the "Company").
RECITALS
WHEREAS, Lexford has executed and delivered a Stock Subscription dated
February 20th, 1998 pursuant to which Lexford has agreed to transfer certain
fixed assets of Lexford, as set forth on Schedule I hereto, and assign certain
intangible assets of Lexford, as set forth on Schedule II hereto, (collectively,
the "Contributed Property") to the Company in exchange for 950 preferred shares,
no par value, of the Company (the "Stock Subscription"); and
WHEREAS, pursuant to the terms of the Stock Subscription, Lexford
hereby desires to transfer and assign to the Company all of Lexford's right,
title and interest in the Contributed Property, and the Company desires to
acquire all of Lexford's right, title and interest in the Contributed Property
and to assume certain obligation thereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lexford does hereby irrevocably
grant, bargain, sell, deliver, transfer, assign and convey unto the Company, its
successors and assigns, all of Lexford's right, title and interest in, to and
under the Contributed Property.
TO HAVE AND TO HOLD the Contributed Property transferred, conveyed and
assigned herein unto the Company, its successors and assigns, and for its and
their own use forever.
The Company hereby accepts the sale, transfer, conveyance, assignment
and delivery of the Contributed Property and agrees to assume all Lexford's
obligations under the contracts set forth on Schedule II.
Lexford will at any time and from time to time, upon request of the
Company, do, execute, acknowledge and deliver (or cause to be delivered) all
such further acts, deeds, assignments, instruments of transfer or conveyance,
powers of attorney and assurances as may be required for the
<PAGE> 5
assigning, transferring, granting, conveying, assuring and confirming to the
Company, or to its successors and assigns, or for aiding and assisting in
collecting and reducing to possession, any or all of the assets and property to
be conveyed, transferred and assigned to the Company. Simultaneously herewith,
Lexford shall take all steps as may be necessary to put the Company in actual
possession and operating control of the Contributed Property and to assist the
Company in exercising all rights with respect thereto.
This Agreement is to be governed by and construed in accordance with
the laws of the State of Ohio without regard to the conflict of laws principles.
This Agreement may be executed by the parties hereto in two or more
counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of Lexford and the Company has caused this
Agreement to be signed on the date first above written by duly authorized
officers thereof.
LEXFORD PROPERTIES, INC.
By: /s/ Bradley A. Van Auken
-------------------------------
Name: Bradley A. Van Auken
-----------------------------
Title: Vice President
----------------------------
LEXFORD PROPERTY MANAGEMENT, INC.
By: /s/ Bradley A. Van Auken
--------------------------------
Name: Bradley A. Van Auken
------------------------------
Title: Vice President
-----------------------------
<PAGE> 6
SCHEDULE I TO BILL OF SALE
CONTRIBUTED PROPERTY
FIXED ASSETS
------------
(i) all leasehold interests in real estate (including, without
limitation, fixtures and improvements) which is located in Houston or Seattle
(the "Third Party Offices");
(ii) all inventories and supplies in the Third Party Offices OTHER THAN
those pertaining to the human resources/training group;
(iii) all equipment, furniture, spare parts and supplies, computers,
computer terminals, computer interface hardware and all related peripheral and
support equipment, and all other tangible personal property in the Third Party
Offices OTHER THAN those pertaining primarily to the human resources/training
group or primarily utilized by Pat Holder, Mark Culwell, Tom Huth or their
direct administrative support personnel;
(iv) all lists and records pertaining to customer accounts (whether
past or current), personnel and agents and all other books, ledgers, files,
documents, correspondence and business records relating to the Third Party
Contracts (as defined in Schedule II);
(v) all creative materials (including, without limitation, photographs,
films, art work, color separations and the like), advertising and promotional
material and all other printed or written materials;
(vi) all transferable permits, licenses, certificates and approvals
relating to the Third Party Business;
(vii) all rights to receive mail and other communications addressed to
Seller and relating to the Third Party Business (as defined in Schedule II) or
the Purchased Assets including, without limitation, accounts receivable
payments; and
(viii) all goodwill as a going concern and associated with the items
listed above.
<PAGE> 7
SCHEDULE II TO BILL OF SALE
CONTRIBUTED PROPERTY
INTANGIBLE ASSETS
------------------
(i) all accounts receivable;
(ii) all prepayments and prepaid expenses to the extent Buyer will
obtain the benefit thereof;
(iii) all rights existing under agreements for the management of real
estate in which Lexford, Inc. or any of its subsidiaries does NOT have a direct
or indirect equity interest together with all rights existing under those
certain Management Agreements between Lexford and Hidden Pointe Properties,
L.P., a Georgia limited partnership (the "Third Party Contracts");
(iv) all claims, refunds, causes of action, rights of recovery and
rights of set-off of every kind and nature relating to the Third Party
Contracts;
(v) all computer software packages used in the conduct of the business
relating to the Third Party Contracts (the "Third Party Business") including,
without limitation, those licensed by Seller, subject to, and in accordance
with, the terms of the licensing agreements therefor;
(vi) 1,000 shares of common stock of Lexford Northwest, Inc., a Texas
corporation; and
(vii) 80,000 shares of common stock of Lexford Properties of Colorado,
Inc.
<PAGE> 8
STOCK SUBSCRIPTION
------------------
February 20, 1998
The undersigned, on his own behalf, does hereby subscribe for the
number of common shares, no par value (the "Common Shares") of Lexford Property
Management, Inc., an Ohio corporation, set forth opposite his name and does
hereby agree to pay therefor the sum of One Thousand Dollars ($1,000) per share
for all such Common Shares.
The undersigned, on his own behalf, does hereby warrant and represent
that:
A. He is aware of the fact that no federal or state agency has made any
finding or determination as to the fairness for public or private investment,
nor any recommendation or endorsement of the Common Shares for investment.
B. He recognizes that the Corporation has only recently been organized
and has no meaningful financial or operating history and, further, that the
Common Shares, as an investment, involve a high degree of risk.
C. He is aware of the fact that there is no public market for the
Common Shares and that it may not be possible to readily liquidate his
investment at any time.
D. He is aware that the Articles of Incorporation of the Corporation
provide that the Shareholders have no preemptive rights to subscribe to future
issuances, if any, of any class of shares of the Corporation, whether such
shares be now or hereafter authorized.
E. The Common Shares to be purchased by him will be purchased (i) for
his own account entirely, and (ii) for investment and not with a view to, or for
resale in connection with, any distribution thereof.
F. He is aware that he is personally and unconditionally liable to the
Corporation to pay or deliver to the Corporation the full amount of
consideration set forth above for the Common Shares under Ohio Revised Code ss.
1701.18. He also acknowledges that in addition to the rights of the Corporation
under Ohio Revised Code ss. 1701.20 to enforce payment of the full amount of
consideration set forth above for the Common Shares, if full payment is not made
within 60 days after subscription, the Corporation, in its sole discretion, may
seek enforcement of his obligation to the Corporation and payment of any unpaid
amounts owing to the Corporation pursuant to this Subscription Agreement in a
court of competent jurisdiction to the same extent that it could enforce his
obligation if such obligation was evidenced by a promissory note signed by him.
Please Print or Type
Signature of Number of Mailing Address for
Shareholder Shares Shareholder Records
----------- ------ -------------------
The Huntington Center
Suite 2410
/s/ Mark D. Thompson 24 41 South High Street
- -------------------- Columbus, Ohio 43215
Mark D. Thompson
<PAGE> 9
STOCK SUBSCRIPTION
------------------
February 20, 1998
The undersigned, on his own behalf, does hereby subscribe for the
number of common shares, no par value (the "Common Shares") of Lexford Property
Management, Inc., an Ohio corporation, set forth opposite his name and does
hereby agree to pay therefor the sum of One Thousand Dollars ($1,000) per share
for all such Common Shares.
The undersigned, on his own behalf, does hereby warrant and represent
that:
A. He is aware of the fact that no federal or state agency has made any
finding or determination as to the fairness for public or private investment,
nor any recommendation or endorsement of the Common Shares for investment.
B. He recognizes that the Corporation has only recently been organized
and has no meaningful financial or operating history and, further, that the
Common Shares, as an investment, involve a high degree of risk.
C. He is aware of the fact that there is no public market for the
Common Shares and that it may not be possible to readily liquidate his
investment at any time.
D. He is aware that the Articles of Incorporation of the Corporation
provide that the Shareholders have no preemptive rights to subscribe to future
issuances, if any, of any class of shares of the Corporation, whether such
shares be now or hereafter authorized.
E. The Common Shares to be purchased by him will be purchased (i) for
his own account entirely, and (ii) for investment and not with a view to, or for
resale in connection with, any distribution thereof.
F. He is aware that he is personally and unconditionally liable to the
Corporation to pay or deliver to the Corporation the full amount of
consideration set forth above for the Common Shares under Ohio Revised Code
section 1701.18. He also acknowledges that in addition to the rights of the
Corporation under Ohio Revised Code section 1701.20 to enforce payment of the
full amount of consideration set forth above for the Common Shares, if full
payment is not made within 60 days after subscription, the Corporation, in its
sole discretion, may seek enforcement of his obligation to the Corporation and
payment of any unpaid amounts owing to the Corporation pursuant to this
Subscription Agreement in a court of competent jurisdiction to the same extent
that it could enforce his obligation if such obligation was evidenced by a
promissory note signed by him.
Please Print or Type
Signature of Number of Mailing Address for
Shareholder Shares Shareholder Records
----------- ------ -------------------
The Huntington Center
Suite 2410
/s/ John B. Bartling, Jr. 21 41 South High Street
- ------------------------- Columbus, Ohio 43215
John B. Bartling, Jr.
<PAGE> 10
STOCK SUBSCRIPTION
------------------
February 20, 1998
The undersigned, on his own behalf, does hereby subscribe for the
number of common shares, no par value (the "Common Shares") of Lexford Property
Management, Inc., an Ohio corporation, set forth opposite his name and does
hereby agree to pay therefor the sum of One Thousand Dollars ($1,000) per share
for all such Common Shares.
The undersigned, on his own behalf, does hereby warrant and represent
that:
A. He is aware of the fact that no federal or state agency has made any
finding or determination as to the fairness for public or private investment,
nor any recommendation or endorsement of the Common Shares for investment.
B. He recognizes that the Corporation has only recently been organized
and has no meaningful financial or operating history and, further, that the
Common Shares, as an investment, involve a high degree of risk.
C. He is aware of the fact that there is no public market for the
Common Shares and that it may not be possible to readily liquidate his
investment at any time.
D. He is aware that the Articles of Incorporation of the Corporation
provide that the Shareholders have no preemptive rights to subscribe to future
issuances, if any, of any class of shares of the Corporation, whether such
shares be now or hereafter authorized.
E. The Common Shares to be purchased by him will be purchased (i) for
his own account entirely, and (ii) for investment and not with a view to, or for
resale in connection with, any distribution thereof.
<PAGE> 11
F. He is aware that he is personally and unconditionally liable to the
Corporation to pay or deliver to the Corporation the full amount of
consideration set forth above for the Common Shares under Ohio Revised Code ss.
1701.18. He also acknowledges that in addition to the rights of the Corporation
under Ohio Revised Code ss. 1701.20 to enforce payment of the full amount of
consideration set forth above for the Common Shares, if full payment is not made
within 60 days after subscription, the Corporation, in its sole discretion, may
seek enforcement of his obligation to the Corporation and payment of any unpaid
amounts owing to the Corporation pursuant to this Subscription Agreement in a
court of competent jurisdiction to the same extent that it could enforce his
obligation if such obligation was evidenced by a promissory note signed by him.
Please Print or Type
Signature of Number of Mailing Address for
Shareholder Shares Shareholder Records
----------- ------ -------------------
JOHN B. BARTLING, JR. The Huntington Center
IRREVOCABLE TRUST Suite 2410
DATED MARCH 15, 1996 5 41 South High Street
Columbus, Ohio 43215
By: /s/ Brendan J. O'Rourke
----------------------------
Brendan J. O'Rourke, Trustee
<PAGE> 1
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into
effective as of the 1st day of April, 1998, by and among Brentwood-Lexford
Partners, LLC, a Texas limited liability company ("Buyer"), and John B.
Bartling, Jr., the John B. Bartling, Jr. Irrevocable Trust dated March 15, 1996
and Mark D. Thompson (collectively, the "Common Stock Sellers"), Lexford
Properties, Inc., a Texas corporation (the "Preferred Stock Seller," and
together with the Common Stock Sellers, "Sellers"), Lexford Residential Trust, a
Maryland real estate investment trust ("Lexford"), Stanley R. Fimberg
("Fimberg"), FSC Realty, LLC, a California limited liability company ("FSC
Realty"), Ralph V. Williams ("Williams") and Bruce Woodward ("Woodward").
RECITALS
WHEREAS, the Common Stock Sellers are the beneficial and record owners
of 50 issued and outstanding shares of common stock, no par value (the "Common
Stock"), of Lexford Property Management, Inc., an Ohio corporation (the
"Company"), and the Preferred Stock Seller is the beneficial and record owner of
950 issued and outstanding shares of preferred stock, no par value (the
"Preferred Stock," and together with the Common Stock, the "Shares"), of the
Company.
WHEREAS, Sellers wish to sell and Buyer wishes to purchase all the
Shares upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, the parties, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, agree as follows:
1. SALE AND PURCHASE OF SHARES.
1.1 SALE OF SHARES. At the Closing (as defined in Section 2),
Sellers will sell the Shares to Buyer and Buyer will purchase the Shares from
Sellers.
1.2 PURCHASE PRICE FOR SHARES.
1.2.1 PURCHASE PRICE FOR COMMON STOCK. The
aggregate purchase price for the Common
Stock will be Five Hundred Dollars ($500)
(the "Common Stock Purchase Price"). At the
Closing, Buyer will pay the Common Stock
Purchase Price by delivering the aggregate
amount of Five Hundred Dollars ($500) to the
Common Stock Sellers, pro rata, in
accordance with their Common Stock
ownership, by certified check, official bank
check or wire transfer to an account
designated in writing by each of the Common
Stock Sellers.
<PAGE> 2
1.2.2 PURCHASE PRICE FOR PREFERRED STOCK. The aggregate
purchase price for the Preferred Stock will be One Million Eight Hundred Thirty
Three Thousand Three Hundred Thirty Three Dollars ($1,833,333) (the "Preferred
Stock Purchase Price"). At the Closing, Buyer will pay the Preferred Stock
Purchase Price by executing and delivering a promissory note payable to the
Preferred Stock Seller in the original principal amount of One Million Eight
Hundred Thirty Three Thousand Three Hundred Thirty Three Dollars ($1,833,333)
substantially in the form attached hereto as EXHIBIT A.
1.3 DELIVERY OF SHARES. At the Closing, Sellers will deliver
to Buyer the stock certificates representing the Shares purchased by Buyer, duly
endorsed in blank or accompanied by stock powers duly executed in blank, in a
form proper for transfer and reasonably acceptable to Buyer.
2. CLOSING; CLOSING DATE. The closing of the sale and purchase of the
Shares contemplated hereby (the "Closing") will take place at such time, date
and place as Buyer and Sellers agree. Irrespective of the date of the Closing,
the transactions contemplated by this Agreement will be effective as of April 1,
1998 (the "Effective Time").
3. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers represent and
warrant to Buyer as follows:
3.1 OWNERSHIP OF SHARES. As of the Closing, Sellers will own
the Shares beneficially and of record, and will have full power and authority to
convey the Shares free and clear of any security interest, pledge, option or
other lien or encumbrance.
3.2 CAPITAL STOCK OF THE COMPANY. The Shares represent all the
issued and outstanding shares of capital stock of the Company and there are no
other securities convertible into or exchangeable for, or other rights or
options to acquire, shares of capital stock of the Company currently
outstanding.
3.3 ASSETS AND LIABILITIES OF THE COMPANY. The Company has the
assets and liabilities as generally described in that certain Bill of Sale,
Assignment and Assumption Agreement dated February 20, 1998 and any additional
liabilities incurred in the ordinary course of business since such date.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Sellers as follows:
4.1 ORGANIZATION OR STANDING. Buyer is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Texas. Buyer is a newly-formed limited liability company and is not
currently conducting business.
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<PAGE> 3
4.2 AUTHORITY OF BUYER. The execution, delivery and
consummation of this Agreement by Buyer has been duly authorized and approved as
required by law. Buyer has the full power and authority to carry out the
transactions contemplated by this Agreement and, at the Closing, no further
action will be necessary on the part of Buyer or its members to make this
Agreement valid and legally binding on Buyer.
4.3 INVESTMENT INTENT OF BUYER; ACCESS TO INFORMATION. Buyer
is purchasing the Shares for its own account for investment and not with a view
to the public resale or distribution thereof. Buyer has had an opportunity to
ask questions of and receive answers from duly designated representatives of the
Company and Sellers concerning the Company and the Shares and has been afforded
an opportunity to examine such documents and other information which Buyer has
requested for the purpose of evaluating Buyer's acquisition of the Shares.
5. ADDITIONAL AGREEMENTS. The parties further agree as follows:
5.1 EMPLOYEE BENEFITS MATTERS. To the extent practicable,
Lexford and the Preferred Stock Seller will cooperate with the Buyer to
negotiate with benefit providers in an attempt to obtain advantageous pricing by
taking into account the combined employee population of Lexford and the Company,
without creating multiple employer liability or the sharing or shifting of risk
among Lexford and the Preferred Stock Seller.
5.2 VENDOR COOPERATIVE DISCOUNTS BUYING PROGRAM. Lexford and
the Preferred Stock Seller agree to use their commercially reasonable efforts to
afford the Buyer (for the benefit of its properties under management) the
opportunity to participate directly in the Preferred Vendor Cooperative
Discounts Buying Program of which Lexford and the Preferred Stock Seller are
participants (the "Buying Program") to the extent permissible under the Buying
Program and contracts entered into with third party vendors (such as Maintenance
Warehouse, General Electric Company and Sherwin-Williams Company); provided,
however, that neither Lexford nor the Preferred Stock Seller shall in any way be
obligated to provide such benefits to Buyer directly or to incur additional
costs in order to provide Buyer the opportunity to participate in the Buying
Program. Buyer shall be entitled to direct any rebates or benefits under such
program to which the properties are entitled to the party it determines should
receive such rebates and Lexford will reasonably cooperate with such directions.
5.3 HUMAN RESOURCES TRAINING PROGRAMS AND PERSONNEL. For a
period of time from the Effective Time to November 30, 1999, the Preferred Stock
Seller agrees to afford Buyer reasonable access to and use of its human
resources department and property management training program and personnel
located in the Preferred Stock Seller's Dallas, Texas office; provided, however,
that (a) Buyer's use of such services shall not unreasonably interfere with the
Preferred Stock Seller's training program and, in no event, shall Buyer's use of
such program and personnel exceed 260 "man hours" per month without the
Preferred Stock Seller's prior written consent and (b) such access and use shall
terminate during any period that Buyer is in breach of Section 5.4 below. "Man
hour," as used herein, shall mean one hour of time expended by one of Lexford's
or
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<PAGE> 4
the Preferred Stock Seller's employees in the performance of the provision of
human resources and property management training services for the benefit of
Buyer.
5.4 OFFICE SPACE. For a period of time from the Effective Time
to November 30, 1999, the Preferred Stock Seller shall permit Buyer to use the
office space described on Schedule 5.4 located in the Preferred Stock Seller's
Dallas, Texas office. In consideration for such use and for Buyer's access to
the Preferred Stock Seller's employees and training program pursuant to Section
5.3 hereof, Buyer shall timely pay the full amount of all the Preferred Stock
Seller's payment obligations under its lease for such office space (for rent,
taxes, insurance, common area maintenance charges, utilities or otherwise)
directly to the landlord or pursuant to other instructions that the Preferred
Stock Seller may give to Buyer and shall use such office space in a manner that
complies fully with the covenants and other obligations of the Preferred Stock
Seller pursuant to the lease.
5.5 USE OF NAME, LOGOS, ETC. From and after the Closing,
neither the Company or Buyer shall have the right to use the name "Lexford
Residential Trust," or any mark or logo associated therewith or any derivative
thereof; provided, however, that the Company or Buyer may continue to use the
name "Lexford Property Management" so long as it is used in full and it is made
clear from such use that the Company or Buyer is not affiliated with Lexford in
any manner. Buyer agrees to change its name, within thirty (30) days after the
Closing, to a name that does not include the name "Lexford" (other than "Lexford
Property Management"). In addition, it is understood and agreed that the Company
has all right, title and interest in and to the "pyramid" logo (a specimen of
which is attached hereto as Schedule 5.5A) formerly owned by the Preferred Stock
Seller. Buyer will have no right to use, and will refrain from using Lexford's
"leaf" trademark (a specimen of which is attached hereto as Schedule 5.5B) and
any other mark or logo now or hereafter used by Lexford or Preferred Stock
Seller.
5.6 PROPERTY OWNERS AGREEMENT. FSC Realty, Fimberg, Williams
and Woodward (collectively, the "Property Owners") hereby agree that for so long
as amounts remain unpaid on the Promissory Note, the Property Owners will use
their best efforts to cause all entities owning residential rental property that
the Property Owners, individually or jointly with others with whom they are
acting in concert, own or control (the "Properties") to enter into management
contracts with Buyer to the exclusion of other property management companies,
subject to the Property Owners' exercise of their fiduciary duties, if any, owed
to other interest holders in such entities by virtue of the Property Owners'
direct or indirect position or relationship with such entity.
5.7 SUPPORT SERVICES. From and after the Effective Time
through July 31, 1998, Buyer will continue to provide to the Preferred Stock
Seller, the financial and administrative support services incident to the
Preferred Stock Seller's obligations under the respective management agreements
between the Preferred Stock Seller and those 14 limited partnerships owning
apartment communities in which GC Southeast Partners L.P. holds an economic
interest as of the Effective Time in a like manner as currently being provided
by the Company (the "Administrative Services").
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<PAGE> 5
Preferred Stock Seller will pay Buyer Thirty Seven Thousand Five Hundred Dollars
($37,500) for such services each month in arrears.
5.8 REASONABLE MANAGEMENT FEES. After the Closing, Buyer will
not enter into any residential rental property management agreements whereby it
will be paid less than the relevant market's prevailing industry rate for
similar property management agreements. For purposes of this Section 5.8, it is
agreed that, with respect to properties in which FSC Realty has an equity
interest and/or is the referral source of the management contract, a property
management fee of three percent (3%) of the gross receipts of the property under
management (net of any amounts paid to FSC Realty for actual asset management or
financial or bookkeeping services provided to or for the benefit of the Company
or the property under management) payable to the Company is deemed to be not
less than the market's prevailing industry rate for similar property management
agreements.
6. FURTHER ASSURANCES. Buyer and Sellers will execute such documents
and other papers and take such further actions as may be reasonably required or
desirable to carry out the provisions hereof and the transactions contemplated
hereby. Buyer and Sellers will use their best efforts to fulfill or obtain the
fulfillment of the conditions to the Closing.
7. CONDITIONS TO BUYER'S OBLIGATION. The obligation of Buyer to enter
into and complete the Closing is subject, at its option, to the fulfillment of
the following conditions:
7.1 LITIGATION. No action, suit or proceeding will have been
instituted before any court or governmental or regulatory body, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby.
7.2 REPRESENTATIONS TRUE. The representations and
warranties of Sellers contained herein will be true as of the Closing.
7.3 DELIVERY. Sellers will have delivered the Shares to
Buyer as required by Section 1.3 of this Agreement.
7.4 FUNDING OF CASH PAYMENTS. The Preferred Stock Seller shall
have funded the Company with cash equal to the sum of (i) accrued but unpaid
expenses of the Company as of March 31, 1998, (ii) payroll and benefit expenses
for the month of April 1998 relating to the employees listed on Schedule 7.4A,
and (iii) the severance and retention payments set forth on Schedule 7.4B, less,
in each case, any amounts paid directly by the Preferred Stock Seller.
8. CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of Sellers to
enter into and complete the Closing is subject, at their option, to the
fulfillment of the following conditions:
8.1 LITIGATION. No action, suit or proceeding will have been
instituted before any court or governmental or regulatory body, or instituted or
threatened by any governmental or regulatory body, to restrain, modify or
prevent the carrying out of the transactions contemplated hereby.
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<PAGE> 6
8.2 REPRESENTATIONS TRUE. The representations and warranties
of Buyer contained herein will be true as of the Closing.
8.3 PAYMENT. Buyer will have paid the Common Stock Purchase
Price and the Preferred Stock Purchase Price to each of the Sellers as required
by Section 1.2 of this Agreement.
8.4 TERMINATION OF CONSULTING AGREEMENTS. Fimberg and
Williams, respectively, and the Preferred Stock Seller shall have executed and
delivered a Termination and Release Agreement with respect to their individual
consulting agreements with Lexford substantially in the form attached hereto as
EXHIBIT B.
8.5 TERMINATION OF EMPLOYMENT AGREEMENT. Woodward and the
Preferred Stock Seller shall have executed and delivered a Termination and
Release Agreement with respect to his employment agreement with the Preferred
Stock Seller substantially in the form attached hereto as EXHIBIT C.
9. TERMINATION.
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the sale of the Shares from the Sellers to Buyer may be abandoned
at any time prior to the Closing (a) by the mutual consent of the Sellers and
Buyer, or (b) by either Buyer or Sellers if the conditions precedent to their
respective obligations to consummate the sale of the Shares from the Sellers to
Buyer, as set forth in Sections 7 and 8, respectively, are not satisfied on the
date scheduled for Closing pursuant to Section 2.
9.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and abandonment of the Closing pursuant to this
Section 9, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement.
10. PROFESSIONAL FEES. Sellers and Buyer acknowledge and agree that
they shall be responsible for the payment of their respective professional and
other fees and costs incurred in connection with this Agreement; provided,
however, that the Preferred Stock Seller shall reimburse Buyer for its
reasonable attorney's fees and costs in connection herewith upon presentment of
receipts in an amount not to exceed Five Thousand Dollars ($5,000).
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement will survive the Closing and remain in
full force and effect.
12. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement among the parties with respect to the purchase of the Shares, and
supersedes all prior agreements,
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<PAGE> 7
written or oral, with respect thereto. This Agreement may not be amended or
modified except by an instrument in writing signed by all of the parties.
13. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations under this Agreement are for the sole benefit of such party and may
be waived by such party in whole or in part to the extent permitted by law.
14. ASSIGNMENT. The rights and obligations of the parties under this
Agreement are not assignable by any party without the prior written consent of
the other parties. The respective rights and obligations of Buyer and Sellers
under this Agreement will inure to the benefit of, and will be binding upon,
them and their respective successors, permitted assigns, heirs, estates, and
personal representatives.
15. GOVERNING LAW. This agreement will be governed by and construed in
accordance with the laws of the State of Ohio without regard to any principles
of conflict of laws.
16. HEADINGS. The headings in this Agreement are for reference only and
will not affect the interpretation of this Agreement.
17. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall nevertheless remain in full force and
effect.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
[The remainder of this page intentionally left blank.]
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
"BUYER"
Brentwood-Lexford Partners, LLC
By: FSC Realty, LLC, Its Managing Member
By: /s/ Stanley R. Fimberg
-----------------------------------------
Name: Stanley R. Fimberg
---------------------------------------
Its: Managing Member
----------------------------------------
"SELLERS"
Lexford Properties, Inc.
By: /s/ Bradley A. Van Auken
-----------------------------------------
Name: Bradley A. Van Auken
---------------------------------------
Its: Vice President
----------------------------------------
/s/ John B. Bartling, Jr.
--------------------------------------------
John B. Bartling, Jr.
/s/ Mark D. Thompson
---------------------------------------------
Mark D. Thompson
John B. Bartling, Jr. Irrevocable Trust
dated March 15, 1996
By: /s/ Brendan J. O'Rourke
------------------------------------------
Name: Brendan J. O'Rourke
----------------------------------------
Its: Trustee
----------------------------------------
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<PAGE> 9
"LEXFORD"
Lexford Residential Trust
By: /s/ Bradley A. Van Auken
-------------------------------------------
Name: Bradley A. Van Auken
-----------------------------------------
Its: Senior Vice President
------------------------------------------
Fsc Realty LLC
By: /s/ Stanley R. Fimberg
-------------------------------------------
Name: Stanley R. Fimberg
-----------------------------------------
Its: Managing Member
-------------------------------------------
/s/ Stanley R. Fimberg
----------------------------------------------
Stanley R. Fimberg
/s/ Ralph V. Williams
----------------------------------------------
Ralph V. Williams
/s/ Bruce Woodward
----------------------------------------------
Bruce Woodward
-9-
<PAGE> 1
EXHIBIT 10.5
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND THUS MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
APPLICABLE STATE SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
PROMISSORY NOTE
$1,833,333.00 April 1, 1998
FOR VALUE RECEIVED, Brentwood-Lexford Partners, LLC, a Texas limited
liability company, ("Brentwood") and Lexford Property Management, Inc., an Ohio
corporation ("LPM" and, together with Brentwood, collectively "Maker"), jointly
and severally promise to pay to Lexford Properties, Inc., a Texas corporation
("Payee"), the principal sum of ONE MILLION EIGHT HUNDRED THIRTY THREE THOUSAND
THREE HUNDRED THIRTY THREE DOLLARS ($1,833,333.00) with interest (computed on
the basis of a 360-day year of twelve 30-day months) on the principal sum hereof
payable as set forth below in Paragraph 1. This Note is being issued by Maker to
Payee pursuant to a Stock Purchase Agreement among Payee, Brentwood, Lexford
Residential Trust, LPM, Stanley R. Fimberg, FSC Realty, LLC ("FSC Realty"),
Ralph V. Williams, and Bruce Woodward (the "Agreement").
1. PAYMENT OF INTEREST. The unpaid principal balance of this Note will
bear interest, commencing on the date hereof, at a rate determined according to
the following schedule (the "Interest Rate"). Accrued and unpaid interest will
be payable annually on each anniversary date of this Note, commencing on April
1, 1999.
(a) Until April 1, 2000, the Interest Rate per annum shall be
fixed at six percent (6%); and
(b) Beginning April 1, 2000 and thereafter so long as any
principal balance of this Note is outstanding, the Interest
Rate per annum shall be fixed at eleven percent (11%).
2. REPAYMENT OF PRINCIPAL. The principal balance of this Note, together
with all accrued and unpaid interest thereon, will be payable in nine equal
installments of Two Hundred Three Thousand Seven Hundred Three and 66/100
Dollars ($203,703.66) each (except that the final payment shall be Two Hundred
Three Thousand Seven Hundred Three and 72/100 Dollars ($203,703.72)) ("Scheduled
Principal Payments") commencing on April 1, 2000 and thereafter on April 1 of
each subsequent year until April 1, 2008 (the "Maturity Date"). Maker shall have
the right at any time or from time to time to prepay all or any part of the
principal balance of this Note then outstanding, plus interest accrued on the
amount so prepaid to the date of such prepayment. Each prepayment will be
applied to the principal installments in the inverse order of maturity.
<PAGE> 2
3. EVENTS OF DEFAULT. If one or more of the following events occurs,
namely:
(a) A failure in the payment of any installment of interest on
or the principal of this Note or any part thereof on the date the same
is due which failure continues uncured for a period of at least five
(5) days (a "Delinquency"); or
(b) A Change in Control (as defined below) of Maker; or
(c) A breach of any covenant contained in Section 4 of
this Note; or
(d) A breach by Brentwood of any additional agreements
contained in Section 5 of the Agreement; or
(e) Brentwood or LPM (i) admits in writing its inability to
pay its debts as they come due, or makes a general assignment for the
benefit of creditors; (ii) commences any case, proceeding or other
action seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property; or (iii)
takes any corporate or other action to authorize any of the actions set
forth above in this Paragraph 3(e); or
(f) Any case, proceeding or other action against Brentwood or
LPM is commenced seeking to have an order for relief entered against
such entity as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of such entity or
its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for
all or any substantial part of its property, and such case, proceeding
or other action is not dismissed for a period of sixty (60) days
following commencement;
(each, an "Event of Default") then upon the written notice of Payee in the case
of an Event of Default under Sections 3(a), 3(c), or 3(d) above, and without any
action taken by Payee in the case of an Event of Default under Sections 3(b),
3(e) or 3(f) above, the entire aggregate principal amount of this Note will
become immediately due and payable, together with all accrued and unpaid
interest thereon.
4. COVENANTS OF MAKER.
(a) Neither Brentwood nor LPM will make any changes to its
fiscal year which, as of the date hereof, ends December 31 of each
year.
(b) Maker will not incur any Indebtedness (on a consolidated
basis) which ranks pari passu with, or senior to, the Indebtedness
under this Note, other than Permitted Indebtedness. Junior Indebtedness
may be incurred only if expressly subordinated to the Indebtedness
under this Note on terms satisfactory to Payee.
<PAGE> 3
(c) Maker will not create, assume or suffer to exist any Lien
upon any of its property or assets whether now owned or hereafter
acquired, other than Permitted Liens.
(d) Other than from Excess Cash Flow, Maker will not (i)
declare dividends or pay cash or other distributions upon any of
Maker's capital stock, or (ii) purchase or redeem any shares of capital
stock, notes, or other securities from its shareholders. However, if
there is a Delinquency, Maker shall not make such distributions or
purchases even from Excess Cash Flow.
(e) Maker will not make compensation, consulting or other
similar payments directly or indirectly, to FSC Realty, Stanley R.
Fimberg, Ralph V. Williams, and Bruce Woodward or any of their
respective affiliates or associates (as such terms are defined in Rule
12b-2 promulgated under the Securities Exchange Act of 1934), as
employees of or consultants to Maker or otherwise, in excess of
$250,000 in the aggregate during any fiscal year. Nothing in this
Section 4(e) shall prohibit the payment of a one percent (1%) asset
management fee to FSC Realty (nor shall such fee be included in the
foregoing $250,000 limitation) pursuant to the terms of management
agreements of the nature and type described in the second sentence of
Section 5.8 of the Agreement, so long as Maker retains a management fee
at least equal to three percent (3%) of gross receipts from properties
subject to such management agreements.
(f) Other than from Excess Cash Flow, Maker will not make any
principal or interest payments with respect to any Indebtedness which
ranks junior to the Indebtedness under this Note. However, if there is
a Delinquency, Maker shall not make such payments even from Excess Cash
Flow.
(g) Except for in connection with a Change in Control, Maker
will not sell, transfer or otherwise dispose of any of its assets
except for inventory and obsolete equipment which is no longer useful
in the ordinary course of business.
(h) Maker will not make Capital Expenditures in excess of
$25,000 except for the Capital Expenditures set forth in the annual
capital expenditures budget previously provided to and approved by
Payee.
(i) Maker shall preserve and maintain at all times its
existence and good standing as a limited liability company under the
laws of the State of Texas.
(j) So long as any principal or interest is outstanding under
this Note, Maker shall furnish to Payee:
(i) within forty-five (45) days after the end of each
of the fiscal quarters of Maker, Maker's balance sheet as of
the end of such period and a statement of income (loss) for
the quarter and fiscal year-to-date period, all prepared on a
cash basis and in form and detail satisfactory to Payee and
certified as true, accurate and
3
<PAGE> 4
complete by the chief financial officer of Maker or, if Maker
does not have a chief financial officer, by an officer of
Maker performing substantially similar functions;
(ii) within ninety (90) days after the end of each
fiscal year of Maker, Maker's balance sheet and statement of
income (loss), shareholder's equity and cash-flow for that
period, together with a certificate by the chief financial
officer of Maker certifying as to the accuracy and
completeness of such financial statements and setting forth
the determination of Excess Cash Flow in accordance with this
Note for that year prepared in accordance with GAAP, and in
form and detail satisfactory to Payee;
(iii) within ten (10) days of Payee's written
request, such other information about the financial condition,
properties and operations of Maker as Payee may from time to
time reasonably request, which information shall be submitted
in form and detail reasonably satisfactory to Payee certified
by the chief financial officer of Maker or, if Maker does not
have a chief financial officer, by an officer of Maker
performing substantially similar functions; and
(iv) sixty (60) days prior to January 1 of each year,
Maker must provide Payee with a Capital Expenditures budget
for the upcoming fiscal year, which budget is subject to
Payee's approval.
5. DEFINITIONS. For purposes of this Note, the following terms shall
have the following meanings:
(a) "ADJUSTABLE DEBT LEVEL" means, during the year 1998, an
amount equal to 80% of the Capital Expenditures approved by Payee for
1998. During the year 1999, an amount equal to 70% of the aggregate
Capital Expenditures approved by Payee for 1998 and 1999. During the
year 2000, an amount equal to 60% of the aggregate Capital Expenditures
approved by Payee for 1998, 1999 and 2000. During the year 2001 and
thereafter so long as any principal balance of this Note is
outstanding, an amount equal to 50% of the aggregate Capital
Expenditures approved by Payee for the then current year and the four
(4) prior years.
(b) "ADJUSTED EBITDA" means, for any period, the sum of the
amounts for such period of Maker's (i) Net Income, (ii) provisions for
taxes based on income (whether such provision is with respect to taxes
of Maker or, if Maker is a flow through entity for federal and/or state
income tax purposes, any permitted distributions to shareholders to
fund any income tax liabilities that may occur solely as a result of
such flow through status), (iii) Interest Expense, (iv) total
depreciation expense, (v) total amortization expense and (vi) other
non-cash items reducing Net Income LESS other non-cash items increasing
Net Income, all of the foregoing as determined in conformity with GAAP.
(c) "CAPITAL EXPENDITURES" means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as a
liability and including that portion of capital leases which are
capitalized on the balance sheet of Maker) by Maker during that period
that, in conformity with GAAP, are included in "additions to property,
plant or equipment" or comparable items reflected in the statement of
cash flows of Maker.
4
<PAGE> 5
(d) "CHANGE IN CONTROL" means:
(i) The failure of FSC Realty and Ralph V. Williams
(the "Primary Shareholders") to beneficially own (within the
meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934), in the aggregate, securities
representing a majority of the then outstanding voting
securities of Maker entitled to vote generally in the election
of directors, managers or their equivalent members of Maker's
governing body (the "Outstanding Maker Voting Securities");
provided, however, that the transfer by FSC Realty or Maker of
securities representing up to ten percent (10%) of the then
Outstanding Maker Voting Securities to certain key employees
of Brentwood will not result in a Change in Control; or
(ii) Approval by the shareholders or members of Maker
of a reorganization, merger or consolidation (a "Business
Combination") in each case, unless, following such Business
Combination, the Primary Shareholders beneficially own,
directly or indirectly, a majority of the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, managers or their
equivalent members of Maker's governing body of the entity
resulting from such Business Combination (including, without
limitation, an entity which, as a result of such transaction,
owns Maker through one or more subsidiaries); or
(iii) Approval by the shareholders or members of
Maker of (A) a complete liquidation or dissolution of Maker or
(B) the sale, lease or other disposition of any material
portion of the assets of Maker. Notwithstanding anything in
this Note to the contrary, it shall not be a Change in Control
for LPM to be dissolved and liquidated or merged into
Brentwood and to the extent such action would otherwise
require Payee's consent, Payee hereby grants such consent.
(e) "CONTINGENT OBLIGATION" means any agreement, undertaking
or arrangement to assume, guarantee, endorse, agree to purchase or
provide funds for the payment of, or otherwise become or be liable
upon, the obligation or liability of any other person or entity or to
maintain the net worth or working capital or other financial condition
of any other person or entity, or otherwise assure any creditor of such
other person or entity against loss, including, without limitation, any
comfort letter, operating agreement, take-or-pay contract or
application for, or reimbursement agreement relating to, a letter of
credit.
(f) "EXCESS CASH FLOW" means, for any period, Adjusted EBITDA
for that period LESS the sum for that period of (i) Interest Expense to
the extent paid in cash, (ii) income tax expense to the extent actually
paid in that period or, if Maker is a flow through entity for federal
and/or state tax purposes, distributed in that period to shareholders
to fund any income tax liabilities that may occur solely as a result of
such flow through status, (iii) Capital Expenditures to the extent
actually made, and (iv) (without duplication after
5
<PAGE> 6
giving pro forma effect, however, to Scheduled Principal Payments)
repayments of Total Debt to the extent actually made in that period.
(g) "GAAP" means generally accepted accounted principles,
consistently applied, set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting
profession, that are applicable to the circumstances as of the date of
determination.
(h) "INDEBTEDNESS" means, for any person or entity (excluding
in all cases trade payables payable in the ordinary course of business
by such person or entity), (i) all obligations for borrowed money,
direct or indirect, incurred, assumed or guaranteed, (ii) all
obligations for the deferred purchase price of capital assets, (iii)
all obligations under conditional sales or other title retention
agreements, (iv) all reimbursement obligations (contingent or
otherwise) under any letter of credit, bankers acceptance, currency
swap agreement, interest rate swap, cap, collar or floor agreement or
other interest rate management device, (v) all lease obligations which
have been or should be capitalized on the books of such person or
entity in accordance with GAAP, (vi) any other transaction (including
forward sale or purchase agreements) having the commercial effect of a
borrowing of money entered into by such person or entity to finance its
operations or capital requirements and (vii) Contingent Obligations,
except for Maker's endorsement of checks payable to Maker.
(i) "INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to capital leases in
accordance with GAAP and capitalized interest) of Maker with respect to
all outstanding indebtedness of Maker.
(j) "LIEN" means any mortgage, security interest, lien,
charge, encumbrance on, pledge or deposit of, or conditional sale or
other title retention agreement with respect to any property or asset.
(k) "NET INCOME" means, for any period, the net income (or
loss) of Maker for such period taken as a single accounting period
determined in conformity with GAAP.
(l) "PERMITTED INDEBTEDNESS" means Indebtedness, not in excess
of the Adjustable Debt Level in the aggregate outstanding at any one
time, incurred in connection with Maker's acquisition or use of fixed
assets in arms-length transactions in the ordinary course of Maker's
business.
(m) "PERMITTED LIENS" means (i) Liens for taxes not yet due or
which are being actively contested in good faith by Maker by
appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP; (ii) other statutory Liens
incidental to the conduct of Maker's business or the ownership of its
property and assets which (A) were not incurred in connection with the
borrowing of money or the obtaining of advances
6
<PAGE> 7
or credit, and (B) which do not in the aggregate materially detract
from the value of its property or assets or materially impair the use
thereof in the operations of its business; (iii) purchase money or
other Liens on fixed assets (but no other tangible or intangible
assets) securing the Permitted Indebtedness incurred in connection with
the acquisition or use of such assets in arms-length transactions in
the ordinary course of Maker's business; or (iv) any mortgage, security
interest or Lien securing all or any portion of the indebtedness under
the Note.
(n) "TOTAL DEBT" means, as at any date of determination, the
aggregate stated balance sheet amount of all Indebtedness of Maker.
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP as in effect from time to time, including, without
limitation, applicable statements, bulletins, and interpretations issued by the
Financial Accounting Standards Board and bulletins, opinions, interpretations,
and statements issued by the American Institute of Certified Public Accountants
or its committees. When used herein, the term "financial statements" shall
include the notes and schedules thereto.
6. NOTICE; REGISTERED FORM. Any notice or communication given under
this Note will be in writing and be hand delivered, mailed by registered or
certified mail, postage prepaid, delivered by facsimile (with a telephonic
confirmation or answer-back) or by overnight courier as follows:
(i) If to Maker:
FSC Realty, LLC
977 Wilshire Boulevard, Suite No. 710
Beverly Hills, CA 90212
Facsimile No.: (310) 278-4711
Attention: Stanley R. Fimberg
With copies to: Ralph V. Williams
8615 Freeport Parkway, Suite No. 200
Irving, TX 75063
Facsimile No.: (972) 979-1465
and
Bruce Woodward
8615 Freeport Parkway, Suite No. 200
Irving, TX 75063
Facsimile No.: (972) 979-1465
and
(ii) If to Payee to:
Lexford Properties, Inc.
7
<PAGE> 8
The Huntington Center
41 South High Street, Suite No. 2410
Columbus, OH 43215
Facsimile No.: (614) 225-1100
Attention: General Counsel
With a copy to: Benesch, Friedlander, Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Facsimile No.: (216) 363-4588
Attention: Dominic A. DiPuccio
or at such other address as hereafter will be furnished in writing by the
addressed party to the other party. Delivery by hand will be deemed given when
personally delivered; delivery by registered or certified mail will be deemed
given three (3) business days after the same is posted; delivery by facsimile
will be deemed given when confirmation is received; and delivery by overnight
courier will be deemed given the first business day following the date of timely
deposit with such courier.
7. REPLACEMENT OF NOTE. On receipt of evidence reasonably satisfactory
to Maker of the loss, theft, destruction or mutilation of this Note, on delivery
of an indemnity agreement and/or security satisfactory in form and amount to
Maker or, in the case of any such mutilation, on surrender and cancellation of
such Note, Maker at its expense will execute and deliver, in lieu thereof, a new
Note of like tenor.
8. WAIVER; MODIFICATIONS IN WRITING. No failure or delay on the part of
Payee in exercising any right, power or remedy hereunder will operate as a
waiver thereof, nor will any single or partial exercise of any such right, power
or remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to Payee at law, in
equity or otherwise. Any provision of this Note may be waived by or on behalf of
Payee, and this Note may be amended, provided such waiver or amendment is
approved and signed by Maker and Payee.
9. GOVERNING LAW. This Note will be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to the
choice of law principles thereof.
8
<PAGE> 9
10. HEADINGS. The headings in this Note are for the convenience of
reference only and will not affect the construction of this Note.
IN WITNESS WHEREOF, this Note is executed by a duly authorized officer
of the undersigned as of the date and year first above written.
Brentwood-Lexford Partners, LLC
By: FSC Realty, LLC, its Managing Member
By: /s/ Stanley R. Fimberg
-------------------------------------
Name: Stanley R. Fimberg
-----------------------------------
Its: Managing Member
-------------------------------------
Lexford Property Management, Inc.
By: /s/ Stanley R. Fimberg
-------------------------------------
Name: Stanley R. Fimberg
------------------------------------
Its: President
------------------------------------
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,237
<SECURITIES> 0
<RECEIVABLES> 3,703
<ALLOWANCES> 427
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 530,543
<DEPRECIATION> 12,625
<TOTAL-ASSETS> 587,962
<CURRENT-LIABILITIES> 0
<BONDS> 479,522
0
0
<COMMON> 92
<OTHER-SE> 62,361
<TOTAL-LIABILITY-AND-EQUITY> 587,962
<SALES> 0
<TOTAL-REVENUES> 29,198
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,049
<INCOME-PRETAX> (6,888)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,888)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
<FN>
The registrant has a non-classified balance sheet
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,593
<SECURITIES> 0
<RECEIVABLES> 7,079
<ALLOWANCES> 2,034
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 161,570
<DEPRECIATION> 4,478
<TOTAL-ASSETS> 245,368
<CURRENT-LIABILITIES> 0
<BONDS> 163,319
0
0
<COMMON> 78
<OTHER-SE> 62,431
<TOTAL-LIABILITY-AND-EQUITY> 245,368
<SALES> 0
<TOTAL-REVENUES> 65,301
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 41,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,230
<INCOME-PRETAX> 8,786
<INCOME-TAX> 3,416
<INCOME-CONTINUING> 5,370
<DISCONTINUED> 0
<EXTRAORDINARY> (1,614)
<CHANGES> 0
<NET-INCOME> 3,756
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
<FN>
- - The registrant has a non-classified Balance Sheet
- - The Earnings Per Share amounts have been restated to comply with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share".
- - The Earnings Per Share amounts and the shareholders' equity have been
restated to reflect a two for one share exchange.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,752
<SECURITIES> 0
<RECEIVABLES> 7,557
<ALLOWANCES> 2,469
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 164,334
<DEPRECIATION> 0
<TOTAL-ASSETS> 239,399
<CURRENT-LIABILITIES> 0
<BONDS> 170,112
0
0
<COMMON> 72
<OTHER-SE> 51,174
<TOTAL-LIABILITY-AND-EQUITY> 239,399
<SALES> 0
<TOTAL-REVENUES> 23,676
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,522
<INCOME-PRETAX> 7,013
<INCOME-TAX> 2,720
<INCOME-CONTINUING> 4,293
<DISCONTINUED> 0
<EXTRAORDINARY> 804
<CHANGES> 0
<NET-INCOME> 5,097
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.67
<FN>
- - The registrant has a non-classified Balance Sheet
- - The Earnings Per Share amounts have been restated to comply with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share".
- - The Earnings Per Share amounts and the shareholders' equity have been
restated to reflect a two for one share exchange.
</FN>
</TABLE>
