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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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)
<TABLE>
<S> <C>
MARYLAND 31-4427382
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6954 AMERICANA PARKWAY
COLUMBUS, OHIO 43068
(Address of Principal Executive Offices including Zip Code)
(614) 759-1566
(Registrant's Telephone Number, including Area Code)
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON SHARES OF
BENEFICIAL
INTEREST, PAR VALUE
$.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark 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 __
Indicate by check mark X if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of March 16, 1999 the aggregate market value of voting stock held by
non-affiliates (based on total shares outstanding reduced by the number of
shares held by trustees, officers, and other affiliates) of the Registrant was
$141,395,643 based on the closing price reported on the New York Stock Exchange.
Indicate by check mark X whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No __
As of March 16, 1999 there were 9,551,877 common shares of beneficial interest
outstanding.
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LEXFORD RESIDENTIAL TRUST
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 1998
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PAGE:
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PART I:
Item 1 Business........................................ 1
Item 2 Properties...................................... 9
Item 3 Legal Proceedings............................... 9
Item 4 Submission of Matters to a Vote of Security
Holders......................................... 10
PART II:
Item 5 Market for Registrant's Common Equity and
Related Shareholder Matters..................... 10
Item 6 Selected Financial Data......................... 11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations... 12
Item 7(a) Quantitative and Qualitative Disclosure About
Market Risk..................................... 23
Item 8 Financial Statements and Supplementary Data..... 24
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure............. 24
PART III:
Item 10 Trustees and Executive Officers of the
Registrant....................................... 24
Item 11 Executive Compensation........................... 24
Item 12 Security Ownership of Certain Beneficial Owners
and Management................................... 24
Item 13 Certain Relationships and Related Transactions... 24
PART IV:
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................. 24
Consolidated Financial Statements and Schedules............. F-1
</TABLE>
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PART I
This report contains forward-looking statements including, without
limitation, statements concerning: prospects for future increases in rental
revenues and appreciation in real property market value from investments and
improvements; competitive advantages based upon experience and quality of
service; potential expense savings from future operating efficiencies; business
strategies; sufficiency of cash flows and liquidity to sustain planned capital
expenditures, operating and distribution policy requirements; and increases in
distributable cash flow available to Lexford Residential Trust as a result of
proposed mortgage refinancing transactions and other opportunities. All of the
forward-looking statements contained in this report represent management's good
faith projections of future results and are based upon existing market,
financial and economic conditions known to management. Future changes or
developments in national, regional and local economic and market conditions,
especially increased competition at any of these levels within the multi-family
residential property industry; changing demographics in the specific locations
in which apartment communities owned or managed by the Company are located; the
discontinuance of the identifiable trend towards consolidation within the
multi-family residential property industry generally; increase in interest
rates; or increasing inflation all may operate to render the forward-looking
statements contained in this report inaccurate. There can be no assurance that
any of the forward-looking statements will prove to be correct. Actual results
may differ and such differences may be material.
ITEM 1. BUSINESS
THE COMPANY
Lexford Residential Trust, a Maryland real estate investment trust,
together with its wholly owned and controlled partnerships, limited liability
companies and corporate subsidiaries (the "Company" or "Lexford"), is a fully
integrated, self-managed real estate investment trust ("REIT") which owns,
manages and invests in direct or indirect ownership interests in multifamily
apartment communities. The Company is the sixth largest multifamily REIT in
terms of number of units with equity ownership with a strong focus in the value
conscious segment of the apartment industry. As of December 31, 1998, the
Company had an ownership interest in 511 apartment communities (consisting of an
aggregate of 36,333 apartment units) in 16 states (individually a "Property" or
"community" and collectively, the "Properties" or the "Portfolio"). At December
31, 1998 the Company owns the entire equity interest in 432 apartment
communities (28,857 units) ("Rental Properties") and the Company serves as
general partner, and in most cases, also owns some limited partner interest in
79 apartment communities (7,476 units) ("Unconsolidated Partnerships").
The majority of the Portfolio was constructed during the 1980s and is
primarily comprised of one story garden style apartment buildings of modular
construction. The Portfolio is located in urban, suburban, secondary and
tertiary markets in the midwestern and southeastern United States. During 1998,
the average economic occupancy of the Portfolio was 92.7% and the average
monthly rent collected per occupied unit was $438. In the aggregate, Net
Operating Income (before expenditures for major maintenance and replacement
items) ("NOI") of the Portfolio increased approximately 4.1% over 1997 for
apartment communities owned (in whole or in part) and operated at all times
during the years ended December 31, 1998 and 1997 ("Same-Store") due primarily
to an increase of approximately 2.9% in Rental Revenue on a Same-Store basis.
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Location of Properties
The table below indicates the geographic locations of apartment communities
in which the Company had an ownership interest at December 31, 1998:
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<CAPTION>
STATE SITES PROPERTIES UNITS
- ------------------- ----- ---------- ------
<S> <C> <C> <C>
Alabama 10 10 1,552
Florida 98 126 9,126
Georgia 61 73 5,404
Illinois 4 4 281
Indiana 51 70 4,415
Kentucky 27 33 2,026
Maryland 4 5 413
Michigan 21 25 1,720
North Carolina 1 1 187
Ohio 100 136 8,337
Pennsylvania 7 9 608
South Carolina 3 3 269
Tennessee 5 5 348
Texas 1 1 67
Virginia 4 4 1,211
West Virginia 4 6 369
--- --- ------
401 511 36,333
=== === ======
</TABLE>
As of December 31, 1998, the Portfolio consists of 401 geographic sites.
The Company's apartment communities average approximately 90 units per site. The
difference in the number of apartment communities versus the total number of
geographic sites results from separate limited partnerships owning apartment
communities constructed on contiguous parcels. As a result of the Company's
successful efforts in consolidating the ownership of a number of former
syndicated limited partnerships the Company is causing legal entities as to
which it has succeeded to the entire ownership interest to consolidate ownership
of the apartment communities on contiguous parcels as and when mortgage debt
secured by such Rental Properties are refinanced with a single lender. This
process has resulted in a reduction in the apartment community count from 515 to
511 in 1998 and the Company anticipates further consolidation of apartment
communities in the future.
The Company's executive offices are located in Columbus, Ohio at 6954
Americana Parkway, Columbus, Ohio 43068. The Company's main telephone number is
(614) 759-1566. On December 31, 1998, the Company employed 170 employees in its
executive offices and 1,449 employees at the Properties.
Common Shares
The Company's common shares of beneficial interest, par value $.01 per
share ("Common Shares"), are traded on the New York Stock Exchange ("NYSE")
under the trading symbol "LFT". The Common Shares commenced trading on the NYSE
on March 19, 1998 following the merger of the Company's predecessor, Lexford,
Inc., an Ohio corporation, with and into the Company which was formed as a
wholly owned subsidiary of Lexford, Inc. for the purpose of facilitating the
Company's reformation as a Maryland real estate investment trust (the "Merger").
The Company became a publicly held company in 1992 as a result of the
distribution of common stock to creditors pursuant to the Chapter 11 bankruptcy
reorganization of the former Cardinal Industries, Inc. In connection with the
bankruptcy reorganization, Cardinal Industries, Inc. changed its name to
Cardinal Realty Services, Inc. ("CRSI"). CRSI registered its common stock under
the Securities Exchange Act of 1934 in June 1993, pursuant to a Form 10
registration statement. From 1993 through March 1995, CRSI's common stock was
traded on the OTC Bulletin Board under the trading symbol "CNRV". In March 1995,
CRSI listed its common stock on the National Market Tier of the NASDAQ Stock
Market(sm). In October 1997, the shareholders of CRSI approved a change of name
from Cardinal Realty Services, Inc. to Lexford, Inc. Prior to the Merger, the
common stock traded under the symbol "CRSI". In connection with the Merger, each
share of
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Lexford, Inc. common stock was converted into the right to receive two Common
Shares and all Common Shares formerly owned by Lexford, Inc. (being the only
other Common Shares issued at or prior to the Merger) were canceled. (SEE ITEM
5 -- "MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS").
RECENT EVENTS
During calendar year 1997, the Company considered various alternative
strategies with respect to its investments in the Properties and with respect to
its property management and other services businesses, at the same time
soliciting and receiving input from its significant shareholders, industry
analysts, investment banking firms and REIT industry contacts. Management also
sought the professional advice of its independent accounting firm and outside
legal counsel. In August 1997, Lexford Inc.'s Board of Directors met with
management and professional advisors to review strategies and the advice and
recommendations received from all sources. At the August 1997 meeting of the
Board of Directors, management was authorized to proceed with an analysis of
electing REIT status for federal income tax purposes and engaging a financial
advisor. At its Annual Meeting of Shareholders on October 7, 1997 the Company
announced that it was seriously evaluating a REIT election. The Company retained
Morgan Stanley & Co., Incorporated as its financial advisor on October 15, 1997.
On December 19, 1997 the Company's Board of Directors determined that a REIT
election and the merger of Lexford, Inc. into a Maryland real estate investment
trust were in the best interests of the Company and its shareholders.
Preparatory to the election of REIT status, Lexford Inc. determined in
October 1997 to embark upon a program to consolidate ownership of the
Unconsolidated Partnerships (the "Consolidation Program"). The Company reported
the results of the Consolidation Program on Forms 8-K filed on February 17,
1998, March 2, 1998, and April 20, 1998, respectively. In the first quarter of
1998, pursuant to the Consolidation Program, the Company acquired the entire
equity ownership interest in 326 Properties formerly owned by 324 Unconsolidated
Partnerships.
In order to effect its plan to cause a newly created Maryland real estate
investment trust to succeed to the ownership of the Company's assets and the
conduct of its business, Lexford Inc. created Lexford Residential Trust, a
Maryland real estate investment trust, as its wholly owned subsidiary in January
1998. Lexford, Inc. and Lexford Residential Trust proceeded to file a joint
proxy statement/prospectus under cover of a Form S-4 Registration Statement with
the U.S. Securities and Exchange Commission ("SEC") in order to solicit proxies
for the approval of the proposed Merger as well as register Lexford Residential
Trust's common shares of beneficial interest under the Securities Act of 1933.
The SEC declared the Form S-4 registration statement effective on January 30,
1998 and, in accordance with the joint proxy statement/prospectus, a Special
Meeting of Shareholders was held on March 3, 1998. At the special shareholders
meeting, the Company's shareholders approved the Merger. The Merger was
effective at the close of business on March 18, 1998 and, accordingly, Lexford
Residential Trust has succeeded to the ownership of the assets and the conduct
of the business of Lexford, Inc. The Common Shares were listed and admitted for
trading on the NYSE on March 19, 1998.
Prior to its decision to elect REIT status, and through and including 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 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 certain personnel dedicated to the Company's property
management activities, its proprietary interest in property management training
programs and systems, and management agreements for the 79 Unconsolidated
Partnerships.
In connection with the REIT Conversion, the Company announced a strategy to
deleverage its balance sheet (i.e. reduce its total mortgage and revolving
credit indebtedness, thereby improving the ratio of its total debt to its total
capitalization). To implement its deleveraging strategy, the Company registered
Common Shares for a secondary public offering; however, in late May 1998,
immediately prior to the time the Company's Form S-3 Registration Statement
filed in connection with such public offering became effective, trading volume
in the
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Company's Common Shares increased dramatically and market prices for the Common
Shares declined precipitously. As a result of these factors, the Company's Board
of Trustees and executive management determined that pursuing the offering would
not be in the best interest of the Company's shareholders because the price at
which the Company could issue and sell its Common Shares would be excessively
dilutive to the Company's existing shareholders. On June 2, 1998, the Company
filed a shelf registration statement with the SEC for the potential offering of
up to 12.65 million common shares of beneficial interest. The Company intends to
undertake an offering under this shelf registration depending upon market
conditions and capital requirements. The costs associated with the proposed
offering have been deferred pending potential share issuance under the shelf
registration. In October 1997, the Company retained Morgan Stanley & Co.,
Incorporated ("Morgan Stanley") as its financial advisor in connection with the
proposed securities offering. In July 1998, the Company reached an agreement for
the termination of the engagement of Morgan Stanley as its managing underwriter
for the public offering of equity securities in consideration of Morgan
Stanley's exclusive right to act as the Company's financial advisor in
connection with any material merger, acquisition or sale transaction involving
the Company commenced on or before January 22, 2000. In connection with this
termination, Morgan Stanley agreed to waive any claim for any fees or
reimbursement of out of pocket costs and expenses from the Company incurred in
connection with the terminated secondary public offering.
In the opinion of management and the Board of Trustees, the equity capital
markets for REITs have not improved such that a public offering of the Company's
Common Shares is warranted at this time. For these reasons, the Company has
determined to also consider other strategic alternatives to implement its goal
of deleveraging its balance sheet, although it will continue to maintain its
shelf registration statement in order to facilitate an expeditious offering of
Common Shares in the event market conditions so warrant. No firm decision has
been made at this time with respect to the advisability or implementation of any
of such alternatives.
In summary, during 1998 the Company invested approximately $57.0 million in
the Portfolio: $34.0 million to acquire the entire equity ownership interest in
326 apartment communities in connection with the Consolidation Program and $23.0
million in major maintenance and improvements. In addition, effective with the
third quarter 1998 the Company commenced paying a quarterly dividend which in
the aggregate amounted to $8.2 million for 1998. The Company had originally
planned to utilize funds from an equity offering as a source of partial funding
for the $57.0 million investment in the Portfolio. Although the equity offering
was postponed, the Company believes it still has adequate liquidity to meet
ongoing operating and dividend funding requirements (SEE ITEM 7 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL
RESOURCES").
THE COMPANY'S BUSINESS AND OPERATING STRATEGIES
Operating and Financing Strategies for 1999
The Company's overall business objective is to maximize the total return to
its shareholders and co-investors through increases in the value of the
Portfolio, cash flows and earnings. The Company believes that this objective is
best achieved by pursuing a strategy of being the leading provider of housing to
"value-conscious" renters. The Company defines value-conscious renters as those
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.
Lexford's mission is to become the dominant U.S. provider of housing to
"value conscious" renters. Lexford's strategies to fulfill this mission and
build shareholder value are:
X A focus on markets where the Company will maintain substantial
market share;
X An emphasis on customer service, competitive pricing and operating
margins as a low-cost operator; and
X A commitment to rewarding employees for ingenuity and productivity.
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Increase Revenues at Existing Properties
The Company will seek to increase rental rates by continuing the capital
expenditure program that it commenced in 1998 with $23.0 million of major
maintenance and improvements on the Portfolio. The Company historically has been
able to effectuate meaningful rental rate increases following improvements to
modernize or upgrade the quality of individual Properties. For example, the
performance of 183 Properties where improvements were effected following
mortgage loan refinancings showed revenues from such Properties increasing 16.3%
from 1995 through 1997. Following thorough analysis of the Properties and the
sensitivities to rent increases in their respective locales, management
identified 224 Properties (approximately 15,000 units) for which it believed
disciplined capital spending would yield substantial revenue increases and
attractive returns on investments. As a result of the significant level of
capital expenditures in 1998 ($678 per unit), which were in large part directed
toward those revenue enhancing opportunities, the Company expects to moderate
expenditures for major maintenance and capital improvements in 1999 to a range
of $11.0 to $13.0 million, or $335 to $395 per unit. The Company's capital
improvements will be directed primarily to upgrading units as they become
available for lease. During 1999, the Company will evaluate the results achieved
before setting new investment targets for the year 2000 and future years.
The Company believes that it is uniquely positioned to identify required
improvements, and achieve favorable pricing on these expenditures, because of
the homogeneous nature of the Properties and the Company's extensive database of
historical capital improvements. The homogeneity of the Company's apartments
enables the Company to accurately estimate useful lives of all major components
(i.e. roofs, appliances, exterior paint and siding, asphalt, etc.) and the
Company's database of historical capital expenditures by Property, component and
year of replacement provides the Company with a useful tool to forecast capital
requirements, and thus budget appropriate replacement reserves.
Leverage Operating Efficiencies
The Company will concentrate on controlling expenses and implementing
efficiencies to increase operating margins. The Company emphasizes on-site
property management and believes there are significant opportunities to improve
the profitability of individual Properties. Particular attention is paid to
opportunities to increase rents, raise occupancy rates and control costs, with
property managers being rewarded for increases in property level net operating
income through rent increases and controlling property operating expenses.
The Company believes that the durability and uniformity of its Properties
provide for economies and efficiencies in operating and maintenance costs. The
Company seeks to manage expenses through a system of detailed management
reporting and accountability. The Company also has realized significant expense
reductions as a result of the Consolidation Program, which eliminated the costly
and cumbersome reporting (both tax and financial), communication and in many
instances, cash segregation required to administer over 400 limited partnerships
with more than 7,000 third party limited partners. The Company may further seek
to control expense through investment in cost-saving initiatives such as
national contracting, implementation of improved technology, and the
installation of individual apartment unit water and utility meters in certain
locations. With its relatively low operating and maintenance costs, the Company
believes it can offer competitive rents and still increase its operating
margins.
In 1998, the Company implemented cost saving initiatives involving the
streamlining of its financial and supervisory property management operations.
The Company recorded a one-time charge of approximately $1.2 million related to
the closing of satellite offices, the consolidation of its two Columbus offices
and severance expenses for approximately 23 employees. These cost saving
initiatives represent a reduction in annual salary and benefit expense of more
than $1.1 million. (SEE NOTE 10 OF NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS).
Refinancing Opportunities
The Company intends to take advantage of the current favorable interest
rate environment to opportunistically reduce its overall cost of capital while
simultaneously enhancing cash flow. Even though the Company has relatively small
amounts of debt maturing in the next two years, the Company expects that it may
be able to increase its Funds From Operations ("FFO") and cash flow by
refinancing higher cost mortgage indebtedness
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with lower rate, lower constant debt. Based upon the terms of current mortgage
debt outstanding the Company believes that it can refinance debt at favorable
terms and still maintain an overall prepayable debt profile of approximately 50%
throughout 1999.
RESULTS OF OPERATIONS
Same Store Portfolio Operating Results
The following table summarizes the unaudited combined operating results, on
a Same Store basis, excluding management fees, other fees and interest charged
by the Company, of the 496 Properties (32,898 units) in the Portfolio in which
the Company has owned or maintained an ownership interest for the entire two
fiscal years presented.
<TABLE>
<CAPTION>
YEAR ENDED
1998 QUARTER ENDED DECEMBER 31,
------------------------------------------- -------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1998 1997
--------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statistical Information
Average Economic Occupancy...... 91.5% 92.5% 93.0% 93.6% 92.7% 92.0%
Average Physical Occupancy...... 93.2% 93.8% 94.7% 94.2% 94.0% 92.7%
Average Rent/Unit/Month......... $ 440 $ 442 $ 445 $ 449 $ 444 $ 435
Average Rent Collected Per
Occupied Unit/Month.......... $ 432 $ 436 $ 437 $ 446 $ 438 $ 432
Financial Information (in
thousands)
Revenues
Rental Income................... $39,779 $40,383 $40,883 $41,442 $162,487 $157,977
Other Property Income........... 1,962 1,931 1,848 1,649 7,390 6,450
------- ------- ------- ------- -------- --------
Total Revenues.................... 41,741 42,314 42,731 43,091 169,877 164,427
------- ------- ------- ------- -------- --------
Expenses
Property Operating and
Maintenance.................. 11,607 12,781 13,098 12,944 50,430 48,485
Real Estate Taxes and
Insurance.................... 3,606 3,558 3,620 3,824 14,608 15,239
------- ------- ------- ------- -------- --------
Operating Expenses........... 15,213 16,339 16,718 16,768 65,038 63,724
------- ------- ------- ------- -------- --------
Net Operating Income......... 26,528 25,975 26,013 26,323 104,839 100,703
Interest -- Mortgages........... 12,446 12,635 12,436 12,282 49,799 50,810
Major Maintenance &
Replacements................. 723 676 1,299 1,560 4,258 4,247
Other........................... 551 158 174 207 1,090 774
------- ------- ------- ------- -------- --------
Non Operating Expenses....... 13,720 13,469 13,909 14,049 55,147 55,831
------- ------- ------- ------- -------- --------
Income/(Loss) After Certain
expenses........................ $12,808 $12,506 $12,104 $12,274 $ 49,692 $ 44,872
======= ======= ======= ======= ======== ========
Capital Expenditures.............. $ 2,312 $ 2,697 $ 5,758 $ 7,309 $ 18,076 $ 11,386
======= ======= ======= ======= ======== ========
</TABLE>
For the full year, Total Revenues increased 3.3% in 1998 as compared to
1997. Rental Revenues increased 2.9% in 1998 as compared to 1997 due to an
increase in average rent collected per occupied unit, per month from $432 in
1997 to $438 in 1998, combined with an increase in physical occupancy from 92.7%
in 1997 to 94.0% in 1998. Other property income increased 14.5% in 1998 as
compared to 1997 as a result of increased fee revenue from products and services
made available to residents. Other property income is anticipated to stabilize
or decline in 1999.
Operating expenses increased 2.1% in 1998 as compared to 1997. Property
Operating and Maintenance increased 4.0% primarily due to the expensed portion
of extensive landscaping, deferred maintenance and improvements completed in
1998. The increase in Property Operating and Maintenance was partially offset by
a 4.2% decrease in Real Estate Taxes and Insurance resulting from a decrease in
property insurance premiums in 1998. Capital expenditures increased from $11.4
million in 1997 to $18.1 million in 1998 as the Company
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completed deferred maintenance projects and implemented its capital improvement
plan to upgrade units to facilitate rent increases.
Same Store Portfolio Operating Results -- by Region
The Company's 496 Property Same Store Portfolio is located in four regions.
In 1999, the Company will re-align the Portfolio as three regions, basically
combining the Northeast and Central Regions. The Northeast region is comprised
of northern and central Ohio, Pennsylvania, and West Virginia; the Central
region is comprised of southern Ohio, Indiana, Kentucky and Michigan; the
Mid-Atlantic region is primarily Georgia; and the Southeast region is Florida.
The Company maintains ownership interests in two Properties comprised of 115
units that are not managed by the Company and are not included in the following
regional information.
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
------------------------------------------- DEC. 31,
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, -------------
1998 1998 1998 1998 1998 1997
--------- -------- --------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Northeast Region (8,885 units)
Average Economic Occupancy.............. 92.1% 93.5% 94.0% 94.0% 93.4% 92.8%
Average Physical Occupancy.............. 92.9% 94.2% 94.8% 94.3% 94.1% 93.0%
Average rent/unit/month................. $ 444 $ 446 $ 450 $ 453 $ 449 $ 440
Average Rent Collected per Occupied
unit/month........................... $ 440 $ 443 $ 447 $ 452 $ 445 $ 439
Central Region (9,268 units)
Average Economic Occupancy.............. 92.2% 93.6% 93.5% 94.1% 93.3% 92.8%
Average Physical Occupancy.............. 93.7% 94.5% 94.8% 94.7% 94.4% 93.0%
Average rent/unit/month................. $ 419 $ 422 $ 425 $ 431 $ 423 $ 416
Average Rent Collected per Occupied
unit/month........................... $ 410 $ 418 $ 419 $ 428 $ 419 $ 415
Mid-Atlantic Region (5,056 units)
Average Economic Occupancy.............. 91.3% 90.2% 91.6% 93.0% 91.5% 91.4%
Average Physical Occupancy.............. 92.7% 92.9% 94.7% 94.4% 93.7% 92.2%
Average rent/unit/month................. $ 477 $ 479 $ 483 $ 487 $ 482 $ 469
Average Rent Collected per Occupied
unit/month........................... $ 469 $ 465 $ 467 $ 480 $ 470 $ 464
Southeast Region (9,574 units)
Average Economic Occupancy.............. 91.0% 91.9% 92.5% 93.1% 92.1% 91.0%
Average Physical Occupancy.............. 93.2% 93.2% 94.6% 93.6% 93.6% 92.4%
Average rent/unit/month................. $ 439 $ 441 $ 443 $ 446 $ 442 $ 432
Average Rent Collected per Occupied
unit/month........................... $ 425 $ 432 $ 430 $ 441 $ 432 $ 422
</TABLE>
Unconsolidated Partnerships
The Company holds receivables from 64 of the Unconsolidated Partnerships in
which the Company had an ownership interest on December 31, 1998, primarily in
the form of second mortgages and advances to the Unconsolidated Partnerships.
Interest payments on these receivables generate a majority of the interest
income recognized by the Company. On December 31, 1998, the contractual
obligations of the Unconsolidated Partnerships on account of second mortgages,
advances and other payables, including related interest, was $37.5 million while
the value of such receivables reflected on the Company's consolidated financial
statements was $6.9 million (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS).
The following table reflects interest income from the 64 Unconsolidated
Partnerships recognized for the year ending December 31, 1998 and for over 400
Unconsolidated Partnerships for the years ended December 31, 1997
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and 1996, categorized to separately indicate amounts received from operating
cash flows and from excess mortgage refinancing proceeds (or release of prior
escrows as a result of mortgage refinancings) (in thousands).
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Interest Income
Recurring........................................ $2,487 $10,681 $6,960
Refinancing...................................... 538 0 1,937
====== ======= ======
Total......................................... $3,025 $10,681 $8,897
====== ======= ======
</TABLE>
The Company also offers products and services to residents of apartment
communities, including renter's insurance, leased apartment furnishings, and on
a very limited basis, telecommunications and cable television services. At
December 31, 1998, approximately 30% of residents at apartment communities in
which the Company has an ownership interest selected renter's insurance. The
Company receives commissions from the sale of renter's insurance to residents.
In order to ensure its continuing qualification as a REIT for federal income tax
purposes, the Company intends (among other REIT qualification tests) to
carefully monitor gross revenues derived from each individual Property as well
as renter's insurance commission revenues derived from such Property in order to
ensure that in no event will "non-qualified income" ever exceed one percent of
the total revenues derived from any individual Property.
Capitalization of Properties
The Company's investment strategy includes obtaining and maintaining the
best available financing for the Properties, with the goal of maximizing their
operating performance and managing refinancing risk. Over the past five years,
the Company has successfully negotiated long-term, non-recourse, fixed interest
rate financing for approximately 96.7% of the Properties. For many of the
Properties, the Company also negotiated and established escrows for property
improvements, real property tax liabilities and working capital in connection
with mortgage refinancing transactions.
For a discussion of Property mortgage loans refinanced in 1998, SEE ITEM
7 -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- LIQUIDITY
AND CAPITAL RESOURCES".
Competition
The Properties are largely comprised of apartment units made of solid,
durable modular components manufactured off-site in a quality-controlled
environment. The units were manufactured and shipped to be set on foundations
constructed on-site at the project's final location. The units generally consist
of two, three or four rooms of uniform design and dimension and are small and
efficient with low-maintenance finishes. The building exteriors feature a
low-pitched asphalt shingle roof, masonite siding and fenced patios. The Company
believes the Properties provide a superior residential alternative to most other
comparably priced apartments and an attractive residential feel through their
low density, mature park-like landscaping, well-maintained lawns and gardens and
multiple building single-story layouts. The average age of the apartment units
in the Portfolio is 15 years.
Lexford's apartment communities generally cater to a "value-conscious"
resident seeking 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 rates as represented by its average monthly rents, which currently range
from $350 to $550 per apartment unit, which the Company believes is typically
20-25% below the average multifamily rental rates in its markets. The average
rental rate per unit for the Portfolio for the year ended December 31, 1998 was
$444. The Company's Portfolio is diversified across 79 metropolitan areas
throughout the Midwest and Southeast, with concentrations in Florida, Georgia,
Ohio, Indiana, Michigan and Kentucky. The Company's Properties tend to be
located in suburban, secondary and tertiary markets, where the Company competes
locally with other apartment communities.
The apartment industry is highly competitive and fragmented with numerous
owners and developers competing with the Company on a national, regional and
local basis. Competition for residents of apartment communities is subject to
the conditions and pricing of individual units, local market conditions, the
location of
8
<PAGE> 11
the apartment community and other factors. In addition, other forms of housing,
including manufactured housing communities and single family homes provide
alternatives to potential residents. Nevertheless, the Company believes the
geographic distribution of the Portfolio reduces the impact of any one set of
local economic conditions on the Company.
Environmental
Phase I environmental site assessments have been completed within the last
36 months for more than one-half of the Properties in connection with mortgage
refinancing transactions. None of the Phase I environmental site assessments
revealed any environmental contaminant or condition that the Company believes
would have a material adverse effect on the Company or the Properties.
Furthermore, the Company is not aware of any such contamination or condition at
any of the Properties. Because the majority of the Properties are less than
twenty years old, they do not contain lead based paint or friable asbestos.
Nevertheless, it is possible that there exists material environmental
contamination of which the Company is unaware.
Tax Status
The Company intends to elect to be taxed as a REIT under section 856(c) of
the Internal Revenue Code of 1986, as amended (the "Code") effective for the tax
year ending December 31, 1998. As a result, the Company generally will not be
subject to Federal income tax to the extent it distributes 100% of its REIT
taxable income to its shareholders. REIT's are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any year, any taxable income the Company generates may be subject to
income tax at regular corporate rates (including any applicable alternative
minimum tax).
ITEM 2. PROPERTIES
The Company maintains ownership interests in the Rental Properties and the
Unconsolidated Partnerships (SEE ITEM 1 -- "BUSINESS").
The Company has executive and administrative offices, financial operations
and a portion of property operations located in 36,120 square feet of space
within a single-story office building at 6954 Americana Parkway, in Columbus,
Ohio. The Company entered into a lease for the building with Americana
Investment Company (an entity affiliated with an outside Trustee of the Company
who did not participate in the negotiations for the Company's lease -- SEE
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" IN THE COMPANY'S PROXY
STATEMENT FOR ITS 1999 ANNUAL SHAREHOLDERS MEETING INCORPORATED IN PART III OF
THIS FORM 10-K BY REFERENCE) in late 1992. This lease was amended and restated
in February 1998 with provisions for the current premises (representing a
reduction in the former leasehold space), a remodeling and rehabilitation
allowance and a seven year term beginning September 1, 1998. Management believes
that the lease terms are competitive with commercial lease rates in the Columbus
market.
In December 1998, the Company announced its plans to close all other
satellite property management and executive offices. Since December 1998, the
Company has successfully terminated its leasehold interest and respective
obligations for its former regional property management offices located in
Orlando, Florida and San Antonio, and Houston, Texas. Also, in April 1998, the
Company entered into an assignment and assumption transaction in connection with
the sale of the Third Party Management Business pursuant to which the buyer of
the Third Party Management Business assumed the Company's obligations for its
leasehold interests in its former property management offices in suburban
Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
On March 7, 1996, the Company filed suit against Hartford Fire Insurance
Company ("Hartford") in the United States District Court for the Middle District
of Florida, in a case captioned Cardinal Realty Services, Inc. v. Hartford Fire
Insurance Co., Case No. 96-458-CIV T-24A. In that case, the Company sought to
recover excess property damage insurance claims from Hartford, pursuant to an
excess property insurance policy issued to the Company by Hartford, for
termite-related losses at approximately 150 Properties in which the Company
holds (or formerly held) an interest. The termite related losses are the same as
those which formed the subject matter of
9
<PAGE> 12
prior litigation against the Company's former primary insurance carrier,
National Union Fire Insurance Company, in which the Company arrived at a mutual
settlement. Hartford's insurance policy provided coverage for such losses to the
extent they constituted a "single occurrence" within the meaning of the policy
and exceeded $25 million. On October 30, 1998, the Company reached a settlement
in its lawsuit against Hartford. Pursuant to the terms of the settlement
agreement the Company, in its capacity as general partner of limited
partnerships that own Rental Properties and Unconsolidated Partnerships and as
agent for parties that have purchased apartment communities formerly owned by
Unconsolidated Partnerships, has received a cash payment in the gross amount of
$3,075,000 and has paid contingency legal fees of $975,000 from the settlement
proceeds. The net proceeds of the settlement have been allocated among the
properties (including those owned by third parties) based upon the extent of the
termite damage at each such property. The Company's portion of the proceeds from
the settlement will be utilized to offset costs incurred or to be incurred for
termite repairs.
The Company is party to a number of other litigation matters arising in the
ordinary course of business, none of which is material or represents any
significant potential impact upon the Company or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Commencing on March 19, 1998, the Company's Common Shares began trading on
the NYSE under the trading symbol "LFT". In 1998 (through March 18), 1997 and
1996, Lexford, Inc.'s common stock traded on the National Market tier of the
Nasdaq Stock Market(sm) under the trading symbol "CRSI". On December 31, 1998,
there were approximately 1,236 record holders of the Company's Common Shares.
The following table sets forth the high and low sale prices of the Common Shares
for the periods indicated as adjusted for the two for one share exchange
effected in connection with the merger of Lexford, Inc. with and into the
Company.
<TABLE>
<CAPTION>
1998 DIVIDENDS 1997 DIVIDENDS
--------------- PER --------------- PER
HIGH LOW SHARE HIGH LOW SHARE
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter............................. $20.63 $16.88 n/a $13.38 $10.25 n/a
Second Quarter............................ 23.25 18.44 n/a 13.00 11.63 n/a
Third Quarter............................. 20.75 17.38 $0.4325 14.13 10.94 n/a
Fourth Quarter............................ 19.75 16.63 $0.4325 17.25 13.57 n/a
</TABLE>
The Company's transfer agent is:
Fifth Third Bank
Fifth Third Center
38 Fountain Square
MD 1090D2
Cincinnati, Ohio 45263
In 1998, the Company declared dividends of $0.4325 per share for each of
the quarters ending September 30, and December 31, 1998. The Company has
instituted a policy of paying a quarterly dividend approximately 15 days after
the close of each calendar quarter. The Company's dividend policy is subject to
modification by the Company's Board of Trustees. Prior to 1998, the Company had
not paid dividends since it became a public reporting company. Until August
1995, the Company's ability to pay dividends was subject to a prohibition
contained in its financing arrangements. The terms of the Company's current
credit facility provided by The Provident Bank generally does not restrict the
payment of dividends. (SEE ITEM 7 -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL
RESOURCES.")
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The information below should be read in conjunction with the CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO AND ITEM 7 -- "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
The unaudited tables set forth below provide a variety of statistical
information about the Company. In 1998 the Company completed the acquisition of
326 Rental Properties formerly owned by Unconsolidated Partnerships and intends
to elect REIT status (SEE ITEM 1 -- "BUSINESS" - RECENT EVENTS). Based on these
events the financial information for the year ended December 31, 1998 is not
comparable to prior years. The Company believes that Funds from Operations and
earnings before interest, income taxes, depreciation, amortization and
extraordinary items ("EBITDA") are significant indicators of the Company's
performance. 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 generally accepted accounting principles
("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 Common Share awards and
compensation, Loss on the Sale of the Third Party Management Business, Real
Estate Impairment Loss and certain non-recurring expenditures. Neither FFO nor
EBITDA represents cash flow as defined by GAAP, and neither necessarily
represents amounts of cash available to fund the Company's cash requirements.
FFO and EBITDA should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flow as a measure of
liquidity (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995(1) 1994(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Revenue......................... $146,505 $ 69,049 $ 64,317 $ 23,676 $ 22,600
======== ======== ======== ======== ========
Inc/(Loss) before Extraordinary Item...... $ (5,532) $ 3,386 $ 5,370 $ 4,293 $ 3,944
Extraordinary Item........................ $ 631 $ (180) $ (1,614) $ 804 $ 3,156
-------- -------- -------- -------- --------
Net Income/(Loss)......................... $ (4,901) $ 3,206 $ 3,756 $ 5,097 $ 7,100
======== ======== ======== ======== ========
EBITDA(2)................................. $ 58,912 $ 26,529 $ 29,531 $ 24,600 $ 24,752
======== ======== ======== ======== ========
Funds From Operations..................... $ 28,688 n/a n/a n/a n/a
======== ======== ======== ======== ========
Basic Earnings Per Share
Income before Extraordinary Item........ $ (0.60) $ 0.42 $ 0.71 $ 0.59 $ 0.56
Extraordinary Item...................... 0.07 (0.02) (0.21) 0.11 0.45
-------- -------- -------- -------- --------
Net Income/(Loss)....................... $ (0.53) $ 0.40 $ 0.50 $ 0.70 $ 1.01
======== ======== ======== ======== ========
Diluted Earnings Per Share
Income before Extraordinary Item........ $ (0.60) $ 0.41 $ 0.69 $ 0.56 $ 0.52
Extraordinary Item...................... 0.07 (0.02) (0.21) 0.11 0.42
-------- -------- -------- -------- --------
Net Income/(Loss)....................... $ (0.53) $ 0.39 $ 0.48 $ 0.67 $ 0.94
======== ======== ======== ======== ========
Cash Dividends Declared per Common
Share................................... $ 0.87 N/A N/A N/A N/A
======== ======== ======== ======== ========
Balance Sheet Data: (At period end)
Total Assets.............................. $628,922 $241,598 $245,368 $239,399 $236,729
Long-Term Debt............................ 527,742 149,999 163,319 170,112 168,159
Shareholders' Equity...................... 59,182 74,847 62,509 51,246 43,248
</TABLE>
The earnings per share amounts prior to 1997 have been restated for a two
for one share exchange and as required to comply with Statement of Financial
Accounting Standards No. 128, Earnings Per Share (SEE NOTE 15 OF NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS).
11
<PAGE> 14
(1) The Company, during 1995 and prior years, classified the Rental Properties
as Held for Sale. While the Rental Properties were Held for Sale, the
results of operations from the Rental Properties were credited to the
carrying value of the real estate and no revenues, expenses or depreciation
were included in the Consolidated Statements of Income. Commencing in 1996,
the Company changed the classification of the Rental Properties and fully
consolidated the operations of the Rental Properties in the Company's
Consolidated Statement of Income.
(2) EBITDA for the years ended December 31, 1995 and 1994 includes the funds
from operations of the Rental Properties during the period such Properties
were Held for Sale.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto. (SEE ITEM 1 -- "BUSINESS"
AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS).
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Years ended December 31, 1998 and
1997
Rental and Other Property Revenues are derived from the Rental Properties
which own and operate apartment communities. Rental and Other Property Revenues
increased approximately $96 million, or 230% in 1998 as compared to 1997. The
majority of the increase, $95.5 million, is related to the acquisition of 326
Rental Properties formerly owned by 324 Unconsolidated Partnerships in 1998. On
a comparable unit basis (111 Rental Properties in operation for both periods),
the average monthly rent collected per occupied unit increased from $429 in 1997
to $439 in 1998.
Rental Revenues are directly related to the occupancy and level of rents
collected at the properties owned by the Company. For the past three years the
Company has maintained occupancy, on average, above 90% at the Properties owned
by the Company. The Company's ability to obtain rental increases and maintain
occupancy are highly dependent upon market conditions, the physical condition of
the Properties and the competitive environments affecting such Properties. The
Properties are subject to all operating risks common to residential apartments
in general. Such risks include, without limitation: competition from other
apartments, excessive building of comparable properties or increases in
unemployment in the areas where the apartment communities are located, any of
which might adversely affect apartment occupancy or rental rates; increases in
operating costs due to inflation and other factors, which increases may not
necessarily be offset by increased rents; the inability or unwillingness of
residents to pay rent increases; and future enactment of rent control laws or
other laws regulating multi-family housing, including present and possible
future laws relating to access by physically impaired persons.
Fee Based Revenues no longer represent a material source of revenues for
the Company as a result of the Consolidation Program and the sale of the Third
Party Management Business (see the discussion following the tabular presentation
below). Fee based revenues are comprised of management services and investment
management revenues generated from services provided to Unconsolidated
Partnerships, third party owners (for periods through the first quarter of 1998)
and residents at the Properties. Management services revenues principally relate
to property management and accounting services provided to the Unconsolidated
Partnerships and third party property owners (SEE NOTE 6 OF NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS). The Company also provides ancillary services
to the Unconsolidated Partnerships, including a discount group buying program
and laundry services. The Company enters into group buying, volume discount
contracts with major vendors as agent for the Unconsolidated Partnerships and
receives a discount from vendors for every purchase made through the program.
The Company has also entered into a master lease agreement with a national
operator of laundry rooms whereby the Company receives a rebate from residents'
use of laundry equipment. Investment manage-
12
<PAGE> 15
ment 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 1998 as compared to 1997. Certain
amounts previously reported have been reclassified herein between Property
Management Services and Ancillary Services for all periods presented (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Management Services:
Property Management Services
Unconsolidated Partnerships........................... $3,508 $ 9,419
Third Party........................................... 601 4,194
Ancillary Services....................................... 1,036 1,639
------ -------
Total Management Services Revenues......................... 5,145 15,252
------ -------
Investment Management:
Partnership Administration and Other Fees................ 291 1,134
Loan Refinancing and Restructuring Fees.................. 96 131
------ -------
Total Investment Management Fee Revenues................... 387 1,265
------ -------
Total Fee Based Revenues................................... $5,532 $16,517
====== =======
</TABLE>
Fee Based Revenues decreased approximately $11 million, or 67%, in 1998 as
compared to 1997. The decrease was primarily due to the elimination of fee based
revenues related to the acquisition of the 324 former Unconsolidated
Partnerships in 1998, partially offset by management fees generated from
management agreements on 14 Unconsolidated Partnerships. The Company originated
these management agreements in December 1997. In addition, the sale of the Third
Party Management Business resulted in a net decrease in third party management
fees of approximately $3.6 million from 1998 to 1997. Ancillary Services
revenues decreased approximately $603,000 from 1998 to 1997. The decrease was
due to the classification of vendor rebates on purchases made by the 326 Rental
Properties formerly owned by Unconsolidated Partnerships from and after the
implementation of the Consolidation Plan as an offset to maintenance expense
instead of revenues from services provided to Unconsolidated Partnerships.
Fee Based Revenues are dependent to a certain extent on the financial
condition of the Properties owned and managed by the Company and the Company's
ability to retain its ownership interests, typically as managing general
partner. Loss of this interest, due to an increase in interest rates or an
inability to refinance matured loans, could have an adverse impact on Fee Based
Revenues; however, almost all Properties owned by Unconsolidated Partnerships
are subject to single asset non recourse mortgage financing.
Income from Unconsolidated Partnerships decreased approximately $7.7
million, or 71.7%, in 1998 as compared to 1997. This income is primarily derived
from the interest collected or accrued on the recorded value of Investments in
and Advances to Unconsolidated Partnerships (SEE NOTE 3 OF NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS). The decrease in Income from Unconsolidated
Partnerships was due to the consummation of the Consolidation Program in 1998
and the corresponding reclassification of recorded values of $47.3 million from
Investments in and Advances to Unconsolidated Partnerships to Rental Properties
(SEE NOTE 2 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS).
Property Operating and Maintenance expense increased approximately $32.9
million, or 262%, in 1998 as compared to 1997. The majority of the increase is
related to the consummation of the Consolidation Program in 1998. On a
comparable unit basis, Property Operating and Maintenance expense from the 111
Rental Properties in operation for both periods increased approximately $1.5
million or 11.7%, in 1998 as compared to 1997. Factors contributing to the
increase include a write-down of approximately $400,000 in insurance claim
receivables in the first quarter of 1998 and an increase in payroll and other
operating expenses of approximately $534,000 primarily related to exterior
landscaping and maintenance, with the balance related to normal inflationary
increases in expenses.
13
<PAGE> 16
Real Estate Taxes and Insurance expense increased approximately $7.3
million, or 180%, in 1998 as compared to 1997. The increase was due to the
consummation of the Consolidation Program in 1998. Real Estate Taxes and
Insurance expense from the 111 Rental Properties in operation for both periods
decreased approximately $292,000, or 7.2%, in 1998, as compared to 1997. The
decrease resulted from reduced insurance premiums upon the renewal of insurance
policies, which also benefited Unconsolidated Partnerships and the newly
acquired Rental Properties.
Property Management expense decreased approximately $3.4 million, or 21.3%,
in 1998 as compared to 1997. Property Management expense decreased primarily due
to the sale of the Third Party Management Business effective April 1, 1998 (SEE
NOTE 6 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The Company records
Property Management expense for all Properties under management, including all
Unconsolidated Partnerships and Rental Properties. While there can be no
assurance, management anticipates further reduction in Property Management
expenses for its 1999 fiscal year as a result of the closing of satellite
offices and reduction in total property management supervisory employees
effected in connection with the Company's December 1998 cost saving initiative
(SEE ITEM 1 "BUSINESS" -- THE COMPANY'S BUSINESS AND OPERATING
STRATEGIES -- LEVERAGE OPERATING EFFICIENCIES).
Administration expense increased approximately $1.4 million, or 28.4%, in
1998 as compared to 1997. The increase in administration expense was primarily
due to the following: an increase of approximately $452,000 in 1998 as compared
to 1997 related to the creation of an Acquisition and Disposition Department in
1998; an increase of approximately $563,000 in 1998 as compared to 1997 related
to salary, share compensation and relocation for two new executives; an increase
of approximately $293,000 in 1998 as compared to 1997 related to facility costs
for the Company's separate executive offices opened in September 1997, offset by
lower facility costs included in Property Management; and the reclassification
of certain continuing employee related expenses from Property Management to
Administration expense.
Performance Equity Plan expense represents the non-cash charge recorded
based upon vesting of the remaining Common Shares awarded under the 1997
Performance Equity Plan, approved by the Company's shareholders at the Company's
1997 Annual Shareholders Meeting. (SEE NOTE 8 OF NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS).
Non-recurring Costs in 1998 of approximately $2.7 million were up from
approximately $828,000 in 1997. Approximately $1.6 million of the 1998 charge
related to the Company's Non-Employee Trustee Retirement Plan ("Trustee
Retirement Plan") for four non-employee 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 Executive 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 remaining $1.1
million of Non-recurring Costs relates to severance costs associated with 23
terminated employees, and costs related to the closing of satellite offices. The
positions were eliminated as part of a cost saving initiative implemented in
1998. The majority of the charge was incurred in the fourth quarter of 1998 (SEE
ITEM 1 "BUSINESS" -- THE COMPANY'S BUSINESS AND OPERATING STRATEGIES -- LEVERAGE
OPERATING EFFICIENCIES).
Interest expense for mortgages on the Rental Properties increased
approximately $27.5 million in 1998 as compared to 1997. The majority of the
increase was due to the consummation of the Consolidation Program in 1998. On a
comparable unit basis, Interest Expense from the 111 Rental Properties in
operation for both periods remained relatively constant. Interest Expense on the
Company's revolving and term credit line increased approximately $1.0 million in
1998 as compared to 1997, due to the increase in the principal amount
outstanding, primarily related to the funding of the Consolidation Program.
Depreciation and Amortization expense increased approximately $15.0 million
in 1998 as compared to 1997. The increase is due to a $300,000 write-off of the
value of a land lease and approximately $14.4 million related to depreciation on
the Properties acquired pursuant to the Consolidation Program in 1998.
14
<PAGE> 17
Real Estate Impairment Loss was approximately $1.0 million in 1998. Based
upon management's intent to dispose of a Rental Property, the Company determined
that an asset with a carrying value of $1.7 million was impaired and recorded
the loss in accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("FASB 121"). (SEE NOTE 7 OF NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS). In December 1998, the Company consented to an insubstance
foreclosure to the mortgagee of this Rental Property and thereupon recorded a
$1.0 million extraordinary gain. (SEE "INCOME /(LOSS) BEFORE EXTRAORDINARY
ITEM").
Loss on Sale of Third Party Management Business was $6.3 million in 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 agreements for 15 apartment
communities acquired in December 1997, Lexford Properties, Inc.'s training
programs, property management systems and certain of its personnel 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 took 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 Common Shares (valued
at the time of acquisition in 1996), 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
Common Shares subject to forfeiture were released in exchange for the
forfeiture of the remaining 600,000 Common Shares. The release of the
300,000 Common 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 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 $1.8 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.
Gain on Disposal of Assets - Net decreased approximately $1.5 million in
1998 as compared to 1997. This income is derived from the disposition of
miscellaneous assets. Gain on Disposal of Assets is not a recurring, long-term
source of revenue.
Income/(Loss) before Extraordinary Item was a loss of $5.5 million in 1998
as compared to income of $3.4 million in 1997. As a result of the Company's
decision to elect REIT status, the consummation of the
15
<PAGE> 18
Consolidation Program and the charges incurred with the sale of the Third Party
Management Business, Income before Extraordinary Item in 1998 is not comparable
to prior years.
The extraordinary gain of approximately $631,000 in 1998, was comprised of
a $1.0 million extraordinary gain related to the Company consenting to an
insubstance foreclosure to the mortgagee on a Rental Property (SEE "REAL ESTATE
IMPAIRMENT LOSS"), and mortgage debt refinancings on certain Rental Properties
(SEE NOTE 7 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND "LIQUIDITY AND
CAPITAL RESOURCES -- FINANCING AND DEBT RESTRUCTURING OF THE PROPERTIES"). The
extraordinary charge in 1997 of approximately $180,000, net of income tax
benefit was a result of mortgage debt refinancings on certain Rental Properties.
Comparison of Results of Operations for the Years ended December 31, 1997 and
1996
Rental and Other Property Revenues increased approximately $574,000, or
1.4%, in 1997 as compared to 1996. The increase was primarily due to the
increase in average rent collected from occupied units from $420 in 1996 to $429
in 1997. The average economic occupancy of the 111 Rental Properties in
operation at all times during 1996 and 1997 was 92.4% in 1996 compared to 91.6%
in 1997. Economic occupancy is defined as the amount of revenue collected from
residents as a percentage of the revenue a property could generate if full rents
for all units were collected.
Fee Based Revenues are comprised of Property Management Services and
Investment Management Revenues generated from services provided to Properties
and residents at the Properties. In 1997 and 1996 (as reclassified), the Company
classified revenues received from the conduct of its group discount buying
program (1997), parts sales (1996) and provision of goods and services to
residents as "Preferred Resource" revenues. The following are the major
components of Management Services Revenues and Investment Management Revenues
for 1997 as compared to 1996. Certain amounts previously reported have been
reclassified herein between Management Services and Ancillary Services for all
periods presented (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Management Services:
Property Management Services
Unconsolidated Partnerships............................ $ 9,419 $ 9,296
Third Party............................................ 4,194 2,135
Ancillary Services........................................ 1,639 828
------- -------
Total Management Services Revenues.......................... 15,252 12,259
------- -------
Investment Management:
Partnership Administration and Other Fees................. 1,134 1,132
Loan Refinancing and Restructuring Fees................... 131 752
------- -------
Total Investment Management Fee Revenues.................... 1,265 1,884
------- -------
Total Fee Based Revenues.................................... $16,517 $14,143
======= =======
</TABLE>
Fee Based Revenues increased approximately $2.4 million, or 16.8%, in 1997
as compared to 1996. The increase was primarily due to the inclusion in 1997 of
a full year of revenues from the operations of Lexford Properties, a third party
property management company, which was acquired on August 1, 1996. The
approximate $160,000 decrease in income derived from Furniture Leasing and
Renter's Insurance activities from 1996 to 1997 was more than offset by
approximately $303,000 of income generated from the volume discount/rebate
program instituted by the Company in 1996 in connection with purchases by the
Properties. The substantial completion of major debt refinancing efforts by the
Company in 1996 resulted in the decrease of approximately $621,000 in Loan
Refinancing and Restructuring Fees.
Income from Unconsolidated Partnerships increased $1.8 million, or 20%, in
1997 compared to 1996. This income is primarily derived from the interest
collected or accrued on the recorded value of Investments in, and Advances to,
Unconsolidated Partnerships. (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS). The increase in interest income derived from cash generated by
Property operations was approximately 53% over the same periods, as
approximately $1.9 million of 1996 interest income was generated from the excess
proceeds
16
<PAGE> 19
derived from mortgage refinancing transactions effected by Unconsolidated
Partnerships. Although the interest income generated from excess refinance
proceeds is not recurring, Income from Unconsolidated Partnerships was favorably
impacted in 1997, and may be favorably impacted in the future, by the lower debt
service as a result of the refinancing transactions completed in 1996 and prior
years. The increase in 1997 was a result of improved cash flow due to improved
operating performance of the Unconsolidated Partnerships and lower debt service
requirements on mortgage debt refinanced in prior years.
Gain on Disposal of Assets -- Net increased approximately $1.0 million, or
106.6%, in 1997 as compared to 1996. This income is derived from the net
disposition proceeds in excess of the aggregate recorded value of these assets.
Additional income from the disposal of assets may be recognized in the future,
although it is not a significant long term source of revenue for the Company.
Property Operating and Maintenance expense decreased approximately $1.5
million in 1997 as compared to 1996. The majority of the decrease is due to the
capitalization of certain furniture and fixture replacements previously
expensed. In the third quarter of 1997, management reviewed its replacement
maintenance costs and determined that certain expenditures had a longer useful
life and did not require as frequent replacement. These items will now and in
the future be capitalized and depreciated over an estimated useful life of five
years. Management believes that the revised capitalization policy (which by
virtue of a third quarter adjustment has been applied effective as of January 1,
1997) is more like that of its industry peers, most of which are REITs. The
Company has announced its intention to elect REIT status for federal income tax
purposes beginning with its 1998 fiscal year.
Real Estate Taxes and Insurance expense remained relatively constant and
decreased approximately $88,000, or 2.1%, in 1997 as compared to 1996.
Property Management expenses increased approximately $3.6 million in 1997
as compared to 1996. The increase was primarily related to the inclusion in 1997
of a full year of expenses for the Third Party Management Business, which was
acquired effective August 1, 1996.
Administration expenses decreased approximately $136,000 in 1997 compared
to 1996. The decrease relates to expense reductions implemented during 1997 as
described in non-recurring costs.
Performance Equity Plan expense represents the non-cash charge recorded
upon the vesting of 424,000 shares under the 1997 Performance Equity Plan which
was approved by the Company's shareholders at the Company's 1997 Annual
Shareholders Meeting. An additional 212,000 Common Shares issued under such Plan
remained subject to forfeiture at December 31, 1997 pending the satisfaction of
vesting criteria at or prior to the end of fiscal year 1999. The Performance
Equity Plan vesting criteria has been subsequently satisfied at December 31,
1998.
Non-recurring Costs in 1997 of $828,000 were up from $243,000 in 1996.
Approximately $400,000 of the charge was due to costs related to the elimination
of overlapping functions between Lexford Properties and the Company's previous
management services operations. In the second half of 1997 the Company recorded
a charge of approximately $428,000 primarily related to costs incurred for the
Form S-11 filing for the proposed spin off of the Company's Rental Properties.
The Company withdrew this filing as it determined to maintain its ownership
interests in the Rental Properties and elect REIT status under the Internal
Revenue Code.
Interest expense for mortgages on the Rental Properties decreased
approximately $362,000 in 1997 as compared to 1996. The decrease in interest
expense was due to the refinancing transactions completed in late 1996. Interest
expense on the Company's revolving credit and term debt facility decreased
approximately $441,000 in 1997 compared to 1996. The decrease was due to lower
outstanding balances on the lines: $7.4 million was outstanding at December 31,
1997, compared to $15.3 million at December 31, 1996.
Depreciation and Amortization Expense increased approximately $1.0 million
in 1997 as compared to 1996. The increase is due to the amortization of goodwill
and management contracts associated with the acquisition of the Third Party
Management Business and depreciation associated with the items capitalized as
discussed above in "Property Operating and Maintenance". In addition, in 1997
the Company recorded a charge of approximately $364,000 as an amortization
adjustment to the value assigned to the third party management contracts
acquired in
17
<PAGE> 20
1996. The adjustment was based upon the significant decline in the number of
third party property management contracts.
Income before Extraordinary Item decreased from $5.4 million in 1996 to
$3.4 million in 1997. The extraordinary charges in 1997 of approximately
$180,000, and in 1996 of $1.6 million, net of income tax benefit, were both a
result of mortgage debt refinancing on certain Rental Properties (SEE NOTE 7 OF
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). Both Income before
Extraordinary Item and Net Income were negatively impacted by the non-cash
charge recorded upon the vesting of 424,000 Common Shares under the Company's
1997 Performance Equity Plan, as discussed above under "Performance Equity
Plan". Before giving effect to that charge, Net Income for 1997 would have
increased 86.9% over 1996. After the charge, 1997 Net Income declined about
$550,000, or 14.7%, to $3.2 million, from $3.8 million in 1996. In addition,
Earnings Per Share calculations were significantly impacted by the Performance
Equity Plan and the vesting of awards of Common Shares under employment
agreements and other incentive plans. Before giving effect to the charge for the
Performance Equity Plan and the dilutive effect of the associated Common Shares,
Basic and Diluted Earnings Per Share would have been $.88 and $.86,
respectively, an increase of 76% and 79% over 1996. After the charge and
dilutive effect of the Common Shares, Basic and Diluted Earnings Per Share for
1997 declined to $.40 and $.39, respectively, from $.50 and $.48, respectively
for 1996.
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, Loss on the Sale of the Third Party
Management Business, Real Estate Impairment loss 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 represent cash actually 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 FFO per
the Company's calculation. FFO for the years ended December 31, 1998, 1997 and
1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net Income / (Loss).............................. $(4,901) $ 3,206 $ 3,756
------- ------- -------
Real Estate Depreciation....................... 19,688 4,806 4,541
Gain on Disposal of Assets..................... (498) (1,989) (963)
Non-Cash Stock Compensation.................... 4,895 7,400 326
Non-Recurring Items............................ 2,033 828 243
Loss on Sale of Third Party Management
Business.................................... 6,300 -- --
Reserve for Non-Operating Receivables.......... 400 -- --
Amortization associated with Land Lease and
Goodwill.................................... 388 233 208
Real Estate Impairment Loss.................... 1,014 -- --
Extraordinary Item............................. (631) 180 1,614
Provision for Income Taxes..................... -- 2,189 3,416
------- ------- -------
Funds from Operations....................... $28,688 $16,853 $13,141
======= ======= =======
</TABLE>
18
<PAGE> 21
FFO increased approximately $11.8 million, or 70.2% in 1998 as compared to
1997, principally due to the consummation of the Consolidation Program in 1998.
Accordingly, management does not consider a comparison of FFO for the year ended
December 31, 1998 to prior years to be meaningful.
Earnings before Interest, Taxes, Depreciation and Amortization
The Company believes that earnings before interest, income taxes,
depreciation, amortization and extraordinary items ("EBITDA"), Recurring EBITDA
(EBITDA less Loan Fees and as adjusted for Non-recurring items) and Adjusted
EBITDA (Recurring EBITDA plus principal payments in respect of receivables
received from Unconsolidated Partnerships less interest on Rental Property
mortgage debt) are significant indicators of the strength of its results. EBITDA
is a measure of a Company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures, including expenditures for acquisitions. EBITDA does not represent
cash flow as defined by GAAP and does not necessarily represent amounts of cash
available to fund the Company's cash requirements. EBITDA and the computations
of Recurring EBITDA and Adjusted EBITDA for the years ended December 31, 1998,
1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
EBITDA...................................................... $58,912 $26,529 $29,531
------- ------- -------
Interest Income derived from refinance proceeds........... 0 0 (1,936)
Gain on Disposal of Assets................................ (498) (1,989) (963)
Loan Fees................................................. (96) (130) (752)
Performance Equity Plan................................... 2,488 6,280 0
Loss on Sale of Third Party Management Business........... 6,300 0 0
Real Estate Impairment Loss............................... 1,014 0 0
Reserve of non-operating Property Receivable.............. 400 0 0
Non-recurring Costs....................................... 2,685 828 243
------- ------- -------
Recurring EBITDA............................................ 71,205 31,518 26,123
------- ------- -------
Interest on Rental Property Mortgage debt................. (41,268) (13,770) (14,132)
Second Mortgage Principal Amortization.................... 741 972 0
======= ======= =======
Adjusted EBITDA............................................. $30,678 $18,720 $11,991
======= ======= =======
</TABLE>
EBITDA increased $32.4 million, or 122.1%, and Adjusted EBITDA increased
$12.0 million, or 63.9%, in 1998 as compared to 1997. The increases were
principally due to the consummation of the Consolidation Program. EBITDA
decreased $3.0 million, or 10.2%, and Adjusted EBITDA increased $6.7 million, or
56.1%, in 1997 as compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for the Company are cash flow from its
operations and borrowings available under the Company's credit facility. The
Company's Net Cash Provided by Operating Activities has increased significantly
over the past three years, from approximately $12.7 million in 1996; to
approximately $18.1 million in 1997; to approximately $28.7 million in 1998. The
increase in Net Cash Provided by Operating Activities in 1998 as compared to
1997 was primarily due to the consummation of the Consolidation Program in the
first quarter of 1998. In addition, the 4.0% increase in net operating income of
the Rental Properties in 1998 as compared to 1997 also contributed to an
increase in operating cash flow.
The other factors impacting the Company's cash flow in 1998, 1997 and 1996
are discussed in "Results of Operations" and "Financing and Debt Restructuring
of the Properties".
The Company anticipates that cash flow from its operations and borrowing
available under the Company's credit facility will be adequate to meet the
reasonably foreseeable capital and liquidity needs of the Company.
19
<PAGE> 22
The Company may seek additional capital sources through other debt or equity
sources for acquisitions or capital expenditures (SEE ITEM 1 -- "BUSINESS").
Shelf Registration
The Company had planned a public offering of 11 million Common Shares in
the first half of 1998. On May 21, 1998, the Company announced that it had
postponed the securities offering it had planned due to the current market
conditions for REIT securities. On June 2, 1998, the Company filed a shelf
registration statement with the SEC for the potential offering of up to 12.65
million Common Shares. The Company intends to undertake an offering under this
shelf registration depending upon market conditions and capital requirements.
The costs associated with the proposed offering have been deferred pending
potential share issuance under the shelf registration (SEE NOTE 1 OF NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS).
Credit Facility
On September 30, 1998, the Company entered into a Second Amended and
Restated Loan and Security Agreement with The Provident Bank. The amended
revolving credit facility ("Facility"), is for $40 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, 7.75% at
December 31, 1998, minus 1%. As of December 31, 1998 the outstanding balance
under the Facility was $29.8 million compared to $2.6 million at December 31,
1997. The increase in borrowings was due to the costs to acquire the 324 former
Unconsolidated Partnerships. The Company's term loan matures in March 2001 and
has a 7.25% fixed interest rate with monthly installments of principal and
interest of $139,435. As of December 31, 1998, the unpaid principal balance
outstanding on the term loan was approximately $3.4 million.
Capital Expenditures
The Company's non-Property related capital expenditures for 1998 amounted
to approximately $1.2 million funded from cash flow and borrowings under the
Facility. The Company anticipates that its capital needs in the future can be
satisfied out of cash flow from operations or the Facility. The Company is
continuing to upgrade its software and hardware systems in order to obtain
optimal efficiencies from technology. Capital Expenditures, combined with
Improvement and Replacement Expense was $17.1 million for the Rental Properties,
and $5.2 million for the Unconsolidated Partnerships during 1998. These costs
are funded from cash flow and maintenance escrow funds. In 1999 the Company
anticipates capital expenditures of $1.0 million for general administrative
purposes, approximately $10.0 million for Rental Properties and $2.0 million for
Unconsolidated Partnerships. A portion of the capital expenditures is part of a
capital improvement program the Company is planning for the entire Portfolio
(SEE ITEM 1 "BUSINESS" -- THE COMPANY'S BUSINESS AND OPERATING STRATEGIES).
Year 2000
The "Year 2000" problem is due to the fact that many computer systems only
use the last two digits to refer to a year. Therefore the computer systems do
not properly recognize a year that begins with "20" instead of "19". If not
corrected, computer applications could fail or provide erroneous results.
Prior to 1998, as part of the Company's normal cycle of enhancing and
upgrading hardware and implementing new software, Year 2000 compliance concerns
were addressed. As new equipment and software was acquired and installed,
testing and warranties as to Year 2000 compliance were obtained. Furthermore, in
1998, due to the magnitude of the Year 2000 issue a formal project team and plan
was developed to review, and, where appropriate, identify and test all systems
to ensure Year 2000 compliance for all critical systems utilized by the Company.
The Year 2000 plan will also assess the risks the Company may have related to
vendors' and service suppliers' failures to remediate their own Year 2000
issues. The Company anticipates completing Year
20
<PAGE> 23
2000 projects by September 1999, which is in advance of any anticipated impact
on its operating systems. The Company has surveyed all critical vendors and
service suppliers as to their Year 2000 readiness and is currently evaluating
their responses and potential impact to the Company. Contingency plans for Year
2000 failures for both internal and external vendors and service suppliers will
also be completed by September 1999.
21
<PAGE> 24
The following is the status of the Company's Year 2000 compliance as of
December 31, 1998. Systems of a critical nature have either been remedied or a
formal plan for resolution is in place. The following table summarizes the
status and plans for resolution for these systems. Areas are ordered by level of
risk (C = critical, H = high, M = medium, L = low) and compliance status.
<TABLE>
<CAPTION>
COMPLIANCE
CATEGORY PLATFORM/APPLICATION RISK STATUS ACTION PLAN DATE
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Hardware AS/400 C Compliant
- --------------------------------------------------------------------------------------------------------
Telephone Systems M Compliant
- --------------------------------------------------------------------------------------------------------
PCs M Undetermined Currently evaluating. April 1999
30% of systems
replaced.
- --------------------------------------------------------------------------------------------------------
Servers M Undetermined Currently evaluating. April 1999
- --------------------------------------------------------------------------------------------------------
Operating Systems AS/400 -OS/400 C Compliant
- --------------------------------------------------------------------------------------------------------
Network -- Novell 4.1 C Non-Compliant Upgrade software June 1999
- --------------------------------------------------------------------------------------------------------
Servers -- Microsoft N/T C Non-Compliant Upgrade software June 1999
- --------------------------------------------------------------------------------------------------------
Servers -- Citrix C Compliant
- --------------------------------------------------------------------------------------------------------
Software Midrange AS/400 -- (General Ledger, C Compliant
Accounts Payable)
- --------------------------------------------------------------------------------------------------------
AS/400 -- (Rent C Non-Compliant Project in-progress to June 1999
Receivables) upgrade. Formal Plan.
- --------------------------------------------------------------------------------------------------------
AS/400 -- (Fixed Assets) C Compliant New system installed
December 1998
- --------------------------------------------------------------------------------------------------------
AS/400 -- In-house L Non-Compliant Converting to external April 1999
(Investment Management) tax service
- --------------------------------------------------------------------------------------------------------
Software PCs Server -- (Payroll) C Compliant
- --------------------------------------------------------------------------------------------------------
Plant Building Security C Compliant
- --------------------------------------------------------------------------------------------------------
Air Conditioning M Compliant
- --------------------------------------------------------------------------------------------------------
</TABLE>
The costs associated with the Year 2000 compliance issue is currently
estimated in the range of $200,000 to $300,000 related to internal Year 2000
issues. As of December 31, 1998, the Company has not incurred any material costs
specifically related to the Year 2000 issue. Potential costs that may be
incurred due to external vendors and service provider Year 2000 failure can not
be determined at this time. The Company will fund Year 2000 costs from cash flow
from operations or borrowings under the credit Facility which the Company
believes is adequate to fund the Year 2000 costs.
The success of the Company's business is not closely tied to the operations
of any one manufacturer, vendor or supplier with the exception of utilities and
lenders as a group. Utilities and lenders could impact the operations of the
Company if they encountered significant Year 2000 problems. The Company is
awaiting responses from the utilities and lenders to determine their status
regarding Year 2000. The Company has been working with its working capital
lender in testing system interfaces for Year 2000 compliance. Although the
portfolio of Properties is spread across several utilities there is a
significant material concentration of Properties in Ohio and Florida such that
if the Year 2000 problem interrupted utility service to these Properties it
would have a significant impact on the financial condition and results of
operations of the Company. If any other manufacturers, vendors or service
providers, cease to conduct business due to Year 2000 related problems, the
Company expects to be able
22
<PAGE> 25
to contract with alternative providers without any material adverse effect on
the Company's financial condition or results of operations.
Because of the Company's broad resident base, its business success is not
closely tied to the collection of rents from any particular resident.
Accordingly, management believes that there should not be a material adverse
effect on the Company's financial condition and the results of operations if
residents became unable to pay rent due to Year 2000 related problems
encountered by residents' employers or banking institutions.
The Company anticipates completing all Year 2000 projects prior to any
anticipated impact on its operating systems and business operations. This
assumption is based on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued availability of
third party software and reliance on vendor and service provider assurances of
compliance with Year 2000 issues and other factors. There can no assurance that
these estimates will be achieved and actual results could differ materially from
those anticipated.
Quarterly Dividend
In 1998, the Company declared its first quarterly dividend, and has paid
dividends of $0.4325 per share for each of the quarters ending September 30,
1998 and December 31, 1998. The Company has instituted a policy of paying a
quarterly dividend approximately 15 days after the close of each calendar
quarter. The Company's dividend policy is subject to modification by the
Company's Board of Trustees.
Financing and Debt Restructuring of the Properties
In December 1998, the Company refinanced mortgages on 25 Rental Properties
and eight Unconsolidated Partnerships with non recourse mortgage debt. Mortgage
indebtedness on the 25 Rental Properties, with a contractual balance of
approximately $38.7 million and a Carrying Value of approximately $37.8 million,
was refinanced with mortgages bearing a fixed rate of interest of 7.6%, with 25
year amortization and ten year maturities. The refinanced mortgages had been
held pursuant to a mortgage purchase facility with a financial institution
wherein the lender agreed to purchase outstanding mortgage notes on certain of
the Properties.
A net extraordinary gain of approximately $631,000 resulted from the
mortgage debt refinancing and an insubstance foreclosure. The net gain is
comprised of a $1.0 million gain on the insubstance foreclosure, plus an
extraordinary gain of $1.7 million generated from debt discounts received from
the prior lenders to Rental Properties whose mortgage debt was refinanced. These
gains were offset by a $1.2 million loss due to prepayment penalties paid to the
former lenders and a loss of approximately $902,000 that arose from the
mortgages repaid from refinance proceeds at the contractual balance which
exceeded the Carrying Value of the mortgages.
The refinancing of the mortgage debt on eight Unconsolidated Partnerships
were on the same terms as the mortgages on the Rental Properties. The Company
received approximately $900,000 of excess proceeds from the refinancing as
repayment of advances and other amounts due to the Company from the
Unconsolidated Partnerships.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company earnings and cash flow are subject to fluctuations due to
changes in interest rates. The Company is exposed to changes in interest rates
primarily from its revolving credit facility, $29.8 million outstanding at
December 31, 1998, and variable rate mortgage debt aggregating $16.5 million on
certain Rental Properties at December 31, 1998. The Company currently does not
use interest rate derivative instruments to manage exposure to interest rate
changes.
Based upon the Company's fixed and variable rate indebtedness and weighted
average interest rates at December 31, 1998, a hypothetical ten percent or
approximately 80 basis points upward movement in market rates of interest would
adversely effect future earnings and cash flows by approximately $371,000. In
addition, such hypothetical increase in market rates of interest would result in
a decrease of approximately $30.6 million in the fair value of the Company's
fixed rate debt at December 31, 1998.
23
<PAGE> 26
These amounts were determined by only considering the impact of the
hypothetical change in rates of interest on the Company's current indebtedness.
Future changes in the capital markets could result in changes in the Company's
financial structure which currently are indeterminable. If such changes were
currently determinable the effects on the Company's earnings and cash flows
could be considerably different then the sensitivity effects described above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Documents filed as part of this report:
Financial Statements: The Audited Consolidated Balance Sheets of the
Company and Subsidiaries as of December 31, 1998 and 1997, and the
related Consolidated Statements of Income, Shareholders' Equity and
Cash Flows of the Company and Subsidiaries for the years ended
December 31, 1998, 1997 and 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Election of Trustees"
of the Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Officers and
Compensation" of the Company's Proxy Statement for the 1999 Annual
Meeting of Shareholders is incorporated herein by reference
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of
Certain Persons" of the Company's Proxy Statement for the 1999
Annual Meeting of Shareholders is incorporated herein by reference
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Relationships
and Related Transactions" of the Company's Proxy Statement for the
1999 Annual Meeting of Shareholders is incorporated herein by
reference
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Documents filed as part of this report:
(a) Consolidated Financial Statement Schedules: (See the financial
statement schedules listed on Index to Consolidated Financial
Statements and Financial Statement Schedules on Page F-1 of
this report).
(b) Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the fourth quarter of 1998.
24
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEQUENTIAL PAGE
--- ----------- ---------------
<C> <S> <C>
2.1 Third Amended Disclosure Statement Incorporated by reference to Exhibit 2.1
Pursuant to Section 1125 of Bankruptcy to the Company's Registration Statement
Code to Accompany the Plan of on Form 10 filed June, 1993 (the "Form
Reorganization of Jay Alix, Chapter 11 10")
Trustee for Cardinal Industries, Inc. and
its Substantively Consolidated
Subsidiaries and Third Amended Plan of
Reorganization of Jay Alix, Chapter 11
Trustee, for Cardinal Industries, Inc.
and its Substantively Consolidated
Subsidiaries
2.2 Findings of Fact, Conclusions of Law and Incorporated by reference to Exhibit 2.2
Order Confirming Third Amended Plan of to the Form 10
Reorganization of Jay Alix, Chapter 11
Trustee, for Cardinal Industries, Inc.
and its Substantively Consolidated
Subsidiaries
2.3 Representative form of consent Incorporated by reference to Exhibit 2.1
solicitation materials furnished to to the Company's Current Report on Form
holders of Outside Partner Interests in 8-K filed February 17, 1998 (the "2/98
connection with the Company's Plan of 8-K")
Consolidation of former Syndicated
Partnerships
2.4 Representative form of agreement and plan Incorporated by reference to Exhibit 2.2
of merger for acquisition of Outside to the 2/98 8-K
Partner Interests in former Syndicated
Partnerships
2.5 Representative form of notice of intent Incorporated by reference to Exhibit 2.3
to transfer to holders of Outside Partner to the 2/98 8-K
Interests in former Syndicated
Partnerships acquired without consent
solicitation requirement
3.1 Declaration of Trust ("Declaration") Incorporated by reference to Annex B to
the Company's Registration Statement on
Form S-4, Registration No. 333-44251 (the
"S-4 Registration Statement")
3.2 Articles of Amendment to the Declaration Filed as an Exhibit to this Form 10-K
dated January 30, 1998
3.3 Articles of Amendment to the Declaration Incorporated by reference to Exhibit 4.3
dated March 14, 1998 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March
31, 1998 (the "First Quarter 1998 10-Q")
3.4 By laws Incorporated by reference to Annex C to
S-4 Registration Statement
3.5 Agreement of Limited Partnership of Incorporated by reference to Exhibit 99.1
Lexford Properties, L.P. ("Operating to Amendment No. 1 to the Company's
Partnership") Registration Statement on Form S-3,
Registration No. 333-49269
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEQUENTIAL PAGE
--- ----------- ---------------
<C> <S> <C>
4.1 Form of Common Share Certificate Incorporated by reference to Exhibit 4.1
to the Company's Annual Report on Form
10-K for the Year Ended December 31, 1997
(the "1997 10-K")
10.1 Second Amended and Restated Loan and Filed as an Exhibit to this Form 10-K
Security Agreement, dated September 30,
1998, among The Provident Bank, the
Company and certain of the Company's
subsidiaries
10.2 Cognovit Promissory Note (Renewal Balance Filed as an Exhibit to this Form 10-K
Revolving Line of Credit) dated September
30, 1998 issued by the Company and its
material subsidiaries in favor of The
Provident Bank
10.3 Cognovit Promissory Note dated August 11, Incorporated by reference to Exhibit 10.4
1995 in the amount of $7,000,000 issued to the Company's Annual Report on Form
by the Company and certain of its 10-K for the Year Ended December 31, 1995
subsidiaries in favor of The Provident (the "1995 10-K")
Bank
10.4 Form of Management Agreement between Incorporated by reference to Exhibit
Lexford Properties, Inc. ("LPI") and 10.15 to the 1997 10-K
certain Unconsolidated Partnerships (as
revised August 1, 1996)
10.5 Form of Partnership Asset Management Incorporated by reference to Exhibit
Agreement, dated January 1, 1995 between 10.16 to the 1997 10-K
Cardinal Apartment Management Group, Inc.
(which was merged with and into the
Company) and certain Unconsolidated
Partnerships
10.6 Form of Extended Partnership Incorporated by reference to Exhibit
Administration Agreement, dated January 10.17 to the 1997 10-K
1, 1995 between Cardinal Apartment
Management Group, Inc. (which was merged
with and into the Company) and certain
Unconsolidated Partnerships
10.7 Form of Agreement for Tax Appeal Services Incorporated by reference to Exhibit
between the Company and certain 10.18 to the 1997 10-K
Unconsolidated Partnerships (as revised
February 1996)
10.8 Lease, dated February 24, 1998, between Incorporated by reference to Exhibit
the Company and Americana Investment 10.19 to the 1997 10-K
Company
10.9 Master Equipment Lease, dated September Incorporated by reference to Exhibit
30, 1996, between Alliance Leasing and 10.20 to the 1997 10-K
Services Group, Ltd. and the Company
10.10 Agreement and Plan of Merger by and among Incorporated by reference to Exhibit 10.1
the Company, Rexflor Acquisition to the Company's Quarterly Report on From
Corporation and LPI and the former 10-Q for the quarterly period ended June
shareholders of LPI dated as of July 19, 30, 1996 (the "Second Quarter 1996 Form
1996 10-Q")
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEQUENTIAL PAGE
--- ----------- ---------------
<C> <S> <C>
10.11 Agreement dated February 13, 1998 Filed as an Exhibit to this Form 10-K
(regarding vesting and release of
contingent shares) among the Company and
the former shareholders of LPI
10.12 Corporation Record of Proceedings of the Incorporated by reference to Exhibit 10.3
Incorporator, Shareholders and Directors to the First Quarter 1998 10-Q
of Lexford Property Management, Inc.
("LPM"), dated February 20, 1998
10.13 Stock Purchase Agreement, dated as of Incorporated by reference to Exhibit 10.4
April 1, 1998, among the Company, the to the First Quarter 1998 10-Q
common shareholders LPM, and the
purchasers of all of the common and
preferred shares of LPM and their
affiliates
10.14 Assignment dated November 30, 1998, from Filed as an Exhibit to this Form 10-K
Brentwood-Lexford Partners, LLC,
successor-in-interest to LPM, to the
Operating Partnership of the entire
members' interests in Lexford Guilford
GP, LLC and Lexford Guilford LP, LLC
10.15 Agreement of Severance and Mutual Release Incorporated by reference to Exhibit 10.2
dated as of July 1, 1998 between the to the Company's Quarterly Report on Form
Company and Patrick M. Holder 10-Q for the quarterly period ending June
30, 1998 (the "Second Quarter 1998 10-Q")
10.16 Agreement of Severance and Mutual Release Filed as an Exhibit to this Form 10-K
dated as of January 1, 1999 between the
Company and Annette Hoover
10.17 Agreement of Severance and Mutual Release Filed as an Exhibit to this Form 10-K
dated as of January 15, 1999 between the
Company and Mark Culwell
10.18 Agreement of Severance and Mutual Release Filed as an Exhibit to this Form 10-K
dated as of January 1, 1999 between the
Company and Peggy Crow Smith
10.19 1997 Performance Equity Plan of the Incorporated by reference to the
Company ("Performance Equity Plan") Company's Proxy Statement, dated August
28, 1997, for the Company's 1997 Annual
Shareholders Meeting
10.20 First Amendment to Performance Equity Filed as an Exhibit to this Form 10-K
Plan
10.21 Second Amendment to Performance Equity Filed as an Exhibit to this Form 10-K
Plan
10.22 Amended and Restated 1992 Incentive Incorporated by reference to Exhibit 4.3
Equity Plan of the Company (effective to the Company's Form S-8 Registration
November 30, 1995) Statement filed July 8, 1997,
Registration No. 333-30849 (the "1997
S-8")
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEQUENTIAL PAGE
--- ----------- ---------------
<C> <S> <C>
10.23 Form of Deferred Shares Agreement for Incorporated by reference to Exhibit
Employees of the Company 10.31 to the Form 10
10.24 Form of Restricted Shares Agreement for Incorporated by reference to Exhibit
Key Employees of the Company 10.32 to the Form 10
10.25 Form of Restricted Shares Agreement for Incorporated by reference to Exhibit
Executive Officers of the Company 10.33 to the Form 10
10.26 Form of Non-Qualified Stock Option Incorporated by reference to Exhibit
Agreement for Participants in Trustee's 10.33 to the Form 10
Employee Retention Plan
10.27 Form of Non-Qualified Stock Option Incorporated by reference to Exhibit
Agreement for Non-Employee Trustees 10.36 to the Form 10
10.28 Amended and Restated Savings Plan of the Incorporated by reference to Exhibit 4.3
Company to Cardinal Realty Services, Inc. Savings
Plan's Annual Report on Form 11-K for the
Plan Year Ended December 31, 1997
10.29 Non-Employee Trustee Restricted Stock Incorporated by reference to Exhibit A to
Plan the Company's Proxy Statement dated April
16, 1996, for the Company's 1996 Annual
Shareholders Meeting
10.30 Non-Employee Trustee Retirement Program Incorporated by reference to Exhibit 10.1
to Second Quarter 1998 10-Q
10.31 Amended and Restated Executive Deferred Filed as an Exhibit to this Form 10-K
Compensation Plan of the Company (the
"Executive Deferred Compensation Plan")
10.32 First Amendment to Executive Deferred Filed as an Amendment to this Form 10-K
Compensation Plan
10.33 Executive Deferred Compensation Rabbi Incorporated by reference to Exhibit 4.6
Trust Agreement, dated November 27, 1996, to the 1997 S-8
between the Company and the Provident
Bank, as Trustee (the "Rabbi Trust
Agreement")
10.34 First Amendment to Rabbi Trust Agreement Filed as an Exhibit to this Form 10-K
10.35 Employment Agreement dated as of December Incorporated by reference to Exhibit
1, 1995, as amended, between the Company 10.38 to the 1995 Form 10-K
and John B. Bartling, President and Chief
Executive Officer of the Company
("Bartling Employment Agreement")
10.36 Amendment to Employment and Award Incorporated by reference to Exhibit 4.8
Agreements, dated as of April 18, 1996, to the 1997 S-8
between the Company and John B. Bartling
10.37 Second Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.9
dated as of December 20, 1996, between to the 1997 S-8
the Company and John B. Bartling
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEQUENTIAL PAGE
--- ----------- ---------------
<C> <S> <C>
10.38 Third Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.10
dated as of January 1, 1997, between the to the 1997 S-8
Company and John B. Bartling
10.39 Letter Agreement dated December 1, 1998, Filed as an Exhibit to this Form 10-K
between the Company and John B. Bartling
extending Bartling Employment Agreement
10.40 Employment Agreement dated as of April 1, Incorporated by reference to Exhibit 4.11
1996, as amended, between the Company and to the 1997 Form S-8
Mark D. Thompson, Executive Vice
President and Chief Financial Officer of
the Company ("Thompson Employment
Agreement")
10.41 Amendment to Employment and Award Incorporated by reference to Exhibit 4.12
Agreements, dated as of April 18, 1996, to the 1997 S-8
between the Company and Mark D. Thompson
10.42 Second Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.13
dated as of December 20, 1996, between to the 1997 S-8
the Company and Mark D. Thompson
10.43 Third Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.14
dated as of January 1, 1997, between the to the 1997 S-8
Company and Mark D. Thompson
10.44 Letter Agreement dated April 1, 1998, Filed as an Exhibit to this Form 10-K
between the Company and Mark D. Thompson
extending Thompson Employment Agreement
10.45 Employment Agreement dated as of January Filed as an Exhibit to this Form 10-K
1, 1998 between the Company and Bradley
A. Van Auken, Senior Vice President,
General Counsel and Secretary of the
Company
10.46 Employment Agreement dated as of June 1, Incorporated by reference to Exhibit 4.27
1997, between the Company and Leslie B. to the 1997 Form S-8
Fox, Executive Vice President and Chief
Operating Officer of the Company
10.47 First Amendment to Employment Agreement, Filed as an Exhibit to this Form 10-K
dated January 1, 1998, between the
Company and Leslie B. Fox
11.1 Statement re: computation of per share See Index to Financial Information -Note
earnings 15 of Notes to Consolidated Financial
Statements
21.1 Subsidiaries of the Company Filed as an Exhibit to this Form 10-K
23.1 Consent of Ernst & Young LLP Filed as an Exhibit to this Form 10-K
27.1 Financial Data Schedule Filed as an Exhibit to this Form 10-K
</TABLE>
29
<PAGE> 32
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
LEXFORD RESIDENTIAL TRUST
(Registrant)
Date: March 23, 1999 By: /s/ JOHN B. BARTLING
------------------------------------
John B. Bartling
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH E. MADIGAN Chairman of the Board and Trustee March 23, 1999
- ------------------------------------------
Joseph E. Madigan
/s/ JOHN B. BARTLING President, Chief Executive Officer March 23, 1999
- ------------------------------------------ and Trustee
John B. Bartling
/s/ MARK D. THOMPSON Executive Vice President and March 23, 1999
- ------------------------------------------ Chief Financial Officer
Mark D. Thompson
/s/ RONALD P. KOEGLER Senior Vice President, Controller and March 23, 1999
- ------------------------------------------ Principal Accounting Officer
Ronald P. Koegler
/s/ GLENN C. POLLACK Trustee March 23, 1999
- ------------------------------------------
Glenn C. Pollack
/s/ H. JEFFREY SCHWARTZ Trustee March 23, 1999
- ------------------------------------------
H. Jeffrey Schwartz
/s/ ROBERT J. WEILER Trustee March 23, 1999
- ------------------------------------------
Robert J. Weiler
/s/ STANLEY R. FIMBERG Trustee March 23, 1999
- ------------------------------------------
Stanley R. Fimberg
</TABLE>
30
<PAGE> 33
LEXFORD RESIDENTIAL TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997... F-3
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-6 - F-7
Notes to Consolidated Financial Statements.................. F-8 - F-30
Consolidated Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts....... F-31
Schedule III -- Real Estate and Accumulated
Depreciation.......................................... F-32 - F-48
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable, or the information required is included
in the Consolidated Financial Statements or notes thereto and therefore have
been omitted.
F-1
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Trustees
Lexford Residential Trust
We have audited the accompanying consolidated balance sheets of Lexford
Residential Trust as of December 31, 1998 and 1997 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lexford
Residential Trust at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Columbus, Ohio
January 27, 1999
F-2
<PAGE> 35
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Rental Properties (Notes 2 and 5):
Land...................................................... $ 59,732 $ 23,124
Buildings, Improvements and Fixtures...................... 544,897 138,245
-------- --------
Accumulated Depreciation.................................. (28,564) (9,152)
-------- --------
576,065 152,217
Investments in and Advances to Unconsolidated Partnerships,
Net of an allowance of $1,615 and $2,605 at December 31,
1998 and 1997, respectively (Notes 3 and 13).............. 11,173 54,653
Cash........................................................ 495 2,569
Accounts Receivable, Affiliates, Residents, Officers and
Others, Net of an allowance of $550 and $942 at December
31, 1998 and 1997, respectively (Note 13)................. 1,920 4,899
Furniture, Fixtures and Other, Net of accumulated
depreciation of $3,109 and $2,491 at December 31, 1998 and
1997, respectively........................................ 2,108 1,720
Funds Held in Escrow........................................ 22,747 11,888
Intangible Assets........................................... 6,891 11,659
Prepaids and Other.......................................... 7,523 1,993
-------- --------
$628,922 $241,598
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages and Revolving/Term Debt
Non Recourse Mortgages (Note 5)........................... $494,556 $142,637
Revolving/Term Debt (Note 4).............................. 33,186 7,362
-------- --------
527,742 149,999
-------- --------
Accounts Payable............................................ 1,389 1,288
Accrued Interest, Real Estate and Other Taxes............... 10,315 3,719
Other Accrued Expenses...................................... 6,196 8,241
Other Liabilities........................................... 7,451 3,504
Dividends Payable........................................... 4,122 --
Deferred Compensation (Note 8).............................. 12,525 --
-------- --------
Total Liabilities...................................... 569,740 166,751
-------- --------
Commitments and Contingencies (Notes 8, 9, 11)
Shareholders' Equity (Notes 8 and 15):
Preferred Shares, 5,000,000 Shares Authorized, Unissued... -- --
Common Shares, $.01 par value, 50,000,000 Shares
Authorized, 9,530,013 and 8,493,648 Shares Issued and
Outstanding at December 31, 1998 and 1997,
respectively........................................... 95 85
Additional Paid-in Capital.................................. 65,833 54,138
Retained Earnings........................................... 7,482 20,624
Less Cost of Treasury Shares (Note 8)....................... (14,228) --
-------- --------
59,182 74,847
-------- --------
$628,922 $241,598
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 36
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Rental and Other Property Revenues........................ $137,948 $41,851 $41,277
Fee Based, primarily from Affiliates (Note 13)............ 5,532 16,517 14,143
Income from Unconsolidated Partnerships (Note 13)......... 3,025 10,681 8,897
-------- ------- -------
146,505 69,049 64,317
-------- ------- -------
Expenses:
Property Operating and Maintenance........................ 45,453 12,554 14,064
Real Estate Taxes and Insurance........................... 11,359 4,060 4,148
Property Management....................................... 12,505 15,892 12,263
Administration............................................ 6,287 4,895 5,031
Performance Equity Plan (Note 8).......................... 2,488 6,280 --
Non-recurring Costs (Note 10)............................. 2,685 828 243
Interest -- Non Recourse Mortgages (Note 5)............... 41,268 13,770 14,132
Interest -- Revolving/Term Debt (Note 4).................. 1,656 657 1,098
Depreciation and Amortization............................. 21,520 6,527 5,515
Real Estate Impairment Loss (Note 7)...................... 1,014 -- --
Loss on Sale of Third Party Management Business (Note
6)..................................................... 6,300 -- --
-------- ------- -------
152,535 65,463 56,494
-------- ------- -------
Income/(Loss) Before Gain on Disposal of Assets, Income
Taxes and Extraordinary Item.............................. (6,030) 3,586 7,823
Provision for Income Taxes (Note 9)....................... -- (2,189) (3,416)
Gain on Disposal of Assets -- Net......................... 498 1,989 963
-------- ------- -------
Income/(Loss) Before Extraordinary Item................... (5,532) 3,386 5,370
Extraordinary Gain/(Loss), Net of Income Tax Benefit of
$115 in 1997 and $1,015 in 1996, respectively (Note
7)..................................................... 631 (180) (1,614)
-------- ------- -------
Net Income/(Loss)........................................... $ (4,901) $ 3,206 $ 3,756
======== ======= =======
Basic Earnings Per Share:
Income/(Loss) before Extraordinary Item................... $ (0.60) $ 0.42 $ 0.71
Extraordinary Item........................................ 0.07 (0.02) (0.21)
======== ======= =======
Net Income/(Loss)......................................... $ (0.53) $ 0.40 $ 0.50
======== ======= =======
Diluted Earnings Per Share:
Income/(Loss) before Extraordinary Item................... $ (0.60) $ 0.41 $ 0.69
Extraordinary Item........................................ 0.07 (0.02) (0.21)
-------- ------- -------
Net Income/(Loss)......................................... $ (0.53) $ 0.39 $ 0.48
======== ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 37
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
LESS
COMMON SHARES ADDL. COST OF
--------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS SHARES TOTAL
------ ------ -------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996......................... 7,206 $ 72 $37,512 $13,662 -- $51,246
Shares issued in 1996, in connection with the
claims resolution process...................... 13
Shares issued in connection with Lexford
Acquisition, Net of Contingent Shares (Note
6)............................................. 500 5 4,995 5,000
Exercise of options under Non-Qualified Stock
Option Plan (Note 8)........................... 69 1 61 62
Restricted stock compensation awards and
Director Restricted Stock Plan (Note 8)........ 32 325 325
Less: Treasury Shares primarily from the
redemption of stock held by
Unconsolidated Partnerships.............. (3) (31) (31)
Credit from utilization of pre-confirmation tax
benefits (Note 9).............................. 2,151 2,151
Net Income for the year ended December 31,
1996........................................... 3,756 3,756
----- ------ ------- ------- -------- -------
Balance, December 31, 1996....................... 7,817 78 45,013 17,418 62,509
Shares issued in 1997, in connection with the
claims resolution process...................... 22 1 1
Exercise of options under Non-Qualified Stock
Option Plan (Note 8)........................... 18 37 37
Stock Compensation and Director Restricted
Stock Plan, Net of Shares subject to Vesting
Restrictions (Note 8).......................... 636 6 7,394 7,400
Credits from utilization of pre-confirmation
tax benefits (Note 9).......................... 1,694 1,694
Net Income for the year ended December 31,
1997........................................... 3,206 3,206
----- ------ ------- ------- -------- -------
Balance, December 31, 1997....................... 8,493 85 54,138 20,624 -- 74,847
Contingent Shares Issued in Connection with
Lexford Properties Acquisition Released in
Exchange for Forfeiture of Balance of Unvested
Shares (Note 6)................................ 300 3 2,997 3,000
Exercise of Options Under Non-Qualified Stock
Option Plan.................................... 305 3 1,824 1,827
Retiring Trustees and Employee Net Withdrawal
From Rabbi Trust............................... 583 583
Reinvestment of Dividends by Rabbi Trust....... (114) (114)
Adjust for Shares Held in Rabbi Trust at
December 31, 1997.............................. 276 3 4,168 (12,091) (7,920)
1998 Share Compensation, Primarily Issued to
Rabbi Trust (Note 8)........................... 156 1 2,706 (2,606) 101
Dividends to Common Shareholders (Note 15)..... (8,241) (8,241)
Net Loss for the year ended December 31,
1998........................................... (4,901) (4,901)
----- ------ ------- ------- -------- -------
Balance, December 31, 1998....................... 9,530 $ 95 $65,833 $ 7,482 $(14,228) $59,182
===== ====== ======= ======= ======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 38
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from Operating activities:
Net Income/(Loss)......................................... $ (4,901) $ 3,206 $ 3,756
Adjustments to Reconcile Net Income/(Loss) to Net Cash
provided by Operating Activities:
Depreciation........................................... 20,146 5,426 5,111
Amortization........................................... 1,374 1,101 403
Provision for Losses on Accounts Receivable............ 1,670 389 503
Loss on Sale of Third Party Management Business........ 6,300 -- --
Real Estate Impairment Loss............................ 1,014 -- --
Gain from Disposal of Assets -- Net.................... (498) (1,989) (963)
Extraordinary (Gain)/Loss.............................. (631) 295 2,629
Provision for Income Taxes credited to Additional
Paid-in Capital...................................... -- 1,694 2,151
Non-Cash Share Compensation............................ 5,099 7,400 326
Changes in Operating Assets and Liabilities:
Investments in and Advances to Unconsolidated
Partnerships......................................... 1,278 1,950 (94)
Accounts Receivable and Other.......................... (2,704) (339) (4,339)
Funds Held in Escrow................................... 6,072 1,832 (4,857)
Accounts Payable and Other Liabilities................. (5,474) (2,880) 8,082
-------- -------- --------
Net Cash provided by Operating activities................... 28,745 18,085 12,708
-------- -------- --------
Cash flows from Investing activities:
Proceeds from Sale of Assets and Other................. 1,070 3,161 975
Receipts From/(Advances to) Unconsolidated
Partnerships -- Net.................................. 128 (992) (2,557)
Investments in Unconsolidated Partnerships/Joint
Ventures............................................. (3,405) (2,239) --
Purchase of 324 Unconsolidated Partnerships, Net of
Cash Acquired........................................ (25,506) -- --
Investment in Management Contracts..................... -- (4,158) --
Capitalized Refinancing Costs.......................... (1,119) -- (1,687)
Capital Expenditures -- Real Estate.................... (14,276) (2,386) (682)
Capital Expenditures -- Other.......................... (1,209) (1,192) (423)
-------- -------- --------
Net Cash used in Investing activities....................... (44,317) (7,806) (4,374)
-------- -------- --------
Cash Flows from Financing activities:
Proceeds from the exercise of Stock Options............ 1,827 38 61
Redemption of Stock held by Unconsolidated
Partnerships......................................... -- -- (31)
Proceeds from Revolving Debt -- Net.................... 27,228 -- --
Principal payments on Revolving/Term Debt and Other.... (1,403) (8,036) (7,052)
Proceeds from Mortgage Debt............................ 37,930 7,429 47,443
Payments on Mortgages -- principal amortization........ (6,835) (2,125) (2,139)
Payments on Mortgages -- lump sum...................... (41,130) (8,609) (45,775)
Dividends Paid......................................... (4,119) -- --
-------- -------- --------
Net Cash provided by/(used in) Financing activities......... 13,498 (11,303) (7,493)
-------- -------- --------
Increase/(Decrease) in Cash................................. (2,074) (1,024) 841
Cash at Beginning of Year................................... 2,569 3,593 2,752
-------- -------- --------
Cash at End of Year......................................... $ 495 $ 2,569 $ 3,593
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash Payments for Interest............................. $ 42,286 $ 14,173 $ 14,665
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 39
LEXFORD RESIDENTIAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands, Except Per Share Data)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1998, the Company acquired the entire ownership interest in 324
Unconsolidated Partnerships owning 326 apartment communities. Such acquisitions
resulted in the following increases (decreases) to the Company's balance sheet
(see Note 2):
<TABLE>
<S> <C>
Non-Cash Effects:
Investments in and Advances to Unconsolidated
Partnerships........................................... $ (47,335)
Land and Building......................................... $ 430,981
Accounts Receivable and Other Assets...................... $ 19,409
Mortgages................................................. $ 362,610
Accounts Payable and Other Liabilities.................... $ 14,939
Cash Effects:
Cash Paid to Former Partners.............................. $ (33,902)
Net Cash Acquired......................................... 8,396
---------
$ (25,506)
=========
</TABLE>
Effective August 1, 1996, the Company acquired Lexford Properties, Inc. through
a merger with a wholly owned subsidiary of the Company. The Company issued
1,400,000 Common Shares (valued at $14 million) in consideration of the
acquisition; however, 900,000 of the shares issued (valued at $9 million) were
subject to forfeiture, in whole or in part, if the Company's combined property
management operations fail to achieve certain profitability criteria on or
before the end of the Company's 1999 fiscal year (see Note 6).
On March 13, 1998, the Company negotiated a settlement with the former
shareholders of Lexford Properties, Inc. whereby 300,000 out of an aggregate of
900,000 of the Company's Common Shares subject to forfeiture, per the terms of
the merger agreement dated August 1, 1996 were released to such former
shareholders in exchange for the forfeiture of the remaining 600,000 shares (see
Note 6).
In the fourth quarter of 1998, the Company consented to an insubstance
foreclosure to the mortgagee for one Rental Property. The Rental Property had an
aggregate carrying value, net of a fourth quarter impairment loss of $1.0
million, of approximately $768,000. A $1.0 million extraordinary gain was
recognized on the transaction (see Note 7).
In 1996, the Company granted deeds in lieu of foreclosure to the mortgagee for
three Rental Properties. The Rental Properties had an aggregate carrying value
of $3.9 million. No significant gain or loss was recognized on this transaction
because the assets and the non-recourse mortgages on each of these Rental
Properties had been recorded in equal amounts.
In October 1997, the Company sold two Rental Properties. The buyer assumed the
mortgages with a carrying value of $2.3 million. No gain or loss was recognized
in this transaction.
In 1998, 1997 and 1996, all interest incurred was expensed.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE> 40
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
In December 1997, Lexford, Inc. announced that it would seek to
qualify and elect to be taxed as a real estate investment trust
("REIT") for Federal income tax purposes in 1998. The Company intends
to continue to qualify as such, and therefore will distribute at least
95% of its real estate investment trust taxable income to its
shareholders. 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 corporations, limited partnerships and other legal
entities which own multifamily apartment communities (the "Rental
Properties") in which the Company, in turn, owns 100% equity
interests. The Company also holds equity ownership as well as, in
certain cases, significant economic interests in multifamily apartment
communities in its capacity as general partner and property manager,
respectively, in various limited partnerships (the "Unconsolidated
Partnerships"), which are accounted for by the equity method. The
Rental Properties and the Unconsolidated Partnerships are collectively
referred to as the "Properties". The Company's general partner
interests in the Unconsolidated Partnerships range from a 1.0% to
10.0% undivided equity interest, typically a 9.0% to 10.0% interest.
The limited partnership interests in the Unconsolidated Partnerships
are substantially all owned by unrelated third party investors. The
Company's receivables, typically in the form of second mortgages, from
the Unconsolidated Partnerships generate a majority of the Income from
Unconsolidated Partnerships recognized by the Company (see Note 13).
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS No. 131") which was effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 superseded
Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of an Enterprise". SFAS No. 131 establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in financial reports. SFAS No. 131 also establishes
standards for related disclosure about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131
did not affect results of operations or financial position of the
Company.
The Company has one reportable segment which is the ownership and
operation of residential apartment communities. The majority of the
Properties are located in the midwest and southeast United States,
with the heaviest concentrations in Florida, Ohio, Georgia, Indiana,
Michigan and Kentucky. The concentrations of Properties within these
states is as follows: Ohio (136 Properties), Florida (126 Properties),
Georgia (73 Properties), Indiana (70 Properties), Kentucky (33
Properties) and Michigan (25 Properties). These concentrations of
Properties accounted for 22.9%, 25.2%, 15.8%, 13.7%, 5.9%, and 6.1%,
respectively, or in the aggregate approximately 90% of the Company's
total revenues for the year ended December 31, 1998. The Company is
not dependent for its revenues on any particular Property or resident
and the loss of any Property would not be material to the Company's
financial position. The Company's largest Property accounted for only
1% of the Company's total revenues for the year ended December 31,
1998. The distribution of the
F-8
<PAGE> 41
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Properties also minimizes the Company's exposure to local economic
conditions. The typical Property is comprised of multiple single story
buildings with studio, one and two bedroom apartments. Substantially
all of the Properties have non-recourse first mortgage indebtedness
which is owed to financial institutions or to REMICs or other vehicles
holding such indebtedness for the benefit of others.
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 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 (see Note 6).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of FASB
Statement No. 107, "Disclosure About Fair Value of Financial
Instruments". The fair value of Cash and Funds Held in Escrow is equal
to their respective carrying amounts. For Investments in and Advances
to Unconsolidated Partnerships, the Company applied a capitalization
rate to each Property's net operating income, less a major maintenance
reserve, to estimate the value at December 31, 1998 and 1997, which
value approximated $22.5 million and $140.3 million, respectively.
This valuation methodology is generally based on estimates of the fair
market value of the apartment communities owned by the Unconsolidated
Partnerships, less related indebtedness senior to the Company's
investments and advances. The Investments in and Advances to
Unconsolidated Partnerships consist substantially of second mortgage
loans receivable, whose ultimate repayment is subject to a number of
variables, including the performance and value of the underlying real
property and the ultimate timing of repayments and receivables.
Considerable judgment is required in the interpretation of market data
to develop estimates of fair value, and accordingly, the estimates are
not necessarily indicative of the amounts that could be realized or
would be paid in a current market exchange. The effect of using
different market assumptions and/or estimation methodologies may be
material to the estimated fair value amounts (see Note 3). In 1998,
the Company acquired the third party equity interest in 324 former
Unconsolidated Partnerships, which resulted in the significant
decrease in Investments in and Advances to Unconsolidated Partnerships
(see Note 2).
The carrying values of the amounts comprising the Company's
Revolving/Term Debt as described in Note 4 approximate their fair
value based upon the Company's current borrowing rates for similar
types of borrowing arrangements. The carrying amount of accrued
interest approximates its fair value.
F-9
<PAGE> 42
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
As further described in Note 5, at December 31, 1998 mortgages on the
Company's Rental Properties in the amount of $494.6 million had
contractual balances totaling $500.7 million (resulting in an
aggregate Mortgage Deficiency of $6.1 million). Interest rates on the
mortgages ranged from 6.0% to 10.7% with rates being fixed on
approximately $484.2 million of the contractual balances. The fair
value of the Company's mortgage debt on Rental Properties as described
in Note 5, is estimated at $531.1 million at December 31, 1998. The
fair values of the Company's long-term debt are estimated using
discounted cash flow analyses, based upon the Company's current
incremental borrowing rates for similar types of borrowing
arrangements. The Carrying amount of mortgages on the Rental
Properties as of December 31, 1997 approximated their fair value.
Basis of Presentation
The consolidated financial statements include the accounts of Lexford
Residential Trust and its wholly owned subsidiaries, and all entities
in which the Company has majority interest or control. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Reclassifications
Certain amounts in the 1996 and 1997 Consolidated Financial Statements
have been reclassified to conform to the 1998 presentation.
Investments in and Advances to Unconsolidated Partnerships
Investments in and Advances to Unconsolidated Partnerships represent
the Company's general partners' interests in and advances to
non-controlled partnerships which own multi-family apartment
communities. 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. 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 and, as described in Note 3, the contractual amounts of the
receivables are significantly more than the recorded amounts. These
receivables generally include long-term second mortgages and other
receivables. In addition, subsequent to the Effective Date, the
Company has made advances to the Unconsolidated Partnerships. These
advances primarily relate to operating needs and supplemental funding
for refinancing transactions, and bear interest at prime plus one
percent. Interest is accrued on the recorded values of the second
mortgages and certain of the other receivables based upon contractual
interest rates, and allowances are provided for estimated
uncollectible interest based upon the underlying Properties' net cash
flows. In certain instances, cash flow received in excess of accrued
second mortgage interest on the recorded values of the second
mortgages is recorded as income. The Company is also entitled to
receive incentive management fees and supplemental second mortgage
interest based upon certain levels of cash flows of certain of the
underlying Properties. Also, in the event the underlying Properties
are sold or refinanced, the Company is generally entitled to a
participation interest in the net proceeds, as a general partner
and/or a second mortgage holder. The realization of the Investments in
and Advances to Unconsolidated Partnerships is dependent on the future
operating performance of the Unconsolidated Partnerships.
F-10
<PAGE> 43
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Prior to November 1, 1997, the Company accounted for its investments
by the cost method. Effective November 1, 1997, based on the Company's
board of directors' decision to seek to acquire ownership of third
party equity interests in substantially all of the Unconsolidated
Partnerships (see Note 2), the Company began accounting for its
investments by the equity method. The Company's share of net income or
loss of the Unconsolidated Partnerships is classified with Income from
Unconsolidated Partnerships in the Consolidated Statements of Income
(see Notes 3 and 13).
Real Estate and Depreciation
Ordinary repairs and maintenance costs are expensed as incurred.
Significant improvements, renovations and replacements related to the
acquisition and improvement of real estate assets are capitalized at
cost.
Real estate assets are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and Improvements........................ 5 - 34 years
Furniture, Fixtures and Equipment................. 3 - 10 years
</TABLE>
Management reviews the carrying value of real estate assets using
estimated future cash flows, including estimated proceeds from
disposition, whenever an event or change in circumstances indicates
that the asset value may not be recoverable.
Funds Held in Escrow
The amounts at December 31, 1998 and 1997 include funds of $22.7
million and $6.7 million, respectively, escrowed by Rental Properties
for improvements and deferred maintenance, real estate taxes,
insurance, resident security deposits and other funds held by mortgage
lenders. In addition, the Company was holding $2.0 million, at
December 31, 1997, as funds held primarily for payment of insurance
premiums which are collected from the Properties. In the second
quarter of 1998, with the completion of the Consolidation Plan, (see
Note 2), this voluntarily restricted cash account was closed when the
Company revised its cash management system to ensure that all
available unrestricted cash is applied to the Company's revolving
credit facility.
At December 31, 1998 and 1997 the Company's Funds Held in Escrow also
includes approximately $58,000 and $3.2 million, respectively, of
funds received from the settlement of litigation brought against the
Company's former insurance carriers to prosecute policy claims for
termite infestation losses at certain of the Properties. As a result
of the settlement of such litigation (see Note 11), the majority of
the funds have been distributed to the affected Properties and are
being used to fund termite repairs.
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Intangible Assets
Intangible Assets at December 31, 1998 and 1997 is comprised of
approximately $3.0 million and $5.2 million, respectively, of
management contracts and approximately $481,000 and $3.6 million,
F-11
<PAGE> 44
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
respectively, of goodwill related to the trade name, training programs
and property management systems retained from the Third Party
Management Business (see Note 6). The management contracts and
goodwill are amortized on the straight line basis over seven and ten
years, respectively, and are net of accumulated amortization of
approximately $592,000 and $817,000, at December 31, 1998 and 1997,
respectively.
Intangible Assets also includes deferred financing costs at December
31, 1998 and 1997 of $3.3 million and $2.5 million, respectively. The
costs relate to mortgage refinancings on the Rental Properties and are
amortized over the terms of the respective loans.
Prepaids and Other Assets
Prepaids and Other assets at December 31, 1998 and 1997 is primarily
comprised of approximately $3.6 million and $808,000, respectively, of
deferred offering costs related to the Company's Form S-3 "shelf"
registration statement filed with the SEC , approximately $700,000 of
start-up costs related to the Company's conversion to a REIT and a
$1.8 million note receivable at December 31, 1998 related to the sale
of the Third Party Management Business (see Note 6). In addition,
Prepaids and Other assets at December 31, 1998 and 1997 consists of
approximately $895,000 and $567,000, respectively, of prepaid rent,
insurance and real estate taxes, and approximately $461,000 and
$618,000, respectively, of utility deposits and other prepaid
expenses.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, Reporting the Costs of
Start-up Activities. The SOP is effective beginning on January 1,
1999, and requires that start-up costs capitalized prior to January 1,
1999 be written-off and requires that start-up costs be expensed as
incurred. The definition of start-up costs under the SOP includes
organizational costs. Historically, the Company capitalized and then
amortized these costs over five years. The unamortized balance of
organizational costs, approximately $700,000 (as of December 31,
1998), will be written off as a cumulative effect of an accounting
change as of January 1, 1999.
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 apartment communities owned
by Unconsolidated Partnerships ("the Consolidation Plan"). In the
first quarter of 1998, the Company 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.
Effective as of April 1, 1998, the Company acquired the entire equity
ownership interest in an additional 37 Unconsolidated Partnerships
that owned 39 Properties, which were accounted for under the equity
method in the first quarter of 1998. In connection with the
Consolidation Plan, the Company made cash payments totaling $33.9
million to the former partners of the 324 former Unconsolidated
Partnerships, which are now classified as Rental Properties.
The acquisition of the 324 former Unconsolidated Partnerships was
accounted for under the purchase method. The purchase price of $443.8
million was comprised of $33.9 million to purchase former third party
limited partners' equity interests, $47.3 million of carrying value of
investments
F-12
<PAGE> 45
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 2: PROPERTY ACQUISITIONS (cont'd)
in and advances to the 324 former Unconsolidated Partnerships and the
assumption of $362.6 million of non-recourse mortgage debt on the
acquired Rental Properties (see Note 14).
NOTE 3: INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS
The Company has direct and indirect general and limited partnership
interests in, and receivables from, 79 Unconsolidated Partnerships at
December 31, 1998 compared with 408 and 406 Unconsolidated
Partnerships at December 31, 1997 and 1996, respectively. The decrease
in the number of Unconsolidated Partnerships is primarily due to the
Company acquiring the entire ownership interest in 324 former
Unconsolidated Partnerships that owned 326 Properties (see Note 2).
Therefore, financial information pertaining to prior periods is not
comparable.
Investments in and Advances to Unconsolidated Partnerships, net of
allowances of $1.6 million and $2.6 million, at December 31, 1998 and
1997, respectively, are comprised of the following major components
(in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Second Mortgage Notes....................................... $ 4,725 $35,778
Investments in Unconsolidated Partnerships and joint
venture................................................... 4,241 937
Other, including advances and accrued interest.............. 2,207 17,938
------- -------
$11,173 $54,653
======= =======
</TABLE>
The majority of the second mortgage notes bear interest at 6%.
Interest income is accrued based upon the Fresh Start value of the
second mortgage notes. Advances currently bear interest at prime plus
1%. At December 31, 1998 and 1997, the contractual obligations of the
Unconsolidated Partnerships on account of second mortgages, advances
and other payables, including related interest, aggregated $37.5
million and $232.5 million, respectively. Amounts due under second
mortgages are collaterialized by substantially all the real estate
assets of the Unconsolidated Partnerships and are subordinate to the
first mortgage debt. There can be no assurance that the Company will
collect the full carrying value of, or any additional contractual
balances owing under, these receivables.
In the first quarter of 1998, the Company invested $3.4 million in a
joint venture with a developer for the construction of an apartment
community, consisting of 276 units. Such investment is accounted for
under the equity method. Neither the joint venture nor the apartment
units under construction are included in the numbers reported for
Unconsolidated Partnerships and Properties. The community is scheduled
to commence leasing in the first quarter of 1999.
The following table provides selected combined financial information
for the Company's Unconsolidated Partnerships as of and for the years
ended December 31, 1998, 1997 and 1996 (in
F-13
<PAGE> 46
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 3: INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS (cont'd)
thousands). The presentation does not include data for 15
Unconsolidated Partnerships for 1997 and 1996 due to the Company
making its initial investment in December 1997.
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Real Estate Assets, Net....................... $132,562 $ 394,138 $ 413,430
Cash, Funds Held in Escrow and Resident
Receivables................................. 7,272 32,117 35,822
Other Assets.................................. 3,915 12,721 14,651
-------- --------- ---------
Total Assets............................. $143,749 $ 438,976 $ 463,903
Non Recourse Mortgage Debt.................... $130,829 $ 437,236 $ 456,927
Other Liabilities............................. 6,143 21,614 25,175
Amounts Due to the Company.................... 37,535 232,511 238,677
-------- --------- ---------
$174,507 $ 691,361 $ 720,779
-------- --------- ---------
Net Deficit................................. $(30,758) $(252,385) $(256,876)
======== ========= =========
Rental and Other Revenues..................... $ 36,117 $ 123,922 $ 122,712
======== ========= =========
Net Loss...................................... $ (1,445) $ (5,019) $ (13,733)
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Company's Share of Loss (Equity Method) for the Year Ended
December 31, 1998 and the period November 1 through
December 31, 1997 (in thousands).......................... $(157) $(81)
===== ====
</TABLE>
Prior to November 1, 1997 and during 1996 the Company's share of loss
relating to its investment in Unconsolidated Partnerships was not
recorded because the Company accounted for the investment under the
cost method (see Note 1).
NOTE 4: REVOLVING/TERM DEBT
Revolving/Term Debt consisted of the following at December 31, 1998
and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Second Amended and Restated Revolving Credit Facility
principal payable March 30, 2000; interest payable monthly
in arrears at prime minus 1% (6.75% at December 31,
1998)..................................................... $29,800 $2,572
Acquisition Term Debt -- principal and interest in monthly
installments of $139,435 through March 31, 2001; interest
at a fixed rate of 7.25%.................................. 3,362 4,733
Other notes payable......................................... 24 57
------- ------
$33,186 $7,362
======= ======
</TABLE>
On September 30, 1998, the Company entered into the Second Amended and
Restated Loan and Security Agreement with The Provident Bank (the
"Bank"). The amended revolving credit facility ("Facility") is for $40
million and represents an increase to and replacement of all former
revolving credit facilities with 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
F-14
<PAGE> 47
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 4: REVOLVING/TERM DEBT (cont'd)
outstanding under the Facility bear interest at a variable interest
rate equal to the Bank's prime rate of interest minus 1%.
The Company's loan agreements contain restrictive covenants, including
but not limited to, the maintenance of certain net worth, financial
ratios, certain restrictions on incurrence of additional debt and
certain restrictions on acquisitions.
As of December 31, 1998, the Company's annual revolving/term debt
maturities are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................ $ 1,502
2000................................................ 31,389
2001................................................ 295
-------
$33,186
=======
</TABLE>
NOTE 5: NON RECOURSE MORTGAGES
The Company adopted a method of accounting referred to as Fresh Start
reporting as of the Effective Date, as a result of the Company's
judicial Plan of Reorganization. The Company prepared financial
statements on the basis that a new reporting entity was created with
assets and liabilities recorded at the estimated fair values as of the
Effective Date. At the Effective Date, to the extent the non-recourse
debt secured by a Rental Property exceeded the estimated fair value of
such 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. The contractual principal balances of the
mortgages on Rental Properties exceed the carrying values by $6.1
million and $7.7 million at December 31, 1998 and 1997, respectively.
The mortgages are non recourse, are payable over periods through 2031,
and are collaterialized by the Rental Properties, generally on a
single Rental Property by Rental Property basis. Although, a portfolio
of mortgages on 26 Rental Properties are cross-collateralized and
cross-defaulted and another portfolio of 25 Rental Properties are
cross-collateralized and cross-defaulted within their respective
states, with no more than eight Properties in one state. At December
31, 1998 contractual interest rates ranged from 6.0% to 10.7% with
fixed rates on approximately $484.2 million of the outstanding
contractual mortgage balances. The weighted average contractual
interest rate and term to maturity on the mortgages on Rental
Properties, was 8.52% and 5.8 years at December 31, 1998. The annual
debt service requirement was $50.3 million at December 31, 1998. In
addition, 31 Rental Properties have second mortgage debt totaling $3.2
million at December 31, 1998, that requires the application of all
excess cash flow from operations to be applied to the outstanding
principal on such debt.
F-15
<PAGE> 48
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 5: NON RECOURSE MORTGAGES (cont'd)
The range of interest rates and related carrying amounts of mortgages
payable at December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACTUAL CARRYING
CONTRACTUAL RATE BALANCE VALUE
---------------- ----------- --------
<S> <C> <C>
Less than 8.0%......................... $ 92,924 $ 91,953
8.01% -- 9.0%.......................... 383,776 379,792
More than 9.01%........................ 23,988 22,811
-------- --------
$500,688 $494,556
======== ========
</TABLE>
At December 31, 1998, seven Rental Properties had first mortgage loans
which had matured with an aggregate outstanding balance of $6.9
million. The Mortgage debt on one Rental Property amounting to
approximately $562,000 was refinanced in January 1999. The Company
anticipates extending or refinancing the balance of the matured
mortgages in 1999.
At December 31, 1998, 11 Rental Properties acquired as part of the
Consolidation Plan had non recourse second mortgages which in the
aggregate total $3.1 million, of which $1.0 million had matured. All
of the notes bear a fixed rate of interest at 6.0%, do not require any
principal amortization and are subordinate to the first mortgage on
the Rental Property. The Company anticipates extending the matured
second mortgages.
Minimum estimated repayment requirements of mortgages for the next
five years based upon the contractual principal balances are as
follows ( in thousands):
<TABLE>
<CAPTION>
CONTRACTUAL
AMOUNT
-----------
<S> <C>
1999............................................. $ 36,645
2000............................................. 20,060
2001............................................. 114,054
2002............................................. 13,072
2003............................................. 16,606
Thereafter....................................... 300,251
--------
$500,688
========
</TABLE>
NOTE 6: 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
management agreements for all of the Unconsolidated Partnerships, as
well as its interest in Lexford Properties, Inc.'s training programs
and property management systems and certain personnel 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 took the following actions in
1998:
The merger agreement governing the Company's acquisition of
Lexford Properties, Inc. (the former owner of the Third Party
Management Business) included a provision that $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
F-16
<PAGE> 49
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 6: SALE OF THIRD PARTY MANAGEMENT BUSINESS (cont'd)
achieve certain profitability criteria by December 31, 1999. On March
13, 1998, the Company negotiated a settlement with the former
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 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
Loss on Sale of Third Party Management Business.
Lexford Properties, Inc. formed a subsidiary, Lexford Property
Management, Inc. ("LPM") and contributed all of its interest in its
property management contracts for multifamily apartment communities
owned entirely by third parties 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
the Company 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 $1.8 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.
NOTE 7: EXTRAORDINARY ITEM AND IMPAIRMENT LOSS
In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("FASB 121"), the Company records
an impairment loss on long lived assets used in operations when events
and circumstances indicate that an asset might be impaired and the
undiscounted cash flows estimated to be generated by an asset are less
than the carrying amounts of the asset. In the fourth quarter of 1998
based upon management's intent to dispose of a Rental Property the
Company determined that an asset with a carrying value of $1.7 million
was impaired and recorded a real estate impairment loss of $1.0
million to write the asset down to its estimated fair value based upon
management's estimate of the net proceeds which would be received upon
disposal. In the fourth quarter of 1998, the Company consented to an
insubstance foreclosure to the mortgagee of this Rental Property. As a
result of this transaction the Company recorded an extraordinary gain
of $1.0 million since the mortgage debt exceeded the adjusted carrying
value of the asset.
F-17
<PAGE> 50
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 7: EXTRAORDINARY ITEM AND IMPAIRMENT LOSS (cont'd)
In December 1998, the Company also refinanced mortgages on 25 Rental
Properties and eight properties owned by Unconsolidated Partnerships.
Mortgage indebtedness on the 25 Rental Properties, with a contractual
balance of approximately $38.7 million and a Carrying Value of
approximately $37.8 million, was refinanced with mortgages bearing a
fixed rate of interest of 7.6%, with 25 year amortization and ten year
maturities.
A net extraordinary gain of approximately $631,000 resulted from the
mortgage debt refinancing and the insubstance foreclosure transaction.
The net gain is comprised of a $1.0 million gain on the insubstance
foreclosure, plus an extraordinary gain of $1.7 million generated from
debt discounts received from the prior lenders to Rental Properties
whose mortgage debt was refinanced. These gains were offset by a $1.2
million loss due to prepayment penalties paid to the former lenders
and a loss of approximately $902,000 that arose from the mortgages
being repaid from refinance proceeds at the contractual balance
amounts, which exceeded the Carrying Values of the mortgages (see Note
5).
The refinancing of the mortgage debt on eight properties owned by
Unconsolidated Partnerships were on the same terms as the mortgages on
the Rental Properties. The Company received approximately $900,000 of
excess proceeds from the refinancing as repayment of advances and
other amounts due to the Company from the Unconsolidated Partnerships.
During 1997, the Company refinanced mortgages on six Rental
Properties. Mortgage indebtedness on these Rental Properties, with a
contractual value of approximately $7.4 million and a Carrying Value
of approximately $7.1 million, was refinanced with mortgages bearing a
fixed rate of interest ranging from 7.45% to 9.03%, with 25 year
amortization and ten year maturities. Annual debt service on the
affected Rental Properties decreased approximately $18,000. An
extraordinary loss of approximately $180,000, net of tax benefits,
resulted from the mortgage debt refinancings of the Rental Properties.
The loss arose from the mortgages being repaid from refinance proceeds
at the contractual balance amounts, which exceeded the Carrying Values
of the mortgages (see Note 5).
In 1996, the Company completed modification or refinancing
transactions on Rental Properties and Unconsolidated Partnerships
which resulted in an extraordinary loss of $1.6 million, net of tax
benefits in 1996. The loss arose from those mortgages being repaid
from refinance proceeds at the contractual balance amounts, which
exceeded the Carrying Values of the mortgage (see Note 5).
The refinancing of mortgages on the Unconsolidated Partnerships
generated loan fee revenue of approximately $96,000 in 1998, $130,000
in 1997 and $752,000 in 1996. The fees were based upon a graduated
percentage of the new loan amounts and are classified with Fee Based
Revenue in the Consolidated Statements of Income.
NOTE 8: SHARE BASED COMPENSATION
The Company provides share based compensation to employees and
non-employee trustees including share options, share awards and shares
in lieu of cash payments under various plans and contractual
arrangements.
Rabbi Trust
The Company established the Rabbi Trust in 1996. The Rabbi Trust was
established to permit executive officers and trustees to defer taxes
on awards of Company shares. The Rabbi Trust is currently restricted
to holding Company shares or cash equivalents. In 1998, the Emerging
Issues
F-18
<PAGE> 51
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8: SHARE BASED COMPENSATION (cont'd)
Task Force of the Financial Accounting Standards Board ("EITF")
reached a consensus on Issue No. 97-14, Accounting for Deferred
Compensation Arrangements. In accordance with that consensus, the
deferred compensation liability represented in the Rabbi Trust and the
securities issued to fund such deferred compensation liability must be
consolidated by the Company and carried on the Company's balance
sheet, and the Company's common shares held in the Rabbi Trust must be
accounted for as treasury shares by the Company. The Company has
applied EITF No. 97-14 commencing with the first quarter of 1998.
Performance Equity Plan
In October 1997, the shareholders of the Company approved the
Company's 1997 Performance Equity Plan (the "Performance Plan"). The
Performance Plan authorized the grant of restricted share awards to
certain officers and non-employee trustees. The Performance Plan, as
approved, authorized awards which would vest only upon attainment of
specified financial or share price targets over a three year term
(1997 through 1999), with increasing performance goals associated with
each year of the term. A total of 636,000 shares of restricted Common
shares was available for grants, and on October 7, 1997 the
Compensation Committee of the Company's Board of Directors authorized
awards of restricted grants for 636,000 shares.
In 1998, the final tranche of 212,000 shares awarded under the
Performance Plan vested upon achievement of the performance goals. The
vesting of these shares resulted in a non-cash charge in 1998 of
approximately $2.5 million. In 1997, 424,000 shares awarded under the
Performance Plan vested upon achievement of the performance goals. The
vesting of these shares resulted in a non-cash charge in 1997 of
approximately $6.3 million.
Incentive Equity Plan and Other Share Based Compensation
The Company also has an Incentive Equity Plan (the "Incentive Plan"),
that was established in 1992 and amended with shareholder approval in
1995, that authorizes the Company's issuance of shares in connection
with options and restricted share awards. The Incentive Plan, which
benefits officers, key employees and non-employee trustees, authorized
approximately 1,182,000 shares for officers and key employees and
approximately 280,400 shares for non-employee trustees. At December
31, 1998, approximately 45,000 shares remain available for officers
and key employees and approximately 64,400 shares remain available for
grants of options to non-employee trustees. The shares available for
future options and awards may be granted at the discretion of the
Company's Board of Trustees ("Board") or the Compensation Committee of
the Board.
In 1998, the Company granted to officers and key employees options for
the purchase of 116,000 shares and 144,000 restricted shares which
vest ratably over time contingent upon continuing service to the
Company with terms for acceleration upon a change in control of the
Company. In addition, 4,000 restricted shares were granted to the
non-employee Chairman of the Board in 1998. Also during 1998, an
officer received 1,579 shares in lieu of cash compensation pursuant to
the terms of the officer's employment contract requiring shares in
lieu of an increase in base salary.
In 1997, the Company granted to officers and key employees options for
the purchase of 72,550 shares, 15,000 restricted shares, and 18,000
shares originally granted with vesting contingent on certain Company
performance criteria which was modified to time vesting in 1998. In
addition, options for the purchase of 32,000 shares, and 4,000
restricted shares were granted to non-
F-19
<PAGE> 52
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8: SHARE BASED COMPENSATION (cont'd)
employee directors in 1997. In addition, certain officers and key
employees received 8,620 shares in lieu of cash compensation in 1997
and 150,800 restricted shares were issued under employment agreements.
In 1996, the Company granted options for 152,000 shares, including
32,000 to non-employee directors, restricted share awards for 99,000
shares and deferred awards for 76,000 shares. The restricted share
awards included up to 35,000 shares as a Company match of shares if
purchased by officers by April 1997, and 64,000 shares which vest
ratably over time. The deferred share awards vest upon achievement of
specified performance criteria.
Awards of shares provided for in the Incentive Plan, depending on the
nature of the award, may be reflected as compensation over the vesting
period. Compensation expense resulting from transactions under this
plan and other equity compensation arrangements was $1.6 million,
$842,600 and $207,500 for 1998, 1997 and 1996, respectively, in
addition to the non cash charge recorded for the Performance Plan.
Weighted average per share value at grant date of the restricted and
deferred equity awards was $17.42, $14.68 and $9.29 for 1998, 1997 and
1996, respectively.
In 1996, the shareholders of the Company approved the Company's
Non-Employee Trustee Restricted Stock Plan (the "Trustee Plan") that
provides for compensation earned by the trustees to be paid, at the
option of the trustees, in whole or in part, in shares in lieu of cash
fees. The Trustee Plan authorized 100,000 shares, of which
approximately 56,000 shares remain available at December 31, 1998. In
1998, 1997 and 1996 the Company recorded compensation of approximately
$204,000, $277,000 and $118,000, respectively, related to the Trustee
Plan.
Stock Option Valuation
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its employee and trustee
stock options, because the alternative fair value accounting provided
for under FASB Statement No. 123, "Accounting for Stock Based
Compensation," ("FASB 123") requires use of option valuation models
that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB 123, which also requires that the information be
determined as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value
method of that Statement. The fair value for these options was
estimated at the date of the grant using the Black-Scholes option
pricing model.
The following assumptions were utilized in the pricing model: a
weighted average risk free interest rate of 5.22% in 1998, 5.6% in
1997 and 6.5% in 1996; dividend yield of nine percent in 1998 and one
percent in 1997 and 1996; volatility factors of the expected market
price of the Company's common stock of 0.253 in 1998, 0.248 in 1997
and 0.236 in 1996; and a weighted average expected life of 6 years in
1998, 6.3 years in 1997, and 7 years in 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restriction and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected price volatility of the Company's shares. Because the
Company's employee stock options have character-
F-20
<PAGE> 53
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 8: SHARE BASED COMPENSATION (cont'd)
istics significantly different from those of unrestricted, fully
transferable options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not provide a reliable
measure of the fair value of its outstanding employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Pro forma net income/(loss) (in thousands)........... $(5,136) $3,027 $3,630
======= ====== ======
Pro forma basic earnings per share................... $ (0.56) $ 0.37 $ 0.48
======= ====== ======
Pro forma diluted earnings per share................. $ (0.56) $ 0.36 $ 0.46
======= ====== ======
</TABLE>
The following table summarizes the Company's stock option activity,
and related information for the years ended December 31, 1998, 1997
and 1996 (in thousands except for exercise prices):
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVE. AVE. AVE.
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year............................. 434 $ 7.20 352 $ 5.45 270 $2.05
---- ------ --- ------ --- -----
Options granted.................. 116 $18.05 104 $12.27 152 $9.44
Options exercised................ (305) $ 5.99 (18) $ 2.07 (68) $0.90
Options forfeited................ (18) $ 9.95 (4) $ 9.59 (2) $1.31
---- ------ --- ------ --- -----
Options outstanding at end of
year............................. 227 $13.88 434 $ 7.20 352 $5.46
==== ====== === ====== === =====
Options exercisable at end of
year............................. 51 $ 9.57 234 $ 4.17 176 $2.60
==== ====== === ====== === =====
Weighted Ave. Fair Value of Options
Granted during the Year.......... $ 1.54 $ 4.15 $3.19
====== ====== =====
</TABLE>
Options awarded have an exercise price equal to or greater than the
market price of the Common Stock at the time of the award, and are
subject to vesting schedules as determined by the Company's Board of
Trustees or its Compensation Committee. The options granted expire, if
not exercised, ten years from the date on which the option was granted
(subject to earlier expiration or lapse in the event of termination of
employment). Exercise prices for options outstanding as of December
31, 1998 ranged from $0.71 to $19.69 per share with a weighted average
remaining term of 8.3 years. At December 31, 1998, there were options
outstanding to purchase approximately 14,000 shares at an exercise
price less than $9 and approximately 213,000 shares at an exercise
price in excess of $9.
NOTE 9: INCOME TAXES
1998
The Company intends to elect to be taxed as a REIT under sections 856
through 860 of the Internal Revenue Code of 1986, as amended,
commencing with its taxable year beginning January 1, 1998. The
Company will, and intends to continue to distribute at least 95% of
its real estate investment
F-21
<PAGE> 54
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 9: INCOME TAXES (cont'd)
trust taxable income. 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 100% of its REIT taxable income. The Company
will generally not be subject to state income taxes in the
jurisdictions where the Properties are currently located. The
Consolidated Statement of Income for the year ended December 31, 1998
does not include a provision for federal or state income taxes.
The Company made an election pursuant to Notice 88-19 with the filing
of its 1997 corporate income tax return. This election enabled the
Company to avoid having to treat the Company's conversion to real
estate investment trust status as a taxable disposition of its assets
as of December 31, 1997.
As a former C corporation the Company potentially remains subject to
corporate level taxes for any asset disposition between January 1,
1998 through December 31, 2008. The amount of income potentially
subject to corporate level tax is generally equal to the excess of the
fair market value of the asset over its adjusted tax basis as of
December 31, 1997 or the actual amount of taxable gain, whichever is
greater. Any gains recognized during this period of time could be
offset by available net operating losses ("NOLs"), passive activity
losses ("PALs") and/or business tax credit carry forwards.
Prior Years
The Company and its subsidiaries filed a consolidated Federal income
tax return in 1997 and 1996. For financial reporting purposes, the
Company followed FASB Statement No. 109 ("FASB 109"). In accordance
with FASB 109, income taxes have been provided at statutory rates in
effect during the period. Tax benefits associated with net operating
loss carry forwards and other temporary differences that existed at
the time Fresh Start reporting was adopted are reflected as an
increase to Additional Paid-in Capital in the period in which they
were realized.
The provision for income taxes in the Consolidated Statements of
Income (including amounts applicable to extraordinary items) is as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------
1997 1996
------ ------
<S> <C> <C>
Current:
Federal................................... $ 0 $ 0
State..................................... 380 250
Amounts Not Payable in Cash................. 1,694 2,151
------ ------
$2,074 $2,401
====== ======
</TABLE>
The Company's actual income tax payments for the years 1997 and 1996
were significantly less than the total provision for income taxes
because of available net operating loss carry forwards and other tax
benefits. The amounts included in the provision for taxes for which no
amounts were payable in cash are set forth in the table above.
F-22
<PAGE> 55
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 9: INCOME TAXES (cont'd)
The effective income tax rates varied from the federal statutory rate
as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------
1997 1996
------ ------
<S> <C> <C>
Federal Tax Provision at Statutory Rates.................... $1,787 $2,094
State Income Taxes Net of Federal Income Tax Benefit........ 251 165
Other Permanent Differences................................. 36 142
------ ------
$2,074 $2,401
====== ======
Effective Income Tax Rate................................... 39.3% 39.0%
====== ======
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities are as follows at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Deferred Tax Assets and Other:
Net Operating Loss Carry Forwards and Other Carry
Forwards............................................... $22,000
Suspended Passive Activity Losses......................... 34,000
Tax Basis of Assets in Excess of Fresh Start Estimated
Fair Values............................................ 11,000
-------
67,000
Less: Valuation Allowance................................... (31,000)
-------
$36,000
=======
Deferred Tax Liabilities:
Negative Capital Accounts................................. $33,000
Tax Basis of Liabilities in Excess of Related Fresh Start
Estimated Fair Values.................................. 3,000
-------
$36,000
=======
</TABLE>
The valuation reserve against deferred tax assets has been reduced by
amounts equivalent to the portions of the tax provisions which are not
payable in cash. Corresponding increases have been made to Additional
Paid-in Capital.
As a result of the uncertainties relating to the ultimate utilization
of favorable tax attributes described below, the Company has provided
a valuation allowance for the remaining excess of the net deferred tax
assets as of December 31, 1997.
In addition to regular corporate income tax, corporations are subject
to an alternative minimum tax liability to the extent alternative
minimum tax exceeds regular tax. The Company will record an
alternative minimum tax liability in the year that events and
transactions create an alternative minimum tax which is probable of
being paid and can be reasonably estimated by the Company.
As of December 31, 1998, the Company has estimated that it has NOL
carry forwards for tax purposes of approximately $73.0 million which
if not utilized, expire in the years 2000 through 2013. In the event
that current or future 5% shareholders (as defined by the Internal
Revenue Code) acquire or dispose of shares, over a defined time
period, representing in the aggregate 50% or more of the Company's
outstanding shares, a limitation on the use of NOL carry forwards will
occur. The Company has also estimated that it has approximately $103.2
million in suspended PALs which may be available to offset future
passive and active income. The tax basis for federal income tax
purposes in Rental Properties was approximately $484 million at
December 31, 1998.
F-23
<PAGE> 56
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 9: INCOME TAXES (cont'd)
The Company's ability to utilize tax carry forwards will be subject to
a variety of factors including the Company's dividend distribution
policy. In general, the Company will be entitled to utilize NOLs and
business tax credit carry forwards only to the extent that real estate
investment trust taxable income exceeds the Company's deduction for
dividends paid.
NOTE 10: NON-RECURRING COSTS
Non-recurring Costs were approximately $2.7 million for the year ended
December 31, 1998. Approximately $1.6 million of the charge related to
the Retirement Plan ("Trustee 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
Executive Deferred Compensation Plan and 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 remaining $1.1
million of Non-recurring Costs relates to severance costs associated
with 23 terminated employees, and costs related to the closing of
satellite offices. The positions were eliminated as part of a
strategic initiative implemented in 1998 to better align its
organization and cost structure with planned revenue levels. The
majority of the charge was incurred in the fourth quarter of 1998.
In 1997, the Company incurred Non-recurring Costs totaling
approximately $828,000. Approximately $400,000 of the charge was due
to costs related to the elimination of overlapping functions between
Lexford Properties, Inc. and the Company's previous management
services operations. In the second half of 1997, the Company recorded
a charge of approximately $428,000 primarily related to costs incurred
for the Form S-11 filing for the proposed spin-off of the Company's
Rental Properties. The Company subsequently withdrew this filing as it
has determined to maintain its ownership interests in the Rental
Properties and seek to qualify as a REIT under the Internal Revenue
Code.
In 1995, the Company implemented a corporate restructuring plan and
initiated further restructuring in 1996. The Company recorded a charge
of approximately $243,000 in 1996 related to the costs of the
restructuring, principally severance and separation costs.
Approximately 26 employees were released as a result of the
restructurings in 1995 and 1996. In 1996 the Company paid $1.7 million
of costs related to the 1995 and 1996 restructurings.
F-24
<PAGE> 57
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 11: COMMITMENTS AND CONTINGENCIES
Lease Commitments
Minimum payments under the terms of all noncancellable operating
leases in which the Company is the lessee, principally for office
space, at December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................. $ 808
2000.............................................. 505
2001.............................................. 504
2002.............................................. 517
2003.............................................. 511
Thereafter........................................ 419
------
$3,264
======
</TABLE>
Litigation
The Company is involved in various legal actions arising out of the
normal course of its business. Management of the Company, based upon
knowledge of facts and the advice of counsel, believes potential
exposure to loss from legal actions should not result in a material
adverse effect on the Company's consolidated financial position.
On October 30, 1998, the Company reached a settlement in its final
lawsuit related to claims for termite damage losses. Pursuant to the
terms of the settlement agreement, the Company, in its capacity as
general partner of limited partnerships that own Rental Properties and
Unconsolidated Partnerships and as agent for parties that have
purchased apartment communities formerly owned by Unconsolidated
Partnerships, has received cash payment in the gross amount of
$3,075,000 and has paid contingency legal fees of $975,000 from the
settlement proceeds. The net proceeds of the settlement have since
been allocated among the properties (including those owned by third
parties) based upon the extent of the termite damage at each such
property. The Company's portion of the proceeds from the settlements
will be utilized to offset costs to be incurred for termite repairs
and has been included in Other Liabilities in the amount of
approximately $1.1 million and $1.9 million at December 31, 1998 and
1997, respectively.
NOTE 12: RETIREMENT PLAN
The Company maintains the Lexford Residential Trust Savings Plan (the
"Savings Plan") under section 401(k) of the Internal Revenue Code (the
"Code"), to which participants may contribute a percentage of their
base pay and overtime earnings up to limits established by the Code.
The Savings Plan was amended and restated, effective January 1, 1999,
to provide for a seven year graduated vesting schedule for Company
matching contributions. Any participant who was 100% vested prior to
the effective date will remain 100% vested. Effective July 1, 1996,
the Savings Plan was amended to include employees at the Properties as
participants and increase the Company match. The Company matching
contribution amounts to 1% of wages for every 2% of wages contributed
by a participant up to a maximum of the lesser of 3% of wages or
$2,000 per year. In 1998, 1997 and 1996, the Company's cash
contributions amounted to approximately $197,100, $126,400, and
$134,000, respectively.
F-25
<PAGE> 58
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 13: RELATED PARTY TRANSACTIONS
The Company is the sole beneficial equity owner of all Rental
Properties and is a general partner in the Unconsolidated
Partnerships. The Company also serves as the management company for
substantially all of the Properties and provides various ancillary
services, including a Preferred Resource purchasing program to the
Properties and renter's insurance to residents. The Company's fee
based revenue, and interest income are derived from Unconsolidated
Partnerships. Approximately $429,000 and $2.0 million of the Company's
accounts receivables, net of an allowance of approximately $196,000
and $942,000, are due from the Unconsolidated Partnerships as of
December 31, 1998 and 1997, respectively.
In 1998, the Company received a net repayment of advances from
Unconsolidated Partnerships of approximately $128,000, and in 1997 and
1996 the Company advanced to Unconsolidated Partnerships, net of
amounts repaid, approximately $992,000 and $2.6 million, respectively.
The majority of the advances relate to operating needs and advances to
facilitate the refinancing of the mortgages on the Properties as
described in Note 5. The interest rate on these advances is currently
prime plus one percent. This interest rate may be adjusted in the
future based on prevailing market rates.
During the fourth quarter of 1998, the Company loaned approximately
$352,000 to certain key officers. The majority of the loans bear
interest at the rate of 1% in excess of the prime rate of the Bank and
are due in three years. The loans were made to fund the personal
income tax obligations arising from the tax effect of the exercise of
non-qualified stock options. At December 31, 1998, the amount of loans
and related interest outstanding amounted to approximately $355,000.
An independent trustee of the Company is a partner in the law firm
which serves as outside general counsel to the Company. Legal fees
paid related to services provided to the Company by this law firm were
approximately $1.1 million in 1998, $981,000 in 1997, and $286,000 in
1996. The Company had accrued expenses of $75,000 and $176,000 to this
law firm at December 31, 1998 and 1997, respectively. In addition,
legal fees paid related to debt restructuring and refinancing services
provided by this law firm to the Rental Properties and Unconsolidated
Partnerships were approximately $118,000 in 1998, $99,000 in 1997 and
$523,000 in 1996. Another independent trustee of the Company has a
minority interest in the lessor of the office facility that houses the
Company's operations.
NOTE 14: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
The following unaudited pro forma condensed consolidated income
statements for the years ended December 31, 1998 and 1997 assume that
all 324 former Unconsolidated Partnerships acquired in 1998 were
purchased as of January 1, 1998 and 1997, respectively. 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 on the date or at the beginning
F-26
<PAGE> 59
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 14: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (cont'd)
of the periods indicated above or to project the Company's results of
operations for any future date or period.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1998 1997
---------- ----------
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS UNAUDITED UNAUDITED
-------------------------------------------------- ---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Rental and Other Property Revenues....................... $148,857 $144,657
Fee Based and Income from Unconsolidated Partnerships
(a)................................................... 7,451 10,035
-------- --------
$156,308 $154,692
-------- --------
Expenses:
Property Operating and Maintenance....................... 48,733 45,150
Real Estate Taxes and Insurance.......................... 12,239 13,066
Property Management (a).................................. 12,506 15,340
Administration........................................... 6,287 5,194
Non-recurring Costs/Performance Equity Plan (b).......... 5,173 6,681
Interest................................................. 46,569 47,745
Depreciation and Amortization............................ 23,274 21,545
Real Estate Impairment Loss (b).......................... 1,014 --
Loss on Sale of Third Party Management Business (c)...... 6,300 --
-------- --------
162,095 154,721
-------- --------
Income/(Loss) before Gain on Disposal of Assets, Income
Taxes and Extraordinary Items............................ (5,787) (29)
Provision for Income Taxes............................... -- (768)
Extraordinary Gain/(Loss)................................ 631 (180)
Gain on Disposal of Assets -- Net........................ 499 1,989
-------- --------
Net Income/(Loss).......................................... $ (4,657) $ 1,012
======== ========
Basic Earnings/(Loss) Per Share............................ $ (.51) $ .13
======== ========
Diluted Earnings/(Loss) Per Share.......................... $ (.50) $ .12
======== ========
</TABLE>
-------------------------
(a) Includes management fees received and expenses incurred in
conjunction with the operation of the Company's Third Party
Management Business during 1997 and the first quarter of 1998.
(See Note 6 -- "Sale of Third Party Management Business"). The
decline in Fee Based revenues is primarily attributable to the
sale described therein.
(b) See Note 10 -- "Non-recurring Costs" , Note 8 -- "Performance
Equity Plan" and Note 7 -- "Extraordinary Item and Impairment
Loss"
(c) See Note 6 -- "Sale of Third Party Management Business"
F-27
<PAGE> 60
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 15: EARNINGS AND DIVIDENDS PER SHARE
Earnings Per Share
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 options with dilutive potential (in thousands except
per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Numerator for Basic and Diluted Earnings Per Share:
Income before Extraordinary Items.................. $(5,532) $3,386 $5,370
Extraordinary Item................................. 631 (180) (1,614)
------- ------ ------
Net Income/(Loss).................................. $(4,901) $3,206 $3,756
======= ====== ======
Denominators:
Denominator for Basic Earnings Per Share --
Weighted Average Shares............................ 9,211 8,072 7,538
Effect of Dilutive Securities:
Stock Options (1)............................... -- 172 192
Time Vesting Restricted Share Awards............ 28 70 95
------- ------ ------
Dilutive Potential Common Shares................... 28 242 287
------- ------ ------
Denominator for Diluted Earnings Per Share --
Adjusted Weighted Average Shares................... 9,239 8,314 7,825
======= ====== ======
Basic Earnings Per Share:
Income/(Loss)Before Extraordinary Item............. $ (0.60) $ 0.42 $ 0.71
Extraordinary Item................................. 0.07 (0.02) (0.21)
------- ------ ------
Net Income/(Loss).................................. $ (0.53) $ 0.40 $ 0.50
======= ====== ======
Diluted Earnings Per Share:
Income/(Loss) Before Extraordinary Item............ $ (0.60) $ 0.41 $ 0.69
Extraordinary Item................................. 0.07 (0.02) (0.21)
------- ------ ------
Net Income/(Loss).................................. $ (0.53) $ 0.39 $ 0.48
======= ====== ======
</TABLE>
-------------------------
(1) Options to purchase 62,877 shares were excluded from diluted
earnings per share for the year ended December 31, 1998 because
including the shares in the denominator for diluted earnings per
share would be anti-dilutive as a result of the Net Loss the
Company recognized for the year ended December 31, 1998. Weighted
average shares outstanding, for diluted earnings per share,
excludes options to purchase 15,000 and 8,000 shares in 1998 and
1997, respectively, because the exercise price exceeded the
average share price. For additional disclosures regarding
outstanding employee stock options see Note 8.
In August 1996, the Company issued 1.4 million common shares in
connection with its acquisition by merger of Lexford Properties, Inc.
(the original owner of the Third Party Management Business), 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 in 1997 and 1996. On March 13, 1998, the Company
negotiated a settlement with the holders of the contingent shares
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 in 1998 (see Note 6).
F-28
<PAGE> 61
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 15: EARNINGS AND DIVIDENDS PER SHARE (cont'd)
Dividends Per Share
In order to qualify as a real estate investment trust, the Company
must, among other requirements, distribute at least 95% of its real
estate investment trust taxable income (exclusive of capital gains) to
its shareholders. Per share dividend payments by the Company were
characterized in the following manner for income tax purposes:
<TABLE>
<CAPTION>
1998
-----
<S> <C>
Ordinary Income....................................... $0.88
Capital Gain Income................................... 0.00
Return of Capital..................................... 0.00
-----
Total Dividends.................................. $0.88
=====
</TABLE>
Current federal tax rules generally require that dividends declared
during October, November and December of the Company's calendar year
and paid prior to January 31st of the following year be included in
the income of the Company's shareholders in the year that they are
declared.
NOTE 16: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized unaudited consolidated quarterly information for 1998 and
1997 is provided below (amounts in thousands, except per share
amounts).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
1998....................................... $29,198 $38,387 $39,192 $39,728
1997....................................... $16,833 $17,025 $17,666 $17,525
Income/(Loss) before Extraordinary Item
1998....................................... $(6,888) $ 1,068 $ 757 $ (469)
1997....................................... $ 1,276 $ 1,655 $ 1,841 $(1,386)
Extraordinary Item, net of Income Taxes
1998....................................... $ 0 $ 0 $ 0 $ 631
1997....................................... $ 0 $ (180) $ 0 $ 0
Net Income/(Loss)
1998....................................... $(6,888) $ 1,068 $ 757 $ 162
1997....................................... $ 1,276 $ 1,475 $ 1,841 $(1,386)
Earnings per share:
Basic
Income/(Loss) before Extraordinary Item
1998.................................... $ (0.80) $ 0.12 $ 0.08 $ (0.05)
1997.................................... $ 0.16 $ 0.21 $ 0.23 $ (0.16)
Extraordinary Item
1998.................................... $ 0.00 $ 0.00 $ 0.00 $ 0.07
1997.................................... $ 0.00 $ (0.02) $ 0.00 $ 0.00
Net Income/(Loss)
1998.................................... $ (0.80) $ 0.12 $ 0.08 $ 0.02
1997.................................... $ 0.16 $ 0.19 $ 0.23 $ (0.16)
</TABLE>
F-29
<PAGE> 62
LEXFORD RESIDENTIAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 16: QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (cont'd)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Diluted
Income/(Loss) before Extraordinary Item
1998.................................... $ (0.80) $ 0.11 $ 0.08 $ (0.05)
1997.................................... $ 0.16 $ 0.20 $ 0.22 $ (0.16)
Extraordinary Item
1998.................................... $ 0.00 $ 0.00 $ 0.00 $ 0.07
1997.................................... $ 0.00 $ (0.02) $ 0.00 $ 0.00
Net Income/(Loss)
1998.................................... $ (0.80) $ 0.11 $ 0.08 $ 0.02
1997.................................... $ 0.16 $ 0.18 $ 0.22 $ (0.16)
</TABLE>
F-30
<PAGE> 63
SCHEDULE II
LEXFORD RESIDENTIAL TRUST
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Period.............................. $3,547 $3,691 $3,415
Add: Charged to Costs and Expenses:
Recovery of Allowances................................. -- (300)
Other Allowances....................................... 1,670 389 803
Less: Account Charge Offs................................. (3,052) (533) (227)
------ ------ ------
Balance at End of Period.................................... $2,165 $3,547 $3,691
====== ====== ======
</TABLE>
F-31
<PAGE> 64
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GLENVIEW.................. AL 1,682 1,682 178 1,785 35 --
WOODVALLEY................ AL 1,418 1,418 77 1,416 6 --
AMBERWOOD I............... FL 404 404 18 478 15 --
APPLEWOOD I & II.......... FL 2,220 2,220 292 3,523 822 --
BAYSIDE................... FL 653 653 85 684 39 --
BEL AIRE I................ FL 1,418 1,418 241 1,232 11 --
BEL AIRE II............... FL 1,132 436 81 287 17 --
BERRY PINES............... FL 1,008 1,008 44 1,030 36 --
BLUEBERRY HILL I.......... FL 751 751 64 363 409 --
BRANCHWOOD................ FL 2,303 2,303 188 2,345 33 --
BRANDYWINE E.............. FL 525 525 64 526 17 --
CALIFORNIA GARDENS........ FL 1,139 581 96 521 20 --
CANDLELIGHT I............. FL 606 606 69 664 17 --
CANDLELIGHT II............ FL 601 601 76 635 28 --
CANTERBURY CROSSINGS...... FL 1,281 675 78 386 51 --
CEDARWOOD I............... FL 753 753 63 804 15 --
CEDARWOOD II.............. FL 575 575 46 484 16 --
CENTRE LAKE III........... FL 4,821 4,821 1,211 3,117 121 --
CLEARLAKE PINES II........ FL 1,045 1,045 113 1,033 17 --
COUNTRYSIDE I............. FL 862 862 146 842 21 --
COUNTRYSIDE II............ FL 1,502 1,502 79 1,862 21 --
CYPRESS................... FL 1,014 1,014 58 1,025 41 --
DEERWOOD.................. FL 682 682 67 650 68 --
DRIFTWOOD................. FL 682 682 80 1,130 22 --
ELMWOOD I................. FL 1,358 1,358 298 1,284 182 --
ELMWOOD II................ FL 1,343 1,343 341 1,228 127 --
FOREST GLEN............... FL 1,099 1,099 229 995 86 --
GARDEN TERRACE I.......... FL 604 604 89 801 121 --
GARDEN TERRACE II......... FL 690 690 9 903 31 --
HERON POINTE.............. FL 1,624 1,624 368 1,441 272 --
HICKORY PLACE............. FL 1,339 1,339 191 1,622 17 --
HIDDEN ACRES.............. FL 1,661 1,661 388 1,136 66 --
HIDDEN PINES.............. FL 887 887 59 1,017 21 --
HIGH POINTS............... FL 1,077 1,077 129 918 20 --
HILLCREST VILLAS.......... FL 980 980 79 880 29 --
HILLSIDE TRACE............ FL 1,074 1,074 197 833 19 --
HOLLY RIDGE............... FL 2,366 2,366 625 1,906 11 --
HOLLY SANDS I............. FL 1,395 1,395 229 1,142 55 --
HOLLY SANDS II............ FL 1,047 1,047 232 943 113 --
JEFFERSON WAY I........... FL 1,038 1,038 116 1,063 48 --
JUPITER COVE I............ FL 1,246 1,122 220 805 25 --
JUPITER COVE III.......... FL 1,308 1,308 286 1,026 27 --
MARK LANDING I............ FL 1,319 1,319 251 1,482 82 --
MEADOWOOD II.............. FL 836 836 56 1,039 14 --
MIGUEL PLACE.............. FL 1,482 1,482 237 1,125 38 --
MORNINGSIDE............... FL 1,124 1,124 64 1,269 131 --
MOSSWOOD I................ FL 798 798 54 768 19 --
MOSSWOOD II............... FL 1,534 1,534 64 1,583 37 --
NOVA GLEN I............... FL 896 896 90 930 13 --
NOVA GLEN II.............. FL 1,309 1,309 123 1,316 17 --
NOVAWOOD I................ FL 944 944 88 1,001 28 --
NOVAWOOD II............... FL 835 835 78 945 21 --
OAK GARDENS............... FL 2,574 1,845 582 1,759 18 --
OAK RIDGE................. FL 1,218 1,218 144 1,070 19 --
OAK SHADE................. FL 1,496 1,496 139 1,332 28 --
OAKWOOD MANOR............. FL 1,531 1,531 278 1,365 231 --
</TABLE>
F-32
<PAGE> 65
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OAKWOOD VILLAGE........... FL 735 314 103 566 65 --
OLD ARCHER COURT.......... FL 1,007 1,007 104 1,140 19 --
PALATKA OAKS I............ FL 192 192 10 218 6 --
PALATKA OAKS II........... FL 211 211 16 221 6 --
PALM PLACE................ FL 1,379 1,379 231 1,385 18 --
PELICAN POINTE I.......... FL 1,318 1,318 221 1,205 48 --
PELICAN POINTE II......... FL 1,007 1,007 158 1,191 53 --
PINE BARRENS.............. FL 1,515 1,515 302 1,405 104 --
PINE LAKE................. FL 298 298 59 325 9 --
PINE MEADOWS I............ FL 1,083 1,083 197 998 23 --
PINE TERRACE I............ FL 2,193 2,193 246 2,422 79 --
PINELLAS PINES............ FL 1,564 1,564 202 1,369 62 --
RANCHSIDE................. FL 700 700 131 579 16 --
RIVERS END I.............. FL 1,293 1,293 140 1,229 26 --
RIVERS END II............. FL 1,145 1,145 161 937 40 --
SANDPIPER II.............. FL 1,054 1,054 96 1,021 18 --
SANFORD COURT............. FL 1,782 1,782 86 2,056 45 --
SHADOW BAY I.............. FL 1,100 1,100 119 1,160 159 --
SHADOW BAY II............. FL 991 991 74 941 174 --
SHADOW RIDGE.............. FL 1,034 1,034 90 1,601 40 --
SHADOWOOD I............... FL 1,432 1,432 159 1,355 29 --
SHADOWOOD II.............. FL 1,935 1,935 155 1,651 36 --
SILVER FOREST............. FL 859 859 115 893 18 --
SKY PINES I............... FL 1,472 1,472 311 1,226 36 --
SKY PINES II.............. FL 898 898 266 676 91 --
SPRING GATE............... FL 990 990 52 1,036 48 --
STRAWBERRY PLACE.......... FL 791 791 49 770 33 --
SUGARTREE I............... FL 999 999 88 938 19 --
SUNSET WAY I.............. FL 1,643 1,643 621 1,354 62 --
SUNSET WAY II............. FL 2,666 2,117 649 1,678 45 --
SUTTON PLACE.............. FL 868 868 146 715 21 --
TERRACE TRACE............. FL 1,134 1,134 177 1,087 59 --
THE LANDINGS.............. FL 728 728 68 723 46 --
THYMEWOOD II.............. FL 1,586 835 429 732 37 --
TURKSCAP I................ FL 570 570 55 557 35 --
TURKSCAP III.............. FL 769 769 85 658 37 --
UNIVERSITY SQUARE I....... FL 932 932 127 1,053 18 --
WESTCREEK................. FL 1,498 1,498 167 1,426 20 --
WHISPERING PINES II....... FL 587 587 71 505 18 --
WINDWOOD I................ FL 536 536 25 457 78 --
WINDWOOD II............... FL 711 711 34 781 19 --
WINGWOOD.................. FL 1,520 1,520 90 1,761 61 --
WINTER WOODS I............ FL 966 966 134 833 201 --
WOODLAND I................ FL 1,426 1,426 175 1,681 51 --
WOODLAND II............... FL 1,335 1,335 91 1,330 34 --
AUTUMN COVE............... GA 766 766 115 1,002 15 --
BARRINGTON................ GA 1,020 1,020 118 1,095 25 --
CAMDEN WAY I.............. GA 935 935 61 1,202 12 --
CAMDEN WAY II............. GA 774 774 37 839 7 --
CARRIAGE HILL............. GA 720 720 76 763 11 --
CEDARGATE................. GA 901 901 129 1,462 25 --
COUNTRYSIDE MANOR......... GA 1,216 1,216 80 1,470 28 --
ELMWOOD................... GA 863 863 181 893 11 --
FOREST VILLAGE............ GA 1,315 1,315 156 1,588 18 --
GENTIAN OAKS.............. GA 1,233 1,233 165 1,257 10 --
GLEN ARM MANOR............ GA 1,184 1,184 149 1,274 106 --
</TABLE>
F-33
<PAGE> 66
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GLENWOOD VILLAGE.......... GA 1,110 1,110 156 1,000 18 --
GREENBRIAR GLEN........... GA 1,561 1,561 274 1,556 34 --
HARBINWOOD................ GA 1,653 1,653 228 1,444 20 --
HATCHERWAY................ GA 754 754 111 1,103 41 --
HILLSIDE MANOR............ GA 637 637 33 631 19 --
HOLLY PARK................ GA 812 812 55 963 5 --
INDIAN LAKE I............. GA 4,390 4,390 898 5,263 83 --
IRIS GLEN................. GA 1,785 1,785 266 1,712 111 --
KINGS COLONY.............. GA 2,089 1,495 238 1,723 45 --
LAKESHORE I............... GA 1,247 1,247 46 995 51 --
LAUREL GLEN............... GA 1,717 1,717 266 1,628 82 --
LINK TERRACE.............. GA 913 913 101 966 14 --
MARSH LANDING I........... GA 814 814 28 1,222 14 --
MARSH LANDING II.......... GA 963 916 30 918 29 --
MEADOWLAND................ GA 1,002 1,002 85 997 316 --
MEADOWOOD I............... GA 1,027 1,027 182 1,802 26 --
MEADOWOOD II.............. GA 943 943 105 908 16 --
MILL RUN.................. GA 1,538 1,538 189 1,260 120 --
MORGAN TRACE.............. GA 1,461 1,461 96 1,330 13 --
NORTHRIDGE................ GA 1,003 1,003 113 1,058 19 --
OAKLEY WOODS.............. GA 1,145 1,145 77 1,049 11 --
OAKWOOD VILLAGE........... GA 1,096 1,096 115 1,602 7 --
PINE KNOLL................ GA 723 723 144 925 23 --
QUAIL CALL................ GA 725 725 77 857 22 --
RAMBLEWOOD I.............. GA 991 991 68 944 17 --
RAMBLEWOOD II............. GA 1,807 1,807 264 1,906 33 --
RAMBLEWOOD II............. GA 491 491 36 463 14 --
REDAN VILLAGE I........... GA 1,246 1,246 129 1,367 126 --
REDAN VILLAGE II.......... GA 1,110 1,110 122 1,320 16 --
RIDGEWOOD I............... GA 1,438 1,438 97 1,691 28 --
RIDGEWOOD II.............. GA 1,023 1,023 88 1,027 15 --
SHADOW TRACE.............. GA 2,032 2,032 417 2,189 49 --
SKY RIDGE................. GA 1,930 1,930 313 3,429 28 --
STEWART WAY I & II........ GA 2,225 2,225 477 3,083 203 --
STILLWATER................ GA 956 956 139 1,173 19 --
STRATFORD LANE I.......... GA 935 935 76 923 10 --
SUNNYSIDE................. GA 1,093 1,093 208 1,221 16 --
TIMBERWOOD................ GA 570 570 42 615 12 --
VALLEYBROOK............... GA 1,548 1,548 129 1,354 58 --
VALLEYFIELD I............. GA 1,652 1,652 202 1,685 117 --
VALLEYFIELD II............ GA 1,054 1,054 166 1,438 143 --
WATERBURY................. GA 675 675 47 867 142 --
WESTWAY................... GA 920 920 57 854 27 --
WHISPERWOOD............... GA 579 579 99 591 15 --
WILCREST WOODS............ GA 1,365 1,365 247 1,189 101 --
WILLOW CREEK I............ GA 846 846 84 744 11 --
WILLOW RUN................ GA 1,731 1,731 194 1,876 136 --
WILLOWOOD................. GA 1,173 1,173 68 1,305 6 --
WOODCLIFF I............... GA 1,226 1,226 119 1,264 18 --
WOODCLIFF II.............. GA 1,683 1,683 273 1,384 15 --
WOODCREST I............... GA 1,174 1,174 122 1,139 26 --
WOODTRAIL................. GA 1,043 1,043 100 1,601 15 --
ANSLEY OAKS............... IL 1,386 1,386 69 1,431 8 --
BRADFORD PLACE............ IL 1,112 1,112 216 719 16 --
BRUNSWICK................. IL 1,413 1,413 54 1,645 41 --
HUNTER GLEN............... IL 991 991 257 1,462 16 --
</TABLE>
F-34
<PAGE> 67
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ACADIA COURT.............. IN 2,118 2,118 234 1,887 18 --
ACADIA COURT II........... IN 1,836 1,836 398 1,669 36 --
ANNHURST.................. IN 1,275 1,275 34 1,313 15 --
APPLEGATE................. IN 974 974 153 1,513 10 --
APPLEGATE I............... IN 926 926 99 1,246 8 --
APPLEGATE II.............. IN 1,247 1,247 163 1,815 40 --
ARAGON WOODS.............. IN 1,121 1,121 298 1,249 66 --
ASHGROVE.................. IN 894 894 57 1,366 19 --
BECKFORD PLACE............ IN 717 717 77 947 6 --
BRANDON COURT............. IN 1,451 1,451 113 1,500 26 --
CAMBRIDGE COMMONS I....... IN 911 911 44 1,037 19 --
CAMBRIDGE COMMONS II...... IN 902 902 53 1,334 18 --
CAMBRIDGE COMMONS III..... IN -- -- 1 1,306 89 --
CEDARGATE................. IN 799 799 18 1,063 15 --
CEDARGATE I............... IN 1,159 1,159 122 1,648 11 --
CEDARGATE II.............. IN 1,124 1,124 98 1,115 13 --
CEDARWOOD I............... IN 658 658 40 918 6 --
CEDARWOOD II.............. IN 927 927 33 894 7 --
CHERRY GLEN I............. IN 1,343 1,343 204 1,465 30 --
CHERRY GLENN II........... IN 1,091 1,091 4 1,731 33 --
CLEARVIEW I............... IN 1,153 1,153 113 1,589 17 --
CLEARVIEW II.............. IN 1,310 1,310 118 1,810 15 --
CONCORD SQUARE............ IN 751 751 54 988 32 --
CONCORD SQUARE............ IN 783 783 83 1,186 8 --
DOGWOOD GLEN I............ IN 1,766 1,766 248 1,427 51 --
DOGWOOD GLEN II........... IN 1,385 1,385 145 1,547 13 --
ELMTREE PARK I............ IN 1,177 1,177 208 1,308 75 --
ELMTREE PARK II........... IN 947 947 46 1,108 52 --
HAMPSHIRE COURT........... IN -- -- 30 681 36 --
HARTWICK.................. IN 752 752 61 890 2 --
HEATHMOORE................ IN 1,173 1,173 82 1,148 35 --
HEATHMOORE I.............. IN 1,230 1,230 95 1,336 16 --
MARABOU MILLS I........... IN 1,433 1,433 180 1,570 39 --
MARABOU MILLS II.......... IN 985 985 85 1,190 18 --
MARABOU MILLS III......... IN 1,187 1,187 75 1,099 41 --
MEADOWOOD................. IN 1,037 1,037 119 1,407 15 --
MEADOWOOD................. IN 1,113 1,113 60 1,382 24 --
MEADOWOOD................. IN 648 648 43 755 26 --
MEADOWOOD................. IN 993 993 114 1,197 104 --
MEADOWOOD II.............. IN 727 727 62 1,193 37 --
OLIVEWOOD I............... IN 957 957 102 1,496 18 --
OLIVEWOOD II.............. IN 1,292 1,292 82 1,371 33 --
PARKVILLE................. IN 746 746 46 1,091 13 --
PLUMWOOD.................. IN 467 467 41 672 3 --
PLUMWOOD.................. IN 620 620 34 672 12 --
PRINCETON COURT........... IN 917 917 59 908 15 --
RIDGEWOOD I............... IN 851 851 87 879 11 --
RIDGEWOOD I............... IN 1,190 1,190 100 1,320 22 --
RIDGEWOOD II.............. IN 883 883 95 830 8 --
RIDGEWOOD II.............. IN 1,332 1,332 101 1,565 40 --
ROSEWOOD COMMONS I........ IN 1,887 1,887 196 1,790 44 --
ROSEWOOD COMMONS II....... IN 1,239 1,239 121 1,173 45 --
SHERBROOK................. IN 1,179 1,179 142 1,254 140 --
SLATE RUN................. IN 2,030 2,030 169 2,233 17 --
</TABLE>
F-35
<PAGE> 68
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SLATE RUN................. IN 1,233 1,233 71 1,367 8 --
SPICEWOOD................. IN 1,021 1,021 91 1,025 45 --
SPRINGWOOD................ IN 786 786 99 978 32 --
STONEHENGE................ IN 1,200 1,200 71 1,568 21 --
STONEHENGE................ IN 446 446 73 470 6 --
STONEHENGE I.............. IN 1,124 1,124 122 1,358 23 --
WATERBURY................. IN 825 825 93 924 19 --
WESTWOOD.................. IN 714 714 29 696 8 --
WILLOW RUN................ IN 1,132 1,132 199 1,136 44 --
WILLOWOOD EAST II......... IN 800 800 20 848 18 --
WILLOWOOD I............... IN 1,140 1,140 106 1,252 7 --
WILLOWOOD II.............. IN 1,149 1,149 150 1,310 79 --
ASHGROVE.................. KY 1,067 1,067 133 1,259 31 --
CAMELLIA COURT............ KY 622 622 56 976 8 --
CEDARGATE................. KY 1,224 1,224 123 1,555 29 --
CEDARGATE I............... KY 884 884 85 1,359 11 --
CEDARGATE II.............. KY 1,160 1,160 123 966 37 --
CEDARWOOD I............... KY 748 748 143 966 13 --
CEDARWOOD II.............. KY 1,005 1,005 174 913 47 --
CEDARWOOD III............. KY 865 865 123 967 46 --
FORSYTHIA COURT........... KY 1,950 1,950 103 1,599 33 --
HAYFIELD PARK............. KY 1,591 1,591 342 1,681 103 --
HEATHMOORE................ KY 942 942 85 922 30 --
LONGWOOD.................. KY 958 958 161 1,030 11 --
MEADOWOOD................. KY 863 863 80 1,006 17 --
MEADOWOOD................. KY 1,403 1,403 153 1,598 26 --
RIDGEWOOD................. KY 887 887 175 1,162 15 --
RIDGEWOOD................. KY 763 763 85 940 10 --
RIDGEWOOD I............... KY 1,073 1,073 261 1,557 8 --
ROSEWOOD.................. KY 1,634 1,634 248 1,565 27 --
SLATE RUN................. KY 923 923 90 1,061 44 --
SLATE RUN................. KY 778 778 39 808 29 --
SLATE RUN I............... KY 902 902 102 932 29 --
SLATE RUN II.............. KY 1,168 1,168 139 1,025 16 --
SPRINGWOOD................ KY 815 815 86 844 47 --
STONEHENGE................ KY 790 790 71 1,042 10 --
VALLEYFIELD............... KY 1,837 1,837 285 2,039 8 --
WILLOW RUN................ KY 1,129 1,129 94 1,424 34 --
WILLOWOOD................. KY 776 776 48 778 72 --
WILLOWOOD I............... KY 1,016 1,016 127 1,168 22 --
WILLOWOOD II.............. KY 865 865 98 764 15 --
WINTHROP COURT............ KY 1,222 1,222 180 1,142 26 --
WOODLANDS................. KY 736 736 53 849 9 --
CHERRY TREE............... MD 2,085 2,085 623 2,711 65 --
FORSYTHIA CT I............ MD 2,088 2,088 214 1,919 27 --
FORSYTHIA CT II........... MD 2,352 1,769 285 1,598 44 --
MERRIFIELD................ MD 2,076 2,076 211 2,272 53 --
AMBERIDGE................. MI 945 945 75 891 20 --
APPLE RUN................. MI 515 515 76 757 8 --
ASHGROVE.................. MI 840 840 37 936 28 --
ASHGROVE I................ MI 3,324 3,324 120 2,541 34 --
ASHGROVE II............... MI 2,302 2,302 95 2,258 20 --
FOXTON.................... MI 912 912 124 1,056 28 --
GARDEN COURT.............. MI 2,150 2,150 128 2,247 63 --
HEATHMOORE................ MI 1,746 1,746 82 1,605 34 --
HEATHMOORE I.............. MI 1,578 1,578 129 1,330 35 --
</TABLE>
F-36
<PAGE> 69
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
HEATHMOORE II............. MI 956 956 86 1,519 13 --
LAUREL BAY................ MI 882 882 164 1,160 45 --
MEADOWOOD................. MI 1,340 1,340 74 1,455 24 --
MEADOWOOD I............... MI 944 944 15 1,131 34 --
MONTGOMERY COURT I........ MI 1,228 1,228 70 1,039 17 --
NEWBERRY I................ MI 1,163 1,163 77 1,099 6 --
NEWBERRY II............... MI 1,274 724 91 716 17 --
OLIVEWOOD................. MI 3,421 3,421 304 4,298 72 --
RIDGEWOOD................. MI 1,200 1,200 77 1,209 19 --
ROANOKE................... MI 2,071 2,071 360 2,652 79 --
STONEHENGE................ MI 1,071 1,071 19 1,147 27 --
WATERBURY................. MI 2,141 2,141 257 2,216 25 --
WENTWORTH................. MI 1,868 1,868 100 1,872 37 --
AMBERWOOD................. OH 896 896 172 1,003 31 --
AMESBURY I................ OH 1,239 1,239 136 1,133 59 --
AMESBURY II............... OH 1,295 1,295 169 1,621 56 --
AMHURST................... OH 826 826 174 980 12 --
AMHURST I................. OH 927 927 60 978 12 --
AMHURST II................ OH 960 960 67 1,192 14 --
ANDOVER COURT............. OH 743 743 62 996 15 --
ANNHURST II............... OH 1,084 1,160 123 1,007 124 --
ANNHURST III.............. OH 902 902 70 1,004 154 --
APPLE RIDGE I............. OH 1,046 1,046 214 913 49 --
APPLE RIDGE III........... OH 541 541 38 648 2 --
APPLE RUN II.............. OH 461 461 21 502 31 --
APPLEGATE................. OH 530 530 36 546 34 --
APPLEGATE................. OH 527 527 84 737 5 --
APPLERUN.................. OH 688 688 86 870 9 --
ASHFORD HILL.............. OH 1,400 1,400 360 1,261 97 --
ASHGROVE.................. OH 1,262 1,262 108 1,276 20 --
BECKFORD PLACE............ OH 625 625 49 692 11 --
BECKFORD PLACE............ OH 1,041 1,041 41 1,471 25 --
BECKFORD PLACE I.......... OH 1,181 1,181 218 1,274 20 --
BECKFORD PLACE II......... OH 1,249 1,249 175 1,206 21 --
CAMELLIA COURT............ OH 575 575 40 616 11 --
CAMELLIA COURT I.......... OH 1,097 1,097 21 1,179 24 --
CAMELLIA COURT I.......... OH 1,052 1,052 136 1,431 14 --
CAMELLIA COURT II......... OH 801 801 43 815 8 --
CAMELLIA COURT II......... OH 946 946 107 928 9 --
CEDARGATE I............... OH 2,264 2,264 187 2,202 137 --
CEDARGATE I............... OH 1,237 1,237 85 1,275 12 --
CEDARGATE II.............. OH 709 709 132 777 27 --
CEDARWOOD................. OH 436 436 37 522 42 --
CEDARWOOD I............... OH 627 627 52 784 5 --
CHARING CROSS............. OH 817 817 111 1,073 21 --
CHELSEA COURT............. OH 703 703 113 1,124 22 --
CLEARWATER................ OH 1,046 1,046 132 1,045 67 --
CONCORD SQUARE I.......... OH 660 660 38 678 11 --
CONCORD SQUARE II......... OH 562 562 29 643 7 --
DANIEL COURT.............. OH 2,342 2,342 225 2,105 17 --
DARTMOUTH PLACE I......... OH 1,052 1,052 89 1,359 34 --
DARTMOUTH PLACE II........ OH 858 858 114 1,135 31 --
DOVER PLACE I............. OH 1,157 1,157 148 2,004 36 --
DOVER PLACE II............ OH 1,625 1,625 127 1,810 34 --
DOVER PLACE III........... OH 770 770 70 890 14 --
DOVER PLACE IV............ OH 1,870 1,870 237 2,022 36 --
</TABLE>
F-37
<PAGE> 70
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOXHAVEN.................. OH 1,845 1,845 403 1,657 37 --
FOXTON II................. OH 1,403 1,403 70 1,752 24 --
GREENGLEN................. OH 1,172 1,172 100 1,404 37 --
GREENGLEN II.............. OH 893 893 89 948 23 --
GREENGLEN II.............. OH 827 827 23 1,017 13 --
HAMPSHIRE II.............. OH 860 860 98 957 13 --
HARVEST GROVE I........... OH 1,349 1,349 225 1,276 40 --
HARVEST GROVE II.......... OH 1,093 1,093 252 1,201 32 --
HICKORY MILL.............. OH 1,074 1,074 119 1,359 26 --
INDEPENDENCE VILLAGE...... OH 2,068 2,068 189 2,026 182 --
KETWOOD................... OH 1,648 1,648 164 2,161 24 --
LAMPLIGHT COURT........... OH 98 98 40 727 19 --
LARKSPUR I................ OH 460 460 36 585 12 --
LARKSPUR I................ OH 1,038 1,038 87 1,439 8 --
LARKSPUR II............... OH 221 221 24 246 6 --
LAUREL COURT.............. OH 1,128 1,128 174 1,209 31 --
LINDENDALE................ OH 1,403 1,403 189 1,717 63 --
MEADOWOOD................. OH 430 430 51 574 17 --
MEADOWOOD................. OH 1,833 1,833 316 2,644 15 --
MEADOWOOD................. OH 1,307 1,307 136 1,448 47 --
MEADOWOOD APTS............ OH 994 994 71 985 14 --
MEADOWOOD I............... OH 1,053 1,053 120 1,330 20 --
MEADOWOOD II.............. OH 485 485 70 532 11 --
MELDON PLACE.............. OH 1,881 1,881 331 1,552 51 --
MILLBURN.................. OH 1,241 1,241 135 1,474 10 --
MILLBURN COURT II......... OH 910 910 137 1,138 26 --
MILLSTON I................ OH 451 451 31 466 13 --
MILLSTON II............... OH 336 336 7 446 9 --
MONTGOMERY COURT I........ OH 1,282 1,282 246 1,401 25 --
MONTGOMERY COURT II....... OH 842 842 121 661 23 --
MONTROSE SQUARE........... OH 1,741 1,741 569 2,185 102 --
PARKVILLE................. OH 1,757 1,757 222 1,581 120 --
PARKVILLE................. OH 604 604 76 935 18 --
PLUMWOOD I................ OH 1,731 1,731 169 2,204 29 --
PLUMWOOD II............... OH 456 456 38 801 3 --
RED DEER I................ OH 1,328 1,328 183 1,751 24 --
RED DEER II............... OH 1,206 1,206 235 1,475 30 --
RIDGEWOOD I............... OH 1,200 1,200 85 1,142 21 --
RIDGEWOOD II.............. OH 1,160 1,160 70 1,047 23 --
RIVER GLEN I.............. OH 1,030 1,030 146 1,287 26 --
RIVER GLEN II............. OH 1,167 1,167 179 1,230 10 --
RIVERVIEW ESTATES......... OH 1,104 1,104 74 1,609 133 --
ROSEWOOD.................. OH 1,314 1,314 139 1,452 54 --
SANDALWOOD................ OH 1,105 1,105 179 970 34 --
SHERBROOK................. OH 1,100 1,100 147 1,249 4 --
SLATE RUN................. OH 875 875 118 1,012 7 --
SPRINGWOOD................ OH 1,096 1,096 130 1,310 22 --
SPRINGWOOD II............. OH 591 591 52 840 17 --
STONEHENGE................ OH 567 567 30 734 9 --
STONEHENGE................ OH 634 634 40 670 31 --
STONEHENGE................ OH 1,201 1,201 72 1,341 19 --
SUFFOLK GROVE I........... OH 1,223 1,223 124 1,262 8 --
SUFFOLK GROVE II.......... OH 1,067 1,067 154 1,248 20 --
TABOR RIDGE............... OH 1,742 1,742 194 1,806 19 --
THE BIRCHES............... OH 980 980 70 1,004 19 --
THE MEADOWS I............. OH 798 798 83 1,014 27 --
</TABLE>
F-38
<PAGE> 71
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
- -------------------------------------------------------------------------------------------------------------
DESCRIPTION INITIAL COST COSTS CAPITALIZED
(GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION
- -------------------------------------------------------------------------------------------------------------
AT AT STATED BUILDINGS
CONTRACTUAL CARRYING and CARRYING
PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE MEADOWS II............ OH 1,168 1,168 151 1,200 34 --
THE WILLOWS I............. OH 576 576 158 762 76 --
THE WILLOWS II............ OH 650 650 34 865 21 --
THE WILLOWS III........... OH 871 871 45 871 21 --
TIMBERCREEK............... OH 1,561 1,561 159 1,681 18 --
WATERBURY................. OH 1,161 1,161 186 998 10 --
WEST OF EASTLAND.......... OH 2,025 2,025 154 2,552 45 --
WESTWOOD.................. OH 96 96 17 104 4 --
WILLOW RUN................ OH 865 865 56 1,015 10 --
WILLOWOOD I............... OH 764 764 90 927 11 --
WILLOWOOD I............... OH 948 948 91 1,114 11 --
WILLOWOOD II.............. OH 553 553 42 574 5 --
WILLOWOOD II.............. OH 869 869 71 824 17 --
WILLOWOOD II.............. OH 930 930 36 622 27 --
WINTHROP COURT II......... OH 749 749 146 825 29 --
WOODBINE.................. OH 638 638 66 698 8 --
WOODBINE.................. OH 1,063 1,063 122 1,659 9 --
WOODLANDS I............... OH 1,824 1,824 181 1,957 146 --
WOODLANDS I............... OH 1,460 1,460 103 1,839 24 --
WOODLANDS II.............. OH 1,319 1,319 112 1,413 146 --
WOODLANDS II.............. OH 1,590 1,590 98 1,837 50 --
WOODLANDS III............. OH 1,939 1,939 159 2,019 32 --
ANNHURST.................. PA 1,985 1,985 77 2,004 37 --
BRUNSWICK I............... PA 1,720 1,720 126 2,077 134 --
CARLETON COURT............ PA 1,112 1,112 143 1,226 22 --
NORTHRUP COURT I.......... PA 1,377 1,377 154 1,482 28 --
NORTHRUP COURT II......... PA 902 902 88 858 80 --
VALLEYFIELD............... PA 2,046 2,046 257 1,748 42 --
WOODLANDS I............... PA 1,041 1,041 113 1,179 8 --
WOODLANDS II.............. PA 1,146 1,146 118 1,347 43 --
RAVENWOOD................. SC 1,623 1,623 170 1,508 48 --
SPRINGBROOK............... SC 1,717 1,717 120 1,762 124 --
WILLOW LAKES.............. SC 2,068 2,068 189 1,738 68 --
CEDAR HILL................ TN 1,465 1,465 235 1,331 61 --
KNOX LANDING.............. TN 1,576 1,576 90 1,497 33 --
WATERBURY................. TN 963 963 101 1,078 13 --
WYCLIFFE COURT............ TN 1,160 1,160 124 1,206 21 --
WALKER PLACE.............. TX 1,165 1,165 270 1,196 -- --
BRUNSWICK II.............. WV 1,304 1,304 105 1,696 135 --
CARLETON COURT............ WV 1,365 1,365 308 1,656 13 --
HICKORY MILL I............ WV 935 935 85 958 14 --
PARKVILLE................. WV 781 781 70 883 4 --
SHERBROOK................. WV 1,322 1,322 355 1,492 39 --
--------------------------------------------------------------------------
$500,688 $494,556 $59,755 $536,290 $17,380 $--
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
F-39
<PAGE> 72
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GLENVIEW................... AL 178 1,631 1,809 163 08/01/86 N/A 5-31
WOODVALLEY................. AL 77 1,422 1,499 46 03/03/86 01/31/98 5-28
AMBERWOOD I................ FL 18 493 511 21 11/01/81 01/31/98 5-24
APPLEWOOD I & II........... FL 292 4,344 4,636 158 05/01/82 01/31/98 5-24
BAYSIDE.................... FL 85 723 808 27 05/01/82 01/31/98 5-24
BEL AIRE I................. FL 241 1,243 1,484 41 08/14/85 01/31/98 5-28
BEL AIRE II................ FL 81 413 494 41 01/01/86 N/A 5-30
BERRY PINES................ FL 44 1,066 1,110 37 04/01/85 01/31/98 5-27
BLUEBERRY HILL I........... FL 64 771 835 50 12/01/86 N/A 5-31
BRANCHWOOD................. FL 188 2,378 2,566 94 04/01/81 01/31/98 5-23
BRANDYWINE E............... FL 64 544 608 21 09/01/81 01/31/98 5-24
CALIFORNIA GARDENS......... FL 96 416 512 42 07/01/87 N/A 5-32
CANDLELIGHT I.............. FL 69 681 750 28 10/01/82 01/31/98 5-25
CANDLELIGHT II............. FL 76 662 738 25 05/27/85 01/31/98 5-27
CANTERBURY CROSSINGS....... FL 78 597 675 64 12/01/83 N/A 5-28
CEDARWOOD I................ FL 63 819 882 40 03/01/78 01/31/98 5-20
CEDARWOOD II............... FL 46 501 547 23 04/01/80 01/31/98 5-22
CENTRE LAKE III............ FL 1,211 3,224 4,435 334 06/01/86 N/A 5-30
CLEARLAKE PINES II......... FL 113 1,050 1,163 37 07/01/85 01/31/98 5-27
COUNTRYSIDE I.............. FL 146 862 1,008 36 04/01/82 01/31/98 5-24
COUNTRYSIDE II............. FL 79 1,883 1,962 74 04/01/82 01/31/98 5-24
CYPRESS.................... FL 58 1,066 1,124 39 03/01/85 01/31/98 5-27
DEERWOOD................... FL 67 718 785 29 08/01/82 01/31/98 5-25
DRIFTWOOD.................. FL 80 1,151 1,231 42 05/15/85 01/31/98 5-27
ELMWOOD I.................. FL 298 1,466 1,764 47 03/01/84 01/31/98 5-26
ELMWOOD II................. FL 341 1,354 1,695 45 10/01/84 01/31/98 5-27
FOREST GLEN................ FL 229 989 1,218 100 01/01/86 N/A 5-30
GARDEN TERRACE I........... FL 89 921 1,010 115 09/01/81 N/A 5-26
GARDEN TERRACE II.......... FL 9 934 943 37 10/01/82 01/31/98 5-25
HERON POINTE............... FL 368 1,670 2,038 162 01/01/86 N/A 5-30
HICKORY PLACE.............. FL 191 1,639 1,830 60 08/01/83 01/31/98 5-26
HIDDEN ACRES............... FL 388 503 891 55 01/01/87 N/A 5-31
HIDDEN PINES............... FL 59 1,038 1,097 43 07/01/81 01/31/98 5-23
HIGH POINTS................ FL 129 937 1,066 35 04/01/86 01/31/98 5-28
HILLCREST VILLAS........... FL 79 909 988 34 04/22/85 01/31/98 5-27
HILLSIDE TRACE............. FL 197 851 1,048 82 09/01/87 N/A 5-32
HOLLY RIDGE................ FL 625 1,917 2,542 63 01/01/86 01/31/98 5-28
HOLLY SANDS I.............. FL 229 1,197 1,426 44 04/01/85 01/31/98 5-27
HOLLY SANDS II............. FL 232 1,035 1,267 119 06/01/86 N/A 5-30
JEFFERSON WAY I............ FL 116 1,089 1,205 106 08/01/87 N/A 5-32
JUPITER COVE I............. FL 220 903 1,123 88 09/01/87 N/A 5-32
JUPITER COVE III........... FL 286 1,052 1,338 102 09/01/87 N/A 5-32
MARK LANDING I............. FL 251 1,561 1,812 169 11/01/87 N/A 5-32
MEADOWOOD II............... FL 56 1,052 1,108 35 11/01/80 04/01/98 5-23
MIGUEL PLACE............... FL 237 1,121 1,358 109 10/01/87 N/A 5-32
MORNINGSIDE................ FL 64 1,400 1,464 55 01/01/84 01/31/98 5-26
MOSSWOOD I................. FL 54 787 841 32 08/01/81 01/31/98 5-24
MOSSWOOD II................ FL 64 1,620 1,684 63 05/01/82 01/31/98 5-24
NOVA GLEN I................ FL 90 943 1,033 34 06/08/84 01/31/98 5-26
NOVA GLEN II............... FL 123 1,332 1,455 46 01/01/86 01/31/98 5-28
NOVAWOOD I................. FL 88 1,029 1,117 44 05/01/80 01/31/98 5-22
NOVAWOOD II................ FL 78 966 1,044 41 09/01/80 01/31/98 5-23
OAK GARDENS................ FL 582 1,267 1,849 123 01/01/88 N/A 5-32
OAK RIDGE.................. FL 144 1,089 1,233 39 05/17/85 01/31/98 5-27
OAK SHADE.................. FL 139 1,359 1,498 48 04/01/85 01/31/98 5-27
</TABLE>
F-40
<PAGE> 73
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OAKWOOD MANOR.............. FL 278 1,596 1,874 52 04/01/86 01/31/98 5-28
OAKWOOD VILLAGE............ FL 103 275 378 31 01/01/86 N/A 5-30
OLD ARCHER COURT........... FL 104 1,160 1,264 46 08/01/77 04/01/98 5-19
PALATKA OAKS I............. FL 10 224 234 12 08/01/77 01/31/98 5-20
PALATKA OAKS II............ FL 16 227 243 10 08/01/80 01/31/98 5-23
PALM PLACE................. FL 231 1,403 1,634 53 01/01/84 01/31/98 5-26
PELICAN POINTE I........... FL 221 1,250 1,471 122 11/01/87 N/A 5-32
PELICAN POINTE II.......... FL 158 1,164 1,322 114 11/01/87 N/A 5-32
PINE BARRENS............... FL 302 1,507 1,809 158 06/01/86 N/A 5-30
PINE LAKE.................. FL 59 334 393 14 10/01/82 01/31/98 5-25
PINE MEADOWS I............. FL 197 1,020 1,217 37 02/01/85 01/31/98 5-27
PINE TERRACE I............. FL 246 2,501 2,747 89 08/01/83 01/31/98 5-26
PINELLAS PINES............. FL 202 1,431 1,633 51 12/01/83 01/31/98 5-26
RANCHSIDE.................. FL 131 594 725 24 08/01/85 01/31/98 5-28
RIVERS END I............... FL 140 1,255 1,395 43 02/01/86 01/31/98 5-28
RIVERS END II.............. FL 161 949 1,110 98 01/01/86 N/A 5-30
SANDPIPER II............... FL 96 1,039 1,135 39 09/01/82 01/31/98 5-25
SANFORD COURT.............. FL 86 2,101 2,187 104 11/01/76 01/31/98 5-19
SHADOW BAY I............... FL 119 1,320 1,439 45 04/01/84 01/31/98 5-26
SHADOW BAY II.............. FL 74 1,114 1,188 39 08/01/85 01/31/98 5-28
SHADOW RIDGE............... FL 90 1,641 1,731 61 10/01/83 01/31/98 5-26
SHADOWOOD I................ FL 159 1,384 1,543 56 01/01/82 01/31/98 5-24
SHADOWOOD II............... FL 155 1,687 1,842 60 05/01/83 01/31/98 5-25
SILVER FOREST.............. FL 115 911 1,026 34 02/01/85 01/31/98 5-27
SKY PINES I................ FL 311 1,262 1,573 44 01/01/86 01/31/98 5-28
SKY PINES II............... FL 266 766 1,032 94 06/01/86 N/A 5-30
SPRING GATE................ FL 52 1,084 1,136 40 11/01/83 01/31/98 5-26
STRAWBERRY PLACE........... FL 49 803 852 31 06/01/82 01/31/98 5-24
SUGARTREE I................ FL 76 957 1,033 35 06/01/84 01/31/98 5-26
SUNSET WAY I............... FL 621 1,414 2,035 140 08/01/87 N/A 5-32
SUNSET WAY II.............. FL 649 1,520 2,169 147 04/27/88 N/A 5-32
SUTTON PLACE............... FL 146 737 883 28 07/01/84 01/31/98 5-26
TERRACE TRACE.............. FL 177 1,146 1,323 42 05/01/85 01/31/98 5-27
THE LANDINGS............... FL 68 769 837 31 04/01/84 01/31/98 5-26
THYMEWOOD II............... FL 429 400 829 43 01/01/86 N/A 5-30
TURKSCAP I................. FL 55 591 646 29 12/01/77 01/31/98 5-20
TURKSCAP III............... FL 85 695 780 27 11/01/82 01/31/98 5-25
UNIVERSITY SQUARE I........ FL 127 1,070 1,197 39 07/01/79 04/01/98 5-21
WESTCREEK.................. FL 167 1,446 1,613 48 01/01/86 01/31/98 5-28
WHISPERING PINES II........ FL 71 523 594 54 03/31/86 N/A 5-30
WINDWOOD I................. FL 25 535 560 55 05/01/88 N/A 5-32
WINDWOOD II................ FL 34 800 834 29 12/31/87 01/31/98 5-30
WINGWOOD................... FL 90 1,822 1,912 65 11/01/80 04/01/98 5-23
WINTER WOODS I............. FL 134 1,033 1,167 31 07/01/85 01/31/98 5-27
WOODLAND I................. FL 175 1,732 1,907 64 07/01/84 01/31/98 5-26
WOODLAND II................ FL 91 1,363 1,454 48 08/01/85 01/31/98 5-28
AUTUMN COVE................ GA 115 1,017 1,132 34 06/26/85 01/31/98 5-27
BARRINGTON................. GA 118 1,120 1,238 39 11/26/84 01/31/98 5-27
CAMDEN WAY I............... GA 61 1,214 1,275 42 02/01/85 01/31/98 5-27
CAMDEN WAY II.............. GA 37 846 883 29 02/01/86 01/31/98 5-28
CARRIAGE HILL.............. GA 76 774 850 28 04/29/85 01/31/98 5-27
CEDARGATE.................. GA 129 1,487 1,616 45 03/01/83 04/01/98 5-25
COUNTRYSIDE MANOR.......... GA 80 1,499 1,579 53 02/22/85 01/31/98 5-27
ELMWOOD.................... GA 181 904 1,085 32 09/07/84 01/31/98 5-27
FOREST VILLAGE............. GA 156 1,606 1,762 59 10/21/83 01/31/98 5-26
</TABLE>
F-41
<PAGE> 74
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GENTIAN OAKS............... GA 165 1,267 1,432 43 05/10/85 01/31/98 5-27
GLEN ARM MANOR............. GA 149 1,245 1,394 148 01/01/86 N/A 5-30
GLENWOOD VILLAGE........... GA 156 674 830 68 12/01/86 N/A 5-31
GREENBRIAR GLEN............ GA 274 1,536 1,810 143 03/28/88 N/A 5-32
HARBINWOOD................. GA 228 1,464 1,692 52 08/15/85 01/31/98 5-28
HATCHERWAY................. GA 111 1,112 1,223 78 01/01/86 N/A 5-30
HILLSIDE MANOR............. GA 33 649 682 26 08/26/85 01/31/98 5-28
HOLLY PARK................. GA 55 968 1,023 32 12/06/85 01/31/98 5-28
INDIAN LAKE I.............. GA 898 4,957 5,855 480 08/11/87 N/A 5-32
IRIS GLEN.................. GA 266 1,823 2,089 62 03/09/84 01/31/98 5-26
KINGS COLONY............... GA 238 1,272 1,510 124 11/15/87 N/A 5-32
LAKESHORE I................ GA 46 945 991 101 06/20/86 N/A 5-31
LAUREL GLEN................ GA 266 1,707 1,973 177 04/04/86 N/A 5-30
LINK TERRACE............... GA 101 980 1,081 35 08/01/84 01/31/98 5-27
MARSH LANDING I............ GA 28 1,236 1,264 45 07/01/84 01/31/98 5-26
MARSHLANDING II............ GA 30 908 938 91 12/31/86 N/A 5-31
MEADOWLAND................. GA 85 1,313 1,398 38 06/11/84 01/31/98 5-26
MEADOWOOD I................ GA 182 1,828 2,010 57 11/01/82 04/01/98 5-25
MEADOWOOD II............... GA 105 924 1,029 34 04/02/84 01/31/98 5-26
MILL RUN................... GA 189 1,379 1,568 150 04/14/86 N/A 5-30
MORGAN TRACE............... GA 96 1,344 1,440 45 05/16/86 01/31/98 5-28
NORTHRIDGE................. GA 113 1,077 1,190 37 08/22/85 01/31/98 5-28
OAKLEY WOODS............... GA 77 1,060 1,137 37 10/15/84 01/31/98 5-27
OAKWOOD VILLAGE............ GA 115 1,609 1,724 52 11/30/85 01/31/98 5-28
PINE KNOLL................. GA 144 948 1,092 33 04/12/85 01/31/98 5-27
QUAIL CALL................. GA 77 879 956 32 10/01/84 01/31/98 5-27
RAMBLEWOOD I............... GA 68 961 1,029 37 02/01/83 01/31/98 5-25
RAMBLEWOOD II.............. GA 264 1,797 2,061 177 10/01/86 N/A 5-31
RAMBLEWOOD II.............. GA 36 477 513 18 10/01/83 01/31/98 5-26
REDAN VILLAGE I............ GA 129 1,493 1,622 49 10/19/84 01/31/98 5-27
REDAN VILLAGE II........... GA 122 1,336 1,458 45 02/17/86 01/31/98 5-28
RIDGEWOOD I................ GA 97 1,719 1,816 50 03/04/84 04/01/98 5-26
RIDGEWOOD II............... GA 88 1,043 1,131 35 03/03/86 01/31/98 5-28
SHADOW TRACE............... GA 417 2,238 2,655 79 07/13/84 01/31/98 5-26
SKY RIDGE.................. GA 313 3,457 3,770 93 05/11/87 04/01/98 5-29
STEWART WAY I & II......... GA 477 3,269 3,746 349 01/01/86 N/A 5-30
STILLWATER................. GA 139 1,192 1,331 43 05/01/83 01/31/98 5-25
STRATFORD LANE I........... GA 76 933 1,009 33 12/31/84 01/31/98 5-27
SUNNYSIDE.................. GA 208 1,237 1,445 45 06/01/84 01/31/98 5-26
TIMBERWOOD................. GA 42 627 669 23 05/25/85 01/31/98 5-27
VALLEYBROOK................ GA 129 1,409 1,538 148 10/15/86 N/A 5-31
VALLEYFIELD I.............. GA 202 1,802 2,004 60 05/18/84 01/31/98 5-26
VALLEYFIELD II............. GA 166 1,580 1,746 49 09/30/85 01/31/98 5-28
WATERBURY.................. GA 47 1,008 1,055 30 06/12/85 01/31/98 5-27
WESTWAY.................... GA 57 880 937 32 12/01/84 01/31/98 5-27
WHISPERWOOD................ GA 99 605 704 24 07/15/85 01/31/98 5-27
WILCREST WOODS............. GA 247 1,257 1,504 136 12/31/86 N/A 5-31
WILLOW CREEK I............. GA 84 754 838 27 05/08/85 01/31/98 5-27
WILLOW RUN................. GA 194 2,012 2,206 59 08/22/83 04/01/98 5-25
WILLOWOOD.................. GA 68 1,311 1,379 46 04/07/84 01/31/98 5-26
WOODCLIFF I................ GA 119 1,282 1,401 45 12/31/84 01/31/98 5-27
WOODCLIFF II............... GA 273 1,399 1,672 46 01/13/86 01/31/98 5-28
WOODCREST I................ GA 122 1,166 1,288 42 12/31/84 01/31/98 5-27
WOODTRAIL.................. GA 100 1,616 1,716 55 10/15/84 01/31/98 5-27
ANSLEY OAKS................ IL 69 1,439 1,508 47 05/01/86 01/31/98 5-28
</TABLE>
F-42
<PAGE> 75
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BRADFORD PLACE............. IL 216 632 848 65 07/23/86 N/A 5-31
BRUNSWICK.................. IL 54 1,648 1,702 167 04/01/86 N/A 5-30
HUNTER GLEN................ IL 257 1,331 1,588 131 03/01/87 N/A 5-31
ACADIA COURT............... IN 234 1,905 2,139 65 08/19/85 01/31/98 5-28
ACADIA COURT II............ IN 398 1,637 2,035 165 06/06/86 N/A 5-30
ANNHURST................... IN 34 1,328 1,362 49 02/15/85 01/31/98 5-27
APPLEGATE.................. IN 153 1,522 1,675 46 09/11/82 04/01/98 5-24
APPLEGATE I................ IN 99 1,254 1,353 44 03/01/84 01/31/98 5-26
APPLEGATE II............... IN 163 1,852 2,015 183 06/01/87 N/A 5-31
ARAGON WOODS............... IN 298 1,238 1,536 119 12/26/86 N/A 5-31
ASHGROVE................... IN 57 1,385 1,442 51 08/01/83 01/31/98 5-26
BECKFORD PLACE............. IN 77 953 1,030 33 06/13/84 01/31/98 5-26
BRANDON COURT.............. IN 113 1,526 1,639 54 10/01/84 01/31/98 5-27
CAMBRIDGE COMMONS I........ IN 44 1,056 1,100 37 05/01/86 01/31/98 5-28
CAMBRIDGE COMMONS II....... IN 53 1,351 1,404 47 03/07/87 01/31/98 5-29
CAMBRIDGE COMMONS III...... IN 1 1,261 1,262 122 01/29/88 N/A 5-32
CEDARGATE.................. IN 18 1,078 1,096 38 11/01/83 01/31/98 5-26
CEDARGATE I................ IN 122 1,659 1,781 50 11/01/83 04/01/98 5-26
CEDARGATE II............... IN 98 1,128 1,226 39 06/01/85 01/31/98 5-27
CEDARWOOD I................ IN 40 924 964 27 03/11/83 04/01/98 5-25
CEDARWOOD II............... IN 33 901 934 25 08/03/84 04/01/98 5-26
CHERRY GLEN I.............. IN 204 1,480 1,684 149 07/10/86 N/A 5-31
CHERRY GLENN II............ IN 4 1,714 1,718 169 04/01/87 N/A 5-31
CLEARVIEW I................ IN 113 1,606 1,719 53 06/19/86 01/31/98 5-28
CLEARVIEW II............... IN 118 1,825 1,943 58 02/01/87 01/31/98 5-29
CONCORD SQUARE............. IN 54 1,020 1,074 43 05/04/82 01/31/98 5-24
CONCORD SQUARE............. IN 83 1,194 1,277 43 06/01/83 01/31/98 5-25
DOGWOOD GLEN I............. IN 248 1,335 1,583 130 07/18/86 N/A 5-31
DOGWOOD GLEN II............ IN 145 1,560 1,705 49 04/13/87 01/31/98 5-29
ELMTREE PARK I............. IN 208 1,247 1,455 121 06/08/86 N/A 5-30
ELMTREE PARK II............ IN 46 1,157 1,203 111 05/01/87 N/A 5-31
HAMPSHIRE COURT............ IN 30 717 747 29 04/04/82 01/31/98 5-24
HARTWICK................... IN 61 892 953 33 10/18/82 01/31/98 5-25
HEATHMOORE................. IN 82 1,183 1,265 45 08/03/84 01/31/98 5-27
HEATHMOORE I............... IN 95 1,353 1,448 49 08/01/83 01/31/98 5-26
MARABOU MILLS I............ IN 180 1,607 1,787 167 06/23/86 N/A 5-31
MARABOU MILLS II........... IN 85 1,162 1,247 108 N/A 10/29/93 5-33
MARABOU MILLS III.......... IN 75 1,139 1,214 113 12/01/87 N/A 5-32
MEADOWOOD.................. IN 119 1,421 1,540 52 04/04/83 01/31/98 5-25
MEADOWOOD.................. IN 60 1,406 1,466 53 04/03/83 01/31/98 5-25
MEADOWOOD.................. IN 43 781 824 28 07/02/84 01/31/98 5-26
MEADOWOOD.................. IN 114 1,301 1,415 48 04/07/84 01/31/98 5-26
MEADOWOOD II............... IN 62 1,077 1,139 111 05/30/86 N/A 5-30
OLIVEWOOD I................ IN 102 1,514 1,616 53 05/09/85 01/31/98 5-27
OLIVEWOOD II............... IN 82 1,404 1,486 48 02/18/86 01/31/98 5-28
PARKVILLE.................. IN 46 1,105 1,151 41 11/01/82 01/31/98 5-25
PLUMWOOD................... IN 41 675 716 27 11/25/80 01/31/98 5-23
PLUMWOOD................... IN 34 684 718 28 05/15/81 01/31/98 5-23
PRINCETON COURT............ IN 59 923 982 32 06/07/85 01/31/98 5-27
RIDGEWOOD I................ IN 87 891 978 31 07/02/84 01/31/98 5-26
RIDGEWOOD I................ IN 100 1,342 1,442 110 N/A 08/01/96 5-30
RIDGEWOOD II............... IN 95 838 933 28 02/26/86 01/31/98 5-28
RIDGEWOOD II............... IN 101 1,455 1,556 148 03/01/86 N/A 5-30
ROSEWOOD COMMONS I......... IN 196 1,833 2,029 66 01/11/86 01/31/98 5-28
ROSEWOOD COMMONS II........ IN 121 1,216 1,337 121 06/01/87 N/A 5-31
</TABLE>
F-43
<PAGE> 76
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHERBROOK.................. IN 142 1,342 1,484 132 06/16/86 N/A 5-31
SLATE RUN.................. IN 169 2,250 2,419 66 01/25/84 04/01/98 5-26
SLATE RUN.................. IN 71 1,374 1,445 47 07/13/84 01/31/98 5-26
SPICEWOOD.................. IN 91 1,026 1,117 107 03/16/86 N/A 5-30
SPRINGWOOD................. IN 99 1,010 1,109 39 10/01/81 01/31/98 5-24
STONEHENGE................. IN 71 1,589 1,660 54 06/25/84 01/31/98 5-26
STONEHENGE................. IN 73 476 549 17 04/22/85 01/31/98 5-27
STONEHENGE I............... IN 122 1,380 1,502 49 06/30/84 01/31/98 5-26
WATERBURY.................. IN 93 942 1,035 35 05/31/84 01/31/98 5-26
WESTWOOD................... IN 29 703 732 26 05/03/84 01/31/98 5-26
WILLOW RUN................. IN 199 1,180 1,379 46 07/01/84 01/31/98 5-26
WILLOWOOD EAST II.......... IN 20 865 885 29 07/08/85 01/31/98 5-27
WILLOWOOD I................ IN 106 1,259 1,365 38 07/05/83 04/01/98 5-25
WILLOWOOD II............... IN 150 1,280 1,430 128 06/01/87 N/A 5-31
ASHGROVE................... KY 133 1,290 1,423 46 08/01/84 01/31/98 5-27
CAMELLIA COURT............. KY 56 984 1,040 36 11/15/82 01/31/98 5-25
CEDARGATE.................. KY 123 1,583 1,706 56 07/01/84 01/31/98 5-26
CEDARGATE I................ KY 85 1,370 1,455 50 07/23/83 01/31/98 5-26
CEDARGATE II............... KY 123 905 1,028 94 06/01/86 N/A 5-30
CEDARWOOD I................ KY 143 979 1,122 35 06/22/84 01/31/98 5-26
CEDARWOOD II............... KY 174 929 1,103 98 01/01/86 N/A 5-30
CEDARWOOD III.............. KY 123 1,011 1,134 108 05/20/86 N/A 5-30
FORSYTHIA COURT............ KY 103 1,632 1,735 58 06/07/85 01/31/98 5-27
HAYFIELD PARK.............. KY 342 1,608 1,950 163 07/17/86 N/A 5-31
HEATHMOORE................. KY 85 952 1,037 38 09/21/83 01/31/98 5-26
LONGWOOD................... KY 161 1,041 1,202 38 08/10/85 01/31/98 5-28
MEADOWOOD.................. KY 80 1,023 1,103 37 06/01/83 01/31/98 5-25
MEADOWOOD.................. KY 153 1,624 1,777 58 11/28/83 01/31/98 5-26
RIDGEWOOD.................. KY 175 1,177 1,352 42 05/21/84 01/31/98 5-26
RIDGEWOOD.................. KY 85 950 1,035 34 06/01/84 01/31/98 5-26
RIDGEWOOD I................ KY 261 1,565 1,826 44 07/19/84 04/01/98 5-26
ROSEWOOD................... KY 248 1,592 1,840 55 09/28/84 01/31/98 5-27
SLATE RUN.................. KY 90 1,105 1,195 41 07/02/84 01/31/98 5-26
SLATE RUN.................. KY 39 836 875 30 07/19/84 01/31/98 5-26
SLATE RUN I................ KY 102 961 1,063 35 07/02/84 01/31/98 5-26
SLATE RUN II............... KY 139 1,041 1,180 38 04/29/85 01/31/98 5-27
SPRINGWOOD................. KY 86 890 976 93 01/01/86 N/A 5-30
STONEHENGE................. KY 71 1,052 1,123 39 08/01/83 01/31/98 5-26
VALLEYFIELD................ KY 285 2,047 2,332 69 08/01/85 01/31/98 5-28
WILLOW RUN................. KY 94 1,458 1,552 54 09/18/84 01/31/98 5-27
WILLOWOOD.................. KY 48 849 897 30 09/24/84 01/31/98 5-27
WILLOWOOD I................ KY 127 1,189 1,316 42 08/20/84 01/31/98 5-27
WILLOWOOD II............... KY 98 778 876 27 11/06/85 01/31/98 5-28
WINTHROP COURT............. KY 180 1,169 1,349 42 06/07/85 01/31/98 5-27
WOODLANDS.................. KY 53 858 911 32 07/01/83 01/31/98 5-25
CHERRY TREE................ MD 623 2,492 3,115 249 09/01/86 N/A 5-31
FORSYTHIA CT I............. MD 214 1,946 2,160 65 02/28/86 01/31/98 5-28
FORSYTHIA CT II............ MD 285 1,515 1,800 146 06/01/87 N/A 5-31
MERRIFIELD................. MD 211 2,250 2,461 214 01/11/88 N/A 5-32
AMBERIDGE.................. MI 75 911 986 30 12/02/85 01/31/98 5-28
APPLE RUN.................. MI 76 765 841 29 12/27/82 01/31/98 5-25
ASHGROVE................... MI 37 963 1,000 37 08/15/83 01/31/98 5-26
ASHGROVE I................. MI 120 2,575 2,695 88 11/15/85 01/31/98 5-28
ASHGROVE II................ MI 95 2,278 2,373 73 01/09/87 01/31/98 5-29
FOXTON..................... MI 124 1,084 1,208 40 08/22/83 01/31/98 5-26
</TABLE>
F-44
<PAGE> 77
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GARDEN COURT............... MI 128 2,223 2,351 210 04/22/88 N/A 5-32
HEATHMOORE................. MI 82 1,639 1,721 60 11/23/83 01/31/98 5-26
HEATHMOORE I............... MI 129 1,226 1,355 124 07/31/86 N/A 5-31
HEATHMOORE II.............. MI 86 1,532 1,618 49 12/12/86 01/31/98 5-29
LAUREL BAY................. MI 164 1,116 1,280 100 10/01/89 N/A 5-34
MEADOWOOD.................. MI 74 1,479 1,553 51 09/24/84 01/31/98 5-27
MEADOWOOD I................ MI 15 1,166 1,181 36 01/17/83 04/01/98 5-25
MONTGOMERY COURT I......... MI 70 1,056 1,126 39 11/26/84 01/31/98 5-27
NEWBERRY I................. MI 77 1,106 1,183 38 01/15/85 01/31/98 5-27
NEWBERRY II................ MI 91 643 734 64 12/26/86 N/A 5-31
OLIVEWOOD.................. MI 304 4,370 4,674 142 12/03/86 01/31/98 5-29
RIDGEWOOD.................. MI 77 1,228 1,305 38 11/01/83 04/01/98 5-26
ROANOKE.................... MI 360 2,731 3,091 92 01/03/85 01/31/98 5-27
STONEHENGE................. MI 19 1,174 1,193 39 08/20/84 01/31/98 5-27
WATERBURY.................. MI 257 2,242 2,499 76 11/21/85 01/31/98 5-28
WENTWORTH.................. MI 100 1,908 2,008 64 09/13/85 01/31/98 5-28
AMBERWOOD.................. OH 172 1,033 1,205 99 10/01/87 N/A 5-32
AMESBURY I................. OH 136 1,077 1,213 115 02/17/86 N/A 5-30
AMESBURY II................ OH 169 1,676 1,845 174 N/A 09/26/95 5-30
AMHURST.................... OH 174 992 1,166 30 03/28/83 04/01/98 5-25
AMHURST I.................. OH 60 989 1,049 36 08/24/79 04/01/98 5-21
AMHURST II................. OH 67 1,205 1,272 42 02/03/81 04/01/98 5-23
ANDOVER COURT.............. OH 62 1,011 1,073 38 02/02/82 01/31/98 5-24
ANNHURST II................ OH 123 1,253 1,376 126 07/01/86 N/A 5-31
ANNHURST III............... OH 70 1,133 1,203 108 05/05/88 N/A 5-32
APPLE RIDGE I.............. OH 214 759 973 86 01/01/87 N/A 5-28
APPLE RIDGE III............ OH 38 650 688 24 10/16/82 01/31/98 5-25
APPLE RUN II............... OH 21 533 554 24 09/26/80 01/31/98 5-23
APPLEGATE.................. OH 84 742 826 28 05/24/82 01/31/98 5-24
APPLEGATE.................. OH 36 580 616 26 09/10/81 01/31/98 5-24
APPLERUN................... OH 86 879 965 32 08/05/83 01/31/98 5-26
ASHFORD HILL............... OH 360 1,022 1,382 108 06/23/86 N/A 5-31
ASHGROVE................... OH 108 1,296 1,404 48 01/24/83 01/31/98 5-25
BECKFORD PLACE............. OH 49 703 752 28 09/29/81 01/31/98 5-24
BECKFORD PLACE............. OH 41 1,497 1,538 46 12/21/82 04/01/98 5-25
BECKFORD PLACE I........... OH 218 1,294 1,512 38 04/15/83 04/01/98 5-25
BECKFORD PLACE II.......... OH 175 1,226 1,401 40 05/24/85 01/31/98 5-27
CAMELLIA COURT............. OH 40 627 667 26 05/14/81 01/31/98 5-23
CAMELLIA COURT I........... OH 21 1,203 1,224 50 07/22/81 01/31/98 5-24
CAMELLIA COURT I........... OH 136 1,445 1,581 46 12/28/81 04/01/98 5-24
CAMELLIA COURT II.......... OH 43 823 866 34 09/20/82 01/31/98 5-25
CAMELLIA COURT II.......... OH 107 937 1,044 33 04/14/84 01/31/98 5-26
CEDARGATE I................ OH 187 2,339 2,526 103 01/01/82 01/31/98 5-24
CEDARGATE I................ OH 85 1,287 1,372 44 06/25/84 01/31/98 5-26
CEDARGATE II............... OH 132 805 937 30 12/01/83 01/31/98 5-26
CEDARWOOD.................. OH 37 565 602 24 03/12/82 01/31/98 5-24
CEDARWOOD I................ OH 52 789 841 31 09/26/80 01/31/98 5-23
CHARING CROSS.............. OH 111 1,094 1,205 49 07/22/78 01/31/98 5-20
CHELSEA COURT.............. OH 113 1,146 1,259 39 05/15/81 04/01/98 5-23
CLEARWATER................. OH 132 1,020 1,152 109 11/01/86 N/A 5-31
CONCORD SQUARE I........... OH 38 689 727 27 08/10/81 01/31/98 5-24
CONCORD SQUARE II.......... OH 29 649 678 24 02/08/83 01/31/98 5-25
DANIEL COURT............... OH 225 2,122 2,347 73 02/01/85 01/31/98 5-27
DARTMOUTH PLACE I.......... OH 89 1,393 1,482 52 08/03/82 01/31/98 5-25
DARTMOUTH PLACE II......... OH 114 1,110 1,224 112 07/18/86 N/A 5-31
</TABLE>
F-45
<PAGE> 78
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DOVER PLACE I.............. OH 148 2,041 2,189 62 10/04/82 04/01/98 5-25
DOVER PLACE II............. OH 127 1,845 1,972 54 11/01/83 04/01/98 5-26
DOVER PLACE III............ OH 70 905 975 26 11/23/83 04/01/98 5-26
DOVER PLACE IV............. OH 237 2,058 2,295 66 11/25/86 01/31/98 5-29
FOXHAVEN................... OH 403 1,600 2,003 162 08/18/86 N/A 5-31
FOXTON II.................. OH 70 1,776 1,846 66 02/11/83 01/31/98 5-25
GREENGLEN.................. OH 100 1,442 1,542 54 08/29/83 01/31/98 5-26
GREENGLEN II............... OH 89 971 1,060 37 12/04/81 01/31/98 5-24
GREENGLEN II............... OH 23 1,031 1,054 40 06/05/82 01/31/98 5-24
HAMPSHIRE II............... OH 98 970 1,068 39 03/15/81 01/31/98 5-23
HARVEST GROVE I............ OH 225 1,198 1,423 118 09/08/86 N/A 5-31
HARVEST GROVE II........... OH 252 1,232 1,484 125 N/A 09/26/95 5-30
HICKORY MILL............... OH 119 1,385 1,504 48 05/02/80 04/01/98 5-22
INDEPENDENCE VILLAGE....... OH 189 2,208 2,397 107 10/18/78 01/31/98 5-21
KETWOOD.................... OH 164 2,185 2,349 74 12/29/79 04/01/98 5-22
LAMPLIGHT COURT............ OH 40 746 786 48 10/31/72 01/31/98 5-15
LARKSPUR I................. OH 36 597 633 24 01/08/82 01/31/98 5-24
LARKSPUR I................. OH 87 1,447 1,534 45 02/11/83 04/01/98 5-25
LARKSPUR II................ OH 24 251 275 9 08/10/84 01/31/98 5-27
LAUREL COURT............... OH 174 1,240 1,414 55 08/15/78 01/31/98 5-21
LINDENDALE................. OH 189 1,696 1,885 168 03/01/87 N/A 5-31
MEADOWOOD.................. OH 51 590 641 60 01/01/86 N/A 5-30
MEADOWOOD.................. OH 316 2,659 2,975 73 08/26/85 04/01/98 5-27
MEADOWOOD.................. OH 136 1,495 1,631 51 04/08/85 01/31/98 5-27
MEADOWOOD APTS............. OH 71 999 1,070 36 04/04/83 01/31/98 5-25
MEADOWOOD I................ OH 115 1,350 1,465 48 06/01/84 01/31/98 5-26
MEADOWOOD II............... OH 64 544 608 20 04/01/85 01/31/98 5-27
MELDON PLACE............... OH 331 1,604 1,935 74 01/02/78 01/31/98 5-20
MILLBURN................... OH 135 1,484 1,619 51 08/06/84 01/31/98 5-27
MILLBURN COURT II.......... OH 137 1,164 1,301 46 07/27/81 01/31/98 5-24
MILLSTON I................. OH 31 479 510 21 05/18/81 01/31/98 5-23
MILLSTON II................ OH 7 455 462 18 01/29/82 01/31/98 5-24
MONTGOMERY COURT I......... OH 246 1,426 1,672 49 07/01/85 01/31/98 5-27
MONTGOMERY COURT II........ OH 121 684 805 24 03/03/86 01/31/98 5-28
MONTROSE SQUARE............ OH 569 2,262 2,831 240 01/01/87 N/A 5-30
PARKVILLE.................. OH 222 1,701 1,923 75 07/23/78 01/31/98 5-21
PARKVILLE.................. OH 76 952 1,028 30 02/11/82 04/01/98 5-24
PLUMWOOD I................. OH 169 2,233 2,402 87 04/01/78 04/01/98 5-20
PLUMWOOD II................ OH 38 804 842 25 04/18/83 04/01/98 5-25
RED DEER I................. OH 183 1,775 1,958 58 06/16/86 01/31/98 5-28
RED DEER II................ OH 235 1,411 1,646 137 08/01/87 N/A 5-32
RIDGEWOOD I................ OH 85 1,163 1,248 41 01/06/84 01/31/98 5-26
RIDGEWOOD II............... OH 70 1,071 1,141 38 03/18/85 01/31/98 5-27
RIVER GLEN I............... OH 146 1,271 1,417 125 04/01/87 N/A 5-31
RIVER GLEN II.............. OH 179 1,206 1,385 115 11/01/87 N/A 5-32
RIVERVIEW ESTATES.......... OH 74 1,555 1,629 175 01/01/87 N/A 5-28
ROSEWOOD................... OH 139 1,505 1,644 54 05/28/85 01/31/98 5-27
SANDALWOOD................. OH 179 1,003 1,182 36 02/24/84 01/31/98 5-26
SHERBROOK.................. OH 147 1,253 1,400 40 07/29/85 01/31/98 5-28
SLATE RUN.................. OH 118 1,020 1,138 36 05/13/85 01/31/98 5-27
SPRINGWOOD................. OH 130 1,332 1,462 39 03/14/83 04/01/98 5-25
SPRINGWOOD II.............. OH 52 857 909 32 10/04/82 01/31/98 5-25
STONEHENGE................. OH 30 743 773 27 08/08/83 01/31/98 5-26
STONEHENGE................. OH 40 701 741 25 04/01/84 01/31/98 5-26
STONEHENGE................. OH 72 1,360 1,432 46 10/26/85 01/31/98 5-28
</TABLE>
F-46
<PAGE> 79
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
LEXFORD RESIDENTIAL TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III
DECEMBER 31, 1998
(In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION GROSS AMOUNT AT WHICH CARRIED
(GARDEN APARTMENTS) AT CLOSE OF PERIOD,
DECEMBER 31, 1998 (Notes 1 & 2)
- ---------------------------------- ---------------------------------
LIFE ON
BUILDINGS WHICH
and ACCUM DATE DATE DEPREC.
PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUFFOLK GROVE I............ OH 124 1,271 1,395 42 12/06/85 01/31/98 5-28
SUFFOLK GROVE II........... OH 154 1,209 1,363 118 06/01/87 N/A 5-31
TABOR RIDGE................ OH 194 1,825 2,019 52 02/24/86 04/01/98 5-28
THE BIRCHES................ OH 70 1,024 1,094 49 04/16/77 01/31/98 5-19
THE MEADOWS I.............. OH 83 1,041 1,124 36 08/12/85 01/31/98 5-28
THE MEADOWS II............. OH 151 1,233 1,384 124 N/A 03/29/95 5-30
THE WILLOWS I.............. OH 158 816 974 97 01/01/87 N/A 5-28
THE WILLOWS II............. OH 34 886 920 36 10/28/81 01/31/98 5-24
THE WILLOWS III............ OH 45 855 900 85 07/01/87 N/A 5-32
TIMBERCREEK................ OH 159 1,699 1,858 53 06/29/87 01/31/98 5-29
WATERBURY.................. OH 186 1,008 1,194 36 09/13/85 01/31/98 5-28
WEST OF EASTLAND........... OH 154 2,597 2,751 125 03/31/77 01/31/98 5-19
WESTWOOD................... OH 17 108 125 4 11/19/80 01/31/98 5-23
WILLOW RUN................. OH 56 1,025 1,081 37 07/01/83 01/31/98 5-25
WILLOWOOD I................ OH 90 938 1,028 34 06/01/84 01/31/98 5-26
WILLOWOOD I................ OH 91 1,125 1,216 39 05/01/84 01/31/98 5-26
WILLOWOOD II............... OH 42 579 621 20 06/21/85 01/31/98 5-27
WILLOWOOD II............... OH 71 841 912 32 02/25/86 01/31/98 5-28
WILLOWOOD II............... OH 36 624 660 63 06/01/87 N/A 5-31
WINTHROP COURT II.......... OH 146 852 998 89 02/25/86 N/A 5-30
WOODBINE................... OH 66 706 772 28 02/23/81 01/31/98 5-23
WOODBINE................... OH 122 1,668 1,790 51 05/24/82 04/01/98 5-24
WOODLANDS I................ OH 181 2,104 2,285 79 05/23/83 01/31/98 5-25
WOODLANDS I................ OH 103 1,863 1,966 64 10/01/84 01/31/98 5-27
WOODLANDS II............... OH 112 1,559 1,671 57 09/30/84 01/31/98 5-27
WOODLANDS II............... OH 98 1,887 1,985 64 11/18/85 01/31/98 5-28
WOODLANDS III.............. OH 159 2,051 2,210 67 06/12/87 01/31/98 5-29
ANNHURST................... PA 77 2,041 2,118 70 11/26/84 01/31/98 5-27
BRUNSWICK I................ PA 126 2,211 2,337 73 05/12/86 01/31/98 5-28
CARLETON COURT............. PA 143 1,248 1,391 41 11/08/85 01/31/98 5-28
NORTHRUP COURT I........... PA 154 1,511 1,665 52 06/24/85 01/31/98 5-27
NORTHRUP COURT II.......... PA 88 937 1,025 30 10/15/85 01/31/98 5-28
VALLEYFIELD................ PA 257 1,790 2,047 63 10/15/85 01/31/98 5-28
WOODLANDS I................ PA 113 1,187 1,300 35 11/01/83 04/01/98 5-26
WOODLANDS II............... PA 118 1,325 1,443 132 03/01/87 N/A 5-31
RAVENWOOD.................. SC 170 1,553 1,723 149 05/07/87 N/A 5-31
SPRINGBROOK................ SC 120 1,816 1,936 195 06/13/86 N/A 5-30
WILLOW LAKES............... SC 189 1,822 2,011 177 12/12/86 N/A 5-31
CEDAR HILL................. TN 235 1,287 1,522 128 05/30/86 N/A 5-30
KNOX LANDING............... TN 90 1,529 1,619 50 04/04/86 01/31/98 5-28
WATERBURY.................. TN 101 1,092 1,193 36 07/05/85 01/31/98 5-27
WYCLIFFE COURT............. TN 124 1,226 1,350 44 07/29/85 01/31/98 5-28
WALKER PLACE............... TX 270 1,194 1,464 112 01/25/88 N/A 5-32
BRUNSWICK II............... WV 105 1,830 1,935 178 N/A 09/26/95 5-30
CARLETON COURT............. WV 308 1,669 1,977 57 03/21/85 01/31/98 5-27
HICKORY MILL I............. WV 85 972 1,057 36 04/15/83 01/31/98 5-25
PARKVILLE.................. WV 70 887 957 33 10/10/82 01/31/98 5-25
SHERBROOK.................. WV 355 1,467 1,822 145 12/20/86 N/A 5-31
----------------------------------------------------------------------------------
$59,732 $544,897 $604,629 $28,564
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
F-47
<PAGE> 80
LEXFORD RESIDENTIAL TRUST
NOTES TO SCHEDULE III
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In Thousands)
The following shows the changes in the total amounts at which Real Estate was
carried during the periods:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Note (1) Schedule III Reconciliation:
Balance as of beginning of year............................ $161,369 $161,570 $164,334
Additions during the year:
Acquisitions of Property.............................. 430,981 0 1,421
Costs Capitalized..................................... 14,276 2,355 702
Deductions during the year:
Disposals............................................. (1,997) (2,556) (4,887)
Balance Rental Properties
-------- -------- --------
December 31, 1998, 1997, 1996, respectively........... $604,629 $161,369 $161,570
======== ======== ========
</TABLE>
The following shows changes in accumulated depreciation during the periods:
<TABLE>
<S> <C> <C> <C>
Balance as of beginning of year.................... $ 9,152 $ 4,478 $ 0
Depreciation during the period................... 19,475 4,807 4,541
Deductions for Disposals......................... (63) (133) (63)
-------- -------- --------
Balance Rental Properties
December 31, 1998, 1997, 1996, respectively...... $ 28,564 $ 9,152 $ 4,478
======== ======== ========
</TABLE>
Note (2): Tax basis of assets:
The tax basis for federal income tax purposes in Rental Properties was
approximately $484 million at December 31, 1998
F-48
<PAGE> 1
Exhibit 3.2
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 "Section 6.1 (G). Remedies Not Limited" and inserting in lieu
thereof the following:
G. REMEDIES NOT LIMITED. Subject to Section 6.6, nothing contained in
this Article VI shall limit the authority of the Board of Trustees to take such
other action as it deems necessary or advisable to protect the Trust and the
interests of its Shareholders by preservation of the Trust's status as a REIT."
SECOND: The amendment to the Declaration of the Trust of the Trust as
hereinabove set forth has been duly advised by the board of trustees and
approved by the sole shareholder of the Trust.
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 January 30, 1998.
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
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Second Amended and Restated Loan and Security Agreement (this
"Agreement") is entered into to be effective the 30 day of September, 1998,
among The Provident Bank (the "Bank") and Lexford Residential Trust, f/k/a/
Lexford, Inc., f/k/a Cardinal Realty Services, 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, Cardinal GP
XIII Corporation, Cardinal GP XIV Corporation, Cardinal GP XV Corporation,
Cardinal GP XVI Corporation, Cardinal GP XVIII Corporation, Cardinal LP XIX
Corporation, fka Cardinal GP XIX Corporation, and Lexford Properties, Inc.,
jointly and severally (herein each a "Company" or collectively, the
"Companies").
R E C I T A L S:
I. Some of the Companies and the Bank entered into a Loan and Security
Agreement dated August 11, 1995 (the "Loan Agreement") and various loan
documents executed in connection therewith (the "Loan Documents"); and
II. Lexford Properties, Inc. ("Lexford") acquired all or substantially
all of the management agreements held by the Companies at the time Lexford
became an affiliate of Cardinal Realty Services, Inc. and therefore by a First
Assumption of Loan and Security Agreement dated February 26, 1997, Lexford
assumed joint and several liability with the other Companies for all repayment
obligations on the Loan Agreement, which Assumption Agreement shall be included
in any reference hereafter to the Loan Agreement; and
III. Lexford Residential Trust organized on January 16, 1998 and merged
with Lexford, Inc. on March 3, 1998; and
IV. The Companies and the Bank desire to ratify the current credit
facility and amend and restate the Loan Agreement by increasing the Revolving
Line resulting in an aggregate sum available for loans and advances of
$40,000,000 to be evidenced by a Cognovit Promissory Note (Revolving Line of
Credit) together with certain changes to the financial covenants of the Loan
Agreement and certain other changes as have been agreed to by the parties
hereto. The original Loan Agreement dated August 11, 1995, as heretofore
superseded and replaced in its entirety by that certain Amended and Restated
<PAGE> 2
Loan and Security Agreement dated as of September 30, 1997 is superseded and
replaced in its entirety by this Agreement.
NOW, THEREFORE the Loan Agreement is amended and restated as follows:
1. Revolving Lines of Credit.
1.1. Loans. The Bank, subject to the terms and conditions hereof, will make
loans and advances to the Companies on a revolving basis up to the aggregate sum
of $40,000,000.00 for the uses and purposes specified in subsection 2.2 hereof
(the "Revolving Line of Credit"). The Bank shall have no obligation to advance
or re-advance any sums pursuant to the Revolving Line of Credit at any time when
a set of facts or circumstances exists, which, by themselves, upon the giving of
notice, the lapse of time, or any one or more of the foregoing would constitute
an Event of Default under this Agreement. The proceeds of the Revolving Line of
Credit may be advanced, repaid, and readvanced, prior to maturity and otherwise
subject to the terms and provisions of the Note, as hereinafter defined. Each of
the loans or advances under the Revolving Line of Credit shall be secured by the
security interests hereinafter provided in this Agreement or any other security
agreements, pledge agreements or other security instruments executed prior to
the date hereof or in connection with this Agreement or executed after the date
hereof among the Bank and the Companies.
1.2. Letters of Credit. On or after the date hereof through and including the
maturity date of the Note, provided there has been no Event of Default hereunder
which has occurred and is continuing, the Bank shall, upon the request of the
Companies and subject to the terms and conditions of this Agreement, issue one
(1) or more irrevocable standby or trade letters of credit for the account of
one or more of the Companies up to the maximum aggregate principal amount
available under the Revolving Line of Credit and subject to the use limitations
of subsection 2.2 of this Agreement, and each having an expiration date not
later than the maturity date of the Note (herein each a "Letter of Credit" or
collectively the "Letters of Credit"). Application for a Letter of Credit shall
be made on the form of the Bank customarily used for similar letters of credit.
One or more of the Companies shall provide the application not less than three
(3) days prior to the required date of issuance of the Letter of Credit. Amounts
paid by the Bank to cover any draws under the Letters of Credit as from time to
time amended or modified, shall be deemed to have been advancements made under
the Note, as hereinafter defined, for the Revolving Line of Credit. Prior to any
draws for Letters of Credit under the Revolving Line of Credit, the maximum
principal balance of the Note, available for advances, shall be reduced by the
principal (face) amount of all outstanding Letters of Credit, the principal
(face) amount of all pending applications for Bank's issuance of Letters of
Credit, and amounts previously drawn under the Revolving Line of Credit which
remain outstanding and unpaid. The Companies shall pay to the Bank on the date a
Letter of Credit is issued and on each anniversary thereof until such Letter of
Credit expires a fee equal to one percent (1%) per annum of the undrawn amount
available to be drawn under such Letter of Credit. Such fees shall be earned
when paid and shall not be subject to
<PAGE> 3
rebate or refund by the Bank in the event that any Letter of Credit is
terminated or reduced. The fee for the Letter of Credit shall be calculated on
the basis of a three hundred sixty (360) day year factor applied to the actual
number of days elapsed or that will elapse.
2. Terms and Uses of Loan.
2.1. Interest Rates; Fees; Terms; Costs. The Companies agree to pay the Bank
monthly interest on the unpaid balance of the Revolving Line of Credit at the
rate of interest set forth in the Note, refinancings, renewals, extensions,
modifications, or amendments thereto or substitutions or replacements therefor
in substantially the form set forth in Exhibit A attached hereto (herein
"Note"). The basic terms of the Revolving Line of Credit, as reflected in the
Note, are as follows:
Original principal balance available of $40,000,000.00. Interest to accrue at
The Provident Bank Prime Rate minus one percent (P-l%). Interest only monthly
unless the Companies elect to term out all or any portion of the outstanding
principal balance, which election may be made one or more times at the
Companies' discretion. In the event of an election to term out, the then
outstanding principal balance to be termed out and accrued interest thereon will
be amortized over sixty (60) months at a fixed interest rate equal to two
percent (2%) over the then five (5) year Treasury Constant Maturity Security in
equal monthly payments of principal and interest.
Repayment of the Revolving Line of Credit shall be made, and the
maturity date thereof shall be determined, in accordance with the terms of the
Note. The Companies shall pay all reasonable costs and expenses incidental to
the Revolving Line of Credit or the enforcement of the Bank's rights in
connection therewith. Such costs shall include, but not be limited to,
reasonable fees and out-of-pocket expenses of the Bank's counsel, audit fees,
search fees, recording fees, inspection fees, documentary stamps, revenue
stamps, note and mortgage taxes. To the extent any such costs are incurred by
Bank, Bank may elect, following notice to the Companies, to charge such costs to
the Revolving Line of Credit without further authorization of the Companies.
2.2. Use of Proceeds. The Revolving Line of Credit shall be used for, and
only used for the following purposes:
To fund the month end cash balances on deposit accounts of the
Companies maintained at the Bank, to fund short term working capital for daily
operating needs including (a) Letters of Credit, and (b) to fund the Companies'
equity capital contributions to entities formed to purchase multi-family
properties, payment of dividends, purchase of multi-family management contracts,
purchase mortgage servicing contracts or engage in the commercial mortgage
banking industry. Any funding under clause (b) is preapproved by the Bank, so
long as any purchase does not cause on a proforma basis a negative impact on the
prior four quarters cumulative EBITDA of the Companies and the proforma on any
such acquisition is received by the Bank bearing the
<PAGE> 4
written approval of any two officers of the Company as designated in
subsection 2.3 to be received by the Bank within fifteen (15) days of such
approval.
2.3. Draw Requests. Draw requests on behalf of the Companies shall be requested
by any two of the following: the President and Chief Executive Officer, the
Executive Vice President and Chief Financial Officer, the Senior Vice President
and Controller, the Senior Vice President and Treasurer of Lexford Residential
Trust, or any other officer acceptable to the Bank and designated in writing by
the Companies. Such officer(s) shall only make a draw request if conditions
exist such that (a) no event, fact, or circumstance has occurred since the
closing of the Loans, which, taken together or by itself, upon the giving of
notice, lapse of time or otherwise, has had a materially adverse effect on the
Companies' ability to perform their obligations under this Agreement except as
set forth in any documentation presented to the Bank and accepted by the Bank in
its sole discretion; (b) there has been no Event of Default hereunder or no
event has occurred and is continuing which, upon the giving of notice, lapse of
time or otherwise, would constitute an Event of Default hereunder; and (c) the
requested advance is otherwise in accordance with the purpose limitations in
subsection 2.2 hereof. Unless specifically requested by the Bank written
certification of the foregoing is waived. Each such request shall be made in
person, by phone, or by modem according to the Bank's procedures and shall be
deposited to the general demand deposit account of Lexford Residential Trust
with the exception of draws to fund month end cash balances on deposit accounts
of the Companies maintained at the Bank which shall be deposited into special
cash balance accounts.
2.4. Prepayment. The Companies shall pay to the Bank a prepayment premium in the
amount of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) with
respect to any prepayment of principal of the Loan which occurs before August,
1998 resulting from the Companies' decision to refinance all or any material
portion of the indebtedness evidenced by the Note.
2.5. Unused Line Fee. Effective December 31, 1997, and on each three (3) month
anniversary from that date, if the Companies have not drawn on the Note an
average daily balance of at least $15,000,000 for the preceding Three (3) month
period, then the Company shall pay the Bank an unused line fee equal to one
eighth of one percent (1/8%) of the difference between the average daily balance
and $40,000,000 (($40,000,000 minus average daily balance) times 0.125% = unused
line fee).
3. Security Interest.
3.1. Grant of Security Interest. The Companies, jointly and severally, hereby
grant, pledge, and assign to the Bank a security interest in all of the
Companies' personal property assets, including without limitation, all of the
Companies' right, title, and interest in and to the following property, whether
the Companies' interest therein is as owner, co-owner, lessee, consignee,
general partner, limited partner, secured party, or otherwise, be it now owned
or existing or hereafter arising or acquired, and wherever
<PAGE> 5
located, together with all substitutions, replacements, additions, and
accessions therefor or thereto: (a) all of the Companies' inventory including,
but not limited to, all goods, merchandise, and other personal property
furnished under any contract of service or intended for sale or lease, all
parts, supplies, raw materials, work in process, finished goods, materials used
or consumed in the Companies' businesses, and repossessed and returned goods
(herein the "Inventory"); (b) all of the Companies' machinery, equipment, tools,
furniture, furnishings, and computing and data processing systems (herein the
"Equipment"); (c) all of the Companies' accounts, accounts receivable,
management contracts, drafts, acceptances, and other forms of obligations, all
books, records, ledger cards, computer programs, and other documents, or
property at anytime evidencing or relating to the Company's accounts, including
but not limited to, those arising from or in connection with (i) a Company's
sale, lease, or other disposition of Collateral or sale of services, (ii) rights
pursuant to all property management contracts and franchise agreements, and
rights under the assignments or other dispositions thereof, (iii) rights
pursuant to all mortgage servicing agreements, and (iv) loans or advances to or
for the benefit of partnerships, corporations or other business entities in
which the Companies have an ownership interest which are not evidenced by an
instrument (herein the "Accounts"); (d) all of the Companies' general
intangibles, contract rights, income tax refunds, bond refunds, security deposit
refunds, utilities deposit refunds, preference recoveries, or other claims in
respect of any transfers of any kind, including, but not limited to, (i)
settlements of pending or threatened litigation or asserted claims, (ii)
obligations of purchasers of general partner interests, (iii) rights under
insurance policies, (iv) loans and advances to the Companies' senior and
executive management not evidence by an instrument, (v) any and all claims or
offsets against various Affiliated Entities, as hereinafter defined, (vi) rights
to cash payments and other distributions pursuant to plans of reorganization
confirmed in bankruptcy proceedings, and (vii) general and limited partnership
interests (herein the "Intangibles"); (e) all of the Companies' instruments,
notes, notes receivable, certificates of deposit, and other writings evidencing
a right to payment of money, whether negotiable or non-negotiable, including,
but not limited to, (i) obligations of limited partnerships to the Companies
pursuant to promissory notes secured by mortgages, (ii) obligations of limited
partnerships to the Companies pursuant to various mortgage differential
promissory notes, (iii) mortgage obligations or participation or other interests
therein held by the Companies, (iv) loans and advances to executive and senior
management evidenced by instruments, (v) subscription promissory notes executed
and delivered by various limited partners to certain limited partnerships and
subsequently assigned to the Companies, (vi) promissory notes arising out of the
sale of general partner interests, (vii) promissory notes and other instruments
executed pursuant to plans of reorganization confirmed in bankruptcy
proceedings, and (viii) instruments evidencing loans or advances to or for the
benefit of partnerships, corporations, or other business entities in which the
Companies have an ownership interest (herein the "Instruments"); (f) all
documents, negotiable documents, documents of title, warehouse receipts, storage
receipts, dock warrants, express bills, freight bills, airbills, bills of
lading, and other documents relating thereto, all cash and non-cash proceeds
thereof including, but not limited to, notes, drafts, checks, instruments,
insurance proceeds, indemnity proceeds, assignment or other contractual
<PAGE> 6
proceeds, warranty and guaranty proceeds (herein the "Documents"); (g) all of
the Companies' chattel paper, including without limitation furniture and
equipment leases (herein the "Chattel Paper"); (h) trade names, trademarks,
trademark applications, trade secrets, service marks, data bases, software and
software systems, information systems, discs, tapes, goodwill, patents, patent
applications, copyrights, copyright applications, licenses and franchises
(herein the "Intellectual Property"); (i) all deposit accounts, wherever
located, whether general, special, time, demand, provisional, or final, all cash
or monies wherever located, any and all deposits or other sums at any time
credited by or due from the Bank to the Companies, any and all policies,
certificates of insurance, securities, goods, cash and property owned by the
Companies or in which any of the Companies has an interest, which now or
hereafter are at any time in the possession or control of the Bank or in transit
by mail or carrier to or from the Bank, or in the possession of any third party
acting on the Bank's behalf, without regard to whether the Bank received the
same in pledge for safekeeping, as agent for collection or transmission, or
otherwise, or whether the Bank has conditionally released the same (herein the
"Deposits"); and (j) all of the Companies' stock in any corporation (herein the
"Stock") (all of the Inventory, the Equipment, the Accounts, the Stock, the
Intangibles, the Instruments, the Chattel Paper, the Documents, the Intellectual
Property, the Deposits herein, collectively, the "Personal Property
Collateral");
Subject to terms of prior mortgages, if any, the Companies agree that
to further secure the indebtedness evidenced by the Note, the Companies shall,
at the Bank's request, also grant to the Bank a mortgage lien on the real
property owned by one or more of the Companies (the "Real Estate Collateral")
(the Personal Property Collateral and the Real Estate Collateral herein
collectively, the "Collateral").
The security interests hereby granted are to secure the prompt and full
payment and complete performance of all Obligations of the Companies to the
Bank. The word "Obligations" is used in its most comprehensive sense and
includes, without limitation, all indebtedness, debts, and liabilities
(including principal, interest, late charges, collection costs, attorneys' fees
and the like) of the Companies to the Bank, whether now existing or hereafter
arising, either created by the Companies alone or together with another or
others, primary or secondary, secured or unsecured, absolute or contingent,
liquidated or unliquidated, direct or indirect, whether evidenced by note,
draft, application for letter of credit, or otherwise, and any and all renewals
of or substitutes therefor, including all indebtedness owed by the Companies to
the Bank in connection with the Loan.
It is the Companies' express intention that the continuing security
interest granted hereby, shall extend to all present and future obligations of
the Companies to the Bank arising under this Agreement, including, but not
limited to, the Note or the renewals, refinancing, or replacements thereof,
whether or not such Obligations are reduced or extinguished and thereafter
increased or reincurred and whether or not such Obligations are specifically
contemplated as of the date hereof. The absence of any reference to this
Agreement in any documents, instruments, or agreements evidencing or relating to
any
<PAGE> 7
obligation secured hereby shall not limit or be construed to limit the scope or
applicability of this Agreement.
The Companies have cooperated in the refinance of a number of first
mortgages by the limited partnerships in which the Companies hold general and/or
limited partnership interests, which refinances have been funded by affiliates
or securitized offerings of PaineWebber. The Bank approved the refinancings
which required execution by the Companies of subordination agreements related to
obligations owed by the limited partnerships and included in the Collateral
pledged to the Bank. In particular subordination agreements concerning the
lender's rights under the management contracts held by both the Companies and
Lexford, whether as the Companies successor or as a direct obligation to
Lexford, were approved in writing by the Bank (all subordinations approved in
writing by the Bank are hereafter referred to as the "PaineWebber
Subordinations").
The Bank hereby agrees that in the event of additional refinancings by
any limited partnership, the Bank hereby approves any subordination of any
Company's interest in or claims against the limited partnership so long as the
same are consistent with or no less favorable than the terms of the PaineWebber
Subordinations. Upon the Company's request, the Bank will confirm its approval
of such subordination to any refinancing lender.
Lexford as security for repayment of its obligations under the Loan
Agreement does hereby grant, assign and transfer to the Bank all of its right,
title and interest in any and all of its management contracts, as that term is
defined in the this Agreement and subject to any PaineWebber Subordination
consented to in writing by the Bank. Provided further, Lexford represents that
there is no existing security interest in Lexford's rights in and to any of its
management contracts and Lexford further agrees it shall not grant any security
interest in any management contract, now existing or hereafter entered into with
a Third Party Property Owner, except the security interest in favor of Bank
created hereunder.
3.2. Setoff. The Companies, jointly and severally, authorize the Bank, upon the
occurrence and continuation of any fact, event, circumstance, individually or
taken together which constitute an Event of Default or would constitute an Event
of Default but for the lapse of any applicable notice or cure period and without
regard to whether the Bank has exercised any right of acceleration and at any
time, thereafter, without notice, to appropriate and apply any balances,
credits, deposits, accounts, or money of any of the Companies in the Bank's
possession, custody, or control to be applied in such order of preference as the
Bank may determine to the payment of any of the Obligations whether or not the
Obligations are due or matured. Provided further that Bank shall not appropriate
any account of an Affiliated Entity as that term is defined in subsection 4.1
below, Bank shall have the right to place a ten (10) day hold on the account of
any Affiliated Entity as that term is defined in subsection 4.1 below and to the
extent any of the Companies advanced funds to the Affiliated Entities within
ninety (90) days of the
<PAGE> 8
commencement of the hold, the Companies agree for themselves and on behalf of
the Affiliated Entities that such funds are held in trust for the Companies and
the Bank is hereby authorized to appropriate such funds from the account of each
Affiliated Entity up to the lesser of the account balance or the aggregate total
of all such advances during the ninety (90) day period. Notwithstanding the
provisions above to the contrary, nothing herein shall prevent the Affiliated
Entities from having access to the funds in such accounts during such ten (10)
day hold for the limited purpose of paying their obligations to creditors,
provided that such obligations are routine and incurred in the ordinary course
of the business of the Affiliated Entities.
3.3. Representations and Covenants Regarding the Collateral. The Companies
represent, warrant, and covenant to the best of their knowledge and in good
faith as follows: (a) except for the security interests and liens granted
hereby, and subject to the provisions of subsections 5.5 and 3.1 hereof or as
otherwise approved by the Bank with respect to specific items of Collateral
(e.g., for rights of first refusal, put and call options and similar interests)
one or more of the Companies are, or as to Collateral arising or to be acquired
after the date hereof, shall be, the sole and exclusive owner of the Collateral,
and the Collateral is and shall remain free from any and all liens, security
interests, encumbrances, claims, and interests, and no security agreement,
financing statement, equivalent security, or lien instrument, or continuation
statement covering any of the Collateral is on file or of record in any public
office, (b) the Companies shall not create, permit, or suffer to exist, and
shall take such action as is necessary to remove, any claim to or interest in,
or lien or encumbrance upon the Collateral except the security interests granted
hereby and subject to the provisions of subsection 5.5 hereof, and shall defend
the right, title, and interest of the Bank in and to the Collateral against all
claims and demands of all persons and entities at any time claiming the same or
any interest therein; (c) the Companies' principal place of business and chief
executive office is located at the address set forth in subsection 9.3 of this
Agreement; the Collateral, to the extent possible, and the records concerning
the Collateral shall be kept at that address unless the Bank shall give its
prior written consent otherwise; and the Companies have no other places of
business or place where the Collateral is located except 6954 Americana Parkway,
Reynoldsburg, Ohio 43068 and Freeport Parkway, Suite 200, Irving, Texas 75063,
and the Huntington Center, 41 South High Street, Suite 2410, Columbus, Ohio
43215; (d) from time to time and in no event less frequently than annually the
Companies shall provide the Bank with an updated report disclosing the
location(s) of the Collateral and of any records pertaining thereto; (e) at
least thirty (30) days prior to the occurrence of any of the following events,
the Companies shall deliver to the loan officer who is handling the Companies'
Obligations on behalf of the Bank written notice of such impending events: (i) a
change in and of the Companies' principal place of business or chief executive
office; (ii) the opening or closing of any place of the Companies' name,
identity or corporate structure; (f) each of the Accounts is based on an actual
and bona fide sale and delivery of goods or services or extension of credit, and
the Companies believe that the Companies' Account Debtors have accepted the
goods or services, owe and are obligated to pay the full amounts reflected in
the invoices, according to the terms
<PAGE> 9
thereof; and (g) any and all taxes and fees relating to the Companies'
businesses shall be the Companies' sole responsibility, the Companies shall pay
the same when due, and none of said taxes and fees represent a lien on or claim
against the Accounts, other than taxes which are not then due or which are being
contested in good faith and for which adequate reserves have been allocated in
accordance with generally accepted accounting principles consistently applied.
3.4. Application of Proceeds from Collection of Accounts; Government Accounts;
Perfection. All amounts received by the Bank representing payment of Accounts or
proceeds from the sale of Inventory or of the other Collateral may be applied by
the Bank to the payment of the Obligations in such order of preference as the
Bank may determine. If any material portion of the Companies' accounts arise out
of contracts with or orders from the United States or any department, agency, or
instrumentality thereof, the Companies shall immediately (i) notify the Bank
thereof in writing and (ii) execute any instrument and take any steps which the
Bank deems necessary pursuant to the Federal Assignment of Claims Act of 1940,
as amended (41 USC Section 15) in order that all money due and to become due
under such contract or order shall be assigned to the Bank. The Companies agree
to execute, deliver, file, and record all such notices, affidavits, assignments,
financing statements, and other instruments as shall in the reasonable judgment
of the Bank be necessary or desirable to evidence, validate, and perfect the
security interests of the Bank in the Accounts.
3.5. Books and Records. The Companies shall at all times keep accurate and
complete records of the Collateral, and at all reasonable times and from time to
time, shall allow the Bank, by or through any of its officers, agents,
attorneys, or accountants, to examine, inspect and, if applicable, make copies
of, the Collateral wherever located. In addition, upon request of the Bank, the
Companies shall provide the Bank with copies of any agreements and such other
documentation and information relating to the Collateral as the Bank may
reasonably require.
3.6. Preservation and Disposition of Collateral. (a) Prior to the subsequent
placement of any Collateral in or upon any real property which any of the
Companies has leased or mortgaged, the Companies shall at the Bank's request
obtain a waiver from the lessor and/or the mortgagee, as the case may be, with
respect to the rights (whether present or future) of the lessor or mortgagee
with respect to that Collateral. At all times subsequent to the date of this
Agreement, the Companies shall advise the Bank promptly, in writing and in
reasonable detail of, (i) any material encumbrance or claim asserted against any
of the Collateral; (ii) any material change in the composition of the
Collateral; and (iii) the occurrence of any other event that would have a
material adverse effect upon the aggregate value of the Collateral or upon the
security interests of the Bank; (b) the Companies shall not sell or otherwise
dispose of the Collateral, except that the Companies may (i) sell or otherwise
dispose of the Inventory in the ordinary course of their businesses; (ii) may
sell Equipment in a commercially reasonably manner for consideration fairly
reflecting prevailing market values for property of like nature, (iii) may
replace Equipment with newer equipment of like kind and replacement value, and
<PAGE> 10
(iv) collect their Accounts and notes receivable in the ordinary course of their
businesses and in connection therewith, grant releases to the obligors
thereunder; (c) the Companies shall keep the Collateral in good condition and
shall not misuse, abuse, secrete, waste, or destroy any of the same; (d) the
Companies shall not use the Collateral in violation of any statute, ordinance,
regulation, rule, decree, or order; (e) the Companies shall pay promptly when
due all taxes, assessments, charges, or levies upon the Collateral or in respect
to the income or profits therefrom, other than taxes being contested in good
faith and for which adequate reserves have been allocated in accordance with
generally accepted accounting principles consistently applied; and (f) at its
option following notice to the Companies and the Companies' failure to
discharge, maintain, or perform, the Bank may discharge delinquent taxes or
liens, security interests, or other encumbrances not permitted under subsection
5.5 of this Agreement at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral. The Companies agree to
reimburse the Bank upon demand for any payment made or any expense incurred
(including reasonable attorneys' fees) by the Bank pursuant to the foregoing
authorization. Prior to an Event of Default, any payments under subsection
3.6(f) shall be treated as an advance under the Note. Should the Companies fail
to pay said sum to the Bank upon demand, interest shall accrue thereon, from the
date of demand until paid in full, at the highest rate set forth in any document
or instrument evidencing any of the Obligations.
3.7. Extensions and Compromises. With respect to any Obligations secured by any
of the Collateral, the Companies assent to all extensions or postponements of
the time of payment of such Obligations or any other indulgence in connection
with such Obligations, to each substitution, exchange or release of Collateral,
to the addition or release of any party primarily or secondarily liable thereon,
to the acceptance of partial payments on such Obligations and to the settlement,
compromise or adjustment of such Obligations, all in such manner and at such
time or times as the Bank may deem advisable. The Bank shall have no duty as to
the collection or protection of Collateral or any income therefrom, nor as to
the preservation of any right pertaining thereto, beyond the safe custody of
Collateral in the possession of the Bank. The foregoing sentence is not intended
to modify in any respect, the Bank's obligation as a depository with respect to
the deposits of the Companies held by the Bank.
3.8. Financing-Statements; Lien Notation. The Companies agree to execute,
deliver, file, and record all such notices, affidavits, assignments, financing
statements, and other instruments as shall in the reasonable judgment of the
Bank be necessary or desirable to evidence, validate, and perfect the security
interests of the Bank in any portion of the Collateral. At the request of the
Bank, the Companies shall join with the Bank in executing, delivering, and
filing one or more financing statements in a form satisfactory to the Bank, and
shall pay the costs of filing the same in all public offices wherever filing is
reasonably deemed by the Bank to be necessary or desirable. A carbon,
photographic, or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement. If certificates of title
are issued or outstanding with respect to any Collateral, the Companies shall
cause the interest of the Bank to be properly noted thereon at the Companies'
expense.
<PAGE> 11
3.9. Bank's Appointment as Attorney-in-Fact. The Companies, jointly and
severally, hereby irrevocably constitute and appoint the Bank and any officer or
agent thereof, with full power of substitution, as the Companies, true and
lawful attorney-in-fact with full irrevocable power and authority in their place
and stead and in their names or in the Bank's own name, from time to time in the
Bank's discretion, for the sole purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby grants to the Bank the power and right, on behalf of the
Companies, without notice to or assent from the Companies: (a) to execute, file,
and record all such financing statements, certificates of title, and other
certificates of registration and operation and similar documents and instruments
as the Bank may reasonably deem necessary or desirable to protect, perfect, and
validate the Bank's security interests in the collateral; (b) upon the
occurrence and continuation of an Event of Default, to receive, collect, take,
endorse, sign, compromise, assign, and deliver in any of the Companies' or the
Bank's name, any and all checks, notes, drafts, or other documents or
instruments relating to the Collateral; and (c) upon the occurrence and during
the continuance of an Event of Default, (i) to notify postal authorities to
change the address for delivery of the Companies' mail to an address designated
by the Bank (the Bank shall exercise the same degree of care when dealing with
any of the Companies' mail received by it as the Bank exercises in connection
with its own mail), (ii) to open such mail delivered to the designated address,
(iii) to sign and indorse any invoices, freight or express bills, bills of
lading, storage, or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
relating to the Collateral; (iv) to commence and prosecute any suits, actions,
or proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (v) to defend any suit, action or proceeding brought
with respect to any Collateral; (vi) to negotiate, settle, compromise, or adjust
any account, suit, action, or proceeding described above and, in connection
therewith, to give such discharges or releases as the Bank may deem appropriate;
and (vii) generally, to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Bank were the absolute owner thereof for all purposes, and to do, at
the Bank's option and the Companies' expense, at any time or from time to time,
all acts and things which the Bank reasonably deems necessary to protect,
preserve or realize upon the Collateral and the Bank's security interests
therein, in order to effect the purposes of this Agreement.
The Companies hereby ratify all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the Bank
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon the Bank to exercise any such powers. The Bank shall be
accountable only for amounts that the Bank actually receives as a result of the
exercise of such powers and neither the Bank nor any of its officers, directors,
employees or agents shall be responsible to any of the Companies for
<PAGE> 12
any act or failure to act, except for the Bank's own gross negligence or willful
misconduct.
3.10. Upon repayment of all indebtedness or upon sale of assets in subsection
5.4, the Bank will take such action as may be necessary to evidence the release
of the Bank's lien on such assets.
4. Warranties and Representations. Each of the Companies warrants and
represents to the Bank:
4.1. Corporate Organization and Authority. Each Company (a) is a corporation,
real estate investment trust or limited liability company duly organized,
validly existing and in good standing under the laws of the State of its
incorporation or organization; (b) has a principal place of business in
Columbus, Ohio (c) has all requisite corporate or limited liability company
power, and authority and all necessary licenses and permits to own and operate
its properties and to carry on its business as now conducted and as presently
proposed to be conducted, except where the lack of authority to obtain such
licenses and permits would not have a material adverse effect on the business
operations or financial condition of said Company; (d) is not doing business or
conducting any activity in any jurisdiction in which it has not duly qualified
and become authorized to do business, except where the failure to qualify to do
business has not or would not have a material adverse effect on the business,
operations, or financial condition of each Company, and (e) to the extent that
each Company, or any of the limited partnerships or other entities of which each
Company is a partner, shareholder, or member, (each an "Affiliated Entity" and
collectively with each Affiliated Entity of all of the Companies the "Affiliated
Entities"), is doing business in any jurisdiction in which it has not duly
qualified and is not authorized to do business or has not obtained all necessary
licenses and permits to own and operate its properties and to carry on its
business, said Company or said Affiliated Entity is and will continue to work
diligently to cure and correct such lack of qualification or authorization to do
business and obtain such licenses and permits.
4.2. Borrowing is Legal and Authorized. (a) The Board of Directors, or other
equivalent body, of each Company has duly authorized the execution and delivery
of this Agreement and of the notes and documents contemplated herein; (b) this
Agreement, the notes and other documents executed in connection with this
Agreement will constitute valid and binding obligations of each Company
enforceable in accordance with their respective terms; (c) the execution of this
Agreement and related notes and documents and the compliance by each Company
with all the provisions of this Agreement (i) are within the legal and
organizational powers of each Company; and (ii) are legal and will not conflict
with, result in any breach in any provision of, constitute a default under, or
result in the creation of any lien or encumbrance upon any property of each
Company (other than in favor of the Bank) under the provisions of, any
agreement, charter instrument, bylaw, or other instrument to which said Company
is a party or by which it may be bound; and (d) there are no limitations in any
indenture, contract, agreement, mortgage, deed of trust, or other agreement or
instrument to which each Company is now
<PAGE> 13
a party or by which each Company may be bound with respect to the payment of
principal or interest on any indebtedness, or each Company's ability to incur
indebtedness, including the Note to be executed in connection with this
Agreement.
4.3. Taxes. All tax returns required to be filed by each Company in any
jurisdiction have in fact been filed, and there are no material taxes,
assessments, fees, and other governmental charges upon said Company, or upon any
of its properties, which are due and payable which have not been paid except to
the extent being contested in good faith pursuant to appropriate proceedings
sufficient to stay execution. Each Company does not know of any material
proposed additional tax assessment against it. The provisions for taxes on the
books of each Company for its current fiscal period are adequate.
4.4. Compliance with Law. Each Company (a) is not in violation of any laws,
ordinances, governmental rules, or regulations to which it is subject, including
without limitation any laws, rulings, or regulations relating to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code and (b) has not failed to obtain any licenses, permits, franchises, or
other governmental or environmental authorizations necessary to the ownership of
its properties or to the conduct of its business, which violation or failure in
either subsection (a) or subsection (b) of this section might materially and
adversely affect the business, prospects, profits, properties, or condition
(financial or otherwise) of each Company.
4.5. Financial Statements; Full Disclosure. The Companies' consolidated
financial statements for the fiscal year ending December 31, 1994, December 31,
1995, and December 31, 1996, which have been supplied to the Bank have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly represent the Company's consolidated financial
condition as of such dates. No material adverse change in each Company's
financial condition has occurred since the date of the latest financial
statement. The financial statements referred to in this paragraph do not, nor
does this Agreement or any written statement furnished by each Company to the
Bank in connection with obtaining the Revolving Line of Credit, contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading. Each Company has
disclosed to the Bank in writing all facts which materially affect the
properties, business, prospects, profits or condition (financial or otherwise)
of each Company or the ability of each Company to perform this Agreement.
4.6. No Insolvency. On the date of each Company's entering into the Revolving
Line of Credit and after giving effect to all indebtedness of each Company
(excluding inter-company obligations and, except in the case of Lexford
Residential Trust, the Revolving Line of Credit), (a) each Company will be able
to pay its obligations as they become due and payable; (b) the present fair
saleable value of each Company's assets exceeds the amount that will be required
to pay its probable liability on its obligations as the same become absolute and
matured; (c) the sum of each Company's property at a fair valuation exceeds each
Company's indebtedness; (d) each Company will have sufficient capital to
<PAGE> 14
engage in each Company's business. Each Company's grant of Collateral for the
Loan constitutes fair consideration and reasonably equivalent value because of
the receipt of the proceeds of the Loan or other benefits from the extension of
credit to the Companies.
4.7. Government Consent. Neither the nature of each Company or of its business
or properties, nor any relationship between each Company and any other entity or
person, nor any circumstance in connection with the execution of this Agreement,
is such as to require a consent, approval, or authorization of, or filing,
registration, or qualification with, any governmental authority on the part of
each Company as a condition to the execution and delivery of this Agreement and
the notes and documents contemplated herein, provided, however, that the Bank
acknowledges that the execution of this Agreement constitutes a material
transaction for each Company which will be reported in compliance with federal
securities law.
4.8. Title to Collateral. Each Company has good title to all the Collateral
which is owned by it, free from any liens and encumbrances, except as referenced
in subsection 3.3.
4.9. No Defaults. No event has occurred and no condition exists which would
constitute an Event of Default pursuant to this Agreement. Each Company is not
in violation in any material respect of any term of any agreement, charter
instrument, bylaw, or other instrument to which it is a party or by which it may
be bound.
4.10. Environmental Protection. Each Company (a) has no actual knowledge of the
permanent placement, burial, or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned (whether now owned or hereafter
acquired), leased, or used by each Company or any of the other Companies (the
"Premises"), of any spills, releases, discharges, leaks, or disposal of
Hazardous Substances that have occurred or are presently occurring on, under, or
onto the Premises, or of any spills, releases, discharges, leaks, or disposal of
Hazardous substances that have occurred or are occurring off the Premises as a
result of each Company's or the other Companies' improvement, operation, or use
of the Premises which would result in noncompliance with any of the
Environmental Laws (as hereinafter defined); (b) is and has been in compliance
with all applicable Environmental Laws; (c) knows of no pending or threatened
environmental, civil, criminal, or administrative proceedings against any
Company or the other companies relating to Hazardous Substances; (d) knows of no
facts or circumstances that would give rise to any future civil, criminal, or
administrative proceeding against any Company or the other Companies relating to
Hazardous Substances; and (e) will not permit any of its, or any of the other
Companies' employees, agents, contractors, subcontractors, or any other person
occupying or present on the Premises to generate, manufacture, store, dispose,
or release on, about, or under the Premises any Hazardous Substances which would
result in the Premises not complying with the Environmental Laws.
<PAGE> 15
As used herein, "Hazardous Substances" shall mean and include all hazardous and
toxic substances, wastes, materials, compounds, pollutants, and contaminants
(including, without limitation, asbestos (excluding non-friable asbestos),
polychlorinated biphenyls, and petroleum products) which are included under or
regulated by the Comprehensive Environmental Response, compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq., the Toxic Substances
Control Act, 15 U.S.C. Section 2601, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., the Water Quality Act of 1987, 33
U.S.C. Section 1251, et seq., and the Clean Air Act, 42 U.S.C. Section 7401, et
seq., and any state or local statute, ordinance, law, code, rule, regulation, or
order regulating or imposing liability (including strict liability) or standards
of conduct regarding Hazardous Substances (hereinafter the "Environmental
Laws"), but does not include such substances as are permanently incorporated
into a structure or any part thereof in such a way as to preclude their
subsequent release into the environment, or the permanent or temporary storage
or disposal of household hazardous substances by tenants, and which are thereby
exempt from or do not give rise to any violation of the aforementioned
Environmental Laws.
4.11. Assignability and Transferability of Interests. Not less seventy-five
percent (75%) of the management contracts, notes, partnership interests, and
interests in other Collateral are assignable and transferable to the Bank,
except that with respect to personal service contracts only the right to receive
payments and distributions may be assigned to the Bank and the Bank may not be
substituted for any Company as the party responsible for performing such
services.
4.12. Regulation U. None of the transactions contemplated in this Agreement will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including, without
limitation, Regulation U of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II, except to the extent, if any, that shares of the
common stock of Lexford Residential Trust held by one or more of the Companies
constitutes a "margin security". The Companies do not own or intend to carry or
purchase any "margin security" within the meaning of said Regulation U.
4.13. Reaffirmation of Warranties and Representations. On the date of each
advance pursuant to the Revolving Line of Credit, and as a condition for any
advance, the warranties and representations set forth in this entire Section 4
shall be true and correct on and as of such date with the same effect as though
such warranties and representations had been made on and as of such date, except
to the extent that such warranties and representations expressly relate to an
earlier date. The Bank may require a written affidavit to memorialize the fact
that all warranties and representations are in fact true and correct on and as
of such date.
5. Company Business Covenants. Each of the Companies covenants that on and after
the date of this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the indebtedness provided for herein remains
unpaid:
<PAGE> 16
5.1. Payment of Taxes and Claims. Each Company will pay before they become
delinquent (a) all taxes, assessments and governmental charges or levies imposed
upon it or its property; and (b) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords, bailees, and other like persons
which, if unpaid, might result in the creation of a lien or encumbrance upon its
property provided that the Company may contest any item described in clauses (a)
and (b) of this subsection 5.1 in good faith as long as adequate resources are
maintained in accordance with generally accepted accounting principles
consistently applied.
5.2. Maintenance of Properties and Corporate Existence. Each Company shall (a)
maintain the property owned by each Affiliated Entity and all of that Company's
other property in good condition and make all renewals, replacements, additions,
betterments, and improvements thereto including the ability to sell assets,
dissolve or withdraw Companies which are deemed necessary by that Company to be
in the best interests of the Company; (b) keep true books of records and
accounts in which full and correct entries will be made of all its business
transactions, including, without limitation, any transaction with any Affiliated
Entity, and reflect in its financial statements adequate accruals and
appropriations to reserves; (c) do or cause to be done all things necessary (i)
except as contemplated by clause (a), to preserve and keep in full force and
effect its existence, general partnership rights, contractual management rights,
franchises, and other rights, (ii) except as contemplated by clause (a), to
maintain its status as a corporation or limited liability company duly organized
and existing and in good standing under the laws of the state of its
incorporation or organization, (iii) except as contemplated by clause (a), to
maintain where necessary its status as a corporation licensed to do business as
a foreign corporation in any state in which it is presently so qualified, and
(iv) except as contemplated by clause (a), to maintain on behalf of each
Affiliated Entity its status as a business entity qualified to do business in
the state in which each such Affiliated Entity does business; (d) not acquire,
incur, or assume directly or indirectly, any material contingent liability in
connection with the release of any Hazardous Substances into the Environment, or
dispose of, or allow to be disposed of, or otherwise release Hazardous
Substances or solid waste on or onto said Company's Premises; (e) not be in
violation of any laws, ordinances, or governmental rules and regulations or fail
to obtain any licenses, permits, franchises, or other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, which violation or failure to obtain might materially and
adversely affect the business, prospects, profits, properties, or condition
(financial or otherwise) of said Company, and (f) notify the Bank immediately
upon any change in the status of its continued existence as (i) a corporation or
limited liability company under the laws of the State of its incorporation or
organization, (ii) a general or limited partner in any partnership in which it
holds such an interest as of the date of this Agreement, or (iii) a management
company as it pertains to the material loss of any partnerships for which it
performs such function as of the date of this Agreement.
5.3. Insurance. The Companies shall have and maintain insurance at all times (a)
insuring against risks of fire (including so-called extended coverage),
explosion, theft,
<PAGE> 17
sprinkler leakage, and such other casualties, and (b) insuring against liability
for personal injury and property damage in such amounts that are maintained by
similar businesses and as may be required by applicable law with reputable and
financially sound insurance companies. The Company will provide, at the request
of the Bank, a detailed list of the insurance then in effect, stating names of
insurance companies, the amounts and rate of insurance, dates of expiration
thereof and the properties and risks covered thereby. All policies of insurance
shall provide for twenty (20) days' written minimum cancellation notice to the
Bank and, at request of the Bank, shall be delivered to and held by it. From and
after the occurrence and during the continuance of an Event of Default, the Bank
may act as attorney for the Companies in obtaining, adjusting, settling, and
canceling such insurance and endorsing any drafts. In the event of failure to
provide insurance as herein provided, the Bank may, at its option following
notice to the Companies, provide such insurance, and the Companies shall pay to
the Bank, upon demand, the cost thereof. Should the Companies fail to pay said
sum to the Bank upon demand, interest shall accrue thereon from the date of
demand until paid in full at the highest rate set forth in any document or
instrument evidencing any of the Obligations. The Companies shall notify Bank in
writing within ten (10) days of the occurrence of any damage resulting in an
uninsured claim for the sum of $100,000 or greater made by any Company. The
Companies shall maintain adequate insurance at the Affiliated Entity level. The
Bank shall be listed as an additional insured on all insurance policies
maintained by the Companies at either the Company or Affiliated Entity level.
5.4. Sale of Assets; Merger; Subsidiaries; Tradenames. Said Company will not
sell, lease, transfer, or otherwise dispose of any of its material assets other
than real estate assets sold in the normal course of business or cause any
Affiliated Entity to sell, lease, transfer, or otherwise dispose of, any of such
Affiliated Entity's material assets. Except as in the normal course of business,
said Company shall not without the prior written consent of the Bank consolidate
with or merge into any other entity, or permit any other entity to consolidate
with or merge into it. Except for acquisition of additional Affiliated Entities
from the proceeds of the Revolving Line of Credit in accordance herewith, said
Company shall comply with subsection 2.2 when acquiring all or substantially all
of the assets or business of any other company, person, or entity by means other
than proceeds of the Revolving Line of Credit. The Company has no subsidiaries
or affiliates except for (a) other Companies, (b) the partnership in which it is
a general or limited partner and (c) one or more SPV subsidiaries. Said Company
conducts business only in the name of said Company or in the registered trade
names of said Company. Except as otherwise permitted by subsection 2.2 or this
subsection 5.4, said Company shall not create or acquire any subsidiaries or
conduct business under any other trade names without the prior written consent
of the Bank.
5.5. Negative Pledge. The Companies shall not cause, permit, agree, consent to
cause or permit in the future (upon the happening of a contingency or
otherwise), any of its property or any of the real or personal property of any
Affiliated Entity, whether now owned or hereafter acquired, to become subject to
a lien or encumbrance; except: (a) liens in connection with the deposits
required by worker's compensation, unemployment
<PAGE> 18
insurance, social security, and other like laws; (b) taxes, assessments,
reservations, exceptions, encroachments, easements rights of way, covenants,
conditions, restrictions, leases, and other similar title exceptions or
encumbrances affecting real property, provided they do not in the aggregate
materially detract from the value of said property or materially interfere with
its use in the ordinary conduct of said Company's or said Affiliated Entity's
business; (c) inchoate liens arising under ERISA to secure the contingent
liability of said Company; (d) liens in place as of the date of signing of this
Agreement; (e) liens on the real property owned by an Affiliated Entity which
said Company has disclosed to the Bank in writing on or before the date of this
Agreement as they currently exist or are refinanced on terms no less favorable
except market interest rate increases and similar changes in market terms to
said Affiliated Entity than the existing terms; (f) purchase money security
interests entered in the ordinary course of business; and (g) rights of first
refusal, call and put options or other similar arrangements entered into with
co-owners of equity interests in Affiliated Entities.
5.6. Permitted Indebtedness; Other Borrowings in the Ordinary Course of
Business. Said Company shall not (a) create or incur any indebtedness for
borrowed money or advances, except for the Revolving Line of Credit, or (b)
guarantee, endorse, or otherwise become surety for or upon the obligations of
others, except: (i) by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business; (ii) non-recourse indebtedness
which is exculpatory to said Company for a monetary liability; (iii)
indebtedness to trade creditors no more than sixty (60) days past the date such
indebtedness was originally incurred except contested liabilities as described
in subsection 5.1; (iv) for obligations as a general partner incurred in the
ordinary course of the partnership's business; (v) purchase money obligations
and other indebtedness incurred in the ordinary course of said Company's
business; and (vi) existing indebtedness guaranteed by Lexford Residential Trust
as of the date of signing of this Agreement.
5.7. Minimum Security. Said Company shall maintain, in conjunction with the
other Companies, as minimum security for the Revolving Line of Credit,
Collateral having an aggregate resale value at least equal to the outstanding
principal balance of the Note and any interest accrued thereon. "Aggregate
Resale Value" shall mean the fair market value of the Collateral, in the
aggregate, in an arms length transaction between parties of substantially equal
bargaining position given a reasonable period of time for negotiation and sale.
5.8. Sale of Accounts; No Consignment. Except as outlined in subsection 5.3,
said Company shall not sell, assign, or encumber, except to the Bank, any of its
Accounts or notes receivable. Said Company shall not permit any of its Inventory
to be sold or transferred on consignment or acquire or possess any of its
Inventory on consignment.
5.9. Ownership. None of the Companies shall permit any material change in its
ownership, without the prior written consent of the Bank.
<PAGE> 19
5.10. Maintenance of Intercorporate Funds Agreement. No Company shall materially
amend, modify, restate, or otherwise change any of the terms, provisions, and
conditions set forth in the Intercorporate Funds Agreement dated August 11,
1995, and shall notify the Bank immediately upon termination of such
Intercorporate Funds Agreement by any party thereto.
5.11. Trade Accounts Payable. No Company shall permit its trade accounts payable
to be past due for more than sixty (60) days unless being contested in good
faith and for which adequate reserves are maintained in accordance with
generally accepted accounting principles, consistently applied.
5.12. Net Worth. The Companies shall maintain at all times a Net Worth, as
determined on a quarterly basis and calculated in accordance with generally
accepted accounting principles and "equity method" accounting principles,
consistently applied, of not less than $60,000,000. "Net Worth" shall mean the
consolidated shareholder's equity of the Companies increased by consolidated
liabilities for deferred compensation and the cost of treasury shares.
5.13. Ratio of Total Liabilities to Net Worth. The Companies shall maintain an
aggregate ratio of total liabilities excluding non-recourse debt to Net Worth,
calculated in accordance with generally accepted accounting principles
consistently applied, of not greater than 1.5 to 1.0.
5.14. Ratio of Net Operating Cash Flow to Debt Service. The Companies shall
maintain an aggregate calendar year to date ratio of Net Operating Cash Flow as
reported in the Companies' public financial statements to required contractual
payments of principal and interest to the Bank on the Loan pursuant to this
Agreement of not less than to 2.0 to 1.0.
5.15. Recurring Cash Flow. The Companies shall maintain annual recurring EBITDA
(earnings before interest and non-recurring noncash items (excluding interest on
wholly owned properties), taxes, depreciation, and amortization) of not less
than $15,000,000.
5.16. Environmental Compliance and Indemnification. The Companies hereby
indemnify the Bank and hold the Bank harmless from and against any loss, damage,
cost, expense, or liability (including strict liability) directly or indirectly
arising from or attributable to the generation, storage, release, threatened
release, discharge, disposal, or presence (whether by one or more of the
Companies or any employees, agents, contractor, or subcontractors of one or more
of the Companies or any predecessor in title or any third persons occupying or
present on the Premises), or the breach of any of the representations and
warranties regarding the Premises, including, without limitation: (a) those
damages or expenses arising under the Environmental Laws; (b) the costs of any
repair, cleanup, or detoxification of the Premises, including the soil and
ground water thereof, and the preparation and implementation of any closure,
remedial, or other required plans; (c) damage to any natural resources; and (d)
all reasonable costs and expenses incurred by
<PAGE> 20
the Bank in connection with clauses (a), (b) and (c) including, but not limited
to reasonable attorney's fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous
Substances placed or disposed of on the premises after the Bank acquires title
to the Premises through foreclosure or otherwise.
5.17. Maintenance of Accounts. Said Company shall maintain all of its primary
operating and deposit accounts and all deposit accounts for the Affiliated
Entities at the Bank, unless required by the respective first mortgage holders
of the Affiliated Entities or regulatory authorities to be maintained elsewhere.
5.18. Change in Management Agreements. Except for subordinations permitted by
subsection 3.2 of this Agreement, said Company shall not change any terms of the
property management agreements which are part of the Collateral without the
prior written consent of the Bank, which consent shall not be unreasonably
withheld.
6. Financial Information and Reporting. The Companies shall provide to the
Bank the following documentation and information and deliver the following on a
consolidated basis (except as specified below) within forty-five (45) days after
the end of the first three quarters of each calendar year: (a) financial
statements, including a balance sheet, statements of income and surplus and cash
flow reports for the Companies, certified by the President and Chief Executive
Officer, or the Executive Vice President and Chief Financial Officer or the
Senior Vice President and Controller or the Senior Vice President and Treasurer
of Lexford Residential Trust, as fairly representing the Companies' financial
condition using accounting principles consistently applied as of the end of such
period; (b) statements signed by the President and Chief Executive Officer, or
the Executive Vice President and Chief Financial Officer or the Senior Vice
President and Controller or the Senior Vice President and Treasurer of Lexford
Residential Trust, setting forth and certifying the compliance of the Companies
with the terms of this Agreement; (c) a report in the event one or more of the
Companies has become aware of its termination as (i) a general partner of (ii)
an owner of, or (iii) the property management company of any Affiliated Entity
and an analysis of the financial impact of such termination; (e) immediately
upon becoming aware of the existence of any set of facts or circumstances which,
by themselves, upon the giving of notice, the lapse of time, or any one or more
of the foregoing, would constitute a breach of any of the terms or conditions of
this Agreement or an Event of Default under this Agreement, a written notice
specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto; and (f) at the
request of the Bank, such other information as the Bank may from time to time
reasonably require.
6.1. Periodic Disclosure and Reporting. The Companies shall provide to the
Bank the following documentation and information: (a) within fifteen (15) days
after filing, copies
<PAGE> 21
of any and all materials filed by the Companies with the Securities and Exchange
Commission, regardless of whether the Companies have filed such materials on
their own behalf, in their capacity as a general partner, or otherwise; (b) at
the request of the Bank, filing copies of any and all federal corporate income
tax returns, together with any amendments, exhibits, or supplements thereto, and
any related documentation filed with the Internal Revenue Service; (c)
immediately upon becoming aware of the existence of any set of facts or
circumstances which, by themselves, upon the giving of notice, the lapse of
time, or any one or more of the foregoing, would constitute a breach of any of
the terms or conditions of this Agreement or an Event of Default under this
Agreement, a written notice specifying the nature and period of existence
thereof and what action the Companies are taking or propose to take with respect
thereto; and (d) at the request of the Bank, such other information as the Bank
may from time to time reasonably require.
6.2. Annual Financial Statements. The Companies shall deliver to the Bank within
ninety (90) days of the end of each fiscal year: (a) consolidated audited
financial statements, which have been prepared in accordance with generally
accepted accounting principles consistently applied and certified by independent
certified public accountants reasonably satisfactory to the Bank, containing a
balance sheet, statements of income and shareholder's equity, statements of cash
flows, followed by any management letters written by such accountants; (b) at
the request of the Bank, consolidated unaudited financial statements prepared by
the Companies in accordance with "equity method" accounting principles
consistently applied, containing a balance sheet, statements of income and
shareholder's equity, and statements of cash flows; (c) at request of the Bank a
report signed by the President and Chief Executive Officer, or the Executive
Vice President and Chief Financial Officer or the Senior Vice President and
Controller, or the Senior Vice President and Treasurer of Lexford Residential
Trust setting forth a detailed analysis of each of the Affiliated Entities'
financial condition including financial statements reflecting (i) net cash flow,
occupancy percent, gross revenue, operating expenses (which includes fees and
payments to the Companies), maintenance, and repair expense, net operating
income, mortgage payments not due to the Companies and net cash flows; (ii) any
advances from the Companies to, or notes due to the Companies from (balance due
and estimated value), the Affiliated Entities, (iii) all fees, advances,
interest, and principal payments paid to Companies by the Affiliated Entities,
and (iv) lender, mortgage balance, payment amount, and status of each mortgage
encumbering all property owned by an Affiliated Entity; (d) financial
statements, including balance sheet and income statement of each Affiliated
Entity, and (e) the unaudited actual cash flow statements of the Affiliated
Entities, all of which may be presented in a computer disk format reasonably
acceptable to the Bank.
7. Default.
7.1. Events of Default. An "Event of Default" shall exist if any of the
following occurs and is continuing: (a) the Companies fail to make any payment
of principal or interest on any note executed in connection with this Agreement
on or within fifteen (15) days of the date such payment is due; (b) the
Companies fail to perform or observe any
<PAGE> 22
covenant contained in subsections 3.3, 4.1 through 5.18, inclusive, of this
Agreement and such failure continues for more than thirty (30) days after such
failure shall first occur; (c) the Companies fail to perform or observe any
other covenant contained in this Agreement and such failure continues for more
than seven (7) days after such failure shall first occur, (d) the Companies fail
to comply with any other provision of this Agreement, and such failure continues
for more than thirty (30) days after discovery of such failure by any of the
parties to this Agreement; (e) any warranty, representation, or other statement
by or on behalf of the Companies contained in this Agreement or in any
instrument furnished in compliance with or in reference to this Agreement is
false or misleading in any material respect, or the Companies fail to perform or
observe any covenant contained in any mortgages, security agreement or other
agreement in favor of the Bank and such failure continues for more than thirty
(30) days from the date after discovery of such failure by any of the parties to
this Agreement; (f) one or more of the Companies fails to perform or observe any
covenant contained in any security agreement, or other agreement in favor of the
Bank and such failure continues for more than thirty (30) days from the date
after discovery of such failure by any of the parties to this Agreement; (g) one
or more of the Companies makes an assignment for the benefit of creditors, or
consents to or suffers the appointment of a trustee, receiver, or liquidator;
(h) bankruptcy, reorganization, arrangement, insolvency, or liquidation
proceedings are instituted by one or more of the Companies and such proceeding
is not dismissed or staged within 90 days of the commencement thereof; (i)
bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings
are instituted against one or more of the Companies and such proceeding Is not
dismissed or stayed within 90 days of the commencement thereof; (j) failure to
give the Bank notice that an Affiliated Entity is involved in any bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceedings; (k) an
uninsured final judgment or judgments for the payment of money aggregating in
excess of $100,000 is or are outstanding against one or more of the Companies
and any such judgment or judgments have not been discharged in full or stayed;
(l) the occurrence of any event which allows the acceleration of the maturity of
any indebtedness of the Companies to the Bank or any of the Affiliated Entities
to the Bank under any indenture, agreement, or undertaking other than this
Agreement which evidences an obligation or obligations at one or more of the
Companies aggregating $100,000 or more and more than thirty (30) days have
passed since the occurrence of such acceleration event without such acceleration
having been rescinded or the obligations accelerated having been discharged; (m)
the occurrence of any event which allows the acceleration of the maturity of any
material indebtedness of the Companies to any other person, corporation, or
entity under any indenture, agreement, or undertaking and the failure of the
Companies to cure any resulting default within the longer of thirty (30) days
from such occurrence or the period provided in any applicable documentation
governing such indebtedness; (n) the loss by the Companies of the ability to
manage other than by sale of properties at least eighty percent (80%) of the
Affiliated Entities existing on August 11, 1995, provided, such loss causes an
event which materially impairs the prospect of payment or performance by the
Companies in accordance with this Agreement; or (o) an event occurs which
materially impairs the prospect of payment or performance by the Companies in
accordance with
<PAGE> 23
this Agreement and more than five (5) days have passed since notice was given to
the Companies of such event without cure of such default.
8. Remedies on Default.
8.1. Legal and Contractual Remedies. Upon the occurrence of an Event of Default
and for so long thereafter as such Even of Default continues, the Bank shall
have the rights and remedies of a Secured Party under this Agreement, under any
other instrument or agreement securing, evidencing, or relating to the
Obligations and under the law of the State of Ohio, or any other applicable
state law, and the Bank may exercise any right, power, or remedy permitted to
the Bank by law or any provision of this Agreement. Without limiting the
generality of the foregoing, upon the occurrence or continuation of an Event of
Default, the Bank shall have the right without further notice or demand to the
Companies (a) to declare the entire principal and all interest accrued on the
Obligations to be forthwith due and payable, without any presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly waived
by the Companies, and (b) to take possession of the Collateral and all books and
records relating to the Collateral and for that purpose the Bank may enter upon
any premises on which the Collateral or books and records relating to the
Collateral or any part thereof may be situated and remove the same therefrom.
The Companies expressly agree that the Bank, without demand of performance or
other demand, advertisement, or notice of any kind (except the notices specified
below of time and place of public sale or disposition or time after which a
private sale or disposition is to occur) to or upon the Companies or any other
person or entity (all and each of which demands, advertisements, and/or notices
are hereby expressly waived), may forthwith in a commercially reasonable manner
consistent with applicable economic, industry, and market conditions for
property or collateral of like nature, collect, receive, appropriate, and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase or sell or otherwise dispose
of and deliver the Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any of the Bank's
offices or elsewhere at such prices as the Bank may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Bank
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption.
The Companies further agree, at the Bank's request, to assemble the Collateral
and to make it available to the Bank at such places as the Bank may reasonably
select. The Companies further agree to allow the Bank to use or occupy the
Companies' premises, without charge, for the purpose of effecting the Bank's
remedies in respect of the Collateral. The Bank shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any or all of
the Collateral or in any way relating to the rights of the Bank hereunder,
including reasonable attorneys' fees and legal expenses, to the payment in whole
or in part of the Obligations, in such order as the Bank may elect, and only
after so paying over such net proceeds and after the payment by the Bank of any
other amount
<PAGE> 24
required by any provision of law, need the Bank account for the surplus, if any.
To the extent permitted by applicable law, the Companies waive all claims,
damages and demands against the Bank arising out of the repossession, retention,
sale or disposition of the Collateral. The Companies agree that the Bank need
not give more than ten (10) days' notice (which notification shall be deemed
given when mailed, postage prepaid, addressed to one or more of the Companies at
its address set forth in this Agreement, or when telecopied or telegraphed to
that address or when telephoned or otherwise communicated orally to one or more
of the Companies or any of their agents at that address) of the time and place
of any public sale or of the time after which a private sale may take place and
that such notice is reasonable notification of such matters. The Companies shall
remain liable for any deficiency if the proceeds of any sale or disposition of
the Collateral are insufficient to pay all amounts to which the Bank is
entitled. The Companies shall also be liable for the costs of collecting any of
the Obligations or otherwise enforcing the terms thereof or of this Agreement,
including reasonable attorneys' fees. Upon the occurrence of any Event of
Default, in addition to all other remedies set forth above, any and all funds
due and owing to the Bank, whether before or after any acceleration of the
amount due to the Bank, shall bear interest at the prime rate (as that term is
defined in the Note) plus two percent.
8.2. Appointment of Receiver. In addition to any remedy herein before provided
and not in limitation thereof, upon the occurrence and continuation of any Event
of Default, and at any time prior to or after the institution of any enforcement
proceeding, the Bank shall have the right to make application to a court of
competent jurisdiction for appointment of a receiver for all or any part of the
Collateral and the businesses of the Companies without regard to the adequacy of
the Collateral for the repayment of the indebtedness secured by the Collateral
or the solvency of the Companies or any person or persons liable for the payment
of the Obligations, and the Companies do hereby irrevocably consent to such
appointment, waive any and all defenses to such appointment and agree not to
oppose any application therefor by the Bank, but nothing herein is to be
construed to deprive the Companies of any right, remedy or privilege the
Companies may now have under the law to have a receiver appointed, provided,
however, that the appointment of such receiver, trustee or other appointee by
virtue of any court order, statute, or regulation shall not impair or in any
manner prejudice the rights of the Bank to receive payment of the income and
proceeds of the Collateral pursuant to other terms and provisions hereof. Any
such receiver shall have all of the usual power to hold, develop, rent, lease,
manage, maintain, operate, contract, and otherwise use or permit the use of the
Collateral upon such terms and conditions as said receiver may deem to be
prudent and reasonable under the circumstances. Such receivership shall, at the
option of the Bank, continue until full payment of all of the Obligations or
until title to all of the Collateral shall have passed to the Bank pursuant to
an enforcement proceeding.
9. Miscellaneous.
9.1. Limited Appointment of Lexford Residential Trust as Attorney-in-Fact. Each
of the Companies hereby irrevocably constitutes and appoints Lexford Residential
Trust and
<PAGE> 25
any officer or agent thereof, with full power of substitution, as said Company's
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of each of the corporations and limited liability companies
constituting the Companies and in their names as set forth above in the preamble
to this Agreement, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement and without limiting the generality of the foregoing hereby
grants to Lexford Residential Trust the power and right, on behalf of any one or
more of the Companies, without notice or assent: (a) to execute and deliver to
the Bank such contracts, instruments, release, and other agreements or documents
as the Bank shall reasonably deem necessary to evidence the terms and conditions
of this Agreement; (b) to certify or attest to the execution, delivery, filing,
or recording of such contracts, instruments, releases, and other documents
described in subsection (a) above; (c) to execute, file, and record all such
financing statements, certificates of title, mortgages, security agreements,
assignments, deeds of trust, and other certificates of registration and
operation and similar documents and instruments as the Bank may deem necessary
or desirable to grant, protect, perfect, and validate the Bank's security
interests, mortgages, or other liens in or on the Collateral, or any portion
thereof; and (d) to provide the financial and other information and disclosures
to the Bank required pursuant to this Agreement. The Companies hereby ratify all
that said attorney shall lawfully do or cause to be done by virtue hereof. This
power of attorney is a power coupled with an interest and shall be irrevocable.
9.2. Assumption by New Entities. Upon the creation of a new entity which would
have been one of the Companies if in existence as of the date of this Agreement,
the Companies shall cause such new entity to assume any indebtedness evidenced
by the Note, pledge all of its assets to secure such indebtedness, cause all of
its stock to be pledged to secure such indebtedness, and otherwise be bound by
the covenants and agreements of this Agreement.
9.3. Notices. (a) All communications under the default (including, without
limitation, the exercise of remedies available due to a default or an Event of
Default) provisions of this Agreement shall be by certified mail, return receipt
requested. All other communications under this Agreement or under the notes
executed pursuant thereto shall be in writing, by fax, by overnight delivery or
shall be mailed by first class mail, postage prepaid, (1) if to the Bank, at the
following address, or at such other address as may have been furnished in
writing to the Companies by the Bank:
The Provident Bank
10 West Broad Street
Columbus, Ohio 43215
Attn: William R. McNamara, Vice President
Fax Number: (614) 221-0875
<PAGE> 26
(2) if to the Companies, at the following address, or at such other address as
may have been furnished in writing to the Bank by the Companies:
Lexford Residential Trust
The Huntington Center, 41 South High Street
Columbus, OH 43215
Attn: Mark D. Thompson, Executive Vice President and Chief Financial Officer
Michael F. Sosh, Senior Vice President and Treasurer
Fax Number: (614) 225-1100
(b) any notice so addressed and mailed by registered or certified mail shall be
deemed to be given two (2) business days following the date when so mailed.
9.4. Reproduction of Documents. This Agreement and all documents relating
hereto, including, without limitation, (a) consents, waivers, and modifications
which may hereafter be executed, (b) documents received by the Bank at the
closing or otherwise, and (c) financial statements, certificates, and other
information previously or hereafter furnished to the Bank, may be reproduced by
the Bank by any photographic, photostatic, microfilm, microcard, miniature
photographic, or other similar process and the Bank may destroy any original
document so reproduced. The Companies agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Bank in the
regular course of business) and that any enlargement, facsimile, or further
reproduction of such reproduction shall likewise be admissible in evidence.
9.5. 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 Agreement shall be considered to
have been relied upon by the Bank and shall survive the closing of the Revolving
Line of Credit 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 Agreement shall inure to
the benefit of and be binding upon the heirs, successors and assigns of each of
the parties.
9.6. 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 elsewhere
in this 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 Agreement may be signed by the
parties, each of
<PAGE> 27
which shall be an original but all of which together shall constitute one and
the same instrument.
9.7. Uniform Commercial Code and Generally Accepted Accounting Principles.
Unless the context otherwise requires, all terms used herein which are defined
in the Uniform Commercial Code as enacted in Ohio shall have the meaning stated
therein, and all accounting terms shall be determined in accordance with
generally accepted accounting principles, consistently applied.
9.8. Enforceability and Governing Law. Any provision of this Agreement 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 Agreement shall be
governed by and construed in 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.
9.9. Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT 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.
<PAGE> 28
9.10. 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 Loan. The Companies have the right
of advance inspection and approval of all advertising (using their name) not to
be unreasonably withheld or delayed.
9.11. Term of Agreement. The term of this Agreement shall commence with the date
hereof and end on the date when, after written notice from either party to the
other that no further loans are to be made hereunder, the Companies pay in full
the Loan and all other obligations of the Companies to the Bank which are
secured hereby, and the Bank has no further obligations of any type to the
Companies.
9.12. 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.
9.13. Definitions. As used in this Agreement, the meanings assigned to defined
terms are set forth in the appropriate sections of this Agreement.
9.14. Warrant of Attorney. With full knowledge of all constitutional rights, if
any payment under the 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 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.
<PAGE> 29
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.).
Lexford Residential Trust
By: /s/ John B. Bartling
------------------------
John B. Bartling,
Its: Chief Executive Officer
Provident Bank
By: /s/ William R. McNamara
------------------------
William R. McNamara
Its: Vice President
<PAGE> 1
Exhibit 10.2
COGNOVIT PROMISSORY NOTE
(RENEWAL BALANCE REVOLVING LINE OF CREDIT)
$40,000,000.00 Effective September 30,1998
Columbus, Ohio
FOR VALUE RECEIVED, the undersigned promise to pay to the order of THE
PROVIDENT BANK, a state banking corporation ("Bank" which term shall include
subsequent holders hereof), with a place of business at 10 West Broad Street,
Columbus, Ohio, or at such other place as the Bank may, from time to time,
designate in writing, the principal sum of Forty Million and 00/100 Dollars
($40,000,000.00), or so much thereof as may be advanced to the undersigned in
accordance with the terms of this Note and subject to that certain Second
Amended and Restated Loan and Security Agreement among the undersigned, others
and the Bank as of September 30, 1998, as from time to time amended (the "Loan
Agreement"), together with interest on the unpaid principal balance from the
date the funds are advanced under this Note, until paid, at the rate and in the
manner set forth below.
This Note is a revolving credit subject to the terms of this paragraph.
Subject to the conditions and limitations hereof and of the Loan Agreement and
prior to March 30, 2000, the undersigned may borrow and reborrow from the Bank
and the Bank may lend and relend to the undersigned such amounts not to exceed
an aggregate unpaid principal amount outstanding at any time of $40,000,000.00
as the undersigned may at any time and from time to time request upon
satisfactory notice to the Bank in compliance with the Loan Agreement.
INTEREST
Commencing on the date of the first advance of funds under this Note
and excluding any Term Out Indebtedness as hereinafter defined, interest hereon
shall be payable at the rate of one percent (1%) per annum below the "prime
rate" of interest, as hereinafter defined, from time to time in effect. The rate
of interest shall be adjusted upward or downward without notice immediately upon
any change in the prime rate.
Interest shall be computed at all times on the basis of a three hundred
sixty (360) day year and the actual number of days elapsed. Any reference in
this Note to the "prime rate" of interest is hereby defined to mean that
interest charged by The Provident Bank from time to time as its prime rate
whether or not it is publicly announced, and which provides a base to which loan
rates may be referenced. The prime rate may not be the lowest interest rate The
Provident Bank charges for commercial or other extensions of credit.
<PAGE> 2
Page 2 of 6
At the election(s) of the undersigned from time to time, upon seven
days prior written notice to the Bank, all of any portion of the principal
balance of this Note may be termed out over a sixty month period (in each case,
the "Term Out Indebtedness"). Commencing on the first day of the first calendar
month following the date upon which the undersigned gives notice of the amount
of the Term Out Indebtedness (the "Term Out Rate Change Date"), the yearly
interest on the Term Out Indebtedness shall be payable at the rate of two
percent (2%) per annum, rounded up to the nearest one eighth of one percent
(1/8%), above the weekly average yield (expressed as a percent per annum) for
United States Treasury Securities adjusted to constant maturities of five (5)
years as published by the Federal Reserve Board in its statistical release of
selected interest rates number H.15(519) for the most recent published average
weekly yield prior to the Term Out Rate Change Date, which shall be the interest
rate on the Term Out Indebtedness until this Note is paid in full. Any remaining
principal balance not included in the Term Out Indebtedness shall continue to
bear interest at a fluctuating interest rate as provided herein.
Upon the occurrence of an Event of Default, as defined in the Loan
Agreement, any and all funds due and owing to the Bank, whether before or after
any acceleration of the amount due to the Bank, shall bear interest at the
"Default Rate" per annum of the prime rate, as announced from time to time by
the Bank, plus two percent. The Default Rate shall remain in effect for so long
as the Event of Default is continuing.
TERM
The entire unpaid principal balance, excluding any Term Out
Indebtedness, together with accrued and unpaid interest thereon, and all other
obligations hereunder, if not sooner paid shall be due and payable on September
30, 2000 ("Maturity Date"), provided however on September 15 of each year
commencing on September 15, 1999, the Bank shall review this credit and give
written notice to the undersigned in the event the Bank elects to extend the
Maturity Date by an additional Twelve (12) months.
The entire unpaid principal balance of any Term Out Indebtedness,
together with accrued and unpaid interest thereon, if not sooner paid, shall be
due and payable on a date which is Sixty (60) months after the first day of the
first month following the Term Out Rate Change Date (the "Term Out Maturity
Date").
PAYMENTS
Interest only shall be payable in consecutive monthly installments
effectively beginning October 1, 1998, and continuing on the first day of each
month thereafter.
<PAGE> 3
Page 3 of 6
On the first day of the first month following any Term Out Rate Change
Date (the "Commencement of Amortization Date") principal and interest on such
Term Out Indebtedness shall be payable in consecutive monthly installments in an
amount equal to the sum of (i) accrued interest on account of such Term Out
Indebtedness for the immediately preceding month, plus (ii) one sixtieth
(1/60th) of the original principal amount of such Term Out Indebtedness or, at
Borrower's option level payments of principal and interest combined. Monthly
installments as provided in this paragraph shall commence on the Commencement of
Amortization Date and shall continue on the first day of each month thereafter
until the entire Term Out Indebtedness evidenced by this Note is fully paid,
except that any remaining indebtedness, if not sooner paid, shall be due and
payable in full on the Maturity Date.
If any payment of principal or interest is specified to be made on a
day on which commercial banks in Columbus, Ohio are authorized by law to close,
it shall be made on the next succeeding day which constitutes a regular business
day for commercial banks in Columbus, Ohio, and any such extension of time shall
in all cases be included when computing interest.
PURPOSE
The use of the indebtedness evidenced by this Note is described in
subsection 2.2 use of proceeds in the Loan Agreement.
DEFAULT RATE
If any payment under this Note is not received by the Bank on or before
the date the installment is due or if the undersigned shall otherwise be in
default in the performance of its obligations hereunder or under the Loan
Agreement, the undersigned shall pay to the Bank a default rate of .01% of the
unpaid principal 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, at the option of Bank, interest on the dollar amount of any unpaid
amounts so long as they remain past due and payable at a rate which is three (3)
percentage points greater than the rate which would otherwise be in effect (the
"Default Rate"). The Bank may charge interest at the rate provided herein on all
interest and dollar amounts owing hereunder which are not paid when due.
ACCELERATION
If any Event of Default has occurred and is continuing the entire
principal amount outstanding hereunder and accrued interest thereon shall at
once become due and payable, at the option of the Bank. The Bank may exercise
this option to accelerate during the continuance any Event of Default by the
undersigned regardless of any prior forbearance. Reference is made to the Loan
Agreement for rights as to acceleration of the indebtedness evidenced by this
Note.
<PAGE> 4
Page 4 of 6
ADDITIONAL REMEDIES
Upon and during the continuance of an Event of Default, the Bank shall
be entitled to recover judgment against the undersigned for the amount due under
this Note, either before or after or during the pendency of any proceeding for
the enforcement of any security for this Note, and, in the event of realization
of any funds from any security and application thereof to the payment of the
amount due under this Note, the Bank shall be entitled to enforce payment of and
recover judgment for all amounts then remaining due and unpaid upon the Note,
whether for principal, interest or premium. The Bank may proceed to protect and
enforce its rights by suit in equity, action at law and/or by any other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Note, in aid of the exercise of any power granted in
this Note, or may proceed to enforce payment of this Note, or to enforce any
other legal or equitable right.
REMEDIES SEPARATE
The Bank may pursue any rights or remedies as the Bank under this Note
or under the Loan Agreement independently or concurrently. All rights, remedies,
or powers herein conferred upon the Bank shall, to the extent not prohibited by
law, be deemed cumulative and not exclusive of any other thereof, or of any
other rights, remedies or power available to the Bank. No delay or omission of
the Bank to exercise any right, remedy or power shall impair the same or be
construed to be a waiver of any default or an acquiescence thereto. No waiver of
any default shall extend to or affect any subsequent default nor shall it impair
any rights, remedies or power available to the Bank. No single or partial
exercise of any right, remedy or power shall preclude other or further exercise
thereof by the Bank.
WAIVER OF PRESENTMENT, ETC.
The undersigned, together with all sureties, endorsers, and guarantors
of the Note hereby:
(a) except as expressly provided herein, waive demand, presentment for payment,
notice of nonpayment, protest, and all other notices, filing of suit or
diligence in collecting this Note, and enforcing any of the security rights of
or in proceeding against any of the Property;
(b) agree that the Bank shall not be required first to institute any suit, or to
exhaust its remedies against the undersigned or any other person or party in
order to enforce payment of this Note;
(c) consent to any extension, renewal or postponement of time of payment of this
Note; and
<PAGE> 5
Page 5 of 6
(d) agree that, notwithstanding the occurrence of any of the foregoing, except
as to any such person expressly released in writing by the Bank, they each shall
be and remain jointly and severally, directly and primarily, liable for all sums
due under this Note.
COST OF COLLECTION
The undersigned hereby unconditionally agree to pay the cost of
collection of this Note, including, but not limited to, reasonable attorney fees
incurred by the Bank.
USURY
It is the intention of the Bank, which is signified by acceptance of
this Note, that this Note shall comply with the usury laws applicable under the
laws of the State of Ohio now or hereafter in effect. Accordingly, to the extent
that any rate of interest stated in this Note exceeds the maximum rate of
interest which may be charged on loans of the type and nature evidenced by this
Note under the laws of the State of Ohio, then said interest shall be abated and
reduced to the extent necessary to conform with the maximum permissible rate.
GOVERNING LAW
This Note shall be governed by and construed under the laws of the
State of Ohio.
CONFESSION OF JUDGMENT
With full knowledge of all constitutional rights, if any payment under
this 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 the Loan Documents securing this Note, after any applicable notice or period
of grace, the undersigned hereby authorize and empower any attorney of any court
of record within the United States of America or elsewhere to appear for the
undersigned and, with or without complaint filed, confess judgment or a series
of judgments against the undersigned 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, and collection expenses evidenced by this 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 Note or a copy hereof verified by
affidavit shall be a sufficient warrant. The foregoing warrant of attorney shall
survive any judgment rendered pursuant to this 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
undersigned. The foregoing warrant of attorney may be exercised, and judgment
may be taken thereby as many times as the Bank may determine in its sole
discretion and may be exercised separately with respect to each payment and
other obligation evidenced by this Note or from time to time with respect to
such payments and obligations evidenced by this Note, as the Bank may determine
in its sole discretion.
<PAGE> 6
Page 6 of 6
THE UNDERSIGNED HEREBY, AND ANY HOLDER HEREOF BY ITS ACCEPTANCE HEREOF,
EACH WAIVES THE RIGHT OF A JURY TRIAL IN EACH AND EVERY ACTION ON THIS
PROMISSORY NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, IT BEING ACKNOWLEDGED AND
AGREED THAT ANY ISSUES OF FACT IN ANY SUCH ACTION ARE MORE APPROPRIATELY
DETERMINED BY THE COURTS; FURTHER THE UNDERSIGNED HEREBY CONSENT AND SUBJECT
THEMSELVES TO THE JURISDICTION OF COURTS OF THE STATE OF OHIO AND, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, TO THE VENUE OF SUCH COURTS IN
FRANKLIN COUNTY.
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.).
Lexford Residential Trust
By: /s/ JOHN B. BARTLING
----------------------------
John B. Bartling,
Its: Chief Executive Officer
<PAGE> 1
Exhibit 10.11
AGREEMENT
This Agreement is made this 13th day of February, 1998 among Lexford,
Inc., an Ohio corporation formerly known as Cardinal Realty Services, Inc. (the
"Company"), Stanley R. Fimberg ("Fimberg"), and each of FSC Realty, L.L.C.
("FSC"), Pat Holder ("Holder"), Ralph V. Williams ("Williams"), Annette Hoover
("Hoover"), Bruce Woodward ("Woodward"), Eric Madsen ("Madsen"), and Peggy Crow
Smith ("Smith" and together with FSC, Holder, Williams, Hoover, Woodward and
Madsen, the "Old Lexford Shareholders"). Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Merger Agreement (the
"Merger Agreement") dated as of July 19, 1996 among the Company, Rexflor
Acquisition Corporation, an Ohio corporation ("Rexflor"), Lexford Properties,
Inc., a Texas corporation ("Lexford properties"), Fimberg and the Old Lexford
Shareholders.
WHEREAS, pursuant to the terms of the Merger Agreement, Lexford
Properties was merged with and into Rexflor with Lexford Properties surviving
the merger (the "Merger") and each of the Old Lexford Shareholders became
entitled to receive the Merger Consideration;
WHEREAS, the Merger Consideration consisted of shares of common stock,
no par value, of the Company (the "Company Common Stock"), certain portions of
which were designated as Escrow Shares, Group 1 Forfeitable Shares and Group 2
Forfeitable Shares;
WHEREAS, the Escrow Shares have been issued to the Old Lexford
Shareholders and held by the Company to secure certain indemnification
obligations of the Old Lexford Shareholders pursuant to the terms of the Merger
Agreement;
WHEREAS, the Group 1 Forfeitable Shares and Group 2 Forfeitable Shares
have been issued to the Old Lexford Shareholders and held by the Company subject
to forfeiture, each in whole or in part, based on the performance of Lexford
Properties during the three full fiscal years beginning after the Effective Time
as more particularly described in the Merger Agreement;
WHEREAS, in connection with the Merger and pursuant to a Registration
Rights Agreement (the "Registration Rights Agreement") dated August 1, 1996
between the Company and the Old Lexford Shareholders, the Company granted to the
Old Lexford Shareholders certain registration rights with respect to certain of
the shares of Company Common Stock received in the Merger;
WHEREAS, in connection with the Merger, Lexford Properties entered into
Consulting Agreements dated as of August 1, 1997 with each of Fimberg and
Williams (the "Consulting Agreements"); and
WHEREAS, the Company is contemplating a restructuring of its business,
including the business being conducted by Lexford Properties and, in connection
with such restructuring, the parties hereto desire to memorialize their
agreements with respect to the release and forfeiture of
<PAGE> 2
the Escrow Shares, Group 1 Forfeitable Shares and Group 2 Forfeitable Shares,
and certain of the rights granted under the Registration Rights Agreement,
Employment Agreements and the Consulting Agreements, all as more particularly
set forth below.
NOW, THEREFORE, in consideration of the above premises and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows.
1. Escrow Shares. Notwithstanding anything to the contrary contained in
the Merger Agreement, the Company, as Exchange/Escrow Agent under the Merger
Agreement hereby agrees to release all of the 50,000 Escrow Shares to the Old
Lexford Shareholders (in accordance with Schedule I to the Merger Agreement
attached hereto for convenience as Exhibit A ("Schedule I")). As soon as
practicable after the effectiveness of this Agreement, the Company will deliver
or cause its transfer agent to deliver, as the case may be, to the Old Lexford
Shareholders the share certificates representing the Escrow Shares.
2. Group 1 Forfeitable Shares. Notwithstanding anything to the contrary
contained in the Merger Agreement, the Company, as Exchange/Escrow Agent under
the Merger Agreement hereby agrees to release all of the 150,000 Group 1
Forfeitable Shares to the Old Lexford Shareholders (in accordance with Schedule
I). As soon as practicable after the effectiveness of this Agreement, the
Company will deliver or cause its transfer agent to deliver, as the case may be,
to the Old Lexford Shareholders the share certificates representing the Group 1
Forfeitable Shares. From and after the effectiveness of this Agreement, the
Group 1 Forfeitable Shares will be deemed to be Non-Forfeited Shares and no
longer subject to forfeiture under the Merger Agreement.
3. Group 2 Forfeitable Shares. Notwithstanding anything to the contrary
contained in the Merger Agreement, the Old Lexford Shareholders hereby agree to
forfeit to the Company all of the 300,000 Group 2 Forfeitable Shares. From and
after the effectiveness of this Agreement, the Old Lexford Shareholders will
have no rights whatsoever with respect to the Group 2 Forfeitable Shares
notwithstanding the provisions of Sections 2.2(d)(ii)(B) and 2.2(e) of the
Merger Agreement.
4. Registration Rights. The Company and each of the Old Lexford
Shareholders hereby agree to terminate the Registration Rights Agreement. From
and after the effectiveness of this Agreement, the Registration Rights Agreement
shall be deemed null and void, with no further force or effect.
5. Consulting Agreements. Each of Fimberg and Williams hereby
irrevocably waives the Company's compliance with its obligations under Section 5
of his Consulting Agreement.
6. Holdback Agreements. In the event that the Company determines to
register any of its shares of Company Common Stock in an underwritten public
offering in a registration statement filed under the Securities Act of 1933 (the
"Act") covering the sale of Company Common Stock to the public, and the managing
or lead underwriter thereof requests that the Old Lexford Shareholders agree not
to effect any public sale or distribution (including sales pursuant
<PAGE> 3
to Rule 144 promulgated under the Act) of equity securities of the Company or
any securities convertible into or exchangeable or exercisable for such equity
securities during a period of time beginning on the date of the initial filing
of the registration statement and ending on a date not more than one year after
the date such registration statement is declared effective (the "Holdback
Period"), the Old Lexford Shareholders will agree to comply with such request
and will execute any and all documents reasonably required by the underwriters
evidencing the same. Provided, however, that in the event that any of the
members of management (including directors) of the Company are permitted by the
underwriters to agree to a shorter Holdback Period than one (1) year, then the
Holdback Period provided herein shall be shortened to such shorter period.
Notwithstanding the foregoing, the holdback agreement with Ralph Williams shall
provide that Mr. Williams may sell up to 25,000 shares during the Holdback
Period provided that in no single month shall Mr. Williams sell more than 8,334
shares.
7. Proxy. Each of the Old Lexford Shareholders agrees to execute and
deliver to the Company, or its designees, a duly executed proxy to vote all
shares of Company Common Stock ("Shares") owned by such Old Lexford Shareholder
at the Special Meeting of the Company's Shareholders to be held on March 3, 1998
and at any adjournments thereof. Each of the Old Lexford Shareholders
acknowledges receipt of the Proxy Statement/Prospectus of the Company and
Lexford Residential Trust dated February 2, 1998 relating to such special
meeting. All such proxies will be voted in favor of the merger described in such
Proxy Statement/Prospectus. No Old Lexford Shareholder will take any further
action to revoke any such proxy or otherwise vote his or her Shares at such
Special Meeting. In addition, each of the Old Lexford Shareholders agrees to
execute and deliver to the Company, or its designees, a duly executed
irrevocable proxy to vote the 50,000 Escrow Shares and the 150,000 Group 1
Forfeitable Shares released hereby at any meeting of the Company's shareholders
held at any time during the Holdback Period.
8. No Claims. Each of the Old Lexford Shareholders and Fimberg hereby
acknowledges and represents that he or she does not have any claim against the
Company or Lexford Properties as of the date of this Agreement arising out of
the Merger Agreement or the Consulting Agreements, as applicable, or arising out
of any other conduct of the Company or Lexford Properties.
9. Releases. The Company on the one hand and Old Lexford Shareholders
on the other, on behalf of themselves and their heirs, assigns and successors,
do hereby release and forever discharge each other of and from any and all
claims, demands, liabilities, obligations, losses or expenses of any nature
whatsoever, whether existing at law, in equity or otherwise and whether known or
unknown, foreseen or unforeseen, that either of them have or may hereafter claim
to have had against each other relating to any provisions, terms, conditions,
covenants or representations of the Merger Agreement or any agreements executed
in connection therewith, provided, however, that nothing contained in this
Agreement shall release either party from any of their obligations under either
this Agreement, or from any claims for indemnification under applicable law in
connection with serving as an officer or director of the Company.
10. Effect of this Agreement. Except as required by this Agreement, the
terms of the Merger Agreement and the Consulting Agreements shall remain
unaffected by this Agreement.
3
<PAGE> 4
11. Further Assurances. Each of the parties hereto agrees to execute
and deliver all documents and take all such other actions as may be reasonably
required to give effect to the agreements contained herein.
12. Counterparts. This Agreement may be executed in multiple
counterparts, all of which when taken together shall constitute one and the same
agreement. This Agreement shall be effective when signed by all the parties
hereto.
13. Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions of this Agreement shall remain
in full force and effect and shall not otherwise be affected, impaired or
invalidated.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with, the internal laws of the State of Ohio without giving effect to
the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
LEXFORD, INC.
By: /s/ JOHN B. BARTLING
-----------------------
Name: John B. Bartling
Title: President & CEO
/s/ PAT HOLDER
- ------------------------------
Pat Holder
/s/ STANLEY R. FIMBERG
- ------------------------------
Stanley R. Fimberg
/s/ RALPH V. WILLIAMS
- ------------------------------
Ralph V. Williams
/s/ ANNETTE HOOVER
- ------------------------------
Annette Hoover
/s/ BRUCE WOODWARD
- ------------------------------
Bruce Woodward
/s/ ERIC MADSEN
- ------------------------------
Eric Madsen
/s/ PEGGY CROW SMITH
- ------------------------------
Peggy Crow Smith
FSC REALTY, L.L.C.
By: /s/ STANLEY R. FIMBERG
---------------------------
Stanley R. Fimberg, Manager
4
<PAGE> 1
Exhibit 10.14
ASSIGNMENT
The undersigned, Brentwood-Lexford Partners, LLC, successor-in-interest
to Lexford Property Management, Inc., hereby assigns its entire right, title and
members' interests in and to Lexford Guilford LP LLC, an Ohio limited liability
company, and Lexford Guilford GP LLC, an Ohio limited liability company, to
Lexford Properties, LP.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be
executed by its duly authorized officer effective as of the 30th day of
November, 1998.
BRENTWOOD-LEXFORD PARTNERS, LLC
By: FSC Realty, LLC
its managing member
By: /s/ Stanley R. Fimberg
--------------------------
Stanley R. Fimberg
Managing Member
<PAGE> 1
Exhibit 10.16
AGREEMENT OF SEVERANCE AND MUTUAL RELEASE
This Agreement of Severance and Mutual Release ("Agreement") is made
effective as of the 1st day of January, 1999 between Annette Hoover ("Hoover")
and Lexford Residential Trust, a Maryland real estate investment trust (together
with its predecessor by merger, Lexford, Inc., formerly known as Cardinal Realty
Services, Inc., "Lexford Trust").
WITNESSETH:
WHEREAS, Hoover and Lexford each desire to amicably agree to the terms
of Hoover's resignation from all positions including, without limitation, as an
employee or officer with Lexford Trust or any of its subsidiaries, affiliates or
partnerships (collectively with Lexford Trust, "Lexford").
NOW, THEREFORE, in consideration of the covenants and agreements set
forth in this Agreement, and other good and valuable consideration exchanged by
the parties hereto, the sufficiency of which to support each and every covenant
herein is expressly acknowledged by the parties hereto, the parties agree as
follows:
1. Resignation.
Hoover, simultaneous with, and by means of the execution and delivery
hereof, hereby tenders her resignation, effective January 1, 1999, as Senior
Vice President of Property Operations of Lexford Trust and as an employee of
Lexford Properties, Inc. ("LPI") in which status she has heretofore served
pursuant to that certain Employment Agreement between Hoover and LPI dated
August 1, 1996 (the "Employment Agreement"), which resignation Lexford and LPI
have accepted. To the extent not covered by the aforementioned resignation, this
Agreement shall serve as Hoover's resignation from all positions with Lexford.
Accordingly, the term of the Employment Agreement is hereby deemed terminated
and the terms and provisions thereof, solely except those contained in Paragraph
8 which will remain in full force and effect, are of no further force and
effect.
2. Final Compensation.
Lexford will pay to Hoover, as severance compensation and in full
consideration of Hoover's release and covenants contained herein:
(a) the aggregate sum of One Hundred Eighty-seven Thousand Five
Hundred Dollars ($187,500), payable in full seven (7) days
following the execution and delivery hereof. Hoover
acknowledges that such payment to be made to her in accordance
with this Paragraph 2 will be made net of applicable employee
payroll withholding and other employment taxes. Hoover
acknowledges and agrees that the payment to be made to her
<PAGE> 2
pursuant to this Paragraph 2 will be made in full satisfaction
of any and all obligations and liabilities which Lexford, LPI
or any of their respective affiliates owes, or may owe, to
Hoover in respect of the Employment Agreement or any other
agreements, documents, instruments or arrangements (whether
written or verbal) existing between Hoover and any of them.
Such obligations satisfied hereby include, by way of example
and not by way of limitation: (i) Lexford's prior obligations
under the Employment Agreement to furnish Hoover with any
health and dental insurance, life insurance, disability
insurance, retirement or other employee benefits of any kind,
nature or description, it being understood and agreed that
upon the execution and delivery of this Agreement all such
obligations shall cease immediately and be of no further force
and effect; provided, however, that nothing herein shall
impact statutory obligations imposed by the Comprehensive
Omnibus Budget Reconciliation Act; and (ii) the obligations of
Lexford Trust and LPI (as successor by merger to Rexflor
Acquisition Corporation), if any, remaining under that certain
Merger Agreement dated August 1, 1996, by and among Lexford
Trust, Rexflor Acquisition Corporation, LPI and LPI's former
shareholders, including Hoover (the "Merger Agreement").
(b) Ownership, possession and use of that certain desktop computer
terminal which Hoover has used during her employment with
Lexford.
(c) Payment of attorneys' fees and disbursements incurred by
Hoover, as well as Peggy Crow Smith, in the negotiation,
preparation, review and execution of this Agreement, as well
as that certain Severance Agreement and General Release of
even date herewith between Lexford Trust and Peggy Crow Smith,
in an aggregate amount not to exceed $2,500. Lexford's
obligations under this Paragraph 2(c) will be satisfied by
direct payment of such attorneys' fees and disbursements in an
aggregate amount not to exceed $2,500 to the law firm of
Michener, Larimore et. al., of Fort Worth, Texas.
(d) Any vested benefits, pursuant to the provisions of the
Company's 401(k) Savings Plan.
3. Return of Equipment.
As provided in Paragraph 2(b) above, Hoover may keep the desktop
personal computer terminal she used during her employment with Lexford; however,
she must return all other equipment owned by Lexford, including, but not limited
to, dictation equipment, and will remove such retained computer terminal as well
as all personal effects from the office space she has occupied at Lexford's
offices in San Antonio, Texas.
2
<PAGE> 3
4. Release by Employee.
(a) Hoover, for herself and her dependents, successors, assigns,
heirs, representatives, attorneys, executors and
administrators (and her and their legal representatives of
every kind), hereby completely and irrevocably discharges and
releases Lexford and LPI, their respective officers, trustees,
directors, employees, agents, shareholders, affiliates,
subsidiaries, related entities, successors and assigns from
any and all claims, demands, actions, causes of action and/or
liability whatsoever involving any matter arising out of or in
any way related, directly or indirectly, to (i) Hoover's
employment with Lexford and LPI, including any positions with
subsidiary or affiliate entities, compensation therefor, or
the termination thereof, including, but not limited to, any
claim for employment discrimination in violation of Title VII
of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, et
seq., the Americans with Disabilities Act, 42 U.S.C. Section
12101, et seq., Ohio Revised Code Section 4112, Ohio Revised
Code Section 4101 and any other federal, state or municipal
fair employment practice or discrimination laws, statutes or
ordinances, (ii) the Merger Agreement; and (iii) any and all
other matters, rights, claims, actions, suits, liens, debts,
dues, damages or demands of every kind, whether or not
referred to in this Agreement, arising, occurring, accruing or
in existence on, or prior to, the date hereof. Hoover agrees
that she will not seek reinstatement or reemployment with
Lexford or any affiliate thereof at any time in the future.
(b) Hoover further agrees and acknowledges that she (i) has been
advised by Lexford to consult with legal counsel prior to
executing this Agreement and the release provided for in this
Paragraph 4; (ii) has had an opportunity to consult with and
has been advised by legal counsel of her choice; (iii) fully
understands the terms of this Agreement; and (iv) enters into
this Agreement freely and voluntarily and intending to be
bound.
5. Release by Lexford.
Except as provided in the immediately succeeding sentence Lexford
Trust, on behalf of itself and its affiliated, related and subsidiary entities,
successors and assigns (herein the "Lexford Releasors"), hereby completely and
irrevocably releases and forever discharges Hoover, her successors, assigns,
heirs, representatives, attorneys, executors and administrators from any and all
claims, demands, damages, actions and/or causes of action of any kind and every
description, which the Lexford Releasors now have or may have had for, upon, or
by reasons of any cause whatsoever, against Hoover. This release shall not,
however, apply to the obligations of Hoover, arising under or evidenced by this
Agreement or under Paragraph 8 of the Employment Agreement.
3
<PAGE> 4
6. Continued Availability and Cooperation.
(a) Hoover shall cooperate fully with Lexford and with Lexford's
counsel in connection with any future actual or threatened
litigation or administrative proceeding involving Lexford, its
affiliated, related or subsidiary entities, its officers,
directors, shareholders, employees, agents and
representatives, and its successors or assigns that relates to
events, occurrences or conduct occurring (or claimed to have
occurred) during the period of Hoover's employment by Lexford
and LPI (or any of its predecessors-in-interest).
(b) Hoover shall be reimbursed by Lexford for reasonable travel,
lodging, telephone and similar expenses incurred in connection
with any such cooperation required under Paragraph 6(a) above,
which Lexford shall reasonably endeavor to schedule at times
not conflicting with the reasonable requirements of any third
party with whom Hoover has a business relationship that
provides remuneration to Hoover. Hoover shall not unreasonably
withhold her availability for such cooperation.
(c) To the extent that Hoover executes and delivers this Agreement
on, or before, December 31, 1998, Hoover will continue to
perform such duties as are incidental to her continued
employment in accordance with the terms of the Employment
Agreement through the close of business on December 31, 1998
(subject to her use of earned "paid time off" pursuant to
Lexford Trust's "PTO" program). Such duties will include, by
way of illustration and not by way of limitation, Hoover's
cooperation with LPI and LPI's efforts to terminate the
leasehold for its San Antonio office space at the lowest
obtainable termination costs.
7. Successors and Binding Agreement.
(a) This Agreement shall be binding upon and inure to the benefit
of Lexford and any successor of or to Lexford, including,
without limitation, any persons acquiring directly or
indirectly all or substantially all of the business and/or
assets of Lexford whether by purchase, merger, consolidation,
reorganization or otherwise be assignable or delegable by
Lexford.
(b) This Agreement shall inure to the benefit of and be
enforceable by Hoover, her personal or legal representatives,
executors, administrators, successors, heirs, distributees
and/or legatees.
(c) This Agreement is personal in nature and none of the parties
hereto shall, without the consent of the other parties,
assign, transfer or delegate this Agreement or any rights or
obligations hereunder except as expressly provided in
Paragraphs 7(a) and 7(b) of this Agreement.
4
<PAGE> 5
(d) This Agreement is intended to be for the exclusive benefit of
the parties hereto, and except as provided in Paragraph 7(a)
of this Agreement, no third party shall have any rights
hereunder.
8. Confidentiality and Statements to Third Parties.
(a) Except as otherwise required by law and except to the extent,
and only to the extent, that Lexford has, publicly disclosed,
or will publicly disclose the terms of this Agreement due to
its status as a reporting company under the Securities
Exchange Act of 1934 and Hoover's prior affiliate status,
Hoover will not disclose the terms of this Agreement to anyone
other than members of her immediate family, her accountants,
or her legal advisors, as necessary, and Hoover will require
that they and their agents take all reasonable steps to
maintain the confidentiality hereof, except as otherwise
required by law, and Lexford will further disclose the terms
of this Agreement only to those persons (including employees
of Lexford) with a genuine business interest in learning such
information.
(b) Neither Hoover nor Lexford shall, directly or indirectly, make
or cause to be made any statements to any third parties
criticizing or disparaging the other or commenting adversely
on the character or business reputation of the other, but this
provision shall not limit the ability or responsibility of
either party to respond to the best of its knowledge to
administrative or regulatory inquiries or to testify to the
best of its knowledge in legal proceedings.
(c) Hoover agrees not to disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of, Lexford or
any of Lexford's subsidiaries, affiliates or related entities,
customer lists, product research, pricing information,
Lexford's trade secrets or any other information that would
provide Lexford's competitors with information about Lexford's
methods, goals, or customers, it being acknowledged by Hoover
that all such information regarding Lexford's business and
Lexford's subsidiaries, affiliates and related entities
compiled or obtained by, or furnished to, Hoover while Hoover
was employed by or associated with Lexford is confidential
information and Lexford's exclusive property.
9. Notices.
For all purposes of this Agreement, all communications provided for
herein shall be in writing and shall be deemed to have been duly given when
delivered, addressed (a) to Lexford (to the attention of its General Counsel) at
its principal executive offices located at The Huntington Center, 41 South High
Street, Suite 2410, Columbus, Ohio 43215, and (b) to Hoover at her principal
residence, or to such other address as either
5
<PAGE> 6
party may have furnished to the other in writing and in accordance herewith.
Notices of change of address shall be effective only upon receipt.
10. Governing Law.
The validity, interpretation, construction and performance of this
Agreement (and every other issue arising hereunder) shall be governed by the
laws of the State of Ohio, without giving effect to the principles of conflict
of laws of such state.
11. Miscellaneous.
Lexford and Hoover hereby acknowledge and understand that:
(a) Each has been afforded the opportunity to review and consider
the terms of this Agreement for a period of forty-five (45)
days and any waiver of such opportunity has been effected
knowingly and voluntarily with the benefit of legal counsel;
(b) Each has availed herself or itself of the opportunity to
receive counsel regarding their respective rights, obligations
and liabilities;
(c) Nothing in this Agreement is or shall be construed as an
admission by Lexford of any breach of any agreement or any
intentional or unintentional wrongdoing of any nature;
(d) Neither Hoover nor Lexford have made any representations
concerning the terms or effects of this Agreement other than
those contained in this Agreement and this Agreement may not
be modified or terminated orally;
(e) The terms of this Agreement are not effective or enforceable
until seven (7) days after its execution, during which period
Hoover may revoke this Agreement;
(f) The benefits provided Hoover herein are in excess of the
benefits as to which she would otherwise be entitled;
(g) The death or disability of Hoover following the execution of
this Agreement shall not affect or revoke this Agreement or
any of the obligations of the parties hereto. No provision of
this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing
signed by Hoover and Lexford. No waiver by either party hereto
at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement
to be performed by such other party shall deemed a waiver of
similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied, with
respect to the subject matter hereof have been
6
<PAGE> 7
made by any of the parties that are not set forth expressly in
this Agreement and every one of them (if, in fact, there have
been any) is hereby terminated without liability or any other
legal effect whatsoever; and
(h) Except as provided for in this Agreement, all compensation and
other payments due Hoover as a result of her employment with
Lexford have been paid in full and Hoover is not entitled to
any additional salary, bonus or other payments whatsoever.
(i) Hoover hereby represents and warrants to Lexford that she is
an unmarried individual.
12. Entire Agreement.
This Agreement (together with the other documents and supporting
information delivered simultaneously herewith) shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
shall supercede all prior verbal or written agreements, covenants,
communications, understandings, commitments, representations or warranties,
whether oral or written, by any party hereto or any of its representatives
pertaining to such subject matter.
13. Validity.
The validity 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.
14. 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.
15. Captions and Sections Headings.
Captions and section headings used herein are for convenience and are
not part of this Agreement and shall not be used in construing it.
16. Further Assurances.
Each party hereto shall execute such additional documents and do such
additional things, as may reasonably be requested by the other party to
effectuate the purposes and provisions of the Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned parties have hereunto executed this
Severance Agreement and Mutual Release as of the day and date first above
written.
WITNESSES: LEXFORD RESIDENTIAL TRUST
/s/ Cynthia A. Wolfe By: /s/ Bradley A. Van Auken
- ------------------------- ---------------------------
Bradley A. Van Auken
/s/ Christine Gallion Senior Vice President
- -------------------------
/s/ Susan D. Krumlauf /s/ Annette Hoover
- ------------------------- ---------------------------
ANNETTE HOOVER
8
<PAGE> 9
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared Bradley A. Van Auken, known to me to be the Senior Vice President of
Lexford Residential Trust; he did acknowledge that he executed the foregoing
Agreement of said Maryland real estate investment trust and that the same was
his free act and deed and the free act and deed of said Maryland real estate
investment trust.
/s/ Mark D. Thompson
----------------------------
Notary Public
STATE OF TEXAS )
) SS:
COUNTY OF BEXAR )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared Annette Hoover, and she did acknowledge that she executed the foregoing
Agreement and that the same was her free act and deed.
/s/ Allison Hockersmith
----------------------------
Notary Public
9
<PAGE> 1
Exhibit 10.17
SEVERANCE AGREEMENT AND GENERAL RELEASE
This Severance Agreement and General Release ("Agreement") is entered
into this 15th day of January, 1998, by and between Mark M. Culwell ("Employee")
and Lexford Residential Trust (the "Company").
WHEREAS, Employee is currently employed by the Company as Senior Vice
President of Asset Management; and
WHEREAS, Employee's position is being eliminated as a result of the
reorganization of the Company's Asset Management department; and
WHEREAS, both Employee and the Company desire to resolve any
differences and disputes now pending, or which may arise in the future with
respect to Employee's employment, compensation therefor, and termination
thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employee and the Company hereby
acknowledge and voluntarily agree as follows:
1. Termination of Employment; Resignation. Employee's employment with
the Company will terminate on January 15, 1999. Employee, simultaneous with, and
by means of the execution and delivery hereof, hereby tenders his resignation,
effective January 15, 1999, as Senior Vice President of Asset Management of the
Company, which resignation the Company has accepted. To the extent not covered
by the aforementioned resignation, this Agreement shall serve as Employee's
resignation from all positions with any of the Company's subsidiaries or
affiliated partnerships.
2. Severance Pay and Benefits. The Company will provide Employee the
following:
(a) Nine (9) months (the "Severance Period") of compensation
at Employee's base rate of salary, less applicable taxes and
withholding, which the Company will pay in roughly equal installments
on the Company's regularly occurring paydays; provided, however, that
the Company will commence paying such installments no earlier than the
later of: (i) seven (7) days after Employee signs this Agreement; or
(ii) Employee's last day of employment with the Company.
(b) Payment for any earned and unused Paid Time Off (PTO),
pursuant to the Company's PTO policy; provided, however, that the
Company will pay such amount to Employee in a lump sum no earlier than
the later of: (i) seven (7) days after Employee signs this Agreement;
or (ii) Employee's last day of employment with the Company.
(c) Health care and dental coverage under the Company's group
health and dental insurance program, under the same terms and
conditions as such benefits are
1
<PAGE> 2
provided to other employees of the Company, through January 15, 1999.
Any continuation of group insurance beyond January 15, 1999 will be in
accordance with the Consolidated Omnibus Budget Reconciliation Act
(COBRA). If Employee elects coverage under COBRA, the Company will
reimburse Employee for the employer portion of the monthly premium
during the Severance Period. After the Severance Period, there will be
no reimbursement for such coverage.
(d) Three (3) months outplacement services through Right
Associates. Such services will include, but are not limited to, career
assessment, determination of career objectives, career transition
campaign design, career transition campaign execution, financial
consulting, and support services.
(e) Any vested 401(k) benefits, pursuant to the provisions of
the Company's 401(k) Savings Plan.
(f) The right to exercise any vested options to purchase the
Company's common shares; provided, that such options must be exercised
by Employee on or before January 15, 1999.
3. Employee's Release of the Company. In consideration of the mutual
agreements and covenants set forth herein, Employee hereby completely and
irrevocably discharges and releases the Company, its officers, trustees,
employees, agents, shareholders, subsidiaries, affiliates, or related entities,
predecessors, successors, and assigns from any and all claims, demands, actions,
charges, causes of action and/or liabilities whatsoever involving any matter
arising out of or in any way related, directly or indirectly, to Employee's
employment with the Company, compensation therefor or the termination thereof,
including, but not limited to, any claim of unpaid compensation, emotional
distress, wrongful discharge, breach of contract, and employment discrimination
in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e et
seq., the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq., the
Americans with Disabilities Act, 42 U.S.C. 12101 et seq., [Ohio Revised Code
Chapter 4112], and any other federal, state or municipal fair employment
practice or discrimination laws, statutes or ordinances, arising at any time
prior to and including the effective date of this Agreement, including without
limitation, any claim, demand, action, charge, cause of action and/or liability
whatsoever for or on account of any and all matters that are or might have been
the subject matter of or that are or might have been referred to, or in any way
involved with the facts, recitals and circumstances incorporated by reference in
this Agreement. Further, Employee hereby waives any claim against the Company
for attorneys fees, expenses and costs related to the claims, demands, actions,
charges, causes of action and/or liabilities set forth in this Paragraph.
Specifically excepted from this release, however, are the rights and obligations
of Employee and the Company expressly set forth in this Agreement.
4. Full Compensation. Employee and the Company agree that except as
provided for in this Agreement, all compensation and other payments due as a
result of Employee's employment with the Company have been paid in full and that
Employee is not entitled to any additional salary, bonus, or other payments
whatsoever.
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<PAGE> 3
5. Miscellaneous. Employee and the Company hereby further acknowledge:
(a) That each has been afforded the opportunity to review and
consider the terms of this Agreement, for a period of at least
twenty-one (21) days;
(b) That each understands, and has had the opportunity to
receive counsel regarding, their respective rights, obligations, and
liabilities;
(c) To the extent Employee has taken less than twenty-one (21)
days to consider this Agreement, Employee acknowledges that Employee
has had sufficient time to consider this Agreement and to consult with
counsel and that Employee does not desire additional time;
(d) That nothing in this Agreement is or will be construed as
an admission by Employee or the Company of any breach of agreement or
any intentional or unintentional wrongdoing of any nature;
(e) That neither Employee nor the Company has made any
representations concerning the terms or effects of this Agreement other
than those contained in this Agreement, it being clearly understood
that this Agreement may not be modified or terminated orally;
(f) That the terms of this Agreement are not effective or
enforceable until seven (7) days after its execution, during which
period Employee may revoke this Agreement; and
(g) That the benefits provided Employee herein are in excess
of the benefits that Employee would otherwise be entitled to receive.
6. Acceptance of Agreement. Upon signing this Agreement, Employee will
immediately deliver a signed original of this Agreement and all Company property
currently in Employee's possession to Leslie Fox at Lexford Residential Trust at
6954 Americana Parkway, Reynoldsburg, Ohio 43068.
7. Continued Availability and Cooperation.
(a) Employee shall cooperate fully with Company by way of
providing factual information and data relevant to matters he worked on
as an employee of Company as well as with Company's counsel in
connection with any future actual or threatened litigation or
administrative proceeding involving Company, its affiliated, related or
subsidiary entities, its officers, directors, shareholders, employees,
agents and representatives, and its successors or assigns that relates
to events, occurrences or conduct occurring (or claimed to have
occurred) during the period of Employee's employment by Company (or any
of its predecessors-in-interest).
3
<PAGE> 4
(b) Employee shall be reimbursed by Company for reasonable
travel, lodging, telephone and similar expenses incurred in connection
with any such cooperation required under Section 7(a) above, which
Company shall reasonably endeavor to schedule at times not conflicting
with the reasonable requirements of any third party with whom Employee
has a business relationship that provides remuneration to Employee.
Employee shall not unreasonably withhold his availability for such
cooperation.
8. Nondisparagement and Confidentiality.
(a) Employee agrees not to disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in competition with,
or contrary to the interests of, the Company or any of the Company's
subsidiaries, affiliates or related entities, the Company's customer
lists, product research, pricing information, trade secrets, or any
other information that would provide the Company's competitors with
information about the Company's methods, goals, or customers, it being
acknowledged by Employee that all such information regarding the
Company's business and the Company's subsidiaries, affiliates, and
related entities compiled by or obtained by, or furnished to, Employee
while Employee was employed by or associated with the Company, is
confidential, proprietary information and the Company's exclusive
property.
(b) Employee will not, directly or indirectly, make or cause
to be made any statements to any third parties criticizing or
disparaging the Company or commenting adversely on the character or
business reputation of the Company, except as required by law.
9. Notices. For all purposes of this Agreement except Paragraph 6 of
this Agreement, all communications provided for herein will be in writing and
will be deemed to have been duly given when delivered, addressed (a) to the
Company (to the attention of Senior Vice President, General Counsel) at its
principal executive offices located at 41 South High Street, Suite 2410,
Columbus, Ohio 43215, and (b) to Employee, at Employee's last known principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith. Notices of change of address will be
effective only upon receipt.
10. Construction. This Agreement is governed by and will be construed
in accordance with the laws of the State of Ohio.
11. Breach. Employee agrees that if Employee violates any part of this
Agreement, Employee will be responsible for all costs incurred by the Company
that flow from that violation, including the Company's legal fees and other
costs associated with any legal action that arises from that violation. Employee
also agrees that if Employee violates any part of this Agreement, Employee would
not be entitled to the severance benefits provided for herein and will
immediately repay to the Company the severance benefits previously paid by the
Company to Employee under this Agreement.
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<PAGE> 5
12. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and will
supersede all prior verbal or written agreements, covenants, communications,
understandings, commitments, representations, or warranties, whether oral or
written, by any party hereto of a party's representatives pertaining to such
subject matter.
13. Validity. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity and enforceability of any other
provisions of this Agreement, which will remain in full force and effect.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed multiple copies of this
Agreement, each of which shall constitute an original, but all of which, when
taken together, will constitute the same document.
/s/ MARK M. CULWELL
-------------------------
Mark M. Culwell
Date: January 21, 1999
LEXFORD RESIDENTIAL TRUST
By: /s/ LESLIE B. FOX
------------------------
Leslie B. Fox
Executive Vice President
Date: January 13, 1999
6
<PAGE> 1
Exhibit 10.18
AGREEMENT OF SEVERANCE AND MUTUAL RELEASE
-----------------------------------------
This Agreement of Severance and Mutual Release ("Agreement") is made
effective as of the 1st day of January, 1999 between Peggy Crow Smith ("Smith")
and Lexford Residential Trust, a Maryland real estate investment trust (together
with its predecessor by merger, Lexford, Inc., formerly known as Cardinal Realty
Services, Inc., "Lexford Trust").
WITNESSETH:
-----------
WHEREAS, Smith and Lexford each desire to amicably agree to the terms
of Smith's resignation from all positions including, without limitation, as an
employee or officer with Lexford Trust or any of its subsidiaries, affiliates or
partnerships (collectively with Lexford Trust, "Lexford"); subject, however, to
the provisions for Smith's continuing services for Lexford's benefit as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth in this Agreement, and other good and valuable consideration exchanged by
the parties hereto, the sufficiency of which to support each and every covenant
herein is expressly acknowledged by the parties hereto, the parties agree as
follows:
1. Resignation.
------------
Smith, simultaneous with, and by means of the execution and delivery
hereof, hereby tenders her resignations, to become effective on the Termination
Date (as defined below), as Vice President of Human Resources of Lexford Trust
and as Vice President and Assistant Secretary of Lexford Properties, Inc.
("LPI") in which status she has heretofore served pursuant to that certain
Employment Agreement between Smith and LPI dated August 1, 1996 (the "Employment
Agreement"). Lexford and LPI hereby accept such resignations, to be effective on
the Termination Date. To the extent not covered by the aforementioned
resignations, this Agreement shall serve as Smith's resignation from all
positions with Lexford. For purposes of this Agreement the "Termination Date"
means the date on which Lexford Trust completes its planned relocation of its
Human Resources department and employees from its current location in Irving,
Texas to its proposed new location in Reynoldsburg, Ohio. At the time this
Agreement is being executed by Smith and Lexford Trust, the parties intend that
the Termination Date will occur on, or about, January 31, 1999. Between the date
of this Agreement and the Termination Date, Smith will continue as an employee
of Lexford Trust and LPI pursuant to the terms of the Employment Agreement at
the compensation provided for therein. Lexford Trust covenants to use its
reasonably commercial efforts to effect the events prerequisite to the
Termination Date as soon as reasonably practicable. Smith will cooperate with
Lexford Trust in assisting Lexford Trust to attain this stated objective
prerequisite to the occurrence of the Termination Date. Accordingly, the term of
the Employment Agreement will, upon the Termination Date, be deemed terminated
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<PAGE> 2
without further action by Smith or Lexford and the terms and provisions thereof,
solely except those contained in Paragraph 8 (with the exception of subparagraph
(a)(i) of said Paragraph 8 which is subject to the release set forth herein)
which will remain in full force and effect, will be of no further force and
effect.
2. Continuing Service Following Termination Date.
----------------------------------------------
From and after the Termination Date, Smith will continue to provide
services for the benefit of Lexford Trust in the capacity of Human Resources
Director of Brentwood-Lexford Partners, LLC ("BLP"). Smith acknowledges and
agrees that she has been providing human resource support services through her
own efforts and those of the staff she currently supervises in her current
employment capacity with Lexford Trust and LPI. Smith and her staff have been
providing these services in furtherance of the terms of that certain Stock
Purchase Agreement dated as of April 1, 1998, by and between LPI and BLP (the
"Stock Purchase Agreement"). Smith acknowledges and agrees that she is familiar
with the relevant terms and provisions (specifically, Sections 5.3 and 5.4) of
the Agreement. Smith further acknowledges and understands that from and after
the Termination Date through and including the Service Completion Date (as
defined below) her personal duties to BLP will increase from a limited time
basis to a full-time basis as its Human Resources Director. Smith will provide
the services contemplated by this Paragraph 2 beginning on the first business
day following the Termination Date through, and including, the earlier of (i)
November 30, 1999; or (ii) the date upon which Smith shall obtain a full release
for her benefit and the benefit of LPI, duly executed and delivered by BLP,
stating that BLP has released Smith, LPI and each of their respective
affiliates, successors and legal representatives from any and all duties for
provision of human resource services which might otherwise be devoted by one
full-time employee for the benefit of BLP pursuant to the terms of the Stock
Purchase Agreement (the "Service Completion Date"). Any such release will be, in
form and substance, reasonably satisfactory to LPI and will be obtained at no
cost or expense to LPI (it being understood that, for purposes of this Paragraph
2, "cost" will be deemed to include, without limitation, any incremental
increase to LPI in continuing to discharge its obligations to BLP under the
Stock Purchase Agreement which would result following a proposed release of
Smith). The period of time which will transpire between the Termination Date and
the Service Completion Date is hereinafter referred to as the "Service
Continuation Period". Smith agrees to devote her full-time and best efforts to
the diligent performance of her duties as the Human Resources Director, of BLP
during the Service Continuation Period.
3. Final Compensation.
-------------------
Following the Termination Date, Lexford will pay to Smith, as ongoing
compensation, severance compensation and in full consideration of Smith's
release and covenants contained herein:
(a) During the Service Continuation Period and in consideration of
the services Smith will provide to BLP for the account and
benefit of Lexford Trust and LPI, compensation of One Hundred
Twenty-five Thousand
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<PAGE> 3
Dollars ($125,000) per annum, payable in regular bi-monthly
installments, subject to all applicable employee payroll,
withholding and other employment taxes. In addition, during the
Service Continuation Period, Lexford Trust will provide
continuation of healthcare, dental, life and disability insurance
coverage in accordance with the terms of Lexford Trust's group
insurance programs and Smith may remain an active participant in
Lexford Trust's 401(k) Savings Plan.
(b) Not later than seven days following the Service Completion Date,
a lump sum payment to Smith in an amount determined by
multiplying the sum of One Hundred Twenty-five Thousand Dollars
($125,000) by a fraction, the numerator of which will equal the
number of days which will transpire from the first business day
following the Service Completion Date, through and including July
31, 2000, and the denominator of which will equal 365. Smith
acknowledges that such payment to be made to her in accordance
with this Paragraph 3(b) will be made net of applicable employee
payroll withholding and other employment taxes.
(c) Ownership, possession and use of that certain desktop computer
terminal which Smith has used during her employment with Lexford.
(d) Payment of attorneys' fees and disbursements incurred by Smith,
as well as Annette Hoover, in the negotiation, preparation,
review and execution of this Agreement, as well as that certain
Agreement of Severance and Mutual Release of even date herewith
between Lexford Trust and Annette Hoover, in an aggregate amount
not to exceed $2,500. Lexford's obligations under this Paragraph
2(d) will be satisfied by direct payment of such attorneys' fees
and disbursements in an aggregate amount not to exceed $2,500 to
the law firm of Michener, Larimore et. al., of Fort Worth, Texas.
(e) Any vested benefits, pursuant to the provisions of the Company's
401(k) Savings Plan.
(f) Commencing on the first business day following the Service
Completion Date, three (3) months outplacement services through
Right Associates. Such services will include, but are not limited
to, career assessment, determination of career objectives, career
transition campaign design, career transition campaign execution,
financial consulting, and support services.
(g) Smith acknowledges and agrees that the considerations to be given
to her pursuant to this Paragraph 3 will be made in full
satisfaction of any and all obligations and liabilities which
Lexford, LPI or any of their respective affiliates owes, or may
owe, to Smith in respect of the Employment
3
<PAGE> 4
Agreement or any other agreements, documents, instruments or
arrangements (whether written or verbal) existing between Smith
and any of them. Such obligations satisfied hereby include, by way
of example and not by way of limitation: (i) Lexford's prior
obligations under the Employment Agreement to furnish Smith with
any health and dental insurance, life insurance, disability
insurance, retirement or other employee benefits of any kind,
nature or description, it being understood and agreed that, from
and after the Service Completion Date, all such obligations shall
cease immediately and be of no further force and effect; provided,
however, that nothing herein shall impact statutory obligations
imposed by the Comprehensive Omnibus Budget Reconciliation Act;
and (ii) the obligations of Lexford Trust and LPI (as successor by
merger to Rexflor Acquisition Corporation), if any, remaining
under that certain Merger Agreement dated August 1, 1996, by and
among Lexford Trust, Rexflor Acquisition Corporation, LPI and
LPI's former shareholders, including Smith (the "Merger
Agreement").
4. Return of Equipment.
--------------------
As provided in Paragraph 3(b) above, Smith may keep the desktop
personal computer terminal she used during her employment with Lexford; however,
promptly following the Service Completion Date she must return all other
equipment owned by Lexford, including, but not limited to, dictation equipment,
and will remove such retained computer terminal as well as all personal effects
from the office space she has occupied at Lexford's offices in Irving, Texas.
5. Release by Employee.
--------------------
(a) Smith, for herself and her dependents, successors, assigns,
heirs, representatives, attorneys, executors and administrators
(and her and their legal representatives of every kind), hereby
completely and irrevocably discharges and releases Lexford and
LPI, their respective officers, trustees, directors, employees,
agents, shareholders, affiliates, subsidiaries, related entities,
successors and assigns from any and all claims, demands, actions,
causes of action and/or liability whatsoever involving any matter
arising out of or in any way related, directly or indirectly, to
(i) Smith's employment with Lexford and LPI, including any
positions with subsidiary or affiliate entities, compensation
therefor, or the termination thereof, including, but not limited
to, any claim for employment discrimination in violation of Title
VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, et
seq., the Age Discrimination in Employment Act, 29 U.S.C. Section
621, et seq., the Americans with Disabilities Act, 42 U.S.C.
Section 12101, et seq., Ohio Revised Code Section 4112, Ohio
Revised Code Section 4101 and any other federal, state or
municipal fair employment practice or discrimination laws,
statutes or ordinances, (ii) the Merger Agreement; and (iii) any
and all other matters, rights, claims, actions, suits, liens,
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<PAGE> 5
debts, dues, damages or demands of every kind, whether or not
referred to in this Agreement, arising, occurring, accruing or in
existence on, or prior to, the date hereof. Smith agrees that she
will not seek reinstatement or reemployment with Lexford or any
affiliate thereof at any time in the future.
(b) Smith further agrees and acknowledges that she (i) has been
advised by Lexford to consult with legal counsel prior to
executing this Agreement and the release provided for in this
Paragraph 4; (ii) has had an opportunity to consult with and has
been advised by legal counsel of her choice; (iii) fully
understands the terms of this Agreement; and (iv) enters into
this Agreement freely and voluntarily and intending to be bound.
6. Release by Lexford.
-------------------
Except as provided in the immediately succeeding sentence Lexford
Trust, on behalf of itself and its affiliated, related and subsidiary entities,
successors and assigns (herein the "Lexford Releasors"), hereby completely and
irrevocably releases and forever discharges Smith, her successors, assigns,
heirs, representatives, attorneys, executors and administrators from any and all
claims, demands, damages, actions and/or causes of action of any kind and every
description, which the Lexford Releasors now have or may have had for, upon, or
by reasons of any cause whatsoever, against Smith. This release shall not,
however, apply to the obligations of Smith, arising under or evidenced by this
Agreement or under Paragraph 8 of the Employment Agreement (with the exception
of subparagraph (a)(i) of said Paragraph 8 which is subject to the release set
forth herein).
7. Continued Availability and Cooperation.
---------------------------------------
(a) From and after the Termination Date, Smith shall cooperate fully
with Lexford and with Lexford's counsel in connection with any
future actual or threatened litigation or administrative
proceeding involving Lexford, its affiliated, related or
subsidiary entities, its officers, directors, shareholders,
employees, agents and representatives, and its successors or
assigns that relates to events, occurrences or conduct occurring
(or claimed to have occurred) during the period of Smith's
employment by Lexford and LPI (or any of its
predecessors-in-interest).
(b) Smith shall be reimbursed by Lexford for reasonable travel,
lodging, telephone and similar expenses incurred in connection
with any such cooperation required under Paragraph 7(a) above,
which Lexford shall reasonably endeavor to schedule at times not
conflicting with the reasonable requirements of any third party
with whom Smith has a business relationship that provides
remuneration to Smith. Smith shall not unreasonably withhold her
availability for such cooperation.
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<PAGE> 6
8. Successors and Binding Agreement.
---------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
Lexford and any successor of or to Lexford, including, without
limitation, any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of Lexford
whether by purchase, merger, consolidation, reorganization or
otherwise be assignable or delegable by Lexford.
(b) This Agreement shall inure to the benefit of and be enforceable
by Smith, her personal or legal representatives, executors,
administrators, successors, heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and none of the parties
hereto shall, without the consent of the other parties, assign,
transfer or delegate this Agreement or any rights or obligations
hereunder except as expressly provided in Paragraphs 8(a) and
8(b) of this Agreement.
(d) This Agreement is intended to be for the exclusive benefit of the
parties hereto, and except as provided in Paragraph 8(a) of this
Agreement, no third party shall have any rights hereunder.
9. Confidentiality and Statements to Third Parties.
------------------------------------------------
(a) Except as otherwise required by law and except to the extent, and
only to the extent, that Lexford has, publicly disclosed, or will
publicly disclose the terms of this Agreement due to its status
as a reporting company under the Securities Exchange Act of 1934
and Smith's prior affiliate status, Smith will not disclose the
terms of this Agreement to anyone other than members of her
immediate family, her accountants, or her legal advisors, as
necessary, and Smith will require that they and their agents take
all reasonable steps to maintain the confidentiality hereof,
except as otherwise required by law, and Lexford will further
disclose the terms of this Agreement only to those persons
(including employees of Lexford) with a genuine business interest
in learning such information.
(b) Neither Smith nor Lexford shall, directly or indirectly, make or
cause to be made any statements to any third parties criticizing
or disparaging the other or commenting adversely on the character
or business reputation of the other, but this provision shall not
limit the ability or responsibility of either party to respond to
the best of its knowledge to administrative or regulatory
inquiries or to testify to the best of its knowledge in legal
proceedings.
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<PAGE> 7
(c) Smith agrees not to disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or
contrary to the interests of, Lexford or any of Lexford's
subsidiaries, affiliates or related entities, customer lists,
product research, pricing information, Lexford's trade secrets or
any other information that would provide Lexford's competitors
with information about Lexford's methods, goals, or customers, it
being acknowledged by Smith that all such information regarding
Lexford's business and Lexford's subsidiaries, affiliates and
related entities compiled or obtained by, or furnished to, Smith
while Smith was employed by or associated with Lexford is
confidential information and Lexford's exclusive property.
10. Notices.
--------
For all purposes of this Agreement, all communications provided for
herein shall be in writing and shall be deemed to have been duly given when
delivered, addressed (a) to Lexford (to the attention of its General Counsel) at
its principal executive offices located at The Huntington Center, 41 South High
Street, Suite 2410, Columbus, Ohio 43215, and (b) to Smith at her principal
residence, or to such other address as either party may have furnished to the
other in writing and in accordance herewith. Notices of change of address shall
be effective only upon receipt.
11. Governing Law.
--------------
The validity, interpretation, construction and performance of this
Agreement (and every other issue arising hereunder) shall be governed by the
laws of the State of Ohio, without giving effect to the principles of conflict
of laws of such state.
12. Miscellaneous.
--------------
Lexford and Smith hereby acknowledge and understand that:
(a) Each has been afforded the opportunity to review and consider the
terms of this Agreement for a period of forty-five (45) days and
any waiver of such opportunity has been effected knowingly and
voluntarily with the benefit of legal counsel;
(b) Each has availed herself or itself of the opportunity to receive
counsel regarding their respective rights, obligations and
liabilities;
(c) Nothing in this Agreement is or shall be construed as an
admission by Lexford of any breach of any agreement or any
intentional or unintentional wrongdoing of any nature;
(d) Neither Smith nor Lexford have made any representations
concerning the terms or effects of this Agreement other than
those contained in this Agreement and this Agreement may not be
modified or terminated orally;
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<PAGE> 8
(e) The terms of this Agreement are not effective or enforceable
until seven (7) days after its execution, during which period
Smith may revoke this Agreement;
(f) The benefits provided Smith herein are in excess of the benefits
as to which she would otherwise be entitled;
(g) The death or disability of Smith following the Service Completion
Date Agreement shall not affect or revoke this Agreement or any
of the obligations of the parties hereto. No provision of this
Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed
by Smith and Lexford. No waiver by either party hereto at any
time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by
such other party shall deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, expressed or implied, with respect to the subject
matter hereof have been made by any of the parties that are not
set forth expressly in this Agreement and every one of them (if,
in fact, there have been any) is hereby terminated without
liability or any other legal effect whatsoever; and
(h) Except as provided for in this Agreement, all compensation and
other payments due Smith as a result of her employment with
Lexford have been paid in full and Smith is not entitled to any
additional salary, bonus or other payments whatsoever.
(i) Smith hereby represents and warrants to Lexford that she is an
unmarried individual.
13. Entire Agreement.
-----------------
This Agreement (together with the other documents and supporting
information delivered simultaneously herewith) shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
shall supercede all prior verbal or written agreements, covenants,
communications, understandings, commitments, representations or warranties,
whether oral or written, by any party hereto or any of its representatives
pertaining to such subject matter.
14. Validity.
---------
The validity 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.
8
<PAGE> 9
15. 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.
16. Captions and Sections Headings.
-------------------------------
Captions and section headings used herein are for convenience and are
not part of this Agreement and shall not be used in construing it.
17. Further Assurances.
-------------------
Each party hereto shall execute such additional documents and do such
additional things, as may reasonably be requested by the other party to
effectuate the purposes and provisions of the Agreement.
IN WITNESS WHEREOF, the undersigned parties have hereunto executed this
Severance Agreement and Mutual Release as of the day and date first above
written.
WITNESSES: LEXFORD RESIDENTIAL TRUST
/s/ Susan D. Krumlauf By: /s/ BRADLEY A. VAN AUKEN
- ------------------------ ------------------------
Bradley A. Van Auken
/s/ Christine Gallion Senior Vice President
- ------------------------
/s/ Teresa Johnson /s/ PEGGY CROW SMITH
- ------------------------ ------------------------
Peggy Crow Smith
/s/ Lauri Danlizo
- ------------------------
9
<PAGE> 10
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared Bradley A. Van Auken, known to me to be the Senior Vice President of
Lexford Residential Trust; he did acknowledge that he executed the foregoing
Agreement of said Maryland real estate investment trust and that the same was
his free act and deed and the free act and deed of said Maryland real estate
investment trust.
/s/ Mark D. Thompson
-------------------------
Notary Public
STATE OF TEXAS )
) SS:
COUNTY OF DALLAS )
BEFORE ME, a Notary Public in and for said County and State, personally
appeared Peggy Crow Smith, and she did acknowledge that she executed the
foregoing Agreement and that the same was her free act and deed.
/s/ Barbara L. Lewis
-------------------------
Notary Public
10
<PAGE> 1
Exhibit 10.20
FIRST AMENDMENT TO
1997 PERFORMANCE EQUITY PLAN OF
CARDINAL REALTY SERVICES, INC.
WHEREAS, Lexford, Inc., formerly Cardinal Realty Services, Inc. (the
"Company"), established the 1997 Performance Equity Plan of Cardinal Realty
Services, Inc. (the "Plan") effective as of May 14, 1997; and
WHEREAS, Section 16 of the Plan provides that the Plan may be amended
at any time and from time to time by the Board of Directors of the Company (the
"Board").
NOW, THEREFORE, the Plan is amended effective as of October 15, 1997 as
set forth below.
1. The name of the Plan shall be changed to:
"1997 Performance Equity Plan of Lexford, Inc."
2. Section 2.3 shall be changed to read as follows:
"Board" means the Board of Directors of Lexford, Inc.
3. Section 2.8 shall be changed to read as follows:
"Company" means Lexford, Inc.
4. Section 2.19 shall be changed to read as follows:
"Plan" means the 1997 Performance Equity Plan of Lexford, Inc.
5. Section 2.20 shall be changed to read as follows:
"Rabbi Trust" means the Lexford, Inc. executive Deferred Compensation
Rabbi Trust.
6. The last sentence of Section 8. Shall be replaced with the following:
"In addition, a Participant may make a written election to defer receipt of any
or all dividends paid with respect to any Shares subject to a deferral election
as described in this Section 8. until the time at which the Shares in respect of
such dividends are payable become taxable to the individual. In order to be
effective with respect to any dividend
9
<PAGE> 2
payable, such election must be made at least ten (10) days prior to the date
that such dividend is declared by the Board. A Participant may elect to defer a
percentage of any dividends payable, and to receive the remainder, provided that
any such election shall be made in increments of ten percent (10%). To the
extent that a Participant does not elect to defer any portion of cash dividends
payable with respect to any Shares, such dividends shall be paid to the
Participant when such Shares vest under the terms of this Plan or, if previously
vested, when such cash dividends are paid with respect to such Shares. Prior to
the time the Participant vests in Shares, cash dividends payable with respect to
such Shares shall be automatically deferred into the Rabbi Trust, invested under
the terms thereof, and to the extent not forfeited under the terms of this Plan,
distributed in accordance with the foregoing."
7. All references to the Plan to "Lexreit" and to "Lexreit Shares" shall
be deleted.
2
<PAGE> 1
Exhibit 10.21
SECOND AMENDMENT TO
1997 PERFORMANCE EQUITY PLAN OF
LEXFORD, INC.
WHEREAS, Lexford, Inc., predecessor by merger to Lexford Residential
Trust, a Maryland real estate investment trust ("Lexford"), established the 1997
Performance Equity Plan (the "Plan") effective as of May 14, 1997;
WHEREAS, Section 16 of the Plan provides that the Plan may be amended
by the Lexford Board of Directors; and
WHEREAS, the Special Committee of the Board has instituted the 1998
Non-Employee Trustee Retirement Program (as hereinafter defined);
NOW, THEREFORE, the Plan is amended as set forth below effective as of
April 16, 1998.
1. The name of the Plan shall be changed to:
"1997 Performance Equity Plan of Lexford Residential Trust".
2. Section 2.3 shall be changed to read as follows: "Board" means the
Board of Trustees of Lexford Residential Trust.
3. Section 2.8 shall be changed to read as follows: "Company" means
Lexford Residential Trust.
4. Section 2.9 shall be changed to read as follows: "Company Shares" means
common shares of beneficial interest, par value $.01 per share, of the
Company.
5. The following Section 2.18A is hereby added to the Plan:
2.18A "Permanent Disability" means (i) ninety (90) consecutive days, or
(ii) one hundred eighty days cumulatively in any twelve (12) month
period, during which Participant is unable to engage in his customary
occupational or business activities due to sickness or injury.
6. Section 2.19 shall be changed to read as follows:
"Plan" means the 1997 Performance Equity Plan of Lexford
Residential Trust.
7. Section 2.20 shall be changed to read as follows:
"Rabbi Trust" means the Lexford Residential Trust Executive Deferred
Compensation Rabbi Trust.
<PAGE> 2
8. The following Section 2.27 is hereby added to the Plan:
2.27 "1998 Non-Employee Trustee Retirement Program" means that certain
Non-Employee Trustee Retirement Program instituted by the Special
Independent Committee of the Board, which Committee, in turn, was
established by the resolution adopted by the full Board at its meeting
held on March 26, 1998.
9. Section 6.3(b)(ii) of the Plan is amended to read as follows:
(ii) if the Participant is a non-employee trustee and ceases to be
a trustee, the Shares shall forfeit as provided in the
Participant's Restricted Stock Award Agreement; unless the
Participant resigns as a trustee pursuant to, and in
accordance with the terms of, the 1998 Non-Employee Trustee
Retirement Program as described in Section 8(d), in which
event the Participant Shares shall be fully vested upon the
acceptance of his resignation from the Board; and
10. Section 6.4 of the Plan is amended by adding the following paragraph
(c) at the end of such Section:
(c) Notwithstanding anything herein to the contrary, a non-employee
trustee who resigns as a trustee and participates in the 1998
Non-Employee Trustee Retirement Program will become fully vested as of
April 15, 1998 in all of his non-vested Shares (being 11,000 Shares not
theretofore vested at such date) originally awarded under this Plan.
11. Section 8 of the Plan is amended to read as follows:
8. Deferral of Shares into Rabbi Trust.
(a) Within ten (10) days of the approval of this Plan by the
shareholders of the Company and prior to the issuance of any Shares
under the Plan, each Participant may make a written election to defer
the Shares that would otherwise be transferred to him or her upon the
vesting of such Shares pursuant to Section 6 and/or Section 7 of the
Plan. Such election shall be binding upon such Participant with respect
to all Shares he or she would be entitled to receive upon attainment of
the Performance Goals as described in Sections 6 and 7 except that any
election to receive Shares is subject to the provisions of Section 9.
If the Participant elects to defer receipt of Shares, such Shares will
be contributed to the Rabbi Trust and held for his or her benefit
(subject to forfeiture under Section 6.3(b)) under the terms of the
Rabbi Trust until the latest of: (i) the Participant's termination of
employment with the Company, (ii) the cessation of the Participant's
non-employee trusteeship, or (iii) if the Participant has elected to
defer receipt of such Shares in accordance with the terms of the 1998
Non-Employee Trustee Retirement Program as described in paragraph (d)
below and as specified in such deferral election and the 1998
Non-Employee Trustee Retirement Program.
(b) A Participant may make a written election to defer receipt of any
or all dividends paid with respect to any Shares subject to a deferral
election as described in this Section 8 until the time at which the
Shares in respect of which such dividends are
2
<PAGE> 3
payable become taxable to the individual. In order to become effective
with respect to any dividend payable, such election must be made at
least ten (10) days prior to the date that such dividend is declared by
the Board. A written election to defer receipt of dividends made
pursuant to this Section 8(b) shall remain in effect and shall apply to
any and all dividends declared from and after the date of such election
unless and until a Participant shall determine to modify, suspend,
revoke or amend such prior election and make a subsequent written
election which shall apply prospectively to any and all dividends
declared more than nine (9) days following the date of such subsequent
written election. A Participant may not amend, modify, suspend, revoke
or otherwise alter a prior written election made under this Section
8(b) more than once per calendar year. Any Participant written election
in effect from time to time under this Section 8(b) shall conform in
all respects to any and all other written elections made with respect
to dividends payable on Company Shares which are held for the benefit
of such Participant in the Rabbi Trust, but not otherwise issued
pursuant to the terms of this Plan. A Participant may elect to defer a
percentage of any dividends payable in respect of vested Shares held in
the Rabbi Trust for his or her benefit, and to receive the remainder,
provided that any such election shall be made in increments of ten
percent (10%).
(c) To the extent that a Participant does not elect to defer any
portion of cash dividends payable with respect to any Shares, such
dividends shall be paid to the Participant when such Shares vest under
the terms of this Plan or, if previously vested, when such cash
dividends are paid with respect to such Shares. Prior to the time the
Participant vests in Shares, cash dividends payable with respect to
such Shares shall be automatically deferred into the Rabbi Trust,
invested under the terms thereof and, to the extent not forfeited under
the terms of this Plan, distributed in accordance with the foregoing.
At such time as any Shares shall become vested under this Plan,
dividends paid prior to the date of vesting and accumulated in the
Rabbi Trust, together with any earnings thereon, shall thereupon be
paid to the Participant in accordance with the terms of the
Participant's written election made pursuant to Section 8(b) above, as
then in effect. For example: in the event that the Participant shall
have a total of $1,000 in dividends and earnings thereon accumulated
with respect to non-vested Shares issued under this Plan which shall
become vested and the Participant shall have a written election in
effect pursuant to the provisions in Section 8(b) hereof which shall
specify payment on a current basis to the Participant of forty percent
(40%) of all dividends paid in respect of vested Shares, then, as soon
as practicable following the date of vesting, the Company will cause
the Participant to receive payment in the amount of $400 in accumulated
dividends together with earnings thereon as a result of the vesting of
Shares which had previously been non-vested.
(d) A Participant who resigns as a non-employee trustee and who
participates in the 1998 Non-Employee Trustee Retirement Program may
make an irrevocable election, prior to the effective date of his
resignation, to continue to defer the receipt of all or a portion of
his Shares awarded under this Plan for a maximum period of five (5)
years from the effective date of his resignation. Payment will be made
to such Participant at the end of such deferral period in the form of a
lump sum or annual installments. Dividends declared and paid on account
of Shares held in the Rabbi Trust for the benefit of retiring
non-employee trustee Participants who participate in the 1998
Non-Employee Trustee
3
<PAGE> 4
Retirement Program will be paid to such Participants in accordance with
the terms of the Participants' affirmative written dividend deferral
elections made in accordance with the provisions of Section 8 (c). In
the absence of such an election made under Section 8 (c), then
dividends declared and paid on account of Shares held in the Rabbi
Trust for the benefit of retiring non-employee trustee Participants who
participate in the 1998 Non-Employee Trustee Retirement Program will be
paid to such Participants at such time as the deferred Company Shares
are distributed to the Participant pursuant to the terms of his
irrevocable election made in accordance with the provisions of this
Section 8(d). For example, if the Participant elects to defer receipt
of his Shares hereunder for a period of five (5) years, distributable
in five equal annual installments, but does not make an affirmative
written dividend deferral election in accordance with the provisions of
Section 8 (c) then distribution of the Shares shall be made to the
Participant in five proportionate annual installments and dividends
which may have accumulated on such Shares, together with earnings
thereon, will be paid to the Participant at the time of each such
installment in accordance with the following distribution schedule:
Anniversary Amount of
of Election Distribution
------------ ------------
1 20% of accumulated dividends and earnings
2 25% of accumulated dividends and earnings
3 33 1/3% of accumulated dividends and earnings
4 50% of accumulated dividends and earnings
5 remaining balance of accumulated dividends and earnings
Notwithstanding any of the foregoing provisions of this Section 8(d),
in the event of the Participant's death or Permanent Disability the
Participants or his legal representative, as the case may be, shall
become entitled to distribution of all of the Shares issued to the
Participant hereunder, together with all dividends accumulated as well
as earnings thereon in one lump sum distribution and payment.
4
<PAGE> 1
Exhibit 10.31
AMENDMENT AND RESTATEMENT OF THE
CARDINAL REALTY SERVICES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Lexford, Inc., formerly Cardinal Realty Services, Inc., (the
"Company") established the Cardinal Realty Services, Inc. Deferred Compensation
Plan (the "Plan") effective as of April 18, 1996; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the Plan should be amended and restated to ratify all prior
actions taken with respect to the Plan and to make certain additional changes to
the Plan.
NOW, THEREFORE, the Plan is amended and restated in its entirety
effective as of October 15, 1997 as set forth below.
ARTICLE I
PURPOSE
The purpose of this Plan is to provide certain key employees and
non-employee directors with a deferred compensation benefit measured by the
bookkeeping accounts established and maintained hereunder.
ARTICLE II
DEFINITIONS
2.1 "Allocation Date" means each day as of which investment earnings or
losses are allocated pursuant to the terms of the Trust.
2.2 "Beneficiary" means the executor or administrator of the estate
of the deceased Participant.
2.3 "Benefit Amount" means the account balance of the Participant's
Participant Account, determined at the time of distribution.
2.4 "Board" means the Board of Directors of the Company.
<PAGE> 2
2.5 "Bonus Stock" means the shares of Company Stock that would
otherwise be payable to a Participant as a bonus pursuant to the terms of the
Participant's employment agreement with the Company or otherwise in accordance
with the Company's incentive compensation plan in effect from time to time.
2.6 "Closing Price" means the closing price of the Company Stock on the
Nasdaq National Market System, or if the Company Stock is not listed or admitted
in such system, the principal securities exchange on which the Company Stock is
listed or admitted to trading, on the last trading day preceding the Payment
Event.
2.7 "Committee" means The Compensation Committee of the Board.
2.8 "Company" means Lexford, Inc., an Ohio corporation.
2.9 "Company Stock" means shares of the Company's common stock.
2.10 "Effective Date" means April 18, 1996, the date as of which this
Plan was originally approved by the Board.
2.11 "Election Date" means the applicable election deadline established
pursuant to Section 4.3.
2.12 "Election Form" means the form completed by a Participant and
submitted to the Company reflecting the Participant's deferral election pursuant
to Section 4.2.
2.13 "Elective Deferral Credits" means the amount credited to a
Participant Account from time to time pursuant to Section 4.2.
2.14 "Investment Credits" means the amount added to or subtracted from
a Participant Account from time to time pursuant to Section 4.4.
2.15 "Market Capitalization Restricted Stock" means the shares of
restricted Company Stock that: (a) would otherwise be provided to the
Participant under the Participant's employment agreement with the Company; and
(b) vests based upon "Market Capitalization" as defined therein.
2.16 "Matching Stock" means the shares of Company Stock that would
otherwise be payable to a Participant as a match to the Participant's purchase
of Company Stock, as determined pursuant to the terms of the Participant's
employment agreement with the Company.
2.17 "Other Restricted Stock" means the shares of restricted Company
Stock that would otherwise be provided to the Participant under the
Participant's employment agreement with the Company, other than Market
Capitalization Restricted Stock.
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<PAGE> 3
2.18 "Participant" means each key employee and each non-employee
director of the Company who is eligible to participate in this Plan pursuant to
Article III and who makes an election to participate pursuant to Section 4.2.
2.19 "Participant Account" means the bookkeeping account established
and maintained for a Participant pursuant to Section 4.1.
2.20 "Payment Event" means the first to occur of the payment events
described in clauses (a) through (d) of the first sentence of Section 7.1.
2.21 "Plan" means this Lexford, Inc. Executive Deferred Compensation
Plan.
2.22 "Trust" means the Lexford, Inc. Executive Deferred Compensation
Rabbi Trust Agreement.
2.23 "Trustee" means The Provident Bank, a state chartered bank, or its
successor pursuant to the terms of the Trust.
ARTICLE III
ELIGIBILITY TO PARTICIPATE
3.1 Eligibility. As of the Effective Date, each of Company's key
executives listed on Exhibit A shall be eligible to participate in this Plan.
Thereafter, the Committee, in its sole discretion, may name additional key
employees, as well as non-employee directors of the Company, as eligible for
participation.
3.2 Cessation of Participation. The Committee may terminate the
participation of any Participant if the Committee, in its sole discretion,
determines that: (a) such person is no longer a member of "a select group of
management or highly compensated employees" of the Company, within the meaning
of the Employee Retirement Income Security Act of 1974, as amended; or (b) this
Plan or the related Trust results in Federal income tax consequences different
from those anticipated by the Company. A Participant who has terminated
employment with the Company shall cease to be a Participant at the time the
Benefit Amount is paid to the Participant or the Participant's Beneficiary. A
Participant who is a non-employee director and who ceases to be a director,
shall cease to be a Participant at the time the Benefit Amount is paid to the
Participant or the Participant's beneficiary. If this Plan is terminated
pursuant to Section 8.2, a Participant shall cease to be a Participant at the
time the Benefit Amount is paid to the Participant or the Participant's
Beneficiary.
3
<PAGE> 4
ARTICLE IV
PARTICIPATION AND ACCOUNT CREDITS
4.1 Establishment of Accounts. A Participant Account shall be
established and maintained for each Participant. Each Participant Account shall
be a bookkeeping account reflecting the Elective Deferral Credits and Investment
Credits allocable with respect to a Participant pursuant to this Article. The
balance of each Participant Account as of the last day of each calendar year
shall be communicated in writing to the Participant on or before March 31 of the
following year or on a more frequent basis as may be determined by the
Committee.
4.2 Elective Deferral Credits.
(a) A Participant may elect to defer the receipt of any or all of his
or her Bonus Stock, Matching Stock, Market Capitalization Restricted Stock,
Other Restricted Stock, or any other type of Company Stock to be paid to the
Participant by the Company under any other plan or arrangement sponsored by the
Company which provides for the payment of compensation in the form of Company
Stock by so indicating on the Election Form. In addition, a Participant may
elect, by indicating on the Election Form, to defer receipt of any or all
dividends paid with respect to shares of Company Stock subject to a deferral
election under the preceding sentence until the time at which the shares in
respect of which such dividends are payable become taxable to the individual. To
the extent that a Participant does not elect to defer any portion of cash
dividends payable with respect to any shares of Company Stock, such dividends
shall be paid to the Participant when such shares vest under the terms of the
plan or arrangement sponsored by the Company or, if previously vested, when such
cash dividends are paid with respect to such shares. Prior to the time the
Participant vests in Company Stock, cash dividends payable with respect to such
Stock shall be automatically deferred into the Rabbi Trust, invested under the
terms thereof, and to the extent not forfeited under the terms of the Company's
plan or arrangement, distributed in accordance with the foregoing.
(b) In order to be effective, a Participant's completed Election Form
must be submitted to the Company prior to the applicable Election Date and must
relate only to Company Stock to be paid and/or cash dividends to be declared
after the Election Date. A Participant's election hereunder shall become
irrevocable on the applicable Election Date. A Participant's election hereunder
as to Bonus Stock shall remain in effect indefinitely, unless modified by a
subsequent election made in accordance with the foregoing. Any election made by
a Participant hereunder shall supersede any prior elections, provided however,
that any such election shall only apply to compensation earned or dividends
declared after such new election. All amounts deferred by a Participant
hereunder shall be credited to the Participant's Participant Account as Elective
Deferral Credits on, or as
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<PAGE> 5
soon as is reasonably practicable after, the date the Company Stock would
otherwise be paid to the Participant.
4.3 Deadline for Making Elections. The Election Date applicable to a
Participant's Market Capitalization Restricted Stock, Other Restricted Stock,
and any other Company Stock other than Matching Stock and Bonus Stock shall be
the day such shares are granted. The Election Date applicable to a Participant's
Matching Stock shall be the day prior to the date the Participant purchases the
shares of Company Stock used as the basis for payment of the Matching Stock. The
Election Date applicable to a Participant's Bonus Stock for a given fiscal year
of the Company shall be the last day of the third quarter of such fiscal year.
The Election Date applicable to cash dividends payable with respect to any
Company Stock shall be the date ten (10) days prior to the date the Board
declares the cash dividend payable with respect to such shares.
4.4 Investment Credits. As of each Allocation Date, each Participant
Account shall be adjusted, positively or negatively, to reflect the deemed
investment performance of the Participant Account since the preceding Allocation
Date. Such investment performance shall be measured by the actual performance of
the Trust investments made with respect to the Participant Account as described
in Article V.
ARTICLE V
INVESTMENT
This Article V describes the general investment mechanics under the
Trust which defines the actual measure of the value of each Participant Account.
Each Participant Account shall be deemed invested in the shares of Company Stock
that would otherwise be paid to the Participant in the absence of an election
under Section 4.2. For such purposes, the number of shares credited as the
deemed investment shall be the gross number of shares payable as Company Stock
without reduction for any income taxes or income tax withholding that would
otherwise apply. Each Participant Account shall be credited with dividends as if
the account were actually invested in Company Stock. Further, dividends credited
to a Participant Account shall be deemed invested in the investment vehicles as
may be selected by the Company with respect to such Participant Account,
including Company Stock, provided, however, that if the Company does not provide
any investment selection with respect to such Participant Account, any dividends
credited to such Participant Account shall be deemed reinvested in Company Stock
to the extent practicable under the dividend reinvestment program established
pursuant to the terms of the Trust. Dividends not deemed reinvested under the
preceding sentence shall be credited and deemed invested in the manner
determined under the Trust. In the event that the Company substitutes the assets
of the Trust pursuant to Section 5(b) thereof, this Plan shall automatically
terminate.
<PAGE> 6
ARTICLE VI
TRUST ACCUMULATION AND FUNDING STATUS
Subject to the other terms of this Plan and the terms of the Trust, the
Company shall make contributions to the Trust of an amount equal to the amount
of the aggregate Elective Deferral Credits for the relevant period. Such
contributions shall be made at the time such Credits are credited to the
respective Participant Accounts, or as soon as is reasonably practicable
thereafter. By electing to participate hereunder, each Participant accepts the
terms of this Plan and the Trust. Nothing contained in this Plan or the Trust
shall vest in any Participant or any Beneficiary any right, title or interest in
or to any assets of the Trust and the assets of the Trust shall at all times
remain subject to the claims of the Company's general creditors. As such, the
obligations of the Trustee and the Company hereunder are not funded or secured
in any way that gives Participant or a Beneficiary any rights greater than that
of a general creditor of the Company.
ARTICLE VII
PAYMENT OF BENEFITS
7.1 Benefit Amount. A Participant's Benefit Amount, to the extent
vested under Section 7.2, shall be paid to the Participant within Ten (10) days
after the earliest to occur of the following: (a) the date of the Participant's
termination of employment with the Company; (b) the date a Participant who is a
non-employee director ceases to be a director; (c) the date the Plan is
terminated pursuant to Section 8.2; and (d) the date as of which the Board
determines that the participation of the Participant shall terminate pursuant to
clause (a) of the first sentence of Section 3.2. If the Company is notified of a
Participant's death prior to payment of the vested Benefit Amount, such payment
shall be made to the Participant's Beneficiary. Payment of a Participant's
vested Benefit Amount shall be made by the Trustee from the Trust fund, to the
extent the account can and is used to make such payment. If the account
maintained by the Trustee for the Participant is not used to pay a Participant's
full vested Benefit Amount, the Company shall make the balance of such payment
hereunder. A Participant's vested Benefit Amount shall be paid in a single
payment in the form of Company Stock; provided, however, that: (a) any amount
representing a fractional interest in a share of Company Stock shall be paid in
cash; (b) a Participant or Beneficiary may elect to have the full vested Benefit
Amount paid in cash, net of any and all expenses incurred to effect such cash
distribution; and (c) any portion of a vested Benefit Amount not deemed invested
in Company Stock under Article V shall be paid in cash. A Participant's or
Beneficiary's election to receive a cash distribution as described in clause (b)
of the preceding sentence shall not be effective unless made in writing and
submitted to the Committee no more than five (5) days after the Payment Event.
The amount of any cash distribution made pursuant to clause (b) above shall be
determined using the Closing Price as the measure of the value of the Common
Stock. The amount of any cash distribution made pursuant to clause (c) shall be
determined using the closing price of the investment vehicles on the principal
securities exchange on which the investment vehicle is listed or admitted to
trading, on the last trading day preceding the Payment Event. Notwithstanding
the foregoing provisions of this Section 7.1, the form and timing of
distribution of a Participant's interest under this Plan
6
<PAGE> 7
shall at all times be subject to all restrictions and limitations imposed by
applicable state and federal securities laws and regulations.
7.2 Vesting. The portion of a Participant's Benefit Amount attributable
to Bonus Stock or Matching Stock shall be fully vested at all times. The portion
of a Participant's Benefit Amount attributable to Market Capitalization
Restricted Stock or Other Restricted Stock shall vest in the manner determined
under the Participant's employment agreement with the Company. The portion of a
Participant's Benefit Amount attributable to any other type of Company Stock or
cash dividend deferred under the terms of this Plan shall vest in accordance
with the terms of the plan or arrangement sponsored by the Company which
provides for the payment of such compensation.
7.3 Taxes and Withholding. If a Participant (or Beneficiary) becomes
entitled to receive cash or recognizes other taxable income under this Plan, the
Company shall have the right to withhold taxes from the Participant's (or
Beneficiary's) payment hereunder or may deduct such taxes from any other amounts
payable to the Participant (or Beneficiary) at any time thereafter in cash or
otherwise. In the event all cash payments due a Participant (or Beneficiary) are
insufficient to provide the required amount of withholding taxes, the
Participant (or Beneficiary) shall be required to pay to the Company the amount
of required withholding in excess of all cash payments due. The Company shall
bear no responsibility whatsoever for the taxes or tax effects resulting under
this Plan or the Trust as to any Participant or Beneficiary.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 Amendment. The Board, in its sole discretion, may amend this Plan
at any time; provided, however, that any amendment that could adversely affect a
Participant's rights and interests hereunder (excluding the right to make future
deferrals) will be effective as to such Participant only if the Participant
consents in writing to the amendment.
8.2 Termination. The Board, in its sole discretion, may terminate this
Plan at any time. In addition, this Plan shall automatically terminate as
described in Article V.
ARTICLE IX
MISCELLANEOUS
9.1 Claims Procedure.
7
<PAGE> 8
(a) Claim. A Participant or other person who believes that he
or she is being denied a claim to which he is entitled (hereinafter
referred to as "Claimant") may file a written request for such benefit
with the Company setting forth the claim. Upon receipt of a claim, the
Company shall advise the Claimant that a reply will be forthcoming
within Thirty (30) days and shall, in fact, deliver such reply within
such period. However, the Company may extend the reply period for an
additional Fifteen (15) days for reasonable cause. If the claim is
denied in whole or in part, the Company will adopt a written statement
using language calculated to be understood by the Claimant setting
forth:
(i) the specific reason or reasons for denial;
(ii) the specific references to pertinent Plan
provisions on which the denial is based;
(iii) a description of any additional material or
information necessary for the Claimant to perfect the claim
and an explanation why such material or such information is
necessary;
(iv) appropriate information as to the steps to be
taken if the Claimant wishes to submit the claim for review;
and
(v) the time limits for review under Subsection (b),
below.
(b) Review. Within Sixty (60) days after the receipt by the
Claimant of the written statement described above, the Claimant may
request in writing that the Board review the previous determination.
The Claimant or his duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in
writing for consideration by the Board. Within Thirty (30) days after
the Board's receipt of a request for review, it will review the
previous determination. After considering all materials presented by
the Claimant, the Board will render a written statement, written in a
manner calculated to be understood by the Claimant setting forth the
specific reasons for the decision and containing specific references to
the pertinent Plan provisions on which the decision is based. If
special circumstances require that the Thirty (30) day time period be
extended, the Board will so notify the Claimant and will render the
decision as soon as possible but not later than Sixty (60) days after
receipt of the request for review.
9.2 No Beneficial Interest. No person or entity shall acquire any
beneficial interest in an amount under this Plan prior to the date on which the
amount becomes payable.
9.3 Spendthrift Clause. No amount provided under this Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, either voluntary or involuntary, and any attempt
to so alienate, anticipate, sell, transfer, assign, pledge, encumber or charge
the same shall be null and void. No such amount shall be liable for
8
<PAGE> 9
or subject to the debts, contracts, liabilities, engagements or torts of any
person to whom such amount is or may be payable, except as required under
applicable law.
9.4 Employment Contract and Other Arrangements. The adoption and
maintenance of this Plan shall neither be deemed to nor shall it be an
employment agreement between Company and the Participant.
9.5 Titles and Headings. The titles or headings of the Articles and
Sections hereof are included solely for convenience and reference and, in the
event of any conflict between such titles or headings and the text, the text
shall control.
9.6 Parties to Agreement. This Plan shall be binding upon and shall
operate for the benefit of the Company, its successors and assigns, and the
Participant and his or her heirs, estate and personal representatives.
9.7 Governing Law. This Plan shall be governed and construed in
accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of laws thereof, but subject to preemption of Federal
law.
9.8 Gender. Where necessary or appropriate to the meaning hereof, the
singular, plural, masculine, feminine and neuter shall be deemed to include each
other.
9.9 Interpretation of Agreement. The Committee shall have full
authority, in its sole discretion, to interpret this Plan and to determine any
and all matters whatsoever relating to the administration of this Plan.
9
<PAGE> 10
EXHIBIT A
PARTICIPANTS
John Bram Bartling, Jr.
Mark D. Thompson
Paul R. Selid
<PAGE> 1
Exhibit 10.32
FIRST AMENDMENT TO
THE LEXFORD, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Lexford Residential Trust, formerly Lexford, Inc. and Cardinal
Realty Services, Inc. (the "Company"), established the Lexford, Inc. Executive
Deferred Compensation Plan (the "Plan") effective as of April 18, 1996; and
WHEREAS, terms used in this First Amendment (including, without
limitation, these recitals) without definition have the meanings given to them
in the Plan, as amended hereby; and
WHEREAS, the Plan was amended and restated to ratify all prior actions
taken with respect to the Plan and to make certain additional changes to the
Plan effective as of October 15, 1997; and
WHEREAS, Section 8.1 of the Plan provides that the Plan may be amended
by the Board.
NOW, THEREFORE, the Plan is amended as set forth below effective as of
April 16, 1998.
1. Article II of the Plan is amended to add or restate the following defined
terms:
2.4 "Board" means the Board of Trustees of the Company.
2.6 "Closing Price" means the closing price of the Company Stock on the
New York Stock Exchange, or if the Company Stock is not listed or admitted for
trading on such exchange, the principal securities exchange on which the Company
Stock is listed or admitted to trading, on the last trading day preceding the
Payment Event.
2.8 "Company" means Lexford Residential Trust, a Maryland real estate
investment trust.
2.9 "Company Stock" means the Company's common shares of beneficial
interest, par value $.01 per share.
2.9 A "Deferral Shares" means the shares of Company Stock purchased for
the account of a Participant and held in the Trust pursuant to the terms of a
Salary Deferral Arrangement.
<PAGE> 2
2.9 B "Dividend Deferral Election Date" means the applicable election
deadline for submission of Dividend Deferral Election Forms established pursuant
to Section 4.5.
2.9 C "Dividend Deferral Election Form" means each form completed by a
Participant and submitted to the Company from time to time pursuant to Section
4.5.
2.16 A "1998 Non-Employee Trustee Retirement Program" means that
certain Non-Employee Trustee Retirement Program instituted by the Special
Independent Committee of the Board, which Committee, in turn, was established by
the resolution of the Board at its meeting held on March 26, 1998.
2.20 A "Permanent Disability" means (i) ninety (90) consecutive days,
or (ii) one hundred eighty days cumulatively in any twelve (12) month period,
during which Participant is unable to engage in his customary occupational or
business activities due to sickness or injury.
2.21 "Payment Event" means (a) the first to occur of the events
described in clauses (a) through (d) of the first sentence of Section 7.1; or
(b) with respect to a Participant who was formerly a non-employee trustee and
has retired in connection with the 1998 Non-Employee Trustee Retirement Program,
the first to occur of the events described in Section 7.4
2.21 A "Salary Deferral Arrangement" means an arrangement authorized by
the Committee and entered into between the Company and a Participant pursuant to
which a Participant may elect to specify a reduction in his or her base
compensation, the amount of which reduction will be invested in Deferral Shares.
2.22 "Trust" means the Lexford Residential Trust Executive Deferred
Compensation Rabbi Trust Agreement, as amended.
2.24 "trustee" substituted for "director". The term "non-employee
trustee" is hereby substituted for the term "non-employee director" wherever
such term appears in the Plan.
3. The following Section 4.5 is hereby added to the Plan:
4.5 Dividend Deferral Elections.
To the extent a Participant has timely completed and submitted an
Election Form with respect to Company Stock and, accordingly, such
Company Stock is held for Participant's benefit in the Trust pursuant
to the provisions of Section 4.2 of this Plan, Participant may make a
further election to defer receipt of all or a portion of cash
dividends declared and paid on shares of Company Stock. The
Participant will make such election by completing and submitting a
Dividend Deferral Election Form indicating the percentage amount of
cash dividends (in increments of ten percent) as to which the
Participant elects to defer receipt. A
2
<PAGE> 3
Participant's election to defer receipt of cash dividends shall apply
solely to cash dividends declared and paid on shares of Company Stock
as to which the Participant would otherwise be entitled to receive on
a current basis (if Participant had not originally elected to defer
receipt of such shares of Company Stock pursuant to the terms of this
Plan) pursuant to the terms of the grant or award pursuant to which
such shares of Company Stock were originally issued (the "Subject
Grant"). To the extent the Participant is not entitled to receive cash
dividends declared and paid on shares of Company Stock on a current
basis pursuant to the terms of the Subject Grant, cash dividends
declared and paid on such nonvested shares of Company Stock will be
accumulated and invested (irrespective of the Participant's Dividend
Deferral Election Form then in effect, if any) and thereafter, upon
vesting of such shares, shall be distributed together with all
earnings, thereon, to the Participant to the extent that the
Participant's Dividend Deferral Election Form then in effect shall so
specify with respect to current receipt of cash dividends. Any
election made under this Section 4.5 shall be effective with respect
to all cash dividends originally declared more than nine (9) days
following the Participants submission of his Dividend Deferral
Election Form (the "Dividend Deferral Election Date"). A Participant's
election made under this Section 4.5 shall remain in effect
indefinitely with respect to cash dividends declared and paid on
Company Stock held for the benefit of Participants in the Trust unless
modified by a subsequent election made in accordance with the
foregoing provisions of this Section 4.5. A Participant may not modify
a previously submitted election under this Section 4.5 more than once
during any calendar year. Any such subsequently modified election
shall be effective only as to cash dividends declared on shares of
Company Stock on or after the applicable Dividend Deferral Election
Date applying to such subsequent election. The Dividend Deferral
Election Form attached hereto as Exhibit "B", taken together with each
Participant's directions properly completed thereon, shall govern and
control the manner and method by which cash dividends are either
deferred and invested pursuant to the provisions of the Trust and this
Plan or distributed to Participants. In the event a Participant fails
to complete and submit a Dividend Deferral Election Form, cash
dividends declared and paid on shares of Company Stock held for the
benefit of such Participant in the Trust will be accumulated and
reinvested and, subject to the terms and provisions of this Plan and
the Trust, will be distributed to the Participant, together with
earnings thereon and the Company Stock, upon the Payment Event
applicable to such Participant.
4. Clause (b) of Section 7.1(b) is amended to read as follows:
(b) the date a Participant who is a non-employee trustee ceases to be
a trustee unless such Participant has made an election to defer
payment of such Benefit Amount in connection with his participation in
the 1998 Non-Employee Trustee Retirement Program as described in
Section 7.4.
3
<PAGE> 4
5. Article VII of the Plan is amended by adding the following as Section 7.4:
7.4 Deferral of Payment of Benefit Amount.
Notwithstanding anything herein to the contrary, a Participant who is a
non-employee trustee and who retires under the terms of the 1998
Non-Employee Trustee Retirement Program may:
(a) make an irrevocable election to defer payment of any Benefit
Amount attributable to the lump sum amount awarded upon his
resignation under the terms of the 1998 Non-Employee Trustee
Retirement Program for a period or periods designated by the
participant of not more than five (5) years from the effective
date of such Participant's resignation; and
(b) make an irrevocable election to defer payment of any Benefit
Amount other than the amount described in (a) above for a period
or periods designated by the Participant of not more than five
(5) years from the effective date of such Participant's
resignation; and
(c) make an irrevocable election to defer receipt of any or all cash
dividends declared and paid on shares of Company Stock comprising
his Benefit Amount until the Payment Event applicable to such
shares by completing and submitting a Dividend Deferral Election
Form (which election, including Participant's ability to effect
subsequent modifications thereto, will be governed by the
provisions of Section 4.5 of this Plan).
In order to be effective, a Participant's deferral election as
described in (a) and (b) above must be made prior to the effective
date of his resignation under the terms of the 1998 Non-Employee
Trustee Retirement Program. Payment of such Participant's Benefit
Amount shall be made after the deferral period in the form of one lump
sum payment or in annual installments in percentage amounts specified
by the Participant in his election under this Section 7.4; provided,
however, the Payment Event relating to such Benefit Amount will be
accelerated upon the Participant's death or Permanent Disability.
4
<PAGE> 1
Exhibit 10.34
FIRST AMENDMENT TO
CARDINAL REALTY SERVICES, INC.
EXECUTIVE DEFERRED COMPENSATION
RABBI TRUST AGREEMENT
WHEREAS, Lexford Residential Trust, formerly known as Cardinal Realty
Services, Inc. (the "Company") established the Cardinal Realty Services, Inc.
Executive Deferred Compensation Rabbi Trust (the "Trust") effective as of
November 21, 1996; and
WHEREAS, the Company appointed The Provident Bank to serve as Trustee
of the Trust (the "Trustee"); and
WHEREAS, Section 12(a) of the Trust provides that the Trust may be
amended by a written instrument executed by the Company and the Trustee; and
WHEREAS, the Company desires to amend the Trust.
NOW, THEREFORE, the Trust is amended effective April 16, 1998 as
follows:
1. Clause (b) of the preamble to the Trust shall be amended by
inserting "(the "Plan")" at the end of the sentence.
2. The name of the Trust shall be changed to the "Lexford
Residential Trust Executive Deferred Compensation Rabbi Trust
Agreement".
3. Section 5(a) of the Trust shall be changed to read as follows:
"(a) All rights associated with assets of the Trust shall be exercised by the
Trustee, and shall in no event be exercisable by or rest with Plan participants.
Except as required under clause (b) below and as otherwise provided in this
clause (a), the Trustee shall invest in common shares of beneficial interest,
$.01 par value per share, of the Company (the "Common Shares"). Any cash
received by the Trustee, including amounts received as dividends on Common
Shares, may be invested in other investment vehicles in accordance with the
terms of the Plan, provided, however, that if the Trustee receives no investment
direction from the Company with respect to a Participant Account as defined in
clause (c) below, the account shall be invested in Common Shares. Any amounts
held pending investment shall be invested in an investment vehicle selected by
Trustee. Notwithstanding the foregoing provisions of this clause (a), Trustee
shall have no obligation or authority with respect to engaging in a transaction
in Common Shares that would violate any restriction or limitation imposed by
applicable state or federal securities laws and regulations."
<PAGE> 2
4. Section 5(c) of the Trust shall be changed to read as follows:
"(c) Trustee shall maintain bookkeeping accounts for each Plan participant (a
"Participant Account") representing his or her interests under the Plan. All
Participant Accounts established and maintained hereunder shall be credited with
contributions and earnings or losses so as to reflect a Plan participant's
interest for calculation and recordkeeping purposes only, and the Trust assets
reflected in such Accounts shall at all time remain subject to the claims of the
Company's general creditors."
5. Section 6 of the Trust shall be changed to read as follows:
SECTION 6. DISPOSITION OF INCOME.
Subject in all events to the terms of Section 3, during the term of
this Trust, the Trustee shall receive and distribute in part to Plan
participants or their beneficiaries and accumulate and reinvest in part
(pursuant to the provisions of Section 5 of this Agreement) dividends declared
and paid on account of Common Shares held in the Trust pursuant to the written
instructions of the Company from time to time. All other income received by the
Trust, net of expenses and taxes not otherwise funded by the Company, will be
accumulated, reinvested and allocated to Participant accounts (pursuant to the
provisions of Section 5 (c) of this Agreement) pending future distribution in
accordance with the terms thereof.
6. Section 14 of the Trust is amended to correct a typographical error
in the effective date to read as follows:
"The effective date of this Trust Agreement shall be November 27,
1996."
LEXFORD RESIDENTIAL TRUST
By: /s/ BRADLEY A. VAN AUKEN
--------------------------------
Name: Bradley A. Van Auken
Title: Senior Vice President,
General Counsel & Secretary
THE PROVIDENT BANK, TRUSTEE
By: /s/ WILLIAM A. HARDING
--------------------------------
Name: William A. Harding
Title: Vice President
<PAGE> 1
Exhibit 10.39
December 1, 1998
John B. Bartling
333 North Parkview Avenue
Bexley, Ohio 43209
Re: Employment Agreement dated as of December 1, 1995, as amended
Dear John:
Reference is made to the above captioned Employment Agreement between yourself
and Lexford Residential Trust, as successor by merger to Lexford, Inc. f/k/a
Cardinal Realty Services, Inc., as amended as of April 18, 1996, December 20,
1996 and January 1, 1997 (the "Employment Agreement"). The Compensation
Committee of the Board of Trustees of Lexford Residential Trust (the "Company")
has authorized the Company to enter into a renewal term of the Employment
Agreement covering the period from December 1, 1998, through and including
November 30, 1999.
Your signature below will evidence your agreement to the renewal term and, as so
renewed, the Employment Agreement will remain in full force and effect.
Very truly yours,
LEXFORD RESIDENTIAL TRUST
By: /s/ BRADLEY A. VAN AUKEN
-----------------------------
Bradley A. Van Auken
Senior Vice President
ACKNOWLEDGED AND AGREED
/s/ JOHN B. BARTLING
-----------------------------
John B. Bartling
<PAGE> 1
Exhibit 10.44
April 1, 1998
Mark D. Thompson
682 Laurel Ridge Drive
Gahanna, Ohio 43230
Re: Employment Agreement dated as of April 1, 1996, as amended
Dear Mark:
Reference is made to the above captioned Employment Agreement between yourself
and Lexford Residential Trust, as successor by merger to Lexford, Inc. f/k/a
Cardinal Realty Services, Inc., as amended as of April 18, 1996, and January 1,
1997 (the "Employment Agreement"). The Compensation Committee of the Board of
Trustees of Lexford Residential Trust (the "Company") has authorized the Company
to enter into a renewal term of the Employment Agreement covering the period
from April 1, 1998, through and including March 31, 1999.
Your signature below will evidence your agreement to the renewal term and, as so
renewed, the Employment Agreement will remain in full force and effect.
Very truly yours,
LEXFORD RESIDENTIAL TRUST
By: /s/ BRADLEY A. VAN AUKEN
-----------------------------
Bradley A. Van Auken
Senior Vice President
ACKNOWLEDGED AND AGREED
/s/ MARK D. THOMPSON
-----------------------------
Mark D. Thompson
<PAGE> 1
Exhibit 10.45
EMPLOYMENT AGREEMENT
LEXFORD, INC.
AND
BRADLEY A. VAN AUKEN
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Employment...........................................................1
2. Term and Positions...................................................2
3. Compensation.........................................................2
4. Insurance and Other Benefits.........................................8
5. Payment in the Event of Death or Permanent Disability...............10
6. Termination and Further Compensation................................11
7. Reimbursement.......................................................13
8. Covenants and Confidential Information..............................13
9. Withholding Taxes...................................................15
10. No Conflicting Agreement............................................15
11. Severable Provisions................................................15
12. Binding Agreement...................................................15
13. Arbitration.........................................................15
14. Notices.............................................................16
15. Waiver..............................................................16
16. Miscellaneous.......................................................16
17. Governing Law.......................................................16
18. Captions and Section Headings.......................................16
19. Miscellaneous.......................................................17
2
<PAGE> 3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st
day of January, 1998, between Lexford, Inc., an Ohio corporation ("Employer"),
and Bradley A. Van Auken ("Employee").
WITNESSETH:
WHEREAS, Employer and Employee desire to enter into this Agreement to
assure Employer of the services of Employee, and Employee's employment for the
term set forth herein, and to set forth the rights and duties of the parties
hereto.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) Employer hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and conditions hereinafter set
forth.
(b) During the term of this Agreement, or any renewal or
extension hereof (for purposes hereof, all references herein to the
term of this Agreement shall be deemed to include references to the
period of renewal or extension hereof, if any), Employee shall devote
his full time to his employment and perform with reasonable diligence
such duties as are customarily performed by the Senior Vice President
and General Counsel or similar senior executive officer charged with
primary responsibility for legal, tax and related matters for a company
having the size and structure of Employer and its subsidiaries,
together with such other duties as may be reasonably requested from
time to time by the Board of Directors of Employer (the "Board"), which
duties shall be consistent with the further covenants set forth in
Section 2 of this Agreement.
(c) Employee shall not, without the prior written consent of
Employer, directly or indirectly, during the term of this Employment
Agreement, other than in the performance of duties naturally inherent
in the businesses of Employer or any subsidiary of Employer and in
furtherance thereof, render services of a business, professional or
commercial nature to any other person or firm, for compensation;
provided, however, that so long as it does not interfere with his
full-time employment hereunder, Employee may attend to his personal
outside investments, serve as a director of a corporation which does
not compete with Employer (as provided in Section 8 hereof), and serve
as director, trustee or officer of or otherwise participate in
educational, welfare, social, religious and civic organizations.
Employee may complete the performance of his professional engagements
as legal counsel which are pending on the date of this Agreement;
provided that any such performance does not interfere with the
performance of his employment duties hereunder. For purposes of this
Agreement, all references herein to subsidiaries and affiliates of
Employer shall be deemed to include subsidiaries and affiliates now or
hereafter existing.
1
<PAGE> 4
2. Term and Positions.
(a) Subject to the provisions for termination as hereinafter
provided, the term of this Agreement shall begin on January 1, 1998 and
shall continue through December 31, 1998 (the "Original Term"). The
Original Term may be extended for additional terms of one year each
(each, a "Renewal Term") upon the mutual agreement of Employer and
Employee.
(b) Employee shall, without any compensation in addition to
that which is specifically provided in this Agreement, serve as Senior
Vice President and General Counsel of Employer, and a member of the
board of directors and in such other offices or positions with any
subsidiary or affiliate of Employer as shall, from time to time, be
assigned reasonably by the Board (but such office or positions shall be
consistent with the duties, offices or positions hereinbefore named).
It is agreed that in addition to the provisions of Section 4(e) of this
Agreement and any other obligations due him hereunder, Employee shall
be entitled to the protection of the applicable indemnification
provisions of the Articles of Incorporation and Code of Regulations of
Employer and the corporate or partnership organizational documents of
any such subsidiary or affiliate. Employer will use all commercially
reasonable efforts to maintain its directors and officers liability
insurance for the benefit of, among others, Employee. For purposes of
this Agreement, the term: (i) "affiliate," when used with reference to
Employer, means any entity which, directly or indirectly through one or
more intermediaries, is controlled by, under common control with, or
which controls, Employer; (ii) "control" means (A) the power to direct
the management and policies of the entity in question, directly or
indirectly, whether through ownership of voting securities, by contract
or otherwise and (B) "controlled" and "controlling" have meanings
correlative to the foregoing; and (iii) "subsidiary" means, with
reference to Employer, any corporation, general or limited partnership,
limited liability company, association or other business entity (A) of
which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partners interests are, at the time any
determination is being made, owned, controlled or held by Employer or
(B) that, at the time any determination is being made, is otherwise
controlled, by Employer or one or more subsidiaries of Employer or by
Employer and one or more subsidiaries of Employer.
3. Compensation.
(a) For all services he may render to Employer (and any
subsidiary or affiliate) during the term of this Agreement, Employer
shall pay to Employee base compensation ("Base Compensation") on the
following terms:
(i) For the Original Term and any Renewal Term,
Fourteen Thousand Five Hundred Eighty-three and 33/100
Dollars ($14,583.33) per month.
(ii) Base Compensation payable to Employee under this
Section 3(a) shall be payable in semi-monthly installments.
(iii) Commencing January 1, 1999, Base Compensation may
be increased each fiscal year upon appropriate action by the
Board. If increased, such increased dollar amount shall
thereafter constitute "Base Compensation" for all purposes
under this Agreement.
2
<PAGE> 5
(b) Employer shall pay to Employee bonus compensation during
the term of this Agreement as follows:
(i) For Employer's 1998 fiscal year, and for each
fiscal year thereafter during which this Employment
Agreement remains in effect, Employer will pay to Employee a
cash bonus ("Cash Bonus") determined on the basis of the
increase, if any, of Employer's "Adjusted EBITDA" (as
defined in Employer's Annual Report on Form 10-K) when
compared to Employer's Adjusted EBITDA for fiscal year 1997,
as reported in Employer's Annual Report on Form 10-K to be
filed with the Securities and Exchange Commission
("Comparison EBITDA") and measured as a percentage of
Comparison EBITDA, as follows:
<TABLE>
<CAPTION>
Adjusted EBITDA expressed as Cash Bonus Expressed as
Percentage of Comparison EBITDA Percentage as Base Compensation
------------------------------- -------------------------------
<S> <C>
up to 103% 0
greater than 103% up to 110% Percentage Increase in Comparison EBITDA
multiplied by 1.5; plus, if applicable
greater than 110% up Additional Percentage Increase in
to 120% Comparison EBITDA (above 110%) multiplied
by 2; plus, if applicable
greater than 120% Additional Percentage Increase in
Comparison EBITDA (above 120%) multiplied
by 2.5, but not to exceed 60% of Base
Compensation
</TABLE>
(ii) For purposes of determining the Cash Bonus, if
any, payable to Employee on account of Employer's 1998
fiscal year, Employee and Employer acknowledge and agree
that Employee's 1998 Base Compensation will equal One
Hundred Seventy Five Thousand Dollars ($175,000), and the
maximum Cash Bonus payable to Employee on account of
Employer's 1998 fiscal year equals One Hundred Five Thousand
Dollars ($105,000).
(iii) Employee's Cash Bonus due under subsections (i)
and (ii) above shall be paid within thirty (30) days after
Adjusted EBITDA is calculated from the applicable final
audited year end income statements of Employer.
3
<PAGE> 6
(iv) In addition to the Cash Bonus, for Employer's 1998
fiscal year, and for each fiscal year thereafter during
which this Employment Agreement remains in effect, Employer
shall, and hereby does, grant to Employee a stock bonus
("Stock Bonus"; and, together with the Cash Bonus, the
"Bonus") payable in shares of Employer's common stock,
without par value (the "Common Stock"), in accordance with
and subject to a Deferred Shares Award Agreement (the
"Deferred Shares Agreement") to be entered into between
Employer and Employee in customary form reasonably
acceptable to Employer and Employee. The dollar amount of
the Stock Bonus will be determined on the same basis as the
Cash Bonus (including the limitations set forth in Section
3(b)(ii) and the partial-year provision set forth in Section
6(c)), except that the dollar value of the Stock Bonus as a
percentage of Base Compensation will be as follows:
<TABLE>
<CAPTION>
Dollar Value of Stock Bonus
Adjusted EBITDA expressed as Expressed as Percentage of Base
Percentage of Comparison EBITDA Compensation
------------------------------- ------------
<S> <C>
up to 103% 0
greater than 103% up to 105% Equivalent to Percentage Increase in
Comparison EBITDA; plus, if applicable
greater than 105% up to 110% Additional Percentage Increase in
Comparison EBITDA (above 105%) multiplied
by 2; plus, if applicable
greater than 110% Additional Percentage Increase in
Comparison EBITDA (Above 110%) multiplied
by 3, but not to exceed 30% of Base
Compensation
</TABLE>
(v) The number of shares constituting the Stock Bonus
payable to Employee will be determined by dividing (A) the
dollar value of the Stock Bonus determined in accordance
with the table above by (B) the closing price of Employer's
Common Stock on the Nasdaq National Market System, or if
Employer's Common Stock is not listed or admitted to trading
in such system, the principal securities exchange on which
Employer's Common Stock is listed or admitted to trading on
the last trading date in the period for which the Stock
Bonus is calculated (i.e. December 31, or the last closing
price for the Common Stock immediately preceding the date
Employee ceases employment with Employer). Any Stock Bonus
which Employee is entitled to receive from Employer shall be
issued on the same date as the Cash Bonus for the same
period. No fractional share shall be payable to Employee in
connection with the Stock Bonus, but Employee will be
entitled to a cash payment equal to the dollar value of any
fractional share to which he would otherwise be entitled
under the Stock Bonus, to be paid to Employee together with
the payment of Employee's Cash Bonus hereunder.
4
<PAGE> 7
(c) As additional inducement to Employee to enter into this
Agreement, Employer shall issue to The Provident Bank, a state
chartered bank, in its capacity as Trustee under that certain Executive
Deferred Compensation Rabbi Trust Agreement dated as of April 18, 1996
(the `Trust Agreement"), or any successor trustee thereunder
("Trustee"), for the benefit of Employee, at no additional
consideration or cost to Employee, up to two thousand five hundred
(2,500) shares of the Common Stock for each share of Common Stock of
Employer purchased by Employee from the date of this Agreement through
and including December 31, 1998 (the "Matching Stock"). Any Matching
Stock which Trustee is entitled to receive from Employer shall be
issued to Trustee within thirty (30) days of Employee's purchase of any
shares of Common Stock and shall be subject to all restrictions and
limitations imposed by applicable state and federal securities laws and
regulations.
(d) Further, Employer shall, and hereby does, grant to
Employee rights to receive additional shares of Common Stock pursuant
and subject to the terms and conditions of that certain Restricted
Shares Agreement (the "Restricted Shares Agreement") to be entered into
between Employer and Employee, in customary form reasonably acceptable
to Employer and Employee (such Common Stock to be referred to herein as
"Restricted Stock") as follows:
(i) sixteen thousand five hundred (16,500) shares of
Restricted Stock, one-third of which shall vest on each of
January 1, 1998, January 1, 1999, and January 1, 2000 if the
performance criteria as defined, and more particularly set
forth, in the applicable Restricted Shares Agreement have
been satisfied, which issuance of shares shall be made
effective on January 1, 1998. As used hereunder, the term
"vest" shall mean that Employee shall own the Restricted
Shares free from any restriction, encumbrance, or
limitation, except for any such restriction or limitation
imposed by applicable state and federal securities laws and
regulations and except for the terms of Employer's Executive
Deferred Compensation Plan and the terms of the Trust
Agreement;
(ii) Notwithstanding the foregoing, the vesting of all
Restricted Stock and Stock Options (as defined hereinbelow)
granted under this Agreement shall be accelerated in the
event of any of the following:
(A) Employer shall merge or be merged or
consolidated with, another corporation and as a result
of such merger or consolidation less than seventy
percent (70%) of the outstanding voting securities of
the surviving or resulting corporation shall be owned
in the aggregate by the former shareholders of Employer
as the same shall have existed immediately prior to
such merger or consolidation;
(B) Employer shall sell or transfer to one or
more persons, corporations or entities, in a single
transaction or a series of related transactions, more
than one-half of the assets of Employer unless by an
affirmative vote of two-thirds of the members of the
Board, the transaction or transactions are exempted
from the operation of this provision based on a good
faith finding that the transaction or transactions are
not within the intended scope of this definition for
purposes of this Agreement;
5
<PAGE> 8
(C) a person, within the meaning of Section
3(a)(9) or Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended and as in effect on the date
hereof the "Exchange Act"), shall become the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) of
thirty percent (30%) or more of the outstanding voting
securities of Employer; or
(D) any shareholder of Employer shall nominate a
person to the Board, which nominee shall be elected to
the Board without receiving the prior endorsement of
the Board or its Nominating Committee.
(e) Employer shall grant to Employee options to purchase two
thousand five hundred (2,500) shares of Employer's Common Stock ("Stock
Options") in accordance with, and subject to, the Employer's Amended
and Restated 1992 Incentive Equity Plan, and an Incentive Stock Option
Agreement to be entered into between Employer and Employee, in
customary form reasonably acceptable to Employer and Employee (the
"Option Award Agreement" and, together with the Deferred Shares
Agreement and the Restricted Shares Agreements, the "Award
Agreements"). The Stock Options shall have an exercise price equal to
the closing price of Employer's Common Stock on the NASDAQ National
Market System on December 31, 1997, one-fifth of which shall vest on
the first, second, third, fourth and fifth anniversaries of the date of
such grant, which grant shall be made pursuant to the Option Award
Agreement.
(f) Employee shall be entitled to participate in any pension
or profit-sharing plan covering highly compensated salaried employees
which the Employer may have in effect or hereafter adopt during the
term of this Employment Agreement.
(g) Employer represents and warrants to Employee that unless
Employee makes an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), Employee shall not have
any taxable income solely by reason of the grants described in Sections
3(c), (d) and (e) hereof. Employee understands that he will have
taxable income upon the vesting of Restricted Stock, the exercise of
the Stock Options, the disposition of the rights granted in Sections
3(c), (d) and (e) hereof, or other similar event.
(h) If Employee makes an election pursuant to Section 83(b) of
the Code in connection with Restricted Stock acquired by Employee
pursuant to Section 3(d) hereof, Employer shall make a loan to Employee
in an amount equal to forty-eight percent (48%) (subject to appropriate
adjustment if the combined effective federal, state, and local income
tax rate on compensation income changes in 1996) or any subsequent year
in which income may be recognized) of the compensation income
recognized by Employee for federal income tax purposes in connection
with such election. The loan shall (i) bear interest at a rate per
annum equal to that charged from time to time to Employer under
Employer's senior secured credit facility (which credit facility, as of
the date of this Agreement is provided to Employer by The Provident
Bank) plus two percent (2%), (ii) be
6
<PAGE> 9
secured by a pledge of the Restricted Stock, (iii) be due upon the
earliest of three (3) years from the date of the loan, the sale of the
Restricted Stock (to the extent of the proceeds of such sale with any
remaining balance being thereafter due as originally scheduled), or one
(1) year after Employee's termination of employment with Employer, and
(iv) be evidenced by a promissory note and a pledge agreement in
customary form reasonably acceptable to Employer and Employee.
(i) With respect to the Restricted Stock, if Employee does not
make an election pursuant to Section 83(b) of the Code as described in
Section 3(g) of this Agreement, and with respect to the Stock Options,
upon each occasion Employee recognizes compensation income, as a result
of the vesting of the Restricted Stock or the exercise of the Stock
Options, Employee may borrow from Employer an amount equal to
forty-eight percent (48%) (subject to adjustment as described in
Section 3(h) of this Agreement) of the compensation income so
recognized by Employee, provided that Employee is still employed by
Employer. The loan shall have the same terms and conditions described
in Section 3(h) of this Agreement.
4. Insurance and Other Benefits.
(a) Employee shall be entitled to such medical,
hospitalization, health, accident, life and disability insurance and
pension plan benefits and such other similar employment privileges and
benefits as are afforded generally from time to time to other executive
officers of Employer, or subsidiaries of Employer, and in no event
shall Employee be provided benefits at a level less generous than those
benefits provided to any other officer or employee of Employer, or any
subsidiary of Employer. Further, with respect to medical coverage,
Employer shall provide medical coverage for Employee and his dependents
at least equal to the value of coverage afforded Employee on the
effective date of this Agreement if such coverage is available on
commercially reasonable terms.
(b) Employee shall be entitled to periods of vacation and sick
leave allowance each year, which shall be the same as provided under
Employer's vacation and sick leave policy for executive officers, but
in no event shall Employee be entitled to, with full pay and benefits,
less than four (4) weeks paid vacation and customary holidays.
(c) In the event that Employee moves his principal residence
to the Columbus, Ohio area on or before December 31, 1998, Employer
will pay Employee a lump sum of Sixty Thousand Dollars ($60,000),
"grossed up" for federal, state and local taxes, for relocation
expenses. Payment to Employee, if any, due under this Section 4(c) will
be payable on or before ten (10) days following the date upon which
Employee acquires title to his new principal residence in the Columbus,
Ohio area or enters into a binding lease agreement for a principal
residence in the Columbus, Ohio area. Employee shall bear sole
responsibility for documenting the deductibility of amounts paid
pursuant to this subsection if so required by the Internal Revenue
Service, but shall not be required to provide such documentation to
Employer unless Employer is required to produce same in connection with
an audit.
7
<PAGE> 10
(d) Employer shall indemnify, to the full extent then
permitted by law, Employee if he was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he is or was a member of the Board or an
officer or agent of Employer, or is or was serving at the request of
Employer as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
Employer shall pay expenses, including reasonable attorney's fees,
incurred by Employee in defending any such action, suit or proceeding
as they are incurred, in advance of the final disposition thereof, and
may pay, in the same manner and to the full extent then permitted by
law, such expenses incurred by any other person. The indemnification
and payment of expenses provided hereby shall not be exclusive of, and
shall be in addition to, any other rights granted to Employee seeking
indemnification under any law, the Articles of Incorporation of
Employer, any agreement, vote of shareholders or disinterested members
of the Board, or otherwise, both as to action in official capacities
and as to action in another capacity while he is a member of the Board,
officer, employee or agent of Employer, and shall continue as to
Employee after he has ceased to be a member of the Board, trustee,
officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of Employee.
5. Payment in the Event of Death or Permanent Disability.
(a) In the event of Employee's death or Permanent Disability
(as defined hereinbelow) during the term of this Agreement, Employee or
his estate, as the case may be, shall be entitled to receive (i) an
amount equal to (A) the lesser of (x) any remaining Base Compensation
for the Original Term or any then current Renewal Term or (y) one year
of Base Compensation reduced by (B) any and all payments made to
Employee pursuant to any disability insurance policy maintained by
Employer for Employee's benefit pursuant to Section 4(a) of this
Agreement or otherwise (the "Disability Policy"), (ii) a pro rata
portion of the Bonus, if any, applicable to the fiscal year in which
such death or Permanent Disability occurs, as such bonuses are
determined under Section 3(b) of this Agreement, and (iii) any shares
of Restricted Stock and Stock Options that have vested in accordance
with the provisions of the Award Agreements. Such pro rata portion of
the Bonus shall be determined by a multiplying a fraction (the
numerator of which shall be the number of days in the applicable fiscal
year elapsed prior to the date of death or Permanent Disability, as the
case may be, and the denominator of which shall be three hundred
sixty-five (365)) by the amount of the Bonus that would have been
payable, if any, pursuant to such Section 3(b), if Employee had
remained employed under this Agreement for the entire applicable fiscal
year.
(b) Upon death or Permanent Disability of Employee, the Bonus,
if any, shall be paid when and as provided in Section 3(b) of this
Agreement. The other compensation to be paid pursuant to this Section 5
shall be paid, at the election of Employee or Employee's designated
beneficiary either (i) in two (2) equal annual installments paid within
the two (2) year period beginning on the date of such death or
Permanent Disability, as the case may be, or (ii) in one (1) lump sum
paid within ninety (90) days after the date of such death or Permanent
Disability, as the case may be.
8
<PAGE> 11
(c) Employee shall be entitled to no further compensation or
other benefits under this Agreement, except as to that portion of any
benefits accrued and earned by him hereunder up to and including the
date of such death or Permanent Disability.
(d) For purposes of this Section 5, Employee's Permanent
Disability shall be deemed to occur on the date after the first to
occur of (i) ninety (90) consecutive days, or (ii) one hundred eighty
(180) days cumulatively in any twelve (12) month period, of Employee's
inability to provide the services required hereunder of him due to
sickness or injury ("Permanent Disability").
6. Termination and Further Compensation.
(a) The employment of Employee under this Agreement, and the
term hereof, subject to Employee's rights set forth elsewhere herein,
may be terminated by Employer:
(i) on death or Permanent Disability of Employee, or
(ii) for cause at any time by action of the Board. For
purposes hereof, the term "cause" shall mean:
A. an intentional act of fraud, embezzlement, theft or
any other material violation of law in connection with
Employee's duties or in the course of his employment with
Employer;
B. intentional wrongful damage to material assets of
Employer;
C. intentional wrongful disclosure of material
confidential information of Employer;
D. intentional wrongful engagement in any competitive
activity which would constitute a material breach of the
duty of loyalty; or
E. breach of any material term of this Agreement.
No act, or failure, to act, on the part of Employee shall be
deemed "intentional", or provide the basis for termination for
cause, if it was due primarily to an error in judgment or
negligence without bad faith or reckless disregard, but shall be
deemed "intentional" only if done, or omitted to be done, by
Employee not in good faith and without reasonable belief that his
action or omission was in or not opposed to the best interest of
Employer. Failure to meet performance standards or objectives of
Employer shall not constitute cause for purposes hereof. Further,
in the event Employer terminates Employee for "cause", Employer
shall give Employee written notice as to the specific
circumstances giving rise to its decision to terminate Employee
for cause ("Notice"), and, Employee shall be given the
opportunity to respond, with counsel, to Employer's decision and
Employer's articulated circumstances, such responses shall be
before the Board of Directors of Employer and shall take place
within fourteen (14) days of Employer's Notice. Any termination
by reason of the foregoing shall not be in limitation of any
other right
9
<PAGE> 12
or remedy Employer may have under this Agreement or otherwise. On
any termination of this Agreement, Employee shall be deemed to
have resigned from all offices and directorships held by Employee
in Employer and any subsidiaries and affiliates of Employer.
(b) In the event of termination of this Agreement for any of
the reasons set forth in Section 6(a)(ii) hereof, Employee shall be
entitled to no further compensation or other benefits under this
Agreement, except as to (i) that portion of any unpaid Base
Compensation reduced by any and all payments made, or to be made, to
Employee pursuant to the Disability Policy and other benefits accrued
and earned by him hereunder up to and including the effective date of
such termination; and (ii) any of his shares of Restricted Stock and
Stock Options that have vested in accordance with the provisions of
Section 3(c) of this Agreement.
(c) In the event that Employee's employment is terminated
without cause during the Original Term of this Agreement or in the
event that the Original Term of this Agreement shall have expired and
shall not have been renewed and Employee thereupon ceases to be
employed by Employer, Employee shall be entitled to receive: (i) an
amount equal to his Base Compensation, and any other benefits due
Employee under Section 4 of this Agreement, payable for the then
unexpired portion of the Original Term, if any, plus the immediately
succeeding nine (9) months; (ii) the Bonus, if any, applicable to the
fiscal year in which such cessation of employment occurs, as such Bonus
is determined under Section 3(b) of this Agreement but on a prorated
basis calculated in the manner contemplated by Section 5(a) of this
Agreement; and (iii) all of his shares of Restricted Stock awarded
pursuant to Section 3(d)(i) of this Agreement (but not, however, any
shares of Restricted Stock awarded pursuant to Section 3(d)(ii) of this
Agreement which have not theretofore vested) and Stock Options
immediately fully vested, and otherwise free of any forfeiture
provisions or other restrictions imposed under the Award Agreements
except for any restrictions or limitations imposed by applicable state
and federal securities laws and regulations. In the event that
Employee's employment is terminated without cause during a Renewal
Term, Employee will be entitled to receive all of the compensation and
benefits provided for in the immediately preceding sentence; except
that Employee's Base Compensation will continue solely for the nine (9)
month period immediately following such termination, irrespective of
the originally scheduled duration of the then current Renewal Term.
Upon any such termination by Employer, other than for "cause",
Employee's obligations to Employer hereunder shall terminate.
7. Reimbursement. Employer shall reimburse Employee or provide him with
an expense allowance during the term of this Agreement, for travel,
entertainment and other expenses reasonably and necessarily incurred by Employee
in performing services hereunder or, generally, the promotion of Employer's
business. Employee shall furnish such documentation with respect to
reimbursement to be paid under this Section 7 as Employer shall reasonably
request.
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<PAGE> 13
8. Covenants and Confidential Information.
(a) Employee acknowledges Employer's reliance and expectation of
Employee's continued commitment of performance of his duties and
responsibilities during the term of this Agreement. In light of such reliance
and expectation on the part of Employer, Employee agrees that during the period
beginning on the effective date of this Agreement and ending eighteen (18)
months after the termination of Employee's employment for cause or Employee's
resignation from employment with Employer, he shall not, directly or indirectly,
do or suffer any of the following:
(i) own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor or
otherwise with, any other corporation, partnership, proprietorship,
firm, association, or other business entity, or otherwise engage in
any business, which directly of indirectly acquires, or solicits to
acquire, property management agreements or any other service agreement
directly relating to any property with respect to which Employer or
any of its subsidiaries or affiliates has contracted to provide (or is
actively negotiating to provide) similar services on the date that
Employee's employment relationship with Employer is terminated
hereunder; provided, however, that the ownership of not more than one
percent (1%) of the stock of any publicly-traded corporation shall not
be deemed a violation of this covenant;
(ii) employ, assist in employing, or solicit for employment any
employee or officer of Employer or any of Employer's affiliates or
subsidiaries who was employed or retained at any time during the one
(1) year period preceding the date on which Employee's employment with
Employer is terminated;
(iii) induce any person who is an employee or officer of Employer
or any of Employer's affiliates or subsidiaries to terminate said
relationship in such a manner which is not in furtherance of
Employer's interest; or
(iv) except in performing services hereunder, disclose, divulge,
discuss, copy or otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of, Employer or any of
Employer's affiliates or subsidiaries entities, the proprietary
customer lists, limited partner lists, research or data or other trade
secrets of Employer or any of Employer's affiliates or subsidiaries,
it being acknowledged by Employee that any such proprietary
information regarding the business of Employer and Employer's
affiliates or subsidiaries entities compiled or obtained by, or
furnished to, Employee while Employee shall have been employed by or
associated with Employer, and which has not been publicly disclosed by
Employer or which is otherwise not available in the public domain, is
confidential information and Employer's property.
(b) Employee expressly agrees and understands that the remedy at law
for any breach by him of this Section 8 will be inadequate and that the damages
flowing from such breach are not readily susceptible to being measured in
monetary terms. Accordingly, it is acknowledged that upon adequate proof of
Employee's violation of any legally enforceable
11
<PAGE> 14
provision of this Section 8, Employer shall be entitled to immediate
injunctive relief and may obtain a temporary order restraining any
threatened or further breach. Nothing in this Section 8 shall be deemed
to limit Employer's remedies at law or in equity for any breach by
Employee of any of the provisions of this Section 8 which may he
pursued or availed of by Employer.
(c) Employee has carefully considered the nature and extent of
the restrictions upon him and the rights and remedies conferred upon
Employer under this Section 8, and hereby acknowledges and agrees that
the same are reasonable in time and territory, are designed to
eliminate competition which otherwise would be unfair to Employer, do
not stifle the inherent skill and experience of Employee, would not
operate as a bar to Employee's sole means of support, are fully
required to protect the legitimate interests of Employer and do not
confer a benefit upon Employer disproportionate to the detriment to
Employee.
9. Withholding Taxes. All payments to Employee shall be subject to
withholding on account of federal, state and local taxes as required by law. Any
amounts remitted by Employer to the appropriate taxing authorities as taxes
withheld by Employer from Employee on income realized by Employee with respect
to the vesting of his shares of Restricted Stock shall reduce the amounts
payable by Employer to Employee by way of compensation or otherwise. If any
particular payment required hereunder is insufficient to provide the amount of
such taxes required to be withheld, Employer may withhold such taxes from any
other payment due Employee. In the event all cash payments due Employee are
insufficient to provide the required amount of such withholding taxes, Employee,
within thirty (30) days of written notice from Employer, shall pay to Employer
the amount of such withholding taxes in excess of all cash payments due Employee
at the time such withholding is required to be made by Employer, provided,
however, the foregoing shall not be deemed to limit Employee's right to receive
loans from Employer to fund income tax obligations as set forth in Section 3 of
this Agreement.
10. No Conflicting Agreement. The parties hereto represent and warrant
to each other that they are not a party to any agreement, contract or
understanding, whether employment or otherwise, which would restrict or would
prohibit them from undertaking or performing in accordance with the terms and
conditions of this Agreement. Employer represents and covenants that its
entering into this Agreement has been duly authorized and ratified, and that it
has full authority to consummate the undertakings set forth herein including,
without limitation, the grant of the Restricted Stock and Stock Options to
Employee.
11. Severable Provisions. The provisions of this Agreement are
severable and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially unenforceable provision to the extent enforceable in any jurisdiction
shall, nevertheless, be binding and enforceable.
12. Binding Agreement. The rights and obligations of Employer under
this Agreement shall inure to the benefit of, and shall be binding upon,
Employer and its successors and assigns, and the rights and obligations (other
than obligations to perform services) of Employee under this Agreement shall
inure to the benefit of, and shall be binding upon, Employee and his heirs,
personal representatives and estate. Employer agrees and acknowledges that the
services Employee is providing Employer are personal to Employer, and Employer
shall not have the right to assign this Agreement without Employee's written
consent.
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<PAGE> 15
13. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules of the American Arbitration Association then
pertaining in the City of Columbus, Ohio, and judgment upon the award rendered
by the Arbitrator or Arbitrators may be entered in any Court having jurisdiction
thereof. The Arbitrator or Arbitrators shall be deemed to possess the powers to
issue mandatory orders and restraining orders in connection with such
arbitration; provided, however, that nothing in this Section 13 shall be
construed so as to deny Employer the right and power to seek and obtain
injunctive relief in a court of equity for any breach or threatened breach of
Employee of any of his covenants contained in Section 8(a) of this Agreement.
14. Notices. Any notice to be given under this Agreement shall be
personally delivered in writing or shall have been deemed duly given when
received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to Employer,
shall be addressed to its principal place of business, attention: Chief
Financial Officer, and if mailed to Employee, shall be addressed to him at his
home address last known on the records of Employer, or at such other address or
addresses as either Employer or Employee may hereafter designate in writing to
the other.
15. Waiver. The failure of either party to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions as to any future violations thereof, nor
prevent that party thereafter from enforcing each and every other provision of
this Agreement. The rights granted the parties herein are cumulative and the
waiver of any single remedy shall not constitute a waiver of such party's right
to assert all other legal remedies available to it under the circumstances.
16. Miscellaneous. This Agreement supersedes all prior agreements and
understandings between the parties and may not be modified or terminated orally.
No modification, termination or attempted waiver shall be valid unless in
writing and signed by the party against whom the same it is sought to be
enforced.
17. Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of Ohio.
18. Captions and Section Headings. Captions and section headings used
herein are for convenience and are not a part of this Agreement and shall not be
used in construing it.
19. Miscellaneous. Where necessary or appropriate to the meaning
hereof, the singular and plural shall be deemed to include each other, and the
masculine and neuter shall be deemed to include each other.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
on the day and year first set forth above.
"EMPLOYER"
ATTEST: LEXFORD, INC.
/s/ Susan D. Krumlauf By: /s/ MARK D. THOMPSON
- ----------------------------- ------------------------------
Mark D. Thompson
Executive Vice President and
/s/ Christine Gallion Chief Financial Officer
- -----------------------------
"EMPLOYEE"
/s/ Susan D. Krumlauf /s/ BRADLEY A. VAN AUKEN
- ----------------------------- ------------------------------
Bradley A. Van Auken
/s/ Christine Gallion
- ------------------------------
<PAGE> 1
Exhibit 10.47
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (this "First Amendment")
is entered into as of January 1, 1998 by and between Leslie B. Fox ("Employee")
and LEAF Asset Management, Inc., an Ohio corporation ("LEAF") and Lexford, Inc.
(formerly known as Cardinal Realty Services, Inc.) ("Employer").
RECITALS:
A. Employee, Employer and LEAF are a party to that certain Employment
Agreement dated as of June 1, 1997 (the "Employment Agreement").
B. Terms which are used but not otherwise defined in this First
Amendment have the meanings given them in the Employment Agreement. The Employer
desires to change Employee's employment from LEAF to Employer, to increase the
Base Compensation of Employee for the remainder of the term, to modify the
provisions relating to the Stock Bonus and Cash Bonus and provide other equity
incentives.
NOW THEREFORE, Employer and Employee agree to amend the Employment
Agreement as provided in this First Amendment:
1. Amendments to Employment Agreement.
(a) From and after the date of this First Amendment, all
references to "Employer" in the Employment Agreement
shall refer to Lexford, Inc. and not LEAF.
(b) From and after the date of this First Amendment, all
references to "CRSI" are deleted and replaced with
"Employer."
(c) Section 1(b) of the Employment Agreement is hereby
amended by deleting the term "Executive Vice
President of Investment Management" and replacing it
with "Executive Vice President and Chief Operating
Officer."
(d) Section 1(b)(ii) of the Employment Agreement is
hereby amended by deleting the term "Chief Investment
Officer" and replacing it with "Chief Operating
Officer."
(e) Sections 1(b) and 1(c) of the Employment Agreement
are hereby amended by deleting the phrase "(including
Employer)" in both sections.
(f) Section 1(c) of the Employment Agreement is further
amended by deleting the phrase "or CRSI" in the
second sentence of section 1(c).
<PAGE> 2
(g) Section 2(b) of the Employment Agreement is hereby
amended by deleting the clause "the limited liability
company organizational documents of Employer" near
the end of the second sentence and replacing it with
"or other organizational documents of Employer."
(h) Section 3(a) of the Employment Agreement is amended
by adding the following paragraphs:
(v) Notwithstanding the foregoing, the
Employee's Base Compensation from and after
January 1, 1998 shall be Two Hundred Thirty
Thousand ($230,000) annually payable in
equal bi-monthly installments.
(vi) Employee's Base Compensation for fiscal 1998
shall be paid in equal bi-monthly
installments of cash and quarterly
installments of shares of Common Stock as
follows:
(A) Two Hundred Thousand Dollars
($200,000) in cash, and
(B) Thirty Thousand Dollars ($30,000) in
shares of Common Stock of Employer
valued at "Fair Market Value" (as
defined below) on the date of
issuance (i.e., the last day of each
calendar quarter in which Employer's
Common Stock is traded).
(vii) For purposes of this Employment Agreement
"Fair Market Value" shall mean the closing
price of Employer's Common Stock on the
NASDAQ National Market System on the date of
issuance, or if Employer's Common Stock is
not listed or admitted to trading in such
system, the principal securities exchange on
which Employer's Common Stock is listed or
admitted to trading.
(i) Section 3(b) of the Employment Agreement is hereby
deleted in its entirety, and the following section is
substituted therefor:
(b) From and after January 1, 1998 and for so
long as this Employment Agreement remains in
effect, Employer shall pay to Employee bonus
compensation as follows:
(i) For Employer's 1998 fiscal year,
and for each fiscal year thereafter
during which this Employment
Agreement remains in effect,
Employer will pay to Employee a
cash bonus ("Cash Bonus")
determined on the basis of the
increase, if any, of Employer's
"Adjusted EBITDA" (as defined in
Employer's Annual Report on Form
10-K) when compared to Employer's
Adjusted EBITDA for its
2
<PAGE> 3
immediately preceding fiscal year,
as reported in Employer's Annual
Report on Form 10-K to be filed
with the Securities and Exchange
Commission ("Comparison EBITDA")
and measured as a percentage of
Comparison EBITDA, as follows:
<TABLE>
<CAPTION>
Adjusted EBITDA expressed Cash Bonus Expressed
as Percentage of Comparison Percentage of Base
EBITDA Compensation
--------------------------- --------------------
<S> <C> <C>
Up to 103% 0
Greater than 103% up to 110% Percentage Increase in Comparison EBITDA
(above 103%) multiplied by 1.5;
plus, if applicable
Greater than 110% up to 120% Additional Percentage Increase in Comparison
EBITDA (above 110%) multiplied by
2; plus if applicable
Greater than 120%
Additional Percentage Increase in
Comparison EBITDA (above 120%)
multiplied by 2.5, but not to exceed 60%
of Base Compensation
</TABLE>
(ii) For purposes of determining the Cash Bonus,
if any, payable to Employee on account of
Employer's 1998 fiscal year, Employee and
Employer agree that Employee's 1998 Base
Compensation will equal Two Hundred and
Thirty Thousand Dollars ($230,000) and the
maximum Cash Bonus payable to Employee on
account of Employer's 1998 fiscal year
equals One Hundred Forty-Four Thousand
Dollars ($144,000).
(iii) Employee's Cash Bonus, if any, due under
this Section 3(b) shall be paid within
thirty (30) days after Adjusted EBITDA is
calculated from the applicable final audited
year end income statements of Employer.
(iv) In addition to the Cash Bonus, for
Employer's 1998 fiscal year, and for each
fiscal year thereafter during which this
Agreement remains
3
<PAGE> 4
in effect, Employer shall, and hereby does
grant to Employee a stock bonus ("Stock
Bonus"; and together with the Cash Bonus,
the "Bonus") payable in shares of Employer's
Common Stock (the "Common Stock"), in
accordance with and subject to a Deferred
Shares Award Agreement (the "Deferred Shares
Agreement") to be entered into between
Employer and Employee in customary form
reasonably acceptable to Employer and
Employee. The dollar amount of the Stock
Bonus will be determined on the same basis
as the Cash Bonus (including the limitations
set forth in Section 3(b)(ii) and the
partial-year provision set forth in Section
6(c)), except that the dollar value of the
Stock Bonus as a percentage of Base
Compensation will be as follows:
<TABLE>
<CAPTION>
Adjusted EBITDA expressed Dollar Value of Stock
as a Percentage of Bonus Expressed as
Comparison EBITDA Percentage of Base Compensation
------------------------- ---------------------------------
<S> <C> <C>
Up to 103% 0
Greater than 103% up to 105% Equivalent to Percentage Increase in
Comparison EBITDA; plus if applicable
Greater than 105% up to 110% Additional percentage increase in
Comparison EBITDA multiplied by 2, plus
if applicable
Greater that 110% Additional Percentage Increase in
Comparison EBITDA multiplied by 3, but
not to exceed 30% of Base Compensation
</TABLE>
(v) The number of shares constituting the Stock
Bonus payable to Employee will be determined
by dividing (A) the dollar value of the
Stock Bonus determined in accordance with
the table above by (B) the closing price of
Employer's Common Stock on the NASDAQ
National Market System, or if Employer's
Common Stock is not listed or admitted to
trading in such system, the principal
securities exchange on which Employer's
Common Stock is listed or admitted to
trading on the last trading date in the
period for which the Stock Bonus is
calculated (i.e. December 31, or the last
closing price for the Common Stock
immediately preceding the date Employee
ceases employment with Employer). Any stock
Bonus which Employee is entitled to receive
from Employer shall be issued on the same
date as the Cash Bonus for the same period.
4
<PAGE> 5
No fractional share shall be payable to
Employee in connection with the Stock Bonus,
but Employee will be entitled to a cash
payment equal to the dollar value of any
fractional share to which she would
otherwise be entitled under the Stock Bonus,
to be paid to Employee together with the
payment of Employee's Cash Bonus hereunder.
(j) Section 3(c)(ii) of the Employment Agreement is
hereby amended by deleting subclauses A, B and C in
their entirety and replacing them with the following:
(A) One-half on January 1, 1998,
(B) One-quarter on January 1, 1999, and
(c) One-quarter on January 1, 2000.
(k) Section 3(c) of the Employment Agreement is hereby
amended by deleting Section 3(c)(iii) in its entirety
and renumbering Section 3(c)(iv) to Section
3(c)(iii).
(l) Section 3(f) of the Employment Agreement is hereby
amended by deleting the phrase "(ii) be due and
payable upon the earliest of each sale of any shares
of the Common Stock so pledged (to the extent of the
net proceeds of such sale with any balance remaining
being thereafter due as otherwise provided under this
Section 3(f))" and replacing it with the following:
(iii) be due upon the earliest of three (3) years
from the date of the loan (to the extent of
the proceeds of such sale with any remaining
balance being thereafter due as originally
scheduled)
(m) Section 3 of the Employment Agreement is hereby
further amended by adding the following:
(g) Further, Employer shall, and hereby does,
grant to Employee a right to receive
forty-eight thousand (48,000) shares of
Common Stock (the "Performance Equity
Shares"), subject to the vesting
requirements set forth in that certain
Restricted Shares Agreement dated January 1,
1998 to be entered into between Employer and
Employee, in customary form reasonably
acceptable to Employer and Employee. Such
Restricted Shares Agreement will provide
that the Performance Equity Shares will vest
in three tranches subject to the later of:
(i) Employer's attaining the "Performance
Goals" (as that term is defined in
Employer's 1997 Performance Equity Plan);
and (ii) Employee's continuing employment
with
5
<PAGE> 6
Employer or a subsidiary of Employer on
January 1, 1998 (as to a maximum of
one-third of the Performance Equity Shares),
January 1, 1999 (as to a maximum of
two-thirds of the Performance Equity Shares)
and January 1, 2000 (with respect to up to
all of the Performance Equity Shares).
(h) Employer shall issue to The Provident Bank,
a state chartered bank, in its capacity as
Trustee under that certain Executive
Deferred Compensation Rabbi Trust Agreement
dated as of April 18, 1996 (the "Trust
Agreement"), or any successor trustee
thereunder ("Trustee"), for the benefit of
Employee, at no additional consideration or
cost to Employee, up to five thousand
(5,000) shares of the Common Stock for each
share of Common Stock of Employer purchased
by Employee from the date of this Agreement
through and including March 31, 1999 (the
"Matching Stock"). Any Matching Stock which
Trustee is entitled to receive from Employer
shall be issued to Trustee within thirty
(30) days of Employee's purchase of any
shares of Common Stock and shall be subject
to all restrictions and limitations imposed
by applicable state and federal securities
laws and regulations. Notwithstanding the
provisions of Section 3(b)(iv) of this
Agreement, in the event that Employee shall
be entitled to the payment of a Cash Bonus
on account of Employer's 1998 fiscal year,
then, in such event, on or before March 31,
1999 Employee may furnish Employer with her
written election to receive shares of Common
Stock having a fair market value (such fair
market value to be determined in the same
manner as shares of Common Stock issuable to
the Trustee for the benefit of Employee on
account of Employee's Stock Bonus for
Employer's 1998 fiscal year) in an amount
specified by Employee in such written
election in lieu of such Cash Bonus.
Employee may make such an election only on
account of Employer's 1998 fiscal year. Any
shares of Common Stock so issued to the
Trustee for the benefit of Employee on
account of such written election will, in
turn, qualify under this Section 3(h) as
shares of Common Stock purchased by Employee
and, accordingly, the Trustee will be
entitled to receive one share of Matching
Stock on account of each share of Common
Stock issued to Trustee for the benefit of
Employee in lieu of Employee's Cash Bonus in
accordance with the provisions of this
Section 3(h).
(n) Section 4(c) of the Employment Agreement is hereby
amended by deleting the clause "(including Employer)"
in the first and second sentences of such Section.
(o) Section 6(a)(i) of the Employment Agreement is
hereby deleted.
6
<PAGE> 7
(p) Section 6(c) of the Employment Agreement is hereby
amended by deleting the clause "(iii) all of her
shares of Restricted Stock and future right to
receive the Fund Incentive Payment awarded pursuant
to Section 3(c)(iii) of this Employment Agreement"
and replace it with the following:
(iii) all of her shares of Restricted Stock and
Performance Equity Shares (;provided,
however, that with respect to shares of
Restricted Stock and Performance Equity
Shares awarded pursuant to Section 3(c)(ii)
and 3(g) Employee's vested right to such
shares shall be limited solely to those
shares which have vested prior to the date
of termination together with those shares
which would have otherwise vested on or
before the January 1 following the date of
termination had Employee remained employed
with Employer).
(q) Section 6(d) of the Employment Agreement is hereby
amended by adding the following clause at the end of
such Section:
Notwithstanding anything contained herein to the
contrary, in the event Employee's Employment
Agreement is terminated by Employee prior to May 31,
2000, then Employee shall be entitled to only those
shares of Restricted Stock and Performance Equity
Shares awarded pursuant to Section 3(c)(ii) and 3(g)
that have vested on or before the January 1
immediately preceding the date of termination.
(r) Section 6(d) of the Employment Agreement is hereby
further amended by deleting "(c)" in the last line of
Section 6(d).
2. Miscellaneous.
(a) Effect of Amendment. Except as specifically provided
herein, this First Amendment does not in any way waive, amend, modify,
affect or impair the terms and conditions of the Employment Agreement,
and all terms and conditions of the Employment Agreement are to remain
in full force and effect unless otherwise specifically amended, waived
or changed pursuant hereto.
On and after the date of this First Amendment, each reference
in the Employment Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Employment Agreement
shall mean and be a reference to the Employment Agreement as heretofore
amended and as further amended by this First Amendment.
This First Amendment constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, representations
or other arrangements, whether express or
7
<PAGE> 8
implied, written or oral, of the parties in connection therewith except
to the extent expressly incorporated or specifically referred to
herein.
(b) Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute
but one and the same instrument.
(c) Governing Law. This First Amendment shall be governed by,
and shall be construed and enforced in accordance with, the internal
laws of the State of Ohio, without regard to conflicts of laws
principles.
IN WITNESS WHEREOF, Employer and Employee have signed this First
Amendment so as of the date hereinabove provided.
LEAF ASSET MANAGEMENT, INC.
Attest:
/s/ Christine Gallion By: /s/ John B. Bartling, Jr.
- ---------------------------- --------------------------------------
John B. Bartling, Jr., President and
/s/ Bradley A. Van Auken Chief Executive Officer
- ----------------------------
/s/ Christine Gallion LEXFORD, INC.
- ----------------------------
/s/ Bradley A. Van Auken
- ----------------------------
By: /s/ John B. Bartling, Jr.
-------------------------------------
John B. Bartling, Jr. President and
Chief Executive Officer
/s/ Christine Gallion /s/ Leslie B. Fox
- ---------------------------- --------------------------------------
LESLIE B. FOX
/s/ Bradley A. Van Auken
- ----------------------------
8
<PAGE> 1
Exhibit 21.1
Cardinal Ancillary Insurance Agency, Inc.
Cardinal Ancillary Insurance Agency, Inc., a Delaware
corporation
Cardinal Apartment Management Group, Inc.
Cardinal Apartment Services, Inc.
Cardinal GP VIII Corporation
Cardinal GP X Corporation
Cardinal GP XII Corporation
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 LP XIX Corporation
Cardinal Industries Development Corporation
Cardinal Industries of Florida Services Corporation
Cardinal Industries of Georgia Services Corporation
Cardinal Industries of Texas, Inc.
Cardinal Industries Services Corporation
CRC LLC
Cardinal Regulatory of Kentucky, Inc.
Cardinal Regulatory of West Virginia, Inc.
CRSI SPV 2, INC.
CRSI SPV 3, INC.
CRSI SPV 4, INC.
CRSI SPV 5, INC.
CRSI SVP 6, INC.
CRSI SPV 7, INC.
CRSI SPV 8, INC.
CRSI SPV 9, INC.
CRSI SPV 10, INC.
CRSI SPV 11, INC.
CRSI SPV 12, INC.
CRSI SPV 13, INC.
CRSI SPV 14, INC.
CRSI SPV 15, INC.
CRSI SPV 16, INC.
CRSI SPV 17, INC.
CRSI SPV 18, INC.
CRSI SPV 19, INC.
CRSI SPV 20, INC.
CRSI SPV 21, INC.
CRSI SPV 22, INC.
CRSI SPV 23, INC.
CRSI SPV 24, INC.
CRSI SPV 25, INC.
CRSI SPV 26, INC.
CRSI SPV 27, INC.
CRSI SPV 28, INC.
CRSI SPV 29, INC.
CRSI SPV 30, INC.
CRSI SPV 31, INC.
CRSI SPV 32, INC.
CRSI SPV 33, INC.
CRSI SPV 34, INC.
CRSI SPV 35, INC.
CRSI SPV 36, INC.
CRSI SPV 37, INC.
CRSI SPV 38, INC.
CRSI SPV 39, INC.
CRSI SPV 40, INC.
CRSI SPV 42, INC.
CRSI SPV 43, INC.
CRSI SPV 44, INC.
CRSI SPV 46, INC.
CRSI SPV 47, INC.
CRSI SPV 48, INC.
CRSI SPV 49, INC.
<PAGE> 2
CRSI SPV 50, INC.
CRSI SPV 51, INC.
CRSI SPV 52, INC.
CRSI SPV 53, INC.
CRSI SPV 55, INC.
CRSI SPV 56, INC.
CRSI SPV 57, INC.
CRSI SPV 58, INC.
CRSI SPV 59, INC.
CRSI SPV 60, INC.
CRSI SPV 61, INC.
CRSI SPV 62, INC.
CRSI SPV 63, INC.
CRSI SPV 64, INC.
CRSI SPV 65, INC.
CRSI SPV 66, INC.
CRSI SPV 67, INC.
CRSI SPV 68, INC.
CRSI SPV 69, INC.
CRSI SPV 71, INC.
CRSI SPV 72, INC.
CRSI SPV 74, INC.
CRSI SPV 75, INC.
CRSI SPV 76, INC.
CRSI SPV 77, INC.
CRSI SPV 78, INC.
CRSI SPV 79, INC.
CRSI SPV 80, INC.
CRSI SPV 81, INC.
CRSI SPV 82, INC.
CRSI SPV 83, INC.
CRSI SPV 84, INC.
CRSI SPV 85, INC.
CRSI SPV 86, INC.
CRSI SPV 87, INC.
CRSI SPV 88, INC.
CRSI SPV 90, INC.
CRSI SPV 91, INC.
CRSI SPV 92, INC.
CRSI SPV 93, INC.
CRSI SPV 94, INC.
CRSI SPV 95, INC.
CRSI SPV 96, INC.
CRSI SPV 98, INC.
CRSI SPV 99, INC.
CRSI SPV 100, INC.
CRSI SPV 101, INC.
CRSI SPV 102, INC.
CRSI SPV 103, INC.
CRSI SPV 10327, INC.
CRSI SPV 10375, INC.
CRSI SPV 10437, INC.
CRSI SPV 10455, INC.
CRSI SPV 10491, INC.
CRSI SPV 10512, INC.
CRSI SPV 10523, INC.
CRSI SPV 10524, INC.
CRSI SPV 10542, INC.
CRSI SPV 10563, INC.
CRSI SPV 10585, INC.
CRSI SPV 10600, INC.
CRSI SPV 10604, INC.
CRSI SPV 10606, INC.
CRSI SPV 10642, INC.
CRSI SPV 10648, INC.
CRSI SPV 10658, INC.
CRSI SPV 10664, INC.
CRSI SPV 10672, INC.
CRSI SPV 10674, INC.
CRSI SPV 10683, INC.
CRSI SPV 10691, INC.
<PAGE> 3
CRSI SPV 10714, INC.
CRSI SPV 10724, INC.
CRSI SPV 10725, INC.
CRSI SPV 10726, INC.
CRSI SPV 10727, INC.
CRSI SPV 10729, INC.
CRSI SPV 10752, INC.
CRSI SPV 10758, INC.
CRSI SPV 10773, INC.
CRSI SPV 10790, INC.
CRSI SPV 10810, INC.
CRSI SPV 10816, INC.
CRSI SPV 10841, INC.
CRSI SPV 10853, INC.
CRSI SPV 10936, INC.
CRSI SPV 1996 PW1, INC.
CRSI SPV 1996 PW2, INC.
CRSI SPV 1996 PW3, INC.
CRSI SPV 1996 PW4, INC.
CRSI SPV 20115, INC.
CRSI SPV 20129, INC.
CRSI SPV 20164, INC.
CRSI SPV 20190, INC.
CRSI SPV 20199, INC.
CRSI SPV 20208, INC.
CRSI SPV 20212, INC.
CRSI SPV 20218, INC.
CRSI SPV 20224, INC.
CRSI SPV 20230, INC.
CRSI SPV 20246, INC.
CRSI SPV 20284, INC.
CRSI SPV 20309, INC.
CRSI SPV 20314, INC.
CRSI SPV 20405, INC.
CRSI SPV 20442, INC.
CRSI SPV 20449, INC.
CRSI SPV 20471, INC.
CRSI SPV 20487, INC.
CRSI SPV 20519, INC.
CRSI SPV 20521, INC.
CRSI SPV 20530, INC.
CRSI SPV 20535, INC.
CRSI SPV 20546, INC.
CRSI SPV 30109, INC.
CRSI SPV 30114, INC.
CRSI SPV 30130, INC.
CRSI SPV 30138, INC.
CRSI SPV 30149, INC.
CRSI SPV 30150, INC.
CRSI SPV 30168, INC.
CRSI SPV 30176, INC.
CRSI SPV 30184, INC.
CRSI SPV 30197, INC.
CRSI SPV 30231, INC.
CRSI SPV 30269, INC.
CRSI SPV 30353, INC.
CRSI SPV 30358, INC.
CRSI SPV 40101, INC.
CRSI SPV 50903, INC.
CRSI SPV 50906, INC.
CRSI SPV 50951, INC.
Jupiter Cove Apartments, LLC
Jupiter Cove Apartments III, LLC
LEAF Asset Management, INC.
Lexford Evergreen LLC
Lexford GAKB LLC
Lexford GAKB II LLC
Lexford Guilford GP LLC
Lexford Guilford LP LLC
Lexford Hidden Pointe GP LLC
Lexford Hidden Pointe LP LLC
Lexford Properties, I
LexOhio, L.P.
R/E Management Services, INC.
R.E.I. Equities, INC.
Walker Place Apartments Limited Liability Company
Whispering Pines II, LLC
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-30849) dated July 8, 1997 pertaining to 1992 Incentive Equity Plan
of Cardinal Realty Services, Inc. and related Plans and Employment Agreements;
in the Registration Statement (Form S-8 No. 33-92508) dated May 19, 1995
pertaining to Cardinal Realty Services, Inc. Savings Plan; and in Post-Effective
Amendment No. 1 to the Registration Statement (Form S-3 No. 333-49269) dated
June 2, 1998 of Lexford Residential Trust of our report dated January 27, 1999
with respect to the consolidated financial statements and schedules of Lexford
Residential Trust included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
/s/ ERNST & YOUNG LLP
-----------------------------------
Ernst & Young LLP
Columbus, Ohio
March 23, 1999
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 495
<SECURITIES> 0
<RECEIVABLES> 2,470
<ALLOWANCES> 550
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 604,629
<DEPRECIATION> 28,564
<TOTAL-ASSETS> 628,922
<CURRENT-LIABILITIES> 0
<BONDS> 527,742
0
0
<COMMON> 95
<OTHER-SE> 59,087
<TOTAL-LIABILITY-AND-EQUITY> 628,922
<SALES> 498
<TOTAL-REVENUES> 146,505
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 109,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,924
<INCOME-PRETAX> (5,532)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 631
<CHANGES> 0
<NET-INCOME> (4,901)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
