SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/ X / Quarterly Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the quarterly
period ended June 30, 1996
or
/ / Transition Report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File Number 0-21670
Cardinal Realty Services, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-4427382
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6954 Americana Parkway, Reynoldsburg, Ohio 43068
- ------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
(614) 759-1566
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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 August 9, 1996 there were 4,543,408 shares of common stock issued, of
which 210,321 shares were treasury shares.
Page 1 of 152 sequentially numbered pages
Exhibit Index on page 28.
<PAGE>
2
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1996
(Unaudited) and December 31, 1995 (Audited) 3
Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Six Months Ended June 30, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 (Unaudited) 6-7
Notes to Consolidated Financial Statements 8-17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18-26
Part II OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
2
<PAGE>
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (AUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
================= ==================
<S> <C> <C>
ASSETS
Operating Real Estate (Note 2):
Land $ 23,756,734 $ 24,082,635
Building and Improvements 141,041,101 143,193,921
----------------- ------------------
164,797,835 167,276,556
Accumulated Depreciation (2,295,860) 0
----------------- ------------------
162,501,975 167,276,556
Interests in and Receivables from Syndicated Partnerships (Notes 1 and 4) 51,536,323 52,591,444
Cash (Note 1) 3,568,629 2,751,986
Accounts Receivable, Affiliates (less an allowance
of $2,295,007 at June 30, 1996 and $2,468,845 at
December 31, 1995), Residents and Officers (Note 4) 2,753,920 5,088,478
Furniture, Fixtures and Other, Net 1,255,189 1,312,228
Funds Held in Escrow (Note 1) 10,069,609 9,390,610
Prepaids and Other (Note 1) 4,395,359 3,930,099
----------------- ------------------
$ 236,081,004 $ 242,341,401
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages, Term Debt and Other Notes Payable:
Mortgages on Operating Real Estate (Notes 2 and 3) $ 147,286,196 $ 151,130,612
Term Debt 20,117,307 20,470,205
Other Notes Payable 111,116 1,453,553
----------------- ------------------
167,514,619 173,054,370
Accounts Payable 1,352,847 1,350,641
Accrued Interest, Real Estate and Other Taxes (Notes 2 and 3) 4,293,955 4,532,148
Other Accrued Expenses 6,374,035 9,716,866
Other Liabilities 2,447,942 2,441,282
----------------- ------------------
Total Liabilities 181,983,398 191,095,307
----------------- ------------------
Shareholders' Equity (Note 1):
Preferred Stock, 1,500,000 shares authorized, no shares issued
Common Stock, 13,500,000 shares authorized with no stated value,
3,634,384 and 3,603,160 shares issued and outstanding
at June 30, 1996 and December 31, 1995, respectively 29,122,547 29,122,547
Additional Paid-in Capital (Note 1) 9,464,094 8,461,216
Retained Earnings 15,510,965 13,662,331
----------------- ------------------
54,097,606 51,246,094
----------------- ------------------
$ 236,081,004 $ 242,341,401
================= ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
4
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------------
June 30, 1996 June 30 ,1995 June 30, 1996 June 30, 1995
--------------- --------------- --------------- ---------------
(Restated - (Restated -
Notes 1 and 5) Notes 1 and 5)
<S> <C> <C> <C> <C>
Revenues:
Rental and Other Operating Real Estate Revenues-Net $ 10,253,671 $ 20,443,812
Fee Based 2,762,388 $ 3,940,293 5,583,423 $ 7,550,392
Interest, Principally from Syndicated Partnerships 1,510,352 1,007,536 2,946,685 1,962,706
Income from Disposal or Recovery of Non-Core Assets-Net 105,803 1,006,663 274,692 1,815,187
Other 79,042 193,257 151,655 360,478
--------------- --------------- --------------- ---------------
14,711,256 6,147,749 29,400,267 11,688,763
--------------- --------------- --------------- ---------------
Expenses:
Rental Operating 5,186,661 10,437,951
Fee Based 1,607,400 2,138,769 3,095,952 4,251,938
Administration 1,149,788 1,025,660 2,121,734 2,151,279
Restructure Costs 300,000 0 300,000 0
Interest - Wholly Owned Property Debt 3,636,670 0 7,200,179 0
Interest - Corporate Debt 261,606 418,280 561,466 786,048
Depreciation 1,324,447 123,756 2,652,351 247,409
--------------- --------------- --------------- ---------------
13,466,572 3,706,465 26,369,633 7,436,674
--------------- --------------- --------------- ---------------
Income Before Income Taxes 1,244,684 2,441,284 3,030,634 4,252,089
Provision for Income Taxes (Note 1) 487,400 947,000 1,182,000 1,649,000
--------------- --------------- --------------- ---------------
Income before Extraordinary Gain 757,284 1,494,284 1,848,634 2,603,089
Extraordinary Gain, net of Income Taxes of
$343,000 and $510,000, respectively (Note 3) 0 540,070 0 804,021
--------------- --------------- --------------- ---------------
Net Income $ 757,284 $ 2,034,354 $ 1,848,634 $ 3,407,110
=============== =============== =============== ===============
Net Income per Common Share:
Income Before Extraordinary Item $0.19 $0.39 $0.47 $0.68
Extraordinary Gain 0.00 0.14 0.00 0.21
--------------- --------------- --------------- ---------------
Net Income $0.19 $0.53 $0.47 $0.89
=============== =============== =============== ===============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
5
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional Retained
Shares Amount Paid-in Capital Earnings Total
------------ ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,603,160 $ 29,122,547 $ 8,461,216 $ 13,662,331 $ 51,246,094
Shares issued, in connection with
the claims resolution process (Note 1) 7,432
Exercise of options under non-qualified
stock option plan and restricted stock awards
compensation 25,519 67,050 67,050
Less: Treasury shares from the redemption
of stock held by Syndicated Partnerships (1,727) (31,330) (31,330)
Credit from utilization of pre-confirmation tax
benefits (Note 1) 967,158 967,158
Net Income for the period 1,848,634 1,848,634
----------- ---------------- --------------- ---------------- ----------------
Balance, June 30, 1996 (Note 1) 3,634,384 $ 29,122,547 $ 9,464,094 $ 15,510,965 $ 54,097,606
=========== ================ =============== ================ ===============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
6
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
---------------------- -------------------
<S> <C> <C>
Cash Flows provided by Operating activities:
Management and Advisory Service activities:
Cash received from Fee Based activities $ 10,845,158 $ 10,748,928
Cash received from Interests in and Receivables from Syndicated Partnerships 2,726,236 1,677,192
Cash Receipts -- other 853,392 2,269,908
Cash paid to Vendors, Suppliers and Employees (11,298,566) (10,782,381)
Interest paid on Term Debt and Other Notes Payable (576,211) (769,656)
Income Taxes paid - City and State (151,844) (121,425)
Taxes paid, other than Income Taxes (19,183) (234,939)
Payments related to non-recurring items (899,465) (565,367)
Real Estate Asset activities:
Cash received from Rental activities 20,479,614 0
Payments on Rental activities (10,752,429) 0
Interest paid on Mortgages (6,807,110) 0
---------------------- -------------------
Net Cash provided by Operating activities 4,399,592 2,222,260
---------------------- -------------------
Cash Flows provided by/(used in) Investing activities:
Management and Advisory Service activities:
Proceeds from sale of Non-Core Assets and Other 528,172 1,355,184
Capital Expenditures (202,628) (251,763)
Other 49,788
Repayment from/(Advances to) Syndicated Partnerships 559,601 (3,617,965)
Acquisition of Real Estate Assets 0 (425,812)
Real Estate Asset activities:
Net cash flow provided by Rental activities during period
Held for Sale (net of Interest paid of $6,757,328) 0 1,178,012
Funding of Escrows (337,782) 0
Capital Expenditures (235,799) 0
---------------------- -------------------
Net Cash provided by/(used in) Investing activities 361,352 (1,762,344)
---------------------- -------------------
Cash Flows (used in) Financing activities:
Management and Advisory Service activities:
Proceeds from the exercise of Stock Options 47,050 0
Redemption of Stock held by Syndicated Partnerships (31,330) 0
Net Proceeds from/(Principal Payments) on Term Debt and Other (1,847,121) (189,759)
Real Estate Asset activities:
Proceeds from Mortgage Debt 9,291,000 0
Payments on Mortgages - principal amortization (989,553) (971,138)
Payments on Mortgages - lump sum (10,414,347) (256,000)
---------------------- -------------------
Net Cash (used in) Financing Activities (3,944,301) (1,416,897)
---------------------- -------------------
Increase/(Decrease) in Cash 816,643 (956,981)
Cash at Beginning of Year 2,751,986 4,639,643
---------------------- -------------------
Cash at End of Period $ 3,568,629 $ 3,682,662
====================== ===================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
7
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
---------------- ----------------
<S> <C> <C>
Reconciliation of Net Income to
Net Cash provided by Operating activities:
Net Income $ 1,848,634 $ 3,407,110
Adjustments to reconcile Net Income to Net Cash
provided by Operating activities:
Depreciation and Amortization 2,652,351 247,409
Provision for losses on Accounts Receivable 43,207 556,232
Income from Disposal or Recovery of Non-Core Assets (274,692) (1,815,187)
Gain on Debt Restructuring 0 (1,314,021)
Provision for Income Taxes not payable in Cash 967,158 2,159,000
Changes in Operating Assets and Liabilities:
Interests in and Receivables from Syndicated Partnerships 252,550 (251,009)
Accounts Receivable and Other Assets 1,296,220 1,698,792
Accounts Payable and Other Liabilities (2,385,836) (2,466,066)
---------------- ----------------
Net Cash provided by Operating activities $ 4,399,592 $ 2,222,260
================ ================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first quarter of 1995, the Company (as defined in Note 1 to Consolidated
Financial Statements) acquired an apartment property financed in part with a
$920,000 first mortgage on the property.
In June 1995, the Company purchased from a mortgage lender $8.8 million of
non-recourse mortgages on one Syndicated Partnership (as defined in Note 1 to
Consolidated Financial Statements) and four Wholly Owned Properties (as defined
in Note 1 to Consolidated Financial Statements) for $7.8 million. The Company
financed the acquisition with a $7.8 million note payable to the mortgage
lender. The note was repaid in June 1996.
In the first quarter of 1996, the Company granted deeds in lieu of foreclosure
for two Wholly Owned Properties to the mortgagee. The properties had an
aggregate carrying value of $2.5 million. In the first half of 1995 the Company
granted a deed in lieu of foreclosure for one Wholly Owned Property to the
mortgagee. The property had an aggregate carrying value of $2.1 million. No gain
or loss was recognized on these transactions because the assets and the
non-recourse mortgages on the Properties (as defined in Note 1 to Consolidated
Financial Statements) had been recorded in equal amounts.
Effective August 1, 1996, the Company acquired Lexford Properties, Inc. through
a merger with a wholly owned subsidiary of the Company. The Company issued
700,000 shares of its Common Stock (valued at $14,000,000) in consideration of
the acquisition, however 450,000 of the shares issued (valued at $9,000,000) are
subject to forfeiture through the end of fiscal 1999 or until certain
profitability criteria are met, whichever occurs first.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
8
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cardinal
Realty Services, Inc. and its wholly owned subsidiaries (collectively the
"Company") for consolidated financial statement purposes, the "Company" also
includes limited partnerships and other legal entities which own Operating Real
Estate Assets and in which the Company, in turn, owns a 100% equity interest.
All significant intercompany balances and transactions have been eliminated in
this consolidation. The accompanying consolidated financial statements, except
for the Consolidated Balance Sheet at December 31, 1995, are unaudited and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated financial
statements, the notes hereto and the capitalized terms included herein should be
read in conjunction with the Company's Form 10-K.
The interim consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
Business Overview
- -----------------
The Company engages in two core related business activities: first,
activities in connection with the ownership of multifamily residential real
property (including provision of management services to passive co-owners); and,
second, management of multifamily residential real property including provision
of management services to owners of property in which the Company does not have
an ownership interest. In January 1996 the Company effected a restructuring
along these business lines by creating two business divisions Advisory Services
and Management Services. The restructuring was implemented, in part, to cause
the Company and its management to become more focused with respect to these two
distinct, yet complementary, groups of business activities.
Advisory Services
-----------------
The objective of the Company's Advisory Services division is to
maximize the value of its real estate holdings and its returns on real estate
investments. The Company performs these functions both with respect to those
Properties in which it maintains the entire ownership interest (its "Wholly
Owned Properties") as well as those properties in which the Company maintains a
partial ownership interest (the "Syndicated Partnerships"; and, together with
the Wholly Owned Properties, the "Properties"). The Company strives to obtain
and maintain the best available financing for the Properties and maximize the
Properties' operating performance. The Company is also committed to continually
evaluate and reevaluate the performance of all such properties, and identify
under-performing Properties or those Properties which can be sold at an
attractive price relative to their performance. The Company maintains at least a
1% partnership interest in each of the Syndicated Partnerships, usually a 9% or
10% interest. The remaining partnership interests are substantially all owned by
unrelated third party investors as limited partners.
8
<PAGE>
9
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company's Advisory Services division performs asset management
services on behalf of the Syndicated Partnerships in the Company's capacity as
general partner of the Syndicated Partnerships. In addition, the Company's
Advisory Services division performs the following additional services for the
accounts of the co-owners (limited partners) of the Syndicated Partnerships: the
provision of informational and financial reporting services, including tax
accounting tax return preparation and provision of tax return information to the
limited partners; and capital and financial planning, including determination of
reserves, funding of capital requirements and determinations and effecting
capital distributions to partners.
Beyond its equity investment in the Properties, the Company holds
receivables from a majority of the Syndicated Partnerships (SEE "RECORDED VALUES
OF RECEIVABLES FROM SYNDICATED PARTNERSHIPS" AND NOTE 4).
Management Services
-------------------
The Company's Management Services division is charged with the conduct
of the Company's property management business. The Company's property management
business involves all traditional elements of the third party property
management services business, including, without limitation, day to day
management and maintenance of all the multifamily residential apartment
Properties, securing residents and entering into leases for apartment units at
the Properties, collecting rents and other amounts owing from residents
providing cash management services for revenues, security deposits, taxes and
insurance and deferred maintenance escrows, and assembling, compiling and
furnishing information regarding each of the Properties to their respective
owners.
Effective August 1, 1996 the Company acquired Lexford Properties, Inc.
("Lexford") by merger of a wholly owned subsidiary of the Company with and into
Lexford. As of such date, Lexford became a wholly owned subsidiary of the
Company. Lexford has been engaged in the business of third party property
management services to the owners of multifamily residential real property since
commencing its business operations in June 1988. At the time the Company
acquired Lexford, Lexford managed approximately 22,000 residential units under
management contracts with their third party owners. The Company currently
intends to cause Lexford to continue to provide and expand such third party
property management services as well as to succeed to the operation of the
Company's Management Services division. Accordingly, the Company's property
management business will ultimately be conducted through its wholly owned
subsidiary, Lexford Properties, Inc. Management believes that the Company's
acquisition of Lexford has enhanced the Company's property management
capabilities and will facilitate the Company's ability to acquire, as well as
service, additional multifamily residential properties in the future (SEE
"LEXFORD ACQUISITION").
The Company's Management Services division also operates an adjunct
business which the Company refers to as "Ancillary Services". The Company's
Ancillary Services include the acquisition and furnishing of parts and supplies
to both the Wholly Owned Properties and Syndicated Partnerships and also the
rental of furniture and sale of renters insurance to residents at the
Properties. In June 1996 the Company announced that it anticipated certain
realignments in its current organization. The Company expects that one of such
realignments will result in the outsourcing of the parts and supplies inventory
currently handled internally by the Company's ancillary services function. The
Company is currently studying various alternatives to maintaining the inventory,
such as enrollment in cooperative buying groups (SEE "RESTRUCTURING").
9
<PAGE>
10
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Fresh Start Accounting
- ----------------------
The Company adopted a method of accounting referred to as fresh start
("Fresh Start") reporting as of September 11, 1992 (the "Effective Date"), the
effective date of the Company's Third Amended Plan of Reorganization (the "Plan
of Reorganization") filed on June 22, 1992 with, and confirmed by, the United
States Bankruptcy Court for the Southern District of Ohio, Eastern Division. The
Company applied Fresh Start Accounting as of the Effective Date to prepare its
balance sheet and establish the values of its assets and liabilities (SEE
"RECORDED VALUES OF RECEIVABLES FROM SYNDICATED PARTNERSHIPS"). From and after
the Effective Date the Company has applied historical cost account values of new
assets in establishing book values in accordance with generally accepted
accounting principles.
Operating Real Estate Assets (previously Held for Sale)
- -------------------------------------------------------
During 1995 and prior years, the Company had attempted to market and
sell the Wholly Owned Properties on terms that were beneficial to the Company
and its shareholders. However, based upon mortgage debt that has since been
restructured with favorable amortization terms, combined with improved net
operating income and cash flow performance, management believes that a sale of
all or substantially all of the Wholly Owned Properties would be less beneficial
than retaining the Wholly Owned Properties for investment at the present time
(SEE NOTE 2). The Company will continue to monitor and evaluate any changes in
circumstances and/or economic conditions affecting its continued investment in
the Wholly Owned Properties. Commencing January 1, 1996, the operations,
including a provision for depreciation, of the Wholly Owned Properties have been
fully consolidated in the Company's Statements of Income. Further, the cash
flows of the Wholly Owned Properties have been reclassified as Cash Flows
Provided by Operating Activities. While the Wholly Owned Properties were held
for sale, the results of operations from the Wholly Owned Properties were
credited to the carrying value of the real estate and no revenues, operating
expenses or depreciation were included in the Consolidated Statements of Income.
Cash flows from the Wholly Owned Properties prior to 1996 were classified as
Cash Flow Provided by Investing Activities (SEE NOTE 5).
Cash and Other Assets
- ---------------------
Cash at June 30, 1996 of approximately $3.6 million is comprised of
approximately $3.3 million related to Wholly Owned Properties (which is held in
separate property bank accounts) and approximately $241,000 in corporate funds.
As of June 30, 1996, Funds Held in Escrow of $10.1 million is comprised
of $7.4 million of restricted cash related to the Wholly Owned Properties and
$2.7 million in corporate funds. Wholly Owned Properties Funds Held in Escrow
relate to security deposit escrows, real estate tax escrows and maintenance and
replacement escrows required by mortgage lenders. Corporate Funds Held in Escrow
are primarily amounts set aside to pay insurance premiums for the Properties.
Prepaids and Other assets of $4.4 million as of June 30, 1996 include
$1.6 million of capitalized costs associated with refinancing mortgages on
Wholly Owned Properties and $369,000 of prepaid expenses and loan costs
associated with the refinancing of the Company's corporate lines of credit which
are amortized based upon the maturity date of the new loan. In addition,
Prepaids and Other assets consists of a leasehold interest in land of
approximately $642,000, approximately $323,000 of prepaid insurance and real
estate taxes, $306,000 of inventory of replacement parts and supplies for sale
to Properties and approximately $600,000 of costs incurred in litigation with
10
<PAGE>
11
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the Company's former insurance carrier involving a claim for termite damage at
certain of the Properties.
Recorded Values of Receivables from Syndicated Partnerships
- -----------------------------------------------------------
The Company owns general partner and/or limited partner interests in,
and holds second mortgage loans and other receivables from, Syndicated
Partnerships. The majority of these receivables arose prior to the Effective
Date as a result of agreements related to the syndication of the Syndicated
Partnerships. Advances made to Syndicated Partnerships since the Effective Date
primarily were for supplemental financing for debt restructuring or refinancing
transactions as described in Notes 3 and 4. Interests in and Receivables from
Syndicated Partnerships were recorded at their estimated fair value as of the
Effective Date. The contractual amounts of receivables are significantly more
than the recorded values. At June 30, 1996 and December 31, 1995, the
contractual value of the Company's Interests in and Receivables from Syndicated
Partnerships amounted to $239.6 million and $237.1 million, respectively. There
can be no assurance that the Company will collect any amounts above the recorded
value of these receivables.
The Fresh Start values were established as of the Effective Date
utilizing an estimation of value based upon a capitalization rate of 10.5%
applied to the net operating income of the individual Syndicated Partnership.
The estimated value was then adjusted by the Syndicated Partnership's mortgage
debt and the Syndicated Partnership's other assets and liabilities to determine
an estimated net fair value. The Company then calculated its share of the
estimated net fair value for each Syndicated Partnership.
Interest is accrued on the recorded Fresh Start values of second
mortgages and certain other receivables based upon contractual interest rates.
Allowances are provided for estimated uncollectible interest based upon the
underlying Syndicated Partnerships' abilities to generate net cash flow
sufficient to pay accrued interest. In certain instances, payments made to the
Company by individual Syndicated Partnerships in excess of carrying amounts of
accrued interest on the recorded values of second mortgages is recorded as
interest income. Any such payments in excess of amounts recorded as accrued
interest normally still represent contractual interest payable from the
Syndicated Partnerships to the Company and is representative of interest which
accrues on the excess of the contractual balance of the second mortgage or other
receivable above that of the recorded Fresh Start value on the Company's balance
sheet. The Company is also entitled to receive incentive management fees and
supplemental second mortgage interest from certain of the underlying Syndicated
Partnerships if certain specified amounts of net operating income are achieved.
Also, in the event the underlying Properties are sold or refinanced, the Company
is generally entitled to a participation interest in the net proceeds, if
available, as a second mortgage holder and on account of its partnership
interest(s).
The Company accounts for its partnership interests in Syndicated
Partnerships by the cost method; no significant recorded value has been ascribed
to these interests. The realization of the Interests in and Receivables from
Syndicated Partnerships is dependent on the future operating performance of the
Syndicated Partnerships generating sufficient net operating income and net
proceeds upon ultimate disposition.
Non-Core Assets
- ---------------
The Company also has interests in motel properties, investor notes
receivable and certain other assets (collectively the "Non-Core Assets"). The
Company valued these Non-Core Assets as of the Effective Date based on previous
and current purchase offers, previous sales activity and independent appraisals.
In 1994, the Company recovered the remaining recorded value of Non-Core Assets
from the collection of receivables and proceeds from disposals of such assets.
11
<PAGE>
12
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company began recognizing income from sale proceeds and collections, net of
collection and closing costs, after the carrying value was fully recovered. By
June 30, 1996 the Company had successfully disposed of a substantial portion of
its Non-Core Assets. Those Non-Core Assets remaining are not significant.
Net Income Per Share
- --------------------
Net income per share for a specified period is computed based on the
total weighted average number of shares of the Company's Common Stock, without
par value ("Common Stock"), outstanding during the subject period and those
contingent shares estimated to be issued to officers, employees and directors in
accordance with the Company's 1992 Incentive Equity Plan, as amended (the
"Incentive Equity Plan"). For the three months ended June 30, 1996, the total
weighted average shares outstanding was approximately 3,913,000, including the
weighted average of approximately 259,000 shares estimated to be issued in the
future pursuant to the Incentive Equity Plan. For the six months ended June 30,
1996, the total weighted average shares outstanding was approximately 3,897,000
including the weighted average of approximately 243,000 shares estimated to be
issued pursuant to the Incentive Equity Plan.
Lexford Acquisition
- -------------------
Effective August 1, 1996 the Company acquired Lexford by way of a
merger (the "Lexford Merger") of the Company's wholly owned subsidiary with and
into Lexford. The terms of the Lexford Merger provided that the Company would
succeed to the ownership of all of the issued and outstanding stock of Lexford
and the shareholders of Lexford would receive 700,000 shares of restricted,
newly issued Common Stock. For purposes of the Lexford Merger, the Common Stock
was valued at $20 per share. Approximately $9.0 million, or 450,000 shares, of
the purchase price is subject to forfeiture in the event Lexford does not
achieve certain profitability criteria within three fiscal years. Lexford
shareholders will initially receive 250,000 shares of Common Stock free of
contingencies.
Restatement
- -----------
The net income previously reported in the June 30, 1995 Consolidated
Statement of Income has been adjusted in order to comply with Statement of
Position ("SOP") 90-7 "Reorganization Under the Bankruptcy Code" pertaining to
accounting for deferred income taxes. SOP 90-7 requires that benefits realized
from pre-confirmation net operating loss carryforwards be reported as an
increase to Additional Paid-in Capital. For the period ending June 30, 1995 the
Company reported net income, but was not required to pay taxes on such income,
as the result of having the benefit of net operating loss carryforwards to
offset the income. The financial statements as adjusted, reflect a non-cash
charge in the form of an increase in the provision for income taxes in the
Consolidated Statements of Income. Net deferred tax assets (which have been
fully reserved against and therefore are not reflected on the Company's June 30,
1996 and December 31, 1995 Consolidated Balance Sheets) have been reduced by an
amount equivalent to the non-cash charge with a corresponding increase being
made to Additional Paid-in Capital. The adjustment does not affect the Company's
cash flows or total Shareholders' Equity. The effect of the adjustment is as
follows:
12
<PAGE>
13
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
As Previously Adjustment for As
Reported Tax Provision Adjusted
----------------- ------------------ ----------------
Three Months Ended June 30, 1995
- ---------------------------------------------
<S> <C> <C> <C>
Income before Extraordinary Gain $ 2,441,284 $ (947,000) $ 1,494,284
Extraordinary Gain 883,069 (342,999) 540,070
----------------- ------------------ ----------------
Net Income $ 3,324,353 $ (1,289,999) $ 2,034,354
================= ================== ================
Per Share of Common Stock:
Income before Extraordinary Gain $.64 ($0.25) $0.39
Extraordinary Gain 0.23 (0.09) 0.14
----------------- ------------------ ----------------
Net Income $.87 ($0.34) $0.53
================= ================== ================
<CAPTION>
Adjustment
As Previously for Tax As
Reported Provision Adjusted
----------------- ------------------ ----------------
Six Months Ended June 30, 1995
- ---------------------------------------------
<S> <C> <C> <C>
Income before Extraordinary Gain $ 4,252,089 $(1,649,000) $ 2,603,089
Extraordinary Gain 1,314,021 (510,000) 804,021
----------------- ------------------ ----------------
Net Income $ 5,566,110 $ (2,159,000) $ 3,407,110
================= ================== ================
Per Share of Common Stock:
Income before Extraordinary Gain $1.11 ($0.43) $0.68
Extraordinary Gain 0.34 (0.13) 0.21
----------------- ------------------ ----------------
Net Income $1.45 ($0.56) $0.89
================= ================== ================
</TABLE>
Reclassification
- ----------------
The Statements of Income, the Statements of Cash Flows and certain
financial information in the notes to the financial statements for the period
ended June 30, 1995 have been reclassified to conform to the 1996 presentation.
Corporate Restructuring
- -----------------------
In June 1996, as a result of management's continued evaluation of the
Company's Ancillary Services and Management Services operations, the Company
announced a staff restructuring totaling 13 employees. The June 1996
restructuring has resulted in a one time $300,000 restructure expense for the
three and six months ended June 30, 1996. The June 1996 restructuring is
expected to result in annual expense savings of approximately $400,000 and,
along with the corporate restructuring recorded in the fourth quarter of 1995,
are expected to result in combined annual expense savings of approximately
$1,400,000 (SEE "BUSINESS OVERVIEW"). The June 1996 restructuring will reduce
13
<PAGE>
14
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
the number of corporate employees dedicated to financial reporting and
management duties and will also result in the outsourcing of the parts and
supplies inventory component of the Company's Ancillary Services operations.
The foregoing forward looking statements of potential cost savings are
estimates and actual results may differ. Any differences, which could develop if
perceived efficiencies are not obtainable and/or if outsourcing opportunities
are not available.
NOTE 2 OPERATING REAL ESTATE ASSETS
Operating Real Estate Assets consist of the Wholly Owned Properties. In
the first quarter of 1996 a lender accepted deeds in lieu of foreclosure on two
Wholly Owned Properties. The principal and accrued interest on the mortgage
loans secured by the Wholly Owned Properties aggregated approximately $2.5
million. The deeds were granted pursuant to an overall agreement with the lender
to restructure certain mortgages in 1995. In the second half of 1995 the Company
granted deeds in lieu of foreclosure on two Wholly Owned Properties. No gain or
loss was recognized on these transactions. The Company acquired three Wholly
Owned Properties in the second half of 1995 and also effected a combination of
three Wholly Owned Properties into one Wholly Owned Property during such period.
As a result of these transactions, at June 30, 1996 there were 114 Wholly Owned
Properties as compared to 117 at June 30, 1995.
Condensed combined balance sheets, with intercompany payables and
receivables eliminated, of the Company's Wholly Owned Properties as of June 30,
1996 and December 31, 1995 are as follows.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------------- ---------------------
<S> <C> <C>
Assets
Operating Real Estate Assets $ 164,797,835 $ 167,276,556
Accumulated Depreciation (2,295,860) 0
-------------------- ---------------------
Net Operating Real Estate Assets 162,501,975 167,276,556
Cash 3,327,350 2,699,924
Accounts Receivable 1,074,254 1,043,069
Funds Held in Escrow 7,363,144 7,097,162
Prepaids and Other 2,205,747 2,487,494
-------------------- ---------------------
$ 176,472,470 $ 180,604,205
==================== =====================
Liabilities and Equity
Mortgage Payable $ 147,286,196 $ 151,130,612
Accounts Payable 1,233,029 953,076
Accrued Interest and Real Estate Taxes 3,340,731 3,577,547
Other Accrued Expenses 1,324,369 1,315,132
Other Liabilities 1,045,286 1,094,800
-------------------- ---------------------
154,229,611 158,071,167
Equity 22,242,859 22,533,038
-------------------- ---------------------
$ 176,472,470 $ 180,604,205
==================== =====================
</TABLE>
14
<PAGE>
15
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of the Effective Date, in accordance with Fresh Start reporting, the
mortgages on the Wholly Owned Properties were restated to estimate fair value
(the "Carrying Value") if the Fresh Start value of the assets was less than the
outstanding principal amount of the mortgages. Although the value of the assets
may have increased since the Effective Date, the Carrying Value of the mortgages
has not been adjusted. The mortgages on the Wholly Owned Properties had
contractual principal balances of approximately $156.5 million and $163.8
million at June 30, 1996 and December 31, 1995, respectively, compared to
Carrying Values of $147.3 million and $151.1 million at such dates. Interest
expense is recorded based on the Carrying Value unless the contractual balance
is being paid, in which case, the amount paid is expensed. During the period
from the Effective Date through June 30, 1996 the Company has refinanced 100
mortgage loans secured by the Wholly Owned Properties and has acquired four
Wholly Owned Properties. Mortgages which have been originated following the
Effective Date are recorded as liabilities on the Consolidated Balance Sheets in
their full principal amount. Typically, each Wholly Owned Property is secured by
a separate mortgage loan. All but one of the mortgage loans secured by the
Wholly Owned Properties are non-recourse in nature.
With respect to those Properties and other assets which the Company has
acquired, and will acquire, after the Effective Date, the recorded values are
established on the basis of acquisition cost, net of accumulated depreciation,
in accordance with generally accepted accounting principles.
NOTE 3 MORTGAGE REFINANCINGS
In the first six months of 1996, the Company completed the refinancing
of mortgages on seven Wholly Owned Properties and six Syndicated Partnerships.
Mortgage indebtedness on the Wholly Owned Properties, with a contractual value
of $12.4 million and a Carrying Value of $12.0 million, was refinanced with
mortgages bearing interest ranging from approximately 8.0% to 9.1%, with 25 year
amortization and 10 year maturities. Annual debt service on the affected Wholly
Owned Properties decreased from $1.3 million to $1.1 million in the aggregate as
a result of the refinancing. These transactions funded improvement and deferred
maintenance, tax and working capital escrows of approximately $429,000.
In the first six months of 1995, the Company completed modification or
refinancing transactions involving 87 Wholly Owned Properties and Syndicated
Partnerships. These transactions resulted in the modification of mortgage loans
on 25 Wholly Owned Properties and the modification or refinancing of mortgage
loans on 62 Syndicated Partnerships. These transactions resulted in an
extraordinary gain on discharge of indebtedness on the Wholly Owned Properties,
net of closing costs, reserves and taxes, of approximately $804,000.
While there can be no assurance, the Company expects to refinance a
significant number of mortgages on the Properties during the remainder of 1996.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company manages all but one of the Wholly Owned Properties and 412
of the 414 Syndicated Partnerships. The Company also provides various ancillary
services, including the sale of maintenance supplies and replacement parts to
the Properties, and furniture rentals and insurance to residents (SEE NOTE 1
BUSINESS OVERVIEW - MANAGEMENT SERVICES). The Company earned fee based revenues
from the Syndicated Partnerships of approximately $2.8 million and $3.1 million
for the three months ended June 30, 1996 and 1995, respectively, and $5.6
million and $5.9 million for the six months ended June 30, 1996 and 1995,
respectively. The Company also earned a majority of its interest income on its
receivables (including second mortgages from the Syndicated Partnerships).
15
<PAGE>
16
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Approximately $1.7 million and $3.9 million of the Accounts Receivable were due
from the Syndicated Partnerships as of June 30, 1996 and December 31, 1995,
respectively. The decline in the accounts receivable is cyclical in nature due
to the timing of the billing and collection of the annual insurance premiums
collected and paid by the Company on behalf of the Syndicated Partnerships. Fee
Based Revenues and Accounts Receivable related to the Wholly Owned Properties
are eliminated in consolidation.
The Company received repayment of advances of approximately $600,000
from the Syndicated Partnerships in the first six months of 1996 as compared to
making net advances of $3.6 million in the first six months of 1995 principally
related to refinancing of mortgages. These advances are included in Interests in
and Receivables from Syndicated Partnerships. The advances in 1995 provided
supplemental financing to facilitate satisfaction of indebtedness owed to former
lenders and/or to fund transaction costs and escrows. These advances bear
interest at one percent over the prime rate of interest, 8.25% at June 30, 1996,
of The Provident Bank (the "Bank").
NOTE 5 COMPARATIVE INCOME STATEMENTS
Prior to 1996 the operations of the Wholly Owned Properties were
excluded from the Company's Statements of Income (SEE NOTE 1 - OPERATING REAL
ESTATE ASSETS (PREVIOUSLY HELD FOR SALE)). In order to facilitate the comparison
of operations in 1996 to 1995, the following "proforma" Income Statement (the
"Proforma Income Statement") has been prepared for the three and six months
ended June 30, 1995 as if the Wholly Owned Properties were previously
consolidated. All intercompany transactions have been eliminated. Depreciation
expense for the Operating Real Estate Assets has been estimated for 1995.
Management expects that the discernible trends which have developed
from and after January 1, 1996, namely reduction in the amounts of income
received attributable to the disposal of Non-Core Assets and increases in income
recognized from Operating Real Estate Assets and the Company's interests in and
receivables from Syndicated Partnerships will continue. For these reasons, the
Company has supplementally disclosed earnings before interest, income taxes,
depreciation, amortization and extraordinary items ("EBITDA"), recurring EBITDA
and Funds from Operations of its Wholly Owned Properties. Management believes
that these supplemental disclosures are meaningful measures for analysis of the
Company's results of operations both taken alone and when compared to the
Company's counterparts in the multi-family residential real property ownership
and management business.
16
<PAGE>
17
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
---------------------------------- ---------------------------------
1996 1995 1996 1995
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues: Proforma Proforma
Rental and Other Operating Real Estate Revenues-Net $ 10,253,671 $ 9,737,529 $ 20,443,812 $ 19,289,858
Fee Based 2,762,388 3,101,655 5,583,423 5,880,618
Interest, Principally from Syndicated Partnerships 1,510,352 1,007,537 2,946,685 1,962,707
Income from Disposal or Recovery of Non-Core Assets-Net 105,803 1,006,663 274,692 1,815,187
Other 79,042 193,256 151,655 360,477
--------------- ---------------- --------------- ---------------
14,711,256 15,046,640 29,400,267 29,308,847
--------------- ---------------- --------------- ---------------
Expenses:
Rental Operating 5,186,661 5,692,798 10,437,951 10,568,005
Fee Based 1,607,400 1,624,473 3,095,952 3,197,021
Administration 1,149,788 1,017,732 2,121,734 2,132,633
Restructure Costs 300,000 0 300,000 0
Interest - Wholly Owned Property Debt 3,636,670 3,611,195 7,200,179 7,145,997
Interest - Corporate Debt 261,606 418,280 561,466 786,048
Depreciation 1,324,447 1,267,581 2,652,351 2,535,059
--------------- ---------------- --------------- ---------------
13,466,572 13,632,059 26,369,633 26,364,763
--------------- ---------------- --------------- ---------------
Income Before Income Taxes 1,244,684 1,414,581 3,030,634 2,944,084
Provision for Income Taxes (Note 1) 487,400 543,000 1,182,000 1,136,000
--------------- ---------------- --------------- ---------------
Income before Extraordinary Gain 757,284 871,581 1,848,634 1,808,084
Extraordinary Gain, net of Income Taxes (Note 3) 0 540,070 0 804,021
--------------- ---------------- --------------- ---------------
Net Income $ 757,284 $ 1,411,651 $ 1,848,634 $ 2,612,105
=============== ================ =============== ===============
EBITDA $ 6,467,407 $ 6,711,637 $ 13,444,630 $ 13,411,188
=============== ================ =============== ===============
Recurring EBITDA $ 6,661,604 $ 5,704,974 $ 13,469,938 $ 11,596,001
=============== ================ =============== ===============
Net Income per Common Share:
Income Before Extraordinary Item $0.19 $0.23 $0.47 $0.47
Extraordinary Gain 0.00 0.14 0.00 0.21
--------------- --------------- --------------- ---------------
Net Income $0.19 $0.37 $0.47 $0.68
=============== =============== =============== ===============
</TABLE>
17
<PAGE>
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
INTRODUCTION
The following discussion explains material changes in the Company's
results of operations, comparing the three and six months ended June 30, 1996
and 1995 and significant developments affecting the Company's financial
condition since the end of 1995. The following discussion should be read in
conjunction with the historical financial statements of the Company.
The financial statements for the three and six months ended June 30,
1995 do not include the results of operations (revenues, expenses or
depreciation) attributable to the Operating Real Estate Assets, formerly
classified as Real Estate Assets Held for Sale. Commencing January 1, 1996 the
results of operations, including depreciation of the Operating Real Estate
Assets, have been included in the Consolidated Statements of Income (SEE ITEM 1
- - NOTE 1 - OPERATING REAL ESTATE ASSETS (PREVIOUSLY HELD FOR SALE) AND NOTE 5 OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). Therefore, the Consolidated
Statements of Income for the three and six months ended June 30, 1996 are not
comparable to the same periods in 1995. In order to facilitate the comparison of
operations, the notes to the financial statements include a "proforma"
consolidated income statement for the three and six months ended June 30, 1995,
prepared as if the Wholly Owned Properties were previously consolidated (SEE
ITEM 1 - NOTE 5 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). The following
discussion of results of operations is based upon the Proforma Income Statement
included in the Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
Rental and Other Operating Real Estate Revenues - Net are derived from
the Wholly Owned Properties which own and operate apartment communities that
comprise the Company's Operating Real Estate Assets. Revenues increased
approximately $516,000 and $1.1 million or 5.3% and 6.0%, respectively, for the
three and six months ended June 30, 1996, as compared to the same periods in
1995. The increase was primarily due to the increase in average rent per unit
from $365 in 1995 to $384 in 1996. The average economic occupancy of the 110
Wholly Owned Properties in operation at all times during the comparable periods
was 92.0% for the six months ended June 30, 1996, as compared to 90.9% for the
three months ended March 31, 1996 and 91.9% for the six months ended June 30,
1995. 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. (SEE ITEM 1 - NOTES 1 AND 5 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS).
Fee Based Revenues are comprised of Management Services and Advisory
Services revenues generated from services provided to Syndicated Partnerships
and residents at the Properties. Management Services revenues principally relate
to property management and accounting services provided to the Syndicated
Partnerships. Ancillary Services (a department of Management Services) revenues
consist principally of revenue generated from the sale of replacement and
maintenance material to the Syndicated Partnerships. In addition, Ancillary
Services revenues include revenue generated from furniture leasing and renter's
insurance products provided to residents of the Properties. Advisory Services
Revenues consist of partnership administration fees as well as fees generated
from loan refinancing and restructuring. (SEE ITEM 1 - NOTE 1 - BUSINESS
OVERVIEW OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
18
<PAGE>
19
The following are the major components of Management Services revenues
and Advisory Services revenues for the three and six months ended June 30, 1996
as compared to the same periods in 1995:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------------- -----------------------------------
1996 1995 1996 1995
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Management Services: Proforma Proforma
Property Management Services:
Property Management and Accounting Services $ 1,945,251 $ 1,881,370 $ 3,874,527 $ 3,689,782
Other Management Service Fee Revenues 403,033 384,164 765,370 756,887
Ancillary Services:
Furniture Leasing and Renters Insurance 67,903 78,368 161,434 202,404
Replacement and Maintenance Material Revenues-net 34,235 148,873 150,803 230,046
---------------- ---------------- -------------- ---------------
Total Management Services Revenues 2,450,422 2,492,775 4,952,134 4,879,119
---------------- ---------------- -------------- ---------------
Advisory Services:
Partnership Administration & Other Fees 289,406 286,233 582,162 571,282
Loan Refinancing and Restructuring Fees 22,560 322,647 49,127 430,217
---------------- ---------------- -------------- ---------------
Total Advisory Services Revenues 311,966 608,880 631,289 1,001,499
---------------- ---------------- -------------- ---------------
Total Fee Based Revenues $ 2,762,388 $ 3,101,655 $ 5,583,423 $ 5,880,618
================ ================ ============== ===============
</TABLE>
Fee Based Revenues decreased approximately $339,000 and $297,000 for
the three and six months ended June 30, 1996, respectively, as compared to the
same periods in 1995. The decrease was primarily due to a decrease of
approximately $300,000 and $381,000 in loan refinancing and restructuring fees
for the three and six months ended June 30, 1996, respectively, as compared to
the same periods in 1995. Loan refinancing and restructuring fees are subject to
significant fluctuation from period to period based upon the volume of loans
maturing in a given year, ability to refinance based on the current interest
rate environment and the Syndicated Partnerships' abilities to pay the fees.
Ancillary Services revenues decreased $125,000 and $120,000 for the three and
six months ended June 30, 1996, respectively, as compared to the same periods in
1995. This decrease was primarily due to a decline in replacement and material
sales to Syndicated Partnerships in the second quarter of 1996. In addition,
replacement and material sales volumes may be impacted in the future as the
Company is currently evaluating product lines to be carried and outsourcing
warehousing operations (SEE NOTE 1 - BUSINESS OVERVIEW - MANAGEMENT SERVICES
AND RESTRUCTURING OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
The declines in Fee Based Revenues were offset in part by increases in
Property Management Services revenues of approximately $83,000 and $193,000 for
the three and six months ended June 30, 1996, respectively, as compared to the
same periods in 1995. The increases are attributable to a 5% aggregate increase
in revenues received by the Syndicated Partnerships for both the three and six
months ended June 30, 1996 as compared to the same periods in 1995.
Interest Income increased approximately $503,000 and $984,000 for the
three and six months ended June 30, 1996 as compared to the same periods in
1995. Interest Income is primarily derived from the interest collected or
accrued on the recorded value of interests in, and receivables from, Syndicated
Partnerships (SEE NOTE 1 RECORDED VALUES OF RECEIVABLES FROM SYNDICATED
PARTNERSHIPS - OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The increase
in Interest Income was primarily due to increased net operating income and lower
first mortgage debt service requirements. Although there can be no assurances,
Interest Income should continue to be favorably impacted in the future as a
result of mortgage refinancings and, possibly, increasing net operating income
as well (SEE "NET OPERATING INCOME OF SYNDICATED PARTNERSHIPS").
19
<PAGE>
20
Income from Disposal or Recovery of Non-Core Assets decreased
approximately $901,000 and $1.5 million for the three and six months ended June
30, 1996, respectively, as compared to the same periods in 1995. This income is
derived from the net disposition proceeds of Non-Core Assets in excess of the
aggregate recorded value of these assets. Additional income from the disposal of
Non-Core Assets and recovery of investor notes receivable may be recognized in
the future, although at significantly lower levels than recognized in 1995.
Income from Disposal of Non-Core Assets is not a recurring, long term source of
revenue (SEE NOTE 1 - NON-CORE ASSETS - OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS).
Other Revenues decreased approximately $114,000 and $209,000 for the
three and six months ended June 30, 1996, respectively, as compared to the same
periods in 1995. The decrease was principally due to collection of fully
reserved receivables due from certain Syndicated Partnerships in 1995.
Rental Operating Expense decreased approximately $506,000 and $130,000
for the three and six months ended June 30, 1996, respectively, as compared to
the same periods in 1995. Improvement and replacement expenses, in the
aggregate, decreased approximately $205,000 and $87,000, respectively. The
decrease for the three month period ended June 30, 1996 was due to the seasonal
nature of expenditures related to exterior grounds maintenance and repairs.
Fee Based Expenses decreased approximately $17,000 and $101,000 for the
three and six months ended June 30, 1996, respectively, as compared to the same
periods in 1995. The decrease in Fee Based Expenses reflects the ongoing staff
reductions and realignments implemented by the Company (SEE NOTE 1 - CORPORATE
RESTRUCTURING - OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
Administration Expenses increased approximately $132,000 in the three
months ended June 30, 1996 as compared to the same period in 1995.
Administration expenses decreased approximately $11,000 for the six months ended
June 30, 1996 as compared to the same period in 1995. The increase in
administration expenses in the second quarter of 1996 was primarily related to
outside consulting costs incurred for corporate strategic planning, technology
evaluation and legal. This increase was partially offset by savings generated by
staff reductions and realignments effected in connection with the Company's
January 1996 corporate restructuring.
Restructure Costs of $300,000 were accrued for in the second quarter of
1996 as a one time charge related to costs anticipated to be incurred with
realignments to its organization due to overlapping responsibilities. Management
anticipates that this realignment should result in annual savings of
approximately $400,000 primarily related to reductions in payroll and related
fringe benefit costs. The realignment will be implemented in the third quarter
of 1996. (SEE NOTE 1 - CORPORATE RESTRUCTURING - OF NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS)
Interest Expense for mortgages on the Wholly Owned Properties and the
Company's corporate lines of credit decreased approximately $131,000 and
$170,000 for the three and six months ended June 30, 1996, respectively, as
compared to the same periods in 1995. Interest Expense on the Company's
corporate lines of credit decreased approximately $156,000 and $225,000 for the
three and six month periods. This decrease is due primarily to the Company's
refinancing of its corporate credit facility with The Provident Bank (the
"Bank"), at the Bank's prime rate of interest minus 1.0%, as compared to an
interest rate of prime plus 0.5% with the Company's previous lender (SEE
"LIQUIDITY AND CAPITAL RESOURCES"). Interest Expense related to mortgages on
Operating Real Estate Assets increased approximately $25,000 and $54,000.
Depreciation Expense increased approximately $57,000 and $117,000 for
the three and six months ended June 30, 1996, respectively, as compared to the
same periods in 1995. The increase is primarily is due to the amortization of
loan costs capitalized in connection with the refinancing of corporate debt and
real estate mortgages.
Income before Extraordinary Gain amounted to approximately $757,000, or
$.19 per share, for the three months ended June 30, 1996 as compared to
approximately $872,000, or $.23 per share, for the same period in 1995. Income
before Extraordinary Gain amounted to $1.8 million for the six month periods
ended June 30, 1996 and 1995 or $.47 per share for both periods. The
extraordinary gains of approximately $540,000 and $804,000 for the three
20
<PAGE>
21
and six months ended June 30, 1995, respectively, were due to debt forgiveness
related to first mortgage refinancings for certain Wholly Owned Properties. Net
Income was approximately $757,000 and $1.8 million, or $.19 and $.47 per share,
for the three and six months ended June 30, 1996, respectively, as compared to
$1.4 million and $2.6 million or $.37 and $.68 per share, for the same periods
in 1995.
Earnings before Interest, Taxes, Depreciation and Amortization
The Company believes that earnings before interest, income taxes,
depreciation, amortization and extraordinary items ("EBITDA") is a significant
indicator 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
generally accepted accounting principles and does not necessarily represent
amounts of cash available to fund the Company's cash requirements. EBITDA
decreased 3.6% for the three months ended June 30, 1996 as compared to the same
period in 1995. EBITDA for the six months ended June 30, 1996 remained constant
as compared to the same period in 1995. The Company views "Recurring EBITDA" as
a more meaningful measurement of the Company's current performance. Recurring
EBITDA excludes non-recurring items, such as income from disposal of Non-Core
Assets and corporate restructuring costs. Recurring EBITDA increased 16.8% from
$5.7 million for the three months ended June 30, 1995 to $6.7 million for the
same period in 1996. Recurring EBITDA increased 16.2% from $11.6 million for the
six months ended June 30, 1995 to $13.5 million for the same period in 1996.
Funds from Operations of Wholly Owned Properties
Funds from Operations ("FFO") is a financial statistic used to measure
real estate operating results. FFO, as applied to the Company, represents income
from the Wholly Owned Properties excluding depreciation, extraordinary gains and
funding from escrows for deferred maintenance. FFO for the three and six months
ended June 30, 1996, as compared to the same periods in 1995 without
intercompany eliminations of Fee Based Revenues of approximately $874,000 and
$839,000 for the three months ended June 30, 1996 and 1995, respectively, and
$1.7 million for each of the six month periods ended June 30, 1996 and 1995,
respectively, is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
--------------------------------------- ------------------------------------------
1996 1995 1996 1995
----------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Rental Revenues $ 10,253,671 $ 9,737,529 $ 20,443,812 $ 19,289,858
Operating Expenses 4,549,692 4,581,405 9,194,320 8,683,172
----------------- ---------------- ----------------- ------------------
Net Operating Income 5,703,979 5,156,124 11,249,492 10,606,686
Improvement and Replacement Expense 842,133 1,047,052 1,495,736 1,583,202
Interest Expense 3,636,670 3,611,195 7,200,179 7,145,997
Other 129,598 380,755 441,200 897,842
Depreciation and Amortization 1,183,272 1,143,825 2,383,407 2,287,650
----------------- ---------------- ----------------- ------------------
Loss before Income Taxes (87,694) (1,026,703) (271,030) (1,308,005)
----------------- ---------------- ----------------- ------------------
Add: Improvements and Replacements
funded from Deferred Escrows 324,303 493,300 523,025 824,022
Depreciation and Amortization 1,183,272 1,143,825 2,383,407 2,287,650
----------------- ---------------- ----------------- ------------------
Funds from Operations $ 1,419,881 $ 610,422 $ 2,635,402 $ 1,803,667
================= ================ ================= ==================
</TABLE>
21
<PAGE>
22
The approximate $809,000 and $831,000 increases in FFO for the three
and six months ended June 30, 1996, respectively, as compared to the same
periods in 1995 is reflective of the same factors discussed in "RESULTS OF
OPERATIONS."
Net Operating Income of Syndicated Partnerships
The following table summarizes unaudited comparable revenues, operating
expenses and net operating income ("NOI") for the 414 Syndicated Partnerships in
operation for the three and six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------- -------------------------------------------
1996 1995 1996 1995
------------------ ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Rental Revenues $ 31,201,598 $ 29,726,781 $ 61,530,518 $ 58,622,648
Operating Expenses 13,830,973 14,249,131 28,057,644 27,053,759
------------------ ---------------- ------------------ -------------------
Net Operating Income $ 17,370,625 $ 15,477,650 $ 33,472,874 $ 31,568,889
================== ================ ================== ===================
Income and Cash Flow to the Company
from the Syndicated Partnerships
Interest Income $ 1,495,484 $ 998,668 $ 2,900,678 $ 1,931,842
================== ================ ================== ===================
Operating Cash Flow $ 1,397,072 $ 952,610 $ 2,726,236 $ 1,677,192
================== ================ ================== ===================
</TABLE>
NOI increased approximately 12.2% and 6.0%, for the three and six
months ended June 30, 1996, respectively, as compared to the same periods in
1995. Economic occupancy for the 414 Syndicated Partnerships was 92.4% and 91.8%
for the three and six months ended June 30, 1996, respectively, as compared to
92.5% and 92.2% for the same periods in 1995. The Syndicated Partnership
performance for the first half of 1996, as compared to 1995, is comparable to
the Wholly Owned Properties, and was influenced by the same factors.
Net Income, Excluding Non-Recurring Items
The Company generated non-recurring revenues for the periods ended June
30, 1996 and 1995, that obscure the recurring earnings performance of the
Company. Recurring earnings from operations are derived from the Company's
investments of equity in the Properties as well as its Fee Based Revenues. Net
Income, Excluding Non-Recurring Items reflects net income as adjusted to
eliminate revenues, expenses and extraordinary gains which occur on a one-time
basis or are not forecast as long term sources of income to the Company, such as
income from disposal of Non-Core Assets and extraordinary gains from debt
restructurings.
Net Income, Excluding Non-Recurring Items increased approximately
$624,000, or 248%, and $1.2 million, or 169%, for the three and six months ended
June 30, 1996, respectively, as compared with the same periods in 1995. The
revenue and expenses eliminated in determining Net Income, Excluding
Non-Recurring Items and the significant factors contributing to this increase,
as adjusted for non-recurring items, are as follows:
22
<PAGE>
23
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
---------------------------------- ------------------------------
1996 1995 1996 1995
----------------- -------------- ------------- --------------
Proforma Proforma
<S> <C> <C> <C> <C>
Net Income $ 757,284 $ 1,411,651 $ 1,848,634 $ 2,612,105
----------------- -------------- ------------- --------------
Non-Recurring Items:
Extraordinary Gain, net of Income Taxes 0 (540,070) 0 (804,021)
Income from Disposal or Recovery of Non-Core Assets (105,803) (1,006,663) (274,692) (1,815,187)
Restructure Costs 300,000 0 300,000 0
Income Taxes related to Non-Recurring Items (75,600) 387,000 (9,900) 700,400
----------------- -------------- ------------- --------------
Total Non-Recurring Items 118,597 (1,159,733) 15,408 (1,918,808)
----------------- -------------- ------------- --------------
Net Income, Excluding Non-Recurring Items $ 875,881 $ 251,918 $ 1,864,042 $ 693,297
================= ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Increase/(Decrease) in Net Income--
Excluding Non-Recurring Items
------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
-------------------------- ----------------------
<S> <C> <C>
Increase in Rental Revenues $ 516,142 $ 1,153,954
Increase in Interest Income 502,815 983,978
(Decrease) in Fee Based Revenues (339,267) (297,195)
(Decrease) in Other Income (114,214) (208,822)
Decrease in Rental Operating Expenses 506,137 130,054
(Increase)/Decrease in Fee Based and Administration Expenses (114,983) 111,968
Decrease in Interest and Depreciation Expense 74,333 53,108
Income Tax Effect (407,000) (756,300)
-------------------------- ----------------------
$ 623,963 $ 1,170,745
========================== ======================
</TABLE>
See "RESULTS OF OPERATIONS" for specific discussion of non-recurring
items as well as the explanations for the changes in recurring revenues and
expenses which generated the increase in Net Income, Excluding NonRecurring
Items. Although there can be no assurance, management believes that Net Income,
Excluding NonRecurring Items will continue to be favorably impacted by (i)
continued increases in Interest Income as first mortgage loans on certain of the
Syndicated Partnerships are refinanced and (ii) continuing improvement in
overall operating performance at the Properties.
23
<PAGE>
24
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
---------
The following discussion regarding liquidity and capital resources
should be read in conjunction with the Company's Consolidated Balance Sheets as
of June 30, 1996 and December 31, 1995 and the Consolidated Statements of Cash
Flows for the six months ended June 30, 1996 and 1995.
The Company anticipates that cash flow from its operations and
borrowings available under the Company's credit facility should be adequate to
meet the foreseeable capital and liquidity needs of the Company. The Company is
exploring alternative financing sources to provide bridge or supplemental
funding for the refinancing of mortgages on certain Properties (SEE ITEM 5 -
OTHER INFORMATION). If the Company is successful in implementing potential
future growth plans, it may be necessary to seek alternative sources of debt or
equity capital.
In August 1995, the Bank and the Company entered into a new credit
facility that retired the Company's credit facility with The Huntington National
Bank ("HNB") as well as provided additional borrowing capacity with more
flexible terms. The new credit facility has lower interest rates than the
previous facility with HNB and also reduced or eliminated certain restrictive
covenants. On June 30, 1996, the Company had unrestricted credit availability of
approximately $11.1 million.
The new credit facility originally provided credit up to $32.0 million,
and is comprised of: a $3.0 million revolving line of credit for operating needs
subject to annual review and extension by the Bank; a $7.0 million line of
credit for acquisitions and to facilitate refinancing of mortgages on the
Properties (the "Acquisition Line") due in six years with interest only, payable
in the first year; and a $22.0 million reducing balance line of credit (the
"Reducing Line") due in six years with interest, only, payable during the first
year (collectively, the "Loans"). The Reducing Line was used to retire the HNB
credit facility. The credit facility provided that the interest rate on the
Loans would be the Bank's prime rate of interest minus 1%, however, in February
1996, the Company entered into an agreement with the Bank to fix the interest
rate on the Acquisition Line at 7.25% with principal amortization in 60 equal
monthly installments beginning in March 1996. Excess corporate cash is applied
to pay down the Reducing Line and may be reborrowed as needed subject to the
maximum available credit under the reducing balance terms. The Bank's prime rate
of interest averaged 8.25% during the first half of 1996 as compared to an
average HNB prime rate of interest of 9.0% in the first half of 1995.
In July 1996, the Company received a commitment letter from the Bank
for a new $10.0 million acquisition line of credit. The new line will bear
interest at the Bank's prime rate of interest minus 1% with interest, only,
payable during the first year, and will be due in six years. The Company intends
to borrow under the new acquisition line to facilitate refinancing of mortgages
on the Properties and to acquire new Wholly Owned Properties.
The principal sources of liquidity for the Company are cash flow from
its operations and borrowing available under the Company's credit facility. The
Company's Net Cash Provided by Operating Activities increased $2.2 million for
the six months ended June 30, 1996 as compared to the same period in 1995. The
increase was due primarily to $2.9 million of operating cash flow from Operating
Real Estate Assets. This operating cash flow was formerly treated as cash flow
from investing activity while the Operating Real Estate Assets were classified
as Real Estate Assets Held for Sale. (SEE NOTE 1- OPERATING REAL ESTATE ASSETS
(PREVIOUSLY HELD FOR SALE) AND NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS). Payments (uses of cash) related to non-recurring items included in
Operating Activities reflects payments related to the Company's Plan of
Reorganization, the 1996 corporate restructuring and tender offer costs incurred
in 1995. These costs increased approximately $334,000, primarily due to
corporate restructuring costs paid in 1996 (SEE NOTE 1 - CORPORATE RESTRUCTURING
24
<PAGE>
25
- - OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). The expenses associated with
these cash payments was accrued in December 1995.
Net Cash Provided by Investing Activities was approximately $361,000
for the six months ended June 30, 1996, as compared to net cash used in
Investing Activities of $1.8 million for the same period in 1995. The change was
due to $1.2 million of net cash flow provided by operations of the Real Estate
Assets being reclassified to operating cash flow in 1996 based on the change in
presentation of the Wholly Owned Properties from assets held for sale to
operating assets. This decline in investing cash flow was more than offset by
approximately $4.0 million of funds used in 1995 for advances to certain
Syndicated Partnerships and the acquisition of Operating Real Estate Assets
versus the net repayment of advances of approximately $600,000 in 1996 (SEE
"FINANCING AND DEBT RESTRUCTURING OF THE PROPERTIES").
The Company's capital expenditures for the six months ended June 30,
1996 amounted to approximately $203,000 funded from cash flow and the Company's
credit facility. The Company anticipates that its capital needs in the future
can be satisfied out of cash flow from operations or the Company's credit
facility. The Company is currently evaluating all of its software systems in
order to obtain optimal efficiencies from technology. The outcome of this review
has not been finalized and the additional capital expenditures for new
technology has not been determined. The Company currently forecasts normal
recurring capital expenditures of approximately $400,000 in 1996 (exclusive of
any capital expenditures for enhanced software and information systems and the
Lexford acquisition) as compared to actual annual expenditures in 1995 of
approximately $398,000.
Capital Expenditures, combined with Improvement and Replacement Expense
for the Operating Real Estate Assets, were approximately $1.7 million during the
six months ended June 30, 1996. These costs are funded from Wholly Owned
Properties cash flow, maintenance escrow funds or by the mortgage lender to the
applicable Property. The 1996 budget for capital expenditures, improvement and
replacement expense for the Operating Real Estate Assets is $4.3 million, or
$489 per unit, as compared to annual actual expenditures in 1995 of $4.0
million, or $454 per unit. Approximately $2.5 million, or $284 per unit, of the
$4.3 million relates to non-recurring deferred maintenance which principally
will be funded from escrows established in connection with mortgage refinancing
and restructuring transactions completed in 1994 and 1995.
Lexford Acquisition
-------------------
In June 1996, the Company entered into a definitive agreement to
acquire Lexford, a privately held, third-party multi-family management company
headquartered in Dallas, Texas (SEE NOTE 1 - BUSINESS OVERVIEW - MANAGEMENT
SERVICES OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). The acquisition adds
approximately 22,000 apartment units to the Company's existing management
portfolio of approximately 35,000 units. Based on 1996 rankings by the National
Multi Housing Council, the Company has become the nation's sixth largest manager
of multi-family real estate. The Company intends to maintain Lexford's Dallas
office as headquarters for its combined property management business, which will
be conducted under the Lexford name. The merger closed effective August 1, 1996.
To acquire Lexford, the Company issued 700,000 shares of Common Stock
valued, for merger purposes, at $20 per share representing a maximum purchase
price of $14 million. Approximately $9 million of the purchase price (450,000
shares) are subject to forfeiture in the event the Company's combined property
management operations do not achieve certain profitability criteria. Lexford
shareholders will initially receive 250,000 shares of the Company's Common Stock
free of contingencies. The remaining 450,000 contingent shares will cease to be
subject to risk of forfeiture if and when specified increases in the
profitability of the Company's property management operations are achieved
during the three full fiscal years following the merger (i.e. on or before the
end of the Company's 1999 fiscal year). If, during the specified period, profit
from property management operations increases $4.0 million or more from 1995
levels, the former Lexford shareholders would own the entire 700,000 shares
25
<PAGE>
26
free of contingencies, or approximately 15.4% of the Company's shares
outstanding as of June 30, 1996.
Lexford's revenue from property management operations has averaged
approximately $5.6 million annually over the past five years, based on unaudited
representations. The acquisition of Lexford will be accounted for as a purchase,
with a substantial portion of the purchase price being recorded as goodwill (to
the extent that the purchase price exceeds the fair market value of Lexford's
net tangible assets.) The portion of the purchase subject to forfeiture (450,000
shares or $9.0 million) will not be recorded until the shares become free of
contingencies.
Financing And Debt Restructuring of the Properties
--------------------------------------------------
During the first six months of 1996, the Company refinanced first
mortgages on seven Wholly Owned Properties (SEE NOTE 3 TO NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS) and six Syndicated Partnerships. The new
mortgages on five Properties were obtained through Donaldson, Lufkin & Jenrette
Securities Corporation and the mortgages on eight properties were financed
through First Union Capital Markets Group ("First Union"). First Union was
retained to provide mortgage loans for approximately 25-30 properties. The new
mortgages bear a fixed rate of interest ranging from 8.0% to 9.1% with 25 year
amortization and 10 year maturity.
Aggregate mortgage debt and related interest on the six Syndicated
Partnerships of approximately $5.4 million was refinanced with debt discounts
obtained of approximately $214,000. The refinancing funded improvement and
replacement, tax and working capital escrows of approximately $294,000. Annual
debt service requirements decreased to approximately $519,000 from approximately
$544,000 as a result of these transactions. Although there can be no assurance,
management expects that these Syndicated Partnerships will increase their
payment of accrued interest to the Company due to lower debt service
requirements achieved with the reduction in debt.
The Company anticipates that it will continue to effect mortgage
refinancing transactions during the remainder of 1996 with First Union and other
lending sources (SEE ITEM 5 - OTHER INFORMATION).
In June 1995, the Company purchased mortgages amounting to $8.8 million
in the aggregate, related to one Syndicated Partnership and four Wholly Owned
Properties, financed with a $7.8 million note payable. As of June 30, 1996 the
Company had obtained permanent non-recourse mortgages on these five Properties.
The proceeds of the refinancing were applied to the Company's note payable.
26
<PAGE>
27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company reached a settlement in The Estate of Harold Murphy, et
al v. Cardinal Realty Services, Inc. et al., pending in the United
States District Court for the Southern District of Indiana. The
settlement resulted in the judgment entered against the Company
being vacated, and the withdrawal of the pending action and a
release of all claims against the Company in consideration of the
Company's payment of $370,000 to the Plaintiffs. Pursuant to the
terms of the proposed settlement, there was no admission of
liability by the Company. The $370,000 settlement amount was paid in
the second quarter of 1996.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual meeting of shareholders on May 22, 1996.
At the meeting, the Company's shareholders:
o Elected the following slate of directors nominated by the
Company, for terms expiring in 1999: Robert V. Gothier, Sr., H.
Jeffrey Schwartz and Gerald E. Wedren. The continuing directors
are John B. Bartling, Jr., Joseph E. Madigan, George J. Neilan,
George R. Oberer, Sr., Glenn C. Pollack, H. Jeffrey Schwartz,
Gerald E. Wedren and Robert J. Weiler; and
o Approved the Company's Non-Employee Director Restricted Stock
Plan.
The votes cast for, against, withheld, abstained and the broker
non-votes on each of the matters were as follows:
ELECTION OF DIRECTORS: Robert V. Gothier, Sr. received 2,655,294 for
and 35,387 withheld votes with no broker non-votes; H. Jeffrey
Schwartz received 2,648,878 for and 41,803 withheld votes with no
broker non-votes; and Gerald E. Wedren received 2,655,296 for and
35,385 withheld votes with no broker non-votes. ADOPTION OF
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN: 2,571,568 votes were
cast for this amendment, with 58,262 against, 44,523 abstentions and
16,328 broker non-votes.
Item 5. Other Information
-----------------
The Company, in its capacity as general partner of, and as agent
for, certain Properties has entered into two commitment letters with
PaineWebber Incorporated ("PaineWebber") in connection with the
proposed refinancing of approximately 38 mortgage loans outstanding
to the Wholly Owned Properties and approximately 112 mortgage loans
outstanding to the Syndicated Partnerships. Subject to, among other
things, movements in interest rates and the satisfactory completion
of due diligence, the refinancings are expected to reduce the debt
service constants applicable to the loans outstanding to such
Properties, thereby directly improving the cash flow of such
Properties, and indirectly improving the Company's cash flows from
operating (Wholly Owned Properties) and investing (Syndicated
Partnerships) activities, EBITDA and FFO. If such opportunities are
identified, the Company would utilize PaineWebber's services in the
arrangement or origination of the refinancing mortgage loans.
27
<PAGE>
28
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------- --------------------------------------------
<S> <C> <C>
10.1 Agreement and Plan of Merger by and among Filed as an Exhibit to this Form 10-Q on
the Company, Rexflor Acquisition Corporation page 30.
and Lexford Properties, Inc. ("Lexford") and the
Shareholders of Lexford dated as of July 19,
1996
10.2 Employment Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between Lexford and Pat Holder, page 80.
President of Lexford
10.3 Employment Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between Lexford and Bruce Woodward, page 89.
Vice President of Lexford
10.4 Employment Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between Lexford and Annette Hoover, page 98.
Vice President of Lexford
10.5 Employment Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between Lexford and Peggy Hunt, Vice page 107.
President of Lexford
10.6 Employment Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between Lexford and Peggy Crow Smith, page 116.
Vice President of Lexford
10.7 Consulting Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between the Company and Stanley R. Fimberg page 125.
10.8 Consulting Agreement dated as of August 1, Filed as an Exhibit to this Form 10-Q on
1996 between the Company and Ralph V. Williams page 130.
10.9 Form of Transmittal Letter to the Filed as an Exhibit to this Form 10-Q on
Shareholders of Lexford page 135.
10.10 Form of Registration Rights Agreement by and Filed as an Exhibit to this Form 10-Q on
between the Company and the Lexford page 139.
Shareholders
11.1 Statement re: computation of Per Share See Note 1 of Notes to Consolidated
Earnings Financial Statements
27 Financial Data Schedule Filed as an Exhibit to this Form 10-Q on
page 152.
</TABLE>
28
<PAGE>
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARDINAL REALTY SERVICES, INC.
(Registrant)
Dated: August 13, 1996 By: /s/ John B. Bartling, Jr.
---------------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated: August 13, 1996 By: /s/ David P. Blackmore
---------------------------------------------
David P. Blackmore
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated: August 13, 1996 By: /s/ Ronald P. Koegler
---------------------------------------------
Ronald P. Koegler
Vice President and Treasurer
29
30
EXHIBIT-10.1
Agreement and Plan of Merger by
and among the Company, Rexflor
Acquisition Corporation and Lexford
Properties, Inc. ("Lexford") and
the Shareholders of Lexford
dated as of July 19, 1996
==============================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CARDINAL REALTY SERVICES, INC.
REXFLOR ACQUISITION CORPORATION
AND
LEXFORD PROPERTIES, INC.
AND THE SHAREHOLDERS OF
LEXFORD PROPERTIES, INC.
DATED AS OF
JULY 19, 1996
=============================================
<PAGE>
31
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I THE MERGER.................................................................................... 1
Section 1.1 THE MERGER........................................................................... 1
Section 1.2 EFFECTIVE TIME....................................................................... 1
Section 1.3 CLOSING.............................................................................. 2
Section 1.4 DIRECTORS AND OFFICERS............................................................... 2
Section 1.5 SHAREHOLDERS' MEETING................................................................ 2
Section 1.6 TAX-FREE REORGANIZATION.............................................................. 3
Section 1.7 CONSENT TO SUIT IN OHIO AND SERVICE ON SECRETARY OF STATE OF
OHIO................................................................................. 3
ARTICLE II CONVERSION OF SHARES.......................................................................... 3
Section 2.1 CONVERSION OF SHARES................................................................. 3
Section 2.2 ISSUANCE OF PARENT COMMON STOCK; CASH IN LIEU OF FRACTIONAL
SHARES............................................................................... 3
Section 2.3 STOCK TRANSFER BOOKS................................................................. 8
Section 2.4 DISSENTING SHARES.................................................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. 10
Section 3.1 HISTORY AND ORGANIZATION............................................................. 10
Section 3.2 CAPITALIZATION....................................................................... 11
Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY
ACTION............................................................................... 12
Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS................................................ 12
Section 3.5 FINANCIAL STATEMENTS................................................................. 13
Section 3.6 ABSENCE OF CERTAIN CHANGES........................................................... 13
Section 3.7 NO UNDISCLOSED LIABILITIES........................................................... 13
Section 3.8 EMPLOYEE BENEFIT PLANS; ERISA........................................................ 14
Section 3.9 LITIGATION........................................................................... 16
Section 3.10 NO DEFAULT........................................................................... 16
Section 3.11 TAXES................................................................................ 17
Section 3.12 CONTRACTS............................................................................ 19
Section 3.13 ASSETS; REAL PROPERTY................................................................ 20
Section 3.14 ENVIRONMENTAL MATTERS................................................................ 20
Section 3.15 LABOR RELATIONS...................................................................... 20
Section 3.16 INSURANCE............................................................................ 21
Section 3.17 COMPLIANCE WITH LAW.................................................................. 21
Section 3.18 VOTE REQUIRED........................................................................ 21
Section 3.19 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AT
CLOSING.............................................................................. 21
i
<PAGE>
32
Page
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
SUB........................................................................................... 21
Section 4.1 ORGANIZATION......................................................................... 21
Section 4.2 CAPITALIZATION....................................................................... 22
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION............................................................................... 23
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS................................................ 23
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS................................................. 23
Section 4.6 ABSENCE OF CERTAIN CHANGES........................................................... 24
Section 4.7 NO DEFAULT........................................................................... 24
Section 4.8 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AS OF
CLOSING.............................................................................. 25
ARTICLE V COVENANTS..................................................................................... 25
Section 5.1 INTERIM OPERATIONS OF THE COMPANY.................................................... 25
Section 5.2 ACCESS TO INFORMATION................................................................ 27
Section 5.3 CONSENTS AND APPROVALS............................................................... 29
Section 5.4 NO SOLICITATION...................................................................... 29
Section 5.5 ADDITIONAL AGREEMENTS................................................................ 30
Section 5.6 PUBLICITY............................................................................ 30
Section 5.7 NOTIFICATION OF CERTAIN MATTERS...................................................... 30
Section 5.8 COOPERATION.......................................................................... 31
Section 5.9 REPRESENTATION ON BOARD OF DIRECTORS................................................. 31
Section 5.10 EMPLOYMENT AGREEMENTS................................................................ 31
Section 5.11 FIMBERG/WILLIAMS CONSULTING AGREEMENTS............................................... 31
Section 5.12 PAY OFF OF COMPANY INDEBTEDNESS...................................................... 31
Section 5.13 RESTRICTIONS ON ISSUANCE OF PARENT COMMON STOCK; DIVIDENDS
AND DISTRIBUTIONS.................................................................... 31
Section 5.14 RDO SALARIES......................................................................... 32
Section 5.15 EMPLOYEE STOCK OPTION AWARDS......................................................... 32
Section 5.16 LEASE GUARANTIES..................................................................... 32
ARTICLE VI CONDITIONS.................................................................................... 32
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.......................................... 32
Section 6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB.......................................... 32
Section 6.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY......................................... 33
ARTICLE VII TERMINATION.......................................................................... 34
Section 7.1 TERMINATION.......................................................................... 34
Section 7.2 EFFECT OF TERMINATION................................................................ 35
ii
<PAGE>
33
Page
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION; DISPUTES................................................ 35
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 35
Section 8.2 INDEMNIFICATION...................................................................... 36
Section 8.3 DEFENSE OF CLAIM..................................................................... 36
Section 8.4 LIMITATIONS ON INDEMNIFICATION....................................................... 37
Section 8.5 SATISFACTION OF INDEMNIFICATION CLAIMS............................................... 37
ARTICLE IX MISCELLANEOUS................................................................................. 38
Section 9.1 FEES AND EXPENSES.................................................................... 38
Section 9.2 FINDERS' FEES........................................................................ 38
Section 9.3 AMENDMENT AND MODIFICATION........................................................... 38
Section 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES........................................... 38
Section 9.5 NOTICES.............................................................................. 39
Section 9.6 INTERPRETATION....................................................................... 40
Section 9.7 COUNTERPARTS......................................................................... 40
Section 9.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP............................................................................ 40
Section 9.9 SEVERABILITY......................................................................... 40
Section 9.10 SPECIFIC PERFORMANCE................................................................. 40
Section 9.11 GOVERNING LAW........................................................................ 41
Section 9.12 ASSIGNMENT........................................................................... 41
Section 9.13 ARBITRATION.......................................................................... 41
</TABLE>
Schedule I - Shareholders of the Company
Schedule II - Contribution to Profit -- Procedures for Determination
Schedule III - RDOs
COMPANY DISCLOSURE SCHEDULE
PARENT DISCLOSURE SCHEDULE
EXHIBITS
Exhibits A-1 through A-5 Forms of Employment Agreements
Exhibits B-1 through B-2 Forms of Consulting Agreements
Exhibit C Form of Investment Letter
Exhibit D Form of Registration Rights Agreement
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AGREEMENT AND PLAN OF MERGER RE: LEXFORD
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of July 19, 1996,
by and among Cardinal Realty Services, Inc., an Ohio corporation ("Parent"),
Rexflor Acquisition Corporation, an Ohio corporation and a wholly owned
subsidiary of Parent ("Sub"), Lexford Properties, Inc., a Texas corporation (the
"Company"), Stanley R. Fimberg ("Fimberg") and the shareholders of the Company
listed on the signature page hereof and Schedule I attached hereto (together
with Fimberg, collectively, the "Shareholders" and each individually, a
"Shareholder").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
approved, and deem it advisable and in the best interests of their respective
shareholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the acquisition be accomplished by a
merger of Sub with and into the Company, with the Company being the surviving
corporation; and
WHEREAS, the parties intend for the Merger to qualify as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Subject to the terms and conditions of this
Agreement and in accordance with the Texas Business Corporation Act ("TBCA") and
the Ohio Revised Code ("ORC"), at the Effective Time (as defined below), the
Company and Sub shall consummate a merger (the "Merger") pursuant to which (i)
Sub shall be merged with and into the Company and the separate corporate
existence of Sub shall thereupon cease, and (ii) the Company shall be the
successor or surviving corporation in the Merger (the "Surviving Corporation"),
shall continue to be governed by the laws of the State of Texas and shall
maintain its principal place of business at 8615 Freeport Parkway, Suite 200,
Irving, Texas 75063. Pursuant to the Merger, (x) the Articles of Incorporation
of the Company, as in effect immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation, and (y) the
Bylaws of the Company, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by law, the Articles of Incorporation of the Surviving Corporation and
such Bylaws. The Merger shall have the effects set forth in the TBCA.
Section 1.2 EFFECTIVE TIME. Parent, Sub and the Company will cause
Articles of Merger or Certificates of Merger, as the case may be, (collectively
the "Articles of Merger") with respect to the Merger to be executed and filed on
the date of the Closing (as defined in Section 1.3) (or on such other date as
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Parent and the Company may agree) with the Secretaries of State of the States of
Texas and Ohio as provided in the TBCA and the ORC, respectively. The Merger
shall become effective when a Certificate of Merger is issued by the Secretary
of State of the State of Texas and the Articles of Merger and other filings
required by the ORC have been duly filed with the Secretary of State of the
State of Ohio or at such time as is agreed upon by the parties and specified in
the Articles of Merger, and such time is hereinafter referred to as the
"Effective Time".
Section 1.3 CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., Cleveland, Ohio time, on a date to be mutually agreed
by the parties hereto, such date to be not more than thirty (30) days of the
date of this Agreement, unless an extension is mutually agreed to by the parties
(the "Closing Date"), at the offices of Benesch, Friedlander, Coplan & Aronoff
P.L.L., 88 East Broad Street, Columbus, Ohio, unless another time, date or place
is agreed to in writing by the parties hereto.
Section 1.4 DIRECTORS AND OFFICERS. The directors of the Surviving
Corporation shall, from and after the Effective Time, be Messrs. John B.
Bartling, Jr., Mark D. Thompson and Pat Holder and the officers of the Surviving
Corporation shall, from and after the Effective Time, be as follows:
John B. Bartling, Chairman of the Board of Directors
Pat Holder, President
Bruce Woodward, Vice President
Annette Hoover, Vice President
Peggy Crow Smith, Vice President
Peggy Hunt, Vice President
David P. Blackmore, Vice President and Chief Financial Officer
Mark D. Thompson, Vice President
Thomas Trubiana, Vice President
Paul R. Selid, Vice President
Tamra L. Byers, Vice President
Ronald P. Koegler, Vice President and Treasurer
Jeffrey D. Meyer, Secretary
Dain C. Akin, Acting General Counsel and Assistant Secretary
Mark Zando, Financial Reporting Manager
in each case until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
Section 1.5 SHAREHOLDERS' MEETING. In order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
the TBCA and all other applicable law, duly call, give notice of, convene and
hold a special meeting of its shareholders (the "Company Special Meeting"), as
soon as practicable for the purpose of considering and taking action upon this
Agreement. The Board of Directors of the Company shall recommend that the
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shareholders of the Company vote in favor of the approval of the Merger and the
adoption of this Agreement. In lieu of the Company Special Meeting, the
shareholders of the Company may take action upon and approve the Company's
execution and delivery of, and performance of its obligations under, this
Agreement without a meeting by unanimous written consent of all the Shareholders
to the extent permitted by and in accordance with the TBCA and the Company's
Bylaws.
Section 1.6 TAX-FREE REORGANIZATION. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code.
Section 1.7 CONSENT TO SUIT IN OHIO AND SERVICE ON SECRETARY OF STATE
OF OHIO. The Surviving Corporation hereby consents to be sued and served with
process in the State of Ohio, and irrevocably appoints the Secretary of State of
Ohio as its agent to accept service of process in any proceeding in Ohio, to
enforce against the Surviving Corporation any obligation of Sub, or to enforce
the rights of any dissenting shareholder of Sub.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 CONVERSION OF SHARES.
(a) Each share of common stock, without par value, of Sub
issued and outstanding immediately prior to the Effective Time, by
virtue of the merger and without any other action taken by Parent, Sub
or the Company, shall, at the Effective Time, be automatically
converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
(b) Each share of common stock, par value $1.00 per share, of
the Company ("Company Common Stock") issued and outstanding immediately
prior to the Effective Time shall, at the Effective Time, by virtue of
the Merger and without any action taken on the part of the holder
thereof, be automatically converted into the right to receive Three
Hundred Fifty (350) duly authorized, validly issued, fully paid and
nonassessable shares of common stock, no par value, of Parent ("Parent
Common Stock"), subject in part however, to forfeiture and claims for
indemnification as hereinafter provided.
(c) On and after the Effective Time, holders of certificates
which immediately prior to the Effective Time represented outstanding
shares of Company Common Stock (the "Certificates") shall cease to have
any rights as shareholders of the Company, except the right to receive
the consideration set forth in this Article II (the "Merger
Consideration").
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Section 2.2 ISSUANCE OF PARENT COMMON STOCK; CASH IN LIEU OF FRACTIONAL
SHARES.
(a) The manner in which each share of Company Common Stock
shall be converted into Three Hundred Fifty (350) shares of Parent
Common Stock shall be as set forth in this Section 2.2.
(b) Parent shall act as exchange/escrow agent for the holders
of shares of Company Common Stock in connection with the Merger (the
"Exchange/Escrow Agent"). In connection therewith, the Exchange/Escrow
Agent shall accept the Certificates delivered by such holders and shall
deliver (and hold, pending cancellation, forfeiture or delivery,
pursuant to Sections 2.2(d) or 8.5 below, as the case may be)
certificates evidencing shares of Parent Common Stock to which the
Shareholders shall become entitled pursuant to this Article II.
(c) As soon as reasonably practicable after the Effective
Time, the Exchange/Escrow Agent shall deliver personally to those
Shareholders in attendance at the Closing or otherwise shall mail to
each Shareholder (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange/Escrow Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) (the "Letter of
Transmittal") and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange/Escrow
Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly executed, the
Shareholder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for such shares of Company
Common Stock formerly represented by such Certificate and Parent shall
cause the Surviving Corporation to cancel the Certificate so
surrendered. The name of each Shareholder, the number of shares of
Company Common Stock, the number of shares of Parent Common Stock to
which each Shareholder shall become entitled to receive as of the
Effective Time, the number of Escrow Shares (as that term is defined
below) issuable to each Shareholder, and the number of Forfeitable
Shares (as that term is defined below) issuable to each Shareholder is
set forth on Schedule I attached hereto. The shares of Parent Common
Stock into which the shares of Company Common Stock have been converted
in the Merger are hereinafter referred to as the "Exchange Shares."
(d) Notwithstanding anything to the contrary contained in this
Agreement, Five Hundred Thousand (500,000) of the Exchange Shares shall
be held by the Exchange/Escrow Agent, in trust, for the benefit of the
Shareholders, as follows:
(i) Fifty Thousand (50,000) Exchange Shares (the
"Escrow Shares") shall be held by the Exchange/Escrow Agent
until the first to occur of: (x) the fourth (4th) anniversary
of the Closing Date (the "Fourth Anniversary"), (y) the
completion of an independent audit of Parent's consolidated
financial statements for a full fiscal year beginning and
ending after the Closing Date in which the "Contribution to
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Profit" of the combined property management businesses of
Parent and the Company (as more fully defined, and to be
determined in the manner illustrated in Schedule II attached
hereto) exceeds Ten Million Ninety Thousand Dollars
($10,090,000) (the "RELEASE TRIGGER EVENT") or (z)
cancellation of all the Escrow Shares in satisfaction of an
Indemnification Claim (as defined and provided for in Article
VIII below); and
(ii) FORFEITABLE SHARES.
(A) GROUP 1 FORFEITABLE SHARES. One Hundred
Fifty Thousand (150,000) Exchange Shares (the "Group
1 Forfeitable Shares") shall be held by the
Exchange/Escrow Agent until the Release Trigger Event
occurs, at which time the Exchange/Escrow Agent will
release the Group 1 Forfeitable Shares in the manner
provided in Section 2.2(e)(ii). If, prior to the
occurrence of the Release Trigger Event, the
Contribution to Profit for any full fiscal year
beginning and ending after the Closing Date and prior
to the Fourth Anniversary exceeds Seven Million
Ninety Thousand Dollars ($7,090,000) but is less than
Seven Million Eight Hundred Ninety Thousand Dollars
($7,890,000), then the Shareholders will be entitled
to receive (each on a pro rata, cumulative basis),
that number of Group 1 Forfeitable Shares calculated
as follows:
NFS = 150,000 x (CPR - $7,090,000)
------------------
$800,000
Where:
NFS = the number of Group 1 Forfeitable
Shares to be released.
CPR = Contribution to Profit for such
fiscal year.
In the event that Contribution to Profit for any such
full fiscal year is Seven Million Eight Hundred
Ninety Thousand Dollars ($7,890,000) or greater, then
the Shareholders will be entitled to receive (each on
a pro rata, cumulative basis) all the Group 1
Forfeitable Shares not previously released pursuant
to this Section 2.2(d)(ii)(A).
Provided, however, that the number of Group 1
Forfeitable Shares to be released in accordance with
the above formula shall be reduced by (x) the
aggregate number of Group 1 Forfeitable Shares
previously released under this Section 2.2(d)(ii)(A)
and (y) the aggregate number of Group 1 Forfeitable
Shares previously cancelled by Parent in satisfaction
of an Indemnification Claim in accordance with the
provisions of Article VIII hereof and not previously
deducted in calculating the number of Forfeitable
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Shares to be released pursuant to this Section
2.2(d)(ii) on account of a prior fiscal year.
(B) GROUP 2 FORFEITABLE SHARES. Three
Hundred Thousand (300,000) Exchange Shares (the
"Group 2 Forfeitable Shares" and together with the
Group 1 Forfeitable Shares, the "Forfeitable Shares")
shall be held by the Exchange/Escrow Agent until the
Release Trigger Event occurs at which time the
Exchange/Escrow Agent will release the Group 2
Forfeitable Shares in the manner provided in Section
2.2(e)(ii). If prior to the occurrence of the Release
Trigger Event, the Contribution to Profit for any
full fiscal year beginning and ending after the
Closing Date and prior to the Fourth Anniversary
exceeds Seven Million Eight Hundred Ninety Thousand
Dollars ($7,890,000) but is less than Ten Million
Ninety Thousand Dollars ($10,090,000), then the
Shareholders will be entitled to receive (each on a
pro rata, cumulative basis) that number of Group 2
Forfeitable Shares calculated as follows:
NSF = 300,000 x (CPR - $7,890,000)
------------------
$2,200,000
Where:
NFS = the number of Group 2 Forfeitable
Shares to be released.
CPR = Contribution to Profit.
Provided, however, that the number of Group 2
Forfeitable Shares to be released in accordance with
the above formula shall be reduced by (x) the
aggregate number of Group 2 Forfeitable Shares
previously released under this Section 2.2(d)(ii)(B)
and (y) the aggregate number of Group 2 Forfeitable
Shares previously cancelled by Parent in satisfaction
of an Indemnification Claim in accordance with the
provisions of Article VIII hereof and not previously
deducted in calculating the number of Forfeitable
Shares to be released pursuant to this Section
2.2(d)(ii) on account of a prior fiscal year.
(C) Upon the occurrence of the Release
Trigger Event or an event referred to in the
preceding Sections 2.2(d)(ii)(A) and (B), the
Forfeitable Shares, or the appropriate portion
thereof, shall be deemed, and shall for the purpose
of this Agreement be referred to as, "Non-Forfeited
Shares". If the Release Trigger Event has not
occurred on or before the Fourth Anniversary, any
Forfeitable Shares which have not been released in
accordance with this Section 2.2(d)(ii) will be
automatically forfeited to Parent without notice and
without consideration. Notwithstanding the foregoing,
at all times prior to the Release Trigger Event or
the Fourth Anniversary, as the case may be, the
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Forfeitable Shares (to the extent not theretofore
released to the Shareholders in accordance with this
Section 2.2(d)(ii)) may be canceled in satisfaction
of an Indemnification Claim pursuant to the
provisions of Article VIII hereof.
(e) RELEASE OF FORFEITABLE SHARES.
(i) As soon as practicable after the Effective Time,
each Shareholder, upon surrender to the Exchange/Escrow Agent,
in accordance with this Agreement and the Letter of
Transmittal, of one or more Certificates for such shares of
Company Common Stock for cancellation, shall be entitled to
receive certificates representing the number of shares of
Parent Common Stock into which such shares of Company Common
Stock shall have been converted in the Merger less the total
number of Escrow Shares and Forfeitable Shares.
(ii) Within fifteen (15) business days after the
Release Trigger Event occurs, the Exchange/Escrow Agent shall
deliver or mail to each Shareholder a certificate evidencing
such Shareholder's pro rata portion of the Escrow Shares and
the Non-Forfeited Shares. Within fifteen (15) business days
following each date upon which the Shareholders become
entitled to receive a number of Non-Forfeited Shares
determined in accordance with Section 2.2(d)(ii), the
Exchange/Escrow Agent will deliver or mail to each Shareholder
a certificate evidencing each Shareholder's pro rata portion
of the Non-Forfeited Shares.
(iii) If the Release Trigger Event has not occurred
on or before the Fourth Anniversary, the Exchange/Escrow Agent
shall deliver or mail to each Shareholder of shares of Company
Common Stock converted into Parent Common Stock such
Shareholder's pro rata portion of the Non-Forfeited Shares, if
any. The Exchange/Escrow Agent shall make such delivery or
mailing within fifteen (15) days of the Fourth Anniversary.
(f) DIVIDENDS OR DISTRIBUTIONS ON EXCHANGE SHARES.
(i) No dividends or distributions of any kind on the
Parent Common Stock (whether in cash, property, additional
shares of Parent Common Stock, shares of any other class of
Parent's capital stock, evidences of indebtedness of any kind
or description, the capital stock of any Subsidiary (as such
term is defined in Section 3.1 below) of Parent, or any
combination of the foregoing) will be paid to the Shareholders
until they surrender their Certificates, at which time all
such dividends or distributions shall be paid. In no event
shall the Shareholders be entitled to receive interest on such
dividends (except as provided below in the case of Exchange
Share Proceeds). Shareholders of Exchange Shares, including
Escrow Shares and Forfeitable Shares (in either case unless
and until forfeited or canceled), will enjoy all rights of a
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41
shareholder of Parent (including the right to vote such shares
and to receive dividends with respect to such shares).
(ii) Notwithstanding the immediately preceding clause
(i), in the event that Parent shall declare dividends or
distributions of any kind on the Parent Common Stock (whether
in cash, property, additional shares of Parent Common Stock,
shares of any other class of Parent's capital stock, evidences
of indebtedness of any kind or description, the capital stock
of any Subsidiary of Parent, or any combination of the
foregoing (collectively, "Exchange Share Proceeds")) the
Shareholders will not be entitled to receive, on a current
basis, any such dividends or distributions in respect of any
Escrow Shares or any Forfeitable Shares (other than
Non-Forfeited Shares). Any and all such Exchange Share
Proceeds declared and paid on account of the Escrow Shares and
the Forfeitable Shares will instead be held by the
Exchange/Escrow Agent pending the release of Non-Forfeited
Shares (and then with respect to such Non-Forfeited Shares
only), the Release Trigger Event or the Fourth Anniversary. To
the extent any Exchange Share Proceeds are payable in cash,
such cash Exchange Share Proceeds shall accrue interest at the
rate of six percent (6%) per annum so long as they are held by
the Exchange/Escrow Agent ("Proceeds Earnings"). If and when
any number of Escrow Shares and/or Forfeitable Shares are
released to one or more Shareholders pursuant to the terms of
this Agreement, the Exchange/Escrow Agent shall simultaneously
mail or deliver a check and/or certificates and/or
instruments, as the case may be, in the amount of, and/or
evidencing, all Exchange Share Proceeds and Proceeds Earnings
attributable thereto. In the event any Escrow Shares are
canceled to satisfy an Indemnification Claim or any
Forfeitable Shares are forfeited or are canceled to satisfy an
Indemnification Claim pursuant to the provisions of Article
VIII hereof, then, in such event, all Exchange Share Proceeds
and Proceeds Earnings attributable thereto shall be forfeited
by the Shareholders and shall be canceled and retired and, in
the case of Proceeds Earnings, shall revert to Parent.
(g) At any time following six months after the Fourth
Anniversary, the Surviving Corporation shall be entitled to require the
Exchange/Escrow Agent to deliver to it any shares of Parent Common
Stock, Exchange Share Proceeds or Proceeds Earnings which had been made
available by the Exchange/Escrow Agent to the Shareholders but which
have not been disbursed to the Shareholders despite Exchange/Escrow
Agent's commercially reasonable efforts to locate the Shareholders for
purposes of effecting such disbursement; and thereafter such
Shareholders shall be entitled to look solely to the Surviving
Corporation (subject to abandoned property, escheat or other similar
laws) with respect to the Merger Consideration (including any Exchange
Share Proceeds, Proceeds Earnings and other dividends and distributions
on Parent Common Stock) payable or issuable upon due surrender of their
Certificates, without any interest thereon.
Section 2.3 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock on the records of
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the Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation the Surviving Corporation shall deliver such Certificates
to the Exchange/Escrow Agent and they shall be canceled and exchanged for
certificates representing Parent Common Stock pursuant to this Article II.
Section 2.4 DISSENTING SHARES. The Shareholders agree to vote in favor
of the Merger at the Company's Special Meeting or approve the merger by
unanimous written consent and that, accordingly, no Shareholder will have or
attempt to exercise any appraisal or dissenter's rights under the TBCA.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally, represent and
warrant to Parent and Sub as follows:
Section 3.1 HISTORY AND ORGANIZATION. The Company is the surviving
corporation of a merger, duly and properly effected under all applicable
provisions of the TBCA and all other applicable laws, effective as of July 11,
1996 (the "Texas Merger"), of Fimberg Realty, Inc., a Texas corporation ("FRI"),
with and into Lexford Partners, Inc., a Texas corporation ("LPI"). In connection
with the Texas Merger, LPI (i.e., the Company) changed its name to Lexford
Properties, Inc. At all times prior to the Texas Merger, FRI and LPI were the
sole co-venturers of Lexford Properties, a Texas joint venture, organized June
1, 1988, pursuant to that certain Joint Venture Agreement dated June 1, 1988, as
amended, in accordance with Texas and all other applicable law (the "Joint
Venture"). As a result of the Texas Merger, LPI has succeeded to all of the
business, assets and liabilities of every kind, nature and description
whatsoever, of each of FRI and the Joint Venture, and the separate legal
existence of each of FRI and the Joint Venture ceased. Prior to the Texas
Merger, neither of LPI nor FRI had any material assets or liabilities, matured,
contingent or otherwise, except for their respective equity ownership interests
in the Joint Venture. No Shareholder has, or will exercise any dissenter's
rights under the TBCA with respect to the Texas Merger. The Joint Venture, FRI
and the Company are hereinafter collectively referred to in this Agreement as
the "Company Affiliates." Except as set forth in Section 3.1 of the Company
Disclosure Schedule, each of the Company and its Subsidiaries is a corporation,
and at all times prior to the Texas Merger, each of FRI, LPI and the Joint
Venture was a corporation, partnership or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has (or had) all requisite corporate or other
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as now (or previously) being
conducted. Except as set forth in Section 3.1 of the Company Disclosure
Schedule, each of the Company Affiliates and their Subsidiaries is (or was) duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes (or made), such qualification or licensing
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necessary. As used in this Agreement, the word "Subsidiary" means, with respect
to any party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such party is
a general partner (excluding such partnerships where such party or any
Subsidiary of such party do not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. Section 3.1 of the Company Disclosure Schedule
sets forth the name, state of organization, classes and number of shares of
authorized, issued and outstanding capital stock or other outstanding equity
interest (including the holders thereof) of each of the Company's Subsidiaries.
Section 3.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
100,000 shares of Company Common Stock. The Company has no other
authorized classes of capital stock. As of the date hereof, (i) 2,000
shares of Company Common Stock are issued and outstanding and no shares
of Company Common Stock are issued and held in the Company's treasury.
All the outstanding shares of the Company's capital stock have been
issued in accordance with the respective terms thereof and are duly
authorized, validly issued, fully paid and nonassessable. Except as
disclosed on Section 3.2(a) of the Company Disclosure Schedule, there
are no bonds, debentures, notes or other indebtedness having voting
rights (or convertible into securities having such rights) ("Voting
Debt") of the Company or any of its Subsidiaries issued and
outstanding. Except as set forth above and except for the transactions
contemplated by this Agreement, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there
are no existing options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its Subsidiaries to issue, transfer or
sell or cause to be issued, transferred or sold any shares of capital
stock or Voting Debt of, or other equity interest in, the Company or
any of its Subsidiaries or securities convertible into or exchangeable
for such shares or equity interests or obligations of the Company or
any of its Subsidiaries to grant, extend or enter into any such option,
warrant, call, subscription or other right, convertible security,
agreement, arrangement or commitment. Except as disclosed on Section
3.2(a) of the Company Disclosure Schedule, there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
the Company or any subsidiary or Affiliate of the Company or to provide
funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Subsidiary or any other entity.
Except as permitted by this Agreement, following the Merger, neither
the Company nor any of its Subsidiaries will have any obligation to
issue, transfer or sell any shares of its capital stock pursuant to any
employee benefit plan or otherwise.
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(b) Except as disclosed on Section 3.1 of the Company
Disclosure Schedule, all of the outstanding shares of capital stock of
each of the Subsidiaries are beneficially owned by the Company,
directly or indirectly, and all such shares have been validly issued
and are fully paid and nonassessable and are owned by either the
Company or one of its Subsidiaries free and clear of all liens,
charges, security interests, options, claims or encumbrances of any
nature whatsoever.
(c) There are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a
party with respect to the voting of the capital stock of the Company or
any of its Subsidiaries. None of the Company or its Subsidiaries is
required to redeem, repurchase or otherwise acquire shares of capital
stock of the Company, or any of its Subsidiaries, respectively, as a
result of the transactions contemplated by this Agreement.
(d) At the Effective Time, the number of shares of Company
Common Stock outstanding shall equal 2,000 and all such shares shall be
held by each Shareholder free and clear of any and all liens, claims,
encumbrances and restrictions whatsoever in the amounts set forth in
Schedule I attached hereto.
Section 3.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; COMPANY
ACTION.
(a) The Company has full corporate power and authority to
execute and deliver this Agreement, and, subject to obtaining any
necessary approval of its shareholders as contemplated by Section 1.5
hereof with respect to the Merger, to consummate the transactions
contemplated hereby. The execution, delivery and performance by the
Company of this Agreement and the consummation by it of the
transactions contemplated hereby, have been duly and validly authorized
by its Board of Directors and, except in the case of this Agreement for
obtaining the approval of its shareholders as contemplated by Section
1.5 hereof with respect to the Merger, no other corporate action or
proceedings on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the
consummation by it of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of
Parent and Sub, constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) The Board of Directors of the Company has duly and validly
approved and taken all corporate action required to be taken by the
Board of Directors for the consummation of the transactions
contemplated by this Agreement.
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Section 3.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as disclosed
on Section 3.4 of the Company Disclosure Schedule, and except for all filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the TBCA, the ORC, and for the approval of
this Agreement by the Company's shareholders and the filing and recordation of
the Articles of Merger as required by the TBCA and the ORC, respectively,
neither the execution, delivery or performance of this Agreement nor the
consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Articles of Incorporation
or Bylaws or similar organizational documents of the Company or of any of its
Subsidiaries, (ii) require any filing with, or permit, authorization, consent or
approval of, any court, arbitral tribunal, administrative agency or commission
or other governmental or other regulatory authority or agency (a "Governmental
Entity"), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee, other evidence of indebtedness (collectively, the "Debt
Instruments"), lease, license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound and which
either has a term of more than one year or involves the payment or receipt of
money in excess of $10,000 per year (a "Company Agreement") or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its Subsidiaries or any of their properties or assets.
Section 3.5 FINANCIAL STATEMENTS. The Company has previously furnished
to Parent true and complete copies of (i) unaudited consolidated financial
statements of the Joint Venture and the Company Affiliates for the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995, and (ii)
unaudited consolidated monthly financial statements of the Joint Venture and the
Company Affiliates for each month from January, 1996 through May, 1996. Each of
the consolidated financial statements provided to Parent (i) have been prepared
from, and are in accordance with, the books and records of the Joint Venture and
the Company Affiliates and/or their respective consolidated Subsidiaries, (ii)
except as set forth in Section 3.5 of the Company Disclosure Schedule, have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved,
and (iii) fairly present in all material respects the consolidated financial
position and the consolidated results of operations and cash flows (and changes
in financial position, if any) of the Joint Venture and the Company Affiliates
and their respective consolidated Subsidiaries as at the dates thereof or for
the periods presented therein, as the case may be.
Section 3.6 ABSENCE OF CERTAIN CHANGES. Except as otherwise disclosed
to Parent on Section 3.6 of the Company Disclosure Schedule, from December 31,
1995 through the date of this Agreement, the Joint Venture and the Company
Affiliates and their respective Subsidiaries have conducted their respective
businesses and operations in the ordinary course of business consistent with
past practice. From December 31, 1995 through the date of this Agreement, there
has not occurred (i) any events, changes, or effects (including the incurrence
of any liabilities of any nature, whether or not accrued, contingent or
otherwise) having or, which would be reasonably likely to have, individually or
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in the aggregate, a material adverse effect on the Company and its Subsidiaries;
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to the equity
interests of the Company, the Joint Venture or of any of their Subsidiaries,
other than dividends paid by wholly owned Subsidiaries; or (iii) any material
change by the Company, the Joint Venture or any of their Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP. Except as set forth in Section 3.6 of the Company Disclosure Schedule,
from December 31, 1995 through the date of this Agreement, none of the Joint
Venture, the Company nor any of its Subsidiaries has taken any of the actions
prohibited by Section 5.1 hereof.
Section 3.7 NO UNDISCLOSED LIABILITIES. Except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, during the period from December 31, 1995 through the date of this
Agreement, none of the Company Affiliates nor any of their Subsidiaries have
incurred any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to have, a
material adverse effect on the Company and its Subsidiaries or would be required
to be reflected or reserved against on a consolidated balance sheet of the
Company and its Subsidiaries (including the notes thereto) prepared in
accordance with GAAP. Section 3.7 of the Company Disclosure Schedule sets forth
each instrument evidencing indebtedness of the Company and its Subsidiaries
which will accelerate or become due or payable, or result in a right of
redemption or repurchase on the part of the holder of such indebtedness, or with
respect to which any other payment or amount will become due or payable, in any
such case with or without due notice or lapse of time or both, as a result of
this Agreement, the Merger or the other transactions contemplated hereby.
Section 3.8 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in Section 3.8(a) of the Company
Disclosure Schedule: there are no material employee benefit plans,
arrangements, practices, contracts or agreements (including, without
limitation, employment agreements, change of control employment
agreements and severance agreements, incentive compensation, bonus,
stock option, stock appreciation rights and stock purchase plans) of
any type (including, but not limited to, plans described in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained by any of the Company Affiliates, any of their
respective Subsidiaries or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company
would be deemed a "controlled group" within the meaning of section
4001(a)(14) of ERISA, or with respect to which the Company or any of
its Subsidiaries has or may have a liability, other than those listed
on Section 3.8(a) of the Company Disclosure Schedule (the "Benefit
Plans"). Except as disclosed on Section 3.8(a) of the Company
Disclosure Schedule: (1) neither the Company nor any ERISA Affiliate
has any formal plan or commitment, whether legally binding or not, to
create any additional Benefit Plan or modify or change any existing
Benefit Plan that would affect any employee or terminated employee of
the Company or any ERISA Affiliate; and (2) since December 31, 1995,
there has been no change, amendment, modification to, or adoption of,
any Benefit Plan. Section 3.8(a) of the Company Disclosure Schedule
contains a list of each material employment, termination, severance,
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incentive and deferred compensation agreement or arrangement that is a
Benefit Plan, and the date of execution of each such agreement or
arrangement.
(b) Except as disclosed on Section 3.8(b) of the Company
Disclosure Schedule, under the applicable laws of all jurisdictions
within the United States of America and all foreign jurisdictions, with
respect to any Benefit Plan, there are no material amounts accrued but
unpaid as of the most recent balance sheet date that are not reflected
on that balance sheet prepared in accordance with GAAP.
(c) With respect to each Benefit Plan, except as disclosed on
Section 3.8(c) of the Company Disclosure Schedule: (i) if intended to
qualify under section 401(a), 401(k) or 403(a) of the Code, such plan
so qualifies, and its trust is exempt from taxation under section
501(a) of the Code; (ii) such plan has been administered in accordance
with its terms and applicable law; (iii) no breaches of fiduciary duty
have occurred; (iv) no disputes are pending, or, to the knowledge of
the Company, threatened; (v) no prohibited transaction (within the
meaning of Section 406 of ERISA) has occurred; (vi) no lien imposed
under the Code or ERISA exists or is likely to exist; and (vii) all
contributions and premiums due (giving effect to any valid extensions
for such contributions and premiums) have been made in full.
(d) Except as disclosed on Section 3.8(d) of the Company
Disclosure Schedule, none of the Benefit Plans has incurred any
"accumulated funding deficiency," as such term is defined in section
412 of the Code, whether or not waived.
(e) Except as disclosed on Section 3.8(e) of the Company
Disclosure Schedule: (i) neither the Company nor any ERISA Affiliate
has incurred any liability under Title IV of ERISA since the effective
date of ERISA that has not been satisfied in full except as would not
have or would not reasonably be likely to have a material adverse
effect on the Company and its Subsidiaries (including sections
4063-4064 and 4069 of ERISA) and, to the knowledge of the Company, no
basis for any such liability exists; (ii) neither the Company nor any
ERISA Affiliate maintains (or contributes to), or has maintained (or
has contributed to) within the last six years, any employee benefit
plan that is subject to Title IV of ERISA; and (iii) there is no
pending dispute between the Company or any ERISA Affiliate concerning
payment of contributions or payment of withdrawal liability payments.
(f) With respect to each Benefit Plan that is a "welfare plan"
(as defined in section 3(1) of ERISA), except as specifically disclosed
in Section 3.8(f) of the Company Disclosure Schedule, no such plan
provides medical or death benefits with respect to current or former
employees of any of the Company Affiliates or any of its Subsidiaries
beyond their termination of employment, other than on an
employee-pay-all basis, and each such welfare plan may be amended or
terminated by the Company or any of its Subsidiaries at any time with
respect to such former or current employees.
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(g) With respect to each Benefit Plan that is intended to
provide special tax treatment to participants (including sections 79,
105, 106, 125, 127 and 129 of the Code), to the Company's knowledge,
such Benefit Plan has satisfied all of the material requirements for
the receipt of such special tax treatment since January 1, 1992.
(h) Except as specifically set forth in Section 3.8(h) of the
Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any individual to
severance pay or any tax "gross-up" payments with respect to the
imposition of any tax pursuant to Section 4999 of the Code or
accelerate the time of payment or vesting, or increase the amount, of
compensation or benefits due to any individual with respect to any
Benefit Plan, or (ii) constitute or result in a prohibited transaction
under section 4975 of the Code or section 406 or 407 of ERISA with
respect to any Benefit Plan.
(i) Except as disclosed on Section 3.8(i) of the Company
Disclosure Schedule, neither the Company, any ERISA Affiliate nor any
"administrator" as that term is defined in section 3(16) of ERISA, has
any liability with respect to or connected with any Benefit Plan for
excise taxes payable under the Code or civil penalties payable under
ERISA and, to the Company's knowledge, no basis for any such liability
exists.
(j) Except as disclosed on Section 3.8(j) of the Company
Disclosure Schedule, there is no Benefit Plan that is a "multiemployer
plan," as such term is defined in section 3(37) of ERISA, or which is
covered by section 4063 or 4064 of ERISA.
(k) With respect to each Benefit Plan except Multiemployer
Plans from which the Company has withdrawn, the Company has delivered
or made available to Parent accurate and complete (with de minimis
omissions) copies of all plan texts, summary plan descriptions,
summaries of material modifications, trust agreements and other related
agreements including all amendments to the foregoing; the two most
recent annual reports; the most recent annual and periodic accounting
of plan assets; the most recent determination letter received from the
United States Internal Revenue Service (the "Service"); and the two
most recent actuarial reports, to the extent any of the foregoing may
be applicable to a particular Benefit Plan.
(l) With respect to each Benefit Plan that is a "group health
plan" as such term is defined in section 5000(b) of the Code, except as
specifically set forth in Section 3.8(l) of the Company Disclosure
Schedule, to the Company's knowledge, each such Benefit Plan complies
and has complied with the requirements of Part 6 of Title I of ERISA
and Sections 4980B and 5000 of the Code except where the failure to so
comply would not have a material adverse effect on the Company and its
Subsidiaries.
(m) There are no material plans, arrangements, practices,
contracts or agreements (including change of control agreements,
severance agreements, retirement agreements, stock option or purchase
agreements, medical or death benefit agreements) maintained by the
Company or an ERISA Affiliate or with respect to which the Company or
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any of its Subsidiaries has a material liability to a director or
former director (as a director) of any of the Company Affiliates or an
ERISA Affiliate other than those listed on Section 3.8(m) of the
Company Disclosure Schedule or disclosed in the Company's most recent
proxy statement (the "Director Plans"). Neither the Company nor any
ERISA Affiliate has any formal plan or commitment, whether legally
binding or not, to create any Director Plan or modify or change any
existing Director Plan that would affect any director or former
director of the Company or any ERISA Affiliate.
Section 3.9 LITIGATION. Except to the extent disclosed on Section 3.9
of the Company Disclosure Schedule, there is no suit, claim, action, proceeding
or investigation pending or, to the best knowledge of the Company, threatened
against or affecting, the Company (including any predecessor of the Company), or
any of its Subsidiaries, or any of their respective assets.
Section 3.10 NO DEFAULT. Except as disclosed on Section 3.10 of the
Company Disclosure Schedule, the business of the Company and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of (a) its respective Articles of Incorporation or Bylaws
or similar organizational documents, (b) any Company Agreement or (c) any
federal, state, local or foreign law, statute, regulation, rule, ordinance,
judgment, decree, order, writ, injunction, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to the
Company or any of its Subsidiaries. No investigation or review by any
governmental entity with respect to the Company (including any predecessor of
the Company) or any of its Subsidiaries is pending or, to the best knowledge of
the Company, threatened, nor to the best knowledge of the Company, has any
governmental entity indicated an intention to conduct the same.
Section 3.11 TAXES.
(a) Except as set forth in Section 3.11 of the Company
Disclosure Schedule:
(i) Each of the Company Affiliates and their
Subsidiaries have (1) duly filed (or there have been filed on
their behalf) with the appropriate governmental authorities
all Tax Returns (as hereinafter defined) required to be filed
by them and such Tax Returns are true, correct and complete in
all material respects, and (2) duly paid in full or made
provision in accordance with GAAP (or there has been paid or
provision has been made on their behalf) for the payment of
all Taxes (as hereinafter defined) for all periods through the
date of the most recent balance sheet provided to Parent;
(ii) Each of the Company Affiliates and their
Subsidiaries have complied in all material respects with all
applicable laws, rules and regulations relating to the payment
and withholding of Taxes and have, within the time and the
manner prescribed by law, withheld and paid over to the proper
governmental authorities all amounts required to be so
withheld and paid over under applicable laws;
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(iii) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently
pending with regard to any Taxes or Tax Returns of any of the
Company Affiliates or their Subsidiaries and neither the
Company (including any predecessor of the Company) nor its
Subsidiaries has received a notice of any pending audits or
proceedings;
(iv) neither the Service nor any other taxing authority
(whether domestic or foreign) has asserted, or to the best
knowledge of the Company, is threatening to assert, against
the Company (including any predecessor of the Company) or any
of its Subsidiaries any deficiency or claim for Taxes; and
(b) Except as set forth in Section 3.11 of the Company
Disclosure Schedule:
(i) there are no liens for Taxes upon any
property or assets of the Company or any Subsidiary thereof;
(ii) neither the Company nor any of its Subsidiaries
has agreed to or is required to make any adjustment under
Section 481(a) of the Code;
(iii) the federal income Tax Returns of the Company and
its Subsidiaries have been examined by the Service (or the
applicable statutes of limitation for the assessment of
federal income Taxes for such periods have expired) for all
periods except as set forth in Section 3.11 of the Company
Disclosure Schedule;
(iv) the state income, franchise, gross receipts and
sales tax returns of the Company and its Subsidiaries have
been examined by the applicable state taxing authority (or the
applicable statutes of limitations for assessment of taxes for
such periods have expired) for all periods except as set forth
in Section 3.11 of the Company Disclosure Schedule;
(v) there are no outstanding agreements or waivers
extending the statutory period of limitations applicable to
any tax return of the Company (including any predecessor of
the Company) or any of its Subsidiaries for any period;
(vi) none of the Company (including any predecessor of
the Company) or any of its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any
agreement that under certain circumstances could oblige it to
make any payments that would not be deductible under Section
280G of the Code;
(vii) none of the Company (including any predecessor of
the Company) or any of its Subsidiaries has been a United
States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period as
specified in Section 897(c)(1)(A)(ii) of the Code;
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(viii) neither the Company (including any predecessor of
the Company) nor any of its Subsidiaries have ever been a
member of a consolidated, combined or unitary group for
federal or state income, gross receipts or franchise tax
purposes which included a member other than the Company
(including any predecessor of the Company) and its
Subsidiaries and with respect to which the Company or any of
its Subsidiaries could have liability pursuant to Treasury
Regulation Section 1-1502-6 or any comparable state statute or
regulation;
(ix) neither the Company (including any predecessor of
the Company) nor any of its Subsidiaries is a party to any
material agreement providing for the allocation or sharing of
Taxes; and
(x) neither the Company (including any predecessor of the
Company) nor any of its Subsidiaries has, with regard to any
assets or property held or acquired by any of them, filed a
consent to the application of Section 341(f) of the Code, or
agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by the Company or any
of its Subsidiaries.
(c) The Company has provided to Parent complete and correct
copies of all federal, state, local and foreign income, gross receipts
and franchise tax returns filed by the Company Affiliates and any of
their Subsidiaries for each of their respective taxable years beginning
after December 31, 1990.
(d) The Company has provided to Parent complete and correct
copies of all audit reports received by any of the Company Affiliates
or any of their Subsidiaries from any taxing authority which relate to
the Company or any of its Subsidiaries for any taxable period beginning
after December 31, 1990.
(e) Section 3.11 of the Company Disclosure Schedule sets forth
all jurisdictions in which the Company or any of its Subsidiaries will
be required to file state income or franchise tax returns for each
taxable period beginning after December 31, 1994 and ending on or
before the Effective Date, or which includes the Effective Date.
(f) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income,
gross receipts, excise, real or personal property, sales, withholding,
social security, retirement, unemployment, occupation, use, service,
service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by the Service or any taxing
authority (whether domestic or foreign including, without limitation,
any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)), whether
computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or
imposed upon, or with respect to, any such taxes, charges, fees, levies
or other assessments. "Tax Return" shall mean any report, return,
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document, declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic)
with respect to Taxes, including, without limitation, information
returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
Section 3.12 CONTRACTS. Each Company Agreement is valid, binding and
enforceable and in full force and effect, and there are no material defaults
thereunder by the Company (including any predecessor of the Company) or its
Subsidiaries or, to the best knowledge of the Company, by any other party
thereto. Except as disclosed on Section 3.12 of the Company Disclosure Schedule,
neither the Company nor any Subsidiary is a party to any agreement that
expressly limits the ability of the Company or any Subsidiary or Affiliate to
compete in or conduct any line of business or compete with any person or in any
geographic area or during any period of time.
Section 3.13 ASSETS; REAL PROPERTY. The assets, properties, rights and
contracts, including, without limitation (as applicable), title or leaseholds
thereto, of the Company and its Subsidiaries, taken as a whole, are sufficient
to permit the Company and its Subsidiaries to conduct their business as
currently being conducted with only such exceptions as are immaterial to the
Company and its Subsidiaries. None of the Company nor any of its Subsidiaries
owns any real property.
Section 3.14 ENVIRONMENTAL MATTERS. Except as disclosed on Section 3.14
of the Company Disclosure Schedule, the Company is in material compliance with
all applicable Environmental Laws (as defined below) and there are no
Environmental Liabilities and Costs (as defined below) of the Company and its
Subsidiaries that would have or are reasonably likely to have a material adverse
effect on the Company and its Subsidiaries.
For purposes of this Section 3.14, the following definitions shall
apply:
"Environmental Laws" means all applicable foreign, federal, state and
local laws, common law, regulations, rules and ordinances relating to pollution
or protection of health, safety or the environment.
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, obligations to conduct cleanup, losses, damages,
deficiencies, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all reasonable fees, disbursements and
expenses of counsel, expert and consulting fees and costs of investigations and
feasibility studies and responding to government requests for information or
documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability, joint
and several liability, criminal or civil statute, under any Environmental Law,
or arising from environmental, health or safety conditions, as a result of past
or present ownership, leasing or operation of any properties, owned, leased or
operated by the Company or any of its Subsidiaries.
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Section 3.15 LABOR RELATIONS. Except as set forth in Section 3.15 of
the Company Disclosure Schedule, there is no labor strike, slowdown or work
stoppage or lockout against the Company, any of its Subsidiaries, SRF Personnel,
Inc., a Texas corporation ("SRF"), RVW Personnel, Inc., a Texas corporation
("RVW"), (SRF and RVW are collectively referred to as the "Employer Affiliates")
or, to the best of the Company's knowledge, any other person or entity who
employs any employees that perform services incident to the Company's or any of
its Subsidiaries' performance under any Company Agreement, there is no unfair
labor practice charge or complaint against or pending before the National Labor
Relations Board (the "NLRB") which if decided adversely could have an adverse
effect on the Company, any of its Subsidiaries or any other Employer Affiliate,
and there is no representation claim or petition pending before the NLRB and no
question concerning representation exists with respect to the employees of the
Company or its Subsidiaries or any Employer Affiliates. No Employer Affiliate is
a party to any collective bargaining agreement.
Section 3.16 INSURANCE. The Company and each of its Subsidiaries are
insured by insurers, reasonably believed by the Company to be of recognized
financial responsibility and solvency, against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. There are
no outstanding or unsatisfied requirements of recommendations of any insurance
company currently providing insurance to the Company or its Subsidiaries or any
board of fire underwriters or other body exercising similar functions or of any
Governmental Entity requiring or recommending any repairs or other work to be
done on or with respect to, or requiring or recommending any equipment or
fixtures to be installed on or in connection with any premises used or occupied
by the Company or its Subsidiaries. All policies of insurance and fidelity or
surety bonds are in full force and effect. Descriptions of these plans and
related liability coverage have been previously provided to Parent. Section 3.16
of the Company Disclosure Schedule contains a listing of all open workers
compensation and general liability claims against the Company (including any
predecessor of the Company), any of its Subsidiaries and/or any Employer
Affiliate as of the date hereof. These claims, individually or in the aggregate,
would not result in any liability payable by the Company or any Subsidiary
exceeding Ten Thousand Dollars ($10,000). All necessary notifications of claims
have been made to insurance carriers.
Section 3.17 COMPLIANCE WITH LAW. Except as set forth on Section 3.17
of the Company Disclosure Schedule, the Company (including all predecessors of
the Company) and its Subsidiaries have complied with all laws, statutes,
regulations, rules, ordinances, and judgments, decrees, orders, writs and
injunctions, of any court or governmental entity relating to any of the property
owned, leased or used by them, or applicable to their business, including, but
not limited to, equal employment opportunity, discrimination, occupational
safety and health, environmental, interstate commerce, antitrust laws, ERISA and
laws relating to Taxes. The Company, and its Subsidiaries, have all permits and
licenses necessary to carry on the business being conducted.
Section 3.18 VOTE REQUIRED. The approval of the holders of at least
two-thirds of the outstanding shares of Company Common Stock is the only
approval of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.
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Section 3.19 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AT
CLOSING. The representations and warranties set forth in this Article III will
be true and complete in all material respects on the date scheduled for Closing
pursuant to Section 1.3 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 4.1 ORGANIZATION. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its organization and has all requisite corporate or other power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and governmental approvals would not have a material adverse effect on
Parent and its Subsidiaries. Parent and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not have a material adverse effect on Parent and its Subsidiaries.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of
13,500,000 shares of Parent Common Stock and (b) 1,500,000 preferred
shares, without par value (the "Parent Preferred Stock"). As of the
date hereof, (i) 3,699,797 shares of Parent Common Stock are issued and
outstanding, (ii) no shares of Parent Preferred Stock are issued and
outstanding, and (iii) 142,408 shares of Parent Common Stock are issued
and held in the treasury of Parent. All of the outstanding shares of
Parent's capital stock are duly authorized, validly issued, fully paid
and nonassessable. The authorized capital stock of Sub consists of 850
shares of common stock, without par value ("Sub Common Stock"). As of
the date hereof, 100 shares of Sub Common Stock are issued and
outstanding, all of which are owned by Parent. All of the outstanding
shares of Sub Common Stock are duly authorized, validly issued, fully
paid and nonassessable. There are no bonds, debentures, notes or other
indebtedness having voting rights (or convertible into securities
having such rights) ("Parent Voting Debt") of Parent or any of its
Subsidiaries issued and outstanding. Except as set forth above, and
except as set forth in Section 4.2 of the Disclosure Schedule delivered
to the Company on or prior to the date hereof (the "Parent Disclosure
Schedule") and except for transactions contemplated by this Agreement,
(i) there are no shares of capital stock of Parent authorized, issued
or outstanding and (ii) there are no existing options, warrants, calls,
preemptive rights, subscriptions or other rights, convertible
securities, agreements, arrangements or commitments of any character,
relating to the issued or unissued capital stock of Parent or any of
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its Subsidiaries, obligating Parent or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any
shares of capital stock or Parent Voting Debt of, or other equity
interest in, Parent or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or equity interests or
obligations of Parent or any of its Subsidiaries to grant, extend or
enter into any such option, warrant, call, subscription or other right,
convertible security, agreement, arrangement or commitment. There are
no outstanding contractual obligations of Parent or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or the capital stock of Parent or any subsidiary or
Affiliate of Parent or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any Subsidiary or
any other entity.
(b) There are no voting trusts or other agreements or
understandings to which Parent or any of its Subsidiaries is a party
with respect to the voting of the capital stock of Parent or its
Subsidiaries. None of Parent or its Subsidiaries is required to redeem,
repurchase or otherwise acquire shares of capital stock of Parent, or
any of its Subsidiaries, respectively, as a result of the transactions
contemplated by this Agreement.
Section 4.3 CORPORATE AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY
ACTION. Each of Parent and Sub has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and Sub of this
Agreement and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly and validly authorized by their respective
Boards of Directors and by Sub's sole shareholder and, no other corporate action
or proceedings on the part of Parent and Sub are necessary to authorize the
execution and delivery by Parent and Sub of this Agreement and the consummation
by Parent and Sub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Parent and Sub, and, assuming this Agreement
constitutes valid and binding obligations of the Company, constitutes valid and
binding obligations of each of Parent and Sub, enforceable against them in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency or other similar laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The shares of Parent Common Stock to be
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934 (the
"Exchange Act"), the Securities Act of 1933 (the "Securities Act"), the TBCA,
the ORC and state blue sky laws, neither the execution, delivery or performance
of this Agreement by Parent and Sub nor the consummation by Parent and Sub of
the transactions contemplated hereby nor compliance by Parent and Sub with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the Articles of Incorporation or Regulations of Parent and Sub,
(ii) require any filing with, or permit, authorization, consent or approval of,
any Governmental Entity (except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings would not have a
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material adverse effect on Parent and its Subsidiaries or would not, or would
not be reasonably likely to, materially impair the ability of Parent and Sub to
consummate the Merger or the other transactions contemplated hereby), (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, guarantee, other evidence of
indebtedness, lease, license, contract, agreement or other instrument or
obligation to which Parent or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent, any of its Subsidiaries or any of their properties or assets, except in
the case of clauses (iii) and (iv) for violations, breaches or defaults which
would not have a material adverse effect on Parent and its Subsidiaries or would
not, or would not be reasonably likely to, materially impair the ability of
Parent or Sub to consummate the Merger or the other transactions contemplated
hereby.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. Parent has filed with
the Securities and Exchange Commission (the "SEC"), and has heretofore made
available to the Company, true and complete copies of, all forms, reports,
schedules, statements and other documents required to be filed by it and its
Subsidiaries since December 31, 1992 under the Exchange Act or the Securities
Act (as such documents have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Parent SEC Documents,
including, without limitation, any financial statements or schedules included
therein (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. Each of
the consolidated financial statements included in the Parent SEC Documents have
been prepared from, and are in accordance with, the books and records of Parent
and/or its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position and the consolidated results of operations and
cash flows (and changes in financial position, if any) of Parent and its
consolidated Subsidiaries as at the dates thereof or for the periods presented
therein.
Section 4.6 ABSENCE OF CERTAIN CHANGES. Except to the extent disclosed
in the Parent SEC Documents filed prior to the date of this Agreement, from
December 31, 1995 through the date of this Agreement, Parent and its
Subsidiaries have conducted their respective businesses in the ordinary course
of business consistent with past practice. Except to the extent disclosed in the
Parent SEC Documents filed prior to the date of this Agreement, from December
31, 1995 through the date of this Agreement, there has not occurred (i) any
events, changes, or effects (including the incurrence of any liabilities of any
nature, whether or not accrued, contingent or otherwise) having or, which would
be reasonably likely to have, individually or in the aggregate, a material
adverse effect on Parent and its Subsidiaries; (ii) any declaration, setting
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aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to the equity interests of Parent or of any of its
Subsidiaries other than regular quarterly cash dividends, distributions or
payments on account of indebtedness paid by Subsidiaries to Parent or a
Subsidiary of Parent; or (iii) any change by Parent or any of its Subsidiaries
in accounting principles or methods, except insofar as may be required by a
change in GAAP.
Section 4.7 NO DEFAULT. The business of Parent and each of its
Subsidiaries is not being conducted in default or violation of any term,
condition or provision of (a) its respective Articles of Incorporation or
Regulations or similar organizational documents, (b) any lease, license,
contract, agreement or other instrument or obligation to which Parent or any of
its Subsidiaries is a party or by which any of them or any of their properties
or assets may be bound and which either has a term of more than one year or
involves the payment or receipt of money in excess of $10,000 or (c) any
federal, state, local or foreign law, statute, regulation, rule, ordinance,
judgment, decree, order, writ, injunction, concession, grant, franchise, permit
or license or other governmental authorization or approval applicable to Parent
or any of its Subsidiaries, excluding from the foregoing clauses (b) and (c),
defaults or violations that would not have a material adverse effect on Parent
and its Subsidiaries taken as a whole or would not, or would not be reasonably
likely to, materially impair the ability of Parent or Sub to consummate the
Merger or the other transactions contemplated hereby. No investigation or review
by any Governmental Entity with respect to Parent or any of its Subsidiaries is
pending or, to the best knowledge of Parent or Sub, threatened, nor to the best
knowledge of Parent or Sub, has any Governmental Entity indicated an intention
to conduct the same.
Section 4.8 REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AS OF
CLOSING. The representations and warranties set forth in this Article IV will be
true and complete in all respects on the date scheduled for Closing pursuant to
Section 1.3.
ARTICLE V
COVENANTS
Section 5.1 INTERIM OPERATIONS OF THE COMPANY. The Shareholders and the
Company, jointly and severally, covenant and agree that, from the date of this
Agreement through the Effective Time, except with the prior written consent of
Parent:
(a) the business of the Company and its Subsidiaries shall be
conducted only in the ordinary course of business consistent with past
practice and, to the extent consistent therewith, each of the Company
and its Subsidiaries shall use its best efforts to, and will cause each
Employer Affiliate to, preserve its business organization intact and
maintain its existing relations with customers, suppliers, employees,
creditors and business partners;
(b) (i) the Company will not, directly or indirectly, split,
combine or reclassify the outstanding Company Common Stock, or any
outstanding capital stock of any of the Subsidiaries of the Company or
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issue any additional shares of Company Common Stock; and (ii) none of
the Shareholders will, nor will they enter into any agreement to,
transfer, pledge, hypothecate, encumber, grant rights in respect of or
otherwise restrict, the shares of Company Common Stock held by such
Shareholder;
(c) neither the Company nor any of its Subsidiaries shall: (i)
amend its Articles of Incorporation or Bylaws or similar organizational
documents; (ii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its
capital stock other than dividends paid by the Company's Subsidiaries
to the Company or its Subsidiaries; (iii) issue, sell, transfer,
pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or its Subsidiaries; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any
material assets other than (a) in the ordinary course of business
consistent with past practice or (b) pursuant to existing agreements
disclosed on Section 5.1(c) of the Company Disclosure Schedule; or (v)
redeem, purchase or otherwise acquire directly or indirectly any of its
capital stock;
(d) neither the Company nor any of its Subsidiaries shall nor
will either of Stanley R. Fimberg or Ralph V. Williams suffer or permit
either Employer Affiliate to: (i) except as otherwise provided in this
Agreement and except for normal, regularly scheduled increases for
non-officer employees consistent with past practice, grant any increase
in the compensation payable or to become payable by the Company or any
of its Subsidiaries to any officer or employee (including through any
new award made under, or the exercise of any discretion under, any
Benefit Plan); (ii) adopt any new, or amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement
or arrangement; (iii) enter into any, or amend any existing, employment
or severance agreement with or, grant any severance or termination pay
to any officer, director, employee or consultant of the Company or any
of its Subsidiaries; or (iv) make any additional contributions to any
grantor trust created by the Company to provide funding for
non-tax-qualified employee benefits or compensation; or (v) provide any
severance program to any employee who does not participate in a
severance program as of the date of this Agreement;
(e) neither the Company nor any of its Subsidiaries shall
modify, amend or terminate any of the Company Agreements or waive,
release or assign any material rights or claims, except in the ordinary
course of business consistent with past practice or except to effect
any assignment from or to obtain any waiver, amendment or consent to,
the Company's succession to the Joint Venture thereunder or the Merger
and other transactions contemplated hereby;
(f) none of the Company, any of its Subsidiaries or the
Company Affiliates shall permit any material insurance policy naming
any of them as a beneficiary or a loss payable payee to be canceled or
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terminated without notice to Parent, except in the ordinary course of
business consistent with past practice;
(g) neither the Company nor any of its Subsidiaries shall: (i)
incur or assume any debt except for borrowings under existing credit
facilities in the ordinary course consistent with past practice; (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of
any other person, except in the ordinary course of business consistent
with past practice; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to
wholly owned Subsidiaries of the Company); or (iv) enter into any
material commitment (including, but not limited to, any leases, capital
expenditure or purchase of assets);
(h) neither the Company nor any of its Subsidiaries shall
change any of the accounting principles used by it unless required by
GAAP;
(i) neither the Company nor any of its Subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities
or obligations when any of the foregoing become due and payable, to the
extent, (x) reflected or reserved against in the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
Subsidiaries, (y) incurred in the ordinary course of business
consistent with past practice or (z) which are legally required to be
paid, discharged or satisfied; provided, however, that the Company
shall pay and discharge in full all its indebtedness owed to the
Company's Bank (as defined in Section 5.12 hereof) in accordance with
Section 5.12 hereof and may pay up to a maximum of Fifty Thousand
Dollars ($50,000) of the fees and expenses of Michener, Larimore,
Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. incurred
in connection with this Agreement and the transactions contemplated
hereby, as contemplated by Section 9.1;
(j) neither the Company nor any of its Subsidiaries will adopt
a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other material
reorganization of the Company or any of its Subsidiaries or any
agreement relating to a Takeover Proposal (as defined in Section 5.4)
(other than the Merger);
(k) neither the Company nor any of its Subsidiaries will take,
or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate
in any respect at, or as of any time prior to, the Effective Time;
(l) neither the Company nor any of its Subsidiaries will
engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of the
Affiliates of the Company, other than pursuant to such agreements,
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arrangements, or understandings existing on the date of this Agreement
(which are set forth on Section 5.1(l) of the Company Disclosure
Schedule);
(m) enter into any new lease (other than renewals of existing
leases after consultation with Parent) or purchase or acquire or enter
into any agreement to purchase or acquire any real estate;
(n) neither the Company nor any of its Subsidiaries will incur
any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to
have, a material adverse effect on the Company and its Subsidiaries;
and
(o) neither the Company nor any of its Subsidiaries will enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention
to do any of the foregoing.
Section 5.2 ACCESS TO INFORMATION.
(a) To the extent permitted by applicable law, the Company
and, with respect to the Employer Affiliates, each of Stanley R.
Fimberg and Ralph V. Williams, shall (and shall cause each of its
Subsidiaries to) afford to the officers, employees, accountants,
counsel, financing sources and other representatives of Parent, access,
during normal business hours, during the period prior to the Effective
Time, to all of its, its Subsidiaries', and the Employer Affiliates'
properties, books, contracts, commitments and records (including any
Tax Returns or other Tax related information pertaining to the Company
and its Subsidiaries) and, during such period, the Company shall (and
shall cause each of its Subsidiaries to) furnish promptly to Parent (i)
a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the
requirements of federal securities laws and (ii) all other information
concerning its business, properties and personnel as Parent may
reasonably request (including any Tax Returns or other Tax related
information pertaining to the Company and its Subsidiaries).
(b) To the extent permitted by applicable law, Parent shall
(and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other
representatives of the Company, access, during normal business hours,
during the period prior to the Effective Time, to its and all of its
Subsidiaries' properties, books, contracts, commitments and records
(including any Tax Returns pertaining to Parent) and, during such
period, Parent shall (and shall cause each of its Subsidiaries to)
furnish promptly to the Company (a) a copy of each report, schedule,
registration statement and other document filed or received by it
during such period pursuant to the requirements of the federal
securities laws and (b) all other information as the Company may
reasonably request (including any Tax Returns pertaining to Parent);
provided, however, in no event shall Parent or its Subsidiaries be
required to provide access to proprietary computer programs and related
documentation.
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(c) Neither Parent nor its Subsidiaries shall disclose or use
or enable anyone else to disclose or use any confidential information
of the Company, except if such information which (i) is generally
publicly known or becomes generally publicly known through no fault of
Parent or its Subsidiaries, (ii) is generally or readily obtainable
within the industry relating to the Company, (iii) was available or
becomes available to Parent or its Subsidiaries on a non-confidential
basis, or (iv) Parent or its Subsidiaries is legally required, by
deposition, subpoena or other court or governmental action, to
disclose; provided, however, that in connection with the transactions
contemplated hereby, Parent may disclose confidential information of
the Company to its accountants, lawyers and other representatives
advising or assisting Parent in connection therewith, provided that all
such parties are informed of this confidentiality arrangement and the
confidential nature of such information. In the event of termination of
this Agreement, Parent shall use all reasonable efforts to (x) cause to
be delivered to the Company and retain no copies of any documents, work
papers, and other materials obtained by Parent or on its behalf from
the Company, whether so obtained before or after the execution hereof,
and (y) destroy any documents, memoranda, notes, or other writings
prepared by Parent based on information contained in such materials.
Parent's obligations under this Section 5.2(c) shall terminate on the
Closing Date.
(d) Any non-public information that the Company or its
Subsidiaries obtain in connection herewith with respect to Parent or
its Subsidiaries shall be deemed confidential, and the Company or its
Subsidiaries shall not disclose such information to any third party or
use such information to the detriment of Parent or its Subsidiaries;
provided, that (i) the Company or its Subsidiaries may use and disclose
any such information once it has been publicly disclosed (other than by
the Company or its Subsidiaries in breach of their obligations under
this Section 5.2(d)) or which has rightfully come into the possession
of the Company or its Subsidiaries (other than from Parent or its
Subsidiaries) and (ii) to the extent that the Company or its
Subsidiaries may become legally compelled to disclose any of such
information, the Company or its Subsidiaries may disclose such
information if reasonable efforts have been used by the Company or its
Subsidiaries (and Parent or its Subsidiaries have been afforded the
opportunity) to obtain an appropriate protective order or other
satisfactory assurance of confidential treatment for the information
required to be disclosed.
Section 5.3 CONSENTS AND APPROVALS. Each of the Company, Parent and Sub
will take all reasonable actions necessary to comply promptly with all legal
requirements (which actions shall include, without limitation, furnishing all
information in connection with filings with any Governmental Entity), and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their Subsidiaries in
connection with this Agreement and the transactions contemplated hereby. Each of
the Company, Parent and Sub will, and will cause its Subsidiaries to, take all
reasonable actions necessary to obtain any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by Parent, Sub, the Company
or any of their respective Subsidiaries in connection with the Merger or the
taking of any action contemplated by this Agreement.
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Section 5.4 NO SOLICITATION.
(a) The Shareholders and the Company (and its Subsidiaries and
Affiliates over which it exercises control) will not, and the
Shareholders and the Company (and its Subsidiaries and Affiliates over
which it exercises control) will use their best efforts to ensure that
their respective officers, directors, employees, investment bankers,
attorneys, accountants and other agents do not, directly or indirectly:
(i) initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal which constitutes or is reasonably
likely to lead to any Takeover Proposal (as defined below) of the
Company or any Subsidiary or an inquiry with respect thereto, or, (ii)
in the event of an unsolicited Takeover Proposal for the Company or any
Subsidiary or Affiliate of the Company, engage in negotiations or
discussions with, or provide any information or data to, any
corporation, partnership, person or other entity or group (other than
Parent, any of its Affiliates or representatives) (each, a "Person")
relating to any Takeover Proposal. The Company shall notify Parent and
Sub orally and in writing of any such offers, proposals, inquiries or
Takeover Proposals (including, without limitation, the material terms
and conditions thereof and the identity of the Person making it),
within 24 hours of the receipt thereof, and shall thereafter inform
Parent on a reasonable basis of the status and content of any
discussions or negotiations with such a third party, including any
material changes to the terms and conditions thereof. The Company
shall, and shall cause its Subsidiaries and Affiliates over which it
exercises control, and will use best efforts to ensure their respective
officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, immediately cease and cause to be
terminated all discussions and negotiations that have taken place prior
to the date hereof, if any, with any parties conducted heretofore with
respect to any Takeover Proposal relating to the Company.
(b) As used in this Agreement, "Takeover Proposal" when used
in connection with any Person shall mean any tender or exchange offer
involving the capital stock of such Person, any proposal for a merger,
consolidation or other business combination involving such Person or
any Subsidiary of such Person, any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of
the business or assets of, such Person or any Subsidiary of such
Person, any proposal or offer with respect to any recapitalization or
restructuring with respect to such Person or any Subsidiary of such
Person or any proposal or offer with respect to any other transaction
similar to any of the foregoing with respect to such Person or any
Subsidiary of such Person other than pursuant to the transactions to be
effected pursuant to this Agreement.
Section 5.5 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided (including, but not limited to, Section 5.3) each of the parties
hereto agrees to use its reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable, whether under applicable laws and regulations or otherwise, or to
remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement. In case at any time after the Effective Time any further
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action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of the Company and Parent shall use their
reasonable efforts to take, or cause to be taken, all such necessary actions.
Section 5.6 PUBLICITY. So long as this Agreement is in effect, none of
the Shareholders, the Company nor Parent (nor any of their Affiliates which any
of them control) shall issue or cause the publication of any press release or
other public statement or announcement with respect to this Agreement or the
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by obligations pursuant to Parent's
listing agreement with the National Association of Securities Dealers, Inc.
National Market System ("NASDAQ NMS"), provided that each party will use its
best efforts to consult with the other party prior to any such issuance.
Section 5.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time and (b) any material failure of the Company or Parent, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.7 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.8 COOPERATION. Parent and the Company shall together, or
pursuant to an allocation of responsibility to be agreed upon between them,
coordinate and cooperate (a) with respect to the timing of the Company Special
Meeting, if any, (b) in determining whether any action by or in respect of, or
filing with, any Governmental Entity is required, or any actions, consents
approvals or waivers are required to be obtained from parties to any material
contracts, in connection with the consummation of the transactions contemplated
by this Agreement, and (c) in seeking any such actions, consents, approvals or
waivers or making any such filings, furnishing information required in
connection therewith and timely seeking to obtain any such actions, consents,
approvals or waivers.
Section 5.9 REPRESENTATION ON BOARD OF DIRECTORS. If at the time of
Parent's 1997 Annual Meeting of Shareholders the Consulting Agreement with
Stanley Fimberg and the Employment Agreement with Pat Holder are still in full
force and effect, then Parent shall cause each of Messrs. Fimberg and Holder to
be nominated for election to the Board of Directors of Parent.
Section 5.10 EMPLOYMENT AGREEMENTS. On the Closing Date, the Surviving
Corporation shall enter into employment agreements (the "Employment Agreements")
with each of Pat Holder, Annette Hoover, Bruce Woodward, Peggy Crow Smith and
Peggy Hunt in substantially the forms of Exhibits A-1 through A-5 attached
hereto.
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Section 5.11 FIMBERG/WILLIAMS CONSULTING AGREEMENTS. On the Closing
Date, Parent shall enter into the Consulting Agreements (the "Consulting
Agreements") with each of Stanley Fimberg and Ralph Williams in substantially
the forms of Exhibits B-1 and B-2 attached hereto.
Section 5.12 PAY OFF OF COMPANY INDEBTEDNESS. The Company will pay and
discharge in full all indebtedness owed to Texas Commerce Bank, NA (the
"Company's Bank") and will procure from the Company's Bank evidence,
satisfactory to Parent and its counsel, of the termination of such credit
facility, the satisfaction of all the Company's obligations and liabilities
thereunder and the release of all liens securing such indebtedness on or prior
to the Closing.
Section 5.13 RESTRICTIONS ON ISSUANCE OF PARENT COMMON STOCK; DIVIDENDS
AND DISTRIBUTIONS. From the date of this Agreement through the Effective Time,
except with the prior written consent of the Company, Parent will not (a) issue
any additional shares of Parent Common Stock or securities convertible into
shares of Parent Common Stock (other than issuances pursuant to those options,
warrants, calls, preemptive rights, subscriptions and other rights, convertible
securities, agreements and arrangements set forth in Section 4.2 of the Parent
Disclosure Schedule), (b) directly or indirectly split, combine or reclassify
the outstanding Parent Common Stock, or (c) disclose, pay, or make any dividend
or distribution of any kind on the Parent Common Stock (whether in cash,
property, additional shares of Parent Common Stock, shares of any other class of
Parent's capital stock, evidences of indebtedness of any kind or description,
shares of the capital stock of any Subsidiary, or otherwise).
Section 5.14 RDO SALARIES. As soon as practicable after the Effective
Time, Parent will cause the Surviving Corporation to increase by Ten Thousand
Dollars ($10,000) the annual salary of each Regional Director of Operations
(collectively, the "RDOs") listed on Schedule III attached hereto.
Section 5.15 EMPLOYEE STOCK OPTION AWARDS. After the Effective Time,
Parent will cause non-qualified stock option grants of up to a maximum of Two
Thousand Five Hundred (2,500) shares of Parent Common Stock to be awarded to the
RDOs, and in such amounts, as designated by Pat Holder after the Effective Time
(the "Stock Option Awards"). The Stock Option Awards will be issued under the
Parent's Amended and Restated 1992 Incentive Equity Plan pursuant to Award
Agreements (as defined therein) upon terms and conditions substantially similar
to Award Agreements currently in effect between Parent and other key employees
of Parent.
Section 5.16 LEASE GUARANTIES. After the Effective Time, Parent will
use commercially reasonable efforts to cause the release and termination of the
personal guaranties of Stanley R. Fimberg and Pat Holder with respect to the
Company's lease of the property located at 8615 Freeport Parkway, Suite 200,
Irving, Texas 75063 (the "Main Office Premises"). Parent's commercially
reasonable efforts will in no event require Parent to make any payment to the
landlord of the Main Office Premises in consideration for, or in order to
induce, any such release and termination.
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ARTICLE VI
CONDITIONS
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, on the one hand, and Parent and Sub, on the other
hand, to consummate the Merger are subject to the satisfaction (or, if
permissible, waiver by the Company, Parent and Sub) of the following conditions:
(a) this Agreement shall have been adopted and approved by the
shareholders of the Company in accordance with the TBCA;
(b) no court, arbitrator or governmental body, agency or
official shall have issued any order, decree or ruling which remains in
force and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the Merger;
(c) All consents, authorizations, orders, approvals,
amendments and waivers of (or filings or registrations with) any
Governmental Entity or any third party to any Company Agreement,
required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed
after the Effective Time;
(d) The parties shall have received fully executed copies of
each of the Employment Agreements and the Consulting Agreements; and
(e) All consents, authorizations, orders, approvals,
amendments and waivers of (or filings or registrations with) any
Governmental Entity or any third party to any Company Agreement,
required in connection with, or as a result of, the consummation of the
Texas Merger shall have been obtained or made; and
(f) on the last trading day prior to the Closing Date, the
closing price for Parents's Common Stock shall have been equal to or
greater than Sixteen Dollars ($16) per share and less than or equal to
Twenty-Four Dollars ($24) per share.
(g) All schedules identified in this Agreement will be revised
and updated as of the Closing Date by Parent, Sub, and the Company, as
the case may be, to ensure that such schedules will be true and
complete in all material respects as of the Closing Date as
contemplated by Sections 3.19 and 4.8 of this Agreement. All such
revisions must be satisfactory to Parent, in the case of the Company
Disclosure Schedule, and the Company, in the case of the Parent
Disclosure Schedule.
Section 6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to consummate the Merger are subject to the
satisfaction (or if permissible, waiver by Parent and Sub) of the following
conditions:
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(a) Except for changes contemplated by this Agreement, each of
the representations and warranties of the Shareholders and/or Company
contained in Article III of this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the
Effective Time, and the Shareholders and the Company shall have
delivered to Parent and Sub a certificate to that effect signed by the
Shareholders and an executive officer of the Company, respectively;
(b) The Shareholders and the Company shall have complied in
all material respects with each of its obligations under this Agreement
and shall have delivered to Parent and Sub a certificate to that effect
signed by the Shareholders and an executive officer of the Company,
respectively;
(c) All the officers and directors of the Company, other than
those continuing in such positions as set forth in Section 1.4, shall
have tendered resignations to become effective as of the Effective
Time;
(d) All indebtedness of any employee, officer or director of
the Company to the Company, as the case may be, shall have been paid in
full;
(e) Parent and Sub shall have received an opinion from
Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds &
Chalk, L.L.P., counsel for the Company, in form and substance
reasonably satisfactory to Parent;
(f) Parent shall have received from each Shareholder an
agreement and acknowledgment substantially in the form of Exhibit C to
this Agreement;
(g) All indebtedness of the Company to the Company's Bank
shall have been paid in full and all liens securing such indebtedness
shall have been terminated and released;
(h) Parent shall be satisfied in good faith with the results
of its business and legal due diligence review of the Company such that
Parent's expected benefits to be derived from and risks assumed under
this Agreement have not materially and adversely changed since the date
of its execution of this Agreement. Parent shall not be deemed to have
accepted as satisfactory any matters contained in the Company
Disclosure Schedule prior to its complete review of all the information
relating to such matters; and
Section 6.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger are subject to the
satisfaction (or if permissible, waiver by the Company) of the following
conditions:
(a) Each of the representations and warranties of Parent and
Sub contained in Article IV of this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time and Parent and Sub shall have delivered to the Company a
certificate to that effect signed by an executive officer;
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(b) Parent and Sub shall have complied in all material
respects with each of their obligations under this Agreement and Parent
and Sub shall have delivered to the Company a certificate to that
effect signed by an executive officer;
(c) The Company shall have received an opinion from Benesch,
Friedlander, Coplan & Aronoff, P.L.L., counsel for Parent and Sub, in
form and substance reasonably satisfactory to the Company;
(d) The Shareholders and Parent shall have each executed and
delivered a Registration Rights Agreement substantially in the form of
Exhibit D attached hereto; and
(e) The Company shall be satisfied in good faith with the
results of its business and legal due diligence review of the Parent
such that the Company's expected benefits to be derived from and risks
assumed under this Agreement have not materially and adversely changed
since the date of its execution of this Agreement. The Company shall
not be deemed to have accepted as satisfactory any matters contained in
the Parent Disclosure Schedule prior to its complete review of all the
information relating to such matters.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after shareholder approval hereof:
(a) By the mutual consent of Parent and the Company.
(b) By either the Company or Parent if any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
(which order, decree, ruling or other action the parties hereto shall
use their best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall
have become final and non-appealable.
(c) By the Company if Parent or Sub (x) breaches or fails in
any material respect to perform or comply with any of its material
covenants and agreements contained herein or (y) breaches its
representations and warranties in any material respect and such breach
would have or would be reasonably likely to have a material adverse
effect on Parent and its Subsidiaries; provided, however, that if any
such breach is cured on or before the date scheduled for Closing
pursuant to Section 1.3 (without implying or imposing any obligation on
the Company to extend the same), the Company may not terminate this
Agreement pursuant to this Section 7.1(c).
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(d) By Parent if the Company or any of the Shareholders, as
the case may be, (x) breaches or fails in any material respect to
perform or comply with any of its, his or her material covenants and
agreements contained herein or (y) breaches its, his or her
representations and warranties in any material respect; provided,
however, that if any such breach is cured prior to the date scheduled
for Closing pursuant to Section 1.3 (without implying or imposing any
obligation on Parent to extend the same), Parent may not terminate this
Agreement pursuant to this Section 7.1(d).
(e) By either the Company or Parent if the conditions
precedent to their respective obligations to consummate the Merger, as
set forth in Article VI hereof, are not satisfied on the date scheduled
for Closing pursuant to Section 1.3 or, if permissible waived.
Section 7.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, including, without limitation, if
the termination is being made pursuant to Section 7.1(e), the reasons for such
party being dissatisfied with the results of its due diligence investigation,
and this Agreement shall forthwith become null and void, and there shall be no
liability on the part of Parent, Sub or the Company except (A) for fraud or for
material breach of this Agreement and (B) as set forth in Sections 9.1 and 9.2
hereof.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION; DISPUTES
Section 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Notwithstanding the Closing of the transactions contemplated under this
Agreement, or any investigation made by or on behalf of any party to this
Agreement, the representations and warranties of the Company and the
Shareholders contained in this Agreement or in any certificate, Company
Disclosure Schedule, chart, list, letter, compilation or other document
furnished or to be furnished pursuant to this Agreement, will survive the Merger
as provided in Section 9.4 hereof.
Section 8.2 INDEMNIFICATION. Shareholders, jointly and severally, will
indemnify and save harmless Parent and its Subsidiaries, shareholders,
directors, officers, employees and agents from any and all costs, expenses,
losses, damages and liabilities incurred or suffered, directly or indirectly, by
any of them (including, without limitation, reasonable legal fees and expenses),
in each case, net of any insurance proceeds that Parent or any Subsidiary of
Parent is entitled to receive and that is not subject to any rights of setoff or
claims for subrogation on the part of the insurance carrier, (collectively, in
each case, an "Indemnification Claim") resulting from or attributable to (a) the
breach of any covenant or agreement of the Company or any of the Shareholders
hereunder, (b) the breach of, or misstatement in, any one or more of the
representations or warranties of Company or the Shareholders made in or pursuant
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to this Agreement, and (c) any claims, demands, suits, investigations,
proceedings or actions by any third party containing allegations that, if true
would constitute a breach of, or misstatement in, any one or more of the
representations or warranties of Company or the Shareholders made in or pursuant
to this Agreement (a "Third Party Claim"); provided, however, that in the event
of any Third Party Claim pursuant to paragraph (c) of this Section 8.2 as to
which Parent seeks indemnification hereunder, and as to which the Shareholders
assume the defense, if it is finally determined by a court of competent
jurisdiction that Parent, the Surviving Corporation, any of their Subsidiaries,
and the Shareholders have no liability with respect to such Third Party Claim
or, if not so determined, the Shareholders have effected a final and binding
settlement of such Third Party Claim without incurring any payment or other
obligation, then such Third Party Claim will not constitute an Indemnification
Claim.
Section 8.3 DEFENSE OF CLAIM. In case Parent, Surviving Corporation or
any of their Subsidiaries has received actual notice of any claim asserted or
any action or administrative or other proceeding commenced in respect of which
claim, action or proceeding, an Indemnification Claim properly may be asserted
against Shareholders pursuant to this Agreement, Parent will give notice in
writing to Shareholders within twenty (20) days of its receipt of such notice
provided that Parent's failure to give notice within such twenty (20) day period
will not operate as a bar to its Indemnification Claim hereunder so long as the
Shareholders are not materially prejudiced by any such delay. Within twenty (20)
days after the receipt of such notice, Shareholders may give Parent written
notice of their election to conduct the defense of such claim, action or
proceeding at their own expense. Any such election will be effective, and will
be binding on, and enforceable against, each of the Shareholders, jointly and
severally, if the election is signed by Shareholders receiving at least a
majority of the Merger Consideration hereunder. If Shareholders have given
Parent such notice of election to conduct the defense, Shareholders may conduct
the defense at their expense, but Parent will nevertheless have the right to
participate in the defense, but such participation will be solely at the expense
of Parent, without a right of further reimbursement. If Shareholders have not so
notified Parent in writing (within the time above provided) of their election to
conduct the defense of such claim, action or proceeding, Parent may (but need
not) conduct (at Shareholders' expense) the defense of such claim, action or
proceeding. Parent may at any time notify Shareholders of Parent's intention to
settle, compromise or satisfy any such claim, action or proceeding (the defense
of which Shareholders have not previously elected to conduct) and may make such
settlement, compromise or satisfaction (at Shareholders' expense) unless
Shareholders notify Parent in writing (within five (5) days after receipt of
such notice of intention to settle, compromise or satisfy) of their election to
assume (at their expense) the defense of any such claim, action or proceeding
and promptly take appropriate action to implement such defense. Any bona fide
settlement, compromise or satisfaction made by Parent, or any such final
judgment or decree entered in, any claim, action or proceeding defended only by
Parent, regardless of the amount or terms, will be deemed to have been consented
to by, and will be binding on, Shareholders as fully as though they alone had
assumed the defense and a final judgment or decree had been entered in such
proceeding or action by a court of competent jurisdiction in the amount of such
settlement, compromise, satisfaction, judgment or decree. If Shareholders have
elected under this Section 8.3 to conduct the defense of any claim, action or
proceeding, then Shareholders will be obligated in respect of the amount of any
adverse final judgment or decree rendered with respect to such claim, action or
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proceeding which will constitute an Indemnification Claim hereunder. If
Shareholders elect to settle, compromise or satisfy any claim, action or
proceeding defended by them, the cost of any such settlement, compromise or
satisfaction will constitute an Indemnification Claim hereunder and may be made
only with the consent of Parent, which consent will not be unreasonably
withheld. Parent and Shareholders will use all reasonable efforts to cooperate
fully with respect to the defense of any claim, action or proceeding covered by
this Section 8.3.
Section 8.4 LIMITATIONS ON INDEMNIFICATION. Any of the foregoing
notwithstanding, Parent will not have the right to assess and collect the amount
of an Indemnification Claim under Section 8.2 hereof unless and until the
aggregate amount of the Indemnification Claim exceeds Four Hundred Thousand
Dollars ($400,000) (the "Threshold Amount") and thereafter, will be entitled to
the full extent of the Indemnification Claim and all subsequent Indemnification
Claims, if any (it being acknowledged and understood that Parent may assess and
collect any such subsequent Indemnification Claim only if it exceeds Ten
Thousand Dollars ($10,000) in value). In determining whether the Threshold
Amount is met, Parent shall be entitled to aggregate each separate
Indemnification Claim from and after the Closing Date unless (i) any such
separate Indemnification Claim, individually, fails to exceed Ten Thousand
Dollars ($10,000), or (ii) Parent has not followed the procedures required under
this Article VIII with respect to such Indemnification Claim.
Section 8.5 SATISFACTION OF INDEMNIFICATION CLAIMS. If at any time or
times Parent is entitled to payment on account of an Indemnification Claim, it
will provide the Shareholders with notice of such right and the amount of the
Indemnification Claim. The Shareholders will each individually have twenty (20)
days from the date of such notice in which to elect to pay his or her pro rata
(based upon the proportionate amount of the Merger Consideration payable to such
Shareholder hereunder) portion of such Indemnification Claim to Parent in cash.
If such Shareholder does not satisfy his or her pro rata share of the
Indemnification Claim by cash payment, then the Exchange/Escrow Agent will
satisfy such Indemnification Claim by cancelling first, that number of the
Escrow Shares, second, if necessary, the Group 1 Forfeitable Shares, issued and
not released pursuant to Section 2.2(d)(ii)(A) hereof to such Shareholder, and
third, if necessary, the Group 2 Forfeitable Shares, issued and not released
pursuant to Section 2.2(d)(ii)(B) hereof to such Shareholder, as may be
necessary to satisfy such Indemnification Claim; provided, however, that in the
event the Forfeitable Shares so cancelled would not have been released to the
Shareholders pursuant to Section 2.2(d)(ii) prior to the Fourth Anniversary had
they not been cancelled, such Forfeitable Shares so cancelled shall be deemed to
have no value and the Shareholders satisfying their Indemnification Claims
through the cancellation of such Forfeitable Shares shall be obligated to
satisfy such Indemnification Claims by cash payment not later than twenty (20)
days following the Fourth Anniversary. In determining the number of Escrow
Shares and/or Forfeitable Shares necessary to satisfy any Indemnification Claim
hereunder, each Exchange Share will be given a value of Twenty Dollars ($20.00).
If at the time any Exchange Shares become subject to cancellation pursuant to
this Section 8.5, the Exchange/Escrow Agent is also holding Exchange Share
Proceeds and Proceeds Earnings, if any, all such Exchange Share Proceeds and
Proceeds Earnings attributable to the Exchange Shares being cancelled will
likewise be cancelled or shall revert to Parent, as the case may be, all without
being accorded any additional or separate value for purposes of satisfying any
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Indemnification Claim. The Shareholders will be and remain liable for any
Indemnification Claim which cannot be satisfied by means of the cancellation of
any Exchange Shares.
ARTICLE IX
MISCELLANEOUS
Section 9.1 FEES AND EXPENSES. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by Parent and Sub on the one hand, and by the
Shareholders on account of the costs and expenses incurred by the Shareholders
and the Company, on the other hand. The preceding sentence notwithstanding, the
Company shall pay, prior to the Closing, the fees and expenses of Michener,
Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. up to a
maximum of Fifty Thousand Dollars ($50,000).
Section 9.2 FINDERS' FEES.
(a) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on
behalf of the Shareholders, the Company or any of its Subsidiaries who
might be entitled to any fee or commission from the Shareholders, the
Company or any of its Subsidiaries upon consummation of the
transactions contemplated by this Agreement.
(b) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on
behalf of Parent or any of its Subsidiaries who might be entitled to
any fee or commission from Parent or any of its Subsidiaries upon
consummation of the transactions contemplated by this Agreement.
Section 9.3 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after the approval of the shareholders of the Company
contemplated hereby, by written agreement of the parties hereto, at any time
prior to the Effective Time with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the shareholders
of the Company, no such amendment, modification or supplement shall reduce or
change the consideration to be received by the Shareholders in the Merger.
Section 9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Shareholders and the Company contained in
this Agreement or in any schedule, instrument or other document delivered
pursuant to this Agreement shall survive any investigation by Parent or Sub and
shall not terminate until the Fourth Anniversary at which time they shall lapse.
Notwithstanding the foregoing, any Indemnification Claim shall survive the
Fourth Anniversary if Parent has given notice to the Shareholders of such
Indemnification Claim prior to the Fourth Anniversary.
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Section 9.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Cardinal Realty Services, Inc.
6954 Americana Parkway
Reynoldsburg, Ohio 43068
Attention: Mark D. Thompson
Executive Vice President
Telephone No.: (614) 759-1566
Telecopy No.: (614) 575-5175
with a copy to:
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Bradley A. Van Auken
Telephone No.: (216) 363-4500
Telecopy No.: (216) 363-4588
and
(b) if to the Company or the Shareholders, to:
Lexford Properties, Inc.
8615 Freeport Parkway, Suite 200
Irving, Texas 75063
Attention: Pat Holder
Telephone No.: (214) 929-4880
Telecopy No.: (214) 929-1465
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with a copy to:
Michener, Larimore, Swindle, Whitaker, Flowers,
Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4186
Attention: John W. Michener, Jr.
Telephone No.: (817) 335-4417
Telecopy No.: (817) 335-6935
Any notice given by (i) telecopier will be effective when confirmed if
given on a business day, otherwise it will be effective on the next succeeding
business day; (ii) overnight courier or personal delivery will be effective on
the day delivered, unless such day is not a business day, otherwise it will be
effective on the next succeeding business day. For purposes of this Agreement,
"business day" will mean any day which is not a Saturday, Sunday or federal
holiday.
Section 9.6 INTERPRETATION. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "Affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
Section 9.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF
OWNERSHIP. This Agreement (including the exhibits hereto and the documents and
the instruments referred to herein): (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) are not intended
to confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 9.9 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 9.10 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
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entitled to the remedy of specific performance of the terms hereof, in addition
to any other remedy at law or equity.
Section 9.11 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Ohio without giving effect
to the principles of conflicts of law thereof.
Section 9.12 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent; provided,
however, that no such assignment shall relieve Parent from any of its
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
Section 9.13 ARBITRATION. In the event any dispute or controversy
arises under this Agreement, the Shareholders, acting through the holders of a
majority in interest of the Exchange Shares at the Effective Time, the Company,
Parent or Sub, as the case may be, will resolve such dispute or controversy
through arbitration. Such dispute or controversy will be submitted by the
parties thereto to binding arbitration before a single arbitrator in Columbus,
Ohio, selected by the parties to the dispute or controversy, or, if such parties
cannot agree on an arbitrator, by the American Arbitration Association. The
arbitration will be conducted in accordance with the rules of the American
Arbitration Association, then in effect. The award or decision will be rendered
in such form that judgment may be entered thereon in any court having
jurisdiction and will be final and binding upon all the parties.
If the dispute or controversy relates to the allegation by one party of
a breach of this Agreement by another party, the fees and expenses of the
arbitration (excluding the fees and expenses of counsel, accountants or other
professionals retained by a party (such expenses to be borne by the party
retaining such professionals)) (the "Arbitration Costs") will be borne by the
breaching party, if a breach was determined to exist by the arbitrator or by the
party alleging the breach, if no breach was determined to exist by the
arbitrator. If the dispute or controversy relates to the amount of an
Indemnification Claim, each party to such dispute or controversy will submit to
the arbitrator its determination of the amount, if any, of the Indemnification
Claim in dispute (the difference between the amount of the Indemnification Claim
submitted by Parent and the amount of the Indemnification Claim submitted by the
Shareholders is referred to as the "Indemnification Claim Dispute Amount"). If
the arbitrator's final determination of such Indemnification Claim results in an
amount which is (i) less than the Indemnification Claim submitted by Parent
(such shortage amount referred to as the "Decrease in Indemnification Claim")
and the Decrease in Indemnification Claim is greater than fifty percent (50%) of
the Indemnification Claim Dispute Amount, or (ii) less than or equal to the
Indemnification Claim submitted by the Shareholders, Parent will bear the
Arbitration Costs. If the arbitrator's final determination of such
Indemnification Claim results in an amount which (i) results in a Decrease in
Indemnification Claim and the Decrease in Indemnification Claim is fifty percent
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(50%) or less than the Indemnification Claim Dispute Amount, or (ii) is more
than the Indemnification Claim submitted by Parent, the Shareholders will bear
the Arbitration Costs.
IN WITNESS WHEREOF, Parent, Sub, the Company and the Shareholders have
each caused this Agreement to be signed (by their respective officers thereunto
duly authorized in the case of Parent, Sub and the Company) as of the date first
written above.
/s/ Pat Holder CARDINAL REALTY SERVICES, INC.
- -----------------------------
PAT HOLDER By: /s/ Mark D. Thompson
-------------------------
/s/ Stanley R. Fimberg Name: Mark D. Thompson
- ----------------------------- Title: Executive Vice President
STANLEY R. FIMBERG of Corporate Acquisitions
/s/ Ralph V. Williams
- ---------------------------- REXFLOR ACQUISITION
RALPH V. WILLIAMS CORPORATION
/s/ Annette Hoover By: /s/ Mark D. Thompson
- ---------------------------- -------------------------
ANNETTE HOOVER Name: Mark D. Thompson
Title: Vice President
/s/ Bruce Woodward
- ----------------------------
BRUCE WOODWARD
/s/ Eric Madsen LEXFORD PROPERTIES, INC.
- ----------------------------
ERIC MADSEN By: /s/ Pat Holder
---------------------------
Name: Pat Holder
/s/ Peggy Crow Smith Title: President
- ----------------------------
PEGGY CROW SMITH
FSC REALTY, L.L.C.
By: /s/ Stanley R. Fimberg, Manager
--------------------------------
STANLEY R. FIMBERG, MANAGER
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SCHEDULE I
TO MERGER AGREEMENT
<TABLE>
<CAPTION>
Name of Shareholder Number of Number of Shares Number of Number of Number of
Shares of Parent Escrow Shares Group 1 Group 2
of Company Common Forfeitable Forfeitable
Common Stock Stock to Receive Shares Shares
at
Effective Time
=========================== ===================== ======================= =================== =================== ==============
<S> <C> <C> <C> <C> <C>
Pat Holder 500 50,000 12,500 37,500 75,000
Annette Hoover 200 20,000 5,000 15,000 30,000
Bruce Woodward 200 20,000 5,000 15,000 30,000
Peggy Crow Smith 100 10,000 2,500 7,500 15,000
FSC Realty, L.L.C. 470 47,000 11,750 35,250 70,500
Ralph V. Williams 380 38,000 9,500 28,500 57,000
Eric Madsen 150 15,000 3,750 11,250 22,500
TOTALS 2,000 200,000 50,000 150,000 300,000
=========================== ===================== ======================= =================== =================== ==============
</TABLE>
<PAGE>
77
SCHEDULE II
TO MERGER AGREEMENT
Contribution to Profit shall be the net profit of the management services
segment of Parent's business, determined in a manner consistent with past
practices as set forth on, and using an allocation of Parent's overhead expenses
as set forth on, the attached schedules. Notwithstanding the foregoing, (a) all
expenses of Parent (i) for which an Indemnification Claim was made and satisfied
in accordance with Article VIII of the Merger Agreement or (ii) incurred under
the Consulting Agreements, shall be excluded from any calculation of
Contribution to Profit, and (b) subject to the following paragraph, all
regularly scheduled payments made by Lexford Northwest, Inc. ("LNI") in
accordance with that certain Exclusive Management Agreement dated as of November
1, 1994 (the "Management Agreement") by and between LNI, CPM Properties L.P. and
Mark C. Odell ("Odell Payments") shall be included as expenses in any
determination of Contribution to Profit.
The preceding sentence notwithstanding, if the working capital of the Company
immediately prior to the Effective Time is positive, then a credit against each
Odell Payment shall be made for purposes of determining Contribution to Profit
as follows: For purposes of determining Contribution to Profit, a credit shall
be made against each Odell Payment (offsetting the amount of such expense) in an
amount equal to one-fortieth (1/40) of the Company's working capital (determined
in accordance with GAAP) as of the Effective Time as evidenced on the balance
sheet of the Company as of the Effective Time, such amount not to exceed the
amount of each such Odell Payment. It is acknowledged that the number of Odell
Payments to be made by LNI is contingent in nature in accordance with the terms
of the Management Agreement. Pursuant to the terms of the Management Agreement,
LNI may be relieved of any liability to make the final 12 regularly scheduled
Odell Payments. In the event that LNI is not required to make the final 12 Odell
Payments, then in such event, Contribution to Profit calculated in accordance
with this Schedule II will be redetermined by recalculating the credit made
against each Odell Payment by crediting against each Odell Payment theretofore
made an amount equal to one-twenty-eighth (1/28) of the Company's working
capital (determined in accordance with GAAP) as of the Effective Time. For
example, if the working capital of the Company as of the Effective Time is
$400,000, then, for purposes of determining Contribution to Profit, there shall
be a credit of $10,000 made against each regularly scheduled Odell Payment.
Thereafter, in the event that LNIis not required to make the final 12 Odell
Payments, the credit referred to in the immediately preceding sentence (based
upon working capital of the Company as of the Effective Time of $400,000) will
be recalculated, therefore resulting in a credit in the amount of $14,286
against each Odell Payment theretofore made and Contribution to Profit will be
recalculated accordingly . Further, in preparing the balance sheet of the
Company as of the Effective Time, any indebtedness owing from the Company to
Parent will be classified in full as a current liability of the Company. In
order to facilitate the foregoing adjustment, within sixty (60) days after the
Closing, Parent shall cause a balance sheet of the Company as of the close of
business on the date on which the Effective Time occurs to be prepared by Parent
in accordance with GAAP.
<PAGE>
78
Contribution to Profit shall be determined by the internal accounting staff of
Parent and delivered to the Shareholders together with a detailed calculation
thereof (the "Contribution to Profit Determination Notice") within ninety (90)
days of the end of each fiscal year beginning and ending after the Effective
Time and before the Fourth Anniversary. The Shareholders, acting through the
holders of a majority in interest of the Exchange Shares, may dispute the
determination of Contribution to Profit by delivering a written notice of such
dispute containing the Shareholders' calculation of Contribution to Profit (the
"Dispute Notice") to Parent within ten (10) days of their receipt of the
Contribution to Profit Determination Notice. If the dispute cannot be resolved
between the parties within thirty (30) days after delivery of the Dispute
Notice, the disputed issues that are the subject of such dispute shall be
submitted to a single arbitrator in Columbus, Ohio, selected by the parties or,
if the parties cannot agree on an arbitrator, by the American Arbitration
Association. The arbitration will be conducted in accordance with the rules of
the American Arbitration Association and the final decision of the arbitrator
will be final and binding on all the parties. If the arbitrator's final
calculation of Contribution to Profit results in an amount which is (i) greater
than the Contribution to Profit as calculated by Parent (such excess amount
referred to as the "Increase in Contribution to Profit") and the Increase in
Contribution to Profit is greater than fifty percent (50%) of the difference
between the Contribution to Profit as calculated by the Shareholders and the
Contribution to Profit as calculated by Parent (the "Amount in Dispute"), or
(ii) greater than the Contribution to Profit as calculated by the Shareholders,
Parent will bear the fees and expenses of the arbitration (excluding the fees
and expenses of counsel, accountants or other professionals retained by either
party (such expenses to be borne by the party retaining such professionals))
(the "Arbitration Costs"). If the arbitrator's final calculation of the
Contribution to Profit results in an amount which (i) results in an Increase in
Contribution to Profit and the Increase in Contribution to Profit is fifty
percent (50%) or less than the Amount in Dispute, or (ii) is less than the
Contribution to Profit as calculated by Parent, the Shareholders will bear the
Arbitration Costs.
<PAGE>
79
SCHEDULE III
TO MERGER AGREEMENT
CURRENT
SALARY
Sandra Cloer $60,000
Claudette Cox $60,000
Janice Dawson $60,000
Kay Hall $60,000
Joy Lamb $50,000
Cindy Wolfe $60,000
80
EXHIBIT-10.2
Employment Agreement
dated as of August 1, 1996
between Lexford and
Pat Holder,
President of Lexford
August 1, 1996
Pat Holder
8615 Freeport Parkway
Suite 200
Irving, Texas 75063
Dear Pat:
The following sets forth our mutual understanding respecting your
employment with the undersigned, Lexford Properties, Inc., a Texas corporation
(herein referred to as "Employer"), and when this letter is signed by you the
same shall constitute an Employment Agreement between Employer and you. For
purposes of this Agreement, you are herein referred to in the third person as
"Employee". The terms of said Employment Agreement are as follows:
1. Employment.
(a) During the term of this Employment Agreement, or any
extension or renewal hereof (for purposes hereof, all references herein
to the term of this Employment Agreement shall be deemed to include
references to the period of extension or renewal hereof, if any),
Employee will devote his full time and best efforts to his employment
and perform diligently such duties as are or may be from time to time
required by the Board of Directors of Employer (the "Board"), which
duties shall be consistent with his position as set forth in paragraph
2 hereof.
(b) 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 business of Employer, Employer's parent corporation, Cardinal
Realty Services, Inc., an Ohio corporation ("Parent") or any direct or
indirect subsidiary of Parent or Employer and in furtherance thereof,
render services of a business, professional or commercial nature to any
other person or firm, whether for compensation or otherwise. For
purposes of this Employment Agreement, all references herein to
subsidiaries of Parent shall be deemed to include references to
subsidiaries of either Parent or Employer now or hereafter existing
whether owned directly or indirectly through one or more
intermediaries.
<PAGE>
81
Pat Holder
August 1, 1996
Page 2
2. Term and Positions; Office.
(a) Subject to the provisions for termination as hereinafter
provided, the term of this Employment Agreement shall be deemed to
begin on August 1, 1996, and shall continue for a term of four (4)
years from such date to and including July 31, 2000.
(b) Employee shall serve as President of Employer and in such
substitute or further offices or positions with Employer, Parent or any
direct or indirect subsidiary of Parent or Employer (consistent with
such named office or position) as shall, from time to time, be assigned
by the Board without, however, any change in Employee's compensation
hereunder.
(c) During the term of this Employment Agreement, Employer
shall provide Employee with use of the office space currently occupied
by Employee and located at 8615 Freeport Parkway, Suite 200, Irving,
Texas 75063.
3. Compensation.
(a) For all services he may render to Employer and any direct
or indirect subsidiary of Parent or Employer during the term of this
Employment Agreement, Employee shall receive an aggregate salary while
he is employed hereunder at the rate of One Hundred Seventy Five
Thousand Dollars ($175,000) per year ("Base Salary"). During the first
year of the term of this Employment Agreement, Employee shall be paid
his Base Salary as follows: Twenty Five Thousand Dollars ($25,000)
shall be paid upon the execution of this Employment Agreement and the
balance of his Base Salary shall be paid in equal installments in
accordance with Employer's customary payroll procedures. During each
subsequent year, Employee shall be paid his entire Base Salary in equal
installments in accordance with Employer's customary payroll
procedures.
(b) In addition to the Base Salary, Employee shall be entitled
to receive, if earned, a performance cash bonus (the "Incentive
Compensation") as a Grade 11 -Property Management Executive under
Parent's 1996 Incentive Compensation Plan (the "Plan") as adopted by
Parent's Board of Directors on March 21, 1996 and as outlined on the
attached Exhibit A to this Employment Agreement up to a maximum of
sixty percent (60%) of Employee's Base Salary earned during fiscal year
1996 while this Employment Agreement is in effect. For purposes of
determining the amount, if any, of Incentive Compensation that Employee
is entitled to in accordance with the calculations contained on Exhibit
A, the target net income-property management for fiscal year 1996 shall
be Six Million Nine Hundred Two Thousand Six Hundred and Seven Dollars
($6,902,607) (it being acknowledged that such target is different than
the target for other employees of Parent under the Plan) and the actual
net income-property management for fiscal year 1996 shall include the
actual net profit of Lexford Properties, a Texas joint venture, and its
successors in interest for fiscal year 1996 earned prior to the date
<PAGE>
82
Pat Holder
August 1, 1996
Page 3
hereof. After December 31, 1996 and during the remaining term of this
Employment Agreement, Employee shall be entitled to receive the same
incentive compensation as other similarly situated property management
executives under Parent's then existing incentive compensation plan(s).
(c) During the term of this Employment Agreement, Employee
shall be entitled to monthly advances ("Advances") not to exceed Two
Thousand Dollars ($2,000) per month regardless of the amount of any
Advances made in prior months. All unpaid Advances received by Employee
shall bear interest ("Interest") at the "prime" or "base" rate of
interest per annum, as announced from time to time by The Provident
Bank or Parent's successor senior lender, plus one percent (1%) until
repaid. Any request for an Advance shall be made by Employee by the
fifth (5th) day of each month upon the receipt of which Employer will
fund such Advance by the fifteenth (15th) day of such month. The
Incentive Compensation earned by Employee, if any, for any period shall
be applied by Parent first to any accrued and unpaid Interest with
respect to Advances made, second to the principal amount of any
outstanding Advances and the balance, if any, shall be paid to
Employee. If the Incentive Compensation earned by Employee for any
period is less than the sum of the outstanding Advances and the accrued
and unpaid Interest thereon, if any, Employee shall pay such deficit
(plus Interest accrued thereon to the date of payment) to Parent within
ninety (90) days of Parent's demand therefor.
4. Additional Compensation. In addition to the compensation as
above stated, Employee shall be entitled to receive such additional
compensation, if any, as may be awarded from time to time by the Board.
5. Termination and Further Compensation.
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause
at any time. For purposes hereof the term "cause" includes but is not
limited to:
(i) Employee's fraud, dishonesty, willful misconduct,
or gross negligence in the performance of his duties
hereunder; or
(ii) Employee's material breach of any provision of
this Employment Agreement.
Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment
Agreement or otherwise.
<PAGE>
83
Pat Holder
August 1, 1996
Page 4
(b) In the event of termination of this Employment Agreement
by Employer pursuant to this paragraph 5, Employee shall be entitled to
no further salary, additional compensation or other benefits under this
Employment Agreement.
6. Renewal. The term of this Employment Agreement may be extended
or renewed by mutual agreement of Employer, acting through the Board, and
Employee.
7. Reimbursement. Employer shall reimburse Employee (or provide
him with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by Employee in the promotion of Employer's
business.
8. Covenants and Confidential Information.
(a) Employee agrees that during the term of this Employment
Agreement and for a period of one (1) year thereafter (and, as to
clauses (iii) and (iv) of this subparagraph (a), at any time after the
term of this Employment Agreement) he will 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 is engaged in any manner in, or otherwise competes with,
the business of Employer, Parent or any of Parent's
subsidiaries (as conducted on the date Employee ceases to be
employed by Employer, Parent or any of Parent's subsidiaries
in any capacity, including as a consultant) in the continental
United States (it being acknowledged by Employee that Employer
and Parent each conduct businesses of national scope);
provided, however, that the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation
shall not be a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future employee,
officer or agent of Employer, Parent or any of Parent's
subsidiaries;
(iii) Induce any person who is an employee, officer
or agent of Employer, Parent or any of Parent's subsidiaries
to terminate said relationship; or
(iv) 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, Parent or any of
Parent's or Employer's direct or indirect subsidiaries, the
customer lists, appraisals, engineering and environmental
reports, market research, investment banking analyses or
<PAGE>
84
Pat Holder
August 1, 1996
Page 5
financial and engineering data or other trade secrets of
Employer, Parent or any of Parent's subsidiaries, it being
acknowledged by Employee that all such information regarding
the business of Employer, Parent and Parent's subsidiaries
compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with
Employer is confidential information and Employer's exclusive
property.
(b) Employee expressly agrees and understands that the remedy
at law for any breach by him of this paragraph 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 provision of this paragraph 8, Employer shall be entitled
to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this paragraph
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 paragraph 8
which may be pursued or availed of by Employer.
(c) In the event Employee shall violate any legally
enforceable provision of this paragraph 8 as to which there is a
specific time period during which he is prohibited from taking certain
actions or from engaging in certain activities, as set forth in such
provision, then, in such event, such violation shall toll the running
of such time period from the date of such violation until such
violation shall cease.
(D) EMPLOYEE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF
THE RESTRICTIONS UPON HIM AND THE RIGHTS AND REMEDIES CONFERRED UPON
EMPLOYER UNDER THIS PARAGRAPH 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. Severable Provisions. The provisions of this Employment Agreement
are severable and if any one or more provisions are 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.
10. Death or Permanent Disability. In the event of Employee's death or
permanent disability (as hereinafter defined) occurring during the term of this
Employment Agreement, this Employment Agreement shall be deemed terminated and
he or his estate, as the case may be, shall be entitled to no further salary,
other compensation or other privileges or benefits hereunder, except as to (i)
that portion of any unpaid salary or other benefits accrued and earned by
Employee hereunder up to and including the day of death or disability, as the
<PAGE>
85
Pat Holder
August 1, 1996
Page 6
case may be and (ii) in the case of permanent disability, continuation of salary
payments for nine (9) months. The phrase "permanent disability" shall be deemed
to occur after one hundred twenty (120) days in the aggregate during any
consecutive twelve (12) month period, or after ninety (90) consecutive days,
during which one hundred twenty (120) or ninety (90) days, as the case may be,
Employee, by reason of his physical or mental disability or illness, shall have
been unable to discharge fully his duties under this Employment Agreement.
11. Binding Agreement. The rights and obligations of Employer under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, Employer and its successors and assigns, and the rights and obligations of
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, Employee and his heirs, personal representatives and
estate.
12. Arbitration. Any controversy or claim arising out of or relating to
this Employment 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 power to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this paragraph 12 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 by
Employee of any of his covenants contained in subparagraph (a) of paragraph 8
hereof.
13. Notices. Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
after it is posted in the United States Mails, postage prepaid, registered or
certified, return receipt requested, and if mailed to Employer, shall be
addressed to Employer c/o Parent at Parent's principal place of business,
Attention: John B. Bartling, Jr., President and Chief Executive Officer, and if
mailed to Employee, shall be addressed to him at his home address last shown 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.
14. Waiver. The failure of either party to enforce any provision or
provisions of this Employment 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 Employment 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.
<PAGE>
86
Pat Holder
August 1, 1996
Page 7
15. Miscellaneous. This Employment Agreement supersedes all prior
employment agreements and understandings between the parties and may not be
modified or terminated orally. No modification, termination or attempted waiver
of this Employment Agreement shall be valid unless in writing and signed by the
party against whom the same is sought to be enforced. This Employment Agreement
shall be governed by and construed according to the laws of the State of Ohio.
If the foregoing understanding respecting the Employment Agreement
between you and the undersigned is acceptable to you, please indicate your
approval thereof by signing a copy of this letter in the space provided below
and return it to the undersigned. Thereupon, the Employment Agreement shall be
in full force and effect in accordance with its terms above set forth.
Sincerely,
LEXFORD PROPERTIES, INC.
By: Mark D. Thompson
Vice President
The terms and provisions of the Employment Agreement are hereby
approved and accepted this 1st day of August, 1996.
/s/ Pat Holder
-------------------------------------
Pat Holder
Cardinal Realty Services, Inc. acknowledges and agrees to the
provisions contained in Paragraph 3(b) hereof this 1st day of August, 1996.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Executive Vice President
of Corporate Acquisitions
<PAGE>
87
<TABLE>
<CAPTION>
STOCK BONUS MAX CASH BONUS
---------------------- -------------------------
GROSS SALARY RESTRICTED OPTIONS 60% 45% 30% 4.5%
------------ ---------- ------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE $285,000
- ---------------------
President x
GRADE 11 - 5 EMPLOYEES 643,819
- ----------------------
Chief Financial Officer x x
Corporate Acquisitions x x
Manager Advisory Services x x
Property Management - FO x x
Property Management - PO x x
GRADE 10 - 11 EMPLOYEES 714,301
- -----------------------
Corporate Treasurer x x
Audit / Strategic Planning x x
General Counsel x x
Co-General Counsel x x
Ancillary Services x x
Regional Manager - PM/NE x x
Regional Manager - PM/NW x x
Regional Manager - PM/S x x
Portfolio Manager - WO x x
Portfolio Manager - S Synd. x x
Portfolio Manager - N Synd. x x
---------------------------
GRADE 9 - 49 EMPLOYEES 2,511,267
- ----------------------
Asset Managers - WO x x
Asset Managers - S Synd. x x
Asset Managers - N Synd. x x
Asset Manager - Portf. x x
Assoc. General Counsel x x
Assoc. General Counsel x x
Ancillary Services x x
Ancillary Services x x
Property Management - Portf x x
Administrative Services - HR x x
Management Information x x
Accounting Managers - 8 emps. x x
District Managers - 30 emps. x x
----------------------------
DISCRETIONARY POOL 2,861,828 x x
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
<PAGE>
88
<TABLE>
<CAPTION>
BONUS CALCULATION = FACTOR %INCREASE X MULTIPLIER (CUMULATIVELY)
------------------------------------------------------------------------------ MAX-CASH
FACTOR 3% - 5% 6% - 10% 11% - 15% 16% - 20% 21% - 25% 26% - 30% BONUS
------ ------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE 171,000
- ---------------------
President EBITDA 2.00 2.00 2.00 2.00 2.00 2.00
--------- ------ ---- ---- ---- ---- ---- ----
GRADE 11 - 5 EMPLOYEES 386,291
- ----------------------
Chief Financial Officer EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Corporate Acquisitions EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Manager Advisory Services Return/Equity 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - FO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - PO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
------------------------ --------------- ---- ---- ---- ---- ---- ----
GRADE 10 - 11 EMPLOYEES 321,435
- -----------------------
Corporate Treasurer EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Audit / Strategic Planning EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Co-General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Ancillary Services Net Income - AS 1.13 1.13 1.50 1.50 1.88 1.88
Regional Manager - PM/NE NOI 2.00 3.00 4.00
Regional Manager - PM/NW NOI 2.00 3.00 4.00
Regional Manager - PM/S NOI 2.00 3.00 4.00
Portfolio Manager - WO Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - S Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - N Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
--------------------------- ------------- ---- ---- ---- ---- ---- ----
GRADE 9 - 49 EMPLOYEES 753,380
- ----------------------
Asset Managers - WO Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - S Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - N Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Manager - Portf. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Property Management - Portf Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Administrative Services - HR Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Management Information Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Accounting Managers - 8 emps. Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
District Managers - 30 emps. NOI 1.50 2.00 2.50 WE THANK THEM
---------------------------- --- ---- ---- ----- ----- ----- -----
DISCRETIONARY POOL EBITDA 0.125 0.125 0.150 0.150 0.175 0.175 128,782
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
89
EXHIBIT-10.3
Employment Agreement
dated as of August 1, 1996
between Lexford and
Bruce Woodward,
Vice President of Lexford
August 1, 1996
Bruce Woodward
8615 Freeport Parkway
Suite 200
Irving, Texas 75063
Dear Bruce:
The following sets forth our mutual understanding respecting your
employment with the undersigned, Lexford Properties, Inc., a Texas corporation
(herein referred to as "Employer"), and when this letter is signed by you the
same shall constitute an Employment Agreement between Employer and you. For
purposes of this Agreement, you are herein referred to in the third person as
"Employee". The terms of said Employment Agreement are as follows:
1. Employment.
(a) During the term of this Employment Agreement, or any
extension or renewal hereof (for purposes hereof, all references herein
to the term of this Employment Agreement shall be deemed to include
references to the period of extension or renewal hereof, if any),
Employee will devote his full time and best efforts to his employment
and perform diligently such duties as are or may be from time to time
required by the Board of Directors of Employer (the "Board"), which
duties shall be consistent with his position as set forth in paragraph
2 hereof.
(b) 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 business of Employer, Employer's parent corporation, Cardinal
Realty Services, Inc., an Ohio corporation ("Parent") or any direct or
indirect subsidiary of Parent or Employer and in furtherance thereof,
render services of a business, professional or commercial nature to any
other person or firm, whether for compensation or otherwise. For
purposes of this Employment Agreement, all references herein to
subsidiaries of Parent shall be deemed to include references to
subsidiaries of either Parent or Employer now or hereafter existing
whether owned directly or indirectly through one or more
intermediaries.
<PAGE>
90
Bruce Woodward
August 1, 1996
Page 2
2. Term and Positions.
(a) Subject to the provisions for termination as hereinafter
provided, the term of this Employment Agreement shall be deemed to
begin on August 1, 1996, and shall continue for a term of four (4)
years from such date to and including July 31, 2000.
(b) Employee shall serve as Vice President of Employer and in
such substitute or further offices or positions with Employer, Parent
or any direct or indirect subsidiary of Parent or Employer (consistent
with such named office or position) as shall, from time to time, be
assigned by the Board without, however, any change in Employee's
compensation hereunder.
(c) During the term of this Employment Agreement, Employee
will not be required to relocate outside of greater Houston, Texas.
3. Compensation.
(a) In consideration of Employee's execution of this
Employment Agreement, Employer has paid Employee Ten Thousand Dollars
($10,000), the receipt of which Employee hereby acknowledges.
(b) For all services he may render to Employer and any direct
or indirect subsidiary of Parent or Employer during the term of this
Employment Agreement, Employee shall receive an aggregate salary while
he is employed hereunder at the rate of One Hundred Twenty-Five
Thousand Dollars ($125,000) per year, payable in equal installments in
accordance with Employer's customary payroll procedures ("Base
Salary").
(c) In addition to the Base Salary, Employee shall be entitled
to receive, if earned, a performance cash bonus (the "Incentive
Compensation") as a Grade 11 Property Management Executive under
Parent's 1996 Incentive Compensation Plan as adopted by Parent's Board
of Directors on March 21, 1996 and as outlined on the attached Exhibit
A to this Employment Agreement up to a maximum of sixty percent (60%)
of Employee's Base Salary earned during fiscal year 1996 while this
Employment Agreement is in effect. For purposes of determining the
amount, if any, of Incentive Compensation that Employee is entitled to
in accordance with the calculations contained on Exhibit A, the target
net income-property management shall be Six Million Nine Hundred Two
Thousand Six Hundred and Seven Dollars ($6,902,607) (it being
acknowledged that such target is different than the target for other
employees of Parent under the Plan) and the actual net income-property
management for fiscal year 1996 shall include the actual net profits of
Lexford Properties, a Texas joint venture, and its successors in
interest for fiscal year 1996 earned prior to the date hereof. After
December 31, 1996 and during the remaining term of this Employment
Agreement, Employee shall be entitled to receive the same incentive
<PAGE>
91
Bruce Woodward
August 1, 1996
Page 3
compensation as other similarly situated property management executives
under Parent's then existing incentive compensation plan(s).
(d) During the term of this Employment Agreement, Employee
shall be entitled to monthly advances ("Advances") not to exceed Two
Thousand Dollars ($2,000) per month regardless of the amount of any
Advances made in prior months. All unpaid Advances received by Employee
shall bear interest ("Interest") at the rate of the "prime" or "base"
rate of interest per annum, as announced from time to time by The
Provident Bank or Parent's successor senior lender, plus one percent
(1%) until repaid. Any request for an Advance shall be made by Employee
by the fifth (5th) day of each month upon the receipt of which Employer
will fund such Advances by the fifteenth (15th) day of such month. The
Incentive Compensation earned by Employee, if any, for any period shall
be applied by Parent first to any accrued and unpaid Interest with
respect to Advances made, second to the principal amount of any
outstanding Advances and the balance, if any, shall be paid to
Employee. If the Incentive Compensation earned by Employee for any
period is less than the sum of the outstanding Advances and the accrued
and unpaid Interest thereon, if any, Employee shall pay such deficit
(plus Interest accrued thereon to the date of payment) to Parent within
ninety (90) days of Parent's demand therefor.
4. Additional Compensation. In addition to the compensation as
above stated, Employee shall be entitled to receive such additional
compensation, if any, as may be awarded from time to time by the Board.
5. Termination and Further Compensation.
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause
at any time. For purposes hereof the term "cause" includes but is not
limited to:
(i) Employee's fraud, dishonesty, willful misconduct,
or gross negligence in the performance of his duties
hereunder; or
(ii) Employee's material breach of any provision of
this Employment Agreement.
Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment
Agreement or otherwise.
(b) In the event of termination of this Employment Agreement
by Employer pursuant to this paragraph 5, Employee shall be entitled to
no further salary, additional compensation or other benefits under this
Employment Agreement.
<PAGE>
92
Bruce Woodward
August 1, 1996
Page 4
6. Renewal. The term of this Employment Agreement may be extended
or renewed by mutual agreement of Employer, acting through the Board, and
Employee.
7. Reimbursement. Employer shall reimburse Employee (or provide
him with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by Employee in the promotion of Employer's
business.
8. Covenants and Confidential Information.
(a) Employee agrees that during the term of this Employment
Agreement and for a period of one (1) year thereafter (and, as to
clauses (iii) and (iv) of this subparagraph (a), at any time after the
term of this Employment Agreement) he will 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 is engaged in any manner in, or otherwise competes with,
the business of Employer, Parent or any of Parent's
subsidiaries (as conducted on the date Employee ceases to be
employed by Employer, Parent or any of Parent's subsidiaries
in any capacity, including as a consultant) in the continental
United States (it being acknowledged by Employee that Employer
and Parent each conduct businesses of national scope);
provided, however, that the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation
shall not be a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future employee,
officer or agent of Employer, Parent or any of Parent's
subsidiaries;
(iii) Induce any person who is an employee, officer
or agent of Employer, Parent or any of Parent's subsidiaries
to terminate said relationship; or
(iv) 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, Parent or any of
Parent's or Employer's direct or indirect subsidiaries, the
customer lists, appraisals, engineering and environmental
reports, market research, investment banking analyses or
financial and engineering data or other trade secrets of
Employer, Parent or any of Parent's subsidiaries, it being
acknowledged by Employee that all such information regarding
the business of Employer, Parent and Parent's subsidiaries
compiled or obtained by, or furnished to, Employee while
<PAGE>
93
Bruce Woodward
August 1, 1996
Page 5
Employee shall have been employed by or associated with
Employer is confidential information and Employer's exclusive
property.
(b) Employee expressly agrees and understands that the remedy
at law for any breach by him of this paragraph 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 provision of this paragraph 8, Employer shall be entitled
to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this paragraph
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 paragraph 8
which may be pursued or availed of by Employer.
(c) In the event Employee shall violate any legally
enforceable provision of this paragraph 8 as to which there is a
specific time period during which he is prohibited from taking certain
actions or from engaging in certain activities, as set forth in such
provision, then, in such event, such violation shall toll the running
of such time period from the date of such violation until such
violation shall cease.
(D) EMPLOYEE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF
THE RESTRICTIONS UPON HIM AND THE RIGHTS AND REMEDIES CONFERRED UPON
EMPLOYER UNDER THIS PARAGRAPH 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. Severable Provisions. The provisions of this Employment Agreement
are severable and if any one or more provisions are 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.
10. Death or Permanent Disability. In the event of Employee's death or
permanent disability (as hereinafter defined) occurring during the term of this
Employment Agreement, this Employment Agreement shall be deemed terminated and
he or his estate, as the case may be, shall be entitled to no further salary,
other compensation or other privileges or benefits hereunder, except as to (i)
that portion of any unpaid salary or other benefits accrued and earned by
Employee hereunder up to and including the day of death or disability, as the
case may be and (ii) in the case of permanent disability, continuation of salary
payments for nine (9) months. The phrase "permanent disability" shall be deemed
to occur after one hundred twenty (120) days in the aggregate during any
consecutive twelve (12) month period, or after ninety (90) consecutive days,
<PAGE>
94
Bruce Woodward
August 1, 1996
Page 6
during which one hundred twenty (120) or ninety (90) days, as the case may be,
Employee, by reason of his physical or mental disability or illness, shall have
been unable to discharge fully his duties under this Employment Agreement.
11. Binding Agreement. The rights and obligations of Employer under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, Employer and its successors and assigns, and the rights and obligations of
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, Employee and his heirs, personal representatives and
estate.
12. Arbitration. Any controversy or claim arising out of or relating to
this Employment 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 power to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this paragraph 12 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 by
Employee of any of his covenants contained in subparagraph (a) of paragraph 8
hereof.
13. Notices. Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
after it is posted in the United States Mails, postage prepaid, registered or
certified, return receipt requested, and if mailed to Employer, shall be
addressed to Employer c/o Parent at Parent's principal place of business,
Attention: John B. Bartling, Jr., President and Chief Executive Officer, and if
mailed to Employee, shall be addressed to him at his home address last shown 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.
14. Waiver. The failure of either party to enforce any provision or
provisions of this Employment 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 Employment 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.
15. Miscellaneous. This Employment Agreement supersedes all prior
employment agreements and understandings between the parties and may not be
modified or terminated orally. No modification, termination or attempted waiver
of this Employment Agreement shall be valid unless in writing and signed by the
<PAGE>
95
Bruce Woodward
August 1, 1996
Page 7
party against whom the same is sought to be enforced. This Employment Agreement
shall be governed by and construed according to the laws of the State of Ohio.
If the foregoing understanding respecting the Employment Agreement
between you and the undersigned is acceptable to you, please indicate your
approval thereof by signing a copy of this letter in the space provided below
and return it to the undersigned. Thereupon, the Employment Agreement shall be
in full force and effect in accordance with its terms above set forth.
Sincerely,
LEXFORD PROPERTIES, INC.
By: Mark D. Thompson
Vice President
The terms and provisions of the Employment Agreement are hereby
approved and accepted this 1st day of August, 1996.
/s/ Bruce Woodward
-------------------------------------
Bruce Woodward
The provisions of Paragraph 3(c) are hereby approved and accepted this
1st day of August, 1996.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Executive Vice President
of Corporate Acquisitions
<PAGE>
96
<TABLE>
<CAPTION>
STOCK BONUS MAX CASH BONUS
---------------------- -------------------------
GROSS SALARY RESTRICTED OPTIONS 60% 45% 30% 4.5%
------------ ---------- ------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE $285,000
- ---------------------
President x
GRADE 11 - 5 EMPLOYEES 643,819
- ----------------------
Chief Financial Officer x x
Corporate Acquisitions x x
Manager Advisory Services x x
Property Management - FO x x
Property Management - PO x x
GRADE 10 - 11 EMPLOYEES 714,301
- -----------------------
Corporate Treasurer x x
Audit / Strategic Planning x x
General Counsel x x
Co-General Counsel x x
Ancillary Services x x
Regional Manager - PM/NE x x
Regional Manager - PM/NW x x
Regional Manager - PM/S x x
Portfolio Manager - WO x x
Portfolio Manager - S Synd. x x
Portfolio Manager - N Synd. x x
---------------------------
GRADE 9 - 49 EMPLOYEES 2,511,267
- ----------------------
Asset Managers - WO x x
Asset Managers - S Synd. x x
Asset Managers - N Synd. x x
Asset Manager - Portf. x x
Assoc. General Counsel x x
Assoc. General Counsel x x
Ancillary Services x x
Ancillary Services x x
Property Management - Portf x x
Administrative Services - HR x x
Management Information x x
Accounting Managers - 8 emps. x x
District Managers - 30 emps. x x
----------------------------
DISCRETIONARY POOL 2,861,828 x x
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
<PAGE>
97
<TABLE>
<CAPTION>
BONUS CALCULATION = FACTOR %INCREASE X MULTIPLIER (CUMULATIVELY)
------------------------------------------------------------------------------ MAX-CASH
FACTOR 3% - 5% 6% - 10% 11% - 15% 16% - 20% 21% - 25% 26% - 30% BONUS
------ ------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE 171,000
- ---------------------
President EBITDA 2.00 2.00 2.00 2.00 2.00 2.00
--------- ------ ---- ---- ---- ---- ---- ----
GRADE 11 - 5 EMPLOYEES 386,291
- ----------------------
Chief Financial Officer EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Corporate Acquisitions EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Manager Advisory Services Return/Equity 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - FO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - PO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
------------------------ --------------- ---- ---- ---- ---- ---- ----
GRADE 10 - 11 EMPLOYEES 321,435
- -----------------------
Corporate Treasurer EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Audit / Strategic Planning EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Co-General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Ancillary Services Net Income - AS 1.13 1.13 1.50 1.50 1.88 1.88
Regional Manager - PM/NE NOI 2.00 3.00 4.00
Regional Manager - PM/NW NOI 2.00 3.00 4.00
Regional Manager - PM/S NOI 2.00 3.00 4.00
Portfolio Manager - WO Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - S Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - N Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
--------------------------- ------------- ---- ---- ---- ---- ---- ----
GRADE 9 - 49 EMPLOYEES 753,380
- ----------------------
Asset Managers - WO Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - S Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - N Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Manager - Portf. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Property Management - Portf Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Administrative Services - HR Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Management Information Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Accounting Managers - 8 emps. Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
District Managers - 30 emps. NOI 1.50 2.00 2.50 WE THANK THEM
---------------------------- --- ---- ---- ----- ----- ----- -----
DISCRETIONARY POOL EBITDA 0.125 0.125 0.150 0.150 0.175 0.175 128,782
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
98
EXHIBIT-10.4
Employment Agreement
dated as of August 1, 1996
between Lexford and
Annette Hoover,
Vice President of Lexford
August 1, 1996
Annette Hoover
8615 Freeport Parkway
Suite 200
Irving, Texas 75063
Dear Annette:
The following sets forth our mutual understanding respecting your
employment with the undersigned, Lexford Properties, Inc., a Texas corporation
(herein referred to as "Employer"), and when this letter is signed by you the
same shall constitute an Employment Agreement between Employer and you. For
purposes of this Agreement, you are herein referred to in the third person as
"Employee". The terms of said Employment Agreement are as follows:
1. Employment.
(a) During the term of this Employment Agreement, or any
extension or renewal hereof (for purposes hereof, all references herein
to the term of this Employment Agreement shall be deemed to include
references to the period of extension or renewal hereof, if any),
Employee will devote her full time and best efforts to her employment
and perform diligently such duties as are or may be from time to time
required by the Board of Directors of Employer (the "Board"), which
duties shall be consistent with her position as set forth in paragraph
2 hereof.
(b) 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 business of Employer, Employer's parent corporation, Cardinal
Realty Services, Inc., an Ohio corporation ("Parent") or any direct or
indirect subsidiary of Parent or Employer and in furtherance thereof,
render services of a business, professional or commercial nature to any
other person or firm, whether for compensation or otherwise. For
purposes of this Employment Agreement, all references herein to
subsidiaries of Parent shall be deemed to include references to
subsidiaries of either Parent or Employer now or hereafter existing
whether owned directly or indirectly through one or more
intermediaries.
<PAGE>
99
Annette Hoover
August 1, 1996
Page 2
2. Term and Positions.
(a) Subject to the provisions for termination as hereinafter
provided, the term of this Employment Agreement shall be deemed to
begin on August 1, 1996, and shall continue for a term of four (4)
years from such date to and including July 31, 2000.
(b) Employee shall serve as Vice President of Employer and in
such substitute or further offices or positions with Employer, Parent
or any direct or indirect subsidiary of Parent or Employer (consistent
with such named office or position) as shall, from time to time, be
assigned by the Board without, however, any change in Employee's
compensation hereunder.
3. Compensation.
(a) In consideration of Employee's execution of this
Employment Agreement, Employer has paid Employee Ten Thousand Dollars
($10,000), the receipt of which Employee hereby acknowledges.
(b) For all services she may render to Employer and any direct
or indirect subsidiary of Parent or Employer during the term of this
Employment Agreement, Employee shall receive an aggregate salary while
she is employed hereunder at the rate of One Hundred Twenty-Five
Thousand Dollars ($125,000) per year, payable in equal installments in
accordance with Employer's customary payroll procedures ("Base
Salary").
(c) In addition to the Base Salary, Employee shall be entitled
to receive, if earned, a performance cash bonus (the "Incentive
Compensation") as a Grade 11 Property Management Executive under
Parent's 1996 Incentive Compensation Plan as adopted by Parent's Board
of Directors on March 21, 1996 and as outlined on the attached Exhibit
A to this Employment Agreement up to a maximum of sixty percent (60%)
of Employee's Base Salary earned during fiscal year 1996 while this
Employment Agreement is in effect. For purposes of determining the
amount, if any, of Incentive Compensation that Employee is entitled to
in accordance with the calculations contained on Exhibit A, the target
net income-property management shall be Six Million Nine Hundred Two
Thousand Six Hundred and Seven Dollars ($6,902,607) (it being
acknowledged that such target is different than the target for other
employees of Parent under the Plan) and the actual net income-property
management for fiscal year 1996 shall include the actual net profits of
Lexford Properties, a Texas joint venture, and its successors in
interest for fiscal year 1996 earned prior to the date hereof. After
December 31, 1996 and during the remaining term of this Employment
Agreement, Employee shall be entitled to receive the same incentive
compensation as other similarly situated property management executives
under Parent's then existing incentive compensation plan(s).
<PAGE>
100
Annette Hoover
August 1, 1996
Page 3
(d) During the term of this Employment Agreement, Employee
shall be entitled to monthly advances ("Advances") not to exceed Two
Thousand Dollars ($2,000) per month regardless of the amount of any
Advances made in prior months. All unpaid Advances received by Employee
shall bear interest ("Interest") at the rate of the "prime" or "base"
rate of interest per annum, as announced from time to time by The
Provident Bank or Parent's successor senior lender, plus one percent
(1%) until repaid. Any request for an Advance shall be made by Employee
by the fifth (5th) day of each month upon the receipt of which Employer
will fund such Advances by the fifteenth (15th) day of each month. The
Incentive Compensation earned by Employee, if any, for any period shall
be applied by Parent first to any accrued and unpaid Interest with
respect to Advances made, second to the principal amount of any
outstanding Advances and the balance, if any, shall be paid to
Employee. If the Incentive Compensation earned by Employee for any
period is less than the sum of the outstanding Advances and the accrued
and unpaid Interest thereon, if any, Employee shall pay such deficit
(plus Interest accrued thereon to the date of payment) to Parent within
ninety (90) days of Parent's demand therefor.
4. Additional Compensation. In addition to the compensation as
above stated, Employee shall be entitled to receive such additional
compensation, if any, as may be awarded from time to time by the Board.
5. Termination and Further Compensation.
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause
at any time. For purposes hereof the term "cause" includes but is not
limited to:
(i) Employee's fraud, dishonesty, willful misconduct,
or gross negligence in the performance of her duties
hereunder; or
(ii) Employee's material breach of any provision of
this Employment Agreement.
Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment
Agreement or otherwise.
(b) In the event of termination of this Employment Agreement
by Employer pursuant to this paragraph 5, Employee shall be entitled to
no further salary, additional compensation or other benefits under this
Employment Agreement.
6. Renewal. The term of this Employment Agreement may be extended
or renewed by mutual agreement of Employer, acting through the Board, and
Employee.
<PAGE>
101
Annette Hoover
August 1, 1996
Page 4
7. Reimbursement. Employer shall reimburse Employee (or provide
her with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by Employee in the promotion of Employer's
business.
8. Covenants and Confidential Information.
(a) Employee agrees that during the term of this Employment
Agreement and for a period of one (1) year thereafter (and, as to
clauses (iii) and (iv) of this subparagraph (a), at any time after the
term of this Employment Agreement) she will 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 is engaged in any manner in, or otherwise competes with,
the business of Employer, Parent or any of Parent's
subsidiaries (as conducted on the date Employee ceases to be
employed by Employer, Parent or any of Parent's subsidiaries
in any capacity, including as a consultant) in the continental
United States (it being acknowledged by Employee that Employer
and Parent each conduct businesses of national scope);
provided, however, that the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation
shall not be a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future employee,
officer or agent of Employer, Parent or any of Parent's
subsidiaries;
(iii) Induce any person who is an employee, officer
or agent of Employer, Parent or any of Parent's subsidiaries
to terminate said relationship; or
(iv) 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, Parent or any of
Parent's or Employer's direct or indirect subsidiaries, the
customer lists, appraisals, engineering and environmental
reports, market research, investment banking analyses or
financial and engineering data or other trade secrets of
Employer, Parent or any of Parent's subsidiaries, it being
acknowledged by Employee that all such information regarding
the business of Employer, Parent and Parent's subsidiaries
compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with
Employer is confidential information and Employer's exclusive
property.
<PAGE>
102
Annette Hoover
August 1, 1996
Page 5
(b) Employee expressly agrees and understands that the remedy
at law for any breach by her of this paragraph 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 provision of this paragraph 8, Employer shall be entitled
to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this paragraph
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 paragraph 8
which may be pursued or availed of by Employer.
(c) In the event Employee shall violate any legally
enforceable provision of this paragraph 8 as to which there is a
specific time period during which she is prohibited from taking certain
actions or from engaging in certain activities, as set forth in such
provision, then, in such event, such violation shall toll the running
of such time period from the date of such violation until such
violation shall cease.
(D) EMPLOYEE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF
THE RESTRICTIONS UPON HER AND THE RIGHTS AND REMEDIES CONFERRED UPON
EMPLOYER UNDER THIS PARAGRAPH 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. Severable Provisions. The provisions of this Employment
Agreement are severable and if any one or more provisions are 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.
10. Death or Permanent Disability. In the event of Employee's death or
permanent disability (as hereinafter defined) occurring during the term of this
Employment Agreement, this Employment Agreement shall be deemed terminated and
she or her estate, as the case may be, shall be entitled to no further salary,
other compensation or other privileges or benefits hereunder, except as to (i)
that portion of any unpaid salary or other benefits accrued and earned by
Employee hereunder up to and including the day of death or disability, as the
case may be and (ii) in the case of permanent disability, continuation of salary
payments for nine (9) months. The phrase "permanent disability" shall be deemed
to occur after one hundred twenty (120) days in the aggregate during any
consecutive twelve (12) month period, or after ninety (90) consecutive days,
during which one hundred twenty (120) or ninety (90) days, as the case may be,
Employee, by reason of her physical or mental disability or illness, shall have
been unable to discharge fully her duties under this Employment Agreement.
<PAGE>
103
Annette Hoover
August 1, 1996
Page 6
11. Binding Agreement. The rights and obligations of Employer under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, Employer and its successors and assigns, and the rights and obligations of
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, Employee and her heirs, personal representatives and
estate.
12. Arbitration. Any controversy or claim arising out of or relating to
this Employment 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 power to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this paragraph 12 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 by
Employee of any of her covenants contained in subparagraph (a) of paragraph 8
hereof.
13. Notices. Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
after it is posted in the United States Mails, postage prepaid, registered or
certified, return receipt requested, and if mailed to Employer, shall be
addressed to Employer c/o Parent at Parent's principal place of business,
Attention: John B. Bartling, Jr., President and Chief Executive Officer, and if
mailed to Employee, shall be addressed to her at her home address last shown 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.
14. Waiver. The failure of either party to enforce any provision or
provisions of this Employment 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 Employment 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.
15. Miscellaneous. This Employment Agreement supersedes all prior
employment agreements and understandings between the parties and may not be
modified or terminated orally. No modification, termination or attempted waiver
of this Employment Agreement shall be valid unless in writing and signed by the
party against whom the same is sought to be enforced. This Employment Agreement
shall be governed by and construed according to the laws of the State of Ohio.
<PAGE>
104
Annette Hoover
August 1, 1996
Page 7
If the foregoing understanding respecting the Employment Agreement
between you and the undersigned is acceptable to you, please indicate your
approval thereof by signing a copy of this letter in the space provided below
and return it to the undersigned. Thereupon, the Employment Agreement shall be
in full force and effect in accordance with its terms above set forth.
Sincerely,
LEXFORD PROPERTIES, INC.
By: Mark D. Thompson
Vice President
The terms and provisions of the Employment Agreement are hereby
approved and accepted this 1st day of August, 1996.
/s/ Annette Hoover
-------------------------------------
Annette Hoover
The provisions of Paragraph 3(c) are hereby approved and accepted this
1st day of August, 1996.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Executive Vice President
of Corporate Acquisitions
<PAGE>
105
<TABLE>
<CAPTION>
STOCK BONUS MAX CASH BONUS
---------------------- -------------------------
GROSS SALARY RESTRICTED OPTIONS 60% 45% 30% 4.5%
------------ ---------- ------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE $285,000
- ---------------------
President x
GRADE 11 - 5 EMPLOYEES 643,819
- ----------------------
Chief Financial Officer x x
Corporate Acquisitions x x
Manager Advisory Services x x
Property Management - FO x x
Property Management - PO x x
GRADE 10 - 11 EMPLOYEES 714,301
- -----------------------
Corporate Treasurer x x
Audit / Strategic Planning x x
General Counsel x x
Co-General Counsel x x
Ancillary Services x x
Regional Manager - PM/NE x x
Regional Manager - PM/NW x x
Regional Manager - PM/S x x
Portfolio Manager - WO x x
Portfolio Manager - S Synd. x x
Portfolio Manager - N Synd. x x
---------------------------
GRADE 9 - 49 EMPLOYEES 2,511,267
- ----------------------
Asset Managers - WO x x
Asset Managers - S Synd. x x
Asset Managers - N Synd. x x
Asset Manager - Portf. x x
Assoc. General Counsel x x
Assoc. General Counsel x x
Ancillary Services x x
Ancillary Services x x
Property Management - Portf x x
Administrative Services - HR x x
Management Information x x
Accounting Managers - 8 emps. x x
District Managers - 30 emps. x x
----------------------------
DISCRETIONARY POOL 2,861,828 x x
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
<PAGE>
106
<TABLE>
<CAPTION>
BONUS CALCULATION = FACTOR %INCREASE X MULTIPLIER (CUMULATIVELY)
------------------------------------------------------------------------------ MAX-CASH
FACTOR 3% - 5% 6% - 10% 11% - 15% 16% - 20% 21% - 25% 26% - 30% BONUS
------ ------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE 171,000
- ---------------------
President EBITDA 2.00 2.00 2.00 2.00 2.00 2.00
--------- ------ ---- ---- ---- ---- ---- ----
GRADE 11 - 5 EMPLOYEES 386,291
- ----------------------
Chief Financial Officer EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Corporate Acquisitions EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Manager Advisory Services Return/Equity 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - FO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - PO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
------------------------ --------------- ---- ---- ---- ---- ---- ----
GRADE 10 - 11 EMPLOYEES 321,435
- -----------------------
Corporate Treasurer EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Audit / Strategic Planning EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Co-General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Ancillary Services Net Income - AS 1.13 1.13 1.50 1.50 1.88 1.88
Regional Manager - PM/NE NOI 2.00 3.00 4.00
Regional Manager - PM/NW NOI 2.00 3.00 4.00
Regional Manager - PM/S NOI 2.00 3.00 4.00
Portfolio Manager - WO Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - S Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - N Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
--------------------------- ------------- ---- ---- ---- ---- ---- ----
GRADE 9 - 49 EMPLOYEES 753,380
- ----------------------
Asset Managers - WO Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - S Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - N Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Manager - Portf. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Property Management - Portf Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Administrative Services - HR Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Management Information Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Accounting Managers - 8 emps. Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
District Managers - 30 emps. NOI 1.50 2.00 2.50 WE THANK THEM
---------------------------- --- ---- ---- ----- ----- ----- -----
DISCRETIONARY POOL EBITDA 0.125 0.125 0.150 0.150 0.175 0.175 128,782
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
107
EXHIBIT-10.5
Employment Agreement
dated as of August 1, 1996
between Lexford and
Peggy Hunt,
Vice President of Lexford
August 1, 1996
Peggy Hunt
8615 Freeport Parkway
Suite 200
Irving, Texas 75063
Dear Peggy:
The following sets forth our mutual understanding respecting your
employment with the undersigned, Lexford Properties, Inc., a Texas corporation
(herein referred to as "Employer"), and when this letter is signed by you the
same shall constitute an Employment Agreement between Employer and you. For
purposes of this Agreement, you are herein referred to in the third person as
"Employee". The terms of said Employment Agreement are as follows:
1. Employment.
(a) During the term of this Employment Agreement, or any
extension or renewal hereof (for purposes hereof, all references herein
to the term of this Employment Agreement shall be deemed to include
references to the period of extension or renewal hereof, if any),
Employee will devote her full time and best efforts to her employment
and perform diligently such duties as are or may be from time to time
required by the Board of Directors of Employer (the "Board"), which
duties shall be consistent with her position as set forth in paragraph
2 hereof.
(b) 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 business of Employer, Employer's parent corporation, Cardinal
Realty Services, Inc., an Ohio corporation ("Parent") or any direct or
indirect subsidiary of Parent or Employer and in furtherance thereof,
render services of a business, professional or commercial nature to any
other person or firm, whether for compensation or otherwise. For
purposes of this Employment Agreement, all references herein to
subsidiaries of Parent shall be deemed to include references to
subsidiaries of either Parent or Employer now or hereafter existing
whether owned directly or indirectly through one or more
intermediaries.
<PAGE>
108
Peggy Hunt
August 1, 1996
Page 2
2. Term and Positions.
(a) Subject to the provisions for termination as hereinafter
provided, the term of this Employment Agreement shall be deemed to
begin on August 1, 1996, and shall continue for a term of four (4)
years from such date to and including July 31, 2000.
(b) Employee shall serve as Vice President of Employer and in
such substitute or further offices or positions with Employer, Parent
or any direct or indirect subsidiary of Parent or Employer (consistent
with such named office or position) as shall, from time to time, be
assigned by the Board without, however, any change in Employee's
compensation hereunder.
3. Compensation.
(a) In consideration of Employee's execution of this
Employment Agreement, Employer has paid Employee Ten Thousand Dollars
($10,000), the receipt of which Employee hereby acknowledges.
(b) For all services she may render to Employer and any direct
or indirect subsidiary of Parent or Employer during the term of this
Employment Agreement, Employee shall receive an aggregate salary while
she is employed hereunder at the rate of One Hundred Two Thousand Five
Hundred Dollars ($102,500) per year, payable in equal installments in
accordance with Employer's customary payroll procedures ("Base
Salary").
(c) In addition to the Base Salary, Employee shall be entitled
to receive, if earned, a performance cash bonus (the "Incentive
Compensation") as a Grade 11 Property Management Executive under
Parent's 1996 Incentive Compensation Plan as adopted by Parent's Board
of Directors on March 21, 1996 and as outlined on the attached Exhibit
A to this Employment Agreement up to a maximum of sixty percent (60%)
of Employee's Base Salary earned during fiscal year 1996 while this
Employment Agreement is in effect. For purposes of determining the
amount, if any, of Incentive Compensation that Employee is entitled to
in accordance with the calculations contained on Exhibit A, the target
net income-property management shall be Six Million Nine Hundred Two
Thousand Six Hundred and Seven Dollars ($6,902,607) (it being
acknowledged that such target is different than the target for other
employees of Parent under the Plan) and the actual net income-property
management for fiscal year 1996 shall include the actual net profits of
Lexford Properties, a Texas joint venture, and its successors in
interest for fiscal year 1996 earned prior to the date hereof. After
December 31, 1996 and during the remaining term of this Employment
Agreement, Employee shall be entitled to receive the same incentive
compensation as other similarly situated property management executives
under Parent's then existing incentive compensation plan(s).
<PAGE>
109
Peggy Hunt
August 1, 1996
Page 3
(d) During the term of this Employment Agreement, Employee
shall be entitled to monthly advances ("Advances") not to exceed Two
Thousand Dollars ($2,000) per month regardless of the amount of any
Advances made in prior months. All unpaid Advances received by Employee
shall bear interest ("Interest") at the rate of the "prime" or "base"
rate of interest per annum, as announced from time to time by The
Provident Bank or Parent's successor senior lender, plus one percent
(1%) until repaid. Any request for an Advance shall be made by Employee
by the fifth (5th) day of each month upon the receipt of which Employer
will fund such Advances by the fifteenth (15th) day of each month. The
Incentive Compensation earned by Employee, if any, for any period shall
be applied by Parent first to any accrued and unpaid Interest with
respect to Advances made, second to the principal amount of any
outstanding Advances and the balance, if any, shall be paid to
Employee. If the Incentive Compensation earned by Employee for any
period is less than the sum of the outstanding Advances and the accrued
and unpaid Interest thereon, if any, Employee shall pay such deficit
(plus Interest accrued thereon to the date of payment) to Parent within
ninety (90) days of Parent's demand therefor.
4. Additional Compensation. In addition to the compensation as
above stated, Employee shall be entitled to receive such additional
compensation, if any, as may be awarded from time to time by the Board.
5. Termination and Further Compensation.
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause
at any time. For purposes hereof the term "cause" includes but is not
limited to:
(i) Employee's fraud, dishonesty, willful misconduct,
or gross negligence in the performance of her duties
hereunder; or
(ii) Employee's material breach of any provision of
this Employment Agreement.
Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment
Agreement or otherwise.
(b) In the event of termination of this Employment Agreement
by Employer pursuant to this paragraph 5, Employee shall be entitled to
no further salary, additional compensation or other benefits under this
Employment Agreement.
6. Renewal. The term of this Employment Agreement may be extended
or renewed by mutual agreement of Employer, acting through the Board, and
Employee.
7. Reimbursement. Employer shall reimburse Employee (or provide
<PAGE>
110
Peggy Hunt
August 1, 1996
Page 4
her with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by Employee in the promotion of Employer's
business.
8. Covenants and Confidential Information.
(a) Employee agrees that during the term of this Employment
Agreement and for a period of one (1) year thereafter (and, as to
clauses (iii) and (iv) of this subparagraph (a), at any time after the
term of this Employment Agreement) she will 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 is engaged in any manner in, or otherwise competes with,
the business of Employer, Parent or any of Parent's
subsidiaries (as conducted on the date Employee ceases to be
employed by Employer, Parent or any of Parent's subsidiaries
in any capacity, including as a consultant) in the continental
United States (it being acknowledged by Employee that Employer
and Parent each conduct businesses of national scope);
provided, however, that the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation
shall not be a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future employee,
officer or agent of Employer, Parent or any of Parent's
subsidiaries;
(iii) Induce any person who is an employee, officer
or agent of Employer, Parent or any of Parent's subsidiaries
to terminate said relationship; or
(iv) 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, Parent or any of
Parent's or Employer's direct or indirect subsidiaries, the
customer lists, appraisals, engineering and environmental
reports, market research, investment banking analyses or
financial and engineering data or other trade secrets of
Employer, Parent or any of Parent's subsidiaries, it being
acknowledged by Employee that all such information regarding
the business of Employer, Parent and Parent's subsidiaries
compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with
Employer is confidential information and Employer's exclusive
property.
(b) Employee expressly agrees and understands that the remedy
at law for any breach by her of this paragraph 8 will be inadequate and
that the damages flowing from such breach are not readily susceptible
<PAGE>
111
Peggy Hunt
August 1, 1996
Page 5
to being measured in monetary terms. Accordingly, it is acknowledged
that upon adequate proof of Employee's violation of any legally
enforceable provision of this paragraph 8, Employer shall be entitled
to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this paragraph
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 paragraph 8
which may be pursued or availed of by Employer.
(c) In the event Employee shall violate any legally
enforceable provision of this paragraph 8 as to which there is a
specific time period during which she is prohibited from taking certain
actions or from engaging in certain activities, as set forth in such
provision, then, in such event, such violation shall toll the running
of such time period from the date of such violation until such
violation shall cease.
(D) EMPLOYEE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF
THE RESTRICTIONS UPON HER AND THE RIGHTS AND REMEDIES CONFERRED UPON
EMPLOYER UNDER THIS PARAGRAPH 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. Severable Provisions. The provisions of this Employment Agreement
are severable and if any one or more provisions are 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.
10. Death or Permanent Disability. In the event of Employee's death or
permanent disability (as hereinafter defined) occurring during the term of this
Employment Agreement, this Employment Agreement shall be deemed terminated and
she or her estate, as the case may be, shall be entitled to no further salary,
other compensation or other privileges or benefits hereunder, except as to (i)
that portion of any unpaid salary or other benefits accrued and earned by
Employee hereunder up to and including the day of death or disability, as the
case may be and (ii) in the case of permanent disability, continuation of salary
payments for nine (9) months. The phrase "permanent disability" shall be deemed
to occur after one hundred twenty (120) days in the aggregate during any
consecutive twelve (12) month period, or after ninety (90) consecutive days,
during which one hundred twenty (120) or ninety (90) days, as the case may be,
Employee, by reason of her physical or mental disability or illness, shall have
been unable to discharge fully her duties under this Employment Agreement.
11. Binding Agreement. The rights and obligations of Employer under
this Employment Agreement shall inure to the benefit of, and shall be binding
<PAGE>
112
Peggy Hunt
August 1, 1996
Page 6
upon, Employer and its successors and assigns, and the rights and obligations of
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, Employee and her heirs, personal representatives and
estate.
12. Arbitration. Any controversy or claim arising out of or relating to
this Employment 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 power to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this paragraph 12 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 by
Employee of any of her covenants contained in subparagraph (a) of paragraph 8
hereof.
13. Notices. Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
after it is posted in the United States Mails, postage prepaid, registered or
certified, return receipt requested, and if mailed to Employer, shall be
addressed to Employer c/o Parent at Parent's principal place of business,
Attention: John B. Bartling, Jr., President and Chief Executive Officer, and if
mailed to Employee, shall be addressed to her at her home address last shown 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.
14. Waiver. The failure of either party to enforce any provision or
provisions of this Employment 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 Employment 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.
15. Miscellaneous. This Employment Agreement supersedes all prior
employment agreements and understandings between the parties and may not be
modified or terminated orally. No modification, termination or attempted waiver
of this Employment Agreement shall be valid unless in writing and signed by the
party against whom the same is sought to be enforced. This Employment Agreement
shall be governed by and construed according to the laws of the State of Ohio.
<PAGE>
113
Peggy Hunt
August 1, 1996
Page 7
If the foregoing understanding respecting the Employment Agreement
between you and the undersigned is acceptable to you, please indicate your
approval thereof by signing a copy of this letter in the space provided below
and return it to the undersigned. Thereupon, the Employment Agreement shall be
in full force and effect in accordance with its terms above set forth.
Sincerely,
LEXFORD PROPERTIES, INC.
By: Mark D. Thompson
Vice President
The terms and provisions of the Employment Agreement are hereby
approved and accepted this 1st day of August, 1996.
/s/ Peggy Hunt
-------------------------------------
Peggy Hunt
The provisions of Paragraph 3(c) are hereby approved and accepted this
1st day of August, 1996.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Executive Vice President
of Corporate Acquisitions
<PAGE>
114
<TABLE>
<CAPTION>
STOCK BONUS MAX CASH BONUS
---------------------- -------------------------
GROSS SALARY RESTRICTED OPTIONS 60% 45% 30% 4.5%
------------ ---------- ------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE $285,000
- ---------------------
President x
GRADE 11 - 5 EMPLOYEES 643,819
- ----------------------
Chief Financial Officer x x
Corporate Acquisitions x x
Manager Advisory Services x x
Property Management - FO x x
Property Management - PO x x
GRADE 10 - 11 EMPLOYEES 714,301
- -----------------------
Corporate Treasurer x x
Audit / Strategic Planning x x
General Counsel x x
Co-General Counsel x x
Ancillary Services x x
Regional Manager - PM/NE x x
Regional Manager - PM/NW x x
Regional Manager - PM/S x x
Portfolio Manager - WO x x
Portfolio Manager - S Synd. x x
Portfolio Manager - N Synd. x x
---------------------------
GRADE 9 - 49 EMPLOYEES 2,511,267
- ----------------------
Asset Managers - WO x x
Asset Managers - S Synd. x x
Asset Managers - N Synd. x x
Asset Manager - Portf. x x
Assoc. General Counsel x x
Assoc. General Counsel x x
Ancillary Services x x
Ancillary Services x x
Property Management - Portf x x
Administrative Services - HR x x
Management Information x x
Accounting Managers - 8 emps. x x
District Managers - 30 emps. x x
----------------------------
DISCRETIONARY POOL 2,861,828 x x
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
<PAGE>
115
<TABLE>
<CAPTION>
BONUS CALCULATION = FACTOR %INCREASE X MULTIPLIER (CUMULATIVELY)
------------------------------------------------------------------------------ MAX-CASH
FACTOR 3% - 5% 6% - 10% 11% - 15% 16% - 20% 21% - 25% 26% - 30% BONUS
------ ------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE 171,000
- ---------------------
President EBITDA 2.00 2.00 2.00 2.00 2.00 2.00
--------- ------ ---- ---- ---- ---- ---- ----
GRADE 11 - 5 EMPLOYEES 386,291
- ----------------------
Chief Financial Officer EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Corporate Acquisitions EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Manager Advisory Services Return/Equity 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - FO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - PO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
------------------------ --------------- ---- ---- ---- ---- ---- ----
GRADE 10 - 11 EMPLOYEES 321,435
- -----------------------
Corporate Treasurer EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Audit / Strategic Planning EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Co-General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Ancillary Services Net Income - AS 1.13 1.13 1.50 1.50 1.88 1.88
Regional Manager - PM/NE NOI 2.00 3.00 4.00
Regional Manager - PM/NW NOI 2.00 3.00 4.00
Regional Manager - PM/S NOI 2.00 3.00 4.00
Portfolio Manager - WO Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - S Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - N Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
--------------------------- ------------- ---- ---- ---- ---- ---- ----
GRADE 9 - 49 EMPLOYEES 753,380
- ----------------------
Asset Managers - WO Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - S Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - N Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Manager - Portf. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Property Management - Portf Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Administrative Services - HR Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Management Information Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Accounting Managers - 8 emps. Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
District Managers - 30 emps. NOI 1.50 2.00 2.50 WE THANK THEM
---------------------------- --- ---- ---- ----- ----- ----- -----
DISCRETIONARY POOL EBITDA 0.125 0.125 0.150 0.150 0.175 0.175 128,782
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
116
EXHIBIT-10.6
Employment Agreement
dated as of August 1, 1996
between Lexford and
Peggy Crow Smith,
Vice President of Lexford
August 1, 1996
Peggy Crow Smith
8615 Freeport Parkway
Suite 200
Irving, Texas 75063
Dear Peggy:
The following sets forth our mutual understanding respecting your
employment with the undersigned, Lexford Properties, Inc., a Texas corporation
(herein referred to as "Employer"), and when this letter is signed by you the
same shall constitute an Employment Agreement between Employer and you. For
purposes of this Agreement, you are herein referred to in the third person as
"Employee". The terms of said Employment Agreement are as follows:
1. Employment.
(a) During the term of this Employment Agreement, or any
extension or renewal hereof (for purposes hereof, all references herein
to the term of this Employment Agreement shall be deemed to include
references to the period of extension or renewal hereof, if any),
Employee will devote her full time and best efforts to her employment
and perform diligently such duties as are or may be from time to time
required by the Board of Directors of Employer (the "Board"), which
duties shall be consistent with her position as set forth in paragraph
2 hereof.
(b) 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 business of Employer, Employer's parent corporation, Cardinal
Realty Services, Inc., an Ohio corporation ("Parent") or any direct or
indirect subsidiary of Parent or Employer and in furtherance thereof,
render services of a business, professional or commercial nature to any
other person or firm, whether for compensation or otherwise. For
purposes of this Employment Agreement, all references herein to
subsidiaries of Parent shall be deemed to include references to
subsidiaries of either Parent or Employer now or hereafter existing
whether owned directly or indirectly through one or more
intermediaries.
2. Term and Positions.
<PAGE>
117
Peggy Crow Smith
August 1, 1996
Page 2
(a) Subject to the provisions for termination as hereinafter
provided, the term of this Employment Agreement shall be deemed to
begin on August 1, 1996, and shall continue for a term of four (4)
years from such date to and including July 31, 2000.
(b) Employee shall serve as Vice President of Employer and in
such substitute or further offices or positions with Employer, Parent
or any direct or indirect subsidiary of Parent or Employer (consistent
with such named office or position) as shall, from time to time, be
assigned by the Board without, however, any change in Employee's
compensation hereunder.
3. Compensation.
(a) In consideration of Employee's execution of this
Employment Agreement, Employer has paid Employee Ten Thousand Dollars
($10,000), the receipt of which Employee hereby acknowledges.
(b) For all services she may render to Employer and any direct
or indirect subsidiary of Parent or Employer during the term of this
Employment Agreement, Employee shall receive an aggregate salary while
she is employed hereunder at the rate of One Hundred Twenty-Five
Thousand Dollars ($125,000) per year, payable in equal installments in
accordance with Employer's customary payroll procedures ("Base
Salary").
(c) In addition to the Base Salary, Employee shall be entitled
to receive, if earned, a performance cash bonus (the "Incentive
Compensation") as a Grade 11 Property Management Executive under
Parent's 1996 Incentive Compensation Plan as adopted by Parent's Board
of Directors on March 21, 1996 and as outlined on the attached Exhibit
A to this Employment Agreement up to a maximum of sixty percent (60%)
of Employee's Base Salary earned during fiscal year 1996 while this
Employment Agreement is in effect. For purposes of determining the
amount, if any, of Incentive Compensation that Employee is entitled to
in accordance with the calculations contained on Exhibit A, the target
net income-property management shall be Six Million Nine Hundred Two
Thousand Six Hundred and Seven Dollars ($6,902,607) (it being
acknowledged that such target is different than the target for other
employees of Parent under the Plan) and the actual net income-property
management for fiscal year 1996 shall include the actual net profits of
Lexford Properties, a Texas joint venture, and its successors in
interest for fiscal year 1996 earned prior to the date hereof. After
December 31, 1996 and during the remaining term of this Employment
Agreement, Employee shall be entitled to receive the same incentive
compensation as other similarly situated property management executives
under Parent's then existing incentive compensation plan(s).
(d) During the term of this Employment Agreement, Employee
shall be entitled to monthly advances ("Advances") not to exceed Two
<PAGE>
118
Peggy Crow Smith
August 1, 1996
Page 3
Thousand Dollars ($2,000) per month regardless of the amount of any
Advances made in prior months. All unpaid Advances received by Employee
shall bear interest ("Interest") at the rate of the "prime" or "base"
rate of interst per annum, as announced from time to time by The
Provident Bank or Parent's successor senior lender, plus one percent
(1%) until repaid. Any request for an Advance shall be made by Employee
by the fifth (5th) day of each month upon the receipt of which Employer
will fund such Advances by the fifteenth (15th) day of such month. The
Incentive Compensation earned by Employee, if any, for any period shall
be applied by Parent first to any accrued and unpaid Interest with
respect to Advances made, second to the principal amount of any
outstanding Advances and the balance, if any, shall be paid to
Employee. If the Incentive Compensation earned by Employee for any
period is less than the sum of the outstanding Advances and the accrued
and unpaid Interest thereon, if any, Employee shall pay such deficit
(plus Interest accrued thereon to the date of payment) to Parent within
ninety (90) days of Parent's demand therefor.
4. Additional Compensation. In addition to the compensation as
above stated, Employee shall be entitled to receive such additional
compensation, if any, as may be awarded from time to time by the Board.
5. Termination and Further Compensation.
(a) The employment of Employee under this Employment
Agreement, and the term hereof, may be terminated by Employer for cause
at any time. For purposes hereof the term "cause" includes but is not
limited to:
(i) Employee's fraud, dishonesty, willful misconduct,
or gross negligence in the performance of her duties
hereunder; or
(ii) Employee's material breach of any provision of
this Employment Agreement.
Any termination by reason of the foregoing shall not be in limitation
of any other right or remedy Employer may have under this Employment
Agreement or otherwise.
(b) In the event of termination of this Employment Agreement
by Employer pursuant to this paragraph 5, Employee shall be entitled to
no further salary, additional compensation or other benefits under this
Employment Agreement.
6. Renewal. The term of this Employment Agreement may be
extended or renewed by mutual agreement of Employer, acting through the Board,
and Employee.
<PAGE>
119
Peggy Crow Smith
August 1, 1996
Page 4
7. Reimbursement. Employer shall reimburse Employee (or provide
her with an expense allowance) for travel, entertainment and other expenses
reasonably and necessarily incurred by Employee in the promotion of Employer's
business.
8. Covenants and Confidential Information.
(a) Employee agrees that during the term of this Employment
Agreement and for a period of one (1) year thereafter (and, as to
clauses (iii) and (iv) of this subparagraph (a), at any time after the
term of this Employment Agreement) she will 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 is engaged in any manner in, or otherwise competes with,
the business of Employer, Parent or any of Parent's
subsidiaries (as conducted on the date Employee ceases to be
employed by Employer, Parent or any of Parent's subsidiaries
in any capacity, including as a consultant) in the continental
United States (it being acknowledged by Employee that Employer
and Parent each conduct businesses of national scope);
provided, however, that the ownership of not more than one
percent (1%) of the stock of any publicly traded corporation
shall not be a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate
in business with any present, former or future employee,
officer or agent of Employer, Parent or any of Parent's
subsidiaries;
(iii) Induce any person who is an employee, officer
or agent of Employer, Parent or any of Parent's subsidiaries
to terminate said relationship; or
(iv) 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, Parent or any of
Parent's or Employer's direct or indirect subsidiaries, the
customer lists, appraisals, engineering and environmental
reports, market research, investment banking analyses or
financial and engineering data or other trade secrets of
Employer, Parent or any of Parent's subsidiaries, it being
acknowledged by Employee that all such information regarding
the business of Employer, Parent and Parent's subsidiaries
compiled or obtained by, or furnished to, Employee while
Employee shall have been employed by or associated with
Employer is confidential information and Employer's exclusive
property.
<PAGE>
120
Peggy Crow Smith
August 1, 1996
Page 5
(b) Employee expressly agrees and understands that the remedy
at law for any breach by her of this paragraph 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 provision of this paragraph 8, Employer shall be entitled
to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach. Nothing in this paragraph
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 paragraph 8
which may be pursued or availed of by Employer.
(c) In the event Employee shall violate any legally
enforceable provision of this paragraph 8 as to which there is a
specific time period during which she is prohibited from taking certain
actions or from engaging in certain activities, as set forth in such
provision, then, in such event, such violation shall toll the running
of such time period from the date of such violation until such
violation shall cease.
(D) EMPLOYEE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF
THE RESTRICTIONS UPON HER AND THE RIGHTS AND REMEDIES CONFERRED UPON
EMPLOYER UNDER THIS PARAGRAPH 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. Severable Provisions. The provisions of this Employment Agreement
are severable and if any one or more provisions are 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.
10. Death or Permanent Disability. In the event of Employee's death or
permanent disability (as hereinafter defined) occurring during the term of this
Employment Agreement, this Employment Agreement shall be deemed terminated and
she or her estate, as the case may be, shall be entitled to no further salary,
other compensation or other privileges or benefits hereunder, except as to (i)
that portion of any unpaid salary or other benefits accrued and earned by
Employee hereunder up to and including the day of death or disability, as the
case may be and (ii) in the case of permanent disability, continuation of salary
payments for nine (9) months. The phrase "permanent disability" shall be deemed
to occur after one hundred twenty (120) days in the aggregate during any
consecutive twelve (12) month period, or after ninety (90) consecutive days,
during which one hundred twenty (120) or ninety (90) days, as the case may be,
Employee, by reason of her physical or mental disability or illness, shall have
been unable to discharge fully her duties under this Employment Agreement.
<PAGE>
121
Peggy Crow Smith
August 1, 1996
Page 6
11. Binding Agreement. The rights and obligations of Employer under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, Employer and its successors and assigns, and the rights and obligations of
Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, Employee and her heirs, personal representatives and
estate.
12. Arbitration. Any controversy or claim arising out of or relating to
this Employment 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 power to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this paragraph 12 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 by
Employee of any of her covenants contained in subparagraph (a) of paragraph 8
hereof.
13. Notices. Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
after it is posted in the United States Mails, postage prepaid, registered or
certified, return receipt requested, and if mailed to Employer, shall be
addressed to Employer c/o Parent at Parent's principal place of business,
Attention: John B. Bartling, Jr., President and Chief Executive Officer, and if
mailed to Employee, shall be addressed to her at her home address last shown 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.
14. Waiver. The failure of either party to enforce any provision or
provisions of this Employment 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 Employment 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.
15. Miscellaneous. This Employment Agreement supersedes all prior
employment agreements and understandings between the parties and may not be
modified or terminated orally. No modification, termination or attempted waiver
of this Employment Agreement shall be valid unless in writing and signed by the
party against whom the same is sought to be enforced. This Employment Agreement
shall be governed by and construed according to the laws of the State of Ohio.
<PAGE>
122
Peggy Crow Smith
August 1, 1996
Page 7
If the foregoing understanding respecting the Employment Agreement
between you and the undersigned is acceptable to you, please indicate your
approval thereof by signing a copy of this letter in the space provided below
and return it to the undersigned. Thereupon, the Employment Agreement shall be
in full force and effect in accordance with its terms above set forth.
Sincerely,
LEXFORD PROPERTIES, INC.
By: Mark D. Thompson
Vice President
The terms and provisions of the Employment Agreement are hereby
approved and accepted this 1st day of August, 1996.
/s/ Peggy Crow Smith
-------------------------------------
Peggy Crow Smith
The provisions of Paragraph 3(c) are hereby approved and accepted this
1st day of August, 1996.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Executive Vice President
of Corporate Acquisitions
<PAGE>
123
<TABLE>
<CAPTION>
STOCK BONUS MAX CASH BONUS
---------------------- -------------------------
GROSS SALARY RESTRICTED OPTIONS 60% 45% 30% 4.5%
------------ ---------- ------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE $285,000
- ---------------------
President x
GRADE 11 - 5 EMPLOYEES 643,819
- ----------------------
Chief Financial Officer x x
Corporate Acquisitions x x
Manager Advisory Services x x
Property Management - FO x x
Property Management - PO x x
GRADE 10 - 11 EMPLOYEES 714,301
- -----------------------
Corporate Treasurer x x
Audit / Strategic Planning x x
General Counsel x x
Co-General Counsel x x
Ancillary Services x x
Regional Manager - PM/NE x x
Regional Manager - PM/NW x x
Regional Manager - PM/S x x
Portfolio Manager - WO x x
Portfolio Manager - S Synd. x x
Portfolio Manager - N Synd. x x
---------------------------
GRADE 9 - 49 EMPLOYEES 2,511,267
- ----------------------
Asset Managers - WO x x
Asset Managers - S Synd. x x
Asset Managers - N Synd. x x
Asset Manager - Portf. x x
Assoc. General Counsel x x
Assoc. General Counsel x x
Ancillary Services x x
Ancillary Services x x
Property Management - Portf x x
Administrative Services - HR x x
Management Information x x
Accounting Managers - 8 emps. x x
District Managers - 30 emps. x x
----------------------------
DISCRETIONARY POOL 2,861,828 x x
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
<PAGE>
124
<TABLE>
<CAPTION>
BONUS CALCULATION = FACTOR %INCREASE X MULTIPLIER (CUMULATIVELY)
------------------------------------------------------------------------------ MAX-CASH
FACTOR 3% - 5% 6% - 10% 11% - 15% 16% - 20% 21% - 25% 26% - 30% BONUS
------ ------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GRADE 12 - 1 EMPLOYEE 171,000
- ---------------------
President EBITDA 2.00 2.00 2.00 2.00 2.00 2.00
--------- ------ ---- ---- ---- ---- ---- ----
GRADE 11 - 5 EMPLOYEES 386,291
- ----------------------
Chief Financial Officer EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Corporate Acquisitions EBITDA 1.50 1.50 2.00 2.00 2.50 2.50
Manager Advisory Services Return/Equity 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - FO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
Property Management - PO Net Income - PM 1.50 1.50 2.00 2.00 2.50 2.50
------------------------ --------------- ---- ---- ---- ---- ---- ----
GRADE 10 - 11 EMPLOYEES 321,435
- -----------------------
Corporate Treasurer EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Audit / Strategic Planning EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Co-General Counsel EBITDA 1.13 1.13 1.50 1.50 1.88 1.88
Ancillary Services Net Income - AS 1.13 1.13 1.50 1.50 1.88 1.88
Regional Manager - PM/NE NOI 2.00 3.00 4.00
Regional Manager - PM/NW NOI 2.00 3.00 4.00
Regional Manager - PM/S NOI 2.00 3.00 4.00
Portfolio Manager - WO Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - S Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
Portfolio Manager - N Synd. Return/Equity 1.13 1.13 1.50 1.50 1.88 1.88
--------------------------- ------------- ---- ---- ---- ---- ---- ----
GRADE 9 - 49 EMPLOYEES 753,380
- ----------------------
Asset Managers - WO Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - S Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Managers - N Synd. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Asset Manager - Portf. Return/Equity 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Assoc. General Counsel EBITDA 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Ancillary Services Net Income - AS 0.75 0.75 1.00 1.00 1.25 1.25
Property Management - Portf Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Administrative Services - HR Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Management Information Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
Accounting Managers - 8 emps. Net Income - PM 0.75 0.75 1.00 1.00 1.25 1.25
District Managers - 30 emps. NOI 1.50 2.00 2.50 WE THANK THEM
---------------------------- --- ---- ---- ----- ----- ----- -----
DISCRETIONARY POOL EBITDA 0.125 0.125 0.150 0.150 0.175 0.175 128,782
- ------------------
* NOTE: NOTWITHSTANDING THE ABOVE CHART,
EMPLOYEE SHALL NOT BE ENTITLED TO RECEIVE STOCK OPTIONS.
</TABLE>
125
EXHIBIT-10.7
Consulting Agreement
dated as of August 1, 1996
between the Company
and Stanley R. Fimberg
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into as of the 1st
day of August, 1996 by and between Cardinal Realty Services, Inc., an Ohio
corporation (the "Company"), and Stanley
R. Fimberg ("Consultant").
R E C I T A L S
A. Concurrent with the execution of this Agreement, the Company is
acquiring Lexford Properties, Inc., a Texas corporation ("Lexford") through a
merger of a subsidiary of Cardinal with and into Lexford pursuant to an
Agreement and Plan of Merger dated as of July 19, 1996 by and among the Company,
Rexflor Acquisition Corporation, a wholly-owned subsidiary of Cardinal, and
Lexford (the "Merger Agreement").
B. The business of Lexford has in large part been developed over a
period of years and sustained through the efforts, knowledge and skill of
Consultant.
C. Consultant is willing to provide certain services to the Company,
as described herein.
D. This Agreement is required to be executed and delivered by the
parties hereto pursuant to Section 5.11 of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and pursuant to the Merger Agreement, the parties
hereby agree as follows:
1. Consulting Period. The Company will engage Consultant on the terms
and conditions set forth herein from the date of this Agreement through July 31,
2000 (the "Consulting Period").
2. Consulting Services. During the Consulting Period, the Consultant
shall, at the reasonable request of senior officers of the Company and upon
reasonable prior notice, advise the Company with respect to matters involving
the business of the Company (the "Business") and actively seek out and review
potential acquisitions of real property, property management companies and/or
property management contracts for the Company ("Potential Acquisitions"). The
Company acknowledges that the Consultant's services during the term of this
Agreement shall not constitute a full-time engagement, and that the Consultant
may have duties and responsibilities to other individuals and entities during
the Consulting Period which are not in competition, directly or indirectly, with
the Company; provided, that Consultant may in all events continue to acquire, on
his own behalf and on behalf of others, own, develop and sell multifamily
residential real property and other income producing real property. Subject to
the preceding sentence, the Company agrees that the Consultant may perform his
duties during the Consulting Period at such times, places and frequencies as are
necessary so that such duties will not unreasonably interfere with his duties
and responsibilities to other individuals and entities or with prior personal
commitments. In no event will Consultant be required to perform his services in
excess of twenty (20) hours per month.
<PAGE>
126
3. Compensation.
(a) As compensation in full for his services under this
Agreement, the Company will pay Consultant at the rate of Fifty
Thousand Dollars ($50,000) per year, payable monthly in advance.
Consultant will be responsible for all expenses incurred by Consultant
in rendering his services hereunder.
(b) In addition to the compensation set forth in the preceding
paragraph, Consultant shall be paid an incentive fee ("Fee") based on
the purchase price paid by the Company or Lexford on account of any
acquisitions of real estate, directly or indirectly through the
acquisition of equity interests in entities owning real property,
presented to the Company by Consultant during the Consulting Period
which acquisitions are completed during the Consulting Period or within
six (6) months thereafter. No Fee is payable to Consultant on account
of any acquisitions of property management companies or property
management contracts. For purposes of this paragraph 3(b), the
acquisitions as to which Consultant's Fee is payable will be limited to
those as to which no other brokers are owed a commission by the Company
or Lexford, as the case may be, with respect to such acquisition. The
Fee shall be paid at the closing of the qualifying acquisition, or, if
the total price is to be paid in installments, the Fee shall be paid on
each installment when paid by the Company or Lexford, as the case may
be. If the Fee results from an acquisition in which the purchase price
paid by the Company or Lexford, as the case may be, is, in whole or in
part, common stock of the Company, then the value of the common stock
used shall be based on a formula mutually agreeable to the Consultant
and the Company. If the Consultant and the Company cannot reach
agreement on the formula within thirty (30) days after the closing of
the acquisition, then the value of the common stock will be deemed to
be the average of the closing bid quotation as reported by NASDAQ, or
the average closing price of the common stock if it is listed on a
national securities exchange, for the ten (10) trading days immediately
preceding the closing date of the acquisition. The Fee for any
acquisition shall be one percent (1%) of the purchase price paid.
(c) Consultant shall indemnify and hold the Company and
Lexford harmless from all loss, damage and expense arising out of
Consultant's failure to obtain and keep all state or federal licenses
necessary for Consultant lawfully to receive any Fee to be paid
hereunder.
4. Attendance at the Company Board of Directors. During the Consulting
Period, if Consultant is not a member of the Board of Directors of the Company,
Consultant shall have the right to attend all meetings of such Board.
5. Acquisition Capital. Subject to the following sentence, during the
Consulting Period, the Company will provide investment capital of up to Ten
Million Dollars ($10,000,000) in the aggregate (indirectly in the form of
capital stock of the Company or directly in the form of cash) to Lexford for the
purpose of effecting Potential Acquisitions recommended by Consultant, provided
that (i) the Potential Acquisition meets all the criteria for acquisitions as
enunciated from time to time by management of the Company, (ii) the Company is
satisfied with the results of its and Consultant's financial, business and legal
due diligence review of the assets and business operations which are the subject
matter of the Potential Acquisition, and (iii) the Potential Acquisition is
approved by the Board of Directors of the Company.
2
<PAGE>
127
6. Consultant's Properties. During the Consulting Period, Consultant
will use his best efforts to cause all entities owning residential rental
property that Consultant, individually or jointly with others with whom he is
acting in concert, owns or controls to enter into management contracts with the
Company to the exclusion of other property management companies, subject to
Consultant's exercise of his fiduciary duties, if any, owed to other interest
holders in such entities by virtue of Consultant's direct or indirect position
or relationship with such entity.
7. Competition with Company after Consulting Period.
(a) Consultant agrees that for a period of one (1) year after
the expiration of the Consulting Period, for any reason, he will not,
directly or indirectly 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 is engaged in any manner in, or
otherwise competes with, the real property management business of the
Company (as conducted from time to time during the Consulting Period)
in the continental United States; provided, however, that the ownership
of not more than 1% of the stock of any publicly traded corporation
shall be deemed a violation of this covenant.
(b) In the event Consultant violates the provisions of Section
7(a), such violation shall toll the running of the one year time period
from the date of such violation until the date that the violation
ceases.
8. Solicitation of Other Employees. Consultant agrees that during the
Consulting Period and thereafter, he will not, directly or indirectly, solicit
any employee or consultant of the Company for the purpose of causing that
employee or consultant to terminate his employment or contractual relationship
with the Company.
9. Solicitation of Clients. Consultant agrees that during the
Consulting Period and thereafter, he will not divert or attempt to divert from
the Company any business whatsoever, through any means whatsoever including, but
not limited to, through influencing or attempting to influence any of the
clients with whom he had been dealing during the Consulting Period.
10. Termination. The Company will have the right to terminate this
Agreement, upon thirty (30) days' written notice to Consultant, in the event of
Consultant's material failure to perform his duties hereunder, which failure
continues during such 30-day period, or in the event that Consultant is in
breach of the provisions of Sections 7, 8 or 9 hereof. This Agreement will
terminate automatically upon Consultant's death or disability (as defined
below). Upon any such termination, Consultant will be entitled to no further
consulting fees, or other compensation or benefits hereunder. For purposes of
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this Agreement, "disability" means the inability of Consultant to fully
discharge his duties hereunder by reason of his physical or mental disability or
illness for thirty (30) consecutive days or during any forty (40) days within a
sixty (60) day period.
11. Successors and Assigns; Affiliates. The rights and obligations of
the Company and Consultant under this Agreement shall inure to the benefit of
and shall be binding upon their respective successors and assigns. An Affiliate
(as defined below) shall have the same rights as the Company under Paragraphs 7,
8 and 9 of this Agreement and Consultant's obligations owed to the Company under
said Paragraphs shall be owed to all Affiliates in the same manner as they are
owed to the Company. An Affiliate is (1) any other company which controls a
majority of the voting shares of the Company (including, without limitation,
Cardinal), (2) any company a majority of whose voting shares are controlled by
such other company, and (3) any company a majority of whose voting shares are
controlled by the Company.
12. Notices. Any notice required under this Agreement will be
personally delivered in writing or will be deemed given after it is posted in
the United States Mail, postage prepaid, registered or certified, return receipt
requested, and if mailed to the Company, addressed to 6954 Americana Parkway,
Reynoldsburg, Ohio 43068, Attention: Mark D. Thompson, and if mailed to
Consultant, addressed to 9777 Wilshire Boulevard, Suite 710, Beverly Hills, CA
90212, or at such other address or addresses as is designated in writing by
either of the parties to the other.
13. Waiver. The failure of either party to enforce any provision of
this Agreement will not in any way be construed as a waiver of such provision 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 are cumulative and the waiver of any single remedy will not
constitute a waiver of such party's right to assert all other legal remedies
available to it under the circumstances.
14. Miscellaneous. This instrument constitutes the entire understanding
of the parties with respect to the subject matter of this Agreement, and
supersedes all prior consulting agreements and understandings between the
parties. Section headings used in this Agreement are for convenience only and
are not a part of this Agreement and are not to be used in construing it. No
modification, termination or attempted waiver of any provision of this Agreement
will be valid or effective unless in writing signed by the party against whom
the same is sought to be enforced.
15. Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be void or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement shall nevertheless
continue with full force and effect, and Consultant agrees that a court of
competent jurisdiction shall have jurisdiction to reform such provision to the
extent necessary to cause it to be enforceable to the maximum extent permitted
by law and agrees to be bound by such reformation.
16. Governing Law. This Agreement will be governed by and construed
according to the laws of the State of Ohio.
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17. Attorneys' Fees. If any legal proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the party whose claim is upheld by the court or an arbitrator in a final
judgment shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that proceeding, in addition to any other relief to which it may be
entitled.
18. Injunction for Violation of This Covenant. Consultant acknowledges
that a breach of Paragraphs 7, 8 or 9 of this Agreement may cause the Company
continuing and irreparable injury to its business which may not be adequately
compensated for by money damages. Consultant therefore agrees that in the event
of any actual or threatened breach of said Paragraphs, the Company shall be
entitled, in addition to any other remedies available to it, to a temporary
restraining order and to preliminary and final injunctive relief against him to
prevent any violations of said Paragraphs.
CONSULTANT HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF THE
RESTRICTIONS UPON HIM AND THE RIGHTS AND REMEDIES CONFERRED UPON THE COMPANY
UNDER THIS AGREEMENT, AND HEREBY ACKNOWLEDGES AND AGREES THAT THE SAME ARE
REASONABLE IN BOTH TIME AND TERRITORY, ARE DESIGNED TO PROTECT THE COMPANY FROM
UNFAIR COMPETITION, ARE NO GREATER THAN WHAT IS NEEDED TO PROTECT THE COMPANY
FROM SUCH UNFAIR COMPETITION, DO NOT STIFLE HIS INHERENT SKILL AND EXPERIENCE,
WOULD NOT OPERATE AS A BAR TO HIS SOLE MEANS OF SUPPORT, WOULD NOT PLACE AN
UNDUE HARDSHIP ON HIM, ARE FULLY REQUIRED TO PROTECT THE LEGITIMATE INTERESTS OF
THE COMPANY AND DO NOT CONFER A BENEFIT UPON THE COMPANY WHICH IS
DISPROPORTIONATE TO THE DETRIMENT TO HIM.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Its: Executive Vice President
of Corporate Acquisitions
/s/ Stanley R. Fimberg
---------------------------
Stanley R. Fimberg
5
130
EXHIBIT-10.8
Consulting Agreement
dated as of August 1, 1996
between the Company
and Ralph V. Williams
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into as of the 1st
day of August, 1996 by and between Cardinal Realty Services, Inc., an Ohio
corporation (the "Company"), and Ralph V. Williams ("Consultant").
R E C I T A L S
A. Concurrent with the execution of this Agreement, the Company is
acquiring Lexford Properties, Inc., a Texas corporation ("Lexford") through a
merger of a subsidiary of Cardinal with and into Lexford pursuant to an
Agreement and Plan of Merger dated as of July 19, 1996 by and among the Company,
Rexflor Acquisition Corporation, a wholly-owned subsidiary of Cardinal, and
Lexford (the "Merger Agreement").
B. The business of Lexford has in large part been developed over a
period of years and sustained through the efforts, knowledge and skill of
Consultant.
C. Consultant is willing to provide certain services to the Company, as
described herein.
D. This Agreement is required to be executed and delivered by the
parties hereto pursuant to Section 5.11 of the Merger Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and pursuant to the Merger Agreement, the parties
hereby agree as follows:
1. Consulting Period. The Company will engage Consultant on the terms
and conditions set forth herein from the date of this Agreement through July 31,
2000 (the "Consulting Period").
2. Consulting Services. During the Consulting Period, the Consultant
shall, at the reasonable request of senior officers of the Company and upon
reasonable prior notice, advise the Company with respect to matters involving
the business of the Company (the "Business") and actively seek out and review
potential acquisitions of real property, property management companies and/or
property management contracts for the Company ("Potential Acquisitions"). The
Company acknowledges that the Consultant's services during the term of this
Agreement shall not constitute a full-time engagement, and that the Consultant
may have duties and responsibilities to other individuals and entities during
the Consulting Period which are not in competition, directly or indirectly, with
the Company; provided, that Consultant may in all events continue to acquire, on
his own behalf and on behalf of others, own, develop and sell multifamily
residential real property and other income producing real property. Subject to
the preceding sentence, the Company agrees that the Consultant may perform his
duties during the Consulting Period at such times, places and frequencies as are
necessary so that such duties will not unreasonably interfere with his duties
and responsibilities to other individuals and entities or with prior personal
commitments. In no event will Consultant be required to perform his services in
excess of twenty (20) hours per month.
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131
3. Compensation.
(a) As compensation in full for his services under this
Agreement, the Company will pay Consultant at the rate of Fifty
Thousand Dollars ($50,000) per year, payable monthly in advance.
Consultant will be responsible for all expenses incurred by Consultant
in rendering his services hereunder.
(b) In addition to the compensation set forth in the preceding
paragraph, Consultant shall be paid an incentive fee ("Fee") based on
the purchase price paid by the Company or Lexford on account of any
acquisitions of real estate, directly or indirectly through the
acquisition of equity interests in entities owning real property,
presented to the Company by Consultant during the Consulting Period
which acquisitions are completed during the Consulting Period or within
six (6) months thereafter. No Fee is payable to Consultant on account
of any acquisitions of property management companies or property
management contracts. For purposes of this paragraph 3(b), the
acquisitions as to which Consultant's Fee is payable will be limited to
those as to which no other brokers are owed a commission by the Company
or Lexford, as the case may be, with respect to such acquisition. The
Fee shall be paid at the closing of the qualifying acquisition, or, if
the total price is to be paid in installments, the Fee shall be paid on
each installment when paid by the Company or Lexford, as the case may
be. If the Fee results from an acquisition in which the purchase price
paid by the Company or Lexford, as the case may be, is, in whole or in
part, common stock of the Company, then the value of the common stock
used shall be based on a formula mutually agreeable to the Consultant
and the Company. If the Consultant and the Company cannot reach
agreement on the formula within thirty (30) days after the closing of
the acquisition, then the value of the common stock will be deemed to
be the average of the closing bid quotation as reported by NASDAQ, or
the average closing price of the common stock if it is listed on a
national securities exchange, for the ten (10) trading days immediately
preceding the closing date of the acquisition. The Fee for any
acquisition shall be one percent (1%) of the purchase price paid.
(c) Consultant shall indemnify and hold the Company and
Lexford harmless from all loss, damage and expense arising out of
Consultant's failure to obtain and keep all state or federal licenses
necessary for Consultant lawfully to receive any Fee to be paid
hereunder.
(d) So long as this Agreement is in force and provided that
there is available space not being utilized by Lexford, office space
shall be made available for Consultant's use at the offices of Lexford,
8615 Freeport Parkway, Suite 200, Irving, Texas 75063.
4. Attendance at the Company Board of Directors. During the Consulting
Period, if Consultant is not a member of the Board of Directors of the Company,
Consultant shall have the right to attend all meetings of such Board.
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5. Acquisition Capital. Subject to the following sentence, during the
Consulting Period, the Company will provide investment capital of up to Ten
Million Dollars ($10,000,000) in the aggregate (indirectly in the form of
capital stock of the Company or directly in the form of cash) to Lexford for the
purpose of effecting Potential Acquisitions recommended by Consultant, provided
that (i) the Potential Acquisition meets all the criteria for acquisitions as
enunciated from time to time by management of the Company, (ii) the Company is
satisfied with the results of its and Consultant's financial, business and legal
due diligence review of the assets and business operations which are the subject
matter of the Potential Acquisition, and (iii) the Potential Acquisition is
approved by the Board of Directors of the Company.
6. Consultant's Properties. During the Consulting Period, Consultant
will use his best efforts to cause all entities owning residential rental
property that Consultant, individually or jointly with others with whom he is
acting in concert, owns or controls to enter into management contracts with the
Company to the exclusion of other property management companies, subject to
Consultant's exercise of his fiduciary duties, if any, owed to other interest
holders in such entities by virtue of Consultant's direct or indirect position
or relationship with such entity.
7. Competition with Company after Consulting Period.
(a) Consultant agrees that for a period of one (1) year after
the expiration of the Consulting Period, for any reason, he will not,
directly or indirectly 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 is engaged in any manner in, or
otherwise competes with, the real property management business of the
Company (as conducted from time to time during the Consulting Period)
in the continental United States; provided, however, that the ownership
of not more than 1% of the stock of any publicly traded corporation
shall be deemed a violation of this covenant.
(b) In the event Consultant violates the provisions of Section
7(a), such violation shall toll the running of the one year time period
from the date of such violation until the date
that the violation ceases.
8. Solicitation of Other Employees. Consultant agrees that during the
Consulting Period and thereafter, he will not, directly or indirectly, solicit
any employee or consultant of the Company for the purpose of causing that
employee or consultant to terminate his employment or contractual relationship
with the Company.
9. Solicitation of Clients. Consultant agrees that during the
Consulting Period and thereafter, he will not divert or attempt to divert from
the Company any business whatsoever, through any means whatsoever including, but
not limited to, through influencing or attempting to influence any of the
clients with whom he had been dealing during the Consulting Period.
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133
10. Termination. The Company will have the right to terminate this
Agreement, upon thirty (30) days' written notice to Consultant, in the event of
Consultant's material failure to perform his duties hereunder, which failure
continues during such 30-day period, or in the event that Consultant is in
breach of the provisions of Sections 7, 8 or 9 hereof. This Agreement will
terminate automatically upon Consultant's death or disability (as defined
below). Upon any such termination, Consultant will be entitled to no further
consulting fees, or other compensation or benefits hereunder. For purposes of
this Agreement, "disability" means the inability of Consultant to fully
discharge his duties hereunder by reason of his physical or mental disability or
illness for thirty (30) consecutive days or during any forty (40) days within a
sixty (60) day period.
11. Successors and Assigns; Affiliates. The rights and obligations of
the Company and Consultant under this Agreement shall inure to the benefit of
and shall be binding upon their respective successors and assigns. An Affiliate
(as defined below) shall have the same rights as the Company under Paragraphs 7,
8 and 9 of this Agreement and Consultant's obligations owed to the Company under
said Paragraphs shall be owed to all Affiliates in the same manner as they are
owed to the Company. An Affiliate is (1) any other company which controls a
majority of the voting shares of the Company (including, without limitation,
Cardinal), (2) any company a majority of whose voting shares are controlled by
such other company, and (3) any company a majority of whose voting shares are
controlled by the Company.
12. Notices. Any notice required under this Agreement will be
personally delivered in writing or will be deemed given after it is posted in
the United States Mail, postage prepaid, registered or certified, return receipt
requested, and if mailed to the Company, addressed to 6954 Americana Parkway,
Reynoldsburg, Ohio 43068, Attention: Mark D. Thompson, and if mailed to
Consultant, addressed to 8615 Freeport Parkway, Suite 200, Irving, Texas 75063,
or at such other address or addresses as is designated in writing by either of
the parties to the other.
13. Waiver. The failure of either party to enforce any provision of
this Agreement will not in any way be construed as a waiver of such provision 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 are cumulative and the waiver of any single remedy will not
constitute a waiver of such party's right to assert all other legal remedies
available to it under the circumstances.
14. Miscellaneous. This instrument constitutes the entire understanding
of the parties with respect to the subject matter of this Agreement, and
supersedes all prior consulting agreements and understandings between the
parties. Section headings used in this Agreement are for convenience only and
are not a part of this Agreement and are not to be used in construing it. No
modification, termination or attempted waiver of any provision of this Agreement
will be valid or effective unless in writing signed by the party against whom
the same is sought to be enforced.
15. Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be void or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement shall nevertheless
continue with full force and effect, and Consultant agrees that a court of
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134
competent jurisdiction shall have jurisdiction to reform such provision to the
extent necessary to cause it to be enforceable to the maximum extent permitted
by law and agrees to be bound by such reformation.
16. Governing Law. This Agreement will be governed by and construed
according to the laws of the State of Ohio.
17. Attorneys' Fees. If any legal proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the party whose claim is upheld by the court or an arbitrator in a final
judgment shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that proceeding, in addition to any other relief to which it may be
entitled.
18. Injunction for Violation of This Covenant. Consultant acknowledges
that a breach of Paragraphs 7, 8 or 9 of this Agreement may cause the Company
continuing and irreparable injury to its business which may not be adequately
compensated for by money damages. Consultant therefore agrees that in the event
of any actual or threatened breach of said Paragraphs, the Company shall be
entitled, in addition to any other remedies available to it, to a temporary
restraining order and to preliminary and final injunctive relief against him to
prevent any violations of said Paragraphs.
CONSULTANT HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF THE
RESTRICTIONS UPON HIM AND THE RIGHTS AND REMEDIES CONFERRED UPON THE COMPANY
UNDER THIS AGREEMENT, AND HEREBY ACKNOWLEDGES AND AGREES THAT THE SAME ARE
REASONABLE IN BOTH TIME AND TERRITORY, ARE DESIGNED TO PROTECT THE COMPANY FROM
UNFAIR COMPETITION, ARE NO GREATER THAN WHAT IS NEEDED TO PROTECT THE COMPANY
FROM SUCH UNFAIR COMPETITION, DO NOT STIFLE HIS INHERENT SKILL AND EXPERIENCE,
WOULD NOT OPERATE AS A BAR TO HIS SOLE MEANS OF SUPPORT, WOULD NOT PLACE AN
UNDUE HARDSHIP ON HIM, ARE FULLY REQUIRED TO PROTECT THE LEGITIMATE INTERESTS OF
THE COMPANY AND DO NOT CONFER A BENEFIT UPON THE COMPANY WHICH IS
DISPROPORTIONATE TO THE DETRIMENT TO HIM.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
CARDINAL REALTY SERVICES, INC.
By: Mark D. Thompson
Its: Executive Vice President of
Corporate Acquisitions
/s/ Ralph V. Williams
----------------------------
Ralph V. Williams
5
135
EXHIBIT-10.9
Form of Transmittal Letter
to the Shareholders of Lexford
FORM OF INVESTMENT LETTER
Cardinal Realty Services, Inc.
6954 Americana Parkway
Reynoldsburg, Ohio 43068
Ladies and Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $1.00
per share ("Company Common Stock"), of Lexford Properties, Inc. a Texas
corporation (the "Company"). The undersigned will receive shares of common
stock, without par value ("Parent Common Stock"), of Cardinal Realty Services,
Inc., an Ohio corporation ("Parent"), in connection with the merger of Rexflor
Acquisition Corporation, an Ohio corporation and a wholly owned subsidiary of
Parent ("Sub"), with and into the Company, with the Company continuing as the
surviving corporation (the "Merger").
The undersigned acknowledges and understands that the shares of Parent
Common Stock to be received by the undersigned in exchange for shares of Company
Common Stock pursuant to the Merger (the "Merger Shares") have not been
registered under the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any state and that the Merger Shares are "restricted
securities" as defined in Rule 144 promulgated under the Act. The undersigned
further acknowledges that the undersigned is fully aware of the applicable
limitations on the resale of the Merger Shares.
The undersigned acknowledges that he/she has had an opportunity to ask
questions of and receive answers from duly designated representatives of Parent
concerning the terms and conditions pursuant to which the Merger Shares will be
acquired. The undersigned acknowledges that he/she has been afforded an
opportunity to examine such documents (including, without limitation, all forms,
reports, schedules, statements and other documents required to be filed by
Parent with the Securities and Exchange Commission (the "Commission") pursuant
to Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since January 1, 1993, and other information which the undersigned has
requested for the purpose of verifying the information set forth in the
documents referred to above.
By reason of the undersigned's knowledge and experience in financial
and business matters in general, and investments in particular, the undersigned
is capable of evaluating the merits and risks of the acquisition of the Merger
Shares.
The undersigned's present financial condition is such that the
undersigned is under no present or contemplated future need to dispose of any
portion of the Merger Shares to satisfy any existing or contemplated
undertaking, need or indebtedness.
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136
The undersigned acknowledges that he/she may be deemed an "affiliate"
of the Company as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 promulgated under the Act. Execution of this Letter
Agreement by the undersigned should not be construed as an admission of
"affiliate" status or as a waiver of any rights the undersigned may have to
object to any claim that the undersigned is such an affiliate on or after the
date of this Letter Agreement.
If in fact the undersigned were deemed to be an affiliate of the
Company under the Act, the undersigned's ability to sell, transfer or otherwise
dispose of any Merger Shares may be further restricted unless such transaction
is registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and has obtained
advice of counsel as to the nature and conditions of such exemptions, including
information with respect to the applicability of Rules 144 and 145(d) to the
resale of such securities.
The undersigned hereby represents to and covenants with Parent that
he/she will not sell, transfer or otherwise dispose of any Merger Shares except
(i) pursuant to an effective registration statement under the Act, (ii) by a
sale made in conformity with the provisions of Rules 144 or 145 or (iii) in a
transaction which, in the opinion of independent counsel reasonably satisfactory
to Parent or as described in a "no-action" or interpretive letter from the Staff
of the Commission, is not required to be registered under the Act.
The undersigned understands that Parent is under no obligation to
register the sale, transfer or other disposition of the Merger Shares by the
undersigned or on behalf of the undersigned under the Act except to the limited
extent provided in that certain Registration Rights Agreement of even date
herewith among the undersigned Parent and the other holders of the Company
Common Stock or, except as provided in paragraph A below, to take any other
action necessary in order to make compliance with an exemption from such
registration available.
The undersigned also understands that stop transfer instructions will
be given to Parent's transfer agents with respect to the Merger Shares issued to
the undersigned and that there will be placed on the certificates for the Merger
Shares issued to the undersigned, or any substitutions therefor, a legend
stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 144 OR 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN INVESTMENT
LETTER AGREEMENT DATED [ ], 1996 BETWEEN THE REGISTERED HOLDER HEREOF
AND CARDINAL REALTY SERVICES, INC., A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF CARDINAL REALTY SERVICES, INC."
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The undersigned also understands that unless a sale or transfer is made
in conformity with the provisions of Rules 144 or 145, or pursuant to a
registration statement, Parent reserves the right to put the following legend on
the certificates issued to the undersigned's transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 144 OR 145
PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
In the event of a sale of any Merger Shares pursuant to Rules 144 or
145, the undersigned will supply Parent with evidence of compliance with such
Rules, in the form of customary seller's and broker's Rule 144 or 145
representation letters or as Parent may otherwise reasonably request. The
undersigned understands that Parent may instruct its transfer agent to withhold
the transfer of any Merger Shares disposed of by the undersigned in a manner
inconsistent with this Letter Agreement.
The undersigned hereby agrees not to exercise any appraisal rights with
respect to the Merger that he/she may have under the Texas Business Corporation
Act or any similar law or regulation.
By Parent's acceptance of this Letter Agreement, Parent hereby agrees
with the undersigned as follows:
A. For so long as and to the extent necessary to permit the undersigned
to sell the Merger Shares pursuant to Rules 144 or 145, Parent shall (a) use its
reasonable best efforts to (i) file, on a timely basis, all reports and data
required to be filed with the Commission by it pursuant to Section 13 of the
Exchange Act and (ii) furnish to the undersigned upon request a written
statement as to whether Parent has complied with such reporting requirements
during the 12 months preceding any proposed sale of the Merger Shares by the
undersigned under Rules 144 and 145. Parent has filed all reports required to be
filed with the Commission under Section 13 of the Exchange Act during the
preceding 12 months.
B. It is understood and agreed that the legends set forth above shall
be removed by delivery of substitute certificates without such legend if such
legend is not required for purposes of the Act or this Letter Agreement. It is
understood and agreed that such legends and the stop orders referred to above
will be removed if (i) the Parent has received either a written opinion of
counsel, which opinion and counsel shall be reasonably satisfactory to Parent,
or a "no action" letter obtained from the Staff of the Commission, to the effect
that the Merger Shares subject thereto may be transferred free of the
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138
restrictions imposed by Rules 144 or 145 under the Act, or (ii) in the event of
a sale of the Merger Shares received by the undersigned in the Merger which has
been registered under the Act or made in conformity with the provisions of Rules
144 or 145.
The undersigned acknowledges that he/she has carefully reviewed this
Letter Agreement and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of the Merger
Shares.
Very truly yours,
/s/ Eric Madsen
Eric Madsen
Accepted this 1st day of August, 1996, by
CARDINAL REALTY SERVICES, INC.
By: /s/ Mark D. Thompson
- -----------------------------------
Mark D. Thompson
Executive Vice President
of Corporate Acquisitions
4
139
EXHIBIT-10.10
Form of Registration Rights Agreement
by and between the Company
and the Lexford Shareholders
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made as of August 1, 1996, by and
between Cardinal Realty Services, Inc., an Ohio corporation (the "Company"), and
those certain holders of the Company's common stock listed on the signature page
hereto (the "Holders").
BACKGROUND INFORMATION
A. Pursuant to the terms of an Agreement and Plan of Merger dated as of
July 19, 1996 by and among the Company, Rexflor Acquisition Corporation, an Ohio
corporation, Lexford Properties, Inc., a Texas corporation, and the Holders (the
"Merger Agreement"), the Holders are entitled to receive the rights conferred
upon them pursuant to this Agreement;
B. Further pursuant to the terms of the Merger Agreement, the Company
has issued shares of its common stock, no par value, (the "Common Stock") to the
Holders.
STATEMENT OF AGREEMENT
The parties acknowledge the accuracy of the foregoing Background
Information and hereby agree as follows:
ss.1. Definitions.
(a) As used herein the following defined terms shall have the
following meanings:
(i) Unless the context otherwise requires, the terms
"register," registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined
below) and the declaration or ordering of the effectiveness of
such registration statement.
(ii) The term "Registrable Shares" means those
Exchange Shares which, at the Effective Time, are not either
Escrow Shares or Forfeitable Shares, plus up to an additional
One Hundred Fifty Thousand Non-Forfeited Shares (150,000)
being an aggregate total of Three Hundred Fifty Thousand
(350,000) shares of Common Stock, provided, however, that
Registrable Shares shall not exceed the amount set forth on
the attached Schedule 1 with respect to each Holder.
(iii) The term "Securities Act" means the Securities
Act of 1933, as amended.
(iv) The term "Shares" means shares of Common Stock
of the Company.
(b) All other capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement.
<PAGE>
140
ss.2. Company Registration.
(a) If at any time or from time to time on or after August 1,
1997, the Company shall determine to register any of its securities for
its own account in a registration statement covering the sale of Common
Stock to the general public (except with respect to any registration
filed on Form S-8, form S-4 or any successor forms thereto) the Company
shall: (i) give to the Holders written notice thereof at least thirty
(30) days before the initial filing of such registration (which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or
other state securities laws); provided, however, in the case of a
registration statement on Form S-3, the Company shall give the Holders
written notice of the proposed filing thereof promptly after a decision
to make such filing has been made and in no event less than ten (10)
business days prior to filing; and (ii) use its best efforts to include
in such registration (and any related qualification under blue sky
laws) and in any underwriting involved therein, all the Registrable
Shares specified in a written request or requests, made within ten (10)
days after receipt of such written notice from the Company, by any
Holder or Holders, except as set forth in ss.2(b) below.
(b) If the sale of Common Stock pursuant to paragraph (a)
above is made pursuant to an underwritten public offering, the right of
any Holder to registration pursuant to this ss.2 shall be conditioned
upon such Holder's participation in the underwriting to the extent
provided herein. All Holders proposing to distribute their Registrable
Shares through such underwriting shall (together with the Company)
enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this ss.2, if the
underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may limit the
number of Registrable Shares to be included in the registration and
underwriting. The Company shall so advise all Holders, and the number
of shares that may be included in the registration and underwriting
shall be allocated (i) first, among the securities the Company proposes
to sell; (ii) second, among those shares of Common Stock to be made
subject to that certain Registration Rights Agreement (the "First
Registration Rights Agreement") to be entered into pursuant to the
terms of that certain letter agreement dated November 30, 1995 between
the Company and Bank of America National Trust and Savings Association
("B of A") and in accordance with the terms set forth in the First
Registration Rights Agreement; and (iii) third, among all Holders of
Registrable Shares and among other securities as to which the Company
has extended registration or similar rights in effect at such time, in
proportion, as nearly as practicable, to the respective amounts of
Registrable Shares held by such Holders and the securities covered by
such registration rights existing at the time of filing the
registration statement. The registration rights of the Holders pursuant
to this Agreement are fully subordinated to the rights of B of A under
the First Registration Rights Agreement. If any Holder disapproves of
the terms of any such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the underwriter. In the
event of any such withdrawal, the Company will include, on a
2
<PAGE>
141
proportionate basis (determined in accordance with the preceding
sentence), in any such registration in lieu thereof any additional
Registrable Shares and such other securities having registration rights
which were requested to be included by a Holder and which were excluded
pursuant to the above-described underwriter limitation up to the
maximum set by such underwriter.
ss.3. Expenses of Registration. All expenses incurred in connection
with any registration or qualification pursuant to this Agreement, including,
without limitation, all registration filing and qualification fees, fees and
expenses associated with registration or qualification under state securities or
"Blue Sky" laws, printing expenses, fees and disbursements of counsel for the
Company and expenses and fees of any special audits incidental to or required by
such registration, shall be borne by the Company; provided, however, that the
Company in any event shall not be required to pay the underwriters' discounts or
commissions relating to Registrable Shares (such underwriters' discounts or
commissions are to be borne by the Holders, on a pro rata basis, based on the
number of Registrable Shares sold by each of them).
ss.4. Registration Procedures.
(a) In the case of each registration effectuated by the
Company pursuant to this Agreement, the Company will keep each
Holder participating therein advised in writing as to the
initiation of such registration (and any state qualifications)
and as to the completion thereof.
(b) Also in the case of each registration effectuated by the
Company pursuant to this Agreement, the Company will:
(i) keep such registration or qualification pursuant
to ss.2 effective for a period of 180 days or until all the
Holders have completed the distribution described in the
registration statement relating thereto, whichever occurs
first;
(ii) furnish such number of copies of such
registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement
(including each preliminary prospectus) and such other
documents incident thereto as a Holder from time to time may
reasonably request in order to facilitate the disposition of
the Registrable Shares owned by such Holder;
(iii) use its best efforts to register or qualify
such Registrable Shares under such other securities or blue
sky laws of such jurisdictions as may be reasonably necessary
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to
consummate the disposition in such jurisdictions of the
Registrable Shares owned by such Holder; provided, however,
that the Company will not be required to register or qualify
any Registrable Shares in any jurisdiction in which it did not
otherwise intend to offer or sell any other shares of Common
Stock;
3
<PAGE>
142
(iv) notify each Holder of Registrable Shares, at any
time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of any
event as a result of which the prospectus included in such
registration statement contains an untrue statement of a
material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any
such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Registrable Shares, such prospectus
will not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements
therein not misleading;
(v) promptly notify the Holders of Registrable Shares
and the underwriters of the following events and (if requested
by any such person) confirm such notification in writing: (A)
the filing of the prospectus or any prospectus supplement and
the registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration
statement or any post- effective amendment thereto, the
declaration of the effectiveness of such documents, (B) any
requests by the Securities and Exchange Commission for
amendments or supplements to the registration statement or the
prospectus or for additional information, (C) the issuance or
threat of issuance by the Securities and Exchange Commission
of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings
for that purpose, and (D) the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Registrable Shares for sale in any
jurisdiction or the initiation or threat of initiation of any
proceeding for such purpose;
(vi) cause all such Registrable Shares to be listed
on each securities exchange on which the Common Stock is then
listed;
(vii) make available for inspection by any Holder of
Registrable Shares, any underwriter participating in any
disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such
Holder or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably
requested by any such Holder, underwriter, attorney,
accountant or agent in connection with such registration
statement;
(viii) otherwise use its commercially reasonable
efforts to comply with all applicable rules and regulations of
the Securities and Exchange Commission, and make available to
the Holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months
beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration
4
<PAGE>
143
statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
ss.5. Holdback Agreements. Each Holder of Registrable Shares agrees not
to effect any public sale or distribution (including sales pursuant to Rule 144
promulgated pursuant to the Securities Act) of equity securities of the Company
or any securities convertible into or exchangeable or exercisable for such
equity securities, during the seven days prior to and during the one hundred
eighty (180) day period beginning on the effective date of the underwritten
registration pursuant to ss.2 hereof in which Registrable Shares are included
(except for sales of such securities as part of such underwritten registered
offering).
ss.6. Participation in Underwritten Registrations. No Holder may
participate in any registration hereunder which is underwritten unless such
Holder completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting agreement referred to in ss.2 hereof; provided, that
no holder of Registrable Shares included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution.
ss.7. Indemnification.
(a) The Company shall indemnify each Holder with respect to
such registration or qualification effected pursuant to this
Agreement and in which Registrable Shares are included,
against all claims, losses, damages and liabilities (or
actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, registration statement or
other document incident to any such registration or
qualification, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
any violation by the Company of any rule or regulation,
including, without limitation, the Securities Act, applicable
to the Company and relating to action or inaction required of
the Company in connection with any such registration,
qualification or compliance and will reimburse each such
Holder, and each of such Holder's heirs, for any legal and any
other expenses incurred in connection with investigating or
defending any such claim, loss, damage, liability or action,
including reasonable attorneys' fees; provided, however, that
the Company will not be liable in any such case to the extent
that any such claim, loss, damage or liability arises out of
or is based on any untrue statement or omission based upon and
in conformity with information furnished to the Company, or
confirmed as accurate, by such Holder. Such indemnity shall be
effective notwithstanding any investigation made by or on
behalf of any Holder, or any such officer, director, partner,
employee or controlling person, and shall survive any transfer
by the same of any of the Shares.
5
<PAGE>
144
(b) Each Holder shall, if Registrable Shares held by or
issuable to such Holder are included in the securities as to
which such registration or qualification is being effected,
indemnify the Company, each of its directors, officers and
employees, and each other person controlling, controlled by or
affiliated with the Company within the meaning of the
Securities Act, and any underwriter of the Securities against
all claims, losses, damages and liabilities (or actions in
respect thereto) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact
contained in any prospectus, registration statement or other
document incident to any such registration or qualification,
or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors,
officers, partners, employees, persons or underwriters for any
legal or any other expenses incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action, including reasonable attorneys' fees, in
each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement,
prospectus or other document in reliance upon and in
conformity with information furnished to the Company, or
confirmed as accurate, by such Holder. Such indemnity shall be
effective notwithstanding any investigation made by or on
behalf of the Company, any such director, officer, partner,
employee, or controlling person and shall survive the transfer
of such securities by such seller.
(c) Each party entitled to indemnification under this section
(the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought. Unless in the
reasonable judgment of the Indemnified Party a conflict of
interest may exist between the Indemnifying Party and the
Indemnified Party, the Indemnifying Party shall be permitted
to assume the defense of any such claim or any litigation
resulting therefrom; provided, however, that in any event
counsel for the Indemnifying Party or Indemnified Party who
shall conduct the defense of such claim or litigation as
provided above shall be approved by the other Party (whose
approval shall not be unreasonably withheld), and such other
Party may participate in such defense at such Party's expense;
provided, further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this section.
(d) The Indemnified Party shall make no settlement of any
claim or litigation which would give rise to liability on the
part of the Indemnifying Party under an indemnity contained in
this Paragraph 7 without the written consent of the
Indemnifying Party, which consent shall not be unreasonably
withheld or delayed, and no Indemnifying Party shall make any
settlement of any such claim or litigation without the consent
of the Indemnified Party. If a firm offer is made to settle a
6
<PAGE>
145
claim or litigation defended by the Indemnified Party and the
Indemnified Party notifies the Indemnifying Party in writing
that the Indemnified Party desires to accept and agree to such
offer, but the Indemnifying Party elects not to accept or
agree to such offer within ten days after receipt of written
notice from the Indemnified Party of the terms of such offer,
then, in such event, the Indemnified Party shall continue to
contest or defend such claim or litigation and, if such claim
or litigation is within the scope of the Indemnifying Party's
indemnity contained in this ss.7, the Indemnified Party shall
be indemnified pursuant to the terms hereof. If a firm offer
is made to settle a claim or litigation defended by the
Indemnifying Party and the Indemnifying Party notifies the
Indemnified Party in writing that the Indemnifying Party
desires to accept such offer within ten days after receipt of
written notice from the Indemnifying Party of the terms of
such offer, then, in such event, the Indemnified Party may
continue to contest or defend such claim or litigation and, in
such event, the total maximum liability of the Indemnifying
Party to indemnify or otherwise reimburse the Indemnified
Party in accordance with the Agreement with respect to such
claim or litigation shall be limited to and shall not exceed
the amount of such settlement offer, plus reasonable
out-of-pocket costs and expenses (including reasonable
attorneys' fees) to the date of notice that the Indemnifying
Party desired to accept such settlement offer.
(e) The indemnification payments required pursuant to this
ss.7 for expenses of the investigation or defense of a claim
or lawsuit shall be made from time to time during the course
of the investigation or defense, as the case may be, upon
submission of reasonably sufficient documentation that any
such expenses have been incurred.
(f) If the Indemnification provided for in this ss.7 is
unavailable for any reason or insufficient to hold harmless an
Indemnified Party in respect of any losses, claims, damages or
liabilities or actions referred to herein, then each
Indemnifying Party shall in lieu of indemnifying such
Indemnified Party contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims,
damages, liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the Company, on
the one hand, and each Holder, on the other, in connection
with the statements or omissions which resulted in such
losses, claims, damages, liabilities or actions as well as any
other relevant equitable considerations. The relative fault
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the
one hand, or supplied or confirmed as accurate by a Holder, on
the other hand, and to the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto agree
that it would not be just and equitable if contributions
pursuant to this paragraph were determined by any method of
allocation which did not take account of the equitable
7
<PAGE>
146
considerations referred to above in this paragraph. Subject to
the provisions of this ss.7, the amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages,
liabilities or actions in respect thereof, referred to above
in this paragraph, shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action
or claim.
ss.8. Reports Under the Securities Laws. With a view to making
available to the Holders of the Registrable Shares the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the
Securities and Exchange Commission that may at any time permit such Holder to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) File with the Securities and Exchange Commission in a
timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act; and
(c) Furnish to any Holder so long as such Holder owns any of
the Registrable Shares forthwith upon request a written
statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Securities Act
and the 1934 Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably
requested by any such Holder in availing any such Holder of
any rule or regulation of the Securities and Exchange
Commission permitting the selling of any securities without
registration.
(d) The Holders will not exercise their rights hereunder with
respect to the sale of Registrable Shares at any time or times
during which they may sell such Registrable Shares without
registration pursuant to an available exemption from
registration under Rule 144 or otherwise.
ss.9. No Transfer of Registration Rights. The rights to cause the
Company to register Registrable Shares that are granted by the Company under
ss.2 may not be assigned by any Holder. Subject to the foregoing provision, this
Agreement shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and permitted assigns.
ss.10. Consent: Amendments. For purposes of this Agreement, unless
otherwise specifically provided for in this Agreement, all approvals and
consents of the Holders required or permitted under this Agreement shall be
deemed granted by the affirmative vote of the holders of a majority of the
Registrable Shares held by the Holders at the time of such approval or consent.
The terms and provisions of this Agreement may not be modified or amended,
8
<PAGE>
147
except that they may be modified or amended with the written consent of (a) the
Company, and (b) all of the Holders. None of the terms and provisions of this
Agreement may be waived except in writing by the person so waiving.
ss.11. Granting of Registration Rights. Notwithstanding anything herein
to the contrary, the Company may grant any rights to any persons to register any
shares of capital stock or other securities of the Company notwithstanding the
fact that such rights could reasonably be expected to conflict with, or be on
parity with or greater than, the rights of the Holders provided hereunder.
ss.12. Governing Law. All questions concerning the validity or meaning
of this Agreement or relating to the rights and obligations of the parties with
respect to performance under this Agreement shall be construed and resolved
under the laws of Ohio.
ss.13. Notice. Any notice or other communication required or desires to
be given to any party under this Agreement shall be in writing and shall be
deemed given: (a) when delivered personally to that party; (b) upon receipt of a
telephone facsimile transmission answer back, (c) three (3) days after having
been deposited in the United States mail, certified or registered, return
receipt requested, postage prepaid, or (d) one (1) business day after having
been dispatched by a nationally recognized overnight courier service, addressed
to the parties or their permitted assigns at the following addresses (or at such
other address or number as is given in writing by either party to the other) as
follows:
Holders:
c/o Pat Holder
Lexford Properties, Inc.
8615 Freeport Parkway, Suite 200
Irving, Texas 75063
Telephone No.: (214) 929-4880
Telecopy No.: (214) 929-1465
with a copy to:
Michener, Larimore, Swindle, Whitaker, Flowers
Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102-4186
Attention: John W. Michener, Jr.
Telephone No.: (817) 335-4417
Telecopy No.: (817) 335-6935
9
<PAGE>
148
and:
Company:
Cardinal Realty Services, Inc.
6954 Americana Parkway
Reynoldsburg, Ohio 43068
Attention: Mark D. Thompson, Executive Vice President
Telephone No.: (614)759-1566
Telecopy No.: (614) 575-5175
with copies to:
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attention: Bradley A. Van Auken
Telephone No.: (216)363-4500
Telecopy No.: (216)363-4588
ss.14. Termination. The registration rights granted under this
Agreement shall terminate with respect to any Holder one hundred eighty (180)
days after the effective date of a Registration Statement registering all of
such Holder's Registrable Shares under the Securities Act; provided, however,
that the indemnification provisions of ss.6 shall survive the termination of
such registration rights.
ss.15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single agreement.
ss.16. Captions. The captions of the various sections of this Agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections, and shall be ignored in construing this Agreement.
ss.17. Severability. The intention of the parties to this Agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdiction determines it is
impossible to construe any provision of this agreement consistently with any law
or public policy and consequently holds that provision to be invalid, such
holding shall in no way affect the validity of the other provisions of this
Agreement, which shall remain in full force and effect.
10
<PAGE>
149
ss.18. Jurisdiction and Venue. All parties to this Agreement hereby
designate the Court of Common Pleas of Franklin County, Ohio, as a court of
proper jurisdiction and venue for any actions or proceedings relating to this
Agreement; hereby irrevocably consent to such designation, jurisdiction and
venue; and hereby waive any objections or defenses relating to jurisdiction or
venue with respect to any action or proceeding initiated in the Court of Common
Pleas of Franklin County, Ohio.
CARDINAL REALTY SERVICES, INC.
By: /s/ Mark D. Thompson
Its: Executive Vice President
of Corporate Acquisitions
/s/ Pat Holder
-----------------------------------
PAT HOLDER
/s/ Ralph V. Williams
-----------------------------------
RALPH V. WILLIAMS
/s/ Annette Hoover
-----------------------------------
ANNETTE HOOVER
/s/ Bruce Woodward
-----------------------------------
BRUCE WOODWARD
/s/ Eric Madsen
-----------------------------------
ERIC MADSEN
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<PAGE>
150
/s/ Peggy Crow Smith
---------------------------------
PEGGY CROW SMITH
FSC REALTY, L.L.C.
By: /s/ Stanley R. Fimberg
--------------------------------
Stanley R. Fimberg, Manager
12
<PAGE>
151
SCHEDULE 1
REGISTRABLE SHARES
MAXIMUM NUMER OF
HOLDER REGISTRABLE SHARES
- -----------------------------------------------------------------------------
Pat Holder 87,500
Annette Hoover 35,000
Bruce Woodward 35,000
Peggy Crow Smith 17,500
FSC Realty, L.L.C. 82,250
Ralph V. Williams 66,500
Eric Madsen 26,250
TOTAL 350,000
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
152
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,569
<SECURITIES> 0
<RECEIVABLES> 5,049
<ALLOWANCES> 2,295
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 166,053
<DEPRECIATION> 2,296
<TOTAL-ASSETS> 236,081
<CURRENT-LIABILITIES> 0
<BONDS> 167,515
0
0
<COMMON> 29,122
<OTHER-SE> 24,975
<TOTAL-LIABILITY-AND-EQUITY> 236,081
<SALES> 0
<TOTAL-REVENUES> 29,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,762
<INCOME-PRETAX> 3,030
<INCOME-TAX> 1,182
<INCOME-CONTINUING> 1,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,848
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
