- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21670
------------------------------------
LEXFORD, 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.)
THE HUNTINGTON CENTER
41 SOUTH HIGH STREET SUITE 2410
COLUMBUS, OH 43215
(Address of Principal Executive Offices including Zip Code)
(614) 242-3850
(Registrant's Telephone Number, including Area Code)
------------------------------------
Indicate by check X whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check X 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 November 12, 1997 there were 4,512,815 shares of common stock issued.
Page 1 of 113 sequentially numbered pages
Exhibit Index on page 28.
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<PAGE>
2
LEXFORD, INC. AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996 (Audited)....................3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1997 and 1996 (Unaudited)..................4
Consolidated Statement of Shareholders' Equity
for the Nine Months Ended September 30, 1997 (Unaudited).......5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 (Unaudited)....6-7
Notes to Consolidated Financial Statements......................8-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................16-26
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.................................................28
Item 6. Exhibits and Reports on Form 8-K..................................28
Signatures....................................................................29
<PAGE>
3
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
LEXFORD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 (AUDITED)
<CAPTION>
September 30, December 31,
1997 1996
================== ==================
<S> <C> <C>
ASSETS
Wholly Owned Properties (Note 2):
Land..................................................................... $ 23,652,841 $ 23,652,841
Building, Improvements and Fixtures...................................... 139,446,636 137,917,083
------------------ ------------------
163,099,477 161,569,924
Accumulated Depreciation................................................. (8,025,801) (4,478,379)
------------------ ------------------
155,073,676 157,091,545
Interests in and Receivables from Syndicated Partnerships (Notes 1 and 4)... 52,783,451 54,610,421
Cash (Note 1)............................................................... 3,824,500 3,593,121
Accounts Receivable, Affiliates (Less an Allowance
of $1,573,581 at September 30, 1997 and $2,034,290 at
December 31, 1996), Residents and Officers (Note 4)...................... 1,916,887 5,044,603
Furniture, Fixtures and Other, Net.......................................... 1,483,247 1,167,579
Funds Held in Escrow (Note 1)............................................... 13,751,242 14,011,013
Intangible Assets, Net (Note 1) ............................................ 5,073,944 5,973,560
Prepaids and Other (Note 1)................................................. 4,479,727 3,875,937
------------------ ------------------
$ 238,386,674 $ 245,367,779
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages, Term Debt and Other Notes Payable:
Mortgages on Wholly Owned Properties (Notes 2 and 3)..................... $ 145,521,928 $ 148,056,017
Term Debt................................................................ 5,060,814 15,118,048
Other Notes Payable...................................................... 64,797 145,220
------------------ ------------------
150,647,539 163,319,285
Accounts Payable............................................................ 1,037,026 1,560,749
Accrued Interest, Real Estate and Other Taxes (Notes 2 and 3)............... 5,029,803 4,023,310
Other Accrued Expenses ..................................................... 6,286,249 8,531,031
Other Liabilities........................................................... 4,677,058 5,424,226
------------------ ------------------
Total Liabilities 167,677,675 182,858,601
------------------ ------------------
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,
4,031,754 and 3,892,600 Shares Issued and Outstanding
at September 30, 1997 and December 31, 1996, Respectively............ 29,122,547 29,122,547
Additional Paid-in Capital (Note 1)...................................... 19,576,271 15,968,426
Retained Earnings........................................................ 22,010,181 17,418,205
------------------ ------------------
70,708,999 62,509,178
------------------ ------------------
$ 238,386,674 $ 245,367,779
================== ==================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
3
<PAGE>
4
<TABLE>
LEXFORD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental and Other Revenues-Wholly Owned Properties.......... $ 10,742,992 $ 10,311,403 $ 31,371,970 $ 30,755,215
Fee Based.................................................. 3,789,263 3,688,833 11,534,422 9,272,256
Interest, Principally from Syndicated Partnerships......... 2,619,671 1,680,081 7,765,913 4,626,766
Income from Disposal of Assets - Net....................... 772,910 7,181 1,462,266 281,873
Other...................................................... 307,111 21,543 452,274 173,198
--------------- --------------- --------------- ----------------
18,231,947 15,709,041 52,586,845 45,109,308
--------------- --------------- --------------- ----------------
Expenses:
Rental Operating........................................... 4,407,596 5,281,275 14,487,648 15,719,226
Fee Based.................................................. 3,037,739 2,627,882 9,255,932 5,723,834
Administration............................................. 1,509,504 1,151,715 4,326,329 3,273,449
Restructure / Nonrecurring Costs........................... 538,489 0 788,489 300,000
Interest - Wholly Owned Property Debt...................... 3,569,134 3,500,425 10,505,661 10,700,604
Interest - Corporate Debt.................................. 174,254 278,714 481,578 840,180
Depreciation and Amortization.............................. 1,993,256 1,418,696 4,933,698 4,071,047
--------------- --------------- --------------- ----------------
15,229,972 14,258,707 44,779,335 40,628,340
--------------- --------------- --------------- ----------------
Income Before Income Taxes................................... 3,001,975 1,450,334 7,807,510 4,480,968
Provision for Income Taxes: .................................
Credited to Paid-in Capital 1,061,000 341,442 2,735,000 1,308,600
Current 100,000 221,858 300,000 436,700
--------------- --------------- --------------- ----------------
Income before Extraordinary Loss ............................ 1,840,975 887,034 4,772,510 2,735,668
Extraordinary Loss, Net of Income Tax Benefit of
$115,000 (Note 3).......................................... 0 0 (180,534) 0
--------------- --------------- --------------- ----------------
Net Income $ 1,840,975 $ 887,034 $ 4,591,976 $ 2,735,668
=============== =============== =============== ================
Net Income per Common Share:
Income Before Extraordinary Item........................... $0.44 $0.22 $1.15 $0.69
Extraordinary Loss ........................................ 0.00 0.00 (0.04) 0.00
--------------- --------------- --------------- ----------------
Net Income $0.44 $0.22 $1.11 $0.69
=============== =============== =============== ================
Weighted Average Common Shares Outstanding................... 4,165,000 4,093,000 4,149,000 3,953,000
=============== =============== =============== ================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
4
<PAGE>
5
<TABLE>
LEXFORD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
Common Stock
------------------------------ Additional Retained
Shares Amount Paid-in Capital Earnings Total
------------- --------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997....................... 3,892,600 $ 29,122,547 $ 15,968,426 $ 17,418,205 $ 62,509,178
Shares Issued, in Connection with
the Claims Resolution Process ................ 12,137
Exercise of Options under Non-Qualified Stock
Option Plan................................... 8,330 35,677 35,677
Stock Compensation and Director Restricted
Stock Plan, Net of 27,334 Shares Subject to
Vesting Restrictions (Note 1)................. 118,687 952,168 952,168
Credit from Utilization of 2,620,000
Pre-Confirmation Tax Benefits ................ 2,620,000
Net Income for the Period ...................... 4,591,976 4,591,976
------------- --------------- ---------------- -------------- -------------
Balance, September 30, 1997 .................... 4,031,754 $ 29,122,547 $ 19,576,271 $ 22,010,181 $ 70,708,999
============= =============== ================ ============== =============
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
5
<PAGE>
6
<TABLE>
LEXFORD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
---------------------- --------------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Management and Investment Service Activities:
Cash Received from Fee Based Activities........................................... $ 15,614,716 $ 16,989,544
Cash Received from Interests in and Receivables from Syndicated Partnerships...... 9,539,672 6,042,883
Cash Receipts -- Other............................................................ 1,647,011 1,276,105
Cash Paid to Vendors, Suppliers and Employees..................................... (16,809,235) (17,374,022)
Interest Paid on Term Debt and Other Notes Payable................................ (460,218) (881,886)
Income Taxes Paid - City and State................................................ (163,353) (189,919)
Taxes Paid, Other than Income Taxes............................................... (83,529) (55,186)
Payments Related to Nonrecurring Items............................................ (284,701) (1,891,525)
---------------------- --------------------
9,000,363 3,915,994
---------------------- --------------------
Wholly Owned Properties Activities:
Cash Received from Rental Activities.............................................. 31,228,727 30,923,763
Payments on Rental Activities..................................................... (15,161,873) (17,105,705)
Interest Paid on Mortgages........................................................ (10,472,977) (10,178,201)
---------------------- --------------------
5,593,877 3,639,857
---------------------- --------------------
Net Cash Provided by Operating Activities............................................ 14,594,240 7,555,851
---------------------- --------------------
Cash Flows (Used in) Investing Activities:
Management and Investment Service Activities:
Proceeds from Sale of Assets and Other............................................ 1,840,588 701,492
Capital Expenditures.............................................................. (786,018) (528,748)
Repayment from/(Advances to) Syndicated Partnerships.............................. 579,082 396,369
Acquisition of Mortgages and Real Estate Assets................................... (445,625) 0
Wholly Owned Properties Activities:
Funding of Escrows................................................................ (1,022,457) (310,759)
Capital Expenditures ............................................................. (1,529,553) (370,453)
---------------------- --------------------
Net Cash (Used in) Investing Activities.............................................. (1,363,983) (112,099)
---------------------- --------------------
Cash Flows (Used in) Financing Activities:
Management and Investment Service Activities:
Proceeds from the Exercise of Stock Options....................................... 35,677 47,050
Redemption of Stock held by Syndicated Partnerships............................... (31,330)
Net Proceeds from/(Principal Payments) on Term Debt and Other..................... (10,237,033) (3,996,623)
Wholly Owned Properties Activities:
Proceeds from Mortgage Debt....................................................... 2,560,000 13,365,000
Payments on Mortgages - Principal Amortization.................................... (1,514,788) (1,415,176)
Payments on Mortgages - Lump Sum.................................................. (3,842,734) (14,445,947)
---------------------- --------------------
Net Cash (Used in) Financing Activities.............................................. (12,998,878) (6,477,026)
---------------------- --------------------
Increase in Cash .................................................................... 231,379 966,726
Cash at Beginning of Year............................................................ 3,593,121 2,751,986
---------------------- --------------------
Cash at End of Period................................................................ $ 3,824,500 $ 3,718,712
====================== ====================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
6
<PAGE>
7
<TABLE>
LEXFORD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
September 30, September 30,
1997 1996
--------------- ----------------
<S> <C> <C>
Reconciliation of Net Income to
Net Cash Provided by Operating Activities:
Net Income............................................................... $ 4,591,976 $ 2,735,668
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization........................................ 4,933,698 4,071,047
Provision for Losses on Accounts Receivable.......................... 109,940 74,069
Income from Disposal of Assets ...................................... (1,462,266) (281,873)
Loss on Debt Restructuring........................................... 295,534 0
Provision for Income Taxes Credited to Paid-in Capital............... 2,620,000 1,308,600
Stock Compensation Credited to Paid-in Capital....................... 952,168 0
Changes in Operating Assets and Liabilities:
Interests in and Receivables from Syndicated Partnerships............ 1,405,518 1,617,714
Accounts Receivable and Other Assets................................. 3,244,552 (6,183,344)
Accounts Payable and Other Liabilities............................... (2,096,880) 4,213,970
--------------- ----------------
Net Cash Provided by Operating Activities..................................... $ 14,594,240 $ 7,555,851
=============== ================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first nine months of 1996, the Company granted deeds in lieu of
foreclosure for three Wholly Owned Properties. These Properties had an aggregate
carrying value of $3.9 million. No gain or loss was recognized on these
transactions because the assets and the non-recourse mortgages on these
Properties 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, in whole or in part, if the Company's combined property
management operations fail to achieve certain profitability criteria on or
before the end of the Company's 1999 fiscal year.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
8
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lexford,
Inc., formerly known as 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 Wholly Owned Properties and in which the Company, in turn,
owns a 100% equity interest. The Company holds an ownership interest in
multi-family communities either as (i) the sole owner of various limited
partnerships or subsidiaries which own multi-family communities (the "Wholly
Owned Properties"), or (ii) the general partner in various limited partnerships
which own multi-family communities (the "Syndicated Partnerships"), collectively
referred to as the "Properties". The accounts of the Syndicated Partnerships are
not included within the Company's Consolidated Financial Statements. 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, 1996, are unaudited and have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for a complete financial statement presentation. The consolidated financial
statements, the notes hereto and the capitalized terms included herein should be
read in conjunction with the Company's Form 10-K for the fiscal year ended
December 31, 1996.
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
nine month period ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
Business Overview
- -----------------
The Company engages in two core business activities: 1) management of
multi-family residential real property, including management services to passive
co-owners as well as to owners of property in which the Company does not have an
ownership interest ("Management Services"); and 2) activities related to the
ownership of multi-family residential real property, including asset management
services to passive co-owners ("Investment Management").
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 third party property management
including: day-to-day management and maintenance of multi-family residential
properties, attracting and retaining qualified residents, collecting rents and
other receivables from residents, providing cash management services for rental
revenues, security deposits, taxes and insurance and deferred maintenance
escrows, and compiling and furnishing information to property owners.
8
<PAGE>
9
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Effective August 1, 1996, the Company acquired Lexford Properties, Inc.
("Lexford Properties") by merger of a wholly owned subsidiary of the Company
with and into Lexford Properties, Inc. On that date, Lexford Properties became a
wholly owned subsidiary of the Company. Lexford Properties has been engaged in
the business of third party property management services to the owners of
multi-family residential real property since commencing business operations in
June 1988. Lexford Properties succeeded to the operation of the Company's
Management Services division. Accordingly, the Company's property management
business is conducted through Lexford Properties. Management believes that the
acquisition of Lexford Properties has enhanced the Company's property management
capabilities (SEE "LEXFORD PROPERTIES ACQUISITION").
Lexford Properties also operates an adjunct business which the Company
refers to as "Preferred Resource" formerly referred to as Ancillary Services or
Preferred Vendor. The Preferred Resource business currently provides assistance
to most of the Properties managed by Lexford Properties, in the acquisition of
needed parts and supplies and the management of a coordinated buying group
enjoying substantial volume discounts. In consideration of these services, the
Company generates income by retaining some portion of discounts earned. In
addition, Preferred Resource provides services to residents such as renter's
insurance.
Investment Management
---------------------
The objective of the Company's Investment Management division is to
maximize the value of its real estate holdings and its returns on real estate
investments. The Company strives to obtain and maintain the best available
financing for the Properties and to maximize the Properties' operating
performance. The Company evaluates the performance of all real estate holdings
to identify investment requirements, under-performing Properties or those that
can be sold at an attractive price relative to their performance. The Company
maintains a partnership interest in each of the Syndicated Partnerships, ranging
from 1% to 10%. 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). The remaining
partnership interests in the Syndicated Partnerships are substantially all owned
by unrelated third party limited partner investors.
The Company's Investment Management division, acting in the Company's
capacity as general partner of the Syndicated Partnerships, provides asset
management services to the Syndicated Partnerships. In addition, the Company's
Investment Management division performs the following services for the accounts
of the co-owners (limited partners) of the Syndicated Partnerships:
informational and financial reporting services (including 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 administration of capital distributions to partners).
9
<PAGE>
10
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Fresh Start Accounting
- ----------------------
The Company adopted a method of accounting referred to as fresh start
("Fresh Start") reporting as of September 11, 1992 (the "Effective Date") as a
result of the Company's judicial plan of reorganization (the "Plan of
Reorganization"). The Company prepared financial statements on the basis that a
new reporting entity was created with assets and liabilities recorded at their
estimated fair values as of the Effective Date. At the Effective Date, to the
extent the non-recourse debt secured by certain assets owned by the Company
exceeded the estimated fair value of the respective Wholly Owned Property, the
Company reduced the contractual amount of the related non-recourse mortgage debt
by the amount of the deficiency (the "Mortgage Deficiency"). The contractual
mortgage balance, net of any applicable Mortgage Deficiency, is referred to as
the "Carrying Value" of the mortgage (SEE NOTES 2 AND 3).
Cash and Other Assets
- ---------------------
Cash at September 30, 1997 is comprised of approximately $2.8 million
related to Wholly Owned Properties, which is held in separate property bank
accounts, and approximately $1.0 million in corporate funds.
Funds Held in Escrow at September 30, 1997 includes funds of $8.0 million
held in escrow for the benefit of Wholly Owned Properties for improvements and
deferred maintenance, real estate taxes, insurance and resident security
deposits. In addition, the Company is holding $2.4 million at September 30, 1997
as funds held primarily for payment of insurance premiums which are collected on
behalf of the Properties. At September 30, 1997 the Company's Funds Held in
Escrow also includes $3.3 million of funds received from the settlement of
termite litigation relating to certain Properties. Although the Company has
begun to distribute funds to the affected Properties, the complete distribution
of the funds is pending the finalization of an allocation of proceeds to the
affected Properties. Applicable corresponding liabilities have been recorded and
are included in Other Liabilities.
Intangible Assets at September 30, 1997 is primarily comprised of goodwill
and management contracts, net of amortization of approximately $599,000, related
to the Lexford Properties acquisition. In the third quarter of 1997, the Company
recorded a charge of approximately $364,000 as an amortization adjustment to the
value assigned to the third party management contracts acquired in 1996. The
adjustment was based upon the status of the current portfolio of third party
management contracts (SEE "LEXFORD PROPERTIES ACQUISITION" AND ITEM 2,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES -- LEXFORD PROPERTIES
ACQUISITION).
Prepaids and Other assets at September 30, 1997 includes $2.5 million of
capitalized costs associated with refinancing mortgages on Wholly Owned
Properties and approximately $212,000 of loan costs associated with the
refinancing of the Company's corporate lines of credit which are amortized based
upon the maturity date of the credit facility. In addition, Prepaids and Other
assets consists of approximately $1.8 million of other prepaid expenses.
10
<PAGE>
11
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Recorded Values of Receivables from Syndicated Partnerships
- -----------------------------------------------------------
The Company owns general partner and, in some cases, nominal 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. The advances bear interest at one percent over the
prime rate of interest of The Provident Bank (the "Bank"), which was 9.5% at
September 30, 1997. Interests in and Receivables from Syndicated Partnerships
were recorded at their estimated fair value as of the Effective Date based upon
Fresh Start accounting. The contractual amounts of receivables are significantly
greater than the recorded values. At September 30, 1997 and December 31, 1996,
the contractual value of the Company's Interests in and Receivables from
Syndicated Partnerships amounted to $233.5 million and $238.9 million,
respectively. The decrease in the contractual value is attributable to the
Syndicated Partnerships that have been disposed of since December 31, 1996. The
decline in the recorded value of Interests in and Receivables from Syndicated
Partnerships was due to the sale of properties, collection of advances (SEE NOTE
4) and the collection of accrued interest. The gains from the disposals have
been included in Income from Disposal of Assets. There can be no assurance that
the Company will collect any amounts above the recorded Fresh Start value of
these receivables. In addition, if materially adverse developments affect the
Syndicated Partnerships, the Company may have to establish additional reserves
or allowances with respect to the Fresh Start values.
The Fresh Start values of the Company's Interests in and Receivables from
Syndicated Partnerships 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 respective 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, without regard to the possibility that
payments to limited partners might be required in order to effectuate sales of
the properties owned by certain of the Syndicated Partnerships.
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' ability to generate net cash flow sufficient to pay the
amounts due the Company. 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 of the underlying Properties.
11
<PAGE>
12
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Lexford Properties Acquisition
- ------------------------------
Effective August 1, 1996 the Company acquired Lexford Properties by way of
a merger (the "Lexford Merger") of a wholly owned subsidiary of the Company with
and into Lexford Properties. The acquisition was accounted for as a purchase.
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 Properties and
the shareholders of Lexford Properties would receive 700,000 shares of
restricted, newly issued common stock, without par value ("Common Stock"), of
the Company. 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 whole or in part in the event Lexford
Properties does not achieve certain profitability criteria by December 31, 1999.
These shares are held in escrow pending release. If the profitability criteria
are met, the shares subject to forfeiture will be released without contingency
and the Company will record the additional purchase price at such time. The
Lexford Properties shareholders received 250,000 shares of Common Stock free of
contingencies. The 450,000 shares subject to forfeiture are not reflected in the
Shareholders' Equity section of the Company's Balance Sheet nor in the
Consolidated Statement of Shareholders' Equity presented herein.
Net Income Per Share
- --------------------
Net Income per share for the period is computed based on the total weighted
average number of shares of the Company's Common Stock outstanding during the
subject period as well as those contingent shares estimated to be issued to
officers, employees and directors in accordance with the Company's 1992
Incentive Equity Plan, as amended or employment agreements with certain
executive officers. In the first nine months of 1997, the Company expensed
approximately $515,000 related to stock compensation and recorded approximately
$437,000 of stock issued related to the 1996 bonus plan. For the three and nine
months ended September 30, 1997, the total weighted average shares outstanding
was approximately 4,165,000 and 4,149,000, respectively. In February 1997 the
Company retired all treasury shares held by the Company and Wholly Owned
Properties. In August 1996, the Company issued 700,000 shares of Common Stock in
connection with the Lexford Merger, 450,000 shares of which remain subject to
forfeiture in whole or in part. The 450,000 shares subject to forfeiture are
excluded from the weighted average shares outstanding because the shares are not
dilutive if they are earned.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted for periods ending
after December 15, 1997. Accordingly as of December 31, 1997, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for calculating
basic earnings per share (which will replace primary earnings per share) the
dilutive effects of stock options and other common stock equivalents will be
excluded. The impact is expected to result in basic earnings per share of $.46
and $.24 for the quarters ended September 30, 1997 and 1996, respectively, and
$1.15 and $.72 for the nine months ended September 30, 1997 and 1996,
respectively. The impact of Statement 128 on dilutive earnings per share (which
will replace fully diluted earnings per share) for such periods is not expected
to be material.
The shareholders of the Company at its annual meeting on October 7, 1997,
approved the Company's 1997 Performance Equity Plan (the "Performance Plan").
The Performance Plan authorizes the grant of restricted stock awards to certain
officers and non employee directors. A total of 318,000 shares will be issued
subject to forfeiture. Vesting under the Performance Plan occurs only upon
attainment of specified performance goals within a three year term, ending in
1999. If the performance goals are achieved, the Company will incur a non cash
charge, which may range from $4.0 million to $6.0 million for 1997, related to
the value of the stock that will vest under the Performance Plan.
12
<PAGE>
13
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Corporate Restructuring and Other Nonrecurring Charges
- ------------------------------------------------------
During the nine months ended September 30, 1997, the Company incurred
Nonrecurring Costs totaling approximately $788,000, with approximately $538,000
in the third quarter of 1997. Approximately $400,000 of the charge, $150,000 in
the third quarter, was due to costs related to the elimination of overlapping
functions between Lexford Properties and the operations of the Company's
previous management services operations. In the third quarter of 1997 the
Company recorded a charge of approximately $389,000 primarily related to costs
incurred for the Form S-11 filing for the proposed spinoff of the Company's
Wholly Owned Properties. The Company has withdrawn this filing as it is
currently evaluating the possibility of the Company maintaining its ownership
interests in the Wholly Owned Properties and itself electing to be treated as a
Real Estate Investment Trust ("REIT") under the Internal Revenue Code.
NOTE 2 WHOLLY OWNED PROPERTIES
At September 30, 1997 and 1996, the Company owned 113 and 114 Wholly Owned
Properties, respectively.
Condensed combined balance sheets, with intercompany payables and
receivables eliminated, of the Company's Wholly Owned Properties as of September
30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------- -------------------------
<S> <C> <C>
Assets
Net Wholly Owned Properties Real Estate Assets $ 155,073,676 $ 157,091,545
Cash 2,771,975 3,322,494
Accounts Receivable 665,274 324,772
Funds Held in Escrow 8,002,599 6,980,142
Prepaids and Other 2,968,343 3,553,497
------------------------- -------------------------
$ 169,481,867 $ 171,272,450
========================= =========================
Liabilities and Equity
Mortgage Payable:
Contractual $ 153,680,070 $ 157,381,603
Mortgage Deficiency (8,158,142) (9,325,586)
------------------------- -------------------------
145,521,928 148,056,017
Accounts Payable 803,673 1,160,426
Accrued Interest and Real Estate Taxes 3,849,192 2,961,795
Other Accrued Expenses 1,227,883 1,337,083
Other Liabilities 873,453 683,202
------------------------- -------------------------
152,276,129 154,198,523
Equity 17,205,738 17,073,927
------------------------- -------------------------
$ 169,481,867 $ 171,272,450
========================= =========================
</TABLE>
13
<PAGE>
14
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 WHOLLY OWNED PROPERTIES (cont'd)
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 respective asset was less
than the outstanding principal amount of its mortgage. Although the value of the
assets may have increased since the Effective Date, the Carrying Values of the
mortgages and the assets have not been adjusted. Interest expense is recorded
based on the Carrying Value of the mortgage using the effective interest rate
method. Mortgages which have been originated 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. The mortgage loans on a portfolio of 26 Wholly Owned Properties
contain cross collateral and cross default provisions; however, all of the
mortgage loans secured by the Wholly Owned Properties are non-recourse to the
Company.
With respect to those Wholly Owned Properties and other assets which the
Company has acquired, and may acquire, after the Effective Date, the recorded
values are established on the basis of acquisition cost, in accordance with
generally accepted accounting principles.
NOTE 3 MORTGAGE REFINANCINGS
During the first nine months of 1997, the Company refinanced mortgages on
two Wholly Owned Properties. Mortgage indebtedness on these Wholly Owned
Properties, with a contractual value of $2.6 million and a Carrying Value of
$2.3 million, was refinanced with mortgages bearing a fixed rate of interest of
8.2%, with 25 year amortization and ten year maturities. Annual debt service on
the affected Wholly Owned Properties decreased approximately $40,000. An
extraordinary non-cash loss of approximately $180,000, net of tax benefits,
resulted from the mortgage debt refinancings of the Wholly Owned Properties. The
loss arose from the mortgages repaid from refinance proceeds at the contractual
balance which exceeded the Carrying Value of the mortgages.
In the third quarter of 1997, the Company paid off the mortgage debt on one
Wholly Owned Property. The payment of $1.2 million approximated the Carrying
Value of the mortgage and represented a significant discount from the
contractual value of $1.9 million.
Through September 30, 1996, the Company completed the refinancing of the
mortgage and related interest debt on nine Wholly Owned Properties. Mortgage and
related interest debt, with a contractual value of $15.1 million and a Carrying
Value of $14.7 million, was refinanced with mortgages bearing interest ranging
from approximately 8.0% to 9.1% per annum, with a 25 year amortization schedule
and seven to ten year maturities. These transactions funded improvement and
deferred maintenance, tax and working capital escrows of approximately $570,000.
The Company did not recognize an extraordinary gain or loss associated with the
mortgage refinancings on these Properties.
During the first nine months of 1997, the Company also completed the
refinancing of the mortgage and related accrued interest debt on 12 Syndicated
Partnerships. The new loans bear interest at a fixed rate ranging from 8.2% to
9.0% per annum with a ten year maturity. The Company negotiated, on behalf of
the Syndicated Partnerships, discounts from the previous mortgage lenders
totaling approximately $1.3 million. Annual debt service requirements for the
affected Syndicated Partnerships decreased, in the aggregate, approximately
$230,000 as a result of these transactions.
14
<PAGE>
15
LEXFORD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 MORTGAGE REFINANCINGS (cont'd)
Through September 30, 1996, the Company completed the refinancing of the
mortgage and related interest debt on 23 Syndicated Partnerships. The
refinancing of the mortgages on 11 of the 23 Syndicated Partnerships generated
excess cash proceeds of $1.5 million in the third quarter of 1996. Such proceeds
were utilized by the respective Syndicated Partnerships to pay down obligations
owed by such Syndicated Partnerships to the Company.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company manages all of the 113 Wholly Owned Properties and 400 of the
406 Syndicated Partnerships. The Company also provides various ancillary
services, including a Preferred Resource purchasing program to the Properties,
and renter's insurance to residents (see Note 1 - Business Overview Management
Services). The Company earned fee based revenues from the Syndicated
Partnerships of approximately $2.7 million and $2.9 million for the three months
ended September 30, 1997 and 1996, respectively, and $8.5 million and $8.4
million for the nine months ended September 30, 1997 and 1996, respectively. The
Company also earned a majority of its interest income on its receivables
(including second mortgages) from the Syndicated Partnerships. Approximately
$1.2 million and $4.1 million of the Accounts Receivable were due from the
Syndicated Partnerships as of September 30, 1997 and December 31, 1996,
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. The
cyclical nature of the insurance billings also impacted Other Accrued Expenses.
Fee Based Revenues and Accounts Receivable related to the Wholly Owned
Properties are eliminated in consolidation.
The Company received, net of advances to Syndicated Partnerships, principal
repayment of advances of approximately $579,000 from the Syndicated Partnerships
in the first nine months of 1997 as compared to approximately $396,000 in the
first nine months of 1996. These advance repayments were applied to Interests in
and Receivables from Syndicated Partnerships (SEE NOTE 1 BASIS OF PRESENTATION
- -- RECORDED VALUES OF RECEIVABLES FROM SYNDICATED PARTNERSHIPS).
15
<PAGE>
16
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 nine months ended September 30, 1997 and
1996 and significant developments affecting the Company's financial condition
since the end of 1996. The following discussion should be read in conjunction
with the historical financial statements of the Company.
RESULTS OF OPERATIONS
Rental and Other Revenues are derived from the Wholly Owned Properties
which own and operate apartment communities. Rental and Other Revenues increased
approximately $431,000 or 4.2% and approximately $617,000 or 2.0% for the three
and nine months ended September 30, 1997, respectively, as compared to the same
periods in 1996. On a comparable unit basis, Rental and Other Revenues from the
113 Wholly Owned Properties in operation for both periods ("same store")
increased approximately $403,000 or 3.9% and approximately $843,000 or 2.8%, for
the three and nine months ended September 30, 1997, respectively, as compared to
the same periods in 1996, with average monthly rent collected per unit during
the nine month period increasing from $390 in 1996 to $395 in 1997. The average
economic occupancy was 91.3% for the nine months ended September 30, 1997 as
compared to 92.2% for the nine months ended September 30, 1996. 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, based upon
the last rent received, were collected for 100% of the units.
Fee Based Revenues are comprised of Management Services and Investment
Management revenues generated from services provided to Syndicated Partnerships,
third party owners and residents at the Properties. Management Services revenues
principally relate to property management and accounting services provided to
the Syndicated Partnerships and, from and after August 1, 1996, property
management services provided to third party property owners (SEE LIQUIDITY AND
CAPITAL RESOURCES -- LEXFORD PROPERTIES ACQUISITION). As of September 30, 1997,
the Company had an ownership interest in 519 apartment communities (consisting
of an aggregate of 33,984 rental units) in 14 states. As of the same date,
Lexford Properties managed 592 apartment communities (consisting of an aggregate
of 52,001 apartment units) in 22 states. Lexford Properties' management
portfolio included 513 apartment communities (33,627 units) in which the Company
has an ownership interest and 79 apartment communities (18,374 units) managed
for third party owners. In the first quarter of 1997 Lexford Properties lost the
management of approximately 3,000 third party owned units in a portfolio
involved in bankruptcy proceedings which resulted in a change of control of the
ownership of these units. The loss of this portfolio has resulted in a decline
in third party management revenues of approximately $300,000 per quarter in
1997. Third party management revenues are typically subject to 30 day contracts
and, as such, may experience significant fluctuation from period to period.
Lexford Properties also provides ancillary services to third party owners and
the Syndicated Partnerships, including a "Preferred Resource" discount buying
program and laundry services. In prior years, the Company maintained a warehouse
with an inventory of parts and supplies, which were shipped to the apartment
communities upon the receipt of orders. In November 1996, the Company disposed
of such inventory and Lexford Properties established its Preferred Resource
program that features discounts with major vendors. Lexford Properties enters
into group buying, volume discount contracts with such major vendors achieving
discounts which the third party owners and Syndicated Partnerships could not
achieve on a stand alone basis. The program, therefore, allows Lexford
Properties' clients to benefit from volume purchasing by paying discounted
prices. By outsourcing the replacement parts and supplies, Lexford Properties
eliminated its inventory and reduced overhead. The program was made available to
third-party clients effective December 1, 1996. Lexford Properties receives a
rebate from vendors for every purchase made through the Preferred Resource
program, as well as a rebate from residents' use of laundry equipment.
Investment Management revenues consist of partnership administration fees as
well as fees generated from loan refinancing and restructuring (SEE NOTE 1 OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- BUSINESS OVERVIEW).
16
<PAGE>
17
The following are the major components of Management Services revenues and
Investment Management fee-based revenues for the three and nine months ended
September 30, 1997 as compared to the same periods in 1996 (certain amounts
previously reported have been reclassified herein between Management Services
and Preferred Resource for all periods presented):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------- ----------------------------------
1997 1996 1997 1996
---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Management Services:
Property Management Services:
Syndicated Partnerships $ 1,954,746 $ 1,936,102 $ 5,819,601 $ 5,810,629
Third Party 1,054,014 834,847 3,046,713 834,847
Other Management Service Fees 272,801 271,405 812,096 832,213
Preferred Resource:
Furniture Leasing and Renter's Insurance 50,016 51,629 240,314 213,063
Preferred Resource Purchase Rebates 51,018 0 306,938 0
Resident Application Fees 106,980 78,166 336,236 282,728
Replacement and Maintenance
Material Revenues - Net 0 71,341 0 222,144
---------------- ----------------- --------------- ----------------
Total Management Services Revenues 3,489,575 3,243,490 10,561,898 8,195,624
---------------- ----------------- --------------- ----------------
Investment Management:
Partnership Administration & Other Fees 292,018 267,329 858,814 849,491
Loan Refinancing and Restructuring Fees 7,670 178,014 113,710 227,141
---------------- ----------------- --------------- ----------------
Total Investment Management Fee Revenues 299,688 445,343 972,524 1,076,632
---------------- ----------------- --------------- ----------------
Total Fee Based Revenues $ 3,789,263 $ 3,688,833 $ 11,534,422 $ 9,272,256
================ ================= =============== ================
</TABLE>
Fee Based Revenues increased approximately $100,000, or 2.7%, and $2.3
million, or 24.4%, for the three and nine months ended September 30, 1997,
respectively, as compared to the same periods in 1996. The increase for the nine
month periods was almost entirely due to increases in property management and
accounting services revenues from the operations of Lexford Properties, acquired
effective August 1, 1996. Preferred Resource Revenues increased approximately
$7,000 and $166,000 for the three and nine months ended September 30, 1997,
respectively, as compared to the same periods in 1996. The increases were due to
an increase in renter's insurance revenues and the volume of revenue generated
from the Preferred Resource program rebates as compared to the revenue earned
from the discontinued maintenance parts and supply operation in the prior year.
Interest Income increased approximately $939,000, or 55.9%, and $3.1
million, or 67.8%, for the three and nine months ended September 30, 1997,
respectively, as compared to the same periods in 1996. 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 OF
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - RECORDED VALUES OF RECEIVABLES
FROM SYNDICATED PARTNERSHIPS ). The increase in Interest Income was primarily
due to lower first mortgage debt service requirements due to refinancings of
Syndicated Partnership mortgages. Although there can be no assurances, Interest
Income should continue to be favorably impacted in the future as a result of
refinanced mortgage debt and, possibly, increasing net operating income (SEE NET
OPERATING INCOME OF SYNDICATED PARTNERSHIPS).
17
<PAGE>
18
Income from Disposal of Assets increased approximately $766,000 and $1.2
million for the three and nine months ended September 30, 1997, respectively, as
compared to the same periods in 1996. This income is derived from the net
disposition proceeds in excess of the aggregate recorded value of these assets.
The Company may sell certain Properties and, although there can be no assurance,
may recognize additional income from disposal of assets. Income from Disposal of
Assets is not a recurring, long term source of revenue.
Other Income increased approximately $285,000 and $279,000 for the three
and nine months ended September 30, 1997, respectively, as compared to the same
periods in 1996. The increase was due to the income generated from the sale of
an investment in a mortgage note on a property owned by a third party.
Rental Operating Expense decreased approximately $874,000 or 16.5% and $1.2
million, or 7.8%, for the three and nine months ended September 30, 1997,
respectively, as compared to the same periods in 1996. The majority of the
decrease is due to the capitalization of certain furniture and fixture
replacements previously expensed. In the third quarter, management reviewed its
replacement maintenance costs and determined that certain expenditures had a
longer useful life and did not require frequent replacement. Management believes
that the revised capitalization policy is more like that of its industry peers,
most of whom are Real Estate Investment Trusts ("REIT"). The adjustment recorded
in the third quarter reflects the amount of expenditures from January 1, 1997 to
June 30, 1997 that were previously reflected as expenses as well as such
replacement costs incurred in the third quarter of 1997. These items have been
capitalized and will be depreciated over an estimated useful life of five years.
Fee Based Expenses increased approximately $410,000 and $3.5 million for
the three and nine months ended September 30, 1997, respectively, as compared to
the same periods in 1996. The increase was primarily due to Fee Based Expenses
related to the third party management operation of Lexford Properties which was
acquired effective August 1, 1996.
Administration Expenses increased approximately $358,000 and $1.1 million
for the three and nine months ended September 30, 1997, respectively, as
compared to the same periods in 1996. The increase in administration expenses
was due, in part, to the executive and middle management restructuring
implemented at the end of 1995 which resulted in lower payroll expense during
the first half of 1996 due to open positions, principally at the senior
management level, many of which positions have since been filled. The Company
has also incurred additional costs in 1997 associated with a promotional and
marketing campaign designed to promote the Lexford Properties third party
property management operation.
Restructure / Nonrecurring Costs were approximately $538,000 and $788,000
for the three and nine months ended September 30, 1997. Approximately $400,000
of the charge was incurred in 1997 as a one time charge related to costs
incurred in connection with realignments to the Company's Management Services
division as part of the integration of the Lexford Properties third party
management operations with the pre-existing Management Services division of the
Company. In the third quarter of 1997, the Company recorded a charge of
approximately $389,000, primarily due to the write-off of costs deferred in
connection with a Form S-11 registration statement filing for the spin off of
the Company's Wholly Owned Properties. The Company has withdrawn this filing and
is currently evaluating a possible election of the entire Company to be treated
as a REIT under the Internal Revenue Code.
Interest Expense for mortgages on the Wholly Owned Properties increased
approximately $69,000 and decreased approximately $195,000 for the three and
nine months ended September 30, 1997, respectively, as compared to the same
periods in 1996. In the third quarter, Interest Expense increased due to the
expensing of the Mortgage Deficiency related to the lump sum principal payments
made on cash flow secondary mortgages (SEE NOTE 1 OF NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS -- FRESH START ACCOUNTING). The year-to-date decrease is
related to the refinancing transactions completed in late 1996. Interest Expense
on the Company's corporate lines of credit decreased approximately $104,000 and
$359,000 for the three and nine month comparative periods. This decrease is due
primarily to the decline in the average debt outstanding on the Company's credit
facility: $5.0 million was outstanding at September 30, 1997 as compared to
$18.0 million at September 30, 1996.
18
<PAGE>
19
Depreciation and Amortization Expense increased approximately $574,000 and
$863,000 for the three and nine months ended September 30, 1997, respectively,
as compared to the same periods in 1996. The increase is due to the amortization
of goodwill and management contracts associated with the Lexford Properties
acquisition and depreciation associated with the items capitalized as discussed
in "Rental Operating Expense". In addition, the Company recorded a charge of
approximately $364,000 as an amortization adjustment to the value assigned to
the third party management contracts acquired in 1996. The adjustment was based
upon an analysis of the current portfolio for third party management contracts.
Income before Extraordinary Item amounted to $1.8 million, or $0.44 per
share, and $4.8 million, or $1.15 per share, for the three and nine months ended
September 30, 1997, respectively, as compared to approximately $887,000 or $0.22
per share, and $2.7 million, or $0.69 per share, for the same periods in 1996.
The extraordinary loss of approximately $180,000 net of tax benefits, in the
second quarter of 1997 was a result of mortgage debt refinancings on Wholly
Owned Properties (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS).
Earnings before Interest, Taxes, Depreciation and Amortization
The Company believes that earnings before interest, income taxes,
depreciation, amortization and extraordinary items ("EBITDA"), Recurring EBITDA
(EBITDA less Loan Fees and as adjusted for Nonrecurring items) and Adjusted
EBITDA (Recurring EBITDA plus principal payments of receivables from Syndicated
Partnerships less interest on Wholly Owned Property mortgage debt) are
significant indicators of the strength of its results. EBITDA is a measure of a
Company's ability to generate cash to service its obligations, including debt
service obligations, and to finance capital and other expenditures, including
expenditures for acquisitions. EBITDA does not represent cash flow as defined by
generally accepted accounting principles and does not necessarily represent
amounts of cash available to fund the Company's cash requirements. Unaudited
EBITDA and the unaudited computation of Recurring EBITDA and Adjusted EBITDA for
the three and nine months ended September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
EBITDA $ 8,738,619 $ 6,648,169 $ 23,728,447 $ 20,092,799
- ------ --------------- ---------------- --------------- ----------------
Income from Disposal of Assets (772,910) (7,181) (1,462,266) (281,873)
Loan Fees (7,670) (178,014) (113,710) (227,141)
Second Mortgage Principal Amortization 783,339 0 783,339 0
Restructure / Nonrecurring Costs 538,489 0 788,489 300,000
--------------- ---------------- --------------- ----------------
Recurring EBITDA 9,279,867 6,462,974 23,724,299 19,883,785
- ---------------- --------------- ---------------- --------------- ----------------
Interest on Wholly Owned Properties (3,569,134) (3,500,425) (10,505,661) (10,700,604)
--------------- ---------------- --------------- ----------------
Adjusted EBITDA $ 5,710,733 $ 2,962,549 $ 13,218,638 $ 9,183,181
- --------------- =============== ================ =============== ================
</TABLE>
Adjusted EBITDA increased approximately $2.7 million or 92.8% and $4.0
million, or 43.9% for the three and nine months ended September 30, 1997,
respectively, as compared to the same periods in 1996. The increase was due to
the increase in interest income and cash flow derived from Syndicated
Partnerships and the change related to the capitalization of certain replacement
items previously expensed. Approximately $899,000 of the increase in Adjusted
EBITDA was due to the implementation of the change to capitalize certain
replacement items (such as kitchen appliances, carpeting, and other apartment
interior furnishings). Without the change in capitalization, the increase in
Adjusted EBITDA would have been 62% and 34% for the three and nine months ended
September 30, 1997, respectively, as compared to the same periods in 1996.
19
<PAGE>
20
Contribution to Profit by Business Activity
The unaudited net contribution to profit (revenues less direct expenses)
and Adjusted EBITDA by the core business activities of the Company for the three
and nine months ended September 30, 1997 and 1996, are as follows. Financial
information presented includes fee based revenue generated from the Wholly Owned
Properties which is eliminated in the Consolidated Financial Statements, and
does not include an allocation of general corporate overhead.
The following presentation shows Management Services and Preferred Resource
separately. Management believes that this presentation format is more
appropriate to reflect sources of revenues and the direct costs related to the
different lines of business. Operational realignments implemented during the
third quarter of 1997 provided for a more accurate allocation of expenses
between Management Services and Preferred Resource and certain amounts have been
reclassified accordingly with year to date amounts being restated for
comparability.
Management Services - Net Contribution to Profit
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------------- -------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Affiliated Partnership Contracts $ 3,127,785 $ 2,844,946 $ 8,765,258 $ 8,850,528
Third Party Contracts 1,054,014 834,847 3,046,713 834,847
----------------- ----------------- ----------------- -----------------
4,181,799 3,679,793 11,811,971 9,685,375
----------------- ----------------- ----------------- -----------------
Direct Expenses 3,074,165 3,043,813 9,065,072 6,303,750
----------------- ----------------- ----------------- -----------------
Net Contribution to Profit $ 1,107,634 $ 635,980 $ 2,746,899 $ 3,381,625
================= ================= ================= =================
Adjusted EBITDA $ 1,107,634 $ 635,980 $ 2,746,899 $ 3,381,625
================= ================= ================= =================
</TABLE>
The year-to-date decline in the Management Services net contribution to
profit is due to the fact that a diminution of fee revenue associated with third
party management occurred without significant simultaneous expense reductions.
The revenue losses were due in large part to the loss of management of 3,000
units in the first quarter of 1997 as the result of an owner-client's bankruptcy
proceedings. Other factors contributing to the decline in net contribution is a
decrease in other income related to the recovery of fully reserved receivables
in 1996 upon refinancing of properties.
In the second quarter of 1997 the Company implemented a realignment of the
Management Services operations to reduce costs and recover margins. The benefits
of the realignment are reflected in the results for the third quarter. In the
third quarter of 1996, the Management Services operations incurred additional
transition costs due to the Lexford Properties acquisition.
Preferred Resource -- Net Contribution to Profit
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------------ -------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Renter's Insurance $ 97,164 $ 84,545 $ 359,620 $ 281,488
Rebate/Parts Sales and Other 234,403 373,891 631,013 1,131,839
Resident Application Fees 106,980 69,314 336,236 273,876
----------------- ----------------- ----------------- -----------------
438,547 527,750 1,326,869 1,687,203
----------------- ----------------- ----------------- -----------------
Direct Expenses 235,172 280,652 480,364 757,105
----------------- ----------------- ----------------- -----------------
Net Contribution to Profit $ 203,375 $ 247,098 $ 846,505 $ 930,098
================= ================= ================= =================
Adjusted EBITDA $ 203,375 $ 247,098 $ 846,505 $ 930,098
================= ================= ================= =================
</TABLE>
20
<PAGE>
21
Investment Management - Net Contribution to Profit
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------------- ------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Interest Income $ 2,778,346 $ 1,953,054 $ 8,211,080 $ 4,899,739
Fee Based Services
Administrative Fees 378,970 342,975 1,127,015 1,111,050
Loan Fees 49,650 242,614 192,775 346,351
Income from Disposal of Assets and Other 998,292 226,136 1,762,927 500,828
---------------- ---------------- ---------------- -----------------
4,205,258 2,764,779 11,293,797 6,857,968
---------------- ---------------- ---------------- -----------------
Direct Expenses 707,794 417,313 1,790,640 1,385,336
Net Equity/(Loss) in Wholly Owned Properties 1,058,818 (173,392) 1,402,504 (444,424)
---------------- ---------------- ---------------- -----------------
Net Contribution to Profit $ 4,556,282 $ 2,174,074 $ 10,905,661 $ 5,028,208
================ ================ ================ =================
Adjusted EBITDA $ 5,909,228 $ 3,231,186 $ 13,951,563 $ 8,144,907
================ ================ ================ =================
</TABLE>
The increase in the Investment Management net contribution to profit
was derived principally from the improved financial operating performances and
reduced first mortgage debt service requirements of the Syndicated Partnerships
(reflected in Interest Income) and the Wholly Owned Properties. The significant
increase in income for the Wholly Owned Properties was due to the capitalization
of certain items that were previously expensed (SEE "RENTAL OPERATING EXPENSE").
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY
----------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
---------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Contribution to Profit:
Management Services $ 1,107,634 $ 635,980 $ 2,746,899 $ 3,381,625
Preferred Resource 203,375 247,098 846,505 930,098
Investment Management 4,556,282 2,174,074 10,905,661 5,028,208
---------------- --------------- --------------- ---------------
5,867,291 3,057,152 14,499,065 9,339,931
---------------- --------------- --------------- ---------------
Other Expenses:
Administration 1,509,504 1,151,715 4,326,329 3,273,449
Restructure / Nonrecurring Costs 538,489 0 788,489 300,000
Interest - Corporate 174,254 278,714 481,578 840,180
Depreciation and Amortization 643,069 176,389 1,095,159 445,334
---------------- --------------- --------------- ---------------
2,865,316 1,606,818 6,691,555 4,858,963
---------------- --------------- --------------- ---------------
Income before Income Taxes $ 3,001,975 $ 1,450,334 $ 7,807,510 $ 4,480,968
================ =============== =============== ===============
</TABLE>
21
<PAGE>
22
<TABLE>
<CAPTION>
Adjusted EBITDA by Business Activity
------------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
-------------------------------------- --------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Adjusted EBITDA - Net Contribution:
Management Services $ 1,107,634 $ 635,980 $ 2,746,899 $ 3,381,625
Preferred Resource 203,375 247,098 846,505 930,098
Investment Management 5,909,228 3,231,186 13,951,563 8,144,907
Corporate Administration (1,509,504) (1,151,715) (4,326,329) (3,273,449)
------------------ ----------------- ------------------ ------------------
Adjusted EBITDA $ 5,710,733 $ 2,962,549 $ 13,218,638 $ 9,183,181
================== ================= ================== ==================
</TABLE>
Wholly Owned Properties' Operating Results
The following table summarizes the unaudited operating results of the
Wholly Owned Properties for the three and nine months ended September 30, 1997
and 1996 (SEE RESULTS OF OPERATIONS--RENTAL AND OTHER REVENUES):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------------ -------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Statistical information (1)
- ---------------------------
Properties at end of period 113 114 113 114
Average Units 8,453 8,574 8,453 8,646
Ave Economic Occupancy 92.7% 91.0% 91.3% 92.2%
Ave Rent Collected/Unit/Month $403 $389 $396 $384
Property - Operating Expenses/Unit/Month $159 $149 $154 $146
Capital & Maintenance/Unit/Month $42 $31 $34 $33
Real Estate Taxes/Unit/Month $33 $32 $32 $32
Property - Operating Expense Ratio 37.6% 37.1% 37.3% 36.9%
Financial Information(1)
- ------------------------
Revenues
Rental Income $ 10,217,731 $ 10,004,092 $ 30,068,351 $ 29,883,799
Other Property Income 525,261 307,311 1,303,619 871,416
----------------- ------------------ ----------------- -----------------
Total Revenues 10,742,992 10,311,403 31,371,970 30,755,215
----------------- ------------------ ----------------- -----------------
Expenses
Property Operating 4,038,636 3,824,410 11,704,779 11,363,020
Real Estate Taxes 843,539 832,565 2,468,662 2,488,275
----------------- ------------------ ----------------- -----------------
Operating Expenses 4,882,175 4,656,975 14,173,441 13,851,295
----------------- ------------------ ----------------- -----------------
Net Operating Income 5,860,817 5,654,428 17,198,529 16,903,920
----------------- ------------------ ----------------- -----------------
Interest - Mortgage 3,569,134 3,500,425 10,505,661 10,700,604
Interest - Corporate Advances 156,030 100,000 445,168 300,000
Major Maintenance (83,693) 668,220 1,022,746 2,163,956
Non Operating (189,659) 416,870 (16,088) 858,070
Depreciation and Amortization 1,350,187 1,242,307 3,838,538 3,625,714
----------------- ------------------ ----------------- -----------------
Non Operating 4,801,999 5,927,822 15,796,025 17,648,344
----------------- ------------------ ----------------- -----------------
Income/(Loss) before Extraordinary Items 1,058,818 (273,394) 1,402,504 (744,424)
----------------- ------------------ ----------------- -----------------
Extraordinary Loss 0 0 (295,534) 0
----------------- ------------------ ----------------- -----------------
Net Income/(Loss) $ 1,058,818 $ (273,394) $ 1,106,970 $ (744,424)
================= ================== ================= =================
Capital Expenditures $ 1,156,280 $ 134,654 $ 1,529,553 $ 370,453
================= ================== ================= =================
<FN>
(1 )Not Same Store
</FN>
</TABLE>
22
<PAGE>
23
Funds from Operations of Wholly Owned Properties
As defined by the National Association of Real Estate Investment Trust
("NAREIT"), Funds From Operations ("FFO") represents net income/(loss) (computed
in accordance with generally accepted accounting principles, consistently
applied) before minority interest, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs), and after
adjustment for unconsolidated partnerships and joint ventures. The FFO of the
Wholly Owned Properties for the three and nine months ended September 30, 1997,
as compared to the same periods in 1996, is as follows:
<TABLE>
<CAPTION>
Funds From Operations
----------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
---------------------------------- ----------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Wholly Owned Properties:
Income/(loss) before Extraordinary Items $ 1,058,818 $ (273,394) $ 1,402,504 $ (744,424)
Depreciation on Real Estate 1,254,915 1,149,419 3,555,873 3,450,377
Deferred Maintenance Funded from Escrows 0 0 0 523,025
---------------- --------------- ---------------- ----------------
$ 2,313,733 $ 876,025 $ 4,958,377 $ 3,228,978
================ =============== ================ ================
</TABLE>
FFO increased approximately $1.4 million and $1.7 million for the three and
nine months ended September 30, 1997, respectively, as compared to the same
periods in 1996, due to the factors discussed above in "Rental Operating
Expense", specifically as it relates to the capitalization of interior
replacement items. Excluding the effect of the capitalization, FFO increased
approximately $539,000 or 61.5%, and $831,000, or 25.7% for the three and nine
months ended September 30, 1997, as compared to the same periods in 1996.
Net Operating Income of Syndicated Partnerships
The Company holds receivables from substantially all of the 406 Syndicated
Partnerships in which the Company had an ownership interest on September 30,
1997 primarily in the form of second mortgages and general partner advances to
the Syndicated Partnerships. Payments on these receivables generate a majority
of the interest income recognized by the Company.
The following table summarizes certain unaudited aggregated operating
results of the Syndicated Partnerships for the three and nine months ended
September 30, 1997 and 1996. The financial information presented is based upon
accrual accounting at the partnership level. Certain transactions between the
Company and the Syndicated Partnerships are recorded at amounts at the
partnership level that will not necessarily correspond to amounts recorded at
the Company level as Interest Income due to "Fresh Start" accounting (SEE NOTE 1
OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --RECORDED VALUES OF RECEIVABLES
FROM SYNDICATED PARTNERSHIPS).
23
<PAGE>
24
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Statistical information(1)
- --------------------------
Properties at end of period 406 414 406 414
Average Units 25,576 26,197 25,632 26,197
Ave Economic Occupancy 92.3% 92.7% 91.4% 92.1%
Ave Rent Collected/Unit/Month $401 $390 $394 $384
Property - Operating Expenses/Unit/Month $160 $152 $156 $150
Capital & Maintenance/Unit/Month $52 $42 $40 $37
Real Estate Taxes/Unit/Month $29 $29 $30 $30
Property - Operating Expense Ratio 38.0% 37.7% 38.0% 37.9%
Financial Information(1)
- ------------------------
Revenues
Rental Income $ 30,740,049 $ 30,692,962 $ 90,854,834 $ 90,590,128
Other Property Income 1,624,040 987,619 3,887,390 2,620,971
---------------- ----------------- --------------- ----------------
Total Revenues 32,364,089 31,680,581 94,742,224 93,211,099
---------------- ----------------- --------------- ----------------
Expenses
Property Operating 12,286,049 11,929,779 36,000,554 35,288,320
Real Estate Taxes 2,220,695 2,317,596 6,829,176 7,016,698
---------------- ----------------- --------------- ----------------
Operating Expenses 14,506,744 14,247,375 42,829,730 42,305,018
---------------- ----------------- --------------- ----------------
Net Operating Income 17,857,345 17,433,206 51,912,494 50,906,081
---------------- ----------------- --------------- ----------------
Interest - Mortgage 9,527,622 9,940,331 29,090,795 29,867,349
Interest - Corporate Advances 2,636,108 3,077,535 9,009,984 9,201,984
Major Maintenance (472,790) 2,617,507 3,099,826 7,230,455
Non Operating 500,153 161,166 1,467,313 1,814,000
Depreciation and Amortization 4,902,384 4,588,190 14,191,289 13,663,420
---------------- ----------------- --------------- ----------------
Non Operating 17,093,477 20,384,729 56,859,207 61,777,208
---------------- ----------------- --------------- ----------------
Income/(Loss) before Extraordinary Item 763,868 (2,951,523) (4,946,713) (10,871,127)
---------------- ----------------- --------------- ----------------
Extraordinary Item 574,582 1,247,337 2,422,963 1,247,337
---------------- ----------------- --------------- ----------------
Net Income/(Loss) $ 1,338,450 $ (1,704,186) $ (2,523,750) $ (9,623,790)
================ ================= =============== ================
Capital Expenditures $ 4,500,748 $ 674,302 $ 6,107,347 $ 1,477,432
================ ================= =============== ================
<FN>
(1)Not Same Store
</FN>
</TABLE>
On a comparable unit or "same store" basis for the 405 Syndicated
Partnerships in operation throughout all periods presented, Net Operating Income
increased approximately $680,000, or 4.0%, and $1.7 million, or 3.3%, for the
three and nine months ended September 30, 1997, respectively, as compared to the
same periods in 1996. Economic occupancy for the 405 same store Syndicated
Partnerships was 91.4% for the nine months ended September 30, 1997, as compared
to 92.2% for the same period in 1996. Average rent collected per unit per month
on a same store basis was $394 during the nine months ended September 30, 1997,
as compared to $388 for the same period in 1996. The Syndicated Partnership
performance for the first nine months of 1997, as compared to 1996, is
comparable to the Wholly Owned Properties, and was influenced by the same
factors. In the third quarter, major maintenance was adjusted to capitalize
certain replacement items previously expensed. The extraordinary item recorded
on the Syndicated Partnerships related to debt discounts obtained upon the
refinance of the mortgage debt on certain Syndicated Partnerships.
24
<PAGE>
25
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
September 30, 1997 and December 31, 1996 and the Consolidated Statements of Cash
Flows for the nine months ended September 30, 1997 and 1996.
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. If the Company is
successful in implementing potential future growth plans, such as converting to
a REIT, it may be necessary to seek alternative sources of debt or equity
capital.
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 $7.0 million for
the nine months ended September 30, 1997, as compared to the same period in
1996. The increase was due primarily to cash received from Interests in and
Receivables from Syndicated Partnerships which increased $3.5 million due to
improved net operating income and lower debt service requirements. In addition,
cash flow provided by operating activities of the Wholly Owned Properties
increased $1.9 million for the nine months ended September 30, 1997, as compared
to the same period in 1996. The increase was due to the improved operating
performance of the Wholly Owned Properties and approximately $900,000 of
replacement furniture and fixtures capitalized in the third quarter of 1997.
These items were expensed in prior periods. Payments (uses of cash) related to
nonrecurring items included in Operating Activities reflects payments related to
the corporate restructuring costs.
On September 30, 1997 the Company entered into an Amended and Restated Loan
and Security Agreement with the Provident Bank. The new revolving credit
facility ("Facility"), is for $35 million and represents an increase to and
replacement of all former revolving credit facilities with The Provident Bank
(the "Bank"). The scheduled term of the Facility expires March 30, 2000,
although the Company may elect from time to time to convert all or any portion
of the principal amount outstanding under the Facility into a five year term
loan. Revolving loans outstanding under the Facility bear interest at a variable
interest rate equal to the Bank's prime rate of interest, currently 8.5%, minus
1%. As of the end of the third quarter there were no outstanding balances under
the Facility. The Company's former $7.0 million revolving line of credit for
acquisitions and Property debt restructuring (the "Acquisition Line"), was
converted into a term loan which matures in March 2001 and has a 7.25% fixed
interest rate with monthly installments of principal and interest of $139,435.
As of the end of the third quarter, the unpaid principal balance outstanding
under the Acquisition Line was approximately $5.0 million.
In addition, all of the Company and the majority of Property bank accounts
are maintained at the Bank. The banking relationship has increased cash flow at
the Properties as a result of reduced service charges and increased interest
income on the Property bank account balances. The Company benefits from a
portion of the improved cash flow at the Properties.
The shareholders of the Company at its annual meeting on October 7, 1997,
approved the Company's 1997 Performance Equity Plan (the "Performance Plan").
The Performance Plan authorizes the grant of restricted stock awards to certain
officers and non employee directors. A total of 318,000 shares will be issued
subject to forfeiture. Vesting under the Performance Plan occurs only upon
attainment of specified performance goals within a three year term, ending in
1999. If the performance goals are achieved, the Company will incur a non cash
charge, which may range from $4.0 million to $6.0 million for 1997, related to
the value of the stock that will vest under the Performance Plan.
The Company's capital expenditures for the nine months ended September 30,
1997 amounted to approximately $786,000 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 upgrading its software systems in order to obtain
optimal efficiencies from technology. In addition, during the course of 1998,
the Company intends to lease personal computers and new property management
software for use on site at the Properties. The total cost to implement this new
system is estimated to be approximately $2.0 million. The cost will be financed
with an operating lease, with each Property absorbing its pro rata share of the
25
<PAGE>
26
rental costs. Although there can be no assurance, management believes this
enhanced technology should improve property performance and provide operational
efficiencies which should offset the increased costs associated with the new
system.
Capital Expenditures, combined with Improvement and Replacement Expense for
the Wholly Owned Properties, was $2.6 million during the nine months ended
September 30, 1997. These costs are funded from Wholly Owned Properties cash
flow and maintenance escrow funds. The 1997 budget for capital expenditures,
improvement and replacement expense for the Wholly Owned Properties is $4.6
million, as compared to annual actual expenditures in 1996 of $3.5 million.
Approximately $1.5 million of the $4.6 million relates to nonrecurring deferred
maintenance which principally will be funded from escrows established in
connection with mortgage refinancing transactions completed in prior years.
Lexford Properties Acquisition
------------------------------
Effective August 1, 1996, the Company acquired Lexford Properties, Inc., a
privately held, third-party multi-family management company headquartered in
Dallas, Texas (SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
BUSINESS OVERVIEW - MANAGEMENT SERVICES AND - LEXFORD PROPERTIES ACQUISITION).
As a result of the acquisition, the Company derives Management Services fee
income from apartment communities in which it has no ownership interest. At
September 30, 1997, Lexford Properties' third party management portfolio
comprised 18,374 units of the Company's management portfolio of approximately
52,000 units. Lexford Properties' Dallas office is headquarters for the
Company's combined property management business, which is conducted under the
Lexford Properties name.
To acquire Lexford Properties, the Company issued 700,000 shares of Common
Stock valued, for acquisition purposes, at $20 per share representing a maximum
purchase price of $14 million. Approximately $9 million of the purchase price
(450,000 shares) is subject to forfeiture in the event the Company's combined
property management operations do not achieve certain profitability criteria.
Lexford Properties' shareholders received 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 any one of the three fiscal
years in the specified period, profit from property management operations
increases $1.8 million or more from combined 1995 levels, the former Lexford
Properties shareholders would own 150,000 of the contingent shares free of
contingencies, and if the increase is $4.0 million or more from combined 1995
levels, the former Lexford Properties shareholders would own the entire 700,000
shares free of contingencies, or approximately 15.0% of the Company's shares
outstanding as of September 30, 1997.
Financing and Debt Restructuring of the Properties
--------------------------------------------------
In the first nine months of 1997 the Company refinanced mortgages on 12
Syndicated Partnerships and two Wholly Owned Properties. The new mortgages on 12
Properties were financed through PaineWebber Incorporated ("PaineWebber") and
the mortgages on two Properties were financed through First Union Capital
Markets Group ("First Union"). The PaineWebber mortgages have fixed interest
rates ranging from 8.2% to 9.0% with a 25 year principal amortization schedule,
beginning in year four on Syndicated Partnerships, and a ten year maturity. The
new First Union mortgages have fixed interest rates of 8.7% with a 25 year
principal amortization and a ten year maturity. The Company was able to
negotiate debt discounts from the previous lenders of approximately $1.3 million
in the aggregate on four of the Syndicated Partnerships. In addition, annual
debt service at the Syndicated Partnerships will decrease in the aggregate,
approximately $230,000 per year over the next three years and approximately
$40,000 per year on the Wholly Owned Properties, as a result of these
transactions.
In the third quarter, the Company paid off the mortgage debt on one Wholly
Owned Property. The payment of $1.2 million approximated the Carrying Value of
the mortgage and represented a significant discount from the contractual value
of $1.9 million.
26
<PAGE>
27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None.
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 October 7, 1997.
At the meeting, the Company's shareholders:
o Elected the following slate of directors nominated by the
Company; for a term expiring in 1999: Patrick M. Holder; and for
terms expiring in 2000: Joseph E. Madigan, George J. Neilan,
Glenn C. Pollack and Stanley R. Fimberg. The continuing directors
are John B. Bartling, Jr., Robert V. Gothier, Sr., George R.
Oberer, Sr., H. Jeffrey Schwartz, Gerald E. Wedren and Robert J.
Weiler;
o Approved an amendment to the Company's Restated Articles of
Incorporation to change the name of the Company to "Lexford,
Inc."; and
o Approved the Company's 1997 Performance Equity Plan.
The votes cast for, against, withheld and abstained on each of the
matters were as follows:
Election of Directors: Patrick M. Holder received 3,995,991 for and
14,385 withheld votes with no abstentions; Joseph E. Madigan received
3,994,469 for and 15,907 withheld votes with no abstentions; George J.
Neilan received 3,995,997 for and 14,379 withheld votes with no
abstentions; Glenn C. Pollack received 3,995,433 for and 14,943 withheld
votes with no abstentions; and Stanley R. Fimberg received 3,900,193 for
and 110,183 withheld votes with no abstentions. Adoption of amendment to
the Company's Restated Articles of Incorporation to change the name of
the Company to "Lexford, Inc.": 3,952,108 votes were cast for this
amendment, with 14,707 against and 43,561 abstentions. Adoption of the
Company's 1997 Performance Equity Plan: 2,621,732 votes were cast in
favor of this plan, with 523,621 against and 26,872 abstentions.
27
<PAGE>
28
Item 5. Other Information
-----------------
The Company has commenced a series of transactions aimed at consolidating
ownership of real estate presently held by syndicated partnerships in which the
Company is the general partner. Those transactions may take various forms,
including, without limitation, purchases of real estate, purchases of
partnership interests and partnership mergers. Many affected partnerships
require the consent of limited partners, and in these cases the Company intends
to seek such consent. Limited Partners will, subject to certain conditions
(including the limited partners' giving of consent in some cases), become
entitled to a cash payment if and when the transactions close. The Company will
reserve the right to terminate each proposed transaction on a case-by-case basis
depending upon the facts and circumstances that may arise prior to closing the
transaction. The Company presently intends to complete as many of these
transactions as practicable during the second quarter of 1998. The Company
cannot predict the success of this series of transactions, but at the present
time does not anticipate a material impact, regardless of outcome, on the
operational results of the properties.
This Form 10-Q contains certain forward-looking statements regarding
prospects for (i) increased interest income to be received from Syndicated
Partnerships, (ii) possible improvements in net operating income from the
Properties, (iii) gains from future Property dispositions, (iv) possible
acquisitions or other growth opportunities, and (v) the Company's foreseeable
capital and liquidity requirements and sources. The forward-looking statements
represent management's good faith evaluations based upon existing market,
financial and economic conditions. There can be no assurance that the
forward-looking statements will prove to be correct.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page
- ----------------- --------------------------------------------------- -------------------------------------------
<S> <C> <C>
10.1 Amended and Restated Loan Agreement Filed as an Exhibit to this Form
dated as of September 30, 1997 among the 10-Q beginning on page 30
Provident Bank and Cardinal Realty
Services, Inc. and its material subsidiaries
10.2 Cognovit Promissory Note (Renewal Filed as an Exhibit to this Form
Consolidating Balance Revolving Line), 10-Q beginning on page 76
dated September 30, 1997, issued by the
Company and its material subsidiaries in
favor of The Provident Bank
10.42 Registration Rights Agreement, dated as Filed as an Exhibit to this Form
of July 28, 1997, between Cardinal Realty 10-Q beginning on page 97
Services, Inc. and Bank of America
National Trust and Savings Association
11.1 Statement re: computation of Per Share See Note 1 of Notes to
Earnings Consolidated Financial Statements
27 Financial Data Schedule Filed as an Exhibit to this Form
10-Q on page 113
</TABLE>
28
<PAGE>
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEXFORD, INC.
(Registrant)
Dated: November 13, 1997 By: /s/ John B. Bartling, Jr.
------------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated: November 13, 1997 By: /s/ Mark D. Thompson
------------------------------------------
Mark D. Thompson
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
Dated: November 13, 1997 By: /s/ Ronald P. Koegler
------------------------------------------
Ronald P. Koegler
Vice President and Controller
29
30
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED AS OF
SEPTEMBER 30, 1997
BETWEEN
THE PROVIDENT BANK
AND
CARDINAL REALTY SERVICES, INC.
CARDINAL APARTMENT MANAGEMENT GROUP, INC.
CARDINAL GP VIII CORPORATION
CARDINAL GP X CORPORATION
CARDINAL APARTMENT SERVICES, INC.
CARDINAL GP XII CORPORATION
CARDINAL INDUSTRIES DEVELOPMENT CORPORATION
CARDINAL ANCILLARY INSURANCE AGENCY, INC., AN OHIO CORPORATION
CARDINAL ANCILLARY INSURANCE AGENCY, INC., A
DELAWARE CORPORATION
CARDINAL INDUSTRIES OF FLORIDA SERVICES CORPORATION
CARDINAL INDUSTRIES OF GEORGIA SERVICES CORPORATION
CARDINAL INDUSTRIES OF TEXAS, INC.
CARDINAL INDUSTRIES SERVICES CORPORATION
CARDINAL REALTY COMPANY
CARDINAL REGULATORY OF KENTUCKY, INC.
CARDINAL REGULATORY OF WEST VIRGINIA, INC.
CII OF PENNSYLVANIA, INC.
R/E MANAGEMENT SERVICES, INC.
WALKER PLACE LIMITED LIABILITY COMPANY
LEXFORD PROPERTIES OF COLORADO, INC.
LEXFORD NORTHWEST, INC.
CARDINAL GP XIII CORPORATION
CARDINAL GP XIV CORPORATION
CARDINAL GP XV CORPORATION
CARDINAL GP XVI CORPORATION
CARDINAL GP XVIII CORPORATION
CARDINAL LP XIX CORPORATION FKA CARDINAL GP XIX CORPORATION
PREMIERE MANAGEMENT COMPANY, INC.
LEAF ASSET MANAGEMENT, INC.
LEXFORD PROPERTIES, INC.
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TABLE OF CONTENTS
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1. Revolving Lines of Credit ........................................... 2
1.1 Loans ...................................................... 2
1.2 Letters of Credit .......................................... 2
2. Terms and Uses of Loan .............................................. 3
2.1 Interest Rates; Fees; Terms; Costs ......................... 3
2.2 Use of Proceeds ............................................ 3
2.3 Draw Requests .............................................. 4
2.4 Prepayment ................................................. 4
2.5 Unused Line Fee ............................................ 4
3. Security Interest ................................................... 4
3.1 Grant of Security Interest ................................. 4
3.2 Setoff ..................................................... 7
3.3 Representations and Covenants Regarding the Collateral ..... 7
3.4 Application of Proceeds from Collection of Accounts;
Government Accounts; Perfection ............................ 8
3.5 Books and Records .......................................... 9
3.6 Preservation and Disposition of Collateral ................. 9
3.7 Extensions and Compromises ................................ 10
3.8 Financing-Statements; Lien Notation ....................... 10
3.9 Bank's Appointment as Attorney-in-Fact .................... 10
4. Warranties and Representations ..................................... 11
4.1 Corporate Organization and Authority ...................... 11
4.2 Borrowing is Legal and Authorized ......................... 12
4.3 Taxes ..................................................... 12
4.4 Compliance with Law ....................................... 12
4.5 Financial Statements; Full Disclosure ..................... 13
4.6 No Insolvency ............................................. 13
4.7 Government Consent ........................................ 13
4.8 Title to Collateral ....................................... 13
4.9 No Defaults ............................................... 13
4.10 Environmental Protection .................................. 13
4.11 Assignability and Transferability of Interests ............ 14
4.12 Regulation U .............................................. 14
4.13 Reaffirmation of Warranties and Representations ........... 15
5. Company Business Covenants ......................................... 15
5.1 Payment of Taxes and Claims ............................... 15
5.2 Maintenance of Properties and Corporate Existence ......... 15
5.3 Insurance ................................................. 16
5.4 Sale of Assets; Merger; Subsidiaries; Tradenames .......... 16
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5.5 Negative Pledge ........................................... 17
5.6 Permitted Indebtedness; Other Borrowings in the
Ordinary Course of Business ............................... 17
5.7 Minimum Security .......................................... 17
5.8 Sale of Accounts; No Consignment .......................... 18
5.9 Ownership ................................................. 18
5.10 Maintenance of Intercorporate Funds Agreement ............. 18
5.11 Trade Accounts Payable .................................... 18
5.12 Net Worth ................................................. 18
5.13 Ratio of Total Liabilities to Net Worth ................... 18
5.14 Ratio of Net Operating Cash Flow to Debt Service .......... 18
5.15 Recurring Cash Flow ....................................... 18
5.16 Environmental Compliance .................................. 18
5.17 Maintenance of Accounts ................................... 19
5.18 Change in Management Agreements ........................... 19
6. Financial Information and Reporting ................................ 19
6.1 Periodic Disclosure and Reporting ......................... 19
6.2 Annual Financial Statements ............................... 19
7. Default ............................................................ 21
7.1 Events of Default ......................................... 21
8. Remedies on Default ................................................ 22
8.1 Legal and Contractual Remedies ............................ 22
8.2 Appointment of Receiver ................................... 23
9. Miscellaneous ...................................................... 23
9.1 Limited Appointment of Cardinal Realty Services, Inc.
as Attorney-in-Fact ....................................... 23
9.2 Assumption by New Entities ................................ 24
9.3 Notices ................................................... 24
9.4 Reproduction of Documents ................................. 25
9.5 Survival, Successors, and Assigns ......................... 25
9.6 Amendment and Waiver; Duplicate Originals ................. 25
9.7 Uniform Commercial Code and Generally Accepted
Accounting Principles ..................................... 25
9.8 Enforceability and Governing Law .......................... 26
9.9 Waiver of Right to Trail by Jury .......................... 26
9.10 Advertising ............................................... 26
9.11 Term of Agreement ......................................... 27
9.12 Singular and Plural; Joint and Several Liability .......... 27
9.13 Definitions ............................................... 27
9.14 Warrant of Attorney ....................................... 27
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
------------------------------------------------
This Amended and Restated Loan and Security Agreement (this "Agreement") is
entered into to be effective the 30th day of September, 1997, among THE
PROVIDENT BANK (THE "BANK") AND CARDINAL REALTY SERVICES, INC., CARDINAL
APARTMENT MANAGEMENT GROUP, INC., CARDINAL GP VIII CORPORATION, CARDINAL GP X
CORPORATION, CARDINAL APARTMENT SERVICES, INC., CARDINAL GP XII CORPORATION,
CARDINAL INDUSTRIES DEVELOPMENT CORPORATION, CARDINAL ANCILLARY INSURANCE
AGENCY, INC., AN OHIO CORPORATION, CARDINAL ANCILLARY INSURANCE AGENCY, INC., A
DELAWARE CORPORATION, CARDINAL INDUSTRIES OF FLORIDA SERVICES CORPORATION,
CARDINAL INDUSTRIES OF GEORGIA SERVICES CORPORATION, CARDINAL INDUSTRIES OF
TEXAS, INC., CARDINAL INDUSTRIES SERVICES CORPORATION, CARDINAL REALTY COMPANY,
CARDINAL REGULATORY OF KENTUCKY, INC., CARDINAL REGULATORY OF WEST VIRGINIA,
INC., CII OF PENNSYLVANIA, INC., R/E MANAGEMENT SERVICES, INC., WALKER PLACE
LIMITED LIABILITY COMPANY, LEXFORD NORTHWEST, INC., LEXFORD PROPERTIES OF
COLORADO, INC., LEXFORD NORTHWEST, INC., CARDINAL GP XIII CORPORATION, CARDINAL
GP XIV CORPORATION, CARDINAL GP XV CORPORATION, CARDINAL GP XVI CORPORATION,
CARDINAL GP XVIII CORPORATION, CARDINAL LP XIX CORPORATION, FKA CARDINAL GP XIX
CORPORATION, PREMIERE MANAGEMENT COMPANY, INC., LEAF ASSET MANAGEMENT, INC., AND
LEXFORD PROPERTIES, INC., jointly and severally (herein each a "Company" or
collectively, the "Companies").
R E C I T A L S:
I. Some of the Companies and the Bank entered into a Loan and Security
Agreement dated August 11, 1995 (the "Loan Agreement") and various loan
documents executed in connection therewith (the "Loan Documents"); and
II. Lexford Properties, Inc. ("Lexford") acquired all or substantially
all of the management agreements held by the Companies at the time Lexford
became an affiliate of Cardinal Realty Services, Inc. and therefore by a First
Assumption of Loan and Security Agreement dated February 26, 1997, Lexford
assumed joint and several liability with the other Companies for all repayment
obligations on the Loan Agreement, which Assumption Agreement shall be included
in any reference hereafter to the Loan Agreement, and
III. The Companies and the Bank desire to ratify the termed out Acquisition
Revolving Line and amend and restate the Loan Agreement by consolidating the
Operating Revolving Line and Reducing/Cash Balance Revolving Line into one
facility which will also include an additional extension of credit in the amount
of $10,000,000 resulting in an aggregate sum available for loans and advances of
$35,000,000 to be evidenced by a Cognovit Promissory Note (Renewal,
Consolidating Balance Revolving Line) together with certain changes to the
financial covenants of the Loan Agreement and certain other changes as have been
agreed to by the parties hereto. The original Loan Agreement dated August 11,
1995 is superseded and replaced in its entirety by this Agreement.
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NOW, THEREFORE the Loan Agreement is amended and restated as follows:
1. Revolving Lines of Credit.
1.1. Loans. The Bank, subject to the terms and conditions hereof, will make
loans and advances to the Companies on a revolving basis up to the aggregate sum
of $35,000,000.00 for the uses and purposes specified in Subsection 2.2 hereof
(the "Revolving Line of Credit"). The Bank shall have no obligation to advance
or re-advance any sums pursuant to the Revolving Line of Credit at any time when
a set of facts or circumstances exists, which, by themselves, upon the giving of
notice, the lapse of time, or any one or more of the foregoing would constitute
an Event of Default under this Agreement. The proceeds of the Revolving Line of
Credit may be advanced, repaid, and readvanced, prior to maturity and otherwise
subject to the terms and provisions of the Note, as hereinafter defined. Each of
the loans or advances under the Revolving Line of Credit shall be secured by the
security interests hereinafter provided in this Agreement or any other security
agreements, pledge agreements or other security instruments executed prior to
the date hereof or in connection with this Agreement or executed after the date
hereof among the Bank and the Companies.
1.2. Letters of Credit. On or after the date hereof through and including the
maturity date of the Note, provided there has been no Event of Default hereunder
which has occurred and is continuing, the Bank shall, upon the request of the
Companies and subject to the terms and conditions of this Agreement, issue one
(1) or more irrevocable standby or trade letters of credit for the account of
one or more of the Companies up to the maximum aggregate principal amount
available under the Revolving Line of Credit and subject to the use limitations
of subsection 2.2 of this Agreement, and each having an expiration date not
later than the maturity date of the Note (herein each a "Letter of Credit" or
collectively the "Letters of Credit"). Application for a Letter of Credit shall
be made on the form of the Bank customarily used for similar letters of credit.
One or more of the Companies shall provide the application not less than three
(3) days prior to the required date of issuance of the Letter of Credit. Amounts
paid by the Bank to cover any draws under the Letters of Credit as from time to
time amended or modified, shall be deemed to have been advancements made under
the Note, as hereinafter defined, for the Revolving Line of Credit. Prior to any
draws for Letters of Credit under the Revolving Line of Credit, the maximum
principal balance of the Note, available for advances, shall be reduced by the
principal (face) amount of all outstanding Letters of Credit, the principal
(face) amount of all pending applications for Bank's issuance of Letters of
Credit, and amounts previously drawn under the Revolving Line of Credit which
remain outstanding and unpaid. The Companies shall pay to the Bank on the date a
Letter of Credit is issued and on each anniversary thereof until such Letter of
Credit expires a fee equal to one percent (1%) per annum of the undrawn amount
available to be drawn under such Letter of Credit. Such fees shall be earned
when paid and shall not be subject to rebate or refund by the Bank in the event
that any Letter of Credit is terminated or reduced. The fee for the Letter of
Credit shall be calculated on the basis of a three hundred sixty (360) day year
factor applied to the actual number of days elapsed or that will elapse.
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2. Terms and Uses of Loan.
2.1. Interest Rates; Fees; Terms; Costs. The Companies agree to pay the Bank
monthly interest on the unpaid balance of the Revolving Line of Credit at the
rate of interest set forth in the Note, refinancings, renewals, extensions,
modifications, or amendments thereto or substitutions or replacements therefor
in substantially the form set forth in Exhibit A attached hereto (herein
"Note"). The basic terms of the Revolving Line of Credit, as reflected in the
Note, are as follows:
Original principal balance available of $35,000,000.00. Interest to accrue
at The Provident Bank Prime Rate minus one percent (P-l%). Interest only
monthly unless the Companies elect to term out all or any portion of the
outstanding principal balance, which election may be made one or more times
at the Companies' discretion. In the event of an election to term out, the
then outstanding principal balance to be termed out and accrued interest
thereon will be amortized over sixty (60) months at a fixed interest rate
equal to two percent (2%) over the then five (5) year Treasury Constant
Maturity Security in equal monthly payments of principal and interest.
Repayment of the Revolving Line of Credit shall be made, and the maturity
date thereof shall be determined, in accordance with the terms of the Note. The
Companies shall pay all reasonable costs and expenses incidental to the
Revolving Line of Credit or the enforcement of the Bank's rights in connection
therewith. Such costs shall include, but not be limited to, reasonable fees and
out-of-pocket expenses of the Bank's counsel, audit fees, search fees, recording
fees, inspection fees, documentary stamps, revenue stamps, note and mortgage
taxes. To the extent any such costs are incurred by Bank, Bank may elect,
following notice to the Companies, to charge such costs to the Revolving Line of
Credit without further authorization of the Companies.
2.2. Use of Proceeds. The Revolving Line of Credit shall be used for, and only
used for the following purposes:
To fund the month end cash balances on deposit accounts of the Companies
maintained at the Bank, to fund short term working capital for daily
operating needs including (a) Letters of Credit, and (b) to fund the
Companies' equity capital contributions to entities formed to purchase
multi-family properties, purchase of multi-family management contracts,
purchase mortgage servicing contracts or engage in the commercial mortgage
banking industry. Any funding under clause (b) is preapproved by the Bank,
so long as any purchase does not cause on a proforma basis a negative
impact on the prior four quarters cumulative EBITDA of the Companies and
the proforma on any such acquisition is received by the Bank bearing the
written approval of any two officers of the Company as designated in
subsection 2.3 to be received by the Bank within fifteen (15) days of such
approval.
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2.3. Draw Requests. Draw requests on behalf of the Companies shall be requested
by any two of the following: the President and Chief Executive Officer, the
Executive Vice President and Chief Financial Officer, the Vice President and
Controller of Cardinal Realty Services, Inc., the Vice President and the
Treasurer of Cardinal Realty Services, Inc., or any other officer acceptable to
the Bank and designated in writing by the Companies. Such officer(s) shall only
make a draw request if conditions exist such that (a) no event, fact, or
circumstance has occurred since the closing of the Loans, which, taken together
or by itself, upon the giving of notice, lapse of time or otherwise, has had a
materially adverse effect on the Companies' ability to perform their obligations
under this Agreement except as set forth in any documentation presented to the
Bank and accepted by the Bank in its sole discretion; (b) there has been no
Event of Default hereunder or no event has occurred and is continuing which,
upon the giving of notice, lapse of time or otherwise, would constitute an Event
of Default hereunder; and (c) the requested advance is otherwise in accordance
with the purpose limitations in subsection 2.2 hereof. Unless specifically
requested by the Bank written certification of the foregoing is waived. Each
such request shall be made in person, by phone, or by modem according to the
Bank's procedures and shall be deposited to the general demand deposit account
of Cardinal Realty Services, Inc. with the exception of draws to fund month end
cash balances on deposit accounts of the Companies maintained at the Bank which
shall be deposited into special cash balance accounts.
2.4. Prepayment. The Companies shall pay to the Bank a prepayment premium in the
amount of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) with
respect to any prepayment of principal of the Loan which occurs before August,
1998 resulting from the Companies' decision to refinance all or any material
portion of the indebtedness evidenced by the Note.
2.5. Unused Line Fee. Effective December 31, 1997, and on each three (3) month
anniversary from that date, if the Companies have not drawn on the Note an
average daily balance of at least $15,000,000 for the preceding Three (3) month
period, then the Company shall pay the Bank an unused line fee equal to one
eighth of one percent (1/8%) of the difference between the average daily balance
and $35,000,000 (($35,000,000 minus average daily balance) times 0.125% = unused
line fee).
3. Security Interest.
3.1. Grant of Security Interest. The Companies, jointly and severally, hereby
grant, pledge, and assign to the Bank a security interest in all of the
Companies' personal property assets, including without limitation, all of the
Companies' right, title, and interest in and to the following property, whether
the Companies' interest therein is as owner, co-owner, lessee, consignee,
general partner, limited partner, secured party, or otherwise, be it now owned
or existing or hereafter arising or acquired, and wherever located, together
with all substitutions, replacements, additions, and accessions therefor or
thereto: (a) all of the Companies' inventory including, but not limited to, all
goods, merchandise, and other personal property furnished under any contract of
service or intended for sale or lease, all parts, supplies, raw materials, work
in process, finished goods, materials used or consumed in the Companies'
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businesses, and repossessed and returned goods (herein the "Inventory"); (b) all
of the Companies' machinery, equipment, tools, furniture, furnishings, and
computing and data processing systems (herein the "Equipment"); (c) all of the
Companies' accounts, accounts receivable, management contracts, drafts,
acceptances, and other forms of obligations, all books, records, ledger cards,
computer programs, and other documents, or property at anytime evidencing or
relating to the Company's accounts, including but not limited to, those arising
from or in connection with (i) a Company's sale, lease, or other disposition of
Collateral or sale of services, (ii) rights pursuant to all property management
contracts and franchise agreements, and rights under the assignments or other
dispositions thereof, (iii) rights pursuant to all mortgage servicing
agreements, and (iv) loans or advances to or for the benefit of partnerships,
corporations or other business entities in which the Companies have an ownership
interest which are not evidenced by an instrument (herein the "Accounts"); (d)
all of the Companies' general intangibles, contract rights, income tax refunds,
bond refunds, security deposit refunds, utilities deposit refunds, preference
recoveries, or other claims in respect of any transfers of any kind, including,
but not limited to, (i) settlements of pending or threatened litigation or
asserted claims, (ii) obligations of purchasers of general partner interests,
(iii) rights under insurance policies, (iv) loans and advances to the Companies'
senior and executive management not evidence by an instrument, (v) any and all
claims or offsets against various Affiliated Entities, as hereinafter defined,
(vi) rights to cash payments and other distributions pursuant to plans of
reorganization confirmed in bankruptcy proceedings, and (vii) general and
limited partnership interests (herein the "Intangibles"); (e) all of the
Companies' instruments, notes, notes receivable, certificates of deposit, and
other writings evidencing a right to payment of money, whether negotiable or
non-negotiable, including, but not limited to, (i) obligations of limited
partnerships to the Companies pursuant to promissory notes secured by mortgages,
(ii) obligations of limited partnerships to the Companies pursuant to various
mortgage differential promissory notes, (iii) mortgage obligations or
participation or other interests therein held by the Companies, (iv) loans and
advances to executive and senior management evidenced by instruments, (v)
subscription promissory notes executed and delivered by various limited partners
to certain limited partnerships and subsequently assigned to the Companies, (vi)
promissory notes arising out of the sale of general partner interests, (vii)
promissory notes and other instruments executed pursuant to plans of
reorganization confirmed in bankruptcy proceedings, and (viii) instruments
evidencing loans or advances to or for the benefit of partnerships,
corporations, or other business entities in which the Companies have an
ownership interest (herein the "Instruments"); (f) all documents, negotiable
documents, documents of title, warehouse receipts, storage receipts, dock
warrants, express bills, freight bills, airbills, bills of lading, and other
documents relating thereto, all cash and non-cash proceeds thereof including,
but not limited to, notes, drafts, checks, instruments, insurance proceeds,
indemnity proceeds, assignment or other contractual proceeds, warranty and
guaranty proceeds (herein the "Documents"); (g) all of the Companies' chattel
paper, including without limitation furniture and equipment leases (herein the
"Chattel Paper"); (h) trade names, trademarks, trademark applications, trade
secrets, service marks, data bases, software and software systems, information
systems, discs, tapes, goodwill, patents, patent applications, copyrights,
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copyright applications, licenses and franchises (herein the "Intellectual
Property"); (i) all deposit accounts, wherever located, whether general,
special, time, demand, provisional, or final, all cash or monies wherever
located, any and all deposits or other sums at any time credited by or due from
the Bank to the Companies, any and all policies, certificates of insurance,
securities, goods, cash and property owned by the Companies or in which any of
the Companies has an interest, which now or hereafter are at any time in the
possession or control of the Bank or in transit by mail or carrier to or from
the Bank, or in the possession of any third party acting on the Bank's behalf,
without regard to whether the Bank received the same in pledge for safekeeping,
as agent for collection or transmission, or otherwise, or whether the Bank has
conditionally released the same (herein the "Deposits"); and (j) all of the
Companies' stock in any corporation (herein the "Stock") (all of the Inventory,
the Equipment, the Accounts, the Stock, the Intangibles, the Instruments, the
Chattel Paper, the Documents, the Intellectual Property, the Deposits herein,
collectively, the "Personal Property Collateral");
Subject to terms of prior mortgages, if any, the Companies agree that
to further secure the indebtedness evidenced by the Note, the Companies shall,
at the Bank's request, also grant to the Bank a mortgage lien on the real
property owned by one or more of the Companies (the "Real Estate Collateral")
(the Personal Property Collateral and the Real Estate Collateral herein
collectively, the "Collateral").
The security interests hereby granted are to secure the prompt and full
payment and complete performance of all Obligations of the Companies to the
Bank. The word "Obligations" is used in its most comprehensive sense and
includes, without limitation, all indebtedness, debts, and liabilities
(including principal, interest, late charges, collection costs, attorneys' fees
and the like) of the Companies to the Bank, whether now existing or hereafter
arising, either created by the Companies alone or together with another or
others, primary or secondary, secured or unsecured, absolute or contingent,
liquidated or unliquidated, direct or indirect, whether evidenced by note,
draft, application for letter of credit, or otherwise, and any and all renewals
of or substitutes therefor, including all indebtedness owed by the Companies to
the Bank in connection with the Loan.
It is the Companies' express intention that the continuing security
interest granted hereby, shall extend to all present and future obligations of
the Companies to the Bank arising under this Agreement, including, but not
limited to, the Note or the renewals, refinancing, or replacements thereof,
whether or not such Obligations are reduced or extinguished and thereafter
increased or reincurred and whether or not such Obligations are specifically
contemplated as of the date hereof. The absence of any reference to this
Agreement in any documents, instruments, or agreements evidencing or relating to
any obligation secured hereby shall not limit or be construed to limit the scope
or applicability of this Agreement.
The Companies have cooperated in the refinance of a number of first
mortgages by the limited partnerships in which the Companies hold general and/or
limited partnership interests, which refinances have been funded by affiliates
or securitized offerings of PaineWebber. The Bank approved the refinancings
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which required execution by the Companies of subordination agreements related to
obligations owed by the limited partnerships and included in the Collateral
pledged to the Bank. In particular subordination agreements concerning the
lender's rights under the management contracts held by both the Companies and
Lexford, whether as the Companies successor or as a direct obligation to
Lexford, were approved in writing by the Bank (all subordinations approved in
writing by the Bank are hereafter referred to as the "PaineWebber
Subordinations").
The Bank hereby agrees that in the event of additional refinancings by
any limited partnership, the Bank hereby approves any subordination of any
Company's interest in or claims against the limited partnership so long as the
same are consistent with or no less favorable than the terms of the PaineWebber
Subordinations. Upon the Company's request, the Bank will confirm its approval
of such subordination to any refinancing lender.
Lexford as security for repayment of its obligations under the Loan
Agreement does hereby grant, assign and transfer to the Bank all of its right,
title and interest in any and all of its management contracts, as that term is
defined in the this Agreement and subject to any PaineWebber Subordination
consented to in writing by the Bank. Provided further, Lexford represents that
there is no existing security interest in Lexford's rights in and to any of its
management contracts and Lexford further agrees it shall not grant any security
interest in any management contract, now existing or hereafter entered into with
a Third Party Property Owner, except the security interest in favor of Bank
created hereunder.
3.2. Setoff. The Companies, jointly and severally, authorize the Bank, upon the
occurrence and continuation of any fact, event, circumstance, individually or
taken together which constitute an Event of Default or would constitute an Event
of Default but for the lapse of any applicable notice or cure period and without
regard to whether the Bank has exercised any right of acceleration and at any
time, thereafter, without notice, to appropriate and apply any balances,
credits, deposits, accounts, or money of any of the Companies in the Bank's
possession, custody, or control to be applied in such order of preference as the
Bank may determine to the payment of any of the Obligations whether or not the
Obligations are due or matured. Provided further that Bank shall not appropriate
any account of an Affiliated Entity, Bank shall have the right to place a ten
(10) day hold on the account of any Affiliated Entity and to the extent any of
the Companies advanced funds to the Affiliated Entities within ninety (90) days
of the commencement of the hold, the Companies agree for themselves and on
behalf of the Affiliated Entities that such funds are held in trust for the
Companies and the Bank is hereby authorized to appropriate such funds from the
account of each Affiliated Entity up to the lesser of the account balance or the
aggregate total of all such advances during the ninety (90) day period.
Notwithstanding the provisions above to the contrary, nothing herein shall
prevent the Affiliated Entities from having access to the funds in such accounts
during such ten (10) day hold for the limited purpose of paying their
obligations to creditors, provided that such obligations are routine and
incurred in the ordinary course of the business of the Affiliated Entites.
3.3. Representations and Covenants Regarding the Collateral. The Companies
represent, warrant, and covenant to the best of their knowledge and in good
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faith as follows: (a) except for the security interests and liens granted
hereby, and subject to the provisions of subsection 5.5 hereof, one or more of
the Companies are, or as to Collateral arising or to be acquired after the date
hereof, shall be, the sole and exclusive owner of the Collateral, and the
Collateral is and shall remain free from any and all liens, security interests,
encumbrances, claims, and interests, and no security agreement, financing
statement, equivalent security, or lien instrument, or continuation statement
covering any of the Collateral is on file or of record in any public office, (b)
the Companies shall not create, permit, or suffer to exist, and shall take such
action as is necessary to remove, any claim to or interest in, or lien or
encumbrance upon the Collateral except the security interests granted hereby and
subject to the provisions of subsection 5.5 hereof, and shall defend the right,
title, and interest of the Bank in and to the Collateral against all claims and
demands of all persons and entities at any time claiming the same or any
interest therein; (c) the Companies' principal place of business and chief
executive office is located at the address set forth in subsection 9.3 of this
Agreement; the Collateral, to the extent possible, and the records concerning
the Collateral shall be kept at that address unless the Bank shall give its
prior written consent otherwise; and the Companies have no other places of
business or place where the Collateral is located except 6954 Americana Parkway,
Reynoldsburg, Ohio 43068 and Freeport Parkway, Suite 200, Irving, Texas 75063,
and the Huntington Center, 41 South High Street, Suite 2410, Columbus, Ohio
43215; (d) from time to time and in no event less frequently than annually the
Companies shall provide the Bank with an updated report disclosing the
location(s) of the Collateral and of any records pertaining thereto; (e) at
least thirty (30) days prior to the occurrence of any of the following events,
the Companies shall deliver to the loan officer who is handling the Companies'
Obligations on behalf of the Bank written notice of such impending events: (i) a
change in and of the Companies' principal place of business or chief executive
office; (ii) the opening or closing of any place of the Companies' name,
identity or corporate structure; (f) each of the Accounts is based on an actual
and bona fide sale and delivery of goods or services or extension of credit, and
the Companies believe that the Companies' Account Debtors have accepted the
goods or services, owe and are obligated to pay the full amounts reflected in
the invoices, according to the terms thereof; and (g) any and all taxes and fees
relating to the Companies' businesses shall be the Companies' sole
responsibility, the Companies shall pay the same when due, and none of said
taxes and fees represent a lien on or claim against the Accounts, other than
taxes which are not then due or which are being contested in good faith and for
which adequate reserves have been allocated in accordance with generally
accepted accounting principles consistently applied.
3.4. Application of Proceeds from Collection of Accounts; Government Accounts;
Perfection. All amounts received by the Bank representing payment of Accounts or
proceeds from the sale of Inventory or of the other Collateral may be applied by
the Bank to the payment of the Obligations in such order of preference as the
Bank may determine. If any material portion of the Companies' accounts arise out
of contracts with or orders from the United States or any department, agency, or
instrumentality thereof, the Companies shall immediately (i) notify the Bank
thereof in writing and (ii) execute any instrument and take any steps which the
Bank deems necessary pursuant to the Federal Assignment of Claims Act of 1940,
as amended (41 USC Section 15) in order that all money due and to become due
under such contract or order shall be assigned to the Bank. The Companies agree
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to execute, deliver, file, and record all such notices, affidavits, assignments,
financing statements, and other instruments as shall in the reasonable judgment
of the Bank be necessary or desirable to evidence, validate, and perfect the
security interests of the Bank in the Accounts.
3.5. Books and Records. The Companies shall at all times keep accurate and
complete records of the Collateral, and at all reasonable times and from time to
time, shall allow the Bank, by or through any of its officers, agents,
attorneys, or accountants, to examine, inspect and, if applicable, make copies
of, the Collateral wherever located. In addition, upon request of the Bank, the
Companies shall provide the Bank with copies of any agreements and such other
documentation and information relating to the Collateral as the Bank may
reasonably require.
3.6. Preservation and Disposition of Collateral. (a) Prior to the subsequent
placement of any Collateral in or upon any real property which any of the
Companies has leased or mortgaged, the Companies shall at the Bank's request
obtain a waiver from the lessor and/or the mortgagee, as the case may be, with
respect to the rights (whether present or future) of the lessor or mortgagee
with respect to that Collateral. At all times subsequent to the date of this
Agreement, the Companies shall advise the Bank promptly, in writing and in
reasonable detail of, (i) any material encumbrance or claim asserted against any
of the Collateral; (ii) any material change in the composition of the
Collateral; and (iii) the occurrence of any other event that would have a
material adverse effect upon the aggregate value of the Collateral or upon the
security interests of the Bank; (b) the Companies shall not sell or otherwise
dispose of the Collateral, except that the Companies may (i) sell or otherwise
dispose of the Inventory in the ordinary course of their businesses; (ii) may
sell Equipment in a commercially reasonably manner for consideration fairly
reflecting prevailing market values for property of like nature, (iii) may
replace Equipment with newer equipment of like kind and replacement value, and
(iv) collect their Accounts and notes receivable in the ordinary course of their
businesses and in connection therewith, grant releases to the obligors
thereunder; (c) the Companies shall keep the Collateral in good condition and
shall not misuse, abuse, secrete, waste, or destroy any of the same; (d) the
Companies shall not use the Collateral in violation of any statute, ordinance,
regulation, rule, decree, or order; (e) the Companies shall pay promptly when
due all taxes, assessments, charges, or levies upon the Collateral or in respect
to the income or profits therefrom, other than taxes being contested in good
faith and for which adequate reserves have been allocated in accordance with
generally accepted accounting principles consistently applied; and (f) at its
option following notice to the Companies and the Companies' failure to
discharge, maintain, or perform, the Bank may discharge delinquent taxes or
liens, security interests, or other encumbrances not permitted under subsection
5.5 of this Agreement at any time levied or placed on the Collateral and may pay
for the maintenance and preservation of the Collateral. The Companies agree to
reimburse the Bank upon demand for any payment made or any expense incurred
(including reasonable attorneys' fees) by the Bank pursuant to the foregoing
authorization. Prior to an Event of Default, any payments under subsection
3.6(f) shall be treated as an advance under the Note. Should the Companies fail
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to pay said sum to the Bank upon demand, interest shall accrue thereon, from the
date of demand until paid in full, at the highest rate set forth in any document
or instrument evidencing any of the obligations.
3.7. Extensions and Compromises. With respect to any Obligations secured by any
of the Collateral, the Companies assent to all extensions or postponements of
the time of payment of such obligations or any other indulgence in connection
with such Obligations, to each substitution, exchange or release of Collateral,
to the addition or release of any party primarily or secondarily liable thereon,
to the acceptance of partial payments on such Obligations and to the settlement,
compromise or adjustment of such Obligations, all in such manner and at such
time or times as the Bank may deem advisable. The Bank shall have no duty as to
the collection or protection of Collateral or any income therefrom, nor as to
the preservation of any right pertaining thereto, beyond the safe custody of
Collateral in the possession of the Bank. The foregoing sentence is not intended
to modify in any respect, the Bank's obligation as a depository with respect to
the deposits of the Companies held by the Bank.
3.8. Financing-Statements; Lien Notation. The Companies agree to execute,
deliver, file, and record all such notices, affidavits, assignments, financing
statements, and other instruments as shall in the reasonable judgment of the
Bank be necessary or desirable to evidence, validate, and perfect the security
interests of the Bank in any portion of the Collateral. At the request of the
Bank, the Companies shall join with the Bank in executing, delivering, and
filing one or more financing statements in a form satisfactory to the Bank, and
shall pay the costs of filing the same in all public offices wherever filing is
reasonably deemed by the Bank to be necessary or desirable. A carbon,
photographic, or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement. If certificates of title
are issued or outstanding with respect to any Collateral, the Companies shall
cause the interest of the Bank to be properly noted thereon at the Companies'
expense.
3.9. Bank's Appointment as Attorney-in-Fact. The Companies, jointly and
severally, hereby irrevocably constitute and appoint the Bank and any officer or
agent thereof, with full power of substitution, as the Companies, true and
lawful attorney-in-fact with full irrevocable power and authority in their place
and stead and in their names or in the Bank's own name, from time to time in the
Bank's discretion, for the sole purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, hereby grants to the Bank the power and right, on behalf of the
Companies, without notice to or assent from the Companies: (a) to execute, file,
and record all such financing statements, certificates of title, and other
certificates of registration and operation and similar documents and instruments
as the Bank may reasonably deem necessary or desirable to protect, perfect, and
validate the Bank's security interests in the collateral; (b) upon the
occurrence and continuation of an Event of Default, to receive, collect, take,
endorse, sign, compromise, assign, and deliver in any of the Companies' or the
Bank's name, any and all checks, notes, drafts, or other documents or
instruments relating to the Collateral; and (c) upon the occurrence and during
the continuance of an Event of Default, (i) to notify postal authorities to
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43
change the address for delivery of the Companies' mail to an address designated
by the Bank (the Bank shall exercise the same degree of care when dealing with
any of the Companies' mail received by it as the Bank exercises in connection
with its own mail) , (ii) to open such mail delivered to the designated address,
(iii) to sign and indorse any invoices, freight or express bills, bills of
lading, storage, or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
relating to the Collateral; (iv) to commence and prosecute any suits, actions,
or proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral; (v) to defend any suit, action or proceeding brought
with respect to any Collateral; (vi) to negotiate, settle, compromise, or adjust
any account, suit, action, or proceeding described above and, in connection
therewith, to give such discharges or releases as the Bank may deem appropriate;
and (vii) generally, to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Bank were the absolute owner thereof for all purposes, and to do, at
the Bank's option and the Companies' expense, at any time or from time to time,
all acts and things which the Bank reasonably deems necessary to protect,
preserve or realize upon the Collateral and the Bank's security interests
therein, in order to effect the purposes of this Agreement.
The Companies hereby ratify all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable. The powers conferred upon the Bank
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon the Bank to exercise any such powers. The Bank shall be
accountable only for amounts that the Bank actually receives as a result of the
exercise of such powers and neither the Bank nor any of its officers, directors,
employees or agents shall be responsible to any of the Companies for any act or
failure to act, except for the Bank's own gross negligence or willful
misconduct.
3.10. Upon repayment of all indebtedness or upon sale of assets in subsection
5.4, the Bank will take such action as may be necessary to evidence the release
of the Bank's lien on such assets.
4. Warranties and Representations. Each of the Companies warrants and represents
to the Bank:
4.1. Corporate Organization and Authority. Each Company (a) is a corporation or
limited liability company duly organized, validly existing and in good standing
under the laws of the State of its incorporation or organization; (b) has a
principal place of business in Columbus, Ohio (c) has all requisite corporate or
limited liability company power, and authority and all necessary licenses and
permits to own and operate its properties and to carry on its business as now
conducted and as presently proposed to be conducted, except where the lack of
authority to obtain such licenses and permits would not have a material adverse
effect on the business operations or financial condition of said Company; (d) is
not doing business or conducting any activity in any jurisdiction in which it
has not duly qualified and become authorized to do business, except where the
failure to qualify to do business has not or would not have a material adverse
effect on the business, operations, or financial condition of each Company, and
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44
(e) to the extent that each Company, or any of the limited partnerships or other
entities of which each Company is a partner, shareholder, or member, (each an
"Affiliated Entity" and collectively with each Affiliated Entity of all of the
Companies the "Affiliated Entities"), is doing business in any jurisdiction in
which it has not duly qualified and is not authorized to do business or has not
obtained all necessary licenses and permits to own and operate its properties
and to carry on its business, said Company or said Affiliated Entity is and will
continue to work diligently to cure and correct such lack of qualification or
authorization to do business and obtain such licenses and permits.
4.2. Borrowing is Legal and Authorized. (a) The Board of Directors, or other
equivalent body, of each Company has duly authorized the execution and delivery
of this Agreement and of the notes and documents contemplated herein; (b) this
Agreement, the notes and other documents executed in connection with this
Agreement will constitute valid and binding obligations of each Company
enforceable in accordance with their respective terms; (c) the execution of this
Agreement and related notes and documents and the compliance by each Company
with all the provisions of this Agreement (i) are within the corporate or
limited liability company powers of each Company; and (ii) are legal and will
not conflict with, result in any breach in any provision of, constitute a
default under, or result in the creation of any lien or encumbrance upon any
property of each Company (other than in favor of the Bank) under the provisions
of, any agreement, charter instrument, bylaw, or other instrument to which said
Company is a party or by which it may be bound; and (d) there are no limitations
in any indenture, contract, agreement, mortgage, deed of trust, or other
agreement or instrument to which each Company is now a party or by which each
Company may be bound with respect to the payment of principal or interest on any
indebtedness, or each Company's ability to incur indebtedness, including the
Note to be executed in connection with this Agreement.
4.3. Taxes. All tax returns required to be filed by each Company in any
jurisdiction have in fact been filed, and there are no material taxes,
assessments, fees, and other governmental charges upon said Company, or upon any
of its properties, which are due and payable which have not been paid except to
the extent being contested in good faith pursuant to appropriate proceedings
sufficient to stay execution. Each Company does not know of any material
proposed additional tax assessment against it. The provisions for taxes on the
books of each Company for its current fiscal period are adequate.
4.4. Compliance with Law. Each Company (a) is not in violation of any laws,
ordinances, governmental rules, or regulations to which it is subject, including
without limitation any laws, rulings, or regulations relating to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code and (b) has not failed to obtain any licenses, permits, franchises, or
other governmental or environmental authorizations necessary to the ownership of
its properties or to the conduct of its business, which violation or failure in
either subsection (a) or subsection (b) of this section might materially and
adversely affect the business, prospects, profits, properties, or condition
(financial or otherwise) of each Company.
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45
4.5. Financial Statements; Full Disclosure. The Companies' consolidated
financial statements for the fiscal year ending December 31, 1994, December 31,
1995, and December 31, 1996, which have been supplied to the Bank have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly represent the Company's consolidated financial
condition as of such dates. No material adverse change in each Company's
financial condition has occurred since the date of the latest financial
statement. The financial statements referred to in this paragraph do not, nor
does this Agreement or any written statement furnished by each Company to the
Bank in connection with obtaining the Revolving Line of Credit, contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained therein or herein not misleading. Each Company has
disclosed to the Bank in writing all facts which materially affect the
properties, business, prospects, profits or condition (financial or otherwise)
of each Company or the ability of each Company to perform this Agreement.
4.6. No Insolvency. On the date of each Company's entering into the Revolving
Line of Credit and after giving effect to all indebtedness of each Company
(excluding inter-company obligations and, except in the case of Cardinal Realty
Services, Inc., the Revolving Line of Credit) , (a) each Company will be able to
pay its obligations as they become due and payable; (b) the present fair
saleable value of each Company's assets exceeds the amount that will be required
to pay its probable liability on its obligations as the same become absolute and
matured; (c) the sum of each Company's property at a fair valuation exceeds each
Company's indebtedness; (d) each Company will have sufficient capital to engage
in each Company's business. Each Company's grant of Collateral for the Loan
constitutes fair consideration and reasonably equivalent value because of the
receipt of the proceeds of the Loan or other benefits from the extension of
credit to the Companies.
4.7. Government Consent. Neither the nature of each Company or of its business
or properties, nor any relationship between each Company and any other entity or
person, nor any circumstance in connection with the execution of this Agreement,
is such as to require a consent, approval, or authorization of, or filing,
registration, or qualification with, any governmental authority on the part of
each Company as a condition to the execution and delivery of this Agreement and
the notes and documents contemplated herein, provided, however, that the Bank
acknowledges that the execution of this Agreement constitutes a material
transaction for each Company which will be reported in compliance with federal
securities law.
4.8. Title to Collateral. Each Company has good title to all the Collateral
which is owned by it, free from any liens and encumbrances, except as referenced
in subsection 3.3.
4.9. No Defaults. No event has occurred and no condition exists which would
constitute an Event of Default pursuant to this Agreement. Each Company is not
in violation in any material respect of any term of any agreement, charter
instrument, bylaw, or other instrument to which it is a party or by which it may
be bound.
4.10. Environmental Protection. Each Company (a) has no actual knowledge of the
permanent placement, burial, or disposal of any Hazardous Substances (as
hereinafter defined) on any real property owned (whether now owned or hereafter
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46
acquired), leased, or used by each Company or any of the other Companies (the
"Premises"), of any spills, releases, discharges, leaks, or disposal of
Hazardous Substances that have occurred or are presently occurring on, under, or
onto the Premises, or of any spills, releases, discharges, leaks, or disposal of
Hazardous substances that have occurred or are occurring off the Premises as a
result of each Company's or the other Companies' improvement, operation, or use
of the Premises which would result in noncompliance with any of the
Environmental Laws (as hereinafter defined); (b) is and has been in compliance
with all applicable Environmental Laws; (c) knows of no pending or threatened
environmental, civil, criminal, or administrative proceedings against any
Company or the other companies relating to Hazardous Substances; (d) knows of no
facts or circumstances that would give rise to any future civil, criminal, or
administrative proceeding against any Company or the other Companies relating to
Hazardous Substances; and (e) will not permit any of its, or any of the other
Companies' employees, agents, contractors, subcontractors, or any other person
occupying or present on the Premises to generate, manufacture, store, dispose,
or release on, about, or under the Premises any Hazardous Substances which would
result in the Premises not complying with the Environmental Laws.
As used herein, "Hazardous Substances" shall mean and include all hazardous and
toxic substances, wastes, materials, compounds, pollutants, and contaminants
(including, without limitation, asbestos (excluding non-friable asbestos),
polychlorinated biphenyls, and petroleum products) which are included under or
regulated by the Comprehensive Environmental Response, compensation and
Liability Act, as amended, 42 U.S.C. ss.9601, et seq., the Toxic Substances
Control Act, 15 U.S.C. ss.2601, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. ss.6901, et seq. , the Water Quality Act of 1987, 33 U.S.C.
ss.1251, et seq., and the Clean Air Act, 42 U.S.C. ss.7401, et seq., and any
state or local statute, ordinance, law, code, rule, regulation, or order
regulating or imposing liability (including strict liability) or standards of
conduct regarding Hazardous Substances (hereinafter the "Environmental Laws") ,
but does not include such substances as are permanently incorporated into a
structure or any part thereof in such a way as to preclude their subsequent
release into the environment, or the permanent or temporary storage or disposal
of household hazardous substances by tenants, and which are thereby exempt from
or do not give rise to any violation of the aforementioned Environmental Laws.
4.11. Assignability and Transferability of Interests. Not less seventy-five
percent (75%) of the management contracts, notes, partnership interests, and
interests in other Collateral are assignable and transferable to the Bank,
except that with respect to personal service contracts only the right to receive
payments and distributions may be assigned to the Bank and the Bank may not be
substituted for any Company as the party responsible for performing such
services.
4.12. Regulation U. None of the transactions contemplated in this Agreement will
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulation issued pursuant thereto, including, without
limitation, Regulation U of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II, except to the extent, if any, that shares of the
common stock of Cardinal Realty Services, Inc. held by one or more of the
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47
Companies constitutes a "margin security". The Companies do not own or intend to
carry or purchase any "margin security" within the meaning of said Regulation U.
4.13. Reaffirmation of Warranties and Representations. On the date of each
advance pursuant to the Revolving Line of Credit, and as a condition for any
advance, the warranties and representations set forth in this entire Section 4
shall be true and correct on and as of such date with the same effect as though
such warranties and representations had been made on and as of such date, except
to the extent that such warranties and representations expressly relate to an
earlier date. The Bank may require a written affidavit to memorialize the fact
that all warranties and representations are in fact true and correct on and as
of such date.
5. Company Business Covenants. Each of the Companies covenants that on and after
the date of this Agreement until terminated pursuant to the terms of this
Agreement, or so long as any of the indebtedness provided for herein remains
unpaid:
5.1. Payment of Taxes and Claims. Each Company will pay before they become
delinquent (a) all taxes, assessments and governmental charges or levies imposed
upon it or its property; and (b) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords, bailees, and other like persons
which, if unpaid, might result in the creation of a lien or encumbrance upon its
property provided that the Company may contest any item described in clauses (a)
and (b) of this subsection 5.1 in good faith as long as adequate resources are
maintained in accordance with generally accepted accounting principles
consistently applied.
5.2. Maintenance of Properties and Corporate Existence. Each Company shall (a)
maintain the property owned by each Affiliated Entity and all of that Company's
other property in good condition and make all renewals, replacements, additions,
betterments, and improvements thereto including the ability to sell assets,
dissolve or withdraw Companies which are deemed necessary by that Company to be
in the best interests of the Company; (b) keep true books of records and
accounts in which full and correct entries will be made of all its business
transactions, including, without limitation, any transaction with any Affiliated
Entity, and reflect in its financial statements adequate accruals and
appropriations to reserves; (c) do or cause to be done all things necessary (i)
except as contemplated by clause (a), to preserve and keep in full force and
effect its existence, general partnership rights, contractual management rights,
franchises, and other rights, (ii) except as contemplated by clause (a), to
maintain its status as a corporation or limited liability company duly organized
and existing and in good standing under the laws of the state of its
incorporation or organization, (iii) except as contemplated by clause (a), to
maintain where necessary its status as a corporation licensed to do business as
a foreign corporation in any state in which it is presently so qualified, and
(iv) except as contemplated by clause (a), to maintain on behalf of each
Affiliated Entity its status as a business entity qualified to do business in
the state in which each such Affiliated Entity does business; (d) not acquire,
incur, or assume directly or indirectly, any material contingent liability in
connection with the release of any Hazardous Substances into the Environment, or
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48
dispose of, or allow to be disposed of, or otherwise release Hazardous
Substances or solid waste on or onto said Company's Premises; (e) not be in
violation of any laws, ordinances, or governmental rules and regulations or fail
to obtain any licenses, permits, franchises, or other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, which violation or failure to obtain might materially and
adversely affect the business, prospects, profits, properties, or condition
(financial or otherwise) of said Company, and (f) notify the Bank immediately
upon any change in the status of its continued existence as (i) a corporation or
limited liability company under the laws of the State of its incorporation or
organization, (ii) a general or limited partner in any partnership in which it
holds such an interest as of the date of this Agreement, or (iii) a management
company as it pertains to the material loss of any partnerships for which it
performs such function as of the date of this Agreement.
5.3. Insurance. The Companies shall have and maintain insurance at all times (a)
insuring against risks of fire (including so-called extended coverage),
explosion, theft, sprinkler leakage, and such other casualties, and (b) insuring
against liability for personal injury and property damage in such amounts that
are maintained by similar businesses and as may be required by applicable law
with reputable and financially sound insurance companies. The Company will
provide, at the request of the Bank, a detailed list of the insurance then in
effect, stating names of insurance companies, the amounts and rate of insurance,
dates of expiration thereof and the properties and risks covered thereby. All
policies of insurance shall provide for twenty (20) days' written minimum
cancellation notice to the Bank and, at request of the Bank, shall be delivered
to and held by it. From and after the occurrence and during the continuance of
an Event of Default, the Bank may act as attorney for the Companies in
obtaining, adjusting, settling, and canceling such insurance and endorsing any
drafts. In the event of failure to provide insurance as herein provided, the
Bank may, at its option following notice to the Companies, provide such
insurance, and the Companies shall pay to the Bank, upon demand, the cost
thereof. Should the Companies fail to pay said sum to the Bank upon demand,
interest shall accrue thereon from the date of demand until paid in full at the
highest rate set forth in any document or instrument evidencing any of the
Obligations. The Companies shall notify Bank in writing within ten (10) days of
the occurrence of any damage resulting in an uninsured claim for the sum of
$100,000 or greater made by any Company. The Companies shall maintain adequate
insurance at the Affiliated Entity level. The Bank shall be listed as an
additional insured on all insurance policies maintained by the Companies at
either the Company or Affiliated Entity level.
5.4. Sale of Assets; Merger; Subsidiaries; Tradenames. Except as agreed to in
the letter dated July 23, 1997 (said letter being attached hereto as Exhibit A
and incorporated herein), said Company will not sell, lease, transfer, or
otherwise dispose of any of its material assets other than real estate assets
sold in the normal course of business or cause any Affiliated Entity to sell,
lease, transfer, or otherwise dispose of, any of such Affiliated Entity's
material assets. Except as in the normal course of business, said Company shall
not without the prior written consent of the Bank consolidate with or merge into
any other entity, or permit any other entity to consolidate with or merge into
it. Except for acquisition of additional Affiliated Entities from the proceeds
of the Revolving Line of Credit in accordance herewith, said Company shall
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49
comply with subsection 2.2 when acquiring all or substantially all of the assets
or business of any other company, person, or entity by means other than proceeds
of the Revolving Line of Credit. The Company has no subsidiaries or affiliates
except for (a) other Companies, (b) the partnership in which it is a general or
limited partner and (c) one or more SPV subsidiaries. Said Company conducts
business only in the name of said Company or in the registered trade names of
said Company. Except as otherwise permitted by subsection 2.2, said Company
shall not create or acquire any subsidiaries or conduct business under any other
tradeneames without the prior written consent of the Bank.
5.5. Negative Pledge. The Companies shall not cause, permit, agree, consent to
cause or permit in the future (upon the happening of a contingency or
otherwise), any of its property or any of the real or personal property of any
Affiliated Entity, whether now owned or hereafter acquired, to become subject to
a lien or encumbrance; except: (a) liens in connection with the deposits
required by worker's compensation, unemployment insurance, social security, and
other like laws; (b) taxes, assessments, reservations, exceptions,
encroachments, easements rights of way, covenants, conditions, restrictions,
leases, and other similar title exceptions or encumbrances affecting real
property, provided they do not in the aggregate materially detract from the
value of said property or materially interfere with its use in the ordinary
conduct of said Company's or said Affiliated Entity's business; (c) inchoate
liens arising under ERISA to secure the contingent liability of said Company;
(d) liens in place as of the date of signing of this Agreement; (e) liens on the
real property owned by an Affiliated Entity which said Company has disclosed to
the Bank in writing on or before the date of this Agreement as they currently
exist or are refinanced on terms no less favorable except market interest rate
increases and similar changes in market terms to said Affiliated Entity than the
existing terms, and (f) purchase money security interests entered in the
ordinary course of business.
5.6. Permitted Indebtedness; Other Borrowings in the Ordinary Course of
Business. Said Company shall not (a) create or incur any indebtedness for
borrowed money or advances, except for the Revolving Line of Credit, or (b)
guarantee, endorse, or otherwise become surety for or upon the obligations of
others, except: (i) by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business; (ii) non-recourse indebtedness
which is exculpatory to said Company for a monetary liability; (iii)
indebtedness to trade creditors no more than sixty (60) days past the date such
indebtedness was originally incurred except contested liabilities as described
in subsection 5.1; (iv) for obligations as a general partner incurred in the
ordinary course of the partnership's business; (v) purchase money obligations
and other indebtedness incurred in the ordinary course of said Company's
business; and (vi) existing indebtedness guaranteed by Cardinal Realty Services,
Inc. as of the date of signing of this Agreement.
5.7. Minimum Security. Said Company shall maintain, in conjunction with the
other Companies, as minimum security for the Revolving Line of Credit,
Collateral having an aggregate resale value at least equal to the outstanding
principal balance of the Note and any interest accrued thereon. "Aggregate
Resale Value" shall mean the fair market value of the Collateral, in the
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50
aggregate, in an arms length transaction between parties of substantially equal
bargaining position given a reasonable period of time for negotiation and sale.
5.8. Sale of Accounts; No Consignment. Except as outlined in subsection 5.3,
said Company shall not sell, assign, or encumber, except to the Bank, any of its
Accounts or notes receivable. Said Company shall not permit any of its Inventory
to be sold or transferred on consignment or acquire or possess any of its
Inventory on consignment.
5.9. Ownership. None of the Companies shall permit any material change in its
ownership, without the prior written consent of the Bank.
5.10. Maintenance of Intercorporate Funds Agreement. No Company shall materially
amend, modify, restate, or otherwise change any of the terms, provisions, and
conditions set forth in the Intercorporate Funds Agreement dated August 11,
1995, and shall notify the Bank immediately upon termination of such
Intercorporate Funds Agreement by any party thereto.
5.11. Trade Accounts Payable. No Company shall permit its trade accounts payable
to be past due for more than sixty (60) days unless being contested in good
faith and for which adequate reserves are maintained in accordance with
generally accepted accounting principles, consistently applied.
5.12. Net Worth. The Companies shall maintain at all times a Net Worth, as
determined on a quarterly basis and calculated in accordance with generally
accepted accounting principles and "equity method" accounting principles,
consistently applied, of not less than $60,000,000. "Net Worth" shall mean the
consolidated shareholder's equity of the Companies. Net Worth shall be increased
annually by not less than fifty percent (50%) of the Companies consolidated net
profit for the previous year.
5.13. Ratio of Total Liabilities to Net Worth. The Companies shall maintain an
aggregate ratio of total liabilities excluding non-recourse debt to Net Worth,
calculated in accordance with generally accepted accounting principles
consistently applied, of not greater than 1.5 to 1.0.
5.14. Ratio of Net Operating Cash Flow to Debt Service. The Companies shall
maintain an aggregate calendar year to date ratio of Net Operating Cash Flow as
reported in the Companies' public financial statements to required contractual
payments of principal and interest to the Bank on the Loan pursuant to this
Agreement of not less than to 2.0 to 1.0.
5.15. Recurring Cash Flow. The Companies shall maintain annual recurring EBITDA
(earnings before interest (excluding interest on wholly owned properties),
taxes, depreciation, and amortization) of not less than $11,000,000.
5.16. Environmental Compliance and Indemnification. The Companies hereby
indemnify the Bank and hold the Bank harmless from and against any loss, damage,
cost, expense, or liability (including strict liability) directly or indirectly
arising from or attributable to the generation, storage, release, threatened
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51
release, discharge, disposal, or presence (whether by one or more of the
Companies or any employees, agents, contractor, or subcontractors of one or more
of the Companies or any predecessor in title or any third persons occupying or
present on the Premises), or the breach of any of the representations and
warranties regarding the Premises, including, without limitation: (a) those
damages or expenses arising under the Environmental Laws; (b) the costs of any
repair, cleanup, or detoxification of the Premises, including the soil and
ground water thereof, and the preparation and implementation of any closure,
remedial, or other required plans; (c) damage to any natural resources; and (d)
all reasonable costs and expenses incurred by the Bank in connection with
clauses (a), (b) and (c) including, but not limited to reasonable attorney's
fees.
The indemnification provided for herein shall not apply to any losses,
liabilities, damages, injuries, expenses or costs which: (i) arise from the
gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous
Substances placed or disposed of on the premises after the Bank acquires title
to the Premises through foreclosure or otherwise.
5.17. Maintenance of Accounts. Said Company shall maintain all of its primary
operating and deposit accounts and all deposit accounts for the Affiliated
Entities at the Bank, unless required by the respective first mortgage holders
of the Affiliated Entities or regulatory authorities to be maintained elsewhere.
5.18. Change in Management Agreements. Except for subordinations permitted by
subsection 3.2 of this Agreement, said Company shall not change any terms of the
property management agreements which are part of the Collateral without the
prior written consent of the Bank, which consent shall not be unreasonably
withheld.
6. Financial Information and Reporting. The Companies shall provide to the Bank
the following documentation and information and deliver the following on a
consolidated basis (except as specified below) within forty-five (45) days after
the end of the first three quarters of each calendar year: (a) financial
statements, including a balance sheet, statements of income and surplus and cash
flow reports for the Companies, certified by the President and Chief Executive
Officer, or the Executive Vice President and Chief Financial Officer or the Vice
President and Controller or the Vice President and Treasurer of Cardinal Realty
Services, Inc., as fairly representing the Companies' financial condition using
accounting principles consistently applied as of the end of such period; (b)
statements signed by the President and Chief Executive Officer, or the Executive
Vice President and Chief Financial Officer or the Vice President and Controller
of Cardinal Realty Services, Inc., setting forth and certifying the compliance
of the Companies with the terms of this Agreement; (c) a management fee aging
report signed by the President and Chief Executive Officer, Treasurer, or the
Executive Vice President and Chief Financial Officer or the Vice President and
Controller of Cardinal Realty Services, Inc., reflecting the dollar total of any
unpaid management agreement fees, (d) a report in the event one or more of the
Companies has become aware of its termination as (i) a general partner of (ii)
an owner of, or (iii) the property management company of any Affiliated Entity
and an analysis of the financial impact of such termination; (e) immediately
upon becoming aware of the existence of any set of facts or circumstances which,
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52
by themselves, upon the giving of notice, the lapse of time, or any one or more
of the foregoing, would constitute a breach of any of the terms or conditions of
this Agreement or an Event of Default under this Agreement, a written notice
specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto; and (f) at the
request of the Bank, such other information as the Bank may from time to time
reasonably require.
6.1. Periodic Disclosure and Reporting. The Companies shall provide to the Bank
the following documentation and information: (a) within fifteen (15) days after
filing, copies of any and all materials filed by the Companies with the
Securities and Exchange Commission, regardless of whether the Companies have
filed such materials on their own behalf, in their capacity as a general
partner, or otherwise; (b) at the request of the Bank, filing copies of any and
all federal corporate income tax returns, together with any amendments,
exhibits, or supplements thereto, and any related documentation filed with the
Internal Revenue Service; (c) immediately upon becoming aware of the existence
of any set of facts or circumstances which, by themselves, upon the giving of
notice, the lapse of time, or any one or more of the foregoing, would constitute
a breach of any of the terms or conditions of this Agreement or an Event of
Default under this Agreement, a written notice specifying the nature and period
of existence thereof and what action the Companies are taking or propose to take
with respect thereto; and (d) at the request of the Bank, such other information
as the Bank may from time to time reasonably require.
6.2. Annual Financial Statements. The Companies shall deliver to the Bank within
ninety (90) days of the end of each fiscal year: (a) consolidated audited
financial statements, which have been prepared in accordance with generally
accepted accounting principles consistently applied and certified by independent
certified public accountants reasonably satisfactory to the Bank, containing a
balance sheet, statements of income and shareholder's equity, statements of cash
flows, followed by any management letters written by such accountants; (b) at
the request of the Bank, consolidated unaudited financial statements prepared by
the Companies in accordance with "equity method" accounting principles
consistently applied, containing a balance sheet, statements of income and
shareholder's equity, and statements of cash flows; (c) at request of the Bank a
report signed by the President and Chief Executive Officer, or the Executive
Vice President and Chief Financial Officer or the Vice President and Controller,
or the Vice President and Treasurer of Cardinal Realty Services, Inc. setting
forth a detailed analysis of each of the Affiliated Entities' financial
condition including financial statements reflecting (i) net cash flow, occupancy
percent, gross revenue, operating expenses (which includes fees and payments to
the Companies), maintenance, and repair expense, net operating income, mortgage
payments not due to the Companies and net cash flows; (ii) any advances from the
Companies to, or notes due to the Companies from (balance due and estimated
value), the Affiliated Entities, (iii) all fees, advances, interest, and
principal payments paid to Companies by the Affiliated Entities, and (iv)
lender, mortgage balance, payment amount, and status of each mortgage
encumbering all property owned by an Affiliated Entity; (d) financial
statements, including balance sheet and income statement of each Affiliated
Entity, and (e) the unaudited actual cash flow statements of the Affiliated
Entities, all of which may be presented in a computer disk format reasonably
acceptable to the Bank.
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53
7. Default.
7.1. Events of Default. An "Event of Default" shall exist if any of the
following occurs and is continuing: (a) the Companies fail to make any payment
of principal or interest on any note executed in connection with this Agreement
on or within fifteen (15) days of the date such payment is due; (b) the
Companies fail to perform or observe any covenant contained in subsections 3.3,
4.1 through 5.18, inclusive, of this Agreement and such failure continues for
more than thirty (30) days after such failure shall first occur; (c) the
Companies fail to perform or observe any other covenant contained in this
Agreement and such failure continues for more than seven (7) days after such
failure shall first occur, (d) the Companies fail to comply with any other
provision of this Agreement, and such failure continues for more than thirty
(30) days after discovery of such failure by any of the parties to this
Agreement; (e) any warranty, representation, or other statement by or on behalf
of the Companies contained in this Agreement or in any instrument furnished in
compliance with or in reference to this Agreement is false or misleading in any
material respect, or the Companies fail to perform or observe any covenant
contained in any mortgages, security agreement or other agreement in favor of
the Bank and such failure continues for more than thirty (30) days from the date
after discovery of such failure by any of the parties to this Agreement; (f) one
or more of the Companies fails to perform or observe any covenant contained in
any security agreement, or other agreement in favor of the Bank and such failure
continues for more than thirty (30) days from the date after discovery of such
failure by any of the parties to this Agreement; (g) one or more of the
Companies makes an assignment for the benefit of creditors, or consents to or
suffers the appointment of a trustee, receiver, or liquidator; (h) bankruptcy,
reorganization, arrangement, insolvency, or liquidation proceedings are
instituted by one or more of the Companies; (i) bankruptcy, reorganization,
arrangement, insolvency, or liquidation proceedings are instituted against one
or more of the Companies; (j) failure to give the Bank notice that an Affiliated
Entity is involved in any bankruptcy, reorganization, arrangement, insolvency,
or liquidation proceedings; (k) an uninsured final judgment or judgments for the
payment of money aggregating in excess of $100,000.00 is or are outstanding
against one or more of the Companies and any such judgment or judgments have not
been discharged in full or stayed; (l) the occurrence of any event which allows
the acceleration of the maturity of any indebtedness of the Companies to the
Bank or any of the Affiliated Entities to the Bank under any indenture,
agreement, or undertaking other than this Agreement and more than thirty (30)
days have passed since the occurrence of such event; (m) the occurrence of any
event which allows the acceleration of the maturity of any material indebtedness
of the Companies to any other person, corporation, or entity under any
indenture, agreement, or undertaking and the failure of the Companies to cure
any resulting default within the longer of thirty (30) days from such occurrence
or the period provided in any applicable documentation governing such
indebtedness; (n) the loss by the Companies of the ability to manage other than
by sale of properties at least eighty percent (80%) of the Affiliated Entities
existing on August 11, 1995, provided, such loss causes an event which
materially impairs the prospect of payment or performance by the Companies in
accordance with this Agreement; or (o) an event occurs which materially impairs
the prospect of payment or performance by the Companies in accordance with this
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54
Agreement and more than five (5) days have passed since notice was given to the
Companies of such event without cure of such default.
8. Remedies on Default.
8.1. Legal and Contractual Remedies. Upon the occurrence of an Event of Default
and for so long thereafter as such Even of Default continues, the Bank shall
have the rights and remedies of a Secured Party under this Agreement, under any
other instrument or agreement securing, evidencing, or relating to the
Obligations and under the law of the State of Ohio, or any other applicable
state law, and the Bank may exercise any right, power, or remedy permitted to
the Bank by law or any provision of this Agreement. Without limiting the
generality of the foregoing, upon the occurrence or continuation of an Event of
Default, the Bank shall have the right without further notice or demand to the
Companies (a) to declare the entire principal and all interest accrued on the
Obligations to be forthwith due and payable, without any presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly waived
by the Companies, and (b) to take possession of the Collateral and all books and
records relating to the Collateral and for that purpose the Bank may enter upon
any premises on which the Collateral or books and records relating to the
Collateral or any part thereof may be situated and remove the same therefrom.
The Companies expressly agree that the Bank, without demand of performance or
other demand, advertisement, or notice of any kind (except the notices specified
below of time and place of public sale or disposition or time after which a
private sale or disposition is to occur) to or upon the Companies or any other
person or entity (all and each of which demands, advertisements, and/or notices
are hereby expressly waived), may forthwith in a commercially reasonable manner
consistent with applicable economic, industry, and market conditions for
property or collateral of like nature, collect, receive, appropriate, and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase or sell or otherwise dispose
of and deliver the Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any of the Bank's
offices or elsewhere at such prices as the Bank may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Bank
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption.
The Companies further agree, at the Bank's request, to assemble the Collateral
and to make it available to the Bank at such places as the Bank may reasonably
select. The Companies further agree to allow the Bank to use or occupy the
Companies' premises, without charge, for the purpose of effecting the Bank's
remedies in respect of the Collateral. The Bank shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind incurred in
connection therewith or incidental to the care or safekeeping of any or all of
the Collateral or in any way relating to the rights of the Bank hereunder,
including reasonable attorneys' fees and legal expenses, to the payment in whole
or in part of the Obligations, in such order as the Bank may elect, and only
after so paying over such net proceeds and after the payment by the Bank of any
other amount required by any provision of law, need the Bank account for the
surplus, if any. To the extent permitted by applicable law, the Companies waive
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55
all claims, damages and demands against the Bank arising out of the
repossession, retention, sale or disposition of the Collateral. The Companies
agree that the Bank need not give more than ten (10) days' notice (which
notification shall be deemed given when mailed, postage prepaid, addressed to
one or more of the Companies at its address set forth in this Agreement, or when
telecopied or telegraphed to that address or when telephoned or otherwise
communicated orally to one or more of the Companies or any of their agents at
that address) of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. The Companies shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Bank is entitled. The Companies
shall also be liable for the costs of collecting any of the Obligations or
otherwise enforcing the terms thereof or of this Agreement, including reasonable
attorneys' fees. Upon the occurrence of any Event of Default, in addition to all
other remedies set forth above, any and all funds due and owing to the Bank,
whether before or after any acceleration of the amount due to the Bank, shall
bear interest at the default rate per annum of Prime, as determine by the Bank,
plus two percent.
8.2. Appointment of Receiver. In addition to any remedy hereinbefore provided
and not in limitation thereof, upon the occurrence and continuation of any Event
of Default, and at any time prior to or after the institution of any enforcement
proceeding, the Bank shall have the right to make application to a court of
competent jurisdiction for appointment of a receiver for all or any part of the
Collateral and the businesses of the Companies without regard to the adequacy of
the Collateral for the repayment of the indebtedness secured by the Collateral
or the solvency of the Companies or any person or persons liable for the payment
of the Obligations, and the Companies do hereby irrevocably consent to such
appointment, waive any and all defenses to such appointment and agree not to
oppose any application therefor by the Bank, but nothing herein is to be
construed to deprive the Companies of any right, remedy or privilege the
Companies may now have under the law to have a receiver appointed, provided,
however, that the appointment of such receiver, trustee or other appointee by
virtue of any court order, statute, or regulation shall not impair or in any
manner prejudice the rights of the Bank to receive payment of the income and
proceeds of the Collateral pursuant to other terms and provisions hereof. Any
such receiver shall have all of the usual power to hold, develop, rent, lease,
manage, maintain, operate, contract, and otherwise use or permit the use of the
Collateral upon such terms and conditions as said receiver may deem to be
prudent and reasonable under the circumstances. Such receivership shall, at the
option of the Bank, continue until full payment of all of the Obligations or
until title to all of the Collateral shall have passed to the Bank pursuant to
an enforcement proceeding.
9. Miscellaneous.
9.1. Limited Appointment of Cardinal Realty Services, Inc. as Attorney-in-Fact.
Each of the Companies hereby irrevocably constitutes and appoints Cardinal
Realty Services, Inc. and any officer or agent thereof, with full power of
substitution, as said Company's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of each of the
corporations and limited liability companies constituting the Companies and in
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56
their names as set forth above in the preamble to this Agreement, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments that may
be necessary or desirable to accomplish the purposes of this Agreement and
without limiting the generality of the foregoing hereby grants to Cardinal
Realty Services, Inc. the power and right, on behalf of any one or more of the
Companies, without notice or assent: (a) to execute and deliver to the Bank such
contracts, instruments, release, and other agreements or documents as the Bank
shall reasonably deem necessary to evidence the terms and conditions of this
Agreement; (b) to certify or attest to the execution, delivery, filing, or
recording of such contracts, instruments, releases, and other documents
described in subsection (a) above; (c) to execute, file, and record all such
financing statements, certificates of title, mortgages, security agreements,
assignments, deeds of trust, and other certificates of registration and
operation and similar documents and instruments as the Bank may deem necessary
or desirable to grant, protect, perfect, and validate the Bank's security
interests, mortgages, or other liens in or on the Collateral, or any portion
thereof; and (d) to provide the financial and other information and disclosures
to the Bank required pursuant to this Agreement. The Companies hereby ratify all
that said attorney shall lawfully do or cause to be done by virtue hereof. This
power of attorney is a power coupled with an interest and shall be irrevocable.
9.2. Assumption by New Entities. Upon the creation of a new entity which would
have been one of the Companies if in existence as of the date of this Agreement,
the Companies shall cause such new entity to assume any indebtedness evidenced
by the Note, pledge all of its assets to secure such indebtedness, cause all of
its stock to be pledged to secure such indebtedness, and otherwise be bound by
the covenants and agreements of this Agreement.
9.3. Notices. (a) All communications under the default (including, without
limitation, the exercise of remedies available due to a default or an Event of
Default) provisions of this Agreement shall be by certified mail, return receipt
requested. All other communications under this Agreement or under the notes
executed pursuant thereto shall be in writing, by fax, by overnight delivery or
shall be mailed by first class mail, postage prepaid, (1) if to the Bank, at the
following address, or at such other address as may have been furnished in
writing to the Companies by the Bank:
The Provident Bank
10 West Broad Street
Columbus, Ohio 43215
Attn: William R. McNamara, Vice President
Fax Number: (614) 221-0875
(2) if to the Companies, at the following address, or at such other address as
may have been furnished in writing to the Bank by the Companies:
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57
Cardinal Realty Services, Inc.
The Huntington Center, 41 South High Street
Columbus, OH 43215
Attn: Mark D. Thompson, Executive Vice President and
Chief Financial Officer
Michael F. Sosh, Vice President and Treasurer
Fax Number: (614) 225-1100
(b) any notice so addressed and mailed by registered or certified mail shall be
deemed to be given two (2) business days following the date when so mailed.
9.4. Reproduction of Documents. This Agreement and all documents relating
hereto, including, without limitation, (a) consents, waivers, and modifications
which may hereafter be executed, (b) documents received by the Bank at the
closing or otherwise, and (c) financial statements, certificates, and other
information previously or hereafter furnished to the Bank, may be reproduced by
the Bank by any photographic, photostatic, microfilm, microcard, miniature
photographic, or other similar process and the Bank may destroy any original
document so reproduced. The Companies agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Bank in the
regular course of business) and that any enlargement, facsimile, or further
reproduction of such reproduction shall likewise be admissible in evidence.
9.5. Survival, Successors, and Assigns. All warranties, representations, and
covenants made by the Companies herein or on any certificate or other instrument
delivered by it or on its behalf under this Agreement shall be considered to
have been relied upon by the Bank and shall survive the closing of the Revolving
Line of Credit regardless of any investigation made by the Bank on its behalf.
All statements in any such certificate or other instrument shall constitute
warranties and representations by the Companies. This Agreement shall inure to
the benefit of and be binding upon the heirs, successors and assigns of each of
the parties.
9.6. Amendment and Waiver, Duplicate originals. This Agreement may be amended,
and the observance of any term of this Agreement may be waived, with (and only
with) the written consent of the Companies and the Bank; provided however that
nothing herein shall change the Bank's sole discretion (as set forth elsewhere
in this Agreement) to make advances, determinations, decisions, or to take or
refrain from taking other actions. No delay or failure or other course of
conduct by the Bank in the exercise of any power or right shall operate as a
waiver thereof; nor shall any single or partial exercise of the same preclude
any other or further exercise thereof, or the exercise of any other power or
right. Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
9.7. Uniform Commercial Code and Generally Accepted Accounting Principles.
Unless the context otherwise requires, all terms used herein which are defined
in the Uniform Commercial Code as enacted in Ohio shall have the meaning stated
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58
therein, and all accounting terms shall be determined in accordance with
generally accepted accounting principles, consistently applied.
9.8. Enforceability and Governing Law. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. No delay or omission on
the part of the Bank in exercising any right shall operate as a waiver of such
right or any other right. All of the Bank's rights and remedies, whether
evidenced hereby or by any other agreement or instruments, shall be cumulative
and may be exercised singularly or concurrently. This Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio. The
Companies agree that any legal suit, action or proceeding arising out of or
relating to this Agreement may be instituted in a state or federal court of
appropriate subject matter jurisdiction in the State of Ohio; waive any
objection which they may have now or hereafter to the venue of any suit, action,
or proceeding in any such court; and irrevocably submit to the jurisdiction of
any such court in any such suit, action, or proceeding.
9.9. Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR
CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE; AND EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE
OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
9.10. Advertising. The Companies agree that the Bank may advertise or otherwise
disclose for marketing purposes the extent and nature of the credit extended or
to be extended and other services provided to the Companies by the Bank in
connection with or relating in any way to the Loan. The Companies have the right
of advance inspection and approval of all advertising (using their name) not to
be unreasonably withheld or delayed.
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59
9.11. Term of Agreement. The term of this Agreement shall commence with the date
hereof and end on the date when, after written notice from either party to the
other that no further loans are to be made hereunder, the Companies pay in full
the Loan and all other obligations of the Companies to the Bank which are
secured hereby, and the Bank has no further obligations of any type to the
Companies.
9.12. Singular and Plural; Joint and Several Liability. As used in this
Agreement, the singular shall include the plural, the plural the singular and
the use of masculine, feminine, or neuter gender shall include all genders, as
the context may require. Reference in this Agreement to any one or more of the
Companies shall mean all of the Companies, jointly and severally; therefore the
obligations of the Companies in this Agreement shall be the joint and several
liability of each such Company.
9.13. Definitions. As used in this Agreement, the meanings assigned to defined
terms are set forth in the appropriate sections of this Agreement.
9.14. Warrant of Attorney. With full knowledge of all constitutional rights, if
any payment under the Note is not received by the Bank on or before the date
when due, or should default be made in the performance or observance of the
covenants and agreements of this Agreement or any of the other loan documents
evidencing the Loan, after any applicable notice or period of grace, the
Companies hereby authorize and empower any attorney of any court of record
within the United States of America or elsewhere to appear for the Companies
and, with or without complaint filed, confess judgment or a series of judgments
against the Companies in favor of the Bank as of any time, present, or future,
for the then due and unpaid balance or balances of the principal, interest, late
charges, and collections expenses evidenced by the Note, or any part thereof,
together with the costs of the suit, and to waive and release all errors in said
proceedings and petitions in error and the right to appeal from the judgment
rendered, on which judgment or judgments one or more executions may issue
forthwith; and for so doing this Agreement or a copy thereof verified by
affidavit shall be a sufficient warrant. The foregoing warrant of attorney shall
survive any judgment rendered pursuant to the Note, and if any such judgment be
vacated for any reason, the Bank nevertheless may thereafter use the foregoing
warrant of attorney to obtain an additional judgment or judgments against the
Companies.
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SIGNED AND ACKNOWLEDGED:
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Realty Services, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Apartment Management Group, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
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61
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP VIII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP X Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
29
<PAGE>
62
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Apartment Services, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
30
<PAGE>
63
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries Development Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Ancillary Insurance Agency, Inc., an Ohio Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
31
<PAGE>
64
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Ancillary Insurance Agency, Inc.,
A Delaware Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries of Florida Services Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
32
<PAGE>
65
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries of Georgia Services Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries of Texas, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
33
<PAGE>
66
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries Services Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Realty Company
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
34
<PAGE>
67
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Regulatory of Kentucky, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Regulatory of West Virginia, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
35
<PAGE>
68
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
CII of Pennsylvania, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
R/E Management Services, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
36
<PAGE>
69
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Walker Place Limited Liability Company
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Lexford Properties of Colorado, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
37
<PAGE>
70
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Lexford Northwest, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XIII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
38
<PAGE>
71
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XIV Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XV Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
39
<PAGE>
72
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XVI Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XVII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
40
<PAGE>
73
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XVIII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal LP XIX Corporation, fka Cardinal GP XIX Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
41
<PAGE>
74
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Premiere Management Company, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Leaf Asset Management, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
42
<PAGE>
75
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Lexford Properties, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
The Provident Bank
By: /s/ William R. McNamara
-----------------------
William R. McNamara
Its: Vice President
Central Ohio Region
43
76
COGNOVIT PROMISSORY NOTE
(RENEWAL CONSOLIDATING BALANCE REVOLVING LINE)
$35,000,000.00 Effective September 30, 1997
Columbus, Ohio
FOR VALUE RECEIVED, the undersigned promise to pay to the order of THE
PROVIDENT BANK, a state banking corporation ("Bank" which term shall include
subsequent holders hereof), with a place of business at 10 West Broad Street,
Columbus, Ohio, or at such other place as the Bank may, from time to time,
designate in writing, the principal sum of Thirty-Five Million and 00/100
Dollars ($35,000,000.00), or so much thereof as may be advanced to the
undersigned in accordance with the terms of this Note and subject to that
certain Amended and Restated Loan and Security Agreement among the undersigned,
others and the Bank as of September 30, 1997, as from time to time amended (the
"Loan Agreement"), together with interest on the unpaid principal balance from
the date the funds are advanced under this Note, until paid, at the rate and in
the manner set forth below.
This Note is a revolving credit subject to the terms of this paragraph.
Subject to the conditions and limitations hereof and of the Loan Agreement and
prior to March 30, 2000, the undersigned may borrow and reborrow from the Bank
and the Bank may lend and relend to the undersigned such amounts not to exceed
an aggregate unpaid principal amount outstanding at any time of $35,000,000.00
as the undersigned may at any time and from time to time request upon
satisfactory notice to the Bank in compliance with the Loan Agreement.
INTEREST
- --------
Commencing on the date of the first advance of funds under this Note and
excluding any Term Out Indebtedness as hereinafter defined, interest hereon
shall be payable at the rate of one percent (1%) per annum below the "prime
rate" of interest, as hereinafter defined, from time to time in effect. The rate
of interest shall be adjusted upward or downward without notice immediately upon
any change in the prime rate.
Interest shall be computed at all times on the basis of a three hundred
sixty (360) day year and the actual number of days elapsed. Any reference in
this Note to the "prime rate" of interest is hereby defined to mean that
interest charged by The Provident Bank from time to time as its prime rate
whether or not it is publicly announced, and which provides a base to which loan
rates may be referenced. The prime rate may not be the lowest interest rate The
Provident Bank charges for commercial or other extensions of credit.
Page 1 of 21
<PAGE>
77
At the election(s) of the undersigned from time to time, upon seven days
prior written notice to the Bank, all of any portion of the principal balance of
this Note may be termed out over a sixty month period (in each case, the "Term
Out Indebtedness"). Commencing on the first day of the first calendar month
following the date upon which the undersigned gives notice of the amount of the
Term Out Indebtedness (the "Term Out Rate Change Date"), the yearly interest on
the Term Out Indebtedness shall be payable at the rate of two percent (2%) per
annum, rounded up to the nearest one eighth of one percent (1/8%), above the
weekly average yield (expressed as a percent per annum) for United states
Treasury Securities adjusted to constant maturities of five (5) years as
published by the Federal Reserve Board in its statistical release of selected
interest rates number H.15(519) for the most recent published average weekly
yield prior to the Term Out Rate Change Date, which shall be the interest rate
on the Term Out Indebtedness until this Note is paid in full. Any remaining
principal balance not included in the Term Out Indebtedness shall continue to
bear interest at a fluctuating interest rate as provided herein.
Upon the occurrence of any default under the terms and conditions of this
Note, any and all funds due and owing to the Bank, whether before or after any
acceleration of the amount due to the Bank, shall bear interest at the default
rate per annum of Prime, as determined by the Bank, plus two percent.
TERM
----
The entire unpaid principal balance, excluding any Term Out Indebtedness,
together with accrued and unpaid interest thereon, and all other obligations
hereunder, if not sooner paid shall be due and payable on September 30, 2000
("Maturity Date"), provided however on September 15 of each year commencing
September 15, 1998, the Bank shall review this credit and give written notice to
the undersigned in the event the Bank elects to extend the Maturity Date by an
additional Twelve (12) months.
The entire unpaid principal balance of any Term Out Indebtedness, together
with accrued and unpaid interest thereon, if not sooner paid, shall be due and
payable on a date which is Sixty (60) months after the first day of the first
month following the Term Out Rate Change Date (the "Term Out Maturity Date").
PAYMENTS
--------
Interest only shall be payable in consecutive monthly installments
beginning November 1, 1997, and continuing on the first day of each month
thereafter.
On the first day of the first month following any Term Out Rate Change Date
(the "Commencement of Amortization Date") principal and interest on such Term
Out Indebtedness
Page 2 of 21
<PAGE>
78
shall be payable in consecutive monthly installments in an amount equal to the
sum of (i) accrued interest on account of such Term Out Indebtedness for the
immediately preceding month, plus (ii) one sixtieth (1/60th) of the original
principal amount of such Term Out Indebtedness or, at Borrower's option level
payments of principal and interest combined. Monthly installments as provided in
this paragraph shall commence on the Commencement to Amortization Date and shall
continue on the first day of each month thereafter until the entire Term Out
Indebtedness evidenced by this Note is fully paid, except that any remaining
indebtedness, if not sooner paid, shall be due and payable in full on the
Maturity Date.
If any payment of principal or interest is specified to be made on a day on
which commercial banks in Columbus, Ohio are authorized by law to close, it
shall be made on the next succeeding day which constitutes a regular business
day for commercial banks in Columbus, Ohio, and any such extension of time shall
in all cases be included when computing interest.
PURPOSE
-------
The use of the indebtedness evidenced by this Note is limited to debt to
subsection 2.2 use of proceeds as stated in the Amended and Restated Loan and
Security Agreement dated September 30, 1997.
DEFAULT RATE
------------
If any payment under this Note is not received by the Bank on or before the
date the installment is due or if the undersigned shall otherwise be in default
in the performance of its obligations hereunder or under the Loan Agreement, the
undersigned shall pay to the Bank a default rate of .01% of the unpaid principal
balance of this Note at the time of such delinquency for each such delinquency
to cover the extra expense incident to handling delinquent accounts, or, at the
option of Bank, interest on the dollar amount of any unpaid amounts so long as
they remain past due and payable at a rate which is three (3) percentage points
greater than the rate which would otherwise be in effect (the "Default Rate").
The Bank may charge interest at the rate provided herein on all interest and
dollar amounts owing hereunder which are not paid when due.
ACCELERATION
- ------------
If any payment under this Note is not received by the Bank on or before the
date when due, or should default be made in the performance or observance of any
of the covenants and agreements of the Loan Documents, and said default is not
cured within any applicable cure period, the entire principal amount outstanding
hereunder and accrued interest thereon shall at once become due and payable, at
the option of the Bank. The Bank may exercise this option to accelerate during
any default by the undersigned regardless of any prior forbearance. Reference is
made to the Amended and Restated Loan and Security Agreement for rights as to
acceleration of the indebtedness evidenced by this Note.
Page 3 of 21
<PAGE>
79
ADDITIONAL REMEDIES
- -------------------
In the event of any default hereunder, the Bank shall be entitled to
recover judgment against the undersigned for the amount due under this Note,
either before or after or during the pendency of any proceeding for the
enforcement of any security for this Note, and, in the event of realization of
any funds from any security and application thereof to the payment of the amount
due under this Note, the Bank shall be entitled to enforce payment of and
recover judgment for all amounts then remaining due and unpaid upon the Note,
whether for principal, interest or premium. The Bank may proceed to protect and
enforce its rights by suit in equity, action at law and/or by any other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Note, in aid of the exercise of any power granted in
this Note, or may proceed to enforce payment of this Note, or to enforce any
other legal or equitable right.
REMEDIES SEPARATE
- -----------------
The Bank may pursue any rights or remedies as the bank under this Note or
under any of the Amended and Restated Loan and Security Agreement dated
September 30, 1997 independently or concurrently. All rights, remedies, or
powers herein conferred upon the Bank shall, to the extent not prohibited by
law, be deemed cumulative and not exclusive of any other thereof, or of any
other rights, remedies or power available to the Bank. No delay or omission of
the Bank to exercise any right, remedy or power shall impair the same or be
construed to be a waiver of any default or an acquiescence thereto. No waiver of
any default shall extent to or affect any subsequent default nor shall it impair
any rights, remedies or power available to the Bank. No single or partial
exercise of any right, remedy or power shall preclude other or further exercise
thereof by the Bank.
WAIVER OF PRESENTMENT, ETC.
- ---------------------------
The undersigned, together with all sureties, endorsers, and guarantors of
the Note hereby:
(a) except as expressly provided herein, waive demand, presentment
for payment, notice of nonpayment, protest, and all other
notices, filing of suit or diligence in collecting this Note, and
enforcing any of the security rights of or in proceeding against
any of the Property;
(b) agree that the Bank shall not be required first to institute any
suit, or to exhaust its remedies against the undersigned or any
other person or party in order to enforce payment of this Note;
(c) consent to any extension, renewal or postponement of time of
payment of this Note; and
Page 4 of 21
<PAGE>
80
(d) agree that, notwithstanding the occurrence of any of the
foregoing, except as to any such person expressly released in
writing by the Bank, they each shall be and remain jointly and
severally, directly and primarily, liable for all sums due under
this Note.
COST OF COLLECTION
- ------------------
The undersigned hereby unconditionally agree to pay the cost of collection
of this Note, including, but not limited to, reasonable attorney fees incurred
by the Bank.
USURY
- -----
It is the intention of the Bank, which is signified by acceptance of this
Note, that this Note shall comply with the usury laws applicable under the laws
of the State of Ohio now or hereafter in effect. Accordingly, to the extent that
any rate of interest stated in this Note exceeds the maximum rate of interest
which may be charged on loans of the type and nature evidenced by this Note
under the laws of the State of Ohio, then said interest shall be abated and
reduced to the extent necessary to conform with the maximum permissible rate.
GOVERNING LAW
- -------------
This Note shall be governed by and construed under the laws of the State of
Ohio.
CONFESSION OF JUDGMENT
- ----------------------
With full knowledge of all constitutional rights, if any payment under this
Note is not received by the Bank on or before the date when due, or should
default be made in the performance or observance of the covenants and agreements
of the Loan Documents securing this Note, after any applicable notice or period
of grace, the undersigned hereby authorize and empower any attorney of any court
of record within the United States of America or elsewhere to appear for the
undersigned and, with or without complaint filed, confess judgment or a series
of judgments against the undersigned in favor of the Bank as of any time,
present or future, for the then due and unpaid balance or balances of the
principal, interest, late charges and collection expenses evidence by this Note,
or any part thereof, together with the costs of the suit, and to waive and
release all errors in said proceedings and petitions in error and the right to
appeal from the judgment rendered, on which judgment or judgments one or more
executions may issue forthwith; and for so doing this Note or a copy hereof
verified by affidavit shall be a sufficient warrant. The foregoing warrant of
attorney shall survive any judgment rendered pursuant to this Note, and if any
such judgment be vacated for any reason, the Bank nevertheless may thereafter
use the foregoing warrant of attorney to obtain an additional judgment or
judgments against the undersigned. The foregoing warrant of attorney may be
exercised, and judgment may be taken
Page 5 of 21
<PAGE>
81
thereby as many times as the Bank may determine in its sole discretion and may
be exercised separately with respect to each payment and other obligation
evidenced by this Note or from time to time with respect to such payments and
obligations evidenced by this Note, as the Bank may determine in its sole
discretion.
THE UNDERSIGNED HEREBY, AND ANY HOLDER HEREOF BY ITS ACCEPTANCE HEREOF,
EACH WAIVES THE RIGHT OF A JURY TRIAL IN EACH AND EVERY ACTION ON THIS
PROMISSORY NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, IT BEING ACKNOWLEDGED AND
AGREED THAT ANY ISSUES OF FACT IN ANY SUCH ACTION ARE MORE APPROPRIATELY
DETERMINED BY THE COURTS; FURTHER THE UNDERSIGNED HEREBY CONSENT AND SUBJECT
THEMSELVES TO THE JURISDICTION OF COURTS OF THE STATE OF OHIO AND, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, TO THE VENUE OF SUCH COURTS IN
FRANKLIN COUNTY.
SIGNED AND ACKNOWLEDGED:
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Realty Services, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 6 of 21
<PAGE>
82
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Apartment Management Group, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP VIII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 7 of 21
<PAGE>
83
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP X Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Apartment Services, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 8 of 21
<PAGE>
84
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries Development Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 9 of 21
<PAGE>
85
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Ancillary Insurance Agency, Inc., an Ohio Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Ancillary Insurance Agency, Inc.,
A Delaware Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 10 of 21
<PAGE>
86
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries of Florida Services Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries of Georgia Services Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 11 of 21
<PAGE>
87
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries of Texas, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Industries Services Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 12 of 21
<PAGE>
88
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Realty Company
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Regulatory of Kentucky, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 13 of 21
<PAGE>
89
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal Regulatory of West Virginia, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
CII of Pennsylvania, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 14 of 21
<PAGE>
90
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
R/E Management Services, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Walker Place Limited Liability Company
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 15 of 21
<PAGE>
91
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Lexford Properties of Colorado, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Lexford Northwest, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 16 of 21
<PAGE>
92
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XIII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XIV Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 17 of 21
<PAGE>
93
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XV Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XVI Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 18 of 21
<PAGE>
94
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XVII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal GP XVIII Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 19 of 21
<PAGE>
95
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Cardinal LP XIX Corporation, fka Cardinal GP XIX Corporation
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Premiere Management Company, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 20 of 21
<PAGE>
96
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
- --------------------------------------------------------------------------------
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
- --------------------------------------------------------------------------------
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
- --------------------------------------------------------------------------------
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
- --------------------------------------------------------------------------------
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Leaf Asset Management, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
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TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
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WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
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FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR
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RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
- --------------------------------------------------------------------------------
OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.).
- -------------------------------------------
Lexford Properties, Inc.
By: /s/ John B. Bartling
--------------------
John B. Bartling,
Its: Chief Executive Officer
Page 21 of 21
97
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated as of July 28, 1997, between
CARDINAL REALTY SERVICES, INC., an Ohio corporation ("Cardinal"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association
organized under the laws of the United States (the "Bank").
1. Demand Registration Right.
(a) If Cardinal shall receive at any time prior to June 30,
1998, a written request from the Bank requesting Cardinal to register
under the Securities Act of 1933, as amended (as it may be further
amended or amended and restated after the date of this Agreement, the
"1933 Act"), any or all of the 513,929 shares of Cardinal's common
stock, without par value ("Common Stock") owned by the Bank on the date
of this Agreement and any securities issued in exchange for or in
substitution of any thereof (such shares of Common Stock or other
securities as to which any such request is made pursuant to this
Section 1 or Section 2 hereof being the "Registrable Securities"),
Cardinal agrees that it will use its best efforts to cause the prompt
registration of any or all such Registrable Securities. The Bank
acknowledges that while the Common Stock is registered under the
Securities Exchange Act of 1934, as amended (as it may be further
amended or amended and restated after the date of this Agreement, the
"1934 Act"), Cardinal has never registered any of its securities in
connection with a public offering pursuant to Section 5 of the 1933
Act. As such, Bank acknowledges that, should it exercise its rights
under this Section 1 and demand registration of any or all of the
Registrable Securities in a public offering, in such event Cardinal may
be exposed to heightened scrutiny and inordinate time, effort and
expense because such registration will, in fact, constitute an initial
public offering for Cardinal. Accordingly, Cardinal may postpone for a
limited time, which in no event shall be longer than five months,
compliance with a request for registration pursuant to this Section 1
if (i) Cardinal determines in good faith in the exercise of reasonable
judgment that such compliance would have a material adverse effect
(including, without limitation, through the premature disclosure
thereof) on a proposed financing, reorganization, recapitalization,
merger, significant purchase of assets or stock, consolidation or
similar transaction, (ii) Cardinal has not theretofore registered any
equity securities under the 1933 Act, or (iii) Cardinal is then
conducting a public offering of securities and the managing underwriter
concludes in its reasonable judgment that such compliance would
adversely affect such offering. Cardinal shall only postpone the filing
of the registration statement if it has furnished to the Bank a
certificate signed by its Chairman of the Board or President, stating
that in the good faith judgment of Cardinal's Board of Directors or the
Executive Committee of its Board of Directors it would be seriously
detrimental to Cardinal for such registration statement to be filed in
the near future due to one of the reasons stated above and that it is
therefore essential to postpone the filing of such Registration
Statement for a period of not more than five months after receipt by
Cardinal of the request to register by the Bank; provided, that such
right to delay shall be exercised not more than once.
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(b) The Bank shall not make a demand for registration of
Registrable Securities pursuant to this Section 1 within six months
following the effective date of the registration for a "piggyback"
registration pursuant to Section 2 below in which Bank was afforded the
opportunity to register the Registrable Securities. Notwithstanding
anything in this Section 1 to the contrary, Cardinal shall not be
required to comply with more than one (1) request of the Bank pursuant
to this Section 1 during the term hereof; provided, however, that this
limit does not apply to a request that has been postponed under Section
1(a) unless and until such request is fulfilled. Any underwriter
selected by the Bank to act as such in connection with a registration
pursuant to this Section 1 must be reasonably acceptable to Cardinal.
(c) The registration statement filed pursuant to the request
of the Bank may, subject to the provisions of this Section 1 and
Section 8(a) hereof, include other securities of Cardinal, with respect
to which registration rights have been granted, and may include
securities of Cardinal being sold for the account of Cardinal.
(d) If "piggyback" registration pursuant to Section 2 below is
made available to the Bank covering all of the Registrable Securities
and the Bank declines to include Registrable Securities in such
registration, the demand registration right under this Section 1 shall
terminate as of the expiration of the notice period referred to in
Section 2 hereof.
2. "Piggyback" Registration. From the date of this Agreement through
and including June 30, 1998, whenever Cardinal proposes to file a registration
statement relating to any shares of its common stock under the 1933 Act (other
than a registration statement required to be filed in respect of employee
benefit plans of Cardinal on Form S-8 or any similar form from time to time in
effect, any registration statement on Form S-4 or any similar successor form or
the first time Cardinal files a registration statement on Form S-1, Form S-2 or
Form S-3 or any similar successor form to register shares of common stock for
its initial public offering), Cardinal shall, at least twenty days prior to such
filing, give written notice of such proposed filing to the Bank, and such notice
shall offer the Bank the opportunity to register such Registrable Securities as
the Bank may request. Upon the written request of the Bank, given within fifteen
days after receipt of any such notice of registration from Cardinal, to register
any shares of Common Stock owned by it (which request shall state the amount of
Registrable Securities requested to be registered), Cardinal shall use its best
efforts to, subject to clause (i) below, effect the registration under the 1933
Act and include such Registrable Securities in such registration statement (and
any related qualification under blue sky laws or other compliance) and in any
underwriting related to such registration or in a separate registration
statement concurrently filed on substantially the same terms and conditions or
those applicable to the securities offered on behalf of Cardinal; provided,
however, that if at any time after giving written notice of its intention to
register any shares of its common stock and prior to the effective date of the
registration statement filed in connection with such registration, Cardinal
shall determine for any reason not to register or to delay registration of such
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99
shares of common stock, Cardinal shall give written notice of such determination
to Bank and thereupon (i) in the case of a determination not to register, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering its common stock
originally proposed for registration. If (i) a registration statement filed by
Cardinal and referred to in this Section 2 involves an underwritten offering of
Cardinal's common stock so registered thereunder, whether or not for sale for
the account of Cardinal, to be distributed by or through one or more
underwriters, (ii) the Registrable Securities so requested to be registered for
sale for the account of Bank are also to be included in such underwritten
offering for sale upon substantially the same terms and conditions as those
proposed for the other shares of Cardinal's common stock registered thereunder
and (iii) the managing underwriter therefor in good faith concludes pursuant to
Section 8(b) hereof that the inclusion of such Registrable Securities in such
offering would adversely affect such offering, then Cardinal shall, pursuant to
Section 8(b) hereof, reduce the number of securities to be included in the
registration to the level recommended by the managing underwriter. If any person
does not agree to the terms of any such underwriting, he or she shall be
excluded therefrom by written notice from Cardinal or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If securities are so withdrawn from the registration or if the number
of shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, Cardinal shall then offer
to all persons who have retained the right to include securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the persons requesting additional
inclusion in accordance with Section 8(b) hereof.
Except as otherwise provided in this Agreement, no registration
effected under Section 2 shall relieve Cardinal of its obligations to effect
registration upon request of the Bank in accordance with the provisions of
Section 1 hereof.
3. General Provisions.
(a) Registration Procedures. In the case of each registration
of Registrable Securities effected by Cardinal pursuant to Section 1
and Section 2, Cardinal will keep the Bank advised in writing as to the
initiation of each registration and as to the completion thereof. At
its expense (except as otherwise provided herein), Cardinal will use
its best efforts to permit the sale of the Registrable Securities in
accordance with the intended methods of distribution thereof, and will,
as expeditiously as possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and
cause the registration statement to become effective (with a
prospectus at all times meeting the requirements of the 1933
Act);
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100
(ii) Prepare and file with the SEC the amendments and
supplements to the registration statement and the prospectus
used in connection therewith as may be necessary to comply
with the provisions of the 1933 Act and keep the
registration statement effective for a period of six months
or until the Bank has completed the distribution described
in the registration statement relating thereto, whichever
first occurs, but not prior to the expiration of the
applicable period referred to in Section 4(3) of the 1933
Act and Rule 174 thereunder, if applicable; provided,
however, that such six-month period shall be extended for a
period of time equal to the period the Bank refrains from or
postpones selling any securities included in such
registration at the request of Cardinal or an underwriter of
common stock (or other securities so registered) of
Cardinal;
(iii) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or
supplement to the prospectus, as the Bank from time to time
may reasonably request;
(iv) Notify Bank and each selling stockholder of any
other securities of Cardinal covered by such registration
statement at any time when it becomes aware that a
prospectus relating thereto is required to be delivered
under the 1933 Act of the happening of any event as a result
of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing, and at the request of Bank,
prepare and furnish to Bank a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers
of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing;
(v) Prepare and file with the SEC, promptly upon the
request of the Bank, any amendments or supplements to the
registration statement or prospectus which, in the opinion
of counsel for the Bank, is required under the 1933 Act or
the rules and regulations thereunder in connection with the
distribution of the Registrable Securities;
(vi) Cause all such Registrable Securities registered
hereunder to be listed on each securities exchange on which
similar securities issued by Cardinal are then listed;
(vii) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such
registration statement and, if not already provided, a CUSIP
number for all such Registrable Securities, in each case not
later than the effective date of such registration;
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101
(viii) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available an earnings statement, which earnings
statement shall satisfy the provisions of Section 11(a) of
the 1933 Act;
(ix) In connection with any underwritten offering
pursuant to a registration statement filed pursuant to
Section 1 or Section 2 hereof, Cardinal will, if requested
by Bank, enter into an underwriting agreement in form
reasonably necessary to effect the offer and sale of the
Registrable Securities, provided such underwriting agreement
contains customary underwriting provisions and provided
further that if the underwriter so requests the underwriting
agreement will contain customary contribution provisions;
and
(x) Subject to Bank's obligations to pay certain
expenses pursuant to Section 5 hereof, use its best efforts
to effect such qualifications under applicable Blue Sky or
other state securities laws as may be reasonably requested
by the Bank (provided that Cardinal shall not be obligated
to file a general consent to service of process or qualify
to do business as a foreign corporation or otherwise subject
itself to taxation in any jurisdiction solely for the
purpose of any such qualification) to permit or facilitate
such sale or other distribution.
(b) The Bank agrees not to effect any public sale or
distribution of Registrable Securities, including a sale pursuant to
Rule 144 under the 1933 Act during the fourteen-day period prior to,
and during the ninety-day period beginning on, the effective date of a
registration statement in which shares of its Registrable Securities
are registered (except as part of such registration), if and to the
extent requested by the managing underwriter(s) in the case of an
underwritten public offering under the 1933 Act, provided that all
officers and directors of Cardinal and any other holders of securities
of the same or similar class as (or exchangeable for or convertible
into) the Registrable Securities which are also registered in such
offering are bound by and have entered into or are otherwise bound by
similar agreements. The obligations described in this Section 3(b)
shall not apply to a registration relating solely to employee benefit
plans on Form S-1 or Form S-8 or Form S-4 or similar 1933 Act forms
promulgated in the future.
(c) Notwithstanding anything to the contrary contained in this
Agreement, the Bank will not exercise any rights to demand or
participate in any registered public offering of Cardinal's common
stock if the Bank owns less than three percent (3%) of the issued and
outstanding shares of the Common Stock (the "Minimum Percentage";
provided, however, that the Minimum Percentage will be increased to
four percent (4%) of the issued and outstanding shares of Common Stock
if the Common Stock is listed on the New York Stock Exchange, Inc. and
has enjoyed an average weekly trading volume of at least two percent
(2%) of the total number of issued and outstanding shares of Common
Stock over the thirteen (13) calendar weeks preceding the date on which
the Bank might otherwise exercise such rights to demand or participate
in a registered public offering) it might otherwise sell that number of
shares of Common Stock which it desires to be registered without
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102
registration under the 1933 Act by reason of an exemption from
registration pursuant to a sale or sales over a period not to exceed
two months in brokers' transactions exempt from registration under the
1933 Act by virtue of Rule 144 promulgated thereunder.
(d) In no event will Bank transfer or sell a number of shares of
its common stock in excess of one hundred seventy-four thousand one
hundred four (174,104) shares (or an equivalent number or amount of
successor Registrable Securities) to any third party, reduced by that
number of shares of Cardinal's common stock held by such third party
prior to such transfer or sale unless Cardinal shall have theretofore
undergone an "ownership change" within the meaning of Section 382(g)
of the Internal Revenue Code of 1986, as amended.
(e) Cardinal covenants that it has not previously granted any
registration rights for its securities with the sole exception of that
certain Registration Rights Agreement dated as of August 1, 1996 among
Cardinal and the former shareholders of Lexford Properties, Inc. From
and after the date of this Agreement through June 30, 1998, Cardinal
shall not, without the prior written consent of the Bank, enter into
any agreement with any holder or prospective holder of any securities
of Cardinal giving such holder or prospective holder any registration
rights the terms of which are more favorable than the registration
rights granted to the Bank hereunder.
(f) Except as otherwise permitted or contemplated hereunder,
Cardinal shall not act or fail to act in any manner that would
negatively impact its ability to promptly register the Registrable
Securities.
(g) Through June 30, 1998, Cardinal shall forbear from any
actions which would further limit or modify the rights of the Bank to
transfer its common stock, including, without limitation, actions by
Cardinal with respect to its common stock which would cause a
"transaction" or "transactions" referred to in the first parenthetical
in Section 2.B.(1)(a) of Article EIGHTH of the Company's Amended
Articles of Incorporation (the "Articles") which would limit the
availability of transfer of the Shares as a result of a "change of
ownership" as referred to in the Articles.
4. Information, Documents, Etc. Upon making a request for registration
pursuant to Section 1 or Section 2, the Bank shall promptly furnish to Cardinal
such information regarding its holdings and the proposed manner of distribution
thereof as Cardinal may reasonably request and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement. Cardinal agrees that it will promptly furnish to the Bank the
number of prospectuses, offering circulars or other documents, or any amendments
or supplements thereto, incident to any registration, qualification or
compliance referred to in this Agreement as the Bank from time to time may
reasonably request.
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5. Expenses. Cardinal will bear customary expenses of registrations
incident to Cardinal's performance of or compliance with both Section 1 and
Section 2 of this Agreement (other than underwriting discounts and commissions
and brokerage commissions, fees and expenses, if any, payable with respect to
Registrable Securities sold by the Bank), including, without limitation,
registration and filing fees, printing expenses, fees and expenses of compliance
with Blue Sky or other state securities law (provided, however, that Cardinal
will not be responsible for any such Blue Sky or other securities law related
expenses in any states in which Cardinal is not required to qualify pursuant to
Section 3(a)(x) or where neither Cardinal nor any managing underwriter otherwise
intend to issue or sell shares of Cardinal's common stock), and fees and
disbursements of (i) counsel for Cardinal and one separate lawyer or law firm
acting as special counsel for Bank in connection with such registration, (ii)
all independent certified public accountants, (iii) underwriters (excluding
discounts and commissions payable by the Bank pursuant to the first
parenthetical in this Section 5), and (iv) other persons retained by Cardinal.
6. Cooperation.
(a) In connection with any registration of Registrable
Securities pursuant to this Agreement, Cardinal and the Bank agree to
enter into such customary agreements (including an underwriting
agreement containing such terms and provisions, including
indemnification provisions, as are customarily contained in
underwriting agreements for comparable offerings and, if no
underwriting agreement is entered into, an indemnification agreement on
such terms as is customary in transactions of such nature) reasonably
acceptable to them and take all such other actions, including, without
limitation, cooperating with due diligence activities, completing and
executing all questionnaires, powers of attorney, and other documents
required under the applicable underwriting agreement as the other party
hereto or the underwriters, if any, participating in such offering and
sale may reasonably request in order to expedite or facilitate such
offering and sale; and
(b) In connection with any such registration, Cardinal will
furnish, at the request of the Bank or any underwriters participating
in such offering and sale, (i) a comfort letter or letters addressed to
the Bank and any underwriters, dated the effective date of the
registration statement with respect to the Registrable Securities
and/or the date of the closing for the sale of the Registrable
Securities, from the independent certified public accountants of
Cardinal and addressed to the Bank and any underwriters participating
in such offering and sale, which letter or letters shall address such
matters as the Bank and underwriters may reasonably request and as may
be customary in transactions of a similar nature for similar entities
and (ii) an opinion addressed to the Bank and any underwriters, dated
the effective date of the registration statement and/or the date of the
closing for the sale of the Registrable Securities, of the counsel
representing Cardinal with respect to such offering and sale, addressed
to the Bank and any such underwriters, which opinion shall address such
matters as they may reasonably request and as may be customary in
transactions of a similar nature for similar entities.
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7. Action to Suspend Effectiveness; Supplement to Registration
Statement.
(a) Cardinal will notify the Bank and its counsel promptly of (i)
any action by the Securities and Exchange Commission (the "SEC") to
suspend the effectiveness of the registration statement covering the
Registrable Securities or the institution or threatening of any
proceeding for such purpose (a "stop order") or (ii) the receipt by
Cardinal of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. Immediately upon receipt of any such notice, the Bank
shall cease to offer or sell any Registrable Securities pursuant to
the registration statement in the jurisdiction to which such stop
order or suspension relates. Cardinal will use its best efforts to
prevent the issuance of any such stop order or the suspension of any
such qualifications and, if any such stop order is issued or any such
qualification is suspended, to obtain as soon as possible the
withdrawal or revocation thereof, and will notify the Bank and its
counsel at the earliest practicable date of the date on which the Bank
may offer and sell the Registrable Securities pursuant to the
registration statement.
(b) Within the applicable period referred to in Section 3(a)
following the effectiveness of a registration statement filed pursuant
to this Agreement, Cardinal will notify the Bank and its counsel
promptly of the occurrence of any event or the existence of any state
of facts that, in the reasonable judgment of Cardinal, should be set
forth in such registration statement. Immediately upon receipt of such
notice, the Bank shall cease to offer or sell any Registrable
Securities pursuant to such registration statement, cease to deliver
or use the prospectus relating to such registration statement, and if
so requested by Cardinal, return to Cardinal, at Cardinal's expense,
all copies (other than permanent file copies) of such registration
statement and prospectus. Cardinal will, as promptly as practicable,
take such action as may be necessary to amend or supplement such
registration statement in order to set forth or reflect such event or
state of facts. Cardinal will promptly furnish copies of such proposed
amendment or supplement to the Bank and its counsel and will not file
or distribute such amendment or supplement without the prior consent
of the Bank, which consent shall not be unreasonably withheld.
8. Allocation of Registration Opportunities.
(a) Pro Rata Participation in Demand Registrations. If requested
by Cardinal, the Bank and all other holders of Cardinal securities of
the same or similar class as the Registrable Securities proposing to
distribute their Registrable Securities and such other Cardinal
securities as to which such other holders have registration rights
similar, for purposes of this Section 8(a), to those granted to the
Bank under Section 1 of this Agreement and/or, for purposes of Section
8(b) hereof, to those granted to the Bank under Section 2 of this
Agreement (collectively, the "Subject Securities"), through an
underwriting shall enter into an underwriting agreement in customary
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105
form with the representative of the underwriter or underwriters
selected for such underwriting by the holders of a majority (by number
of shares) of the Registrable Securities and the Subject Securities
requesting registration and reasonably acceptable to Cardinal. If a
requested registration pursuant to Section 1 involves an underwritten
offering, and if the managing underwriter shall advise Cardinal, the
Bank and the holders of the Subject Securities requesting to be
included in the registration in writing that, in its good faith
opinion, the number of securities proposed to be included in the
registration (including securities proposed to be registered for the
account of Cardinal) exceeds the number which can be sold in such
offering without otherwise having an adverse effect on such offering,
including the price at which such shares can be sold, Cardinal will
include in such registration the maximum number of securities which it
is so advised can be sold without such an adverse effect, allocated as
follows:
(i) first, to the Registrable Securities and the Subject
Securities requested to be included in such registration (except
for any Subject Securities referred to in clause (ii) immediately
following), if necessary, allocated pro rata among all such
requesting selling shareholders on the basis of the relative
number of shares of Registrable Securities or Subject Securities
each such holder has requested to be included in such
registration,
(ii) second, to those Subject Securities requested to be
included in such registration by holders whose registration
rights are made expressly subordinate to those of the Bank and
any other holder of Subject Securities referred to in the
immediately preceding clause (i) (if necessary, allocated pro
rata among all such requesting selling shareholders on the basis
of the relative number of shares of Subject Securities each such
holder has requested to be included in such registration), and
(iii) third, to any other securities proposed to be included
in such registration (including Cardinal securities which are not
Subject Securities).
(b) Priority in "Piggyback" Registrations. If a registration is
made pursuant to Section 2 and if such registration involves an
underwritten offering and the managing underwriter advises Cardinal in
writing that, in its good faith opinion, the number of securities
requested to be included in such registration exceeds the number which
can be sold in such offering without otherwise having an adverse
effect on such offering, including the price at which such shares can
be sold, Cardinal will include in such registration the maximum number
of securities which it is so advised can be sold without such an
adverse effect, allocated as follows:
(i) first, to all securities proposed to be registered by
Cardinal for its own account,
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106
(ii) second, to all of the Registrable Securities and the
Subject Securities requested to be included in such registration
(except for any Subject Securities referred to in clause (iii)
immediately following), if necessary, allocated pro rata among
all such requesting selling shareholders on the basis of the
relative number of shares of Registrable Securities or Subject
Securities each such holder has requested to be included in such
registration,
(iii) third, to all of the other selling shareholders'
Subject Securities requested to be included in such registration
by holders whose registration rights are made expressly
subordinate to those of the Bank and any other holder of Subject
Securities referred to in the immediately preceding clause (ii)
(if necessary, allocated pro rata among all such requesting other
selling shareholders on the basis of the relative number of
shares of Subject Securities each such holder has requested to be
included in such registration), and
(iv) fourth, any other securities proposed to be registered
by Cardinal other than for its own account.
(c) Cardinal shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order
to include shares held by shareholders with no registration rights or
to include shares of stock issued to employees, officers, directors,
or consultants pursuant to a Cardinal stock plan.
9. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Securities and Exchange Commission (the
"Commission") that may permit the sale of the Bank owned restricted securities
of Cardinal to the public without registration, Cardinal agrees to use its best
efforts to:
(a) Make and keep public information regarding Cardinal available
as those terms are understood and defined in Rule 144 under the 1933
Act, at all times from and after the effective date of the first
registration under the 1933 Act filed by Cardinal for an offering of
its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of Cardinal under the 1933 Act and the 1934
Act at any time after it has become subject to such reporting
requirements;
(c) So long as the Bank owns any restricted securities, furnish
to the Bank forthwith upon written request a written statement by
Cardinal as to its compliance with the reporting requirements of Rule
144 and of the 1933 Act (at any time after it has become subject to
such reporting requirements) and the 1934 Act, a copy of the most
recent annual or quarterly report of Cardinal, and such other repots
and documents so filed as the Bank may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Bank
to sell any such securities without registration.
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10. Indemnification.
(a) Cardinal hereby agrees to indemnify and hold harmless the
Bank, each of its executive officers, directors, and each other
person, if any, who controls the Bank within the meaning of the 1933
Act (collectively, the "Bank Representatives"), and agrees to
indemnify each underwriter participating in such offering and sale and
each person, if any, who controls such underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which the Bank, a Bank Representative or any such
underwriter or controlling person may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such
Registrable Securities were registered under the 1933 Act pursuant to
Section 1 or Section 2, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the 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
Cardinal of the 1933 Act or the 1934 Act or any rule or regulation
thereunder applicable to Cardinal and relating to action or inaction
required of Cardinal in connection with any such registration
statement, prospectus, amendment or supplement, and will reimburse the
Bank, each such Bank Representative, each such underwriter and each
such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating and defending or
settling any such loss, claim, damage, liability or action; provided,
however, that Cardinal will not be liable in any such case if and to
the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in reliance upon and in
conformity with written information pertaining to the Bank, or a Bank
Representative, expressly furnished to Cardinal, such underwriter or
such controlling person by the Bank or a Bank Representative for use
in connection with such registration by the Bank, or by the Bank's or
such Bank Representative's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplement
thereto after being furnished with a sufficient number of copies of
the same by Cardinal. It is agreed that the indemnity agreement
contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damages, liability, or action if
such settlement is effected without the consent of Cardinal (which
consent shall not be unreasonably withheld).
(b) The Bank hereby agrees to indemnify and hold harmless
Cardinal and each person, if any, who controls Cardinal within the
meaning of the 1933 Act, each officer of Cardinal who signs the
registration statement, each director of Cardinal, each underwriter
and each person who controls any underwriter within the meaning of the
1933 Act, against all losses, claims, damages or liabilities, joint or
several, to which Cardinal or such officer or director or underwriter
or controlling person may become subject under the 1933 Act or
11
<PAGE>
108
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities
were registered under the 1933 Act, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the 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 Cardinal and each such officer, director,
underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating and
defending or settling any such loss, claim, damage, liability or
action; provided, however, that the Bank will be liable hereunder in
any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to
Cardinal or any underwriter or controlling person by the Bank under an
instrument duly executed by the Bank and stated to be specifically for
use in connection with such registration; provided, further, that the
obligations of the Bank hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liability (or
action in respect thereof) if such settlement is effected without the
consent of the Bank (which consent shall not be unreasonably
withheld); and provided that in no event shall any indemnity under
this Section 10 exceed the proceeds (remaining after deducting any
expenses which Bank is required to bear under Section 5 of this
Agreement) received by the Bank upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Promptly after receipt by party indemnified under this
Section 10 (an "indemnified party") of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof
may be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it
may have to any indemnified party hereunder except to the extent such
indemnifying party is prejudiced by such failure to so notify nor shall
it relieve it from any liability which it may have to any indemnified
party other than under this Agreement. In case any such action shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel approved by
such indemnified party (whose approval shall not be unreasonably
withheld), and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such
indemnified party under this Section 8 for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to conflict
12
<PAGE>
109
with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to control the
defense of such action, with the reasonable expenses and fees of such
separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
In any such action, any indemnified party shall have the right to retain
its own counsel, but, except as provided above, the fees and disbursements of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party shall have failed to retain counsel for the indemnified party
as aforesaid, (ii) the use of counsel chosen by the indemnifying party to
represent it and the indemnified party would present such counsel with a
conflict of interest, (iii) the actual or potential defendants in, or targets
of, any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that there may
be legal defenses available to it or other indemnified parties which are
different from or additional to those available to the indemnifying party or
(iv) the indemnifying party and such indemnified party shall have mutually
agreed to the retention of such counsel. It is understood that the indemnifying
party shall not, in connection with any action or related actions in the same
jurisdiction, be liable for the fees and disbursements of more than one separate
firm qualified in such jurisdiction to act as counsel for the indemnified party
and shall not be obligated to pay the fees and expenses of more than one counsel
(and any required local counsel) for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest exists between such indemnified
party and any other of such indemnified parties with respect to such claim. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. Each
indemnified party shall furnish such information regarding itself and of the
claim in question as an indemnifying party may reasonably request in writing and
as shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
If the indemnification provided for in this Section 10 is held by a court
of competent jurisdiction to be unavailable to 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 Cardinal, on the
one hand, and the Bank, 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 Cardinal,
on the one hand, or the Bank, 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
13
<PAGE>
110
method of allocation which did not take account of the equitable considerations
referred to above in this paragraph. Subject to the provisions of this Section
10, 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; provided that such amount paid or payable
shall in no event exceed the proceeds (remaining after deducting registration
and selling expenses) received by the indemnifying party upon the sale of the
securities registered which are the subject matter of the losses, claims,
damages or liabilities of the indemnified party.
The indemnification of underwriters provided for in this Section 10 shall
be on such other terms and conditions as are at the time customary and
reasonably required by such underwriters, in which event the indemnification of
the Bank in such underwriting shall at the Bank's request be modified to conform
to such other terms and conditions.
11. Amendments. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Bank and Cardinal.
12. Notices. All notices and other communications hereunder shall be in
writing and shall be given and shall be deemed to have been duly given on the
date of delivery if delivered in person, three business days following deposit
in the U.S. mail certified, return receipt requested or upon confirmation (or,
not transmitted on a business day, upon the next business day following
confirmation) of facsimile transmission, to the parties as follows:
(i) if to the Bank, to:
Bank of America NT&SA
Investment Administration #15027
555 California Street
San Francisco, CA 94104
Attention: DPC Portfolio Manager
Telephone: (415) 953-6633
Facsimile: (415) 622-3637
with a copy to:
Bank of America NT&SA
Legal Department #03017
555 California Street
San Francisco, CA 94014
Attention: Corporate Advice Group
Telephone: (415) 953-8126
Fascimile: (415) 622-6291
14
<PAGE>
111
(ii) if to Cardinal to:
Cardinal Realty Services, Inc.
6954 Americana Parkway
Reynoldsburg, Ohio 43068
Attention: Mark D. Thompson, Chief Financial Officer
Telephone: (614) 575-5228
Facsimile: (614) 575-5240
with a copy to:
Benesch, Friedlander, Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attention: Bradley A. Van Auken, Esq.
Telephone: (216) 363-4413
Facsimile: (216) 363-4588
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but each of which
together shall constitute one and the same document.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
15. Entire Agreement. This Agreement, together with the relevant
provisions of that certain Letter Agreement between the Bank and Cardinal dated
November 29, 1995 (a copy of which Letter Agreement is attached hereto as
Exhibit A), constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof. In the event of any conflict between the
terms of this Agreement and the Letter Agreement, the terms of this Agreement
shall control.
16. Severability. If any term, provision, covenant or restriction of
this Agreement, is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
17. Specific Performance. Cardinal acknowledges that the Bank will have
no adequate remedy at law if Cardinal fails to perform any of its obligations
15
<PAGE>
112
under this Agreement. In such event, the Bank shall have the right, in addition
to any other right it may have, to specific performance of this Agreement.
18. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including, without limitation and without the need for express assignment, any
subsequent holders of the Registrable Securities.
19. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
CARDINAL REALTY SERVICES, INC.
By: /s/ John B. Bartling, Jr.
-------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ James A. Dern
-----------------
James A. Dern
Title: Vice President
By: /s/ Mark H. Popieluch
---------------------
Mark H. Popieluch
Title: Senior Vice President
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
113
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,824
<SECURITIES> 0
<RECEIVABLES> 3,490
<ALLOWANCES> 1,574
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 164,582
<DEPRECIATION> 8,026
<TOTAL-ASSETS> 238,387
<CURRENT-LIABILITIES> 0
<BONDS> 150,647
0
0
<COMMON> 29,122
<OTHER-SE> 41,586
<TOTAL-LIABILITY-AND-EQUITY> 238,387
<SALES> 0
<TOTAL-REVENUES> 52,587
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,987
<INCOME-PRETAX> 7,808
<INCOME-TAX> 3,035
<INCOME-CONTINUING> 4,773
<DISCONTINUED> 0
<EXTRAORDINARY> (181)
<CHANGES> 0
<NET-INCOME> 4,592
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
