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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-12592
WALDEN RESIDENTIAL PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 75-2506197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5080 SPECTRUM DR., SUITE 1000E
ADDISON, TEXAS 75001-6410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 788-0510
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
-------------------- ------------------------------------------
<S> <C>
Common stock, New York Stock Exchange
$.01 par value
9.16% Series B Convertible New York Stock Exchange
Redeemable Preferred Stock,
$.01 par value
9.20% Senior Preferred Stock, New York Stock Exchange
$.01 par value
9.00% Redeemable Preferred Stock, New York Stock Exchange
$.01 Per Value
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether 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 Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $394,159,851 at March 3, 1999.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MARCH 3, 1999 WAS
24,136,680.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1999
Annual Meeting of Stockholders is incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
Walden Residential Properties, Inc. (the "Company") is a Dallas,
Texas-based real estate investment trust ("REIT") focused on middle income
multifamily properties located primarily in selected Southwestern and
Southeastern metropolitan areas. The Company is a Maryland corporation which
was formed on September 29, 1993, with a perpetual duration of existence, to
continue and expand the multifamily property ownership, management, acquisition
and marketing operations and related business objectives and strategies of The
Walden Group, Inc. and its subsidiaries and affiliates (collectively, the
"Walden Predecessors"). The Company owned and operated 150 multifamily
properties (the "Properties") as of December 31, 1998, containing 41,594
apartment units. Approximately 92% of the Properties are located in the
Houston, Dallas/Fort Worth, Austin, Phoenix, Nashville, Jacksonville, Tampa,
San Antonio, Tulsa, Atlanta, Salt Lake City and San Diego areas (the "Target
Markets"), with the remaining Properties primarily located in other areas in
the Southwest and Southeast regions of the United States. Of the total units
owned, 28% are located in Houston (in 14 different submarkets), and 26% are
located in Dallas/Fort Worth (in 20 different submarkets). The Properties had a
weighted average physical occupancy rate of approximately 93.6% for 1998 and
92.7% for the month of February 1999. The Company's real estate assets are
operated with the same long-term objectives and therefore are viewed as a
single operating segment.
Upon completion of the Company's initial public offering on February
9, 1994 (the "IPO"), the Company purchased the multifamily operations of the
Walden Predecessors, including 18 properties containing 5,895 apartment units
(of which five properties consisting of 1,275 units have been sold) and
concurrently purchased two additional properties containing 448 apartment
units, one of which was owned by a third party and the other of which was
principally owned by the Walden Predecessors (collectively, the "Original
Properties"). Since the consummation of the IPO, the Company has acquired 151
properties (the "Acquisition Properties") (of which ten properties consisting
of 2,479 units have been sold and six properties were combined in 1997 with
certain other properties owned to achieve operating efficiencies) containing an
aggregate of 39,005 apartments units, for an aggregate acquisition cost of $1.4
billion. In connection with one property acquired in December 1996, the Company
acquired approximately 81 acres of adjacent undeveloped land in Nashville,
Tennessee for $4 million. The Company intends to sell tracts of the land over a
period of time to a developer of single family homes. Management believes that
these acquisitions are consistent with its core acquisition strategy of
acquiring well located garden apartment properties at prices less than
replacement costs, which serve middle income residents and can benefit from the
Company's comprehensive management and enhancement programs.
On October 1, 1997, the Company acquired the assets and business of
Drever Partners, Inc. and its affiliates (collectively, "Drever"), a private
real estate management company based in San Francisco and Houston. This
transaction included the acquisition by the Company of 18 partnerships, for
which Drever was the general partner, which owned 79 apartment properties with
18,118 units. The 79 properties are included in the 151 properties acquired by
the Company since its IPO. Pursuant to an Exchange Agreement with Drever, the
consideration exchanged by the Company consisted of approximately $95 million
of cash, the assumption of $286 million of mortgage debt (of which the Company
repaid $119 million with proceeds from an unsecured term loan and its unsecured
credit facility) and approximately $304 million of operating partnership units
(the
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"Common OP Units" and "Preferred OP Units", collectively the "Units") issued by
a newly-formed operating partnership subsidiary of the Company, Walden/Drever
Operating Partnership, L.P. ("WDOP"), to the shareholders and partners of and
equity participants in Drever. The Units became exchangeable on October 1,
1998, into an aggregate of 10,326,284 shares of the Company's common stock
(4,899,365 Common OP Units remained outstanding at December 31, 1998),
1,999,909 shares of the Company's 9.00% Redeemable Preferred Stock (714,440
Preferred OP Units remained outstanding at December 31, 1998) and 6,666,363
Series B Warrants, all of which are outstanding at December 31, 1998, (each of
which is exercisable for one-third of one share of the Company's common stock
at $26.875 per share). The 9.00% Redeemable Preferred Stock and the Preferred
OP Units are redeemable at the option of the Company in 10 years at a
redemption price of $25 per share or unit.
On December 27, 1998, the Company entered into an agreement to invest
$55 million (of which $18 million was invested as of December 31, 1998) to
purchase preferred membership units of GGL Ventures LLC ("GGL"), a newly formed
entity controlled by a group of entities owned by a member of the Company's
board of directors. GGL was formed to acquire 17 apartment properties located
primarily in Georgia, of which seven properties were purchased on December 27,
1998. The Company currently manages on a fee basis the seven properties
acquired by GGL in 1998 and is to manage the other ten properties once they
have been acquired.
The Company's executive offices are located at 5080 Spectrum Dr.,
Suite 1000E, Addison, Texas 75001-6410. The telephone number is (972) 788-0510.
BUSINESS STRATEGIES
The Company's primary business objective is to maximize stockholder
value by maintaining long-term growth in funds from operations for
distributions to its stockholders. To achieve this objective, the Company will
focus on maximizing the internal growth of its expanded portfolio through
property management and resident services, continuation of its property
enhancement program, acquisition of garden apartment properties that have
strong cash flow growth potential and are located in the Company's Target
Markets, and implementation of programs to reduce general and administrative
expenses. Specifically, the Company intends to implement the following business
strategies:
Increased Property Cash Flow. The Company will continue to produce a
level of service that is successful at resident retention and focused on
increasing occupancy and rental rates. The Company also anticipates increasing
its cash flow by controlling operating expenses and implementing programs to
generate ancillary income (such as cable, telephone and laundry).
Property Enhancement Program. The Company will continue its property
enhancement program to upgrade the physical appearance of its properties. This
program generally consists of one of two components. The first component is
limited to unit interior upgrades, such as: appliances, lighting, bathroom
fixtures and doors, cabinets, countertops, mirrors, ceiling fans, mantels and
trim. The second component is a property repositioning program, which is a
complete property enhancement of both the interior and exterior of a property.
Repositioning programs include the unit interior upgrades discussed above, as
well as interior and exterior clubhouse renovation, access gates, exterior
lighting, signs, landscaping and building exterior work including facades and
shutters.
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Property enhancements are expected to generate high yields through increased
rental rates and resident retention. By reinvesting in its properties, the
Company expects to set them apart from deteriorating, similar aged properties
and increase their competitiveness with newly constructed units that are
generally available at considerably higher rates. During 1998, the Company
initiated repositioning programs for 23 properties, spending $10.4 million. An
additional $7.3 million was spent in 1998 on unit interior upgrades.
Sale of Properties. Through the Company's asset management function,
properties are routinely evaluated to determine that optimal operating results
are achieved. In connection with this evaluation, properties may be targeted
for disposition once a determination is made that such properties have achieved
their maximum investment return. In addition, certain properties not located in
the Company's core markets may be targeted for disposition. Since its IPO, the
Company has sold 15 properties, containing 3,754 apartment units.
The Company has targeted eight to ten properties for disposition in
1999, one of which was reflected as held for sale at December 31, 1998 and had
an executed sales contract in February 1999. The targeted sales would result in
estimated proceeds of approximately $60 million, which will be used to fund the
Company's commitments for capital expenditures and its GGL investment and to
repay a portion of the Company's unsecured credit facility (the "Credit
Facility").
Acquisitions. The Company also seeks to increase its funds from
operations by acquiring multifamily properties that have prospects for
long-term growth and can be purchased at prices substantially below replacement
cost. Following the IPO, the Company has engaged in an active acquisition
program, acquiring 151 multifamily properties, containing 39,005 apartment
units (including the Drever transaction of 79 properties consisting of 18,118
units in 1997). Due to current limitations on the Company's borrowing capacity
and status of the debt and equity markets, the Company will be limited in its
acquisition activities. As a result, the Company does not anticipate acquiring
properties in 1999 unless it is able to sell existing properties in excess of
the planned $60 million of dispositions. Any acquisition efforts would be in
the Target Markets due to the attractive demographics of these markets and the
opportunity to gain operating efficiencies.
New Development. Selective development of new apartment properties in
our Target Markets will become increasingly important to the growth of the
Company's portfolio over the next several years. Properties will be selected
for development that meet an identified market demand, are well located in
their markets and have an anticipated total return in excess of that projected
for acquisition properties.
Corporate Restructuring. The Company recently announced a corporate
restructuring plan which is expected to reduce ongoing general and
administrative expenses by approximately $1 million annually. The key
components of this plan include closing the corporate office in Houston, Texas,
consolidating all of the corporate functions at the Dallas, Texas headquarters,
realigning the corporate departments to provide more cost-effective operations,
and reducing staff in several areas. The costs associated with the corporate
restructuring are estimated to be approximately $1 million, which will be
reflected as an unusual charge in the first quarter of 1999.
PROPERTY MANAGEMENT
The Company conducts its property management operations with an
experienced staff of professionals and support personnel, including property
directors and sales directors. The depth of the organization is intended to
enable the Company to deliver quality services on an uninterrupted
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basis, thereby promoting resident satisfaction and improving resident
retention. Each of the Properties is operated by a staff specifically selected
based on the size, location, age, management plan and marketing plan of the
individual property. Personnel are carefully trained in their areas of
responsibility by Senior Vice Presidents and Regional Vice Presidents for
property management functions and by senior marketing and construction
personnel for property marketing and leasing, resident relations and
maintenance.
The Company's standardized policies and procedures specify reporting
requirements and management guidelines which are to be applied at each
property. These policies and procedures facilitate management consistency in
all markets. The Company uses customized software programs, including an
on-site computerized rent roll system, to provide site, regional and executive
management with rapid access to all marketing and accounting information.
Weekly marketing reports are prepared by on-site property directors which track
each property's leasing status, occupancy rate, prospective resident traffic,
unit availability, lease renewals, residents moving in and out of apartments,
notices by residents to vacate their apartments and delinquent rental charges
or other fees. Accounting elements such as receivables, payables, rent roll
status and budget compliance are regularly monitored through this system.
Marketing and leasing activities and procedures are designed to comply
with all established Federal, state and local laws and regulations. The Company
generally offers leases having six to 12 month terms, with individual property
marketing plans structured to respond to local market conditions. Qualifying
standards for prospective residents are established to comply with the
affordable housing restrictions placed on certain of the Properties, the Fair
Housing Amendments Act of 1988 (the "FHA") and the regulations thereunder and
are designed to stabilize service levels and income streams. The Company has 15
properties which are currently subject to restrictions that require a specified
number of apartments be offered to households with lower or moderate incomes.
The Company utilizes standard lease contracts promulgated by local apartment
associations to ensure compliance with the most recent legislative and judicial
activities related to multifamily properties, as well as to permit uniform
lease administration relating to rent collections, security deposit
dispositions, evictions, repairs and renewals.
EMPLOYEES
As of March 12, 1999, the Company had 1,243 employees, of which 179
are located at the Company's headquarters in Dallas, Texas and its regional
offices located in Atlanta, Austin, Dallas, Fort Worth, Houston, Jacksonville,
Phoenix, San Antonio, Tampa and Tulsa. The remaining 1,064 employees are
located at the properties owned by the Company and those fee managed. None of
the Company's employees are currently represented by a union. The Company
believes that relations with its employees are good.
COMPETITION
The Properties compete directly with other multifamily properties and
single family homes that are available for rent in markets in which the
Properties are located. In addition, the Properties also compete directly with
new and existing home markets for residents. The Properties compete on the
basis of location, apartment quality and rental rates. Such competition could
have a material effect on the Company's ability to lease units at its
Properties or at any newly acquired properties and on the rents charged.
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The Company competes for acquisitions with other entities, such as insurance
companies, pension funds, private individuals, investment companies and other
REITs, which may have greater resources than the Company.
REGULATION
General. Apartment community properties are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. The
Company believes that it has the necessary permits and approvals under present
laws, ordinances and regulations to operate its business in the manner
described herein.
Americans with Disabilities Act. The Properties and any newly acquired
or developed multifamily properties must comply with Title III of the Americans
with Disabilities Act of 1990 (the "ADA") to the extent that the Properties are
"public accommodations" and/or "commercial facilities" as defined by the ADA.
Compliance with the ADA requirements could require removal of structural
barriers to handicapped access in certain public areas of the Properties where
such removal is readily achievable. The ADA does not, however, consider
residential properties, such as multifamily properties, to be public
accommodations or commercial facilities, except to the extent that portions of
such facilities, such as leasing offices, are open to the public. The Company
obtained structural reports from third-party consultants specifying
modifications to certain of the Properties that needed to be made in order to
bring such properties into full compliance with the ADA. The Company has
substantially completed such modifications.
Fair Housing Amendments Act of 1988. The FHA requires multifamily
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. Substantially all of the Company's
Properties were occupied prior to March 13, 1990. Any current or future new
development properties will comply with FHA requirements.
Affordable Housing Restrictions. The Company has 15 properties which
are subject to restrictions requiring that a specified percentage of the
apartment units in such properties be offered to households with lower or
moderate incomes. Currently, 71% of the total number of apartment units in
these 15 properties, or 9% of the total number of the Company's apartment
units, are subject to such restrictions. Generally, these provisions originated
from the use of tax exempt financing in those instances where it was determined
that the benefits of the lower interest rate associated with such financing
offset the potential reduction of rental income resulting from such rental
restrictions.
The 15 regulated properties are:
<TABLE>
<S> <C> <C>
o Colorado Club o James Pointe o Meadow Glen
o Reflections of Highpoint o Remington Hill o Remington at Ponte Verdra
o Sierra Springs o South Pointe o Stillwater
o Summer Meadows o Summers Crossing o Windsor Park
o Winridge o Woodstone o Terra Vida
</TABLE>
In addition, one of these properties is subject to limits on the
amount of rent that can be charged for certain of the apartment units. The
Company believes it is in compliance with these restrictions. These
restrictions have not had a material adverse effect on the Company's operations
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or ability to rent the units, and management does not anticipate that such
restrictions will have a material adverse effect on future operations or
possible sales of the 15 properties in the future.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to recover
from residents increases in operating expenses and the costs of capital
improvements. Enactment of such laws has been considered from time to time in
other jurisdictions, although none of the jurisdictions in which the Company
presently operates has adopted such laws. The Company does not presently own,
nor does it intend to acquire, multifamily properties in markets that are
either subject to rent control or in which rent limiting legislation exists.
ENVIRONMENTAL MATTERS
Under various Federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate hazardous or toxic substances or
petroleum product releases at such property and may be held liable to a
government entity or third party for property damage, investigation and
remediation costs incurred by such parties in connection with such
contamination. Such laws typically impose cleanup responsibility and liability
without regard to whether the owner or operator knew of, or caused the presence
of, the contaminants. The costs of investigation, remediation or removal of
such substances may be substantial, and the presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
ability to sell or rent such real estate or to borrow using such real estate as
collateral. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs it incurs in
connection with the contamination. Individuals who arrange for the disposal or
treatment of hazardous or toxic substances may be held liable for the costs of
investigation, remediation or removal of such hazardous or toxic substances at
or from the disposal or treatment facility regardless of whether such facility
is owned or operated by such person. Finally, the owner of a site may be
subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.
Certain Federal, state and local laws, ordinances and regulations
govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs") when such materials are in poor condition or in the event of
the remodeling, renovation or demolition of a building. Such laws may impose
liability for the release of ACMs and may provide for third parties to seek
recovery from owners or operators of real estate for personal injury associated
with ACMs. In connection with the ownership and operation of its properties,
the Company may be potentially liable for costs in connection with the matters
discussed above.
All of the Properties have been the subject of environmental
assessments, which are intended to reveal information regarding, and to
evaluate the environmental condition of, the surveyed properties and
surrounding properties. The environmental assessments generally include a
historical review, a public records review, a preliminary investigation of the
site and surrounding properties, screening for the presence of asbestos and
equipment containing polychlorinated biphenyl and underground storage tanks and
the preparation and issuance of a written report, but do not include soil
sampling or subsurface investigations.
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Environmental assessments of all of the Properties have revealed
elevated lead content in the drinking water at three of the Properties and ACMs
at 67 of the Properties (some of which is "friable", or easily crumbled, but in
good and manageable condition).The Company has implemented an operations and
maintenance program which establishes procedures to be followed in dealing with
ACMs if they are moved or otherwise disturbed. The cost to the Company
resulting from any future disturbance of the ACMs will depend upon the
magnitude of the disturbance and the location of the ACMs. Although the Company
does not believe any remedial action is required, it is currently either taking
action, or determining the most effective remedial action to take, with respect
to the elevated lead levels in the water of the three properties. The Company
anticipates any such remedial action will cost between $760,000 and $780,000 in
the aggregate, which amount will be capitalized when incurred. The costs are
expected to be funded through cash flow from operations.
Environmental assessments performed on the Properties have not
revealed any environmental liability that the Company believes would have a
material adverse effect on the Company's business, assets, or results of
operations, nor is the Company aware of any such environmental liability.
Nevertheless, it is possible that these assessments did not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, no assurances can be given that (i)
future laws, ordinances or regulations will not require any material
expenditures by or impose any material liabilities on the Company in connection
with environmental conditions by or on the Company or its properties, (ii) the
current environmental condition of a property will not be adversely affected by
residents and occupants of such property, by the condition of properties in the
vicinity of such property (such as the presence of underground storage tanks)
or by third parties unrelated to the Company, or (iii) prior owners of the
Properties did not create environmental problems of which the Company is not
aware.
The Company believes that the Properties are in compliance in all
material respects with all Federal, state and local laws, ordinances and
regulations regarding hazardous or toxic substances or petroleum products.
Except as otherwise described above, the Company has not been notified by any
governmental authority, and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products with respect to any of the Properties.
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably
estimatable. Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of the
remediation feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt
is deemed probable. Management is not aware of any environmental remediation
obligations which would materially affect the operations, financial position or
cash flows of the Company.
INSURANCE
The Company carries comprehensive liability, fire, extended coverage
and rental loss insurance with respect to all of the Properties, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses (such as losses arising
from earthquakes or wars) that are not generally insured because they are
either uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of
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insured limits occur, the Company could lose its capital invested in the
affected property, as well as the anticipated future revenues from such
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could adversely affect
the Company. Management believes that the Properties are currently adequately
insured in accordance with industry standards.
ITEM 2. PROPERTIES
The Company's Portfolio. As of December 31, 1998, the Company's
portfolio consisted of 150 multifamily properties containing 41,594 apartment
units located in 11 states. The Properties are generally comprised of two and
three-story buildings in landscaped settings and generally include such
amenities as a clubhouse, swimming pool, laundry facilities and cable
television access. Certain of the Properties offer additional amenities such as
saunas, whirlpools, exercise facilities, tennis courts and covered parking. The
Properties contain an average of 277 apartment units, with the largest property
containing 994 apartment units. The apartment units have an average size of 787
square feet. The Properties were built between 1968 and 1998 and have a
weighted average age by number of apartment units of approximately 14 years.
The Properties are concentrated in the following markets:
<TABLE>
<CAPTION>
Number Number Percent
Location of Properties of Units of Total Units
- -------- ------------- -------- --------------
<S> <C> <C> <C>
Houston 49 11,723 28.18%
Dallas/Fort Worth 37 10,887 26.17%
Austin 11 3,216 7.73%
Phoenix 7 2,360 5.67%
Nashville 4 1,858 4.47%
Jacksonville 5 1,748 4.20%
Tampa 7 1,904 4.58%
San Antonio 5 1,146 2.76%
Tulsa 3 1,008 2.42%
Atlanta 4 1,002 2.41%
Salt Lake City 2 768 1.85%
San Diego 3 480 1.15%
---- -------- -------
Subtotal 137 38,100 91.59%
Other Markets (a) 13 3,494 8.41%
---- -------- -------
Total 150 41,594 100.00%
==== ======== =======
</TABLE>
(a) Represents properties in six different states.
No single property accounts for greater than 3% of the Company's total
revenues. The Properties had a weighted average physical occupancy of 93.6%
for 1998 and 92.7% for the month of February 1999. Resident leases are
generally for six to 12 month terms and often require security deposits. The
Properties are located in mature, developed neighborhoods. Management believes
the Properties are well built and have been well maintained.
Repair and Maintenance Expenses. The Company has adopted a policy of
expensing all maintenance and non-major, recurring repair and replacement
items, with the exception of carpet replacement which, as of July 1, 1996, is
capitalized on a prospective basis. Such maintenance expense items include, but
are not limited to, landscaping, pest control, electrical, plumbing, cleaning
units, interior painting of the units, window blinds, and pool and recreation
facility maintenance. Non-major expense items include but are not limited to
roofing and exterior painting
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under approximately $10,000. Repair and maintenance expenses for 1998 were
approximately $22.3 million, or $522 per weighted average unit. In comparison,
repair and maintenance expenses for 1997 were approximately $13.0 million, or
$477 per weighted average unit. Repair and maintenance expenses for 1999 are
budgeted to be $21.5 million, or $517 per unit.
Capital Expenditures. The Company capitalizes all major repairs and
replacements which are not considered part of the normal maintenance of the
Properties or turnover of an apartment unit. As of July 1, 1996, the Company
revised its method of accounting to capitalize the cost of replacement carpets,
on a prospective basis ($864,000 was capitalized in 1996 which would have been
expensed under the old policy). The Company believes that this accounting
policy change is preferable because it is consistent with policies currently
being used by the majority of the largest publicly traded apartment REITs and
provides a better matching of expenses with the related benefit of the
expenditures. In addition, the Company capitalizes non-recurring items such as
access gates and carports initially installed on the property. The Company also
capitalizes all deferred maintenance items of an acquisition property which are
planned at the time of acquisition to bring the property to satisfactory
operating condition. Such renovation of an acquisition property generally takes
six to 18 months to complete, depending on the magnitude of the renovations.
The Company's management believes that asset quality is one of the
most important characteristics of an apartment property. Asset quality can be
significantly improved by repositioning the asset through capital improvements
that create an attractive, upscale residential appearance, like building
facades or enhancements that improve with age, such as landscaping
enhancements. The Company's repositioning program includes professional design
of exterior buildings and clubhouse interiors. This program also includes
interior upgrades such as modern lighting, wall mirrors and crown molding. All
of these capital improvements help distinguish the Properties from their aging
contemporaries. The economic justification for the Company's repositioning
program is the anticipated higher yield on the total cost of a property, which
should be achieved through higher occupancy and rental rates.
For the year ended December 31, 1998, the Company spent approximately
$7.5 million related to the funding of new development projects and $64.2
million on capital expenditures to its Properties. Following is a summary by
type of expenditure (in thousands):
<TABLE>
<S> <C>
Funding of new development projects................................................ $ 7,523
Normal recurring capital expenditures ($545 per unit).............................. 22,903
Non-recurring capital expenditures ................................................ 13,694
Acquisition renovation costs (for properties acquired in 1997
and 1998) .................................................................. 9,891
Repositioning program (including $7,305 for unit
interior upgrades .......................................................... 17,699
-------
Total ...................................................................... $71,710
=======
</TABLE>
The average cost of $545 per unit in 1998 for normal recurring capital
expenditures is approximately $150 per unit higher than the estimated reserve
necessary for the Company to maintain its properties. During 1998, management's
review of its properties determined that a significant amount of capital
improvements was necessary on numerous properties. The majority of this work
was completed in 1998, resulting in the increased average cost per unit. The
Company has projected its recurring capital expenditures for 1999 to be $374
per unit (see below).
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For 1999, the Company has budgeted total capital expenditures of $42.0
million. The breakdown by type of capital expenditure is as follows (in
thousands):
<TABLE>
<S> <C>
Normal recurring capital expenditures ($374 per unit) ............... $15,157
Non-recurring capital expenditures................................... 8,810
Acquisition renovation costs (for properties acquired in 1998)....... 2,523
Repositioning program capital expenditures........................... 15,535
-------
Total ........................................................... $42,025
=======
</TABLE>
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<PAGE> 12
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL UNIT TYPE
NUMBER YEAR RENTABLE -----------------------------
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL 3 BR/
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR 4 BR
- ------------------ -------- ------ ------------- --------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AUSTIN
- ------
Arbors of Austin Austin, TX 226 1985 154,920 9.68 182 44 --
Arbors of Wells Branch Austin, TX 212 1986 156,228 11.20 164 48 --
Ashbury Parke Austin, TX 416 1983 278,936 13.20 304 112 --
Audubon Square Austin, TX 164 1985 139,476 6.50 36 128 --
Harper's Creek Austin, TX 268 1982 201,838 8.00 228 40 --
Lakes of Renaissance Austin, TX 308 1987 215,024 11.60 218 84 6
Oak Ridge Austin, TX 253 1978 173,669 9.29 151 102 --
Pinto Creek Austin, TX 249 1985 199,146 22.60 162 87 --
Polo Club Austin, TX 304 1986 203,784 11.20 240 64 --
Shadow Creek Austin, TX 420 1982 314,936 18.02 354 66 --
Trestles of Austin Austin, TX 396 1984 275,904 10.66 252 144 --
--- ---- ------- ----- --- --- --
AUSTIN TOTAL/
WEIGHTED AVERAGE 3,216 1984 2,313,861 131.95 2,291 919 6
----- ---- --------- ------ ----- --- --
CORPUS CHRISTI
- --------------
Rafters, The Corpus Christi, TX 250 1984 216,496 12.00 74 132 44
Wharf, The Corpus Christi, TX 250 1984 216,496 17.13 74 132 44
Willowick Corpus Christi, TX 250 1984 216,496 12.00 74 132 44
--- ---- ------- ----- -- --- --
CORPUS CHRISTI TOTAL/
WEIGHTED AVERAGE 750 1984 649,488 41.13 222 396 132
--- ---- ------- ----- --- --- ---
DALLAS/FORT WORTH
- -------------------
Arbor Creek Dallas, TX 280 1984 216,676 12.22 136 144 --
Arbors of Bedford Bedford, TX 204 1983 161,332 8.56 128 76 --
Arbors of Carrollton Carrollton, TX 131 1984 112,418 8.56 55 76 --
Arbors of Euless Euless, TX 272 1984 213,794 12.82 136 136 --
Bent Creek Dallas, TX 326 1980 234,082 11.72 284 42 --
Braden's Walk(2) Bedford, TX 706 1983 514,220 32.79 468 238 --
Brittany Park Dallas, TX 217 1978 193,556 8.67 149 68 --
Canyon Ridge Dallas, TX 164 1983 120,812 7.33 76 88 --
Casa Valley Dallas, TX 150 1986 130,926 5.46 120 30 --
Cinnamon Park Arlington, TX 272 1985 213,192 13.00 144 112 16
Clover Hill Arlington, TX 216 1984 178,928 8.87 104 112 --
Creekwood Village Dallas, TX 362 1985 256,584 9.40 328 34 --
Fielder's Glen Arlington, TX 220 1985 165,752 10.00 140 80 --
Gables, The McKinney, TX 220 1986 169,880 10.00 160 60 --
Greens Crossing Dallas, TX 364 1984 262,761 10.50 292 72 --
Hillcrest Grand Prairie, TX 310 1984 204,146 12.94 264 46 --
Hilltop North Richland Hills, TX 238 1984 179,256 12.20 150 88 --
Montfort Oaks Dallas, TX 276 1979 215,476 12.07 160 116 --
Newport Irving, TX 308 1982 238,768 12.40 208 100 --
Parks at Tree Point Arlington, TX 586 1985 471,968 29.52 276 294 16
Pinnacle Lewisville, TX 150 1985 119,774 6.30 86 64 --
Post Oak Place Euless, TX 354 1983 255,798 11.08 270 84 --
Preston Greens Dallas, TX 257 1980 247,463 11.21 165 92 --
Reflections of Highpoint Dallas, TX 373 1986 283,488 11.10 276 96 --
Remington Hill Fort Worth, TX 440 1986 339,008 15.00 300 140 --
Rivercrest Arlington, TX 420 1979 337,056 19.30 320 100 --
Shadow Creek North Richland Hills, TX 240 1986 181,896 12.20 120 120 --
Shadowridge Village Dallas, TX 144 1985 118,804 5.97 112 32 --
Sierra Springs (2) Bedford, TX 286 1985 211,006 15.96 160 126
Springfield Mesquite, TX 264 1985 193,212 9.00 192 72 --
</TABLE>
<TABLE>
<CAPTION>
AVERAGE MONTHLY
PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
AVERAGE ---------------------- -------------------------
METROPOLITAN AREA/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION (SQ. FT.) 1998 1997 1998 1997
- ------------------ -------- --------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
AUSTIN
- ------
Arbors of Austin Austin, TX 685 97.2% 96.0% $ 566 $ 551
Arbors of Wells Branch Austin, TX 737 97.3% 97.1% 615 595
Ashbury Parke Austin, TX 671 96.1% 95.2% 564 549
Audubon Square Austin, TX 850 96.8% 94.8% 644 611
Harper's Creek Austin, TX 753 98.9% 95.8% 581 570
Lakes of Renaissance Austin, TX 693 95.8% 97.1% 599 579
Oak Ridge Austin, TX 686 98.5% 97.5% 602 563
Pinto Creek Austin, TX 800 94.1% 95.4% 649 636
Polo Club Austin, TX 670 97.9% 95.2% 558 534
Shadow Creek Austin, TX 750 95.1% 94.6% 556 531
Trestles of Austin Austin, TX 697 93.5% 93.6% 617 613
--- ---- ---- --- ---
AUSTIN TOTAL/WEIGHTED AVERAGE 719 96.2% 95.5% 591 572
--- ---- ---- --- ---
CORPUS CHRISTI
- --------------
Rafters, The Corpus Christi, TX 866 94.7% 92.8% 588 573
Wharf, The Corpus Christi, TX 866 89.0% 94.1% 592 599
Willowick Corpus Christi, TX 866 93.9% 94.9% 610 595
--- ---- ---- --- ---
CORPUS CHRISTI TOTAL/WEIGHTED AVERAGE 866 92.6% 93.9% 597 589
--- ---- ---- --- ---
DALLAS/FORT WORTH
- -------------------
Arbor Creek Dallas, TX 774 94.1% 92.8% 627 593
Arbors of Bedford Bedford, TX 791 87.8% 89.7% 579 569
Arbors of Carrollton Carrollton, TX 858 97.3% 95.7% 634 624
Arbors of Euless Euless, TX 786 94.9% 91.7% 571 556
Bent Creek Dallas, TX 718 95.6% 93.9% 509 495
Braden's Walk(2) Bedford, TX 728 94.5% N/A 529 N/A
Brittany Park Dallas, TX 889 90.2% 91.8% 635 625
Canyon Ridge Dallas, TX 737 93.9% 97.2% 596 573
Casa Valley Dallas, TX 873 95.2% 94.2% 728 704
Cinnamon Park Arlington, TX 784 93.5% 90.6% 580 563
Clover Hill Arlington, TX 828 93.3% 92.6% 540 530
Creekwood Village Dallas, TX 713 94.5% 95.9% 536 519
Fielder's Glen Arlington, TX 753 93.8% 93.4% 545 513
Gables, The McKinney, TX 772 89.9% 94.8% 625 617
Greens Crossing Dallas, TX 722 84.4% 89.9% 511 495
Hillcrest Grand Prairie, TX 659 95.9% 94.3% 482 472
Hilltop North Richland Hills, TX 753 95.1% 95.6% 536 528
Montfort Oaks Dallas, TX 781 95.4% 98.1% 632 605
Newport Irving, TX 775 91.9% 94.4% 585 575
Parks at Tree Point Arlington, TX 805 95.6% 92.7% 556 543
Pinnacle Lewisville, TX 798 95.5% 95.5% 642 610
Post Oak Place Euless, TX 723 92.4% 91.3% 550 541
Preston Greens Dallas, TX 963 85.6% 91.4% 753 693
Reflections of Highpoint Dallas, TX 760 83.7% 92.6% 656 613
Remington Hill Fort Worth, TX 770 97.1% 93.3% 585 563
Rivercrest Arlington, TX 803 91.1% 89.3% 544 535
Shadow Creek North Richland Hills, TX 758 94.1% 93.6% 559 545
Shadowridge Village Dallas, TX 825 94.4% 87.7% 633 614
Sierra Springs (2) Bedford, TX 86.3% N/A 582 N/A
Springfield Mesquite, TX 732 96.4% 95.4% 558 534
</TABLE>
<PAGE> 13
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL UNIT TYPE
NUMBER YEAR RENTABLE --------------------------
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL 3 BR/
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR 4 BR
- ------------------- -------------- --------- ------------- ---------- --------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summer Meadows Plano, TX 389 1986 323,434 21.60 236 153 --
Summer Villas Dallas, TX 460 1984 328,020 15.80 380 80 --
Summers Crossing Plano, TX 294 1986 239,817 15.70 216 78 --
Summers Landing Fort Worth, TX 196 1985 139,300 7.80 172 24 --
Trinity Mills Dallas, TX 208 1982 162,960 10.53 128 80 --
Trinity Oaks Dallas, TX 240 1983 150,318 4.90 189 51 --
Waterford on the Meadow Plano, TX 350 1985 310,746 22 102 248 --
--------- ------- ------------ --------- ------ -------- -----
DALLAS TOTAL / WEIGHTED AVERAGE 10,887 1984 8,396,627 464.46 7,202 3,652 33
--------- ------- ------------ --------- ------ -------- -----
HOUSTON
- --------------------
Arbor Point Houston, TX 65 1984 57,000 2.20 43 22 --
Ashton Woods Houston, TX 177 1978 151,142 6.85 76 74 27
Aston Brook Houston, TX 152 1982 119,376 5.29 88 64 --
Bar Harbor Houston, TX 316 1983 209,076 13.19 260 56 --
Bayou Oaks Houston, TX 210 1984 158,470 6.08 138 72 --
Brandon Oaks Houston, TX 196 1984 168,856 8.00 88 108 --
Briarcrest Houston, TX 376 1982 296,760 13.90 232 144 --
Brookfield Houston, TX 250 1984 188,974 10.93 190 60 --
Carriage Hill Houston, TX 252 1980 242,008 11.20 96 120 36
Central Park Condos Houston, TX 93 1985 99,080 7.20 29 52 12
Central Park Regency Houston, TX 348 1983 318,968 13.38 132 216 --
Charleston, The Houston, TX 312 1981 226,043 5.69 228 84 --
Cimarron Park Houston, TX 162 1984 134,756 6.50 100 54 8
Cimarron Parkway Houston, TX 272 1983 238,264 9.26 216 56 --
Colorado Club Houston, TX 300 1986 225,788 10.13 220 80 --
Copper Cove Houston, TX 270 1983 204,240 7.00 192 78 --
Enclave at Cypress Park Houston, TX 384 1984 329,844 11.20 232 124 28
Foxboro Houston, TX 220 1982 162,712 6.30 160 60 --
Georgetown Houston, TX 156 1968 237,328 34.40 42 33 81
Hidden Lake Houston, TX 440 1986 318,748 32.63 288 152 --
Holiday on Hayes Houston, TX 312 1981 250,564 10.47 172 140 --
Hunt Club, The Houston, TX 204 1984 135,948 8.25 168 36 --
Huntley, The Houston, TX 214 1985 165,054 7.35 128 86 --
Laurel Creek Houston, TX 428 1985 323,568 15.80 304 100 24
Meadows on Memorial Houston, TX 96 1982 94,940 3.56 -- 75 21
Mill Creek Houston, TX 174 1982 149,640 5.59 76 98 --
Monticello on Cranbrook Houston, TX 244 1983 203,500 11.20 73 171 --
Northwoods Houston, TX 200 1978 237,656 17.44 -- 100 100
One Cypress Landing Houston, TX 464 1979 358,156 15.27 396 68 --
One Westfield Lake Houston, TX 246 1984 269,454 19.98 72 126 48
One Willow Chase Houston, TX 136 1983 104,216 4.36 60 76 --
One Willow Park Houston, TX 178 1984 140,165 6.00 131 47 --
Pathway, The Houston, TX 144 1978 139,498 5.95 136 8 --
Pine Creek Houston, TX 216 1980 170,184 8.06 128 88 --
Polo Club on Cranbrook I Houston, TX 228 1981 161,456 9.30 156 72 --
Polo Club on Cranbrook II Houston, TX 292 1982 215,080 7.00 176 116 --
Retreat at Eldridge (2) Houston, TX 168 1998 158,304 8.76 108 60 --
Richmond Green Houston, TX 224 1980 214,494 8.76 74 150 --
Riverwalk Houston, TX 184 1984 140,560 7.58 128 56 --
Silverado Houston, TX 344 1979 248,960 11.31 272 72 --
<CAPTION>
AVERAGE MONTHLY
PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
AVERAGE --------------------- ----------------------
METROPOLITAN AREA/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION (SQ. FT.) 1998 1997 1998 1997
- -------------------- -------------- ---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Summer Meadows Plano, TX 831 90.5% 92.0% 689 667
Summer Villas Dallas, TX 713 95.1% 91.9% 592 565
Summers Crossing Plano, TX 816 87.7% 94.7% 685 652
Summers Landing Fort Worth, TX 711 92.5% 97.0% 596 563
Trinity Mills Dallas, TX 783 90.7% 91.3% 649 612
Trinity Oaks Dallas, TX 626 96.2% 96.9% 558 538
Waterford on the Meadow Plano, TX 888 98.3% 93.0% 674 654
----- ------ ------ ---- ----
DALLAS TOTAL / WEIGHTED AVERAGE 771 92.7% 92.6% 588 552
----- ------ ------ ---- ----
HOUSTON
- --------------------
Arbor Point Houston, TX 877 96.8% 97.0% 665 631
Ashton Woods Houston, TX 854 94.9% 93.2% 534 496
Aston Brook Houston, TX 785 98.3% 95.5% 503 463
Bar Harbor Houston, TX 662 96.9% 92.8% 519 487
Bayou Oaks Houston, TX 755 97.8% 96.9% 504 480
Brandon Oaks Houston, TX 862 98.3% 90.2% 572 540
Briarcrest Houston, TX 789 94.9% 90.5% 537 511
Brookfield Houston, TX 756 97.4% 95.8% 541 505
Carriage Hill Houston, TX 960 98.3% 95.5% 602 568
Central Park Condos Houston, TX 1,065 89.8% 97.2% 754 715
Central Park Regency Houston, TX 917 93.5% 95.6% 601 570
Charleston, The Houston, TX 724 93.4% 96.1% 499 452
Cimarron Park Houston, TX 832 91.6% 95.2% 583 546
Cimarron Parkway Houston, TX 876 96.7% 97.1% 561 536
Colorado Club Houston, TX 753 96.5% 96.4% 542 523
Copper Cove Houston, TX 756 89.1% 88.8% 519 496
Enclave at Cypress Park Houston, TX 859 92.5% 93.7% 582 563
Foxboro Houston, TX 740 93.4% 93.0% 507 487
Georgetown Houston, TX 1,521 97.7% 97.9% 986 941
Hidden Lake Houston, TX 724 96.1% 96.4% 668 639
Holiday on Hayes Houston, TX 803 96.1% 96.2% 563 536
Hunt Club, The Houston, TX 666 98.4% 97.7% 470 456
Huntley, The Houston, TX 771 97.0% 95.8% 647 617
Laurel Creek Houston, TX 756 89.2% 93.2% 607 578
Meadows on Memorial Houston, TX 990 97.1% 97.6% 659 612
Mill Creek Houston, TX 860 98.1% 97.4% 512 484
Monticello on Cranbrook Houston, TX 835 94.6% 96.8% 541 502
Northwoods Houston, TX 1,188 96.6% 96.2% 719 675
One Cypress Landing Houston, TX 772 97.9% 90.9% 476 442
One Westfield Lake Houston, TX 1,095 86.2% 95.5% 689 637
One Willow Chase Houston, TX 766 94.5% 97.5% 520 482
One Willow Park Houston, TX 789 96.7% 96.9% 510 509
Pathway, The Houston, TX 968 97.6% 96.4% 680 655
Pine Creek Houston, TX 788 91.7% 91.9% 506 475
Polo Club on Cranbrook I Houston, TX 708 94.3% 94.3% 462 429
Polo Club on Cranbrook II Houston, TX 737 95.4% 91.4% 476 443
Retreat at Eldridge (2) Houston, TX 942 83.7% N/A 781 N/A
Richmond Green Houston, TX 958 94.5% 97.7% 680 644
Riverwalk Houston, TX 764 93.3% 94.9% 549 527
Silverado Houston, TX 723 92.3% 97.3% 567 526
</TABLE>
<PAGE> 14
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL -------------------
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR
- ------------------ -------------- --------- ------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
South Green (2) Houston, TX 268 1982 219,948 8.90 172 96
Stony Creek Houston, TX 252 1980 194,240 9.30 164 88
Timbers of Cranbrook Houston, TX 274 1984 206,884 9.50 184 90
Tranquility Lake Houston, TX 90 1983 84,446 10.10 35 55
Wimbledon Houston, TX 161 1978 154,601 6.30 49 106
Woodborough Houston, TX 320 1983 222,640 10.30 240 80
Woodchase Houston, TX 270 1978 252,542 9.98 86 184
Woodedge Houston, TX 126 1982 113,850 6.65 21 104
Woodlake Houston, TX 315 1976 242,587 8.28 260 52
--------- ------- ------------ --------- -------- --------
HOUSTON TOTAL / WEIGHTED AVERAGE 11,723 1982 9,660,568 489.71 7,019 4,309
--------- ------- ------------ --------- -------- --------
SAN ANTONIO
Costa Del Sol San Antonio, TX 244 1985 180,798 10.00 170 74
Country View San Antonio, TX 272 1981 213,120 11.00 176 96
Remington San Antonio, TX 158 1986 112,018 4.90 108 50
Summer Oaks San Antonio, TX 256 1983 171,464 9.50 184 72
Villas of St. Moritz San Antonio, TX 216 1986 149,040 7.50 136 80
--------- ------- ------------ --------- -------- --------
SAN ANTONIO TOTAL / WEIGHTED AVERAGE 1,146 1984 826,440 42.90 774 372
--------- ------- ------------ --------- -------- --------
OTHER TEXAS
Fountaingate Wichita Falls, TX 280 1980 252,040 17.79 160 104
Settler's Cove Beaumont, TX 182 1982 133,654 6.24 138 44
--------- ------- ------------ --------- -------- --------
OTHER TEXAS TOTAL / WEIGHTED AVERAGE 462 1981 385,694 24.03 298 148
--------- ------- ------------ --------- -------- --------
TEXAS TOTAL / WEIGHTED AVERAGE 28,184 1983 22,232,678 1,194.18 17,806 9,796
--------- ------- ------------ --------- -------- --------
JACKSONVILLE
Bentley Green Jacksonville, FL 444 1986 308,096 25.69 336 108
Brookwood Club Jacksonville, FL 360 1987 287,480 15.00 200 160
Huntington at Hidden Hills Jacksonville, FL 224 1986 183,200 14.97 64 160
Remington at Ponte Vedra Ponte Vedra Beach, FL 344 1986 302,904 28.60 136 208
Sandpiper Jacksonville, FL 376 1985 289,112 17.00 200 144
--------- ------- ------------ --------- -------- --------
JACKSONVILLE TOTAL / WEIGHTED AVERAGE 1,748 1986 1,370,792 101.26 936 780
--------- ------- ------------ --------- -------- --------
<CAPTION>
UNIT AVERAGE MONTHLY
TYPE PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
------ AVERAGE -------------------- ----------------------
METROPOLITAN AREA/ 3 BR/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION 4 BR (SQ. FT.) 1998 1997 1998 1997
- ------------------- ------------- ----- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
South Green (2) Houston, TX -- 821 93.0% N/A 582 N/A
Stony Creek Houston, TX -- 771 96.4% 96.7% 500 464
Timbers of Cranbrook Houston, TX -- 755 94.4% 95.5% 509 470
Tranquility Lake Houston, TX -- 938 97.3% 98.0% 744 699
Wimbledon Houston, TX 6 957 94.3% 96.8% 607 567
Woodborough Houston, TX -- 696 95.4% 95.4% 468 428
Woodchase Houston, TX -- 935 97.9% 94.5% 620 601
Woodedge Houston, TX 1 902 94.9% 95.4% 583 541
Woodlake Houston, TX 3 770 95.4% 95.8% 552 517
----- ----- ------ ------ ---- ----
HOUSTON TOTAL / WEIGHTED AVERAGE 395 824 94.7% 94.9% 570 535
----- ----- ------ ------ ---- ----
SAN ANTONIO
Costa Del Sol San Antonio, TX -- 741 98.1% 89.6% 510 522
Country View San Antonio, TX -- 784 94.6% 96.3% 493 486
Remington San Antonio, TX -- 709 97.6% 91.6% 499 504
Summer Oaks San Antonio, TX -- 670 95.7% 91.0% 456 464
Villas of St. Moritz San Antonio, TX -- 690 98.2% 98.5% 487 483
----- ----- ------ ------ ---- ----
SAN ANTONIO TOTAL / WEIGHTED AVERAGE -- 721 96.7% 93.5% 488 491
----- ----- ------ ------ ---- ----
OTHER TEXAS
Fountaingate Wichita Falls, TX 16 900 95.9% 89.6% 521 526
Settler's Cove Beaumont, TX -- 734 88.7% 94.8% 523 501
----- ----- ------ ------ ---- ----
OTHER TEXAS TOTAL / WEIGHTED AVERAGE 16 835 93.1% 91.6% 522 516
----- ----- ------ ------ ---- ----
TEXAS TOTAL / WEIGHTED AVERAGE 582 789 94.1% 93.9% 643 551
----- ----- ------ ------ ---- ----
JACKSONVILLE
Bentley Green Jacksonville, FL -- 694 90.8% 94.0% 550 559
Brookwood Club Jacksonville, FL -- 799 93.8% 87.0% 563 547
Huntington at Hidden Hills Jacksonville, FL -- 818 97.1% 95.6% 571 541
Remington at Ponte Vedra Ponte Vedra Beach, FL -- 881 91.2% 93.1% 666 651
Sandpiper Jacksonville, FL 32 769 96.8% 89.7% 562 548
----- ----- ------ ------ ---- ----
JACKSONVILLE TOTAL / WEIGHTED AVERAGE 32 784 93.5% 91.6% 581 570
----- ----- ------ ------ ---- ----
</TABLE>
<PAGE> 15
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL -------------------
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR
- ------------------- ------------ --------- ------------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
TAMPA
- -----
Ashton Park(2) Tampa, FL 192 1988 152,072 10.93 122 70
Bel Shores Largo, FL 250 1985 189,874 22.30 138 112
Carlyle at Waters Tampa, FL 392 1986 281,893 13.00 310 82
Oak Ramble Tampa, FL 256 1985 229,384 20.56 128 128
South Pointe (2) Tampa, FL 112 1986 97,232 5.00 72 40
St. James Crossing (2) Tampa, FL 264 1986 198,424 12.30 176 88
Three Palms Tampa, FL 438 1986 369,362 34.70 254 184
--------- ------- ------------ --------- -------- --------
TAMPA TOTAL / WEIGHTED AVERAGE 1,904 1986 1,518,241 118.79 1,200 704
--------- ------- ------------ --------- -------- --------
OTHER FLORIDA
- -------------
Saratoga Melbourne, FL 210 1986 146,732 14.00 160 50
--------- ------- ------------ --------- -------- --------
FLORIDA TOTAL / WEIGHTED AVERAGE 3,862 1986 3,035,765 234.05 2,296 1,534
--------- ------- ------------ --------- -------- --------
PHOENIX
- -------
Casa Verde Phoenix, AZ 268 1983 178,140 8.23 184 84
Crestwood Phoenix, AZ 276 1984 149,433 8.29 255 21
Fairways, The Phoenix, AZ 160 1981 118,192 5.80 108 52
Garden Place Phoenix, AZ 286 1979 231,120 14.20 132 154
Meadow Glen Glendale, AZ 290 1987 242,020 11.20 90 200
Terra Vida Mesa, AZ 384 1988 305,600 15.40 128 224
Woodstone Phoenix, AZ 696 1986 573,564 19.70 432 240
--------- ------- ------------ --------- -------- --------
PHOENIX TOTAL / WEIGHTED AVERAGE 2,360 1985 1,798,069 82.82 1,329 975
--------- ------- ------------ --------- -------- --------
OKLAHOMA CITY
- -------------
Copperfield Oklahoma City, OK 262 1983 187,080 7.70 196 66
Hunter's Ridge Oklahoma City, OK 212 1984 155,587 6.00 148 64
Summerfield Place Oklahoma City, OK 224 1981 154,528 9.00 176 48
Woodscape Oklahoma City, OK 498 1985 363,073 15.60 348 150
--------- ------- ------------ --------- -------- --------
OKLAHOMA CITY TOTAL / WEIGHTED AVERAGE 1,196 1984 860,268 38.30 868 328
--------- ------- ------------ --------- -------- --------
TULSA
- -----
Avondale Tulsa, OK 328 1979 194,168 14.23 280 48
Coventry Park Tulsa, OK 256 1978 156,848 11.32 208 48
Fountain Crest Tulsa, OK 424 1978 256,672 14.57 360 64
--------- ------- ------------ --------- -------- --------
TULSA TOTAL / WEIGHTED AVERAGE 1,008 1978 607,688 40.12 848 160
--------- ------- ------------ --------- -------- --------
OKLAHOMA TOTAL / WEIGHTED AVERAGE 2,204 1981 1,467,956 78.42 1,716 488
--------- ------- ------------ --------- -------- --------
NASHVILLE
- ---------
Nashboro Village Nashville, TN 994 1982 959,153 60.73 456 426
Brandywine Nashville, TN 300 1985 203,418 21.00 240 60
Raintree Nashville, TN 332 1985 216,930 24.90 252 80
Windsor Park Hendersonville, TN 232 1985 151,954 13.35 186 46
--------- ------- ------------ --------- -------- --------
NASHVILLE TOTAL / WEIGHTED AVERAGE 1,858 1984 1,531,455 119.98 1,134 612
--------- ------- ------------ --------- -------- --------
<CAPTION>
UNIT AVERAGE MONTHLY
TYPE PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
----- AVERAGE -------------------- ----------------------
METROPOLITAN AREA/ 3 BR/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION 4 BR (SQ. FT.) 1998 1997 1998 1997
- ------------------- ------------- ---- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TAMPA
- -----
Ashton Park Tampa, FL -- 792 95.2% N/A 577 N/A
Bel Shores Largo, FL -- 759 93.1% 93.9% 627 608
Carlyle at Waters Tampa, FL -- 719 94.7% 90.6% 532 511
Oak Ramble Tampa, FL -- 896 95.5% 94.3% 624 621
South Pointe (2) Tampa, FL -- 868 97.5% N/A 656 N/A
St. James Crossing (2) Tampa, FL -- 752 94.4% N/A 537 N/A
Three Palms Tampa, FL -- 843 98.0% 86.0% 629 623
----- ----- ------ ------ ---- ----
TAMPA TOTAL / WEIGHTED AVERAGE -- 797 95.6% 90.4% 592 412
----- ----- ------ ------ ---- ----
OTHER FLORIDA
- -------------
Saratoga Melbourne, FL -- 699 94.5% 93.4% 576 514
----- ----- ------ ------ ---- ----
FLORIDA TOTAL / WEIGHTED AVERAGE 32 786 94.6% 91.3% 586 489
----- ----- ------ ------ ---- ----
PHOENIX
- -------
Casa Verde Phoenix, AZ -- 665 96.2% 93.3% 438 408
Crestwood Phoenix, AZ -- 541 98.6% 95.5% 481 450
Fairways, The Phoenix, AZ -- 739 89.8% 92.8% 561 546
Garden Place Phoenix, AZ -- 808 91.8% 94.8% 613 580
Meadow Glen Glendale, AZ -- 835 96.9% 96.3% 629 610
Terra Vida Mesa, AZ 32 796 93.4% 96.5% 642 613
Woodstone Phoenix, AZ 24 824 89.7% 89.5% 615 589
----- ----- ------ ------ ---- ----
PHOENIX TOTAL / WEIGHTED AVERAGE 56 762 93.0% 93.5% 581 554
----- ----- ------ ------ ---- ----
OKLAHOMA CITY
- -------------
Copperfield Oklahoma City, OK -- 714 93.5% 94.7% 470 473
Hunter's Ridge Oklahoma City, OK -- 734 92.4% 90.7% 448 455
Summerfield Place Oklahoma City, OK -- 690 89.7% 89.9% 448 445
Woodscape Oklahoma City, OK -- 729 88.2% 88.8% 477 475
----- ----- ------ ------ ---- ----
OKLAHOMA CITY TOTAL / WEIGHTED AVERAGE -- 719 90.3% 90.6% 465 465
----- ----- ------ ------ ---- ----
TULSA
- -----
Avondale Tulsa, OK -- 592 88.9% 90.9% 365 348
Coventry Park Tulsa, OK -- 613 93.5% 97.0% 388 359
Fountain Crest Tulsa, OK -- 605 90.2% 92.5% 369 352
----- ----- ------ ------ ---- ----
TULSA TOTAL / WEIGHTED AVERAGE -- 603 90.7% 93.1% 372 352
----- ----- ------ ------ ---- ----
OKLAHOMA TOTAL / WEIGHTED AVERAGE -- 666 90.5% 91.8% 423 414
----- ----- ------ ------ ---- ----
NASHVILLE
- ---------
Nashboro Village Nashville, TN 112 965 88.2% 91.0% 637 632
Brandywine Nashville, TN -- 678 95.8% 88.0% 539 543
Raintree Nashville, TN -- 653 95.9% 84.9% 541 545
Windsor Park Hendersonville, TN -- 655 92.5% 92.8% 533 534
----- ----- ------ ------ ---- ----
NASHVILLE TOTAL / WEIGHTED AVERAGE 112 824 91.1% 89.7% 591 590
----- ----- ------ ------ ---- ----
</TABLE>
<PAGE> 16
Walden Residential Properties, Inc.
Apartments Owned
<TABLE>
<CAPTION>
TOTAL
NUMBER YEAR RENTABLE UNIT TYPE
METROPOLITAN AREA/ OF CONSTRUCTION AREA TOTAL -------------------
PROPERTY LOCATION UNITS COMPLETED (1) (SQ. FT.) ACREAGE 1 BR 2 BR
- ---------------------- ----------------- --------- ------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SALT LAKE CITY
James Pointe Murray, UT 312 1985 236,928 11.60 144 168
Stillwater Murray, UT 456 1986 343,216 15.34 152 304
--------- ------- ------------ --------- -------- --------
SALT LAKE CITY TOTAL / WEIGHTED AVERAGE 768 1986 580,144 26.94 296 472
--------- ------- ------------ --------- -------- --------
ATLANTA
Parkway Station Atlanta, GA 344 1986 369,960 28.63 72 164
Saratoga Springs Atlanta, GA 266 1985 223,402 20.00 128 138
Shannon Chase Atlanta, GA 156 1987 163,400 26.00 50 106
Villas at Indian Trails Atlanta, GA 236 1986 242,044 39.70 60 176
--------- ------- ------------ --------- -------- --------
Atlanta Total / Weighted Average 1,002 1986 998,806 114.33 310 584
--------- ------- ------------ --------- -------- --------
SAN DIEGO
Felicita Creek San Diego, CA 136 1987 104,440 6.20 36 100
Park Bonita San Diego, CA 184 1984 154,256 11.12 36 148
Sun Ridge San Diego, CA 160 1986 134,800 5.44 16 144
--------- ------- ------------ --------- -------- --------
SAN DIEGO TOTAL / WEIGHTED AVERAGE 480 1986 393,496 22.76 88 392
--------- ------- ------------ --------- -------- --------
OTHER MARKETS
Eagle Pointe Indianapolis, IN 256 1988 202,000 19.77 152 104
Silverado Albuquerque, NM 256 1985 183,656 8.10 180 76
Winridge Aurora, CO (Denver) 364 1986 303,438 15.80 262 102
--------- ------- ------------ --------- -------- --------
OTHER MARKETS TOTAL / WEIGHTED AVERAGE 876 1986 689,094 43.67 594 282
--------- ------- ------------ --------- -------- --------
TOTAL / WEIGHTED AVERAGE 41,594 1984 32,727,463 1,917.15 25,569 15,135
========= ======= ============ ========= ======== ========
<CAPTION>
UNIT AVERAGE MONTHLY
TYPE PHYSICAL OCCUPANCY RENTAL RATE PER UNIT
----- AVERAGE -------------------- ----------------------
METROPOLITAN AREA/ 3 BR/ APT. SIZE DECEMBER DECEMBER DECEMBER DECEMBER
PROPERTY LOCATION 4 BR (SQ. FT.) 1998 1997 1998 1997
- ------------------- ------------ ----- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SALT LAKE CITY
James Pointe Murray, UT -- 759 98.0% 90.4% 594 588
Stillwater Murray, UT -- 753 98.1% 94.5% 610 597
----- ----- ------ ------ ---- ----
SALT LAKE CITY TOTAL / WEIGHTED AVERAGE -- 755 98.1% 92.9% 604 593
----- ----- ------ ------ ---- ----
ATLANTA
Parkway Station Atlanta, GA 108 1,075 85.7% N/A $732 N/A
Saratoga Springs Atlanta, GA -- 840 97.1% 94.8% 654 635
Shannon Chase Atlanta, GA -- 1,047 93.3% 90.6% 672 674
Villas at Indian Trails Atlanta, GA -- 1,026 94.2% 84.5% 692 684
----- ----- ------ ------ ---- ----
Atlanta Total / Weighted Average 108 997 91.7% 90.1% 693 662
----- ----- ------ ------ ---- ----
SAN DIEGO
Felicita Creek San Diego, CA -- 768 99.2% 97.9% 703 649
Park Bonita San Diego, CA -- 838 98.8% 94.0% 847 789
Sun Ridge San Diego, CA -- 843 96.7% 93.6% 667 629
----- ----- ------ ------ ---- ----
SAN DIEGO TOTAL / WEIGHTED AVERAGE -- 820 98.3% 95.0% 746 696
----- ----- ------ ------ ---- ----
OTHER MARKETS
Eagle Pointe Indianapolis, IN -- 789 86.7% 90.1% 593 576
Silverado Albuquerque, NM -- 717 84.4% 88.6% 583 560
Winridge Aurora, CO (Denver) -- 834 94.0% 93.7% 654 627
----- ----- ------ ------ ---- ----
OTHER MARKETS TOTAL / WEIGHTED AVERAGE -- 787 89.3% 91.1% 615 593
----- ----- ------ ------ ---- ----
TOTAL / WEIGHTED AVERAGE 890 787 93.6% 93.2% $622 $531
===== ===== ====== ====== ==== ====
</TABLE>
(1) Year construction completed indicates the year in which the final
certificate of occupancy for the property was issued.
(2) Represents recently acquired property for which historical information is
not available.
(3) Total rentable area is calculated by adding the square footage for each
individual apartment in the property, excluding the leasing office or
maintenance area.
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
The Company and the Properties are occasionally subjected to routine
litigation arising in the ordinary course of business, which has been and is
expected to be covered by liability insurance and none of which has had, or is
expected to have, a material adverse effect on the business, financial
condition, results of operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-16-
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company ("Common Stock") has traded on the New
York Stock Exchange ("NYSE") under the symbol "WDN" since February 2, 1994, the
date on which the Common Stock began trading. The following table sets forth
for the periods indicated the high and low sales prices per common share as
reported on the NYSE and the distributions declared by the Company per common
share for each such period in 1998 and 1997:
<TABLE>
<CAPTION>
Distributions
Quarter Ended High Low Per share
- ------------- ------- -------- -------------
<S> <C> <C> <C>
March 31, 1998....................... $27.125 $ 23.750 $0.4825
June 30, 1998........................ 26.000 23.813 0.4825
September 30, 1998................... 23.063 22.750 0.4825
December 31, 1998.................... 23.938 19.250 0.4825
March 31, 1997....................... $26.875 $ 24.000 $0.4825
June 30, 1997........................ 25.688 21.250 0.4825
September 30, 1997................... 25.750 22.750 0.4825
December 31, 1997.................... 26.000 23.500 0.4825
</TABLE>
As of March 3, 1999, the Common Stock was held by 1,571 stockholders
of record, including shares held in nominee or street name by brokers.
For the year ended December 31, 1998, the Company declared and paid
distributions totaling $1.93 per share of Common Stock. On March 3, 1999, the
Company paid a distribution of $.4825 per share to record holders of Common
Stock on February 18, 1999, representing an annualized distribution of $1.93
per share of Common Stock.
Pursuant to a provision of the Company's credit facility,
distributions to stockholders may not exceed 90% of funds from operations, as
defined in the credit facility. The Company does not anticipate its
distributions to be restricted by this provision.
Future distributions made by the Company will be at the discretion of
its Board of Directors and will depend upon numerous factors, including the
gross revenues received from the Properties, the operating expenses of the
Company, capital expenditures for the Properties and the interest expense
incurred in borrowing.
Pursuant to Internal Revenue Code provisions, a REIT is generally
required to distribute at least 95% of its taxable income, as defined.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for Federal income tax purposes generally will be taxable
to stockholders as ordinary dividend income, ordinary gain or capital gain.
Distributions in excess of such earnings and profits generally will be treated
as a non-taxable reduction of the stockholder's basis in the shares of Common
Stock to the extent thereof (which may have the effect of deferring taxation
until the sale of such shares of Common Stock), and thereafter as taxable gain.
-17-
<PAGE> 19
Following is an allocation of the 1998 distributions to common stockholders:
<TABLE>
<CAPTION>
Amount of Distribution
Distribution Type per Common Share Percentage
- ----------------- ---------------------- ----------
<S> <C> <C>
Ordinary Taxable Dividend $ 0.76 39.30%
20% Rate Capital Gain 0.15 7.71%
Section 1250 Ordinary Gain 0.05 2.85%
Return of Capital 0.97 50.14%
------ ----------
$ 1.93 100.00%
====== ==========
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected consolidated financial data
for the Company and combined financial data for the Walden Predecessors, which
included the 18 Original Properties (five of which have been sold) acquired
concurrently with the closing of the IPO. The historical consolidated operating
data for the Company for the years ended December 31, 1998, 1997, 1996 and 1995
and the period from February 9, 1994 (date of commencement of operations) to
December 31, 1994 and the balance sheet data as of December 31, 1998, 1997,
1996, 1995, and 1994 and the combined operating data of the Walden Predecessors
for the period January 1, 1994 to February 8, 1994 have been derived from the
consolidated financial statements and accounting records of the Company and the
combined financial statements and accounting records of the Walden
Predecessors, respectively, which have been audited by independent auditors.
The consolidated and combined historical operating results of the Company and
the Walden Predecessors may not be indicative of future operating results of
the Company. The following selected financial information should be read in
conjunction with the discussion set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and all of the
financial statements included elsewhere in this report. All amounts are in
thousands except per share and property data.
-18-
<PAGE> 20
<TABLE>
<CAPTION>
The Company
------------------------------------------------
Year Ended December 31,
-----------------------
1998 1997 (a) 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA
Revenues
Rental income ................................. $ 268,224 $ 163,224 $ 105,602 $ 78,469
Other property income ......................... 10,593 6,313 3,873 3,090
Interest income ............................... 1,717 1,598 1,433 856
Other income .................................. -- -- 263 409
--------- --------- --------- ---------
Total revenues ........................... 280,534 171,135 111,171 82,824
Expenses
Property operating and maintenance ............ 91,930 56,483 37,521 28,748
Real estate taxes ............................. 28,272 16,805 10,039 7,337
General and administrative .................... 11,901 7,734 5,124 3,811
Unusual charge ................................ 3,993 1,940 -- --
Interest expense .............................. 54,409 28,447 20,573 17,111
Depreciation and amortization ................. 60,275 34,668 20,726 16,634
--------- --------- --------- ---------
Total expenses ........................... 250,780 146,077 93,983 73,641
--------- --------- --------- ---------
Operating income .................................. 29,754 25,058 17,188 9,183
Gain on disposition of real property .............. 6,459 2,055 1,934 1,502
Extraordinary loss on debt extinguishment ......... (423) (422) (1,848) (1,352)
--------- --------- --------- ---------
Income before income allocated
to minority interests ........................... 35,790 26,691 17,274 9,333
Income allocated to minority interests ............ (11,935) (4,109) (1,705) (922)
--------- --------- --------- ---------
Net income ........................................ 23,855 22,582 15,569 8,411
Preferred distributions ........................... (13,119) (13,186) (2,387) --
--------- --------- --------- ---------
Net income available to common stockholders ....... $ 10,736 $ 9,396 $ 13,182 $ 8,411
========= ========= ========= =========
Basic net income per share ........................ $ 0.58 $ 0.53 $ 0.90 $ 0.69
========= ========= ========= =========
Diluted net income per share ...................... $ 0.58 $ 0.53 $ 0.89 $ 0.69
========= ========= ========= =========
Distributions per share of common stock ........... $ 1.93 $ 1.93 $ 1.86 $ 1.82
========= ========= ========= =========
Basic weighted average number of common shares .... 18,497 17,590 14,720 12,155
========= ========= ========= =========
PROPERTY DATA
Total properties (at end of period) (b) ........... 150 154 68 55
Total units (at end of period) .................... 41,594 42,482 21,407 17,205
Total units (weighted average) .................... 42,629 27,346 18,430 14,601
Weighted average monthly property revenue
per unit(c) ..................................... $ 545 $ 517 $ 495 $ 465
OTHER DATA
Funds from operations (d) ......................... $ 78,649 $ 50,233 $ 36,998 $ 24,917
Cash flows provided by (used in):
Operating activities .......................... $ 69,405 $ 70,822 $ 38,281 $ 31,317
Investing activities .......................... $ (53,776) $(327,814) $(158,668) $ (86,926)
Financing activities .......................... $ (16,094) $ 237,029 $ 143,306 $ 58,121
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1998 1997 1996 1995
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Real estate assets, at cost.......................... $1,531,163 $1,506,030 $683,515 $513,341
Accumulated depreciation............................. (128,765) (74,584) (41,707) (23,734)
Total assets......................................... 1,552,273 1,469,472 689,714 510,548
Mortgage notes payable, credit facility
and term loan...................................... 806,867 702,354 258,908 259,015
Minority interests................................... 147,277 321,916 14,886 18,608
Stockholders' equity................................. 533,203 395,215 396,535 216,519
</TABLE>
(a) On October 1, 1997, the Company acquired Drever. For a discussion of the
Drever transaction, see the general section located in Item 1 of Part I.
(b) During 1997, in order to achieve operating efficiencies, the Company
combined six properties with certain other properties owned by the Company,
bringing the total number of Properties to 154 at December 31, 1997.
(c) Represents rental income and other property income, divided by weighted
average units, divided by twelve months.
(d) Based on the guidelines established by the National Association of Real
Estate Investment Trusts ("NAREIT") and REIT industry standards, management
believes funds from operations, or "FFO", is an appropriate measure of the
performance of an equity REIT. FFO is generally calculated by excluding
from net income any gains or losses from debt restructurings and sales of
property and adding back any depreciation of real estate assets. In
addition, extraordinary or unusual items that are non-recurring events
which would materially distort the comparative measure of FFO are typically
excluded. Management believes FFO helps to evaluate its operations by
determining its ability to incur and service debt and to make capital
expenditures. By adding depreciation expense back to net income, FFO
presents a more accurate picture of the Company's operating cash flows. In
evaluating FFO and the trends it depicts, consideration should be given to
the major factors affecting FFO. Growth in FFO results from increases in
revenues or decreases in related operating expenses. The Company's
historical increases in FFO have been primarily the result of increased
revenues coming from property acquisitions. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available
to fund cash needs and cash distributions. FFO should not be considered as
an alternative to net income as an indication of performance or as an
alternative to cash flow as a measure of liquidity. The Company's
calculation of FFO includes income allocated to minority interests and
assumes the conversion of all convertible securities, including minority
interest securities. This calculation may differ from the FFO calculation
used by other REITs, and, accordingly, may not be comparable to similar
entitled items reported by other REITs.
-19-
<PAGE> 21
<TABLE>
<CAPTION>
Walden
The Company Predecessors
----------- ------------
February 9 to January 1 to
December 31, February 8,
1994 1994
---- ----
<S> <C> <C>
OPERATING DATA .................................................
Revenues
Rental income ......................................... $ 39,602 $ 3,047
Other property income ................................. 1,493 134
Interest income ....................................... 365 37
Other income .......................................... 533 --
Property management fees .............................. -- 150
--------- ---------
Total revenues ................................. 41,993 3,368
Expenses
Property operating and maintenance .................... 15,607 1,242
Real estate taxes ..................................... 3,275 226
General and administrative ............................ 2,507 217
Interest expense ...................................... 6,288 1,075
Depreciation and amortization ......................... 8,960 653
--------- ---------
Total expenses ................................. 36,637 3,413
--------- ---------
Operating income (loss) (a) ............................... $ 5,356 $ (45)
========= =========
Net income available to common stockholders ............... $ 5.356 --
========= =========
Basic net income per share ................................ $ 0.62 --
========= =========
Diluted net income per share .............................. $ 0.62 --
========= =========
Distributions per share of common stock ................... $ 1.09 --
========= =========
Basic weighted average number of common shares ............ 8,689 --
========= =========
PROPERTY DATA
Total properties (at end of period) ....................... 40 18
Total units (at end of period) ............................ 12,319 5,895
Total units (weighted average) ............................ 9,140 5,895
Weighted average monthly property revenue per unit (b) .... $ 420 $ 421
OTHER DATA
Funds from operations (c) ................................. $ 13,945 $ 588
Cash flows provided by (used in):
Operating activities .................................. $ 16,420 $ 1,858
Investing activities .................................. $(256,114) $ --
Financing activities .................................. $ 243,982 $ (311)
</TABLE>
<TABLE>
<CAPTION>
December 31
BALANCE SHEET DATA 1994
-----------
<S> <C>
Real estate assets, at cost................................ $ 329,206
Accumulated depreciation and impairment allowance.......... (8,589)
Total assets............................................... 334,937
Mortgage notes payable..................................... 165,439
Stockholders' equity....................................... 160,267
</TABLE>
(a) Net loss of Walden Predecessors is before income tax benefits and
extraordinary gains.
(b) Represents rental income and other property income, divided by weighted
average units, divided by the number of months.
(c) Based on the guidelines established by the National Association of Real
Estate Investment Trusts ("NAREIT") and REIT industry standards, management
believes funds from operations, or "FFO", is an appropriate measure of the
performance of an equity REIT. FFO is generally calculated by excluding from
net income any gains or losses from debt restructurings and sales of
property and adding back any depreciation of real estate assets. In
addition, extraordinary or unusual items that are non-recurring events which
would materially distort the comparative measure of FFO are typically
excluded. Management believes FFO helps to evaluate its operations by
determining its ability to incur and service debt and to make capital
expenditures. By adding depreciation expense back to net income, FFO
presents a more accurate picture of the Company's operating cash flows. In
evaluating FFO and the trends it depicts, consideration should be given to
the major factors affecting FFO. Growth in FFO results from increases in
revenues or decreases in related operating expenses. The Company's
historical increases in FFO have been primarily the result of increased
revenues coming from property acquisitions. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs and cash distributions. FFO should not be considered as an
alternative to net income as an indication of performance or as an
alternative to cash flow as a measure of liquidity. The Company's
calculation of FFO includes income allocated to minority interests and
assumes the conversion of all convertible securities, including minority
interest securities. This calculation may differ from the FFO calculation
used by other REITs, and, accordingly, may not be comparable to similar
entitled items reported by other REITs.
-20-
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
"Selected Financial Data" and all of the financial statements and notes thereto
included elsewhere in this report. Such financial statements and information
have been prepared to reflect the consolidated statements of income of the
Company for each of the three years in the period ended December 31, 1998 and
the balance sheets of the Company as of December 31, 1998 and 1997. (See the
Walden Residential Properties, Inc. Consolidated Financial Statements and
related Notes included elsewhere in this report.)
Changes in revenues and expenses related to the Properties during
1998, 1997 and 1996 are primarily the result of property acquisitions. Where
appropriate, comparisons are made on a dollars-per-weighted-average-unit basis
in order to adjust for changes in the number of units owned during each period.
RESULTS OF OPERATIONS
Results of Operations for the Company for the Year Ended December 31,
1998 Compared to the Year Ended December 31,1997.
The weighted average number of units owned increased by 15,283 in 1998
or 55.9% from 27,346 in 1997 to 42,629 in 1998 primarily as a result of the
Drever acquisition in the fourth quarter of 1997. Total units owned at December
31, 1997 and 1998 were 42,482 and 41,594, respectively. The portfolio had a
weighted average physical occupancy of 93.3% for 1997 and 93.6% for 1998.
The Company owned 62 properties with 20,400 units throughout both
calendar years 1998 and 1997 ("same property"). The "same property" operating
performance is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1998 1997 % Change
-------- -------- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) .... $130,261 $126,416 3.0%
Property operating expenses (in thousands)(1) ....... 55,228 53,761 2.7%
-------- --------
Property operating income (in thousands) ............ $ 75,033 $ 72,655 3.3%
======== ========
Weighted average physical occupancy ................. 92.6% 92.9% N/A
======== ========
Average monthly revenue per unit .................... $ 532 $ 516 3.0%
======== ========
Average annual operating and maintenance
expenses per unit ................................. $ 2,082 $ 2,027 2.7%
======== ========
Average annual real estate taxes per unit ........... $ 625 $ 608 2.7%
======== ========
Operating expense ratio ............................. 42.4% 42.5% N/A
======== ========
</TABLE>
(1) Consists of property operating and maintenance and real
estate tax expenses.
-21-
<PAGE> 23
The operating performance of those properties not owned throughout
1998 (88 properties) and 1997 (92 properties) is summarized below:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Rental and other property revenue (in thousands) .... $148,556 $ 43,121
Property operating expenses (in thousands)(1) ....... 64,974 19,527
-------- --------
Property operating income (in thousands) ............ $ 83,582 $ 23,594
======== ========
Weighted average number of units .................... 22,229 6,946
======== ========
Weighted average physical occupancy ................. 94.6% 94.5%
======== ========
Average monthly revenue per unit .................... $ 557 $ 517
======== ========
Average annual operating and maintenance
expenses per unit ................................. $ 2,225 $ 2,177
======== ========
Average annual real estate taxes per unit ........... $ 698 $ 634
======== ========
Operating expense ratio ............................. 43.7% 45.3%
======== ========
</TABLE>
(1) Consists of property operating and maintenance and real
estate tax expenses.
General and administrative expenses increased $4.2 million in 1998, or
54.5%, from $7.7 million in 1997 to $11.9 million in 1998. This represents a
per unit decrease of $4, or 1.4%, primarily due to operating efficiencies
gained from the merger with Drever. The increase in general and administrative
expenses was primarily the result of adding corporate personnel due to the
acquisition of properties in late 1997, and increased occupancy costs for
additional corporate and regional office space.
The $4.0 million unusual charge resulted from costs associated with
the December 1998 settlement of a $25 million forward treasury rate lock
agreement entered into in 1997.
Interest expense increased $26.0 million in 1998, or 91.5%, from $28.4
million in 1997 to $54.4 million in 1998, primarily due to an increase in the
weighted average indebtedness outstanding of approximately $365.8 million
associated with the acquisition of properties in 1997 and 1998 and the funding
of capital expenditures, partially offset by indebtedness repaid on properties
sold in 1998.
Depreciation expense increased $25.4 million in 1998, or 75.1%, from
$33.8 million in 1997 to $59.2 million in 1998, due to depreciation on
additional properties acquired in 1997 and 1998 and increased capital
improvements on existing properties. This represented a weighted average
increase of $151 per unit, or 12.2%.
The $6.5 million gain on disposition of real property in 1998 related
to the August 1998 sale of four properties located in Dallas/Forth Worth, Texas
and the December 1998 sale of five
-22-
<PAGE> 24
properties located in Houston, Texas. The Company received total net sales
proceeds from these dispositions of approximately $63.4 million, which was used
for the repayment of outstanding indebtedness and to purchase additional
properties.
The $0.4 million extraordinary loss on debt extinguishment in 1998 was
due to prepayment penalties incurred in connection with the Company's payoff of
a $7.2 million mortgage loan in April 1998, the payoff of two loans, totaling
$4.5 million, in December 1998 and the write off of unamortized deferred
financing costs related to the refinancing of certain of the Company's
indebtedness during 1998.
Results of Operations for the Company for the Year Ended December 31,
1997 Compared to the Year Ended December 31,1996.
The weighted average number of units owned increased by 8,916 in 1997,
or 48.4%, from 18,430 units in 1996 to 27,346 in 1997 as a result of the
acquisition of additional properties. Total units owned at December 31, 1996
and 1997 were 21,407 and 42,482, respectively. The portfolio had a weighted
average physical occupancy of 93.5% for 1996 and 93.3% for 1997.
The Company owned 51 properties with 15,981 apartment units throughout
both calendar years 1997 and 1996 ("same property"). The "same property"
operating performance is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1996 % Change
------- ------- --------
<S> <C> <C> <C>
Rental and other property revenue (in thousands) .... $97,520 $95,294 2.3%
Property operating expenses (in thousands)(1) ....... 41,412 41,437 (0.1%)
------- -------
Property operating income (in thousands) ............ $56,108 $53,857 4.2%
======= =======
Weighted average physical occupancy ................. 92.7% 93.6% N/A
======= =======
Average monthly revenue per unit .................... $ 509 $ 497 2.3%
======= =======
Average annual operating and maintenance
expenses per unit ................................. $ 2,005 $ 2,041 (1.8%)
======= =======
Average annual real estate taxes per unit ........... $ 586 $ 552 6.2%
======= =======
Operating expense ratio ............................. 42.5% 43.5% N/A
======= =======
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
-23-
<PAGE> 25
The operating performance of properties not owned throughout both
calendar years 1997 (103 properties) and 1996 (17 properties) is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Rental and other property revenue (in thousands) .... $72,017 $14,181
Property operating expenses (in thousands) (1) ...... 31,876 6,123
------- -------
Property operating income (in thousands) ............ $40,141 $ 8,058
======= =======
Weighted average number of units .................... 11,365 2,449
======= =======
Weighted average physical occupancy ................. 94.1% 92.9%
======= =======
Average monthly revenue per unit .................... $ 528 $ 483
======= =======
Average annual operating and maintenance
expenses per unit ................................. $ 2,151 $ 2,005
======= =======
Average annual real estate taxes per unit ........... $ 654 $ 495
======= =======
Operating expense ratio ............................. 44.3% 43.2%
======= =======
</TABLE>
(1) Consists of property operating and maintenance and real estate tax
expenses.
Interest income increased $165,000 in 1997, or 11.5%, from $1,433,000
in 1996 to $1,598,000 in 1997, primarily as the result of increased cash
balances during 1997.
The other income of $263,000 in 1996 was primarily attributable to the
net income from WDN Management Company allocated to the Company. WDN Management
Company was merged into the Company effective December 31, 1996.
General and administrative expenses increased $2.6 million in 1997, or
51.0%, from $5.1 million in 1996 to $7.7 million in 1997. This represented a
weighted average increase of $5 per unit, or 1.8%. The increases in general and
administrative expenses were primarily the result of adding corporate
personnel, due to the acquisition of properties during 1997, increased salary
costs, higher professional fees, higher costs related to stockholders
(quarterly mailings to stockholders, transfer services, etc.) and a one-time
severance charge relating to the departure of an executive of the Company
during the second quarter of 1997.
The $1.9 million unusual charge resulted from a settlement agreement
relating to the resignation of the Company's former Chairman of the Board of
Directors and Chief Executive Officer in October 1997.
Interest expense increased $7.8 million in 1997, or 37.9%, from $20.6
million in 1996 to $28.4 million in 1997, due to an increase in weighted
average indebtedness outstanding of approximately $99.3 million associated with
the acquisition of properties and a slight increase in the weighted average
interest rate in 1997 of approximately 0.1%.
Depreciation expense increased $14.0 million in 1997, or 70.7%, from
$19.8 million in 1996 to $33.8 million in 1997, due to depreciation on
additional properties acquired and capital improvements on existing properties.
This represented a weighted average increase of $162 per unit, or 15.1%.
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<PAGE> 26
The $2.1 million gain on disposition of real property in 1997 related
to the sale of a 392-unit property located in Dallas, Texas on October 2, 1997.
The Company received total net sales proceeds from the disposition of
approximately $4.1 million ($8.7 million sale proceeds less $4.6 million
repayment of related debt), which was used to purchase additional properties.
The $0.4 million extraordinary loss on debt extinguishment in 1997
resulted from the write-off of unamortized deferred financing costs and
prepayment penalties incurred in connection with the repayment of debt on the
property sold in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to maintain what it believes is a conservative
capital structure by: (i) maintaining an interest coverage ratio (operating
income before interest expense, depreciation and amortization to interest
expense) of 2.5 times or greater, (ii) managing interest exposure by obtaining
fixed rate debt and contractually fixing all or portions of variable debt with
interest rate swap or cap agreements, (iii) obtaining unsecured indebtedness
when possible, and (iv) staggering principal maturities when possible.
The Company's principal demands for liquidity are distributions to its
stockholders, ongoing maintenance and repair of its properties, capital
improvements to its properties (including unit interior upgrades and
repositioning costs), acquisitions of properties, new development commitments,
interest on indebtedness and debt repayments.
For the year ended December 31, 1998, the Company had cash flows from
operating activities of $69.4 million, net proceeds from the sale of nine
properties of $63.4 million, and net proceeds from stock issuances of $19.3
million, including $6.6 million related to the dividend reinvestment plan and
$3.3 million related to the stock loan program. These funds, together with
$91.0 million of net proceeds from mortgage notes and the unsecured and secured
credit facilities, were used during the year to primarily pay for $27.5 million
of the total acquisition cost of five apartment properties containing 1,098
units, capital improvements to properties of $71.7 million (including $7.5
million related to the funding of new development costs), the $18.0 million
investment in GGL, the purchase of 731,500 shares of common stock for $17.8
million, distributions to stockholders and unit holders of $74.3 million,
principal payments of $5.6 million and financing costs of $28.3 million ($16
million related to the cost of settling forward treasury rate lock agreements).
As a result, cash and cash equivalents decreased $0.5 million, from $9.8
million as of December 31, 1997 to $9.3 million as of December 31, 1998.
The Company's principal demands for short-term liquidity are: ongoing
maintenance and repairs to the Properties, capital improvements to the
Properties, monthly debt service payments on indebtedness, distributions to
stockholders and minority interest holders and property acquisitions. The
Company anticipates that its cash provided by operating activities will be
adequate to meet debt service and distribution obligations in 1999. The Company
anticipates spending $42 million in 1999 for capital expenditures, including
non-recurring capital expenditures and acquisition renovation and repositioning
costs. Of the $42 million of capital expenditures budgeted for 1999, the
Company is contractually obligated for approximately $10 million. In addition,
the Company has a commitment to fund $37 million to GGL. In February 1999, the
Company funded $32 million of the GGL commitment, which amount was partially
funded through the proceeds of a $15 million unsecured loan obtained in
February 1999. The Company anticipates selling several properties during the
first six months of 1999 which will result in net proceeds of approximately $60
million which will be used to fund the Company's capital expenditure and a
portion of GGL commitments and repay a portion of the Credit Facility.
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<PAGE> 27
The Company has entered into various agreements to purchase four
apartment properties, upon the completion of their construction and lease up
phase, at an aggregate cost of $78.8 million. The purchases are anticipated to
occur in late 1999 or early 2000 and will be funded through the assumption of
existing construction loans or borrowings under the Credit Facility.
Approximately $46 million of existing construction loans have scheduled
maturities in 2001.
During 1998, the Company spent approximately $7.5 million related to
the funding of new development projects and $64.2 million on capital
expenditures to its Properties. The Company has budgeted capital improvements
of $42.0 million for 1999. Following is a summary of capital expenditures
incurred in 1998 and budgeted for 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Funding of new development projects............... $ 7,523 $ --
Normal recurring capital expenditures............. 22,903 15,157
Non-recurring capital expenditures................ 13,694 8,810
Acquisition renovation costs...................... 9,891 2,523
Repositioning program capital expenditures........ 17,699 15,535
------- -------
Total........................................ $71,710 $42,025
======= =======
</TABLE>
Acquisition renovation costs and normal recurring capital expenditures
were funded in 1998 from cash flow from operating activities and borrowings
under the Credit Facility. All other capital expenditures were funded from
borrowings under the Credit Facility. The non-recurring capital expenditures
budgeted for 1999 include the construction of covered carports, the
installation of access gates with perimeter fencing, retaining walls,
installation of cable equipment and the reconstruction of balconies and
exterior stairwells. The 1999 budgeted capital expenditures are anticipated to
be funded from borrowings under the Credit Facility and proceeds from planned
property dispositions.
For the year ended December 31, 1998, the Company paid distributions
of $35.1 million to common stockholders, $13.1 million to preferred
stockholders and $26.1 million to minority interest holders. On March 3, 1999,
the Company paid distributions of $11.6 million to common stockholders and $4.1
million to preferred stockholders and on March 1, 1999 paid distributions of
$2.9 million to minority interest holders. The distributions paid to common
stockholders and minority interest holders of common units were $0.4825 per
share or unit, which equates to an annualized distribution of $1.93 per share
or unit. Distributions on the Company's preferred stock, Preferred OP Units and
certain of the minority interests of common stock have a priority over other
distributions.
As of December 31, 1998, the Company had outstanding indebtedness in
the aggregate principal amount of $806.9 million, consisting of $654.3 million
of conventional and tax-exempt fixed rate debt (including $180.5 million of
variable rate debt which has been converted to fixed rate debt through interest
rate swap agreements) and $152.6 million of variable rate debt (including $95
million outstanding under the Credit Facility).
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<PAGE> 28
During the year ended December 31, 1998, the Company refinanced,
repaid or assumed debt as summarized below (in thousands):
<TABLE>
<CAPTION>
Outstanding Outstanding
Indebtedness Indebtedness
as of Debt Debt Debt Principal as of
12/31/97 Proceeds Assumed Repaid Amortization 12/31/98
------------ -------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Secured credit facility $ -- $250,000 $ -- $ -- $ -- $250,000
Other fixed rate debt 370,069 37,448 13,391 11,372 5,251 404,285
Unsecured Term Loan 200,000 -- -- 200,000 -- --
Other variable rate debt 58,285 57,955 5,750 64,035 373 57,582
Unsecured Credit Facility 74,000 214,000 -- 193,000 -- 95,000
-------- -------- -------- --------- ------- --------
Total $702,354 $559,403 $ 19,141 $ 468,407 $ 5,624 $806,867
======== ======== ======== ========= ======= ========
</TABLE>
The following table sets forth certain information regarding the
Company's outstanding indebtedness as of December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
------------------------ Outstanding Percentage
Interest Years to Principal of
Rate Maturity Balance (1) Total
-------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Secured credit facility 7.78% 8.5 $ 250,000 31.0%
Conventional fixed rate 7.69% 6.8 322,768 40.0%
Tax-exempt fixed rate 6.30% 18.8 81,517 10.1%
------- ----- ----------- ----------
Total fixed rate 7.55% 8.9 654,285 81.1%
------- ----- ----------- ----------
Tax-exempt variable rate 4.85% 28.0 57,582 7.1%
Unsecured Credit Facility 7.67% 2.1 95,000 11.8%
------- ----- ----------- ----------
Total variable rate 6.61% 11.9 152,582 18.9%
------- ----- ----------- ----------
Total 7.37% 9.5 $ 806,867 100.0%
======= ===== =========== ==========
</TABLE>
(1) In thousands.
As of December 31, 1998, the Company's total indebtedness becomes due
as follows (in thousands):
<TABLE>
<CAPTION>
Balloon
Principal Payments Total
--------- -------- --------
<S> <C> <C> <C>
1999 ............................................ $ 7,159 $ 8,335 $ 15,494
2000 ............................................ 7,657 7,067 14,724
2001 ............................................ 6,807 158,691 165,498
2002 ............................................ 7,006 -- 7,006
2003 ............................................ 7,182 98,207 105,389
Thereafter....................................... 111,157 387,599 498,756
--------- -------- --------
Total....................................... $ 146,968 $659,899 $806,867
========= ======== ========
</TABLE>
The Credit Facility is with BankBoston, as agent for a group of
financial institutions. The Company entered into a new agreement and changed
the interest rate and maturity date of the previous Credit Facility in December
1998. The Credit Facility provides an unsecured borrowing
-27-
<PAGE> 29
commitment of up to $150 million, with borrowings outstanding under the Credit
Facility generally bearing interest at LIBOR plus 1.875% (7.46% at December 31,
1998). Although the Company has a commitment up to $150 million, it must have
sufficient unencumbered properties in order to borrow the full amount. At
December 31, 1998, the Company's borrowing capacity was approximately $126
million. The Credit Facility expires in February 2001. In March 1999, the
Company further modified the Credit Facility to increase its borrowing
capacity. As of March 15, 1999, the Company's borrowing capacity was
approximately $138 million, of which $123 million was outstanding.
The Credit Facility contains customary representations, warranties and
events of default which require the Company to comply with certain affirmative
and negative covenants. The primary restrictive covenants provide that: (1)
distributions to stockholders may not exceed 90% of funds from operations, as
defined in the Credit Facility; (2) secured mortgage indebtedness may not
exceed 46% of the Company's total assets before depreciation; (3) the Company's
fixed charge coverage ratio, as defined, must exceed 1.5; and (4) the Company's
debt service coverage ratio, as defined, must exceed 2.0. As of December 31,
1998, the Company is in compliance with all covenants of the Credit Facility.
In December 1997, the Company entered into a term loan agreement (the
"Term Loan") with BankBoston, as agent for a group of financial institutions.
The term loan provided unsecured borrowings of $200 million and bore an
interest rate of 1.375% over LIBOR. The Company repaid the Term Loan upon its
maturity in December 1998 with proceeds from a $250 million secured credit
facility with FNMA. This facility provides a revolving secured borrowing
capacity of up to $250 million. As of December 31, 1998, the secured credit
facility was fully drawn. The secured credit facility is divided into $75
million of fixed rate debt with a ten-year term, and $100 million and $75
million of floating rate debt with a ten year-term and a five-year term,
respectively. The Company utilized $250 million of the forward treasury rate
lock agreements entered into in 1997 in connection with executing the secured
credit facility. In addition, in order to fix the interest rate on the $175
million of variable rate debt, the Company entered into a ten-year and a
five-year interest rate swap agreement, creating effective interest rates on
the $250 million secured credit facility ranging from 7.34% to 7.98%. These
rates include the amortization of settlement costs of utilizing forward
treasury rate lock agreements.
The secured credit facility contains customary representations,
warranties and events of default which require the Company to comply with
affirmative and negative covenants. The restrictive covenants provide that: (i)
the percentage of consolidated total indebtedness to consolidated total
undepreciated assets be less than 56%; (ii) total equity, as defined, be
greater than $600 million; (iii) earnings before interest, taxes, depreciation
and amortization ("EBITDA") less capital expenditures (based on $300 per
apartment unit) be greater than two times interest expense; and (iv) EBITDA
less capital expenditures be greater than 1.5 times fixed changes (interest
expense plus amortization plus preferred distributions). As of December 31,
1998, the Company is in compliance with all covenants of the secured credit
facility.
As of December 31, 1998, the Company had 124 of its Properties as
collateral under various secured debt agreements.
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<PAGE> 30
The Company expects to meet its long-term liquidity requirements, such
as refinancing mortgages, including construction loans assumed related to new
property developments, property acquisitions and capital improvements on
property acquisitions, through long-term borrowings, both secured and
unsecured, proceeds from property dispositions and the issuance of debt or
equity securities.
The Company's ability to acquire additional properties is dependent
upon its ability to sell properties or obtain equity or debt financing. During
1998, the Company was able to raise additional equity, sell nine properties and
incur indebtedness to acquire five properties. Currently, the Company's
borrowing capacity under its Credit Facility is insufficient to acquire
properties. As a result, the Company does not anticipate acquiring properties
in 1999 (other than those to be purchased upon completion of development)
unless it is able to sell existing properties in excess of the planned $60
million of dispositions. When the Company finances its acquisitions with debt,
the Company expects that such acquired properties will generate cash flow
adequate to service the associated indebtedness.
FUNDS FROM OPERATIONS
Based on the guidelines established by the National Association of
Real Estate Investment Trusts ("NAREIT") and REIT industry standards,
management believes funds from operations, or "FFO", is an appropriate measure
of the performance of an equity REIT. FFO is generally calculated by excluding
from net income any gains or losses from debt restructurings and sales of
property and adding back any depreciation of real estate assets. In addition,
extraordinary or unusual items that are non-recurring events which would
materially distort the comparative measure of FFO are typically excluded.
Management believes FFO helps to evaluate its operations by determining its
ability to incur and service debt and to make capital expenditures. By adding
depreciation expense back to net income, FFO presents a more accurate picture
of the Company's operating cash flows. In evaluating FFO and the trends it
depicts, consideration should be given to the major factors affecting FFO.
Growth in FFO results from increases in revenues or decreases in related
operating expenses. The Company's historical increases in FFO have been
primarily the result of increased revenues coming from property acquisitions.
FFO does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs and cash distributions. FFO should not be
considered as an alternative to net income as an indication of performance or
as an alternative to cash flow as a measure of liquidity. The Company's
calculation of FFO includes income allocated to minority interests and assumes
the conversion of all convertible securities, including minority interest
securities. This calculation may differ from the FFO calculation used by other
REITs and, accordingly, may not be comparable to similar entitled items
reported by other REITs.
-29-
<PAGE> 31
Following is a calculation of the Company's FFO (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income available to common stockholders $ 10,736 $ 9,396 $ 13,182
Preferred distributions (1) ............... 3,919 2,861 2,387
Income allocated to minority interests (2) 7,435 4,109 1,705
Extraordinary loss on debt extinguishment . 423 422 1,848
Gain on disposition of real property ...... (6,459) (2,055) (1,934)
Depreciation of real estate assets ........ 58,602 33,560 19,810
Unusual charges (3) ....................... 3,993 1,940 --
--------- --------- ---------
Funds from operations ..................... $ 78,649 $ 50,233 $ 36,998
========= ========= =========
Cash flows provided by (used in):
Operating activities ................. $ 69,405 $ 70,822 $ 38,281
Investing activities ................. (53,776) (327,814) (158,668)
Financing activities ................. (16,094) 237,029 143,306
</TABLE>
(1) Distributions on convertible preferred stock were added back
in computing FFO since their conversion to common shares is
assumed.
(2) Excludes distributions on the Preferred OP Units, which are
not convertible into common stock and therefore not added
back in computing FFO ($1,125 per quarter for 1998 and 1997).
(3) Represents forward treasury rate lock agreement settlement
costs in 1998 and an officer settlement agreement in 1997.
FFO increased $28.4 million, or 56.6%, from $50.2 million for the year
ended December 31, 1997 to $78.6 million for the year ended December 31, 1998.
The increase in FFO was primarily due to increased property operating income
offset by increased interest expense on new indebtedness, both resulting from
the increased number of units owned as a result of property acquisitions.
FFO increased $13.2 million, or 35.7%, from $37.0 million for the year
ended December 31, 1996 to $50.2 million for the year ended December 31, 1997.
The increase in FFO was primarily attributable to additional operating income,
which resulted from an increase in the number of units owned as a result of
property acquisitions and increased operating income from properties owned
throughout both periods.
As discussed in Note (3) in the accompanying financial statements,
effective July 1, 1996, the Company revised its method of accounting to
capitalize the cost of replacement carpets on a prospective basis. Following is
the decrease to depreciation and increase to net income and FFO of this change
in accounting policy for the year ended December 31, 1996:
<TABLE>
<S> <C>
Adjustment for change in accounting policy to capitalize
carpet replacement costs (and effect on FFO) ................................................... $ 864
Adjustment for effect of depreciation on capitalized carpet replacement costs..................... (43)
-----
Net effect on net income ......................................................................... $ 821
=====
</TABLE>
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<PAGE> 32
INFLATION
The Company leases apartments under lease terms generally ranging from
six to 12 months. Management believes that such short-term lease contracts
lessen the impact of inflation due to the ability to adjust rental rates to
market levels as leases expire.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), which establishes
standards for accounting and reporting for derivative instruments. The
Statement is effective for periods beginning after June 15, 1999; however,
earlier application is permitted. Management is currently not planning on early
adoption of this Statement. The Company expects the adoption of the provisions
of the Statement to result in the Company presenting a statement of
comprehensive income beginning in fiscal year 2000.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-K
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to
be covered by the safe harbors created thereby. These statements include the
plans and objectives of management for future operations, including plans and
objectives relating to capital expenditures and rehabilitation costs on the
Properties. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. Assumptions
relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this Form
10-K will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
YEAR 2000 CONVERSION
Many of the world's computer systems currently record years in a
two-digit format. Such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to disruptions in our operations.
This problem is commonly referred to as the "Year 2000" issue. The Company has
identified three primary information technology systems which are vulnerable to
the Year 2000 issue:
(1) General Ledger/Accounts Payable Systems. A new general
ledger/accounts payable system was installed in October 1998
which has been warranted to be Year 2000 compliant. The total
cost of the new system was approximately $750,000, which has
been paid as of December 31, 1998.
(2) Payroll. As of December 31, 1998, payroll is processed
through ADP, an outside payroll vendor, on a system that is
not Year 2000 compliant. The Company has
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<PAGE> 33
selected a new payroll vendor, ProBusiness, to provide the
payroll processing for the Company. The conversion from ADP
to ProBusiness is expected to be completed by April 1999, for
a total cost of approximately $85,000. The ProBusiness system
has been warranted to be Year 2000 compliant.
(3) On-Site Accounting. The on-site accounting and rent roll
activities are processed on AMSI. The AMSI version currently
used is Year 2000 compliant.
The Company has also identified certain on-site, non-information
technology systems that may be Year 2000 sensitive and is in the process of
questioning vendors to determine whether these systems are vulnerable to the
Year 2000 issue. Potential non-information technology systems include:
o access gates
o alarms
o irrigation systems
o thermostats
o utility meters and switches
The identification phase is expected to be completed and the repair or
replacement of any vulnerable systems begun by the end of the second quarter of
1999. The cost to repair or replace any Year 2000 vulnerable information
technology systems is not expected to exceed $500,000.
The Company has also identified those vendors it believes could have
an impact on day-to-day operations and has developed a short questionnaire
regarding the vendor's Year 2000 status. These vendors, consisting primarily of
financial institutions, have been contacted to determine their Year 2000
status. In the event a vendor's system will not be Year 2000 compliant, the
Company will assess the potential risk and, to the extent it is feasible,
transfer business to alternate vendors.
The Company will utilize both internal and external resources to
reprogram, replace and test its systems for Year 2000 modifications. This
process is anticipated to be completed by the second quarter of 1999. However,
there can be no guarantee that the systems of other companies on which the
Company relies will be timely converted, which may have an adverse effect on
the Company's operations.
In the event of a complete failure of the Company's information
technology systems, the Company would be able to continue the affected
functions either manually or through the use of non-Year 2000 affected systems.
The primary costs associated with such a necessity would be (1) increased time
delays associated with posting of information, and (2) increased personnel to
manually process the information. Increased costs associated with such
personnel is not expected to exceed $1 million.
The Company does not currently have a contingency plan in place. The
need for a plan will be evaluated in 1999 as the Year 2000 conversion
progresses.
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<PAGE> 34
The cost of Year 2000 compliance and the estimated date of completion
of necessary modifications are based on the Company's best estimates, which
were derived from various assumptions of future events, including the continued
availability of resources, third party modification plans and other factors.
However, there is no guarantee these estimates will be achieved and actual
results could differ materially from those anticipated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily due to fluctuations in
interest rates. The Company's policy has been to utilize long-term debt to
finance its long-term assets. The Company utilizes both fixed rate and variable
rate long-term debt. The table below presents principal cash flows and related
weighted average effective interest rates of the Company's long-term fixed rate
debt and variable rate debt (excluding variable rate debt converted to fixed
rates through interest rate swap agreements) at December 31, 1998, by expected
maturity dates:
<TABLE>
<CAPTION>
Expected Maturity Date
As of December 31, 1998
-----------------------
(Dollars in thousands)
Description 1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ----------- ---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed Rate Debt $ 14,799 $ 13,978 $ 69,699 $ 6,145 $ 29,467 $339,703 $ 473,791 $489,354
Average Effective Interest Rate 6.66% 7.73% 7.49% 7.96% 7.59% 7.55% 7.53%
Variable Rate Debt $ -- $ -- $ 95,000 $ -- $ -- $ -- $ 95,000 $ 95,000
Average Effective Interest Rate -- -- 8.46% -- -- -- 8.46%
</TABLE>
There is inherent rollover risk for borrowings as they mature and are
renewed at current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and the
Company's future financing requirements.
The Company does not enter into derivative financial instrument
transactions for trading or other speculative purposes, however, management has
reduced the net exposure of interest rate fluctuations on its variable rate
debt by utilizing derivative financial instruments. In order to minimize
interest rate risk, management utilizes long-term fixed rate debt and enters
into swap agreements on its variable rate long-term debt and enters into
interest rate cap agreements on its variable rate tax exempt debt. Management
believes that exposure to interest rate fluctuations on its variable rate
Credit Facility is manageable as the outstanding balance will be reduced with
long-term debt or proceeds from real estate asset sales. The table below
presents variable rate debt for which there exists interest rate swap and
interest rate cap agreements at December 31, 1998, by expected maturity dates:
<TABLE>
<CAPTION>
Expected Maturity Date
As of December 31, 1998
-----------------------
(Dollars in thousands)
Description 1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ----------- ---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt Hedged with
Interest Rate Swaps:
Variable to Fixed Amount $ 70 $ 75 $ 81 $ 90 $ 75,095 $105,083 $ 180,494 $180,494
Average Pay Rate 6.57% 6.57% 6.57% 6.57% 6.57% 6.57% 6.57%
Average Received Rate 5.16% 5.16% 5.16% 5.16% 5.16% 5.16% 5.16%
Debt Hedged with
Interest Rate Caps:
Tax Exempt Variable Amount $ 625 $ 670 $ 719 $ 771 $ 827 $ 53,970 $ 57,582 $ 57,582
Average Interest Rate 3.83% 3.83% 3.83% 3.83% 3.83% 3.83% 3.83%
Average Rate Cap 5.87% 5.87% 5.87% 5.87% 5.87% 5.87% 5.87%
</TABLE>
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<PAGE> 35
The Company has entered into three interest rate swap agreements to
reduce its exposure to changes in interest expense related to changes in market
interest rates. At any point in time these interest rate swap agreements may
not be fully effective since the quarterly payments due from or payable to the
counterparty are based on the LIBOR index, and the actual interest is based
upon the imputed interest rate on 90-day mortgage-backed securities. Therefore,
at any given time, a change in interest rates could result in either an
increase or decrease in the Company's interest expense. The Company also has
entered into six rate cap agreements on its tax exempt variable rate debt to
hedge against significant increases in tax exempt interest rates. The fair
value liability of the Company's interest rate swap and cap agreements is
approximately $15 million. A 10% change in interest rates as of December 31,
1998, with all other variables held constant, would result in a change in the
fair value of the swap and rate cap agreements by an estimated $3.3 million.
Changes in interest rates could also impact the fair values of the swap and
rate cap agreements.
The Company measures its interest rate risk by estimating the net
amount by which the fair values of all interest rate sensitive liabilities,
including derivative financial instruments, would be impacted by selected
hypothetical changes in market interest rates. A 10% increase in interest rates
as of December 31, 1998, with all other variables held constant, would result
in a decrease in the fair value of fixed rate debt by an estimated $18 million.
A 10% decrease in interest rates would result in a increase in the fair value
of fixed rate debt by an estimated $19 million. In addition, a 10% adverse
change in interest rates on the portion of the Credit Facility, which bears
interest at LIBOR plus 1.875%, would result in an increase in interest expense
of approximately $0.5 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary financial information are
contained on pages F-1 through F-34 and S-1 through S-7 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-34-
<PAGE> 36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference
from the Company's definitive Proxy Statement for its 1999 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The financial statements are contained on pages F-1
through F-34 of this report.
(2) Financial Statement Schedules:
III. Real Estate and Accumulated Depreciation
are presented on pages S-1 through S-7 of
this report.
All other schedules have been omitted because the
required information of such other schedules is not
present, is not present in amounts sufficient to
require submission of the schedule or is included in
the consolidated financial statements.
-35-
<PAGE> 37
(3) Index to Exhibits:
See Index to Exhibits on page E-1.
(b) Reports on Form 8-K:
None
-36-
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WALDEN RESIDENTIAL PROPERTIES, INC.
By: /s/ Marshall B. Edwards
----------------------------------
Marshall B. Edwards
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of Walden
Residential Properties, Inc. and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Marshall B. Edwards Chief Executive Officer, President March 18, 1999
- ------------------------------ and Director (Principal Executive Officer)
Marshall B. Edwards
/s/ Mark S. Dillinger Executive Vice President, Chief March 18, 1999
- ------------------------------ Financial Officer and Director
Mark S. Dillinger (Principal Financial and Accounting Officer)
/s/ Michael E. Masterson Chairman of the Board of Directors March 18, 1999
- ------------------------------
Michael E. Masterson
Chairman Emeritus March 18, 1999
- ------------------------------
Don R. Daseke
/s/ Maxwell B. Drever Chairman Emeritus March 18, 1999
- ------------------------------
Maxwell B. Drever
/s/ Linda Walker Bynoe Director March 18, 1999
- ------------------------------
Linda Walker Bynoe
/s/ Francesco Galesi Director March 18, 1999
- ------------------------------
Francesco Galesi
/s/ Robert Honstein Director March 18, 1999
- ------------------------------
Robert L. Honstein
/s/ Arch K. Jacobson Director March 18, 1999
- ------------------------------
Arch K. Jacobson
/s/ Louis G. Munin Director March 18, 1999
- ------------------------------
Louis G. Munin
</TABLE>
-37-
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ....................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ....................... F-3
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1998 ........................................................... F-4
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 1998 .............................................. F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1998 ................................................... F-6
Notes to Consolidated Financial Statements ......................................... F-7
</TABLE>
The following financial statement supplementary schedule of the
Registrant and its subsidiaries required to be included in Item 14(a)(2) is
listed below:
<TABLE>
<S> <C>
Schedule III -- Real Estate and Accumulated Depreciation .................. S-1
</TABLE>
-F-1-
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Directors and Stockholders of
Walden Residential Properties, Inc.
We have audited the accompanying consolidated balance sheets of Walden
Residential Properties, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1998.
Our audit for the year ended December 31, 1998 also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
management of Walden Residential Properties, Inc. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Walden Residential
Properties, Inc. and subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for the cost of replacement carpets
effective July 1, 1996.
/s/ Deloitte & Touche LLP
- ---------------------------------
DELOITTE & TOUCHE LLP
Dallas, Texas
March 18, 1999
-F-2-
<PAGE> 41
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share information)
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1998 1997
---- ----
<S> <C> <C>
Real estate assets, at cost
Land ............................................................................... $ 170,347 $ 173,635
Buildings and improvements ......................................................... 1,360,816 1,332,395
----------- -----------
1,531,163 1,506,030
Less: Accumulated depreciation ................................................ (128,765) (74,584)
----------- -----------
1,402,398 1,431,446
Construction in progress ................................................................ 29,322 1,583
Real estate assets held for sale ........................................................ 7,162 --
Rent and other receivables ($1.5 million due from related party)......................... 6,765 1,613
Prepaid assets .......................................................................... 6,055 5,257
Deferred financing costs, net ........................................................... 46,070 6,603
Cash and cash equivalents ............................................................... 9,292 9,757
Investment in real estate ventures ...................................................... 18,000 --
Other assets ............................................................................ 3,121 1,646
Restricted cash:
Escrow deposits .................................................................... 21,568 9,047
Additional collateral on loans ..................................................... 2,520 2,520
----------- -----------
Total assets ................................................................... $ 1,552,273 $ 1,469,472
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ............................................................. $ 461,867 $ 428,354
Secured credit facility ............................................................ 250,000 --
Unsecured term loan ................................................................ -- 200,000
Unsecured credit facility .......................................................... 95,000 74,000
Accrued real estate taxes .......................................................... 22,869 22,571
Accounts payable ................................................................... 13,564 13,648
Accrued expenses and other liabilities ............................................. 28,102 13,377
Preferred distribution payable to minority interests ............................... 391 391
----------- -----------
Total liabilities .............................................................. 871,793 752,341
Commitments and contingencies (Note 13)
Minority interests ...................................................................... 147,277 321,916
Stockholders' equity:
Preferred stock, $.01 par value per share, 10,000 shares authorized, 6,993
and 5,712 shares issued and outstanding as of December 31, 1998 and 1997,
respectively
(aggregate liquidation value of $174,824) ........................................ 70 57
Common stock, $.01 par value per share,
50,000 shares authorized, 23,637 and 18,030 shares issued and
outstanding as of December 31, 1998 and 1997, respectively ....................... 236 180
Excess stock, $.01 par value per share,
60,000 shares authorized, no shares issued ...................................... -- --
Additional paid in capital ......................................................... 620,006 456,842
Notes receivable for stock purchases ............................................... (6,410) (5,263)
Deferred compensation on Restricted Stock .......................................... (1,108) (1,404)
Distributions in excess of net income .............................................. (79,591) (55,197)
----------- -----------
Total stockholders' equity ..................................................... 533,203 395,215
----------- -----------
Total liabilities and stockholders' equity ................................ $ 1,552,273 $ 1,469,472
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-F-3-
<PAGE> 42
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Rental income ............................. $ 268,224 $ 163,224 $ 105,602
Other property income ..................... 10,593 6,313 3,873
Interest income ........................... 1,717 1,598 1,433
Other income .............................. -- -- 263
--------- --------- ---------
Total revenues .......................... 280,534 171,135 111,171
EXPENSES
Property operating and maintenance ........ 91,930 56,483 37,521
Real estate taxes ......................... 28,272 16,805 10,039
General and administrative ................ 11,901 7,734 5,124
Unusual charges ........................... 3,993 1,940 --
Interest .................................. 54,409 28,447 20,573
Amortization .............................. 1,048 827 916
Depreciation .............................. 59,227 33,841 19,810
Total expenses
--------- --------- ---------
250,780 146,077 93,983
--------- --------- ---------
Operating income ............................... 29,754 25,058 17,188
Gain on disposition of real property....... 6,459 2,055 1,934
--------- --------- ---------
Income before extraordinary item
and income allocated to minority interests .. 36,213 27,113 19,122
Extraordinary loss on debt extinguishment.. (423) (422) (1,848)
--------- --------- ---------
Income before income allocated
to minority interests ....................... 35,790 26,691 17,274
Income allocated to minority interests .... (11,935) (4,109) (1,705)
--------- --------- ---------
Net income ..................................... 23,855 22,582 15,569
Preferred distributions.................... (13,119) (13,186) (2,387)
--------- --------- ---------
Net income available to common stockholders .... $ 10,736 $ 9,396 $ 13,182
========= ========= =========
Basic net income per share ..................... $ 0.58 $ 0.53 $ 0.90
========= ========= =========
Diluted net income per share ................... $ 0.58 $ 0.53 $ 0.89
========= ========= =========
Basic weighted average number of common shares
outstanding ................................. 18,497 17,590 14,720
========= ========= =========
Diluted weighted average number of common shares
and common share equivalents outstanding ..... 18,608 17,747 14,792
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-4-
<PAGE> 43
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------ Paid In
Shares Par Value Shares Par Value Capital
------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 .................... -- $ -- 14,190 $ 142 $238,899
Repurchases of the Company's
common stock ...........................
Officers'/Directors' stock purchase ...... 19 -- (22)
Retirement of common stock
repurchased ............................ (318) (3) (6,075)
Public offerings, net of offering costs .. 5,800 58 2,756 28 196,094
Conversion of preferred stock to
common stock ........................... (14) -- 16 --
Stock issued under the dividend
reinvestment plan ...................... 217 2 4,331
Purchase and cancellation of
minority interest securities ........... (253)
Distributions ............................
Net income ...............................
-------- -------- -------- -------- --------
Balance, December 31, 1996 .................. 5,786 58 16,880 169 432,974
Repurchases and retirements of the
Company's common stock ................ (278) (3) (6,663)
Public offerings, net of offering costs .. 161 2 3,522
Conversion of preferred stock to
common stock ........................... (74) (1) 84 1
Stock issued under the dividend
reinvestment plan ...................... 955 9 21,950
Stock issued through exercise of stock
options ................................ 138 1 2,700
Restricted stock issuance ................ 108 1 2,833
Restricted stock cancellation ............ (18) -- (474)
Amortization of deferred
compensation ...........................
Distributions ............................
Net income
-------- -------- -------- -------- --------
Balance, December 31, 1997 .................. 5,712 57 18,030 180 456,842
Repurchases and retirements of the
Company's common stock .............. (731) (7) (17,765)
Public offerings, net of offering costs .. 323 3 7,559
Conversion of preferred stock to common
stock ............................... (3) 3
Conversion of minority interest securities
to preferred and common stock ....... 1,284 13 5,437 54 160,593
Stock issued under the dividend
reinvestment plan ................... 318 3 6,936
Stock issued through exercise of stock
options ............................. 53 1 1,047
Stock issued under stock loan program .... 206 2 4,858
Restricted stock issuance ................ 5 136
Restricted stock cancellation ............ (7) (200)
Stock loan repayments ....................
Amortization of deferred compensation ....
Distributions ............................
Net income ...............................
-------- -------- -------- -------- --------
Balance, December 31, 1998 ............... 6,993 $ 70 23,637 $ 236 $620,006
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivable Distributions
for Stock Deferred Stock in Excess of
Purchases Compensation Repurchases Net Income
--------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 .................... $ (4,971) $ -- $ -- $(17,551)
Repurchases of the Company's
common stock ........................... (6,462)
Officers'/Directors' stock purchase ...... (292) 387
Retirement of common stock
repurchased ............................ 6,075
Public offerings, net of offering costs ..
Conversion of preferred stock to
common stock ...........................
Stock issued under the dividend
reinvestment plan ......................
Purchase and cancellation of
minority interest securities ...........
Distributions ............................ (29,421)
Net income ............................... 15,569
-------- -------- -------- --------
Balance, December 31, 1996 .................. (5,263) -- -- (31,403)
Repurchases and retirements of the
Company's common stock ................ --
Public offerings, net of offering costs ..
Conversion of preferred stock to
common stock ...........................
Stock issued under the dividend
reinvestment plan ......................
Stock issued through exercise of stock
options ................................
Restricted stock issuance ................ (2,834)
Restricted stock cancellation ............ 474
Amortization of deferred
compensation ........................... 956
Distributions ............................ (46,376)
Net income
22,582
-------- -------- -------- --------
Balance, December 31, 1997 .................. (5,263) (1,404) -- (55,197)
Repurchases and retirements of the
Company's common stock .............. --
Public offerings, net of offering costs ..
Conversion of preferred stock to common
stock ...............................
Conversion of minority interest securities
to preferred and common stock .......
Stock issued under the dividend
reinvestment plan ...................
Stock issued through exercise of stock
options .............................
Stock issued under stock loan program .... (4,413)
Restricted stock issuance ................ (136)
Restricted stock cancellation ............ 200
Stock loan repayments .................... 3,266
Amortization of deferred compensation .... 232
Distributions ............................ (48,249)
Net income ............................... 23,855
-------- -------- -------- --------
Balance, December 31, 1998 ............... $ (6,410) $ (1,108) $ -- $(79,591)
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-5-
<PAGE> 44
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 23,855 $ 22,582 $ 15,569
Adjustments to reconcile net income to net
cash provided by operating activities:
Income allocated to minority interests ........ 11,935 4,109 1,705
Depreciation and amortization ................. 60,275 34,668 20,726
Amortization of deferred compensation on
restricted stock ............................ 232 956 --
Amortization of deferred financing costs ...... 1,373 121 --
Gain on disposition of real property .......... (6,459) (2,055) (1,934)
Extraordinary loss on debt extinguishment ..... 423 422 1,848
Net effect of changes in operating accounts:
Escrow deposits .......................... (12,521) (1,099) (1,299)
Receivables, prepaids, and other assets .. (8,067) 622 (784)
Accrued real estate taxes ................ 298 6,172 1,438
Accounts payable ......................... (2,641) 294 492
Accrued expenses and other liabilities ... 702 4,030 520
--------- --------- ---------
Net cash provided by operating
activities ......................... 69,405 70,822 38,281
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of net assets of Drever Partners, Inc. and
its affiliates, net of noncash items shown below. -- (201,032) --
Purchase of real estate assets, net of noncash
items shown below ............................... (27,512) (103,114) (168,219)
Real estate asset additions ....................... (71,710) (32,363) (9,455)
Proceeds from disposition of real property, net
of noncash items shown below .................... 63,446 8,695 18,667
Purchase of WDN Management net assets, net
of noncash item shown below ..................... -- -- 339
Investment in real estate ventures ................ (18,000) -- --
--------- --------- ---------
Net cash used in investing activities ......... (53,776) (327,814) (158,668)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from stock issuance, net of issuance
costs ........................................... 15,996 28,185 200,614
Proceeds from stock loan repayments ............... 3,266 -- --
Purchase of the Company's common stock ............ (17,772) (6,666) (6,573)
Purchase of minority interest securities .......... (339) -- (3,975)
Distributions paid on common and preferred stock
and minority interests .......................... (74,329) (47,979) (31,210)
Proceeds from term loan, unsecured
credit facility and mortgage notes payable ...... 309,403 393,098 166,770
Proceeds from secured credit facility ............. 250,000 -- --
Payment of mortgage notes payable, unsecured
credit facility, and term loan ................. (468,407) (123,747) (172,188)
Principal reductions of mortgage notes payable .... (5,624) (3,716) (5,242)
Payment of financing costs .................... (28,288) (1,798) (4,143)
Prepayment penalties on debt extinguishment ....... -- (348) (97)
Additional collateral on loans .................... -- -- (650)
--------- --------- ---------
Net cash provided by (used in) financing
activities .................................... (16,094) 237,029 143,306
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... (465) (19,963) 22,919
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .................................. 9,757 29,720 6,801
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD ............................................... $ 9,292 $ 9,757 $ 29,720
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-6-
<PAGE> 45
WALDEN RESIDENTIAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest .............................................. $ 52,270 $ 26,342 $ 20,706
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of net assets of Drever Partners, Inc. .....................
and its affiliates:
Rent and other receivables ...................................... $ -- $ 4,635 $ --
Prepaid and other assets......................................... -- 315 --
Escrow deposits ................................................. -- 2,579 --
Mortgage notes payable .......................................... -- (166,995) --
Accrued real estate taxes ....................................... -- (8,433) --
Accounts payable ................................................ -- (7,765) --
Accrued expenses and other liabilities .......................... -- (3,998) --
Minority interest securities .................................... -- (303,488) --
------------ --------- ---------
$ -- $(483,150) $ --
============ ========= =========
Items related to purchase of assets:
Mortgage notes assumed .......................................... $ 19,141 $ 10,816 $ 14,748
============ ========= =========
Minority interest securities issued for purchase
of assets .................................................. $ 505 $ 1,050 $ --
============ ========= =========
Accrued real estate asset additions ................................. $ 3,024 $ 104 $ 517
============ ========= =========
Mortgage notes assumed by buyer upon
disposition of property .......................................... $ -- $ -- $ 4,195
============ ========= =========
Purchase of WDN Management net assets ............................... $ -- $ -- $ (354)
============ ========= =========
Notes receivable for stock purchases ................................ $ 4,413 $ -- $ 292
============ ========= =========
Deferred compensation on restricted stock,
net of cancellations .............................................. $ (64) $ 2,359 $ --
============ ========= =========
Conversion of minority interest securities
to common and preferred stock ..................................... $ 160,660 $ -- $ --
============ ========= =========
Deferred financing costs settled with interest rate
swap agreements ................................................. $ 14,032 $ -- $ --
============ ========= =========
Distribution payable to minority interest
holders ........................................................... $ 391 $ 391 $ 377
============ ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-F-7-
<PAGE> 46
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Walden Residential Properties, Inc. (the "Company") was formed on
September 29, 1993 as a Maryland corporation. The Company is a Dallas, Texas
based equity real estate investment trust ("REIT") as defined under the
Internal Revenue Code of 1986, as amended. On February 9, 1994, the Company
completed an initial public offering ("IPO") of its common stock, which is
listed on the New York Stock Exchange. As of December 31, 1998, the Company
owned 150 multifamily properties, containing 41,594 apartment units, primarily
in the Southwest and Southeast regions of the United States. The Company's real
estate assets are operated with the same long-term objectives and therefore are
viewed as a single operating segment.
(2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company consolidates investments in partnerships in which it has a
controlling general partner interest through its right to make major decisions
such as the acquisition, sale, financing or refinancing of principal
partnership assets, issuance of debt or equity securities, declaration and
payment of distributions and all other business matters.
The accompanying consolidated financial statements include the
accounts of the Company, its wholly-owned corporation and partnership
subsidiaries and four limited partnerships in which the Company is the general
partner and has a controlling interest. The limited partnership interests not
owned by the Company are accounted for as minority interests (see Note 11). All
material intercompany transactions and account balances have been eliminated in
consolidation.
Investment in Real Estate Ventures
The Company has an investment in a limited partnership and a limited
liability corporation (see Note 6). The Company does not control either entity
and records its investment on the equity method.
Income Recognition
Rental, interest and other income are recorded on the accrual method
of accounting as earned.
Rental Operations
As of December 31, 1998, the Company owned 150 multifamily properties
in eleven states; with 68% of its apartment units located in Texas and 27%
located in Florida, Oklahoma, Arizona, Tennessee and Utah. Of the total units
owned, 11,723 or 28% are located in the Houston area and 10,887 or 26% are
located in the Dallas/Fort Worth area. Apartment units are leased to residents
on terms of one year or less, with monthly payments due in advance. The Company
has 15 properties which are subject to Federal, state and local statutes or
other restrictions requiring that a percentage of apartments be made available
to lower or moderate income families. In management's opinion,
-F-8-
<PAGE> 47
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
due to the number of residents, the type and diversity of markets in which the
properties operate and the collection terms, there is no concentration of
credit risk.
Unusual Charges
During 1998, the Company settled a $25 million forward treasury
interest rate lock agreement which was not utilized in connection with a
financing transaction. The settlement cost of approximately $4.0 million is
reflected as an unusual charge in the accompanying statement of income.
In October 1997, the Company entered into a settlement agreement in
connection with the resignation of its former Chief Executive Officer ("CEO")
and Chairman of the Board. The total cost of this settlement of $1.9 million is
reflected as an unusual charge in the statement of income. The vesting of the
restricted stock that was issued to this individual was accelerated and these
shares now vest in October 2000. The vesting of all stock options held by this
individual was accelerated such that they vested immediately and expire in
October 2002.
Cash and Cash Equivalents
All cash and investments in money market accounts, excluding
restricted cash, that have a maturity of three months or less at the time of
purchase are considered to be cash and cash equivalents.
Restricted Cash
Restricted cash consists of two major components: (1) security
deposits and escrow deposits held by lenders for the payment of property taxes,
insurance and replacement reserves and (2) additional collateral on mortgage
notes payable. Restricted cash related to security and escrow deposits is
invested primarily in short-term securities. Restricted cash related to
additional collateral on mortgage notes is invested in long-term government
securities. Restricted cash is not available for general operating purposes.
Real Estate Assets and Depreciation
Expenditures directly related to the acquisition and improvement of
real estate assets are capitalized at cost as land, buildings and improvements.
The Company capitalizes the cost of exterior painting and roof replacement in
excess of $10,000, appliances, and expenditures for other major property
improvements, as well as rehabilitation and repositioning costs incurred for
properties owned or acquired. Effective July 1, 1996, the Company revised its
method of accounting to capitalize the cost of replacement carpets on a
prospective basis (see Note 3).
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which range from 14 to 30 years for
buildings and three, five, ten or 15 years for personal property.
-F-9-
<PAGE> 48
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Company's management routinely reviews its investments for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Based on the Company's
policy of reviewing for impairment of long-lived assets by reviewing expected
future cash flows of its properties, there were no adjustments necessary for
impairment of properties during the three year period ended December 31, 1998.
Construction in Progress
Costs related to the Company's property repositioning programs,
acquisition renovations, and new development are recorded as construction in
progress until completion of the project, at which time they are placed in
service and transferred to buildings and improvements. Upon their transfer,
depreciation on such improvements commences.
The Company capitalizes carrying costs, primarily interest costs on
outstanding indebtedness, related to amounts funded for new developments
projects until completion of the project. Interest costs of approximately
$154,000 were capitalized and recorded to construction in progress during 1998.
Real Estate Held for Sale
As of December 31, 1998, the Company had one property, containing 256
units, as real estate held for sale. Depreciation on such property ceased at
the time it was listed as held for sale. Net operating income for this property
was $841,000 for the year ended December 31, 1998.
Deferred Financing Costs and Amortization
The costs incurred under forward treasury rate lock agreements
utilized in financing transactions, the cost of interest rate swap and cap
agreements and legal fees and other costs associated with obtaining financing
have been capitalized and are being amortized over the terms of the related
debt. Deferred financing costs are reported net of accumulated amortization of
$1,979,000 and $1,625,000 as of December 31, 1998 and 1997, respectively.
Derivative Instruments
The Company has entered into forward treasury rate lock agreements in
order to hedge its exposure to interest rate fluctuations. Settlement costs
incurred under the forward treasury rate lock agreements utilized in financing
transactions are capitalized as deferred financing costs and amortized to
interest expense over the term of the related financing, or expensed if the
refinancing does not occur.
The Company has entered into interest rate swap agreements at the
request of lenders to provide variable rate debt with a fixed interest rate
feature. Each interest rate swap agreement corresponds to all or a portion of
the outstanding principal balance of a specific debt obligation. The
-F-10-
<PAGE> 49
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Company records the amounts paid or received pursuant to the swap agreements as
an adjustment to interest expense, and the related payable or receivable to or
from the counterparty as a liability or asset, respectively.
The Company also enters into interest rate cap agreements to ensure
that interest rates on certain variable rate debt obligations do not exceed
specified rates. Each interest rate cap agreement corresponds to a specific
debt obligation. The interest rate cap agreements entered into by the Company
during 1998 were required by lenders. The fees paid to obtain rate cap
agreements are recorded as deferred financing costs and amortized over the term
of the rate cap agreement.
The termination of the above derivative instruments prior to scheduled
maturities would result in a charge to expense for the amount of unamortized
costs and payments required under the agreements which vary from amounts
recorded.
Income Taxes
The Company elected to be taxed as a REIT for Federal income tax
purposes as provided under the Internal Revenue Code of 1986, as amended,
effective with its taxable year ended December 31, 1994. As a result, the
Company generally will not be subject to Federal income taxation if it
distributes 95% of its REIT taxable income to its stockholders and satisfies
certain other requirements. The Company qualified as a REIT for its taxable
years prior to 1998 and anticipates that its method of operations will enable
it to continue to satisfy the requirements for such qualification.
Minority Interests
Minority interests represent limited partnership interests not owned
by the Company in partnerships for which the Company is general partner and has
a controlling interest. Amounts initially are recorded based on the fair value
of the cash and securities issued in exchange for the net assets acquired (see
Note 11). Partnership units are convertible into common stock (5,748,369 units
at December 31, 1998) ("Common OP Units") and preferred stock (714,440 units at
December 31, 1998) ("Preferred OP Units") (collectively, the "OP Units") in
accordance with the partnership agreements. Minority interest holders are
entitled to cash distributions at rates equivalent to common or preferred
stockholders of the Company as defined in the partnership agreements. Certain
Common OP Units have guaranteed distributions. Income allocated to minority
interests is equal to either (i) the preferred or guaranteed distributions paid
or accrued or (ii) an amount equal to income before income allocated to
minority interests divided by the number of common shares and Common OP Units.
Stock-based Compensation
The Company has elected not to recognize compensation expense for
stock options issued as calculated under Statement of Financial Accounting
Standards ("SFAS") No. 123, but rather will continue recognizing expense as
prescribed by APB Opinion No. 25. Disclosure of amounts required by SFAS No.
123 for stock options issued are included in Note 10. The Company also accounts
for restricted stock issued as prescribed by APB Opinion No. 25 (see Note 11).
-F-11-
<PAGE> 50
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Net Income Per Share of Common Stock
Basic net income per share has been computed by dividing net income
available to common stockholders by the weighted average number of common
shares outstanding. Diluted net income per share has been computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding plus potential dilutive common share equivalents.
The following table presents information necessary to calculate basic
and diluted net income per share for the periods indicated (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income for Basic and Diluted Computation:
Income before extraordinary item and income allocated to
minority interests ......................................... $ 36,213 $ 27,113 $ 19,122
Extraordinary loss on debt extinguishment .................... (423) (422) (1,848)
-------- -------- --------
Income before minority interests ............................. 35,790 26,691 17,274
Income allocated to minority interests ....................... (11,935) (4,109) (1,705)
-------- -------- --------
Net income ................................................... 23,855 22,582 15,569
Preferred distributions ...................................... (13,119) (13,186) (2,387)
-------- -------- --------
Net income available to common stockholders (basic and diluted
net income per share computation) .......................... $ 10,736 $ 9,396 $ 13,182
======== ======== ========
Basic Net Income per Share:
Before extraordinary item, less preferred distributions ...... $ 0.60 $ 0.55 $ 1.02
Extraordinary loss on debt extinguishment .................... (0.02) (0.02) (0.12)
-------- -------- --------
Net income available to common stockholders .................. $ 0.58 $ 0.53 $ 0.90
======== ======== ========
Diluted Net Income per Share:
Before extraordinary item, less preferred distributions ...... $ 0.60 $ 0.55 $ 1.02
Extraordinary loss on debt extinguishment .................... (0.02) (0.02) (0.13)
-------- -------- --------
Income available to common stockholders ...................... $ 0.58 $ 0.53 $ 0.89
======== ======== ========
Weighted Average Number of Shares Outstanding (a):
Basic ........................................................ 18,497 17,590 14,720
Dilutive effect of outstanding options ....................... 111 157 72
-------- -------- --------
Diluted ...................................................... 18,608 17,747 14,792
======== ======== ========
</TABLE>
(a) Excludes the convertible preferred shares, warrants and Common OP
Units (see Note 11) and 1,719,875 stock options (see Note 10), which
are anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods. Actual results may
differ from such estimates.
-F-12-
<PAGE> 51
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Environmental Remediation Costs
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably
estimatable. Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of the
remediation feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Recoveries of environmental
remediation costs from other parties are recorded as assets when their receipt
is deemed probable. The Company's management is not aware of any environmental
remediation obligations which would materially affect the operations, financial
position or cash flows of the Company.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its components.
For the Company, comprehensive income is equal to net income for each of the
three years in the period ended December 31, 1998.
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments and related information in interim and annual financial
statements. The Company operates solely in the real estate industry, managing
apartment properties across the United States. The Company's real estate assets
are operated with the same long-term objectives and therefore are viewed as a
single operating segment. Because the Company has no operations outside of the
United States, its country of domicile, information as to geographical
operations is not presented.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (the "Statement"), which establishes
standards for accounting and reporting for derivative financial instruments.
The Statement is effective for periods beginning after June 15, 1999; however,
earlier application is permitted. Management is currently not planning on early
adoption of this Statement. The Company expects the adoption of the provisions
of the Statement to result in the Company presenting a statement of
comprehensive income beginning in fiscal year 2000.
Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current financial statement presentation.
(3) CHANGE IN ACCOUNTING POLICY
Effective July 1, 1996, the Company revised its method of accounting
to capitalize the cost of replacement carpets on a prospective basis ($864,000
capitalized in 1996 which would have been expensed under the old policy, which
represents $0.06 for basic and diluted net income per share). The Company
believes that this accounting policy change is preferable because it is
consistent with
-F-13-
<PAGE> 52
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
policies currently being used by the majority of the largest publicly traded
apartment REITs and provides a better matching of expenses with the related
benefit of the expenditures.
Following is pro forma information as if the revised capitalization
policy was in effect as of January 1, 1996 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1996
----
<S> <C>
Income before extraordinary item and income allocated to minority
interests as reported ............................................... $ 19,122
Add: Adjustment for change in accounting policy to capitalize carpet
replacement costs ................................................... 264
----------
Income before extraordinary item and income allocated to minority
interests as adjusted ............................................... $ 19,386
==========
Net income as adjusted ................................................ $ 15,833
==========
Net income available to common stockholders as adjusted ............... $ 13,446
==========
Basic net income per share:
Before extraordinary item, less preferred distributions and income
allocated to minority interests as reported .................... $ 1.02
Adjustment for effect of change in accounting policy ............. 0.02
----------
Income before extraordinary item, less preferred distributions and
income allocated to minority interests as adjusted ............. $ 1.04
==========
Net income available to common stockholders as reported .......... $ 0.90
Adjustment for effect of change in accounting policy ............. 0.02
----------
Net income available to common stockholders as adjusted .......... $ 0.92
==========
Diluted net income per share:
Before extraordinary item, less preferred distributions and income
allocated to minority interests as reported .................... $ 1.02
Adjustment for effect of change in accounting policy ............. 0.02
----------
Income before extraordinary item, less preferred distributions and
income allocated to minority interests as adjusted ............. $ 1.04
==========
Net income available to common stockholders as reported .......... $ 0.89
Adjustment for effect of change in accounting policy ............. 0.02
----------
Net income available to common stockholders as adjusted .......... $ 0.91
==========
</TABLE>
(4) ACQUISITIONS AND DISPOSITIONS
Acquisitions
During 1998, the Company acquired five apartment properties containing
1,098 units (or 581 weighted average units) for a cost of $46.7 million. The
acquisitions were funded through the assumption of $19.2 million of
indebtedness, proceeds from property dispositions, and cash flow from
operations.
During 1997 the Company acquired 93 apartment properties containing
21,467 units (or 6,037 weighted average units) for a cost of $799.2 million.
Included in the 1997 acquisitions is the acquisition by the Company of the
assets and business of Drever Partners, Inc. and its affiliates,
-F-14-
<PAGE> 53
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(collectively, "Drever"), a private real estate management company based in San
Francisco and Houston. This acquisition included 18 partnerships for which
Drever was the general partner, which owned 79 apartment properties with 18,118
units. Pursuant to an Exchange Agreement with Drever, the consideration
exchanged by the Company consisted of approximately $95 million of cash, the
assumption of $286 million of mortgage debt (of which the Company repaid $119
million with proceeds from an unsecured term loan and its unsecured credit
facility) and approximately $304 million (based upon the price of the Company's
stock at the time of the announcement of the acquisition) of Common OP Units
and Preferred OP Units, issued by a newly-formed operating partnership
subsidiary of the Company, Walden/Drever Operating Partnership, L.P. ("WDOP"),
to the shareholders and partners of and equity participants in Drever. See Note
11 for additional information concerning these Common and Preferred OP Units.
During 1996 the Company acquired 16 apartment properties containing
5,034 units (or 1,631 weighted average units) for a cost of $179.0 million. In
addition, in connection with one property acquired in December 1996, the
Company acquired approximately 81 acres of adjacent undeveloped land in
Nashville, Tennessee for $4 million.
The properties acquired in 1998, 1997 and 1996 are located in the
states of Texas, Florida, California, Georgia, Arizona and Tennessee. The
acquisitions are accounted for by the purchase method of accounting, and the
accompanying consolidated financial statements reflect the results of
operations of the acquired properties since the date of purchase.
Dispositions
On August 26, 1998, the Company disposed of four properties in
Dallas/Fort Worth, Texas with a total of 1,151 units for net sale proceeds of
$36.7 million. On December 17, 1998, the Company disposed of five properties in
Houston, Texas with a total of 838 units for net sale proceeds of approximately
$26.7 million. On October 2, 1997, the Company disposed of one 392-unit
property located in Dallas, Texas for net sale proceeds of $8.7 million. During
1996, the Company disposed of three properties containing 832 units. In
connection with these dispositions, the Company reported gains in the amount of
$6.5 million, $2.1 million and $1.9 million for the years ended December 31,
1998, 1997 and 1996, respectively.
On February 26, 1999, the Company entered into an agreement to sell
Eagle Pointe Apartments, a 256-unit property located in Indianapolis, Indiana,
for $10.5 million. In connection therewith, the Company received a refundable
earnest money deposit of $50,000. The sale of Eagle Pointe is contingent upon
the completion of normal due diligence procedures by the purchaser, therefore,
there is no guarantee that the purchaser will acquire the property.
Pro Forma Information (Unaudited)
The following unaudited condensed pro forma information for each of
the two years ended December 31, 1998 was prepared from the consolidated
financial statements of the Company by adjusting for the effect of the
historical operations of all property acquisitions and dispositions in
-F-15-
<PAGE> 54
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1998 and 1997, including debt used to finance acquisitions or repaid from
proceeds of dispositions, as if all of these transactions had occurred on
January 1, 1997. The pro forma results do not include gains on property
dispositions or extraordinary losses on early extinguishment of debt. The
following information is not necessarily indicative of what the performance
would have been had the Company owned these properties for the entire period,
nor does it purport to represent future results of operations of the Company.
(In thousands, except per share information.)
<TABLE>
<CAPTION>
Pro Forma
---------
Year Ended December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Revenues ............................................... $ 273,504 $ 267,038
Expenses ............................................... 246,753 250,277
--------- ---------
Income before income allocated to minority interests.... 26,751 16,761
Income allocated to minority interests ................. (8,740) (5,149)
--------- ---------
Net income ............................................. 18,011 11,612
Preferred distributions ................................ (13,119) (13,186)
--------- ---------
Net income (loss) available to common stockholders ..... $ 4,892 $ (1,574)
========= =========
Basic net income (loss) per share ...................... $ 0.26 $ (0.09)
========= =========
Diluted net income (loss) per share ................... $ 0.26 $ (0.09)
========= =========
</TABLE>
(5) REAL ESTATE ASSETS
Changes in real estate assets and related accumulated depreciation for
the years ended December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<S> <C>
Real estate assets:
Balance at January 1, 1997 ................. $ 683,515
Purchase of real estate assets ................. 799,162
Sale of real estate assets ..................... (7,323)
Fixed asset additions .......................... 30,676
-----------
Balance at December 31, 1997 ............... 1,506,030
Purchase of real estate assets ................. 46,653
Real estate held for sale ...................... (8,983)
Sale of real estate assets ..................... (59,533)
Fixed asset additions .......................... 46,996
-----------
Balance at December 31, 1998 ............... $ 1,531,163
===========
Accumulated depreciation:
Balance at January 1, 1997 ................. $ 41,707
Depreciation expense ........................... 33,560
Write off related to real estate assets sold.... (683)
-----------
Balance at December 31, 1997 ............... 74,584
Depreciation expense ........................... 58,602
Real estate held for sale ...................... (1,821)
Write off related to real estate assets sold.... (2,600)
-----------
Balance at December 31, 1998 ............... $ 128,765
===========
</TABLE>
(6) TRANSACTIONS WITH AFFILIATES
WDN Management Company
-F-16-
<PAGE> 55
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For the period February 9, 1994 through December 31, 1996, the Company
owned 5% of the voting common stock and 100% of the non-voting common stock
(which represented 95% of the economic interest) of WDN Management Company
("WDN Management"). The remaining 95% of the voting common stock (which
represented a 5% economic interest) was owned by the Company's four executive
officers. For this period, the results of operations of WDN Management were
accounted for on the equity method. On December 31, 1996, the Company purchased
the additional 5% economic interest in WDN Management from the four executive
officers for $15,000 which represents the four executive officers' original
cost of the shares. At such time, WDN Management and its wholly-owned
subsidiary were merged into the Company and WDN Management was dissolved.
Investment in GGL Ventures LLC
On December 27, 1998, the Company entered into an agreement to invest
$55 million, which represents preferred membership units of GGL Ventures LLC
("GGL"), a newly formed entity for which a group of entities owned by a member
of the Company's board of directors, have control and voting power. GGL was
established to acquire 17 apartment communities located primarily in Georgia,
of which seven properties were purchased on December 27, 1998. The Company made
an initial investment of $18 million in GGL in December 1998, an additional
investment of $32 million on February 26, 1999, and, pursuant to the agreement,
is required to purchase additional preferred membership units totaling $5
million in 1999. In exchange for its investment in GGL, the Company is to
receive a 12% cumulative preferred return on its equity investment. The Company
may receive up to an additional 6% preferred return on its investment from
available cash in connection with sales or refinancings of GGL assets. For the
period ended December 31, 1998, the Company has accounted for its investment in
GGL on the equity method which is reflected in investment in real estate
ventures in the accompanying balance sheet. The following table summarizes the
net assets of GGL as of December 31, 1998 (in thousands):
<TABLE>
<S> <C>
Real estate assets $133,826
Other assets 8,489
--------
Total assets $142,315
========
Mortgage notes payable $103,970
Accounts payable and other liabilities 345
Venturers' capital - the Company 18,000
Venturers' capital - other members 20,000
--------
Total liabilities and venturers' capital $142,315
</TABLE>
The results of operations of GGL were insignificant for the year ended
December 31, 1998.
In connection with this transaction, the Company formed WGGL
Corporation ("WGGL"), a wholly owned subsidiary, to manage the properties
purchased by GGL. Beginning in 1999, WGGL will receive a monthly management fee
equal to 3.5% of the gross receipts of the properties.
Peppertree Associates, Ltd.
Peppertree Associates, Ltd. ("Peppertree") owns a 504-unit apartment
property located in Austin, Texas, which has been fee managed by the Company
since its IPO in 1994. In June 1998, the Company executed a loan with
Peppertree to facilitate the refinancing of the first mortgage loan
-F-17-
<PAGE> 56
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
on the property ($1.5 million balance at December 31, 1998 which is included in
rent and other receivables in the accompanying balance sheet). In connection
with this refinancing, the first mortgage lender required the Company to
replace the existing 1% general partner of Peppertree. Pursuant to Peppertree's
partnership agreement, the Company does not have a controlling interest and
therefore records its investment in Peppertree on the equity method.
The $1.5 million note matures on January 1, 2009 and requires monthly
payments to the Company of interest and excess cash flow from the property at
an effective annual interest rate of 17.6% ($139,000 of interest income
recorded in 1998).
(7) MORTGAGE NOTES PAYABLE, UNSECURED TERM LOAN AND UNSECURED CREDIT
FACILITY
Mortgage notes payable (including the Company's secured credit
facility) and the Company's unsecured term loan (the "Term Loan") and unsecured
credit facility (the "Credit Facility") consist of the following (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1998 Principal Balance
------------------------ As of December 31,
Weighted Average Weighted Average -----------------------
Interest Rate Years to Maturity 1998 1997
------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Conventional Fixed Rate Mortgage Notes:
Mortgage notes payable
to the Federal National
Mortgage Association (FNMA) .... 8.81% 5.1 $ 42,502 $ 43,101
Mortgage notes payable
to insurance companies ......... 7.99% 4.6 167,126 170,103
Mortgage notes payable to
JP Morgan ................... 6.78% 10.8 110,000 78,052
Mortgage notes payable - other ... 8.50% 1.7 3,140 3,175
----- ----- -------- --------
7.69% 6.8 322,768 294,431
Secured credit facility (1) ...... 7.78% 8.5 250,000 --
----- ----- -------- --------
7.73% 7.5 572,768 294,431
Tax-exempt Mortgage Notes:
Fixed rate ....................... 6.30% 18.8 81,517 75,638
Variable rate .................... 4.85% 28.0 57,582 51,085
----- ----- -------- --------
5.70% 22.6 139,099 126,723
Variable Rate Notes:
Unsecured Term Loan .............. -- -- -- 200,000
Unsecured Credit Facility ........ 7.67% 2.1 95,000 74,000
Other ............................ -- -- -- 7,200
----- ----- -------- --------
7.67% 2.1 95,000 281,200
----- ----- -------- --------
Total/Weighted Average ........... 7.37% 9.5 $806,867 $702,354
===== ===== ======== ========
</TABLE>
(1) Interest rate on $175,000 is fixed through interest rate swap
agreements.
As of December 31, 1998, the Company had collateralized 124 of its 150
properties under various mortgage loans.
Conventional Mortgage Notes Payable
-F-18-
<PAGE> 57
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Conventional mortgage notes payable include 58 loans encumbering 73
properties at December 31, 1998. Mortgage notes for $322.8 million are payable
in monthly installments aggregating approximately $2.5 million, including
principal and interest at various fixed rates ranging from 6.62% to 9.22% per
annum. Scheduled maturities are at various dates ranging from August 1, 2000
through June 30, 2016.
In March 1998, $78.1 million of conventional fixed-rate mortgages were
refinanced with $110.0 million of fixed-rate debt, of which $80 million of such
debt bears interest at 6.62% and matures in March 2007 and the remaining $30
million bears interest at 7.06% and matures in June 2016. In connection with
the $30 million mortgage, the Company utilized a $20 million forward treasury
rate lock agreement, which resulted in a settlement cost of $0.7 million. The
settlement cost is included in deferred financing costs and will be amortized
over the 18 year loan term for an effective fixed annual interest rate of
7.22%.
In December 1998, in connection with the sale of five Houston, Texas
properties, the Company retired $4.5 million of conventional, fixed-rate
mortgage indebtedness.
Secured Credit Facility
On December 15, 1998, the Company entered into a $250 million secured
revolving credit facility agreement with the Federal National Mortgage
Association (FNMA), which is collateralized by 35 properties. The credit
facility is divided into three tiers, as described below:
<TABLE>
<CAPTION>
Fixed Effective
Loan Fixed Rate Fixed
Amount Term Rate Swap Amortization Rate
------ ---- ---- ---- ------------ ----
(in millions)
<S> <C> <C> <C> <C> <C>
$ 75 10 years 6.385% N/A 30 Years 7.95%(1)
100 10 years N/A 6.75%(2) None 7.98%(2)
75 5 years N/A 6.54%(3) None 7.34%(3)
-----
$250
=====
</TABLE>
(1) The Company utilized a $75 million forward treasury rate lock
agreement at a settlement cost of $11.9 million. The settlement cost
is included in deferred financing costs and will be amortized to
interest expense over the 10 year loan term for an effective fixed
annual interest rate of 7.95%.
(2) The Company entered into a $100 million variable rate loan with FNMA,
which requires quarterly interest payments in advance based on the 90
day FNMA mortgage backed security ("MBS") rate plus 0.8% ($1.3 million
included in prepaid assets at December 31, 1998). In order to fix the
interest rate on this loan, the Company entered into a ten year above
market interest rate swap agreement with Deutsche Bank, in exchange
for their settlement of a portion of the Company's $100 million
forward treasury rate lock agreement at a cost of approximately $10
million. The swap agreement fixed the interest rate at 6.75% and is
settled quarterly. In addition, the Company settled the remaining
portion of the $100 million forward treasury rate lock agreement at a
cost of $4.3 million,which is included in deferred financing costs and
will be amortized to interest expense over the 10 year loan term.
These transactions result in an effective annual interest rate of
7.98% (including the 0.8% FNMA fee).
(3) The Company entered into a $75 million variable rate loan with FNMA,
which requires quarterly interest payments in advance based on the 90
day FNMA MBS rate plus 0.8% ($1.0 million included in prepaid assets
at December 31, 1998). In order to fix the interest rate on this loan,
the Company entered into a five year above
-F-19-
<PAGE> 58
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
market interest rate swap agreement with Morgan Guaranty Trust
Company, in exchange for their settlement of the Company's $75 million
forward treasury rate lock agreement at a cost of approximately $4
million. The swap agreement fixed the interest rate at 6.54% and is
settled quarterly. Including the 0.8% FNMA fee, the effective annual
interest rate on this loan is 7.34%.
The total settlement cost of approximately $14 million paid on behalf
of the Company by Deutsche Bank and Morgan Guaranty Trust Company has been
recorded as both a deferred financing cost and an accrued liability in the
accompanying balance sheet at December 31, 1998. The asset will be amortized to
interest expense over the related terms of the interest rate swap agreements.
The secured credit facility contains customary representations,
warranties and events of default which require the Company to comply with
affirmative and negative covenants. The restrictive covenants provide that: (i)
the percentage of consolidated total indebtedness to consolidated total
undepreciated assets be less than 56%; (ii) total equity, as defined, be
greater than $600 million; (iii) earnings before interest, taxes, depreciation
and amortization ("EBITDA") less capital expenditures (based on $300 per
apartment unit) be greater than two times interest expense; and (iv) EBITDA
less capital expenditures be greater than 1.5 times fixed charges (interest
expense plus amortization plus preferred distributions). As of December 31,
1998, the Company was in compliance with all covenants of the secured credit
facility.
As of December 31, 1998, the secured credit facility is fully drawn.
Proceeds were used to retire the Company's $200 million term loan (described
below) and pay down a portion of the unsecured credit facility.
Tax-Exempt Mortgage Notes Payable
At December 31, 1998, 16 of the Company's properties are encumbered by
14 mortgage notes which were financed from the proceeds of tax-exempt bonds,
for which all but one loan have credit enhancements. The total amount of these
mortgage notes are approximately $139.1 million at December 31, 1998, of which
$81.5 million are fixed rate loans with monthly installments of approximately
$0.5 million, including principal and interest at rates ranging from 4.85% to
6.70% per annum. The scheduled maturities on these notes range from September
1, 1999 through September 1, 2028. The remaining tax-exempt mortgage notes in
the amount of $57.6 million have variable interest rates, are payable in
monthly installments of principal and interest (with a weighted average annual
interest rate of 4.85% as of December 31, 1998) and scheduled maturities
ranging from January 15, 2023 to February 1, 2028.
On October 28, 1998, the Company refinanced $5.5 million of variable
rate, tax-exempt mortgage indebtedness related to one of its properties. The
Company entered into a five-year interest rate swap agreement with Morgan
Guaranty Trust Company, fixing the interest rate on this indebtedness to an
all-inclusive rate of 4.85%.
Unsecured Credit Facility and Unsecured Term Loan
The Company has a $150 million unsecured Credit Facility with
BankBoston, as agent for a group of financial institutions, which matures
February 2001. At December 31, 1998, the Company's borrowing capacity was
approximately $126 million. At the Company's election, the
-F-20-
<PAGE> 59
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
interest rate on any borrowings under its Credit Facility is at a floating rate
equal to either (i) BankBoston's base rate plus 0.5% (8.25% at December 31,
1998) or (ii) LIBOR plus 1.875% (7.46% at December 31, 1998). In March 1999,
the Company modified the Credit Facility to increase its borrowing capacity.
The Credit Facility contains customary representations, warranties and
events of default which require the Company to comply with certain affirmative
and negative covenants. The primary restrictive covenants provide that: (i)
distributions to stockholders may not exceed 90% of funds from operations, as
defined in the Credit Facility; (ii) secured mortgage indebtedness may not
exceed 46% of the Company's total assets before depreciation; (iii) the
Company's fixed charge coverage ratio, as defined, must exceed 1.5; and (iv) the
Company's debt service coverage ratio, as defined, must exceed 2.0. As of
December 31, 1998, the Company was in compliance with all covenants of the
Credit Facility.
On December 15, 1997, the Company entered into an unsecured $200
million one year term loan agreement (the "Term Loan") with BankBoston, as agent
for a group of financial institutions. The interest rate on the borrowing was at
1.375% over LIBOR. This borrowing was utilized to repay a $110 million term loan
obtained on October 1, 1997 in connection with the acquisition of the apartment
properties owned by Drever. The balance of the proceeds of the Term Loan were
used to reduce the Credit Facility borrowings. The Company paid a loan fee of
$1.2 million for the Term Loan which was amortized over the life of the loan.
The Term Loan was repaid in full in December 1998 with proceeds from the secured
credit facility.
On February 26, 1999, the Company entered into a $15 million unsecured
loan with BankBoston, for which the proceeds were used to fund a portion of the
Company's February 1999 investment in GGL (see Note 6). The loan bears interest
at 8%, with $5 million maturing in one year and $10 million maturing in August
2001. The Company paid a loan fee of $1.5 million in connection with this
financing which will be amortized over the related loan terms.
On April 14, 1998, the Company repaid $7.2 million of variable rate
indebtedness related to one property.
-F-21-
<PAGE> 60
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Principal Debt Maturities
Principal debt maturities, including balloon payments, for the next five
years are as follows (in thousands):
<TABLE>
<S> <C>
1999 .......................... $ 15,494
2000 .......................... 14,724
2001 .......................... 165,498
2002 .......................... 7,006
2003 .......................... 105,389
Thereafter .................... 498,756
--------
Total .................... $806,867
========
</TABLE>
Extraordinary Items
During 1998, the Company completed debt refinancings prior to scheduled
maturities on several properties and sold two encumbered properties. In
connection with these activities, the Company recorded an extraordinary loss in
the amount of $0.4 million in 1998, which represented the write-off of
unamortized deferred financing costs and prepayment penalties for the early
retirement of debt.
As a result of the sale of a property during 1997, the Company recorded
an extraordinary loss in the amount of $0.4 million, which represented the
write-off of unamortized deferred financing costs and prepayment penalties from
the early retirement of debt.
During 1996, the Company refinanced approximately $36.4 million of
mortgage loans and the Credit Facility prior to maturity, which resulted in an
aggregate extraordinary loss of $1.8 million. These losses represented
prepayment fees and the write-off of unamortized financing costs related to the
debt retired.
(9) EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has a 401(k) Plan for its employees. The 401(k) plan is a
voluntary defined contribution plan. Qualified employees may participate in the
plan by contributing up to 20% (15% prior to October 1, 1997) of the
participant's annual compensation (not to exceed $10,000, $9,500 and $9,500 per
annum for 1998, 1997 and 1996, respectively). The Company made annual matching
contributions on the participants' behalf of $286,000 and $136,000,
respectively, representing up to 3% of the participant's annual compensation for
the period from (i) January 1, 1998 through December 31, 1998 and (ii) the
periods from October 1, 1996 through September 30, 1997 and from October 1, 1997
through December 31, 1997. In 1996, an annual matching contribution was made on
the participant's behalf of $217,000. This represented up to 6% and 3% of the
participant's annual compensation for the periods from October 1, 1995 through
March 31, 1996 and from April 1, 1996 through September 30, 1996, respectively.
A participant's salary deferral contribution is 100% vested and nonforfeitable.
A participant vests ratably over five years in the Company's matching
contributions.
-F-22-
<PAGE> 61
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Non Qualified Deferred Compensation Plan
On October 1, 1998, the Company adopted a non-qualified deferred
compensation plan to provide certain employees of the Company with retirement
benefits. Under this plan, eligible employees may elect to defer up to 20% of
their annual compensation, and the Company will make a matching contribution
equal to 10% of the employee's contributions. In 1998, the Company made a
matching contribution on the participants' behalf of $3,000. Matching
contributions vest ratably over five years.
(9) NOTES RECEIVABLE FOR STOCK PURCHASES
In 1994, the Company implemented a stock purchase program allowing its
officers and directors to purchase shares of the Company's common stock at
current market prices with the assistance of a loan from the Company. Each
officer or director acquiring stock under the program paid 10% to 20% and 50%,
respectively, of the purchase price in cash with the remaining amount loaned on
a non-recourse basis by the Company. During 1998, many directors and officers
converted their loans from a non-recourse to a recourse basis for tax purposes.
On February 17, 1998, the Company implemented a new stock purchase loan
program allowing officers and key employees to purchase the Company's common
stock at current market prices and to exercise vested stock options with the
assistance of a loan from the Company. Under this program, officers and key
employees are eligible to purchase stock on March 1 and September 1 of each year
in an aggregate amount of up to three times their annual salary. A cash payment
of 5% to 15% of the purchase price is required by the officer or key employee,
depending upon the amount of the purchase, with the remainder loaned on a full
recourse basis.
Under both plans, the loans are evidenced by a note with a five-year
term, secured by a pledge of the shares of common stock purchased, and require
quarterly payments of interest only at fixed interest rates equal to the
Company's then current interest rate under its Credit Facility. The table below
summarizes shares issued and key components of the loans outstanding:
<TABLE>
<CAPTION>
Shares Outstanding
Date of Number of Outstanding at Issue Fixed Loan Balance at
Issuance Shares Issued December 31, 1998 Price Interest Rate December 31,1998
-------- ------------- ----------------- ----- ------------- ----------------
<S> <C> <C> <C> <C> <C>
July 19, 1994 183,000 95,000 $ 20.875 7.25% $1,784,813
December 14, 1995 122,600(a) 18,600 $ 19.375 8.00% 212,738
March 2, 1998 138,692 138,692 $ 24.750 7.00% 3,102,749
March 2, 1998 26,192(b) 26,192 $ 19.250 7.00% 457,345
September 1, 1998 40,818 40,818 $ 22.625 7.00% 852,850
------- ------- ----------
511,302 319,302 $6,410,495(c)
======= ======= ==========
</TABLE>
(a) Represents shares issued from common stock repurchased
pursuant to the Company's stock repurchase program.
(b) Represents shares issued upon the exercise of 26,192 stock
options at an option grant price of $19.25.
(c) Of the total notes receivable for stock purchases at December
31, 1998, $169,088 is non-recourse.
-F-23-
<PAGE> 62
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In November 1998, an executive of the Company repaid the full amount
outstanding on his note payable to the Company ($3.3 million) related to the
purchase of 192,000 shares of common stock.
On March 1, 1999, the Company issued 148,723 shares of its common stock
under the stock loan program at $16.69 per share. The amount loaned by the
Company in connection with this stock issuance was $2,239,000. The loans bear
interest at a fixed annual rate of 7%.
(10) STOCK OPTION PLAN
The Company adopted a stock option plan (the "Option Plan") in 1994 to
provide incentives to officers, key employees and directors. Stock options
granted under the Option Plan include non-qualified options and incentive stock
options ("ISOs"). Options granted to non-employee directors vest over a
one-year period. Options granted to officers and other employees generally vest
ratably over a four-year period. All options expire ten years from the date of
grant. Shares of common stock reserved for issuance under the Option Plan are
in an amount equal to 10% of the Company's outstanding shares including
exchangeable or convertible securities. As of December 31, 1998, 3,309,570
shares of common stock were reserved for issuance under the Option Plan. The
Option Plan limits the number of shares of common stock issuable pursuant to
ISOs to 2,500,000.
Following is a summary of stock option activity for the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Price Options Price Options Price Options
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year $23.20 2,883,625 $20.07 1,392,750 $19.23 792,500
Granted ......................... 23.54 80,000 25.34 1,778,250 21.16 603,250
Exercised ....................... 19.54 (79,466) 19.56 (138,813) 19.25 (125)
Canceled ........................ 25.13 (85,876) 22.83 (148,562) 20.64 (2,875)
------ ---------- ------ ---------- ------ ----------
Options outstanding, end of year ..... $23.25 2,798,283 $23.20 2,883,625 $20.07 1,392,750
====== ========== ====== ========== ====== ==========
Exercisable options, end of year ..... $22.18 1,537,914 $21.21 1,076,619 $19.22 356,900
====== ========== ====== ========== ====== ==========
</TABLE>
As of December 31, 1998, options for 1,537,914 shares of common stock
were exercisable at prices ranging from $18.47 to $26.00 per share and had a
weighted average remaining contractual life of 5.7 years. Outstanding options
as of December 31, 1998 had a weighted average contractual life of 7.0 years.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires
companies to use recognized option pricing models to estimate the fair value of
stock based compensation, including stock options and stock purchases by
employees under company-sponsored stock purchase plans. The Company has elected
not to recognize compensation expense as calculated under SFAS No. 123, but
rather will continue recognizing expense as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," as allowed under SFAS No. 123. (See
Note 11 for a description of the Company's Associate Stock Purchase Plan.)
Had compensation expense been determined based on the fair value of
the stock option grants and associate stock purchases at the grant dates and
purchase dates, respectively, consistent with the
-F-24-
<PAGE> 63
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
provisions of SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income available to common stockholders:
As reported (in thousands) ................................................ $ 10,736 $ 9,396 $ 13,182
Pro forma (in thousands) .................................................. $ 10,057 $ 8,180 $ 12,806
Basic net income per share:
As reported ............................................................... $ 0.58 $ 0.53 $ 0.90
Pro forma ................................................................. $ 0.54 $ 0.47 $ 0.87
Diluted net income per share:
As reported ............................................................... $ 0.58 $ 0.53 $ 0.89
Pro forma ................................................................. $ 0.54 $ 0.46 $ 0.87
Stock options:
Stock options issued (in thousands) ....................................... 80 1,778 603
Weighted average option exercise price .................................... $ 23.54 $ 25.34 $ 21.16
Weighted average compensation value of options granted per option (1)...... $ 1.59 $ 2.38 $ 1.14
Compensation cost (in thousands) .......................................... $ 1,038 $ 1,397 $ 376
Associate Stock Purchase Plan:
Weighted average compensation value ....................................... $ 3.61 -- --
Compensation cost (in thousands) .......................................... $ 10 -- --
</TABLE>
(1) Calculated in accordance with the binomial model, using the following
assumptions: (i) expected volatility of 13.00%, 13.40%, and 11.92% for
the years ended December 31, 1998, 1997, and 1996, respectively,
computed using the monthly average of the Company's common stock
market price as listed on the New York Stock Exchange for the period
February 1994 through August 1998; (ii) expected dividend yield
ranging from 7.42% to 9.90%; (iii) expected option term of six years;
(iv) risk-free rate of return as of the date of grant, which ranged
from 5.31% to 7.61%, based on extrapolated yield of six year U.S.
Treasury securities; and (v) forfeiture rate of 4.0%.
(11) MINORITY INTERESTS AND STOCKHOLDERS' EQUITY
Minority Interests
In connection with apartment acquisitions in June 1995, the Company
issued Common OP Units that are exchangeable for an aggregate of 810,128 shares
of the Company's common stock at the option of the unit holders. Prior to
exchange, the holders of these Common OP Units will be entitled to receive
quarterly distributions equal to the greater of the Company's actual
distributions on 810,128 shares of common stock, or $369,000 in the aggregate
($391,000 was accrued as of December 31, 1998). Distributions of $1,564,000,
$1,564,000 and $1,789,000 were paid to these unit holders for the year ended
December 31, 1998, 1997 and 1996, respectively. These securities have been
recorded as minority interests in the accompanying balance sheets.
In connection with an apartment acquisition in April 1997, the Company
issued $1.1 million of Common OP Units which are currently convertible into
38,876 shares of the Company's common stock. Prior to conversion, the holders
of these Common OP Units will be entitled to receive quarterly distributions on
the equivalent of 38,876 shares of common stock if and when declared and paid
($80,000 and $39,000 paid during 1998 and 1997, respectively). These securities
have been recorded as minority interests in the accompanying balance sheets.
-F-25-
<PAGE> 64
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In connection with the properties acquired from Drever in October 1997
(see Note 4), the Company issued approximately $304 million of Common OP Units
and Preferred OP Units, including 20,621 Common OP Units issued in connection
with the final accounting of the Drever transaction in June 1998. Beginning
October 1, 1998, each Common OP Unit became exchangeable into one share of the
Company's Common Stock, and each Preferred OP Unit became exchangeable into one
share of the Company's 9.0% Redeemable Preferred Stock and Series B Warrants
(each of which is exercisable for one-third of one share of the Company's common
stock at $26.875 per share). The 9.0% Redeemable Preferred Stock and the
Preferred OP Units are redeemable at the option of the Company in ten years at a
redemption price of $25 per share or unit.
The holders of the Preferred OP Units are entitled to receive
quarterly distributions of $0.5625 per unit and the holders of the Common OP
Units are entitled to receive quarterly distributions equal to those on the
Company's common stock (distributions of $24,436,000 were paid during 1998).
Effective December 30, 1998, Common OP Units of 5,436,919 and Preferred OP Units
of 1,283,773 were exchanged into the Company's common stock and 9.00% Redeemable
Preferred Stock, respectively. The remaining outstanding Common and Preferred OP
Units of 4,899,365 and 714,440, respectively, have been recorded as minority
interests in the accompanying balance sheets.
On March 1, 1999 the Company paid distributions of $2.6 million on the
Common OP Units (which represented $0.4825 per unit) and $0.3 million on the
Preferred OP Units (which represented $0.5625 per unit).
Dividend Reinvestment Program
The Company has a Dividend Reinvestment and Stock Purchase Program
("DRP") which allows stockholders to reinvest their common or preferred
distributions quarterly into shares of the Company's common stock, in lieu of
receiving cash distributions. The current DRP provides that the issue price of
dividend reinvestment purchases are at 95% of the average closing market price
of the Company's common stock for the five days preceding such purchase. The
Company has filed various shelf registration statements for an aggregate of
2,500,000 shares of common stock to be issued pursuant to the DRP, of which
609,398 shares were available for issuance as of December 31, 1998. Pursuant to
the DRP, the Company issued 314,328 and 955,434 shares of its common stock
during 1998 and 1997, respectively.
Other Shelf Registrations
The amount of common or preferred stock or stock warrants available for
issuance under previously filed registration statements was $18,025,000 at
December 31, 1998.
Public Offerings
Following is a summary of the Company's public offerings through
December 31, 1998:
-F-26-
<PAGE> 65
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
Description Date Issued Issue Price Shares Net Proceeds
- ----------- ----------- ----------- ------ ------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Common Stock:
IPO............................ February 9, 1994 $19.250 8,386 $143,680(1)
Follow-on offerings: November 7, 1994 $19.250 1,500 26,706
June 23, 1995 $18.375 3,500 60,173
August 27, 1996 $20.625 1,680 32,626(1)
December 24, 1996 $24.250 1,237 28,233(2)
February 19, 1998 $24.750 323 7,562
------- --------
Preferred Stock/Warrants: 16,626 298,980
------- --------
9.16% Series A Convertible
Redeemable Preferred
Stock........................ April 26, 1996 $25.000 1,800 43,500
9.20% Senior Preferred
Stock and Warrants........... December 27, 1996 $25.000 4,000 95,344
------- ----------
5,800 138,844
------- ---------
Total public offerings.............. 22,426 $437,824
======= ========
</TABLE>
(1) Includes overallotment option exercised.
(2) Includes 161,000 shares issued in January 1997 pursuant to an
overallotment option. Net proceeds were $3,524,000.
Preferred Stock and Warrants
On April 26, 1996, the Company sold 1,800,000 shares of a 9.16% Series
A Convertible Redeemable Preferred Stock ("Series A") at $25.00 per share. On
August 14, 1996, 1,707,300 shares of Series A were exchanged for the same
number of shares of a 9.16% Series B Convertible Redeemable Preferred Stock
("Series B"), with the remaining Series A shares either converted to common
stock in 1996 or 1997 or automatically exchanged for Series B shares on July 2,
1997. Series B shares of 73,818 and 3,000 were converted to common stock during
1997 and 1998, respectively. As of December 31, 1998, there were 1,709,182
Series B shares outstanding, which are convertible into 1.1406 shares of common
stock and are redeemable at the option of the Company on or after April 30,
2006 at $25.00 per share. Distributions on Series B shares are cumulative and
are equal to the greater of (i) $2.29 per annum or (ii) the distribution on the
number of shares of common stock into which a share of Series B is convertible.
On December 27, 1996, the Company sold 4,000,000 units at $25.00 per
unit. Each unit represented one share of 9.20% Senior Preferred Stock and one
detachable warrant. The preferred stock is not convertible into common stock
and is redeemable by the Company on or after December 31, 2006 at $25.00 per
share. Distributions on the preferred stock are cumulative. A warrant may be
exchanged for one-third share of common stock at an exercise price of $26.875
per share. The warrants expire on January 1, 2002.
-F-27-
<PAGE> 66
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Effective December 30, 1998, pursuant to the terms of the Drever
transaction, Preferred OP Units of 1,283,773 were exchanged into the same
number of shares of the Company's 9.00% Redeemable Preferred Stock.
Distributions on this security are cumulative and are payable quarterly at
$0.5625 per share beginning in March 1999. The 9.00% Redeemable Preferred Stock
is redeemable by the Company after January 1, 2008 at $25.00 per share.
The aggregate liquidation preference of the Company's outstanding
preferred stock was $174,824,000 as of December 31, 1998.
Shareholder Rights Plan
On March 26, 1998, the Company adopted a shareholder rights plan (the
"Plan") designed to assure that all stockholders would receive fair treatment
in the event of a proposed acquisition of the Company. On April 20, 1998, the
Company issued a dividend of one right for each share of common stock owned by
stockholders of record as of April 7, 1998. Effective April 8, 1998, each share
of the Company's common stock has one right attached to it, which becomes
exercisable upon the occurrence of certain events.
Each right will entitle the holder to buy one one-hundredth of a share
of a new Series A Junior Participating Preferred Stock, at an exercise price of
$70.00 per share. The rights will trade with the Company's common stock until
exercisable and will expire on April 20, 2008. The rights will not be
exercisable until ten days following a public announcement that a person or
group has acquired 15% or more of the Company's common stock or until ten
business days after a person or group begins a tender offer that would result
in ownership of 15% or more of the Company's common stock, subject to certain
extensions by the Board. If either of these events occur, the holder will be
eligible to purchase shares of the Company's common stock at a 50 percent
discount.
Restricted Stock
On February 6, 1997, the Company adopted a Long-Term Incentive Plan to
attract and retain individuals to serve as directors, officers and employees of
the Company. The recipients of the Company's restricted shares of common stock
(the "Restricted Stock") are required to pay the $0.01 par value of the common
stock. During 1998, the Company issued 5,206 shares of Restricted Stock to two
of its executive officers and its six outside directors and canceled 7,583
shares upon employee departures from the Company. The shares issued to officers
and key employees vest ratably over a three year period, and the shares issued
to directors vest ratably over a one year period. On February 12, 1997, the
Company issued 107,500 shares of Restricted Stock under this plan to four
executive officers, its non-employee directors and certain other employees of
the Company (of which 18,000 shares of Restricted Stock were subsequently
canceled upon departures of certain individuals). The shares issued to the
non-employee directors vest ratably over a three-year period; while the shares
issued to the executive officers and other employees vest over a ten-year
period, with an initial vesting of 40% after the fourth anniversary and a 10%
annual vesting thereafter. Deferred compensation related to the Restricted
Stock was computed based upon the market value of the shares at the date of
issuance less the amount paid for the shares. This deferred compensation is
being amortized over the respective vesting periods. The unamortized amount as
of December 31, 1998 was $1,108,000.
On February 4, 1999, the Company issued 10,064 shares of Restricted
Stock to its six outside directors and two officers at $19.375 per share, which
vest over periods ranging from one to three years.
-F-28-
<PAGE> 67
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In 1997, the vesting period of the Restricted Stock issued to the
Company's former CEO and Chairman of the Board was accelerated to October 2000,
pursuant to a settlement agreement. In addition, the balance of the deferred
compensation on such Restricted Stock ($739,000) was fully amortized in 1997
and is reflected as an unusual charge in the statement of income.
Stock Repurchases
During 1995 and 1996, the Company repurchased 422,100 shares of its
common stock at a cost of $8.5 million; of which 103,800 and 18,800 shares were
reissued on December 28, 1995 and January 18, 1996, respectively, pursuant to
an officer and director stock purchase agreement (see Note 9). The remaining
299,500 shares were retired in 1996.
In July 1997, the Company announced a stock repurchase program which
authorized the Company to purchase up to 1 million shares of its common stock.
During 1997, the Company repurchased and retired 278,500 shares of its common
stock at a cost of $6.7 million and 721,500 shares in 1998 at a cost of $17.5
million.
On June 4, 1998, the Company adopted an additional stock repurchase
program. This new program authorizes the Company to purchase up to 2.5 million
shares of the Company's common stock through December 31, 1999. The Company
purchased 10,000 shares under this program at a cost of $0.2 million. The
Company does not intend to purchase additional shares if the Company's total
debt to total market capitalization continues to exceed 46%, which it does as
of March 3, 1999.
Associate Stock Purchase Plan
Effective April 1, 1998, the Company adopted an Associate Stock
Purchase Plan. This plan allows Company employees to purchase on a quarterly
basis shares of the Company's common stock at a 15% discount, up to $100,000
annually. As of December 31, 1998, $76,008 had been purchased by employees.
Distributions to Common and Preferred Stockholders
The following table illustrates distributions paid for the three years
ended December 31, 1998 on the Company's Common Stock, 9.16% Convertible
Redeemable Preferred Stock ("Convertible Preferred"), and 9.2% Senior Preferred
Stock, as well as the tax characteristics of the distributions:
<TABLE>
<CAPTION>
Ordinary
Long Term Taxable
Total Distributions Return of Ordinary/Capital Dividend
Year Security Distributions Per Share Capital Gain Income
- ---- -------- ------------- --------- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
1998 Common $35,130 $ 1.93 50.14% 10.56% 39.30%
Convertible Preferred $ 3,919 $ 2.29 -- 21.19% 78.81%
9.2% Senior Preferred $ 9,200 $ 2.30 -- 21.19% 78.81%
1997 Common $33,852 $ 1.93 44.06% 2.23% 53.71%
Convertible Preferred $ 3,986 $ 2.29 -- 3.99% 96.01%
9.2% Senior Preferred $ 8,538 $ 2.30 -- 3.99% 96.01%
1996 Common $27,034 $ 1.86 43.30% 3.70% 53.00%
Convertible Preferred $ 2,387 $1.335 -- 6.53% 93.47%
</TABLE>
-F-29-
<PAGE> 68
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On March 3, 1999, the Company paid distributions of $11.6 million and
$4.1 million, respectively, to common and preferred stockholders of record on
February 18, 1999.
Distribution Preferences
Distributions on the Company's preferred stock and certain of its
minority interest securities have priority over other distributions. Following
are the Company's distribution preferences:
(a) First, to holders of the 9.20% Senior Preferred Stock
(4,000,000 shares at December 31, 1998, with an annual
dividend rate of $2.30 per share); then
(b) to holders of the 9.16% Series B Convertible Redeemable
Preferred Stock (1,709,182 shares at December 31, 1998, with
an annual dividend rate of $2.29 per share), the 9.00%
Redeemable Preferred Stock (1,283,773 shares at December 31,
1998, with an annual dividend rate of $2.25 per share) and
the holders of Preferred OP Units (714,440 units at December
31, 1998, with an annual distribution of $2.25 per unit);
then
(c) to holders of 810,128 Common OP Units (at a minimum
cumulative annual distribution equal to $1.82 per unit); and
(d) finally, to all remaining holders of Common OP Units and
common stock.
(12) FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial
instruments was determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgement is
necessary to interpret market data and develop the related estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized upon disposition of the
financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Cash and cash equivalents, receivables (including notes receivable for
stock purchases), accounts payable and accrued expenses and other liabilities
are carried at amounts which reasonably approximate their fair value.
As of December 31, 1998, the outstanding balance of fixed rate
mortgage notes payable of $473.8 million (excluding $180.5 million of variable
rate debt fixed through interest rate swap agreements) had a fair value of
$489.4 million (excluding prepayment penalties) as estimated based upon
interest rates available for the issuance of debt with similar terms and
remaining maturities as of December 31, 1998. Of these mortgages, $361.8
million were not prepayable at December 31, 1998. The remaining notes were
subject to prepayment penalties of $13.0 million at December 31, 1998, which
would be required to retire these notes prior to maturity. The floating rate
mortgage notes payable balance at December 31, 1998 reasonably approximates
fair value.
As of December 31, 1998, the fair value of the Company's interest rate
swap agreements and interest rate cap agreements was approximately $15 million
in the aggregate, which approximates the amount recorded.
-F-30-
<PAGE> 69
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of December 31, 1997, the outstanding balance of fixed rate
mortgage notes payable of $370.1 million had a fair value of $379.1 million
(excluding prepayment penalties) as estimated based upon interest rates
available for the issuance of debt with similar terms and remaining maturities
as of December 31, 1997. Of these mortgages, $179.0 million were not prepayable
at December 31, 1997. The remaining notes were subject to prepayment penalties
of $5.6 million at December 31, 1997, which would be required to retire these
notes prior to maturity. The floating rate mortgage notes payable balance at
December 31, 1997 reasonably approximates fair value.
The fair value estimates presented herein are based on information
available to management as of December 31, 1998 and 1997. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
(13) COMMITMENTS AND CONTINGENCIES
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. These matters are generally covered
by insurance. While the resolution of these matters cannot be predicted with
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
The Company has executed lease agreements for its Dallas and Houston,
Texas corporate offices, which expire in May 2008 and October 2002,
respectively. Following is a summary of the annual payments required under
these agreements (in thousands):
<TABLE>
<S> <C>
1999 $1,061
2000 1,062
2001 1,101
2002 1,096
2003 959
Thereafter 4,311
------
Total $9,590
</TABLE>
As of December 31, 1998, the Company had employment agreements with
six officers for three and five year periods ending in June 2001 and February
or October 2002. On March 1, 1999, the Company entered into a three-year
employment agreement with one additional executive. Each employment agreement
provides that the Company is liable for the compensation benefits for one year
if an executive officer were to be terminated without cause, as defined. The
aggregate annual compensation under these agreements is approximately $1.4
million.
As of December 31, 1998, the Company had approximately $10 million of
contractual obligations with third parties related to capital improvements to
the Company's properties.
On February 27, 1998, the Company signed a joint venture agreement
with The Grupe Company ("Grupe") to purchase, for approximately $47 million,
two Sacramento area properties which will consist of 616 apartment units. Under
the terms of the joint venture, Grupe will build and lease-up the two
properties before the Company would purchase 100% of both properties from the
joint venture. The purchase is anticipated to occur sometime in late 1999. The
Company has guaranteed the construction loan related to these two properties
($19.8 million balance at December 31, 1998).
-F-31-
<PAGE> 70
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On July 29, 1998, the Company entered into an agreement to loan to The
Greystone Group, Inc. ("Greystone"), an unrelated third-party, amounts
necessary to purchase and develop a parcel of land in Chandler, Arizona ($7
million loaned as of December 31, 1998). The loan bears an interest rate of
LIBOR plus 1.50%, is secured by a mortgage loan on the property and a guarantee
by Greystone, and is generally due upon the earlier of completion of
construction of the related apartment project and subsequent purchase by the
Company or substitution of a third-party lender. In February 1999, Greystone
obtained a construction loan commitment for $16.6 million, which requires a $1
million guarantee by the Company. Upon the closing of this construction loan in
March 1999, the Company's loan to Greystone will be reduced to $4.7 million.
The Company also entered into a purchase agreement with Greystone in November
1998, whereby Greystone will construct a 272-unit apartment community on the
respective land. The Company is committed to purchase the property for
approximately $21.3 million upon completion of construction and the achievement
of specified targeted occupancy levels, anticipated to occur sometime in late
1999 or early 2000.
On August 11, 1998, the Company entered into an agreement with Allied
Realty Services, Inc. ("Allied") whereby Allied will construct and the Company
will later purchase a 168-unit apartment property located in Houston, Texas,
adjacent to a 168-unit apartment property purchased by the Company in August
1998. The Company is committed to purchase 100% of the property for
approximately $10.5 million upon completion of construction and achievement of
targeted occupancy levels, anticipated to occur sometime in early 2000.
(14) SUBSEQUENT EVENT
In February 1999, the Company announced a corporate restructuring plan
which is expected to reduce general and administrative expenses in 1999. The key
components of the plan include closing the corporate office in Houston, Texas,
consolidating all of the corporate functions at the Dallas, Texas headquarters,
realigning the corporate departments to provide more cost-effective operations,
and reducing staff in several areas. The costs associated with the corporate
restructuring are estimated to be approximately $1 million, which will be
reflected as an unusual charge in the first quarter of 1999.
-F-32-
<PAGE> 71
WALDEN RESIDENTIAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for the two year period
ended December 31, 1998 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 Quarters Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 68,814 $ 69,755 $ 71,158 $ 70,807 $ 280,534
Expenses ............................. 60,176 61,392 62,216 66,996 (a) 250,780
--------- --------- --------- --------- ---------
Operating income ..................... 8,638 8,363 8,942 3,811 29,754
Gain (loss) on disposition of real
property ........................... -- -- 6,696 (237) 6,459
Extraordinary loss on debt
extinguishment ..................... (24) (80) -- (319) (423)
Income allocated to minority
interests .......................... (2,898) (2,769) (5,470) (798) (11,935)
--------- --------- --------- --------- ---------
Net income ........................... 5,716 5,514 10,168 2,457 23,855
Preferred distributions .............. (3,280) (3,280) (3,281) (3,278) (13,119)
--------- --------- --------- --------- ---------
Net income (loss) available to
common stockholders .............. $ 2,436 $ 2,234 $ 6,887 $ (821) $ 10,736
========= ========= ========= ========= =========
Basic net income (loss) per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .... $ 0.13 $ 0.13 $ 0.38 $ (0.03) $ 0.60 (b)
Extraordinary loss on debt
extinguishment ..................... -- (0.01) -- (0.01) (0.02)
--------- --------- --------- --------- ---------
Net income (loss) available to common
stockholders ....................... $ 0.13 $ 0.12 $ 0.38 $ (0.04) $ 0.58 (b)
========= ========= ========= ========= =========
Diluted net income (loss) per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .... $ 0.13 $ 0.13 $ 0.38 $ (0.03) $ 0.60 (b)
Extraordinary loss on debt
extinguishment ..................... -- (0.01) -- (0.01) (0.02)
--------- --------- --------- --------- ---------
Net income available to common
stockholders ....................... $ 0.13 $ 0.12 $ 0.38 $ (0.04) $ 0.58 (b)
========= ========= ========= ========= =========
</TABLE>
(a) Includes an unusual charge of $4 million related to settlement costs
on one of the Company's forward treasury rate lock agreements.
(b) Due to the significant variances between quarters in net income and
weighted average shares outstanding, the combined quarterly income
(loss) per share does not equal the reported income per share for the
year.
-F-33-
<PAGE> 72
<TABLE>
<CAPTION>
1997 Quarters Ended
-------------------
March 31 June 30 September 30 December 31 (a) Total
-------- ------- ------------ --------------- -----
<S> <C> <C> <C> <C> <C>
Revenues ........................... $ 33,291 $ 34,750 $ 36,499 $ 66,595 $ 171,135
Expenses ........................... 26,556 29,065 30,328 60,128 146,077
--------- --------- --------- --------- -----------
Operating income ................... 6,735 5,685 6,171 6,467 25,058
Gain on disposition of real
property ......................... -- -- -- 2,055 2,055
Extraordinary loss on debt
extinguishment ................... -- -- -- (422) (422)
Income allocated to minority
interests ........................ (405) (395) (397) (2,912) (4,109)
--------- --------- --------- --------- -----------
Net income ......................... 6,330 5,290 5,774 5,188 22,582
Preferred distributions ............ (3,312) (3,311) (3,282) (3,281) (13,186)
--------- --------- --------- --------- -----------
Net income available to common
stockholders ..................... $ 3,018 $ 1,979 $ 2,492 $ 1,907 $ 9,396
========= ========= ========= ========= ===========
Basic net income per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .. $ 0.18 $ 0.11 $ 0.14 $ 0.13 $ 0.55 (b)
Extraordinary loss on debt
extinguishment ................... -- -- -- (0.02) (0.02)
--------- --------- --------- --------- -----------
Net income available to common
stockholders ..................... $ 0.18 $ 0.11 $ 0.14 $ 0.11 $ 0.53 (b)
========= ========= ========= ========= ===========
Diluted net income per share:
Before extraordinary item, less
preferred distributions and income
allocated to minority interests .. $ 0.17 $ 0.11 $ 0.14 $ 0.13 $ 0.55
Extraordinary loss on debt
extinguishment ................... -- -- -- (0.02) (0.02)
--------- --------- --------- --------- -----------
Net income available to common
stockholders ..................... $ 0.17 $ 0.11 $ 0.14 $ 0.11 $ 0.53
========= ========= ========= ========= ===========
</TABLE>
(a) Operations for the fourth quarter of 1997 include Drever, which was
acquired on October 1, 1997 (see Note 12).
(b) Due to the significant variances between quarters in net income and
weighted average shares outstanding, the combined quarterly income per
share does not equal the reported income per share for the year.
-F-34-
<PAGE> 73
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Properties
- -------------------
Avondale Tulsa OK 1993 2,703 804 4,164 0 792
Casa Verde Phoenix AZ 1993 1,968 1,027 3,586 0 442
Country View San Antonio TX 1993 (A) 719 5,302 0 871
Coventry Park Tulsa OK 1993 2,345 635 3,475 0 935
Fountain Crest Tulsa OK 1993 3,131 962 5,565 0 1,317
Fountaingate Wichita Falls TX 1993 -- 751 6,498 0 854
James Pointe Murray UT 1993 8,106 1,040 10,937 (28) 831
Post Oak Place Euless TX 1993 -- 1,570 6,582 0 1,723
Preston Greens Dallas TX 1993 -- 1,468 6,687 0 1,032
Raintree Nashville TN 1993 5,170 715 6,457 0 1,446
Settler's Cove Beaumont TX 1993 3,140 159 5,056 0 657
Stillwater Murray UT 1993 11,826 2,019 16,839 3 770
Trestles of Austin Austin TX 1993 (A) 1,100 9,977 0 1,623
Woodstone Phoenix AZ 1993 12,404 4,325 14,210 0 936
--------- -------- ----------- ----- --------
Subtotal 50,793 17,294 105,335 (25) 14,249
--------- -------- ----------- ----- --------
1994 Acquisitions
- -----------------
Bel Shores Largo FL 1994 4,586 1,847 6,072 0 1,051
Brookwood Club Jacksonville FL 1994 6,800 952 8,647 (4) 1,023
Carlyle at Waters Tampa FL 1994 (B) 1,678 11,154 0 1,989
Cinnamon Park Arlington TX 1994 (A) 855 7,723 (4) 725
Copper Cove Houston TX 1994 (G) 935 6,194 0 773
Copperfield Oklahoma City OK 1994 4,091 357 6,473 0 438
Fielder's Glen Arlington TX 1994 (A) 556 5,031 0 770
Foxboro Houston TX 1994 (A) 800 3,882 0 839
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Properties
- -------------------
Avondale Tulsa OK 804 4,956 5,760 (1,463) 02/94
Casa Verde Phoenix AZ 1,027 4,028 5,055 (1,057) 02/94
Country View San Antonio TX 719 6,193 6,912 (1,667) 02/94
Coventry Park Tulsa OK 635 4,410 5,045 (1,397) 02/94
Fountain Crest Tulsa OK 962 6,882 7,844 (2,195) 02/94
Fountaingate Wichita Falls TX 751 7,352 8,103 (1,903) 02/94
James Pointe Murray UT 1,012 11,768 12,780 (2,697) 02/94
Post Oak Place Euless TX 1,570 8,305 9,875 (1,903) 02/94
Preston Greens Dallas TX 1,468 7,719 9,187 (2,104) 02/94
Raintree Nashville TN 715 7,903 8,618 (1,898) 02/94
Settler's Cove Beaumont TX 159 5,713 5,812 (1,543) 02/94
Stillwater Murray UT 2,022 17,609 19,631 (3,991) 02/94
Trestles of Austin Austin TX 1,100 11,600 12,700 (2,757) 02/94
Woodstone Phoenix AZ 4,325 15,146 19,471 (3,367) 02/94
--------- ----------- ----------- ---------
Subtotal 17,269 119,584 138,853 (29,862)
--------- ----------- ----------- ---------
1994 Acquisitions
- -----------------
Bel Shores Largo FL 1,847 7,123 8,770 (1,309) 03/94
Brookwood Club Jacksonville FL 948 10,270 11,218 (1,665) 11/94
Carlyle at Waters Tampa FL 1,678 13,143 14,821 (1,897) 12/94
Cinnamon Park Arlington TX 851 8,448 9,299 (1,275) 09/94
Copper Cove Houston TX 935 6,967 7,902 (1,153) 06/94
Copperfield Oklahoma City OK 357 6,901 7,258 (1,113) 06/94
Fielder's Glen Arlington TX 556 5,801 6,357 (979) 05/94
Foxboro Houston TX 800 4,721 5,521 (843) 06/94
</TABLE>
<PAGE> 74
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C> <C> <C>
Gables, The McKinney TX 1994 (A) 544 6,885 0 737
Greens Crossing Dallas TX 1994 (B) 1,368 6,795 0 1,207
Harper's Creek Austin TX 1994 (A) 868 8,871 0 828
Hunter's Ridge Oklahoma City OK 1994 3,495 300 4,927 0 665
Newport Irving TX 1994 6,993 1,200 8,878 0 802
Rivercrest Arlington TX 1994 5,312 1,650 7,877 0 1,691
Silverado Albuquerque NM 1994 (B) 1,194 8,082 0 295
Springfield Mesquite TX 1994 (A) 1,042 6,507 0 648
Summerfield Place Oklahoma City OK 1994 (A) 619 5,586 0 599
Woodscape Oklahoma City OK 1994 (A) 1,077 13,280 0 1,227
--------- -------- ----------- ----- --------
Subtotal 31,277 17,842 132,864 (8) 16,897
--------- -------- ----------- ----- --------
1995 Acquisitions
Braden's Walk (E) Bedford TX 1995 (G) 1,839 18,495 0 2,248
Hilltop North Richland 1995
Hills TX -- 801 5,314 0 821
Laurel Creek Houston TX 1995 (A) 2,067 12,011 0 1,464
Pinnacle Lewisville TX 1995 -- 672 4,190 0 525
Pinto Creek Austin TX 1995 (A) 487 8,403 0 1,301
Reflections of Highpoint Dallas TX 1995 12,426 1,984 12,358 0 1,613
Remington at Ponte Vedra Ponte Vedra
Beach FL 1995 11,938 1,425 13,468 0 1,119
Remington Hill Fort Worth TX 1995 13,797 1,846 11,847 0 532
Sandpiper Jacksonville FL 1995 (B) 1,102 10,377 0 1,509
Shadow Creek North Richland 1995
Hills TX (G) 666 5,899 0 943
Summer Meadows Plano TX 1995 12,123 2,393 14,908 0 634
Summer Villas Dallas TX 1995 (C) 2,270 14,140 0 2,385
Summers Crossing Plano TX 1995 9,047 1,730 10,774 0 966
Summers Landing Fort Worth TX 1995 (G) 819 5,259 0 635
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gables, The McKinney TX 544 7,622 8,166 (1,274) 05/94
Greens Crossing Dallas TX 1,368 8,002 9,370 (1,184) 12/94
Harper's Creek Austin TX 868 9,699 10,567 (1,524) 06/94
Hunter's Ridge Oklahoma City OK 300 5,592 5,892 (883) 06/94
Newport Irving TX 1,200 9,680 10,880 (1,502) 06/94
Rivercrest Arlington TX 1,650 9,568 11,218 (1,646) 04/94
Silverado Albuquerque NM 1,194 8,377 9,571 (1,210) 12/94
Springfield Mesquite TX 1,042 7,155 8,197 (1,133) 06/94
Summerfield Place Oklahoma City OK 619 6,185 6,804 (909) 11/94
Woodscape Oklahoma City OK 1,077 14,507 15,584 (2,255) 06/94
--------- ----------- ----------- ---------
Subtotal 17,834 149,761 167,595 (23,754)
--------- ----------- ----------- ---------
1995 Acquisitions
Braden's Walk (E) Bedford TX 1,839 20,143 22,582 (1,588) 12/95,10/96, 12/97
Hilltop North Richland
Hills TX 801 6,135 6,936 (683) 12/95
Laurel Creek Houston TX 2,067 13,475 15,542 (1,852) 04/95
Pinnacle Lewisville TX 672 4,715 5,387 (593) 06/95
Pinto Creek Austin TX 487 9,704 10,191 (1,342) 01/95
Reflections of Highpoint Dallas TX 1,984 13,971 15,955 (1,631) 06/95
Remington at Ponte Vedra Ponte Vedra Beach FL 1,425 14,887 16,012 (1,836) 06/95
Remington Hill Fort Worth TX 1,846 12,379 14,225 (1,563) 06/95
Sandpiper Jacksonville FL 1,102 11,886 12,988 (1,447) 10/95
Shadow Creek North Richland
Hills TX 666 6,842 7,508 (769) 12/95
Summer Meadows Plano TX 2,393 15,542 17,835 (1,951) 06/95
Summer Villas Dallas TX 2,270 16,525 18,795 (1,887) 06/95
Summers Crossing Plano TX 1,730 11,740 13,470 (1,461) 06/95
Summers Landing Fort Worth TX 819 5,894 6,713 (784) 06/95
</TABLE>
<PAGE> 75
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C> <C> <C>
Three Palms Tampa FL 1995 (G) 1,735 14,017 0 1,322
Winridge Aurora CO 1995 12,608 790 15,939 0 936
--------- -------- ----------- ----- --------
Subtotal 71,939 22,626 177,399 0 18,953
--------- -------- ----------- ----- --------
1996 Acquisitions
Ashbury Parke Austin TX 1996 (G) 2,007 11,591 0 1,194
Bentley Green Jacksonville FL 1996 (G) 1,430 14,095 0 1,765
Brandywine Nashville TN 1996 -- 646 8,479 0 1,240
Costa Del Sol San Antonio TX 1996 (G) 871 6,432 0 778
Huntington at Hidden Hills Jacksonville FL 1996 -- 722 6,165 0 1,753
Meadow Glen Mesa AZ 1996 6,969 1,802 10,754 0 829
Nashboro Village Nashville TN 1996 -- 6,186 42,869 0 3,809
Parks at Treepoint (F) Arlington TX 1996 (G) 1,966 15,036 0 2,188
Remington San Antonio TX 1996 -- 427 4,411 0 633
Saratoga Melbourne FL 1996 -- 676 5,788 0 917
Summer Oaks San Antonio TX 1996 (G) 826 5,624 0 737
Terra Vida Mesa AZ 1996 7,214 1,929 13,383 0 1,067
Villas of St. Moritz San Antonio TX 1996 (G) 653 5,544 0 794
Waterford on the Meadow Plano TX 1996 -- 2,156 11,423 0 1,222
--------- -------- ----------- ----- --------
Subtotal 14,183 22,297 161,594 0 18,936
--------- -------- ----------- ----- --------
1997 Acquisitions
Arbors of Austin Austin TX 1997 (G) 670 7,306 0 610
Arbors of Bedford Bedford TX 1997 (G) 531 5,623 0 653
Arbors of Carrollton Carrollton TX 1997 -- 684 4,019 0 465
Arbors of Euless Euless TX 1997 (G) 1,206 6,733 0 1,227
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Palms Tampa FL 1,735 14,942 16,677 (1,325) 06/95
Winridge Aurora CO 790 16,462 17,252 (1,453) 06/95
--------- ----------- ----------- ---------
Subtotal 22,626 188,893 211,519 (15,648)
--------- ----------- ----------- ---------
1996 Acquisitions
Ashbury Parke Austin TX 2,007 12,785 14,792 (1,169) 06/96
Bentley Green Jacksonville FL 1,430 15,860 17,290 (1,421) 08/96 & 09/96
Brandywine Nashville TN 646 7,719 10,365 (937) 08/96
Costa Del Sol San Antonio TX 871 7,210 8,081 (681) 06/96
Huntington at Hidden Hills Jacksonville FL 722 7,918 8,640 (772) 08/96
Meadow Glen Mesa AZ 1,802 11,593 13,395 (864) 11/96
Nashboro Village Nashville TN 6,186 46,678 52,864 (3,424) 12/96
Parks at Treepoint (F) Arlington TX 1,966 17,224 19,140 (1,475) 09/96 & 01/97
Remington San Antonio TX 427 5,044 5,471 (475) 06/96
Saratoga Melbourne FL 676 6,705 7,381 (577) 09/96
Summer Oaks San Antonio TX 826 6,361 7,187 (599) 06/96
Terra Vida Mesa AZ 1,929 14,450 16,979 (1,377) 06/96
Villas of St. Moritz San Antonio TX 653 6,338 6,941 (623) 06/96
Waterford on the Meadow Plano TX 2,156 12,645 14,801 (1,099) 09/96
--------- ----------- ----------- ---------
Subtotal 22,297 180,530 202,827 (15,493)
--------- ----------- ----------- ---------
1997 Acquisitions
Arbors of Austin Austin TX 670 7,916 8,586 (482) 04/97
Arbors of Bedford Bedford TX 531 6,276 6,807 (419) 04/97
Arbors of Carrollton Carrollton TX 684 4,484 5,168 (289) 04/97
Arbors of Euless Euless TX 1,206 7,960 9,166 (537) 04/97
</TABLE>
<PAGE> 76
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ashton Park Tampa FL 3,908 935 6,094 0 224
Clover Hill Arlington TX (G) 725 5,944 0 752
Hillcrest Grand Prairie TX -- 1,040 6,823 0 701
Oak Ramble Tampa FL -- 1,247 8,797 0 567
Parkway Station Atlanta GA -- 666 17,761 0 594
Windsor Park Hendersonville TN 6,812 500 9,012 0 710
--------- -------- ----------- ----- --------
Subtotal 10,720 8,204 78,112 0 6,503
--------- -------- ----------- ----- --------
Drever Transaction
Arbor Creek Dallas TX (G) 2,284 9,841 0 314
Arbor Point Houston TX 1,428 313 2,568 0 51
Arbors of Wells Branch Austin TX (G) 912 7,522 0 154
Ashton Woods Houston TX (G) 251 4,423 0 185
Aston Brook Houston TX 1,618 194 3,676 0 275
Audubon Square Austin TX (G) 529 6,284 0 144
Bar Harbor Houston TX -- 1,149 9,326 0 261
Bayou Oaks Houston TX 3,506 222 6,120 0 127
Bent Creek Dallas TX 5,585 1,802 8,155 0 236
Brandon Oaks Houston TX 2,556 293 6,454 0 172
Briarcrest Houston TX 3,987 714 11,199 0 429
Brittany Park Dallas TX (G) 1,620 7,892 0 360
Brookfield Houston TX (G) 400 8,422 0 230
Canyon Ridge Dallas TX 3,946 1,127 5,620 0 118
Carriage Hill Houston TX 4,181 410 8,474 0 807
Casa Valley Dallas TX (G) 1,020 6,010 0 295
Central Park Condos Houston TX 2,034 370 3,945 0 145
Central Park Regency Houston TX 5,814 490 12,636 0 653
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ashton Park Tampa FL 935 6,318 7,253 (312) 12/97
Clover Hill Arlington TX 725 6,696 7,421 (303) 10/97
Hillcrest Grand Prairie TX 1,040 7,524 8,564 (414) 06/97
Oak Ramble Tampa FL 1,247 9,364 10,611 (404) 11/97
Parkway Station Atlanta GA 666 18,355 19,021 (901) 12/97
Windsor Park Hendersonville TN 500 9,722 10,222 (902) 07/97
--------- ----------- ----------- ---------
Subtotal 8,204 84,615 92,819 (4,566)
--------- ----------- ----------- ---------
Drever Transaction
Arbor Creek Dallas TX 2,284 10,155 12,439 (536) 10/97
Arbor Point Houston TX 313 2,619 2,932 (142) 10/97
Arbors of Wells Branch Austin TX 912 7,681 8,593 (406) 10/97
Ashton Woods Houston TX 251 4,608 4,859 (247) 10/97
Aston Brook Houston TX 194 3,951 4,415 (210) 10/97
Audubon Square Austin TX 529 6,428 6,957 (343) 10/97
Bar Harbor Houston TX 1,149 9,587 10,736 (511) 10/97
Bayou Oaks Houston TX 222 6,247 6,469 (322) 10/97
Bent Creek Dallas TX 1,802 8,391 10,193 (444) 10/97
Brandon Oaks Houston TX 293 6,626 6,919 (351) 10/97
Briarcrest Houston TX 714 11,628 12,342 (631) 10/97
Brittany Park Dallas TX 1,620 8,252 9,872 (436) 10/97
Brookfield Houston TX 400 8,652 9,052 (459) 10/97
Canyon Ridge Dallas TX 1,127 5,738 6,865 (301) 10/97
Carriage Hill Houston TX 410 8,781 9,191 (464) 10/97
Casa Valley Dallas TX 1,020 6,305 7,325 (327) 10/97
Central Park Condos Houston TX 370 4,040 4,460 (210) 10/97
Central Park Regency Houston TX 490 13,289 13,779 (696) 10/97
</TABLE>
<PAGE> 77
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C> <C> <C>
Charleston, The Houston TX 1998 4,268 810 8,469 0 20
Cimarron Park Houston TX 1998 2,312 334 4,888 0 15
Cimarron Parkway Houston TX 1998 -- 1,319 9,527 0 18
Colorado Club Houston TX 1998 -- 883 9,780 0 27
Creekwood Village Dallas TX 1998 5,210 1,433 11,173 0 36
Crestwood Phoenix AZ 1998 -- 932 9,151 0 21
Enclave at Cypress Park Houston TX 1998 -- 1,595 12,455 0 62
Fairways, The Phoenix AZ 1998 -- 766 5,747 0 19
Felicita Creek San Diego CA 1998 3,166 1,594 5,550 0 15
Garden Place Phoenix AZ 1998 -- 1,596 12,480 0 22
Georgetown Houston TX 1998 -- 1,565 7,826 0 16
Hidden Lake Houston TX 1998 -- 2,843 19,840 0 40
Holiday on Hayes Houston TX 1998 4,899 1,491 10,600 0 15
Hunt Club, The Houston TX 1998 2,764 1,175 5,184 0 14
Huntley, The Houston TX 1998 5,182 640 8,974 0 21
Lakes of Renaissance Austin TX 1998 -- 945 10,463 0 26
Meadows on Memorial Houston TX 1998 -- 609 2,348 0 20
Mill Creek Houston TX 1998 1,597 205 4,595 0 18
Montfort Oaks Dallas TX 1998 5,296 2,256 11,177 0 26
Monticello on Cranbrook Houston TX 1998 3,360 410 7,522 0 22
Northwoods Houston TX 1998 2,992 638 8,176 0 24
Oak Ridge Austin TX 1998 -- 834 10,389 0 28
One Cypress Landing Houston TX 1998 -- 559 11,830 0 33
One Westfield Lake Houston TX 1998 -- 731 9,692 0 30
One Willow Chase Houston TX 1998 -- 160 3,425 0 7
One Willow Park Houston TX 1998 -- 219 5,880 0 13
Park Bonita San Diego CA 1998 5,836 6,951 5,647 0 10
Pathway, The Houston TX 1998 -- 848 5,855 0 11
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charleston, The Houston TX 810 8,489 9,299 (89) 10/97
Cimarron Park Houston TX 334 4,903 5,237 (52) 10/97
Cimarron Parkway Houston TX 1,319 9,545 10,864 (100) 10/97
Colorado Club Houston TX 883 9,807 10,690 (103) 10/97
Creekwood Village Dallas TX 1,433 11,209 12,642 (118) 10/97
Crestwood Phoenix AZ 932 9,172 10,104 (96) 10/97
Enclave at Cypress Park Houston TX 1,595 12,517 14,112 (132) 10/97
Fairways, The Phoenix AZ 766 5,766 6,532 (60) 10/97
Felicita Creek San Diego CA 1,594 5,565 7,159 (59) 10/97
Garden Place Phoenix AZ 1,596 12,502 14,098 (131) 10/97
Georgetown Houston TX 1,565 7,842 9,407 (51) 10/97
Hidden Lake Houston TX 2,843 19,880 22,723 (208) 10/97
Holiday on Hayes Houston TX 1,491 10,615 12,106 (111) 10/97
Hunt Club, The Houston TX 1,175 5,198 6,373 (55) 10/97
Huntley, The Houston TX 640 8,995 9,635 (94) 10/97
Lakes of Renaissance Austin TX 945 10,489 11,434 (110) 10/97
Meadows on Memorial Houston TX 609 2,368 2,977 (26) 10/97
Mill Creek Houston TX 205 4,613 4,818 (49) 10/97
Montfort Oaks Dallas TX 2,256 11,203 13,459 (117) 10/97
Monticello on Cranbrook Houston TX 410 7,544 7,954 (79) 10/97
Northwoods Houston TX 638 8,200 8,838 (86) 10/97
Oak Ridge Austin TX 834 10,417 11,251 (109) 10/97
One Cypress Landing Houston TX 559 11,863 12,422 (125) 10/97
One Westfield Lake Houston TX 731 9,722 10,453 (102) 10/97
One Willow Chase Houston TX 160 3,432 3,592 (36) 10/97
One Willow Park Houston TX 219 5,893 6,112 (62) 10/97
Park Bonita San Diego CA 6,951 5,657 12,608 (59) 10/97
Pathway, The Houston TX 848 5,866 6,714 (62) 10/97
</TABLE>
<PAGE> 78
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C> <C> <C>
Pine Creek Houston TX -- 414 5,697 0 349
Polo Club Austin TX 6,218 912 10,586 0 223
Polo Club on Cranbrook I Houston TX 2,794 340 5,693 0 245
Polo Club on Cranbrook II Houston TX 3,830 256 7,362 0 842
Rafters, The Corpus Christi TX 5,814 899 8,304 0 116
Richmond Green Houston TX -- 1,248 10,049 0 178
Riverwalk Houston TX 2,830 390 6,497 0 98
Saratoga Springs Atlanta GA 7,458 1,568 12,041 0 665
Shadow Creek Austin TX 8,449 1,617 13,250 0 863
Shadowridge Village Dallas TX 3,330 918 5,055 0 143
Shannon Chase Atlanta GA 4,317 3,465 4,564 0 141
Silverado Houston TX 7,726 1,611 12,003 0 144
Stony Creek Houston TX 2,921 478 6,540 0 423
Sun Ridge San Diego CA 5,842 3,400 3,316 0 89
Timbers of Cranbrook Houston TX (7) 348 8,273 0 270
Tranquility Lake Houston TX -- 742 3,231 0 72
Trinity Mills Dallas TX 4,671 1,968 6,372 0 185
Trinity Oaks Dallas TX 3,056 916 8,688 0 363
Villas at Indian Trails Atlanta GA 3,562 3,119 6,138 0 508
Wharf, The Corpus Christi TX 6,063 1,283 8,928 0 140
Willowick Corpus Christi TX 5,459 899 9,161 0 139
Wimbledon Houston TX -- 231 5,667 0 145
Woodborough Houston TX (7) 376 8,731 0 389
Woodchase Houston TX 4,416 1,422 10,826 0 204
Woodedge Houston TX 1,721 243 3,606 0 128
Woodlake Houston TX (7) 1,179 10,338 0 309
--------- -------- ----------- ----- --------
Subtotal 185,225 78,683 568,126 0 17,743
--------- -------- ----------- ----- --------
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pine Creek Houston TX 414 6,046 6,460 529 10/97
Polo Club Austin TX 912 10,809 11,721 570 10/97
Polo Club on Cranbrook I Houston TX 340 5,938 6,278 325 10/97
Polo Club on Cranbrook II Houston TX 256 7,704 7,960 421 10/97
Rafters, The Corpus Christi TX 899 8,420 9,319 432 10/97
Richmond Green Houston TX 1,248 10,227 11,475 533 10/97
Riverwalk Houston TX 390 6,595 6,985 348 10/97
Saratoga Springs Atlanta GA 1,568 12,706 14,274 646 10/97
Shadow Creek Austin TX 1,617 14,113 15,730 728 10/97
Shadowridge Village Dallas TX 918 5,198 6,116 200 10/97
Shannon Chase Atlanta GA 3,465 4,705 8,170 252 10/97
Silverado Houston TX 1,611 12,147 13,758 635 10/97
Stony Creek Houston TX 478 6,962 7,440 875 10/97
Sun Ridge San Diego CA 3,400 3,405 6,805 185 10/97
Timbers of Cranbrook Houston TX 348 8,543 8,891 453 10/97
Tranquility Lake Houston TX 742 3,303 4,045 175 10/97
Trinity Mills Dallas TX 1,968 6,557 8,525 814 10/97
Trinity Oaks Dallas TX 916 8,991 9,907 966 10/97
Villas at Indian Trails Atlanta GA 3,119 6,646 9,765 800 10/97
Wharf, The Corpus Christi TX 1,283 9,088 10,371 482 10/97
Willowick Corpus Christi TX 899 9,300 10,198 491 10/97
Wimbledon Houston TX 231 5,812 6,043 366 10/97
Woodborough Houston TX 376 9,120 9,496 484 10/97
Woodchase Houston TX 1,422 11,030 12,452 588 10/97
Woodedge Houston TX 243 3,734 3,977 287 10/97
Woodlake Houston TX 1,179 10,647 11,826 553 10/97
--------- ----------- ----------- ---------
Subtotal 78,683 585,869 664,552 (30,893)
--------- ----------- ----------- ---------
</TABLE>
<PAGE> 79
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> C> <C> <C> <C> <C>
Subtotal - 1997 195,945 86,887 24,246
--------- -------- ----------- ----- --------
1998 Acquisitions
Retreat at Eldridge Houston TX -- 549 9,452 0 4
Sierra Springs Bedford TX 8,334 745 10,517 0 273
South Green Houston TX -- 494 9,008 0 271
South Pointe Tampa FL 5,193 490 5,685 0 125
St. James Tampa FL 4,980 1,156 8,557 0 213
--------- -------- ----------- ----- --------
Subtotal 18,807 3,434 43,219 0 886
--------- -------- ----------- ----- --------
Grand Total 382,944 170,380 1,266,649 (33) 94,167
========= ======== =========== ===== ========
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal - 1997 86,887 670,484 751,371 35,459
--------- ----------- ----------- ---------
1998 Acquisitions 9,456 10,005 (111)
Retreat at Eldridge Houston TX 549 10,790 11,535 (126) 8/98
Sierra Springs Bedford TX 745 9,279 9,773 (113) 8/98
South Green Houston TX 494 5,810 6,300 (174) 8/98
South Pointe Tampa FL 490 8,770 9,297 (264) 2/98
St. James Tampa FL 1,157 44,105 47,540 (788) 2/98
--------- ----------- ----------- ---------
Subtotal
Grand Total $ 170,347 $ 1,366,816 $ 1,531,163 $ 128,765
========= =========== =========== =========
</TABLE>
(A) Property is pledged as collateral under a $56.308 million mortgage note
payable to an insurance company.
(B) Property is pledged as collateral under a $22.165 million mortgage note
payable to an insurance company.
(C) Property is pledged as collateral under the mortgage notes secured by
Reflections of Highpoint, Remington at Ponte Vedra, Remington Hill,
Winridge, and Windsor Park.
(D) Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which range from 14 to 30 years for buildings
and 3, 5, 10, or 15 years for personal property.
(E) Braden's Walk, Oak Forest and Woods of Bedford were combined on December
31, 1997 to be operated as one property.
(F) Timber Creek and Treepoint were combined on January 8, 1997 and Quayle Walk
was combined on December 31, 1997, to be operated as one property - Parks
at Treepoint.
(G) Property is pledged as collateral under a $250 million credit facility
secured by FNMA.
(H) The aggregate cost for Federal income tax purposes at December 31, 1997 is
approximately $1.3 billion.
<PAGE> 80
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<PAGE> 81
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Original Properties
- -------------------
Avondale Tulsa OK 2,703 804 4,164 0 792
Casa Verde Phoenix AZ 1,968 1,027 3,586 0 442
Country View San Antonio TX (A) 719 5,302 0 891
Coventry Park Tulsa OK 2,345 635 3,475 0 935
Fountain Crest Tulsa OK 3,131 962 5,565 0 1,317
Fountaingate Wichita Falls TX -- 751 6,498 0 854
James Pointe Murray UT 8,106 1,040 10,937 (28) 831
Post Oak Place Euless TX -- 1,570 6,582 0 1,723
Preston Greens Dallas TX -- 1,468 6,687 0 1,032
Raintree Nashville TN 5,170 715 6,457 0 1,446
Settler's Cove Beaumont TX 3,140 159 5,056 0 657
Stillwater Murray UT 11,826 2,019 16,839 3 770
Trestles of Austin Austin TX (A) 1,100 9,977 0 1,623
Woodstone Phoenix AZ 12,404 4,325 14,210 0 936
--------- -------- ----------- ----- --------
Subtotal 50,793 17,294 105,335 (25) 14,249
--------- -------- ----------- ----- --------
1994 Acquisitions
- -----------------
Bel Shores Largo FL 4,586 1,847 6,072 0 1,051
Brookwood Club Jacksonville FL 6,800 952 8,647 (4) 1,623
Carlyle at Waters Tampa FL (B) 1,678 11,154 0 1,989
Cinnamon Park Arlington TX (A) 855 7,723 (4) 725
Copper Cove Houston TX (G) 935 6,194 0 773
Copperfield Oklahoma City OK 4,091 357 6,473 0 428
Fielder's Glen Arlington TX (A) 556 5,031 0 770
Foxboro Houston TX (A) 800 3,882 0 839
Gables, The McKinney TX (A) 544 6,885 0 737
Greens Crossing Dallas TX (B) 1,368 6,795 0 1,207
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original Properties
- -------------------
Avondale Tulsa OK 804 4,956 5,760 (1,403) 02/94
Casa Verde Phoenix AZ 1,027 4,028 5,055 (1,057) 02/94
Country View San Antonio TX 719 6,193 6,912 (1,667) 02/94
Coventry Park Tulsa OK 635 4,410 5,045 (1,397) 02/94
Fountain Crest Tulsa OK 962 6,882 7,844 (2,195) 02/94
Fountaingate Wichita Falls TX 751 7,352 8,103 (1,903) 02/94
James Pointe Murray UT 1,012 11,768 12,780 (2,697) 02/94
Post Oak Place Euless TX 1,570 8,305 9,875 (1,903) 02/94
Preston Greens Dallas TX 1,468 7,719 9,187 (2,104) 02/94
Raintree Nashville TN 715 7,903 8,618 (1,898) 02/94
Settler's Cove Beaumont TX 159 5,713 5,872 (1,543) 02/94
Stillwater Murray UT 2,022 17,609 19,631 (3,991) 02/94
Trestles of Austin Austin TX 1,100 11,600 12,700 (2,737) 02/94
Woodstone Phoenix AZ 4,325 15,146 19,471 (3,367) 02/94
--------- ----------- ----------- ---------
Subtotal 17,269 119,584 136,853 (29,862)
--------- ----------- ----------- ---------
1994 Acquisitions
- -----------------
Bel Shores Largo FL 1,847 7,123 8,970 (1,309) 03/94
Brookwood Club Jacksonville FL 948 10,270 11,218 (1,665) 11/94
Carlyle at Waters Tampa FL 1,678 13,143 14,821 (1,897) 12/94
Cinnamon Park Arlington TX 851 8,448 9,299 (1,275) 09/94
Copper Cove Houston TX 935 6,967 7,902 (1,153) 06/94
Copperfield Oklahoma City OK 357 6,901 7,258 (1,113) 06/94
Fielder's Glen Arlington TX 556 5,801 6,357 (979) 05/94
Foxboro Houston TX 800 4,721 5,521 (843) 06/94
Gables, The McKinney TX 544 7,622 8,166 (1,274) 05/94
Greens Crossing Dallas TX 1,368 8,002 9,370 (1,184) 12/94
</TABLE>
<PAGE> 82
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harper's Creek Austin TX (A) 868 8,871 0 828
Hunter's Ridge Oklahoma City OK 3,495 300 4,927 0 665
Newport Irving TX 6,993 1,200 8,878 0 802
Rivercrest Arlington TX 5,312 1,650 7,877 0 1,691
Silverado Albuquerque NM (B) 1,194 8,082 0 295
Springfield Mesquite TX (A) 1,042 6,507 0 648
Summerfield Place Oklahoma City OK (A) 619 5,586 0 599
Woodscape Oklahoma City OK (A) 1,077 13,280 0 1,227
--------- -------- ----------- ----- --------
Subtotal 31,277 17,842 132,864 (8) 16,897
--------- -------- ----------- ----- --------
1995 Acquisitions
Braden's Walk (E) Bedford TX (G) 1,839 18,495 0 2,248
Hilltop North Richland
Hills TX -- 801 5,314 0 821
Laurel Creek Houston TX (A) 2,067 12,011 0 1,464
Pinnacle Lewisville TX -- 672 4,190 0 525
Pinto Creek Austin TX (A) 487 8,403 0 1,301
Reflections of Highpoint Dallas TX 12,426 1,984 12,358 0 1,613
Remington at Ponte Vedra Ponte Vedra
Beach FL 11,938 1,425 13,468 0 1,119
Remington Hill Fort Worth TX 13,797 1,846 11,847 0 532
Sandpiper Jacksonville FL (B) 1,102 10,377 0 1,509
Shadow Creek North Richland
Hills TX (G) 666 5,899 0 943
Summer Meadows Plano TX 12,123 2,393 14,908 0 634
Summer Villas Dallas TX (C) 2,270 14,140 0 2,385
Summers Crossing Plano TX 9,047 1,730 10,774 0 966
Summers Landing Fort Worth TX (G) 819 5,259 0 635
Three Palms Tampa FL (G) 1,735 14,017 0 1,322
Winridge Aurora CO 12,608 790 15,939 0 936
--------- -------- ----------- ----- --------
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harper's Creek Austin TX 868 9,699 10,567 (1,524) 06/94
Hunter's Ridge Oklahoma City OK 300 5,592 5,892 (883) 06/94
Newport Irving TX 1,200 9,680 10,880 (1,502) 06/94
Rivercrest Arlington TX 1,650 9,568 11,218 (1,646) 04/94
Silverado Albuquerque NM 1,194 8,377 9,571 (1,210) 12/94
Springfield Mesquite TX 1,042 7,155 8,197 (1,133) 06/94
Summerfield Place Oklahoma City OK 619 6,185 6,804 (909) 11/94
Woodscape Oklahoma City OK 1,077 14,507 15,584 (2,255) 06/94
--------- ----------- ----------- ---------
Subtotal 17,834 149,761 167,595 (23,754)
--------- ----------- ----------- ---------
1995 Acquisitions
Braden's Walk (E) Bedford TX 1,839 20,743 22,582 (1,588) 12/95, 10/96, 12/97
Hilltop North Richland
Hills TX 801 6,135 6,936 (683) 12/95
Laurel Creek Houston TX 2,067 13,475 15,542 (1,852) 04/95
Pinnacle Lewisville TX 672 4,715 5,387 (593) 06/95
Pinto Creek Austin TX 487 9,704 10,191 (1,342) 01/95
Reflections of Highpoint Dallas TX 1,984 13,971 15,955 (1,631) 06/95
Remington at Ponte Vedra Ponte Vedra Beach FL 1,425 14,587 16,012 (1,836) 06/95
Remington Hill Fort Worth TX 1,846 12,379 14,225 (1,563) 06/95
Sandpiper Jacksonville FL 1,102 11,886 12,988 (1,447) 10/95
Shadow Creek North Richland
Hills TX 666 6,842 7,508 (769) 12/95
Summer Meadows Plano TX 2,393 15,542 17,935 (1,951) 06/95
Summer Villas Dallas TX 2,270 16,525 18,795 (1,887) 06/95
Summers Crossing Plano TX 1,730 11,740 13,470 (1,461) 06/95
Summers Landing Fort Worth TX 819 5,894 6,713 (784) 06/95
Three Palms Tampa FL 1,735 15,339 17,074 (1,935) 06/95
Winridge Aurora CO 790 16,875 17,665 (2,087) 06/95
--------- ----------- ----------- ---------
</TABLE>
<PAGE> 83
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal 71,939 22,626 177,399 0 18,953
--------- -------- ----------- ----- --------
1996 Acquisitions
Ashbury Parke Austin TX (G) 2,007 11,591 0 1,194
Bentley Green Jacksonville FL (G) 1,430 14,095 0 1,765
Brandywine Nashville TN -- 646 8,479 0 1,240
Costa Del Sol San Antonio TX (G) 871 6,432 0 778
Huntington at Hidden Hills Jacksonville FL -- 722 6,165 0 1,753
Meadow Glen Mesa AZ 6,969 1,802 10,754 0 839
Nashboro Village Nashville TN -- 6,186 42,869 0 3,809
Parks at Treepoint (F) Arlington TX (G) 1,966 15,036 0 2,188
Remington San Antonio TX -- 427 4,411 0 633
Saratoga Melbourne FL -- 676 5,788 0 917
Summer Oaks San Antonio TX (G) 826 5,624 0 737
Terra Vida Mesa AZ 7,214 1,929 13,383 0 1,067
Villas of St. Moritz San Antonio TX (G) 653 5,544 0 794
Waterford on the Meadow Plano TX -- 2,156 11,423 0 1,222
--------- -------- ----------- ----- --------
Subtotal 14,183 22,297 161,594 0 18,936
--------- -------- ----------- ----- --------
1997 Acquisitions
Arbors of Austin Austin TX (G) 670 7,306 0 610
Arbors of Bedford Bedford TX (G) 531 5,623 0 653
Arbors of Carrollton Carrollton TX -- 684 4,019 0 465
Arbors of Euless Euless TX (G) 1,206 6,733 0 1,227
Ashton Park Tampa FL 3,908 935 6,094 0 224
Clover Hill Arlington TX (G) 725 5,944 0 752
Hillcrest Grand Prairie TX -- 1,040 6,823 0 701
Oak Ramble Tampa FL -- 1,247 8,797 0 567
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal 22,626 196,352 218,978 (23,409)
--------- ----------- ----------- ---------
1996 Acquisitions
Ashbury Parke Austin TX 2,007 12,785 14,792 (1,169) 06/96
Bentley Green Jacksonville FL 1,430 15,860 17,290 (1,421) 08/96 & 09/96
Brandywine Nashville TN 646 9,719 10,365 (937) 08/96
Costa Del Sol San Antonio TX 871 7,210 8,081 (681) 06/96
Huntington at Hidden Hills Jacksonville FL 722 7,918 8,640 (772) 08/96
Meadow Glen Mesa AZ 1,802 11,593 13,395 (864) 11/96
Nashboro Village Nashville TN 6,186 46,678 52,864 (3,424) 12/96
Parks at Treepoint (F) Arlington TX 1,966 17,224 19,190 (1,475) 09/96 & 01/97
Remington San Antonio TX 427 5,044 5,471 (475) 06/96
Saratoga Melbourne FL 676 6,705 7,381 (577) 09/96
Summer Oaks San Antonio TX 826 6,361 7,187 (599) 06/96
Terra Vida Mesa AZ 1,929 14,450 16,379 (1,377) 06/96
Villas of St. Moritz San Antonio TX 653 6,338 6,991 (623) 06/96
Waterford on the Meadow Plano TX 2,156 12,645 14,801 (1,099) 09/96
--------- ----------- ----------- ---------
Subtotal 22,297 180,530 202,827 (15,493)
--------- ----------- ----------- ---------
1997 Acquisitions
Arbors of Austin Austin TX 670 7,916 8,586 (482) 04/97
Arbors of Bedford Bedford TX 531 6,276 6,807 (419) 04/97
Arbors of Carrollton Carrollton TX 684 4,484 5,168 (289) 04/97
Arbors of Euless Euless TX 1,206 7,960 9,166 (537) 04/97
Ashton Park Tampa FL 935 6,318 7,253 (312) 12/97
Clover Hill Arlington TX 725 6,696 7,421 (303) 10/97
Hillcrest Grand Prairie TX 1,040 7,524 8,564 (414) 06/97
Oak Ramble Tampa FL 1,247 9,364 10,611 (404) 11/97
</TABLE>
<PAGE> 84
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parkway Station Atlanta GA -- 666 17,761 0 594
Windsor Park Hendersonville TN 6,812 500 9,012 0 710
--------- -------- ----------- ----- --------
Subtotal 10,720 8,204 78,112 0 6,503
--------- -------- ----------- ----- --------
Drever Transaction
Arbor Creek Dallas TX (G) 2,284 9,841 0 314
Arbor Point Houston TX 1,428 313 2,568 0 51
Arbors of Wells Branch Austin TX (G) 912 7,522 0 159
Ashton Woods Houston TX (C) 251 4,423 0 185
Aston Brook Houston TX 1,618 194 3,676 0 275
Audubon Square Austin TX (G) 529 6,284 0 144
Bar Harbor Houston TX 5,097 1,149 9,326 0 261
Bayou Oaks Houston TX 3,506 222 6,120 0 127
Bent Creek Dallas TX 5,585 1,802 8,155 0 236
Brandon Oaks Houston TX 2,556 293 6,454 0 172
Briarcrest Houston TX 3,987 714 11,199 0 429
Brittany Park Dallas TX (G) 1,620 7,892 0 360
Brookfield Houston TX (G) 400 8,422 0 230
Canyon Ridge Dallas TX 3,946 1,127 5,620 0 118
Carriage Hill Houston TX 4,181 410 8,474 0 307
Casa Valley Dallas TX (G) 1,020 6,010 0 295
Central Park Condos Houston TX 2,034 370 3,945 0 145
Central Park Regency Houston TX 5,814 490 12,636 0 653
Charleston, The Houston TX 4,268 810 8,469 0 225
Cimarron Park Houston TX 3,265 334 4,888 0 212
Cimarron Parkway Houston TX (G) 1,319 9,527 0 383
Colorado Club Houston TX (G) 883 9,780 0 316
Creekwood Village Dallas TX 6,934 1,433 11,173 0 399
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parkway Station Atlanta GA 666 18,355 19,021 (904) 12/97
Windsor Park Hendersonville TN 500 9,722 10,222 (502) 07/97
--------- ----------- ----------- ---------
Subtotal 8,204 84,615 92,819 (4,566)
--------- ----------- ----------- ---------
Drever Transaction
Arbor Creek Dallas TX 2,284 10,155 12,439 (536) 10/97
Arbor Point Houston TX 313 2,619 2,932 (142) 10/97
Arbors of Wells Branch Austin TX 912 7,681 8,593 (406) 10/97
Ashton Woods Houston TX 251 4,608 4,859 (247) 10/97
Aston Brook Houston TX 194 3,951 4,145 (210) 10/97
Audubon Square Austin TX 529 6,428 6,957 (343) 10/97
Bar Harbor Houston TX 1,149 9,587 10,736 (511) 10/97
Bayou Oaks Houston TX 222 6,247 6,469 (332) 10/97
Bent Creek Dallas TX 1,802 8,391 10,193 (444) 10/97
Brandon Oaks Houston TX 293 6,626 6,919 (351) 10/97
Briarcrest Houston TX 714 11,628 12,342 (631) 10/97
Brittany Park Dallas TX 1,620 8,252 9,872 (436) 10/97
Brookfield Houston TX 400 8,652 9,052 (459) 10/97
Canyon Ridge Dallas TX 1,127 5,738 6,865 (301) 10/97
Carriage Hill Houston TX 410 8,781 9,191 (464) 10/97
Casa Valley Dallas TX 1,020 6,305 7,325 (327) 10/97
Central Park Condos Houston TX 370 4,090 4,460 (216) 10/97
Central Park Regency Houston TX 490 13,289 13,779 (696) 10/97
Charleston, The Houston TX 810 8,694 9,504 (463) 10/97
Cimarron Park Houston TX 334 5,100 5,434 (272) 10/97
Cimarron Parkway Houston TX 1,319 9,910 11,229 (513) 10/97
Colorado Club Houston TX 883 10,096 10,979 (531) 10/97
Creekwood Village Dallas TX 1,433 11,572 13,005 (608) 10/97
</TABLE>
<PAGE> 85
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Crestwood Phoenix AZ (G) 932 9,151 0 82
Enclave at Cypress Park Houston TX (G) 1,595 12,455 0 411
Fairways, The Phoenix AZ -- 766 5,747 0 146
Felicita Creek San Diego CA 3,995 1,594 5,550 0 69
Garden Place Phoenix AZ (G) 1,596 12,480 0 113
Georgetown Houston TX -- 1,565 7,826 0 110
Hidden Lake Houston TX (G) 2,843 19,840 0 455
Holiday on Hayes Houston TX 6,622 1,491 10,600 0 129
Hunt Club, The Houston TX 2,764 1,175 5,184 0 109
Huntley, The Houston TX 5,182 640 8,974 0 291
Lakes of Renaissance Austin TX -- 945 10,463 0 186
Meadows on Memorial Houston TX -- 609 2,348 0 82
Mill Creek Houston TX 1,597 205 4,595 0 128
Montfort Oaks Dallas TX 7,242 2,256 11,177 0 220
Monticello on Cranbrook Houston TX 3,360 410 7,522 0 187
Northwoods Houston TX 5,124 638 8,176 0 336
Oak Ridge Austin TX (G) 834 10,389 0 266
One Cypress Landing Houston TX (G) 559 11,830 0 455
One Westfield Lake Houston TX -- 731 9,692 0 320
One Willow Chase Houston TX -- 160 3,425 0 366
One Willow Park Houston TX (G) 219 5,880 0 286
Park Bonita San Diego CA 6,753 6,951 5,647 0 74
Pathway, The Houston TX (G) 848 5,855 0 96
Pine Creek Houston TX -- 414 5,697 0 349
Polo Club Austin TX 6,218 912 10,586 0 223
Polo Club on Cranbrook I Houston TX 2,794 340 5,693 0 245
Polo Club on Cranbrook II Houston TX 3,830 256 7,362 0 342
Rafter, The Corpus Christi TX 5,314 899 8,304 0 116
Richmond Green Houston TX (G) 1,248 10,049 0 178
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life(Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crestwood Phoenix AZ 932 9,233 10,165 (488) 10/97
Enclave at Cypress Park Houston TX 1,595 12,866 14,461 (690) 10/97
Fairways, The Phoenix AZ 766 5,893 6,659 (314) 10/97
Felicita Creek San Diego CA 1,594 5,619 7,213 (293) 10/97
Garden Place Phoenix AZ 1,596 12,593 14,189 (654) 10/97
Georgetown Houston TX 1,565 7,936 9,501 (412) 10/97
Hidden Lake Houston TX 2,843 20,295 23,138 (1,057) 10/97
Holiday on Hayes Houston TX 1,491 10,729 12,220 (561) 10/97
Hunt Club, The Houston TX 1,175 5,293 6,468 (281) 10/97
Huntley, The Houston TX 640 9,265 9,905 (482) 10/97
Lakes of Renaissance Austin TX 945 10,649 11,594 (560) 10/97
Meadows on Memorial Houston TX 609 2,430 3,039 (133) 10/97
Mill Creek Houston TX 205 4,723 4,928 (254) 10/97
Montfort Oaks Dallas TX 2,256 11,397 13,653 (594) 10/97
Monticello on Cranbrook Houston TX 410 7,709 8,119 (415) 10/97
Northwoods Houston TX 638 8,512 9,150 (448) 10/97
Oak Ridge Austin TX 834 10,655 11,489 (557) 10/97
One Cypress Landing Houston TX 559 12,285 12,844 (654) 10/97
One Westfield Lake Houston TX 731 10,012 10,743 (524) 10/97
One Willow Chase Houston TX 160 3,791 3,951 (195) 10/97
One Willow Park Houston TX 219 6,166 6,385 (320) 10/97
Park Bonita San Diego CA 6,951 5,721 12,672 (300) 10/97
Pathway, The Houston TX 848 5,951 6,799 (310) 10/97
Pine Creek Houston TX 414 6,046 6,460 (329) 10/97
Polo Club Austin TX 912 10,809 11,721 (570) 10/97
Polo Club on Cranbrook I Houston TX 340 5,938 6,278 (325) 10/97
Polo Club on Cranbrook II Houston TX 256 7,704 7,960 (421) 10/97
Rafter, The Corpus Christi TX 899 8,420 9,319 (432) 10/97
Richmond Green Houston TX 1,248 10,227 11,475 (533) 10/97
</TABLE>
<PAGE> 86
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- ----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Riverwalk Houston TX 2,830 390 6,497 0 98
Saratoga Springs Atlanta GA 7,458 1,568 12,041 0 665
Shadow Creek Austin TX 8,449 1,617 13,250 0 863
Shadowridge Village Dallas TX 3,230 918 5,055 0 143
Shannon Chase Atlanta GA 4,317 3,465 4,564 0 141
Silverado Houston TX 7,726 1,611 12,003 0 144
Stony Creek Houston TX 2,921 478 6,540 0 422
Sun Ridge San Diego CA 3,842 3,400 3,316 0 89
Timbers of Cranbrook Houston TX (G) 348 8,273 0 270
Tranquility Lake Houston TX -- 742 3,231 0 72
Trinity Mills Dallas TX 4,671 1,968 6,372 0 185
Trinity Oaks Dallas TX 3,056 916 8,688 0 303
Villas at Indian Trails Atlanta GA 3,562 3,119 6,138 0 508
Wharf, The Corpus Christi TX 6,063 1,283 8,928 0 160
Willowick Corpus Christi TX 5,959 899 9,161 0 139
Wimbledon Houston TX -- 231 5,667 0 145
Woodborough Houston TX (G) 376 8,731 0 389
Woodchase Houston TX 4,416 1,422 10,826 0 204
Woodedge Houston TX 1,711 243 3,606 0 128
Woodlake Houston TX (G) 1,179 10,338 0 309
--------- -------- ----------- ----- --------
Subtotal 185,225 78,683 568,126 0 17,743
--------- -------- ----------- ----- --------
Subtotal - 1997 195,945 86,887 646,238 0 24,246
--------- -------- ----------- ----- --------
1998 Acquisitions
Retreat at Eldridge Houston TX -- 549 9,452 0 4
Sierra Springs Bedford TX 8,334 745 10,517 0 273
South Green Houston TX -- 494 9,008 0 271
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998(H) Depreciation Acquired Life (Years)(D)
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Riverwalk Houston TX 390 6,595 6,985 (348) 10/97
Saratoga Springs Atlanta GA 1,568 12,706 14,274 (646) 10/97
Shadow Creek Austin TX 1,617 14,113 15,730 (728) 10/97
Shadowridge Village Dallas TX 918 5,198 6,116 (280) 10/97
Shannon Chase Atlanta GA 3,465 4,705 8,170 (252) 10/97
Silverado Houston TX 1,611 12,147 13,758 (635) 10/97
Stony Creek Houston TX 478 6,962 7,440 (375) 10/97
Sun Ridge San Diego CA 3,400 3,405 6,805 (185) 10/97
Timbers of Cranbrook Houston TX 348 8,543 8,891 (453) 10/97
Tranquility Lake Houston TX 742 3,303 4,045 (175) 10/97
Trinity Mills Dallas TX 1,968 6,557 8,525 (344) 10/97
Trinity Oaks Dallas TX 916 8,991 9,907 (466) 10/97
Villas at Indian Trails Atlanta GA 3,119 6,646 9,765 (356) 10/97
Wharf, The Corpus Christi TX 1,283 9,088 10,371 (482) 10/97
Willowick Corpus Christi TX 899 9,300 10,199 (491) 10/97
Wimbledon Houston TX 231 5,812 6,043 (306) 10/97
Woodborough Houston TX 376 9,120 9,496 (484) 10/97
Woodchase Houston TX 1,422 11,030 12,452 (588) 10/97
Woodedge Houston TX 243 3,734 3,977 (201) 10/97
Woodlake Houston TX 1,179 10,647 11,826 (553) 10/97
--------- ----------- ----------- ---------
Subtotal 78,683 585,869 664,552 (30,893)
--------- ----------- ----------- ---------
Subtotal - 1997 86,887 670,484 757,371 (35,459)
--------- ----------- ----------- ---------
1998 Acquisitions
Retreat at Eldridge Houston TX 549 9,456 10,005 (111) 8/98
Sierra Springs Bedford TX 745 10,790 11,535 (126) 8/98
South Green Houston TX 494 9,279 9,773 (113) 8/98
</TABLE>
<PAGE> 87
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Encum- Cost Capitalized
Description brances Initial Cost to Company Subsequent to Acquisition
- -----------------------------------------------------------------------------------------------------------------------------------
Buildings & Buildings &
Property Name Location Land Improvements Land Improvements
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
South Pointe Tampa FL 5,493 490 5,685 0 125
St. James Tampa FL 4,980 1,156 8,557 0 213
--------- -------- ----------- ----- --------
Subtotal - 1998 18,807 3,434 43,219 0 886
--------- -------- ----------- ----- --------
Grand Total $ 382,944 $170,380 $ 1,266,649 $ (33) $ 94,167
========= ======== =========== ===== ========
<CAPTION>
Gross Amount at Which Accumulated Date Depreciable
Description Carried at December 31, 1998 Depreciation Acquired Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings &
Property Name Location Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Pointe Tampa FL 490 5,810 6,300 (174) 2/98
St. James Tampa FL 1,157 8,770 9,927 (264) 2/98
--------- ----------- ----------- ---------
Subtotal - 1998 3,435 44,105 47,540 (788)
--------- ----------- ----------- ---------
Grand Total $ 170,347 $ 1,360,816 $ 1,531,163 $(128,765)
========= =========== =========== =========
</TABLE>
(A) Property is pledged as collateral under a $56.308 million mortgage note
payable to an insurance company.
(B) Property is pledged as collateral under a $22.615 million mortgage note
payable to an insurance company.
(C) Property is pledged as collateral under the mortgage notes secured by
Reflections of Highpoint, Remington at Ponte Vedra, Remington Hill,
Winridge, and Windsor Park.
(D) Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets which range from 14 to 30 years for buildings
and 3, 5, 10, or 15 years for personal property.
(E) Braden's Walk, Oak Forest and Woods of Bedford were combined on
December 31, 1997 to be operated as one property.
(F) Timber Creek and Treepoint were combined on January 8, 1997 and Quayle Walk
was combined on December 31, 1997, to be operated as one property - Parks
at Treepoint.
(G) Property is pledged as collateral under a $250 million credit facility
secured by FNMA.
(H) The aggregate cost for Federal income tax purposes at December 31, 1998 is
approximately $1.4 billion.
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Articles of Amendment and Restatement of the Company. (1)
3.2 Restated Bylaws of the Company. (1)
4.1 Specimen of certificate representing shares of Common Stock.
(2)
4.2 Form of certificate representing shares of 9.16% Series B
Convertible Redeemable Preferred Stock. (3)
4.3 Form of certificate representing shares of 9.20% Senior
Preferred Stock. (4)
4.4 Form of Articles Supplementary relating to 9.16% Series B
Convertible Redeemable Preferred Stock. (3)
4.5 Form of Articles Supplementary designating the rights of the
holders of 9.20% Senior Preferred Stock. (4)
4.6 Form of certificate representing shares of 9.00% Redeemable
Preferred Stock. *
4.7 Form of Articles Supplementary relating to the 9.00%
Redeemable Preferred Stock.*
10.1 Rights Agreement, dated as of March 26, 1998, between the
Company and BankBoston, N.A., as Rights Agent, which
includes: as Exhibit A thereto, the Form of Articles
Supplementary, establishing the Series A Junior Participating
Preferred Share, par value $0.01 per share, of the Companys'
as Exhibit B thereto, the Form of Right Certificate; and as
Exhibit C thereto, the Summary of Rights to Purchase
Preferred Shares. (5)
10.2 Master Credit Facility Agreement dated as of December 18,
1998, by and among Walden Residential Properties, Inc.,
Walden/Drever Operating Partnership, and WF Washington
Mortgage Corp.*
10.3 First Amended and Restated Revolving Credit Agreement, dated
as of December 18, 1998, by and among Walden Residential
Properties, Inc., Walden/Drever Operating Partnership, L.P.,
BankBoston, N.A., and the other lending institutions which
may become parties hereto.*
10.4 First Amendment to First Amended and Restated Revolving
Credit Agreement, dated as of December 18, 1998, by and among
Walden Residential Properties, Inc., Walden/Drever Operating
Partnership, L.P., BankBoston, N.A., Keybank National
Association, Bank of Montreal, Chicago Branch, Dresdner Bank
AG New York and Grand Cayman Branches, First Union National
Bank, and Compass Bank.*
</TABLE>
-E-1-
<PAGE> 89
<TABLE>
<S> <C>
10.5 Amended and Restated Operating Agreement of GGL Ventures,
LLC, by and among the undersigned parties listed on "Exhibit
A" attached thereto (each thereinafter referred to
individually, as a "Class A Member" and collectively, as the
"Class A Members"), WGGL Corp., (the "Class B Member"), the
undersigned Managers of the Company, (each thereinafter
referred to individually as a "Manager" and collectively as
"Managers") and the Persons who thereafter become Managers of
the Company in accordance with the provisions thereof.*
10.6 Employment Agreement, dated as of July 1, 1998 between Walden
Residential Properties, Inc. and Robin K. Minick.*
10.7 Purchase and Sale Agreement between Walden Residential
Properties, Inc. and Lakeview Ocotillo, L.L.C (Lakeview at
Ocotillo Apartment).*
12.1 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends. *
21.1 Schedule of Subsidiaries of the Company. *
23.1 Independent Auditors' Consent. *
27.1 Financial Data Schedule. *
</TABLE>
-E-2-
<PAGE> 90
- --------------------------------
* Filed herewith.
(1) Previously filed with the Amendment No. 3 to the Company's
Registration Statement on Form S-11 (Registration No. 33-70132) filed
with the Securities and Exchange Commission on December 23, 1993 and
incorporated herein by reference.
(2) Previously filed with the Company's Registration Statement on Form S-3
(Registration No. 33-90438) filed with the Securities and Exchange
Commission on March 8, 1995 and incorporated herein by reference.
(3) Previously filed with the Company's Registration Statement on Form S-3
(Registration No. 33-13809) filed with the Securities and Exchange
Commission on October 9, 1996 and herein incorporated by reference.
(4) Previously filed with the Company's Form 8-A filed with the Securities
and Exchange Commission on December 20, 1996 and herein incorporated
by reference. (Previously numbered Exhibit 1.1 and 2.3)
(5) Previously filed as Exhibit 4.1 to the Company's Form 8-K, filed with
the Commission on April 9, 1998, and incorporated herein by reference.
-E-3-
<PAGE> 1
EXHIBIT 4.6
[FRONT OF STOCK CERTIFICATE]
SHARES OF 9.0% REDEEMABLE SHARES OF 9.00 REDEEMABLE
PREFERRED STOCK PAR VALUE $.01 PREFERRED STOCK PAR VALUE $.01
FORMED UNDER THE SHARES
LAWS OF THE STATE
OF MARYLAND
WALDEN RESIDENTIAL
PROPERTIES, INC. THIS CERTIFICATE IS
TRANSFERABLE IN BOSTON
MASS. AND NEW YORK, N.Y.
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF 9.00% REDEEMABLE PREFERRED STOCK
OF
Walden Residential Properties, Inc. (the "Company"), transferable only on the
books of the Company by the holder hereof in person, or by duly authorized
attorney, upon the surrender of this Certificate is properly endorsed. This
Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized representatives.
Dated:
WALDEN RESIDENTIAL PROPERTIES, INC.
CORPORATE
SEAL
MARYLAND
SECRETARY PRESIDENT Counter signed and
Registered:
THE FIRST NATIONAL
BANK OF BOSTON,
Transfer Agent
and
Registrar
By:
Authorized Signature
THERE ARE RESTRICTIONS ON THE TRANSFER
OF THE SHARES EVIDENCED BY THIS CERTIFICATE
AS MORE FULLY SET FORTH ON THE REVERSE HEREOF.
<PAGE> 2
[BACK OF STOCK CERTIFICATE]
WALDEN RESIDENTIAL PROPERTIES, INC.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE A
FULL STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS
AND TERMS, AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE, OR THE DIFFERENCES IN THE RELATIVE RIGHTS
AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF A CLASS IN SERIES WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE. TO THE EXTENT THEY HAVE BEEN SET, AND OF THE
AUTHORITY OF THE BOARD OF DIRECTORS TO SET THE RELATIVE RIGHTS AND PREFERENCES
OF SUBSEQUENT SERIES OR CLASSES, SUCH REQUEST MAY BE MADE TO THE SECRETARY OF
THE CORPORATION OR TO ITS TRANSFER AGENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS
STATUS AS A REAL STATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"). EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF
THE CORPORATION, NO PERSON MAY (1) BENEFICIALLY OWN SHARES OF STOCK IN EXCESS OF
9.0% (OR SUCH OTHER PERCENTAGE AS MAY BE PROVIDED IN THE CHARTER OF THE
CORPORATION) OF THE AGGREGATE VALUE OF ALL OUTSTANDING STOCK (UNLESS SUCH PERSON
IS THE EXISTING HOLDER), OR (2) BENEFICIALLY OWN STOCK THAT WOULD RESULT IN THE
CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE. ANY PERSON
WHO ATTEMPTS TO BENEFICIALLY OWN SHARES OF STOCK IN EXCESS OF THE ABOVE
LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF THE RESTRICTIONS ON
OWNERSHIP OR TRANSFER ARE VIOLATED, THE SHARES OF STOCK REPRESENTED HEREBY WILL
BE AUTOMATICALLY CONVERTED INTO SHARES OF EXCESS STOCK WHICH WILL BE HELD IN
TRUST BY THE CORPORATION. THE CORPORATION HAS THE OPTION TO REDEEM SHARES OF
EXCESS STOCK UNDER CERTAIN CIRCUMSTANCES. ALL TERMS IN THIS LEGEND NOT OTHERWISE
DEFINED HEREIN HAVE THE MEANINGS ASCRIBED THERETO IN THE CORPORATION'S CHARTER,
AS THE SAME MAY BE FURTHER AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING
THE RESTRICTIONS ON OWNERSHIP OR TRANSFER, WILL BE SENT WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS.
The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF TRAN MIN ACT-___ Custodian-___ TEN ENT-as
tenants by the entireties (Cust) (Minor)
JT TEN- as tenants in common under Uniform Transfers to Minors
Act ___________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
<PAGE> 3
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of 9.00% Redeemable Preferred Stock represented by the within
certificate, and do hereby irrevocably constitute and appoint Attorney to
transfer the said shares on the books of the within-named Company with full
power of substitution in the premises.
Dated, ____________________
NOTICE:THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed by:
- --------------------------
<PAGE> 1
EXHIBIT 4.7
9.00% Redeemable Preferred Stock
(Liquidation Preference $25.00 Per Share)
ARTICLES SUPPLEMENTARY
WALDEN RESIDENTIAL PROPERTIES, INC.
---------------------------
Articles Supplementary Classifying and Designating a
Series of Preferred Stock as
9.00% Redeemable Preferred Stock
and Fixing Distribution and
Other Preferences and Rights of Such Series
---------------------------
Dated as of October 1, 1997
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WALDEN RESIDENTIAL PROPERTIES, INC.
-----------
Articles Supplementary Classifying and Designating a
Series of Preferred Stock as
9.00% Redeemable Preferred Stock
and Fixing Distribution and
Other Preferences and Rights of Such Series
-----------
Walden Residential Properties, Inc., a Maryland corporation, having its
principal office in the State of Maryland in the City of Baltimore (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
Pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, as amended (the "Articles"), and Bylaws of the
Corporation, the Board of Directors adopted resolutions authorizing the creation
and issuance of up to 2,000,000 shares, with a liquidation preference of $25.00
per share, of Redeemable Preferred Stock and adopted resolutions granting the
Executive Committee of the Board of Directors with full power and authority,
subject to the foregoing resolution, to determine the preferences and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of such
series. Such preferences and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, number of shares and dividend rate, as determined by such duly
authorized committee are as follows:
Section 01. Number of Shares and Designation. This series of Preferred
Stock shall be designated as 9.00% Redeemable Preferred Stock (the "Redeemable
Preferred Stock") and the number of shares which shall constitute such series
shall not be more than 2,000,000 shares, par value $.01 per share, which number
may be decreased (but not below the number thereof then outstanding) from time
to time by the Board of Directors.
Section 02. Dividend Rights.
(a) Subject to the preferential rights of any other series of
stock ranking senior as to dividends to the Redeemable Preferred Stock
and to the provisions of the Articles relating to rights of holders of
shares of Excess Stock (as defined in the Articles), the record holders
of Redeemable Preferred Stock shall be entitled to receive dividends,
when and as declared by the Board of Directors of the Corporation out of
funds legally available for payment of dividends. Such dividends shall
be payable by the Corporation in cash at the rate of $2.25 per annum per
share.
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(b) Dividends on shares of Redeemable Preferred Stock shall
accrue and be cumulative from the date of issuance of the Redeemable
Preferred Stock. Dividends shall be payable quarterly in arrears when
and as declared by the Board of Directors of the Corporation in March,
June, September and December of each year (on the same dates as
dividends are paid on shares of the Corporation's common stock, par
value $.01 per share (the "Common Stock") (each, a "Preferred Dividend
Payment Date"), commencing on the first Preferred Dividend Payment Date
following the date of issuance of the Redeemable Preferred Stock. If any
Preferred Dividend Payment Date occurs on a day that is not a day, other
than a Saturday or Sunday, that is neither a legal holiday nor a day on
which banking institutions in New York City are authorized or required
by law, regulation or executive order to close (a "Business Day"), any
accrued dividends otherwise payable on such Preferred Dividend Payment
Date shall be paid on the next succeeding Business Day. The amount of
dividends payable on the Redeemable Preferred Stock for each full
quarterly period from, and including, any Preferred Dividend Payment
Date to, but not including, the next Preferred Dividend Payment Date
(the "Dividend Period") shall be computed by dividing by four (4) the
annual dividend rate set forth in Section 2(a). Dividends payable in
respect of any Dividend Period (other than the initial Dividend Period)
which is less than a full Dividend Period in length will be computed
from the immediately preceding Dividend Payment Date to, but not
including, the date on which dividends are paid on the basis of a
360-day year consisting of twelve 30-day months. Dividends shall be paid
to the holders of record of the Redeemable Preferred Stock as their
names shall appear on the stock transfer records of the Corporation at
the close of business on the date designated by the Board of Directors
of the Corporation at the time a dividend is declared as the date for
determining holders of record entitled to such dividend (the "Record
Date"). Dividends in respect of any past Dividend Period that is in
arrears may be declared and paid at any time to holders of record on the
Record Date for such payment. Any dividend payment made on shares of
Redeemable Preferred Stock shall be first credited against the earliest
accrued but unpaid dividend due which remains payable. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Redeemable Preferred Stock which may
be in arrears.
(c) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Redeemable Preferred Stock shall be declared by
the Board of Directors of the Corporation or paid or set apart for
payment by the Corporation at such time as, and to the extent that, the
terms and provisions of any agreement of the Corporation, including any
agreement relating to its indebtedness, or any provisions of the
Articles relating to any series of preferred stock, par value $.01 per
share, of the Corporation (the "Preferred Stock") ranking senior to the
Redeemable Preferred Stock, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
(d) If any shares of Redeemable Preferred Stock are outstanding,
no full dividends shall be declared or paid or set apart for payment on
any series of capital stock of the Company ranking junior to or on a
parity with the Redeemable Preferred Stock as to dividends (including
the Corporation's 9.16% Series A Convertible Redeemable Preferred Stock
and the Corporation's Series B Convertible Redeemable Preferred
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Stock (the "Series B Preferred Stock")) for any period unless full
cumulative dividends have been or contemporaneously are declared and
paid in cash or declared and a sum in cash sufficient for the payment
thereof set apart for such payment on the Redeemable Preferred Stock
for all past Dividend Periods and the then current Dividend Period.
When dividends are not paid in full (or a sum in cash sufficient for
such full payment is not so set apart) upon the shares of Redeemable
Preferred Stock and the shares of any series of Preferred Stock ranking
on a parity as to dividends with the Redeemable Preferred Stock, all
dividends declared upon the shares of Redeemable Preferred Stock and
any other such series of Preferred Stock ranking on a parity as to
dividends with the Redeemable Preferred Stock shall be declared pro
rata so that the amount of dividends declared per share on the
Redeemable Preferred Stock and such other series of Preferred Stock
shall in all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Redeemable Preferred Stock
and such other series of Preferred Stock bear to each other.
(e) Except as provided in Section 2(d), unless full cumulative
dividends on the Redeemable Preferred Stock have been or
contemporaneously are declared and paid in cash or declared and a sum in
cash sufficient for the payment thereof set apart for payment for all
past Dividend Periods and the then current Dividend Period, no dividends
(other than dividends payable in Common Stock or other capital stock of
the Corporation ranking junior to the Redeemable Preferred Stock as to
dividends and upon liquidation, dissolution and winding up) shall be
declared or paid or set aside for payment or other distribution shall be
declared or made upon any series of capital stock of the Corporation
ranking junior to or on a parity with the Redeemable Preferred Stock as
to dividends nor, subject to the Corporation's right to purchase Excess
Stock as set forth in the Articles, shall shares of any series of
capital stock of the Corporation ranking junior to or on a parity with
the Redeemable Preferred Stock upon liquidation, dissolution or winding
up be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any series of capital stock of the
Corporation ranking junior to or on a parity with the Redeemable
Preferred Stock) by the Corporation (except by conversion into or
exchange for other capital stock of the Corporation ranking junior to
the Redeemable Preferred Stock as to dividends and upon liquidation,
dissolution and winding up).
(f) Notwithstanding anything contained herein to the contrary,
dividends on the Redeemable Preferred Stock, if not paid on a Preferred
Dividend Payment Date, will accrue whether or not dividends are declared
for such Preferred Dividend Payment Date, whether or not the Corporation
has earnings and whether or not there are funds legally available for
the payment of such dividends. Any dividend payment made on shares of
Redeemable Preferred Stock shall first be credited against the earliest
accrued but unpaid dividend due with respect to shares of such
Redeemable Preferred Stock which remains payable.
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Section 03. Distribution Upon Liquidation, Dissolution or Winding Up.
(a) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, subject to the prior
preferences and other rights of any series of capital stock of the
Corporation ranking senior to the Redeemable Preferred Stock upon
liquidation, dissolution or winding up of the Corporation, but before
any distribution or payment shall be made to the holders of capital
stock of the Corporation ranking junior to the Redeemable Preferred
Stock in the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, the holders of Redeemable Preferred Stock
shall be entitled to receive out of the assets of the Corporation
legally available for distribution to its stockholders liquidating
distributions in cash or property at its fair market value as determined
by the Board of Directors of the Corporation in the amount of $25.00 per
share, plus an amount in cash equal to any accrued or unpaid dividends
on any such share of Redeemable Preferred Stock to the date of
liquidation, dissolution or winding up (including an amount equal to a
prorated dividend for the period extending from the last Preferred
Dividend Payment Date to the date of liquidation, dissolution or winding
up) (the "Liquidation Preference"). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
Redeemable Preferred Stock will have no right or claim to any of the
remaining assets of the Corporation and shall not be entitled to any
other distribution in the event of liquidation, dissolution or winding
up of the affairs of the Corporation.
(b) In the event that, upon any such voluntary or involuntary
liquidation, dissolution or other winding up, the legally available
assets of the Corporation are insufficient to pay the amount of the
Liquidation Preference per share and the corresponding amounts payable
on all shares of capital stock of the Corporation ranking on a parity
with the Redeemable Preferred Stock in the distribution of assets upon
liquidation, dissolution or winding up, then the holders of the
Redeemable Preferred Stock and all such other capital stock shall share
ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
(c) Neither the consolidation or merger of the Corporation into
or with another corporation or any other entity nor the sale, lease,
transfer or conveyance of all or substantially all of the assets of the
Corporation to another corporation or any other entity shall be deemed
to constitute a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 3.
Section 04. Redemption by the Corporation.
(a) The Redeemable Preferred Stock may be redeemed, in whole or
from time to time in part, at any time on and after January 1, 2008 at
the option of the Corporation at the price of $25.00 per share (the
"Preferred Redemption Price"), plus all accrued and unpaid dividends
thereon to the Preferred Redemption Date (defined below), except as may
be provided below, without interest.
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(b) Each date fixed for redemption pursuant to Section 4(d) below
is called a "Preferred Redemption Date." If the Preferred Redemption
Date is after a Record Date and before the related Preferred Dividend
Payment Date, the dividend payable on such Preferred Dividend Payment
Date shall be paid to the holder in whose name the Redeemable Preferred
Stock to be redeemed is registered at the close of business on such
Record Date notwithstanding the redemption thereof between such Record
Date and the related Preferred Dividend Payment Date or the
Corporation's default in the payment of the dividend due.
(c) In case of redemption of less than all shares of Redeemable
Preferred Stock at the time outstanding, the shares to be redeemed shall
be selected pro rata from the holders of record of such shares in
proportion to the number of shares held by such holders (with
adjustments to avoid redemption of fractional shares) or by any other
equitable method determined by the Corporation, to the extent
practicable, that will not result in a violation of the Ownership Limit
(as defined in the Articles).
(d) Notice of any redemption will be given by publication in a
newspaper of general circulation in the City of New York, such
publication to be made once a week for two successive weeks commencing
not less than 30 nor more than 60 days prior to the Preferred Redemption
Date. A similar notice will be mailed by the Corporation, postage
prepaid, not less than 30 nor more than 60 days prior to the Preferred
Redemption Date, addressed to the respective holders of record of the
Redeemable Preferred Stock to be redeemed at their respective addresses
as they appear on the stock transfer records of the Corporation. No
failure to give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption
of any shares of Redeemable Preferred Stock except as to the holder to
whom the Corporation has failed to give notice or except as to the
holder to whom notice was defective. In addition to any information
required by law or by the applicable rules of any exchange upon which
the Redeemable Preferred Stock may be listed or admitted to trading,
such notice shall state: (i) the Preferred Redemption Date; (ii) the
Preferred Redemption Price; (iii) whether all or less than all the
outstanding shares of Redeemable Preferred Stock are to be redeemed and
the aggregate number of shares of Redeemable Preferred Stock to be
redeemed and, if less than all shares held by such holder are to be
redeemed, the number of such shares to be redeemed; (iv) the place or
places where certificates for such shares are to be surrendered for
payment of the Preferred Redemption Price; and (v) that dividends on the
shares to be redeemed will cease to accrue on the Preferred Redemption
Date.
(e) If notice has been mailed in accordance with Section 4(d)
above and provided that on or before the Preferred Redemption Date
specified in such notice all funds necessary for such redemption shall
have been set aside by the Corporation, separate and apart from its
other funds in trust for the pro rata benefit of the holders of the
shares so called for redemption, so as to be and to continue to be
available therefor, then, from and after the Preferred Redemption Date,
dividends on the shares of the Redeemable Preferred Stock so called for
redemption shall cease to accrue, and such shares shall no longer be
deemed to be outstanding and shall not have the status of shares of
Redeemable Preferred Stock, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive
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from the Corporation the Preferred Redemption Price) shall cease.
Notwithstanding the foregoing, upon the Corporation's default in the
payment of the dividend due, the holders of Redeemable Preferred Stock
at the close of business on any Record Date will be entitled to receive
the dividend payable with respect to such Redeemable Preferred Stock on
the corresponding Preferred Dividend Payment Date, although such
Redeemable Preferred Stock shall have been redeemed between such Record
Date and such corresponding Preferred Dividend Payment Date. Upon
surrender, in accordance with the redemption notice, of the
certificates for any shares of Redeemable Preferred Stock so redeemed
(properly endorsed or assigned for transfer, if the Corporation shall
so require and the notice shall so state), such shares shall be
redeemed by the Corporation at the Preferred Redemption Price. In case
fewer than all the shares represented by any such certificate are
redeemed, a new certificate or certificates shall be issued
representing the unredeemed shares without cost to the holder thereof.
(f) Any deposit of funds with a bank or trust company for the
purpose of redeeming Redeemable Preferred Stock shall be irrevocable
except that:
(i) the Corporation shall be entitled to receive from such
bank or trust company the interest or other earnings, if any, earned on
any money so deposited in trust, and the holders of any shares redeemed
shall have no claim to such interest or other earnings; and
(ii) any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Redeemable Preferred Stock entitled
thereto at the expiration of two (2) years after the applicable
Preferred Redemption Date shall be repaid, together with any interest or
other earnings earned thereon, to the Corporation, and after such
repayment, the holders of the shares entitled to the funds so repaid to
the Corporation shall look only to the Corporation for payment without
interest or other earnings.
(g) No Redeemable Preferred Stock may be redeemed except with
funds legally available for the payment of the Preferred Redemption
Price.
(h) Unless full cumulative dividends on all shares of Redeemable
Preferred Stock shall have been or contemporaneously are declared and
paid in cash or declared and a sum in cash sufficient for the payment
thereof set apart for payment for all past Dividend Periods and the then
current Dividend Period, no shares of any Redeemable Preferred Stock
shall be redeemed unless all outstanding shares of Redeemable Preferred
Stock are simultaneously redeemed; provided, however, that the foregoing
shall not prevent the purchase or acquisition of shares of Redeemable
Preferred Stock pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Redeemable Preferred
Stock; and unless full cumulative dividends on all outstanding shares of
Redeemable Preferred Stock have been or contemporaneously are declared
and paid in cash or declared and a sum in cash sufficient for the
payment thereof set apart for payment for all past Dividend Periods and
the then current Dividend Period, the Corporation shall not purchase or
otherwise acquire directly or indirectly, through a subsidiary or
otherwise, any shares of Redeemable Preferred Stock (except by
conversion into or exchange for capital stock of the Corporation ranking
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junior to the Redeemable Preferred Stock as to dividends and upon
liquidation, dissolution and winding up of the Corporation).
(i) All shares of Redeemable Preferred Stock redeemed pursuant to
this Section 4 shall be retired and shall be restored to the status of
authorized and unissued shares of Preferred Stock, without designation
as to series, and subject to the applicable limitations set forth herein
may thereafter be reissued as shares of any series of Preferred Stock.
Section 05. Voting Rights.
(a) The holders of record of shares of Redeemable Preferred Stock
shall not be entitled to any voting rights except as hereinafter
provided in this Section 5 or as otherwise provided by law. The
Corporation shall not (i) without the affirmative vote or consent of the
holders of at least two-thirds of the shares of the Redeemable Preferred
Stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting (such Redeemable Preferred Stock voting
separately as a class), authorize, create or issue, or increase the
authorized or issued amount of, any class or series of capital stock
ranking senior to the Redeemable Preferred Stock as to dividends or upon
liquidation, dissolution or winding up of the Corporation or reclassify
any authorized capital stock of the Corporation into any such senior
stock, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any such capital
stock; or (ii) without the affirmative vote or consent of at least
two-thirds of the shares of the Redeemable Preferred Stock outstanding
at the time, given in person or by proxy, either in writing or at a
meeting (such Redeemable Preferred Stock voting separately or as a
class), amend, alter or repeal the provisions of the Articles (including
these Articles Supplementary) so as to materially and adversely affect
any right, preference, privilege or voting power of the Redeemable
Preferred Stock or the holders thereof; provided, however, that any
increase in the amount of the authorized Preferred Stock or the creation
or issuance of any other series of Preferred Stock, or any increase in
the amount of authorized shares of the Redeemable Preferred Stock or any
other series of Preferred Stock, in each case ranking on a parity with
or junior to the Redeemable Preferred Stock with respect to payment of
dividends and the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect
such rights, preferences, privileges or voting powers.
(b) If and whenever dividends payable on the Redeemable Preferred
Stock shall be or have been in arrears for six (6) or more quarterly
periods (regardless of whether such periods are consecutive), then the
holders of Redeemable Preferred Stock, voting separately as a class,
shall be entitled at the next annual meeting of the stockholders or at
any special meeting called as hereinafter provided to elect two (2)
additional directors. A majority of the shares of Redeemable Preferred
Stock shall constitute a quorum for the purposes of electing directors
at such a meeting. Upon election, such directors shall become additional
directors of the Corporation and the authorized number of directors of
the Corporation shall thereupon be automatically increased by such
number of directors.
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(c) Whenever the voting right described under Section 5(b) above
shall become exercisable, such right may be exercised initially either
at a special meeting of the holders of Redeemable Preferred Stock,
called as hereinafter provided, or at any annual meeting of stockholders
held for the purpose of electing directors, and thereafter at such
annual meetings or by the written consent of holders of Redeemable
Preferred Stock. Such right of the holders of Redeemable Preferred Stock
to elect directors may be exercised until all dividends to which the
holders of Redeemable Preferred Stock shall have been entitled for all
previous Dividend Periods and the current Dividend Period shall have
been paid in cash in full or declared and a sum of money in cash
sufficient for the payment thereof set aside for payment, at which time
the right of the holders of Redeemable Preferred Stock to elect such
number of directors shall cease, the term of such directors previously
elected shall thereupon terminate, and the authorized number of
directors of the Corporation shall thereupon return to the number of
authorized directors otherwise in effect, but subject always to the same
provisions for the renewal and divestment of such special voting rights
in the case of any such future dividend default or defaults.
(d) At any time when the voting right described under Section
5(b) shall become exercisable in the holders of Redeemable Preferred
Stock and if such right shall not already have been initially exercised,
a proper officer of the Corporation shall, upon the written request of
holders of record of at least ten percent (10%) of the shares of
Redeemable Preferred Stock then outstanding, addressed to the Secretary
of the Corporation, call a special meeting of holders of Redeemable
Preferred Stock. Such meeting shall be held at the earliest practicable
date upon the notice required for annual meetings of stockholders at the
place for holding annual meetings of stockholders of the Corporation or,
if none, at a place designated by the Secretary of the Corporation. If
such meeting shall not be called by the proper officers of the
Corporation within thirty (30) days after the personal service of such
written request upon the Secretary of the Corporation, or within thirty
(30) days after mailing the same within the United States, by registered
mail, addressed to the Secretary of the Corporation at its principal
office (such mailing to be evidenced by the registry receipt issued by
the postal authorities), then the holders of record of at least ten
percent (10%) of the shares of Redeemable Preferred Stock then
outstanding may designate in writing a holder of Redeemable Preferred
Stock or such other Preferred Stock to call such meeting at the expense
of the Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of stockholders
and shall be held at the place of holding annual meetings of the
Corporation or, if none, at a place designated by such holder. Any
holder of Redeemable Preferred Stock that would be entitled to vote at
such meeting shall have access to the stock books of the Corporation for
the purpose of causing a meeting of stockholders to be called pursuant
to the provisions of this Section 5(d). Notwithstanding the provisions
of this Section 5(d), however, no such special meeting shall be called
if any such request is received less than 90 days before the date fixed
for the next ensuing annual or special meeting of stockholders.
(e) If any director so elected by the holders of Redeemable
Preferred Stock shall cease to serve as a director before such
director's term shall expire, the holders of Redeemable Preferred Stock
then outstanding may, at a special meeting of the holders called as
provided above, elect a successor to hold office for the unexpired term
of the director whose place shall be vacant.
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(f) Subject to Section 5(a) hereof and the provisions of the
Articles relating to the rights of holders of Excess Stock, in any
matter in which the Redeemable Preferred Stock may vote, including any
action by written consent, each share of Redeemable Preferred Stock
shall be entitled to one (1) vote (except as expressly provided herein
or as may be required by law).
(g) Except as required by law, the foregoing voting provisions
shall not apply if, at or prior to the time when the act with respect to
which such vote would otherwise be required shall be effected, all
outstanding shares of the Redeemable Preferred Stock shall have been
redeemed or shall have been called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such
redemption.
Section 06. Ranking. The Redeemable Preferred Stock shall, with respect
to dividend rights and distributions upon liquidation, dissolution and winding
up of the Corporation, rank (i) senior to the Common Stock, any shares of Excess
Stock (except as provided in the last sentence of this Section 6) and shares of
all other series of capital stock issued from time to time by the Corporation
other than any series of capital stock the terms of which specifically provide
that the capital stock of such series rank senior to or on parity with the
Redeemable Preferred Stock with respect to dividend rights or distributions upon
liquidation, dissolution or winding up of the Corporation; (ii) on a parity with
the Series B Preferred Stock and all other shares of all other capital stock
issued by the Corporation the terms of which specifically provide that such
shares rank on a parity with the Redeemable Preferred Stock with respect to
dividends and distributions upon liquidation, dissolution or winding up of the
Corporation or make no specific provisions as to their ranking; and (iii) junior
to the Corporation's 9.20% Senior Preferred Stock, and all other capital stock
issued by the Corporation the terms of which specifically provide that the
shares rank senior to the Redeemable Preferred Stock with respect to dividends
and distributions upon liquidation, dissolution or winding up of the Corporation
(the issuance of which must have been approved by a vote of at least a majority
of the outstanding shares of Redeemable Preferred Stock). The Redeemable
Preferred Stock ranks on a parity with the shares of Redeemable Preferred Stock
that are Excess Stock with respect to distributions upon liquidation,
dissolution or winding up of the Corporation.
Section 07. Reports. So long as any share of Redeemable Preferred Stock
is outstanding, the Corporation shall file with the Securities and Exchange
Commission (the "SEC") the annual reports, quarterly reports and the
information, documents and other reports required to be filed by the Corporation
with the SEC pursuant to Sections 13 and 15 of the Exchange Act, whether or not
the Corporation has or is required to have a class of securities registered
under the Exchange Act, at the time it is or would be required to file the same
with the SEC and within 15 days after it is or would be required to file such
reports, information or documents with the SEC shall mail such reports,
information and documents to the holders at their addresses set forth in the
register of Redeemable Preferred Stock maintained by the transfer agent and
registrar of the Redeemable Preferred Stock.
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IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed in its name and on its behalf by its Executive Vice
President and Chief Financial Officer and attested to by its Secretary on this
1st day of October, 1997 and said Executive Vice President and Chief Financial
Officer acknowledges under the penalties of perjury that these Articles
Supplementary are the corporate act of said Corporation and that to the best of
his knowledge, information and belief, the matters and facts set forth herein
are true in all material respects.
WALDEN RESIDENTIAL PROPERTIES, INC.
By:
------------------------------------
Name: Mark S. Dillinger
Title: Executive Vice President
and Chief Financial Officer
Attest:
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Name: Edward H. Hatzenbuehler
Title: Secretary
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EXHIBIT 10.2
- --------------------------------------------------------------------------------
MASTER CREDIT FACILITY AGREEMENT
among
(i) WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation, and
(ii) WALDEN/DREVER OPERATING PARTNERSHIP,
a Delaware limited partnership
and
WMF WASHINGTON MORTGAGE CORP.,
a Delaware corporation,
formerly known as Washington Mortgage Financial Group, Ltd.
dated as of
December 18, 1998
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TABLE OF CONTENTS
<TABLE>
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Page
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RECITALS ........................................................................................................1
ARTICLE I DEFINITIONS...........................................................................................2
ARTICLE II THE REVOLVING FACILITY COMMITMENT...................................................................23
SECTION 2.01 Revolving Facility Commitment............................................................23
SECTION 2.02 Requests for Revolving Advances..........................................................23
SECTION 2.03 Maturity Date of Revolving Advances......................................................23
SECTION 2.04 Interest on Revolving Facility Advances..................................................24
SECTION 2.05 Coupon Rates for Revolving Advances......................................................24
SECTION 2.06 Revolving Facility Notes.................................................................25
ARTICLE III THE BASE FACILITY COMMITMENT.......................................................................25
SECTION 3.01 Base Facility Commitment.................................................................25
SECTION 3.02 Requests for Base Facility Advances......................................................25
SECTION 3.03 Maturity Date of Base Facility Advances; Amortization Period.............................25
SECTION 3.04 Interest on Base Facility Advances.......................................................25
SECTION 3.05 Coupon Rates for Base Facility Advances..................................................26
SECTION 3.06 Base Facility Note.......................................................................26
SECTION 3.07 Conversion of Commitment from Revolving Facility Commitment to
Base Facility Commitment......................................................................26
SECTION 3.08 Limitations on Right to Convert..........................................................27
SECTION 3.09 Conditions Precedent to Conversion.......................................................27
SECTION 3.10 Defeasance...............................................................................27
ARTICLE IV RATE SETTING FOR THE ADVANCES.......................................................................35
SECTION 4.01 Rate Setting for an Advance..............................................................35
SECTION 4.02 Advance Confirmation Instrument for Revolving Advances...................................36
SECTION 4.03 Breakage and other Costs.................................................................37
ARTICLE V MAKING THE ADVANCES..................................................................................37
SECTION 5.01 Initial Advance..........................................................................37
SECTION 5.02 Future Advances..........................................................................38
SECTION 5.03 Conditions Precedent to Future Advances..................................................38
ARTICLE VI ADDITIONS OF COLLATERAL.............................................................................39
SECTION 6.01 Right to Add Collateral..................................................................39
SECTION 6.02 Procedure for Adding Collateral..........................................................39
SECTION 6.03 Conditions Precedent to Addition of an Additional Mortgaged Property
to the Collateral Pool........................................................................41
</TABLE>
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<TABLE>
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ARTICLE VII RELEASES OF COLLATERAL.............................................................................41
SECTION 7.01 Right to Obtain Releases of Collateral...................................................41
SECTION 7.02 Procedure for Obtaining Releases of Collateral...........................................42
SECTION 7.03 Conditions Precedent to Release of Collateral Release Property from the
Collateral....................................................................................43
SECTION 7.04 Substitutions............................................................................44
ARTICLE VIII EXPANSION OF CREDIT FACILITY......................................................................45
SECTION 8.01 Right to Increase Commitment.............................................................45
SECTION 8.02 Procedure for Obtaining Increases in Commitment..........................................45
SECTION 8.03 Conditions Precedent to Increase in Commitment...........................................46
ARTICLE IX COMPLETE OR PARTIAL TERMINATION OF REVOLVING FACILITY...............................................47
SECTION 9.01 Right to Complete or Partial Termination of Revolving Facility...........................47
SECTION 9.02 Procedure for Complete or Partial Termination of Revolving
Facility......................................................................................47
SECTION 9.03 Conditions Precedent to Complete or Partial Termination of Revolving
Facility......................................................................................47
ARTICLE X TERMINATION OF CREDIT FACILITY.......................................................................48
SECTION 10.01 Right to Terminate Credit Facility......................................................48
SECTION 10.02 Procedure for Terminating Credit Facility...............................................48
SECTION 10.03 Conditions Precedent to Termination of Credit Facility..................................49
ARTICLE XI GENERAL CONDITIONS PRECEDENT TO ALL REQUESTS........................................................49
SECTION 11.01 Conditions Applicable to All Requests...................................................49
SECTION 11.02 Delivery of Closing Documents Relating to Initial Advance Request,
Collateral Addition Request, Credit Facility Expansion Request or Future
Advance Request...............................................................................51
SECTION 11.03 Delivery of Property-Related Documents..................................................51
ARTICLE XII REPRESENTATIONS AND WARRANTIES.....................................................................52
SECTION 12.01 Representations and Warranties of the Borrower Parties..................................52
SECTION 12.02 Representations and Warranties of the Borrower..........................................57
SECTION 12.03 Representations and Warranties of the Lender............................................60
ARTICLE XIII AFFIRMATIVE COVENANTS OF THE BORROWER PARTIES.....................................................60
SECTION 13.01 Compliance with Agreements; No Amendments...............................................60
SECTION 13.02 Maintenance of Existence................................................................60
SECTION 13.03 Maintenance of REIT Status..............................................................60
SECTION 13.04 Financial Statements; Accountants' Reports; Other Information...........................61
SECTION 13.05 Certificate of Compliance...............................................................63
SECTION 13.06 Maintain Licenses.......................................................................63
SECTION 13.07 Access to Records; Discussions With Officers and Accountants............................64
SECTION 13.08 Inform the Lender of Material Events....................................................64
SECTION 13.09 Single-Purpose Entities.................................................................65
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<TABLE>
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SECTION 13.10 Inspection..............................................................................65
SECTION 13.11 Compliance with Applicable Laws.........................................................65
SECTION 13.12 Warranty of Title.......................................................................66
SECTION 13.13 Defense of Actions......................................................................66
SECTION 13.14 Alterations to the Mortgaged Properties.................................................66
SECTION 13.15 ERISA...................................................................................67
SECTION 13.16 Loan Document Taxes.....................................................................67
SECTION 13.17 Further Assurances......................................................................67
SECTION 13.18 Monitoring Compliance...................................................................68
SECTION 13.19 Leases..................................................................................68
SECTION 13.20 Appraisals..............................................................................68
SECTION 13.21 Transfer of Ownership Interests of the Borrower and the REIT............................68
SECTION 13.22 Change in Senior Management.............................................................70
SECTION 13.23 Date-Down Endorsements..................................................................71
SECTION 13.24 Geographical Diversification............................................................71
SECTION 13.25 Ownership of Mortgaged Properties.......................................................71
ARTICLE XIV NEGATIVE COVENANTS OF THE BORROWER PARTIES.........................................................71
SECTION 14.01 Other Activities........................................................................71
SECTION 14.02 Value of Security.......................................................................72
SECTION 14.03 Zoning..................................................................................72
SECTION 14.04 Liens...................................................................................72
SECTION 14.05 Sale....................................................................................72
SECTION 14.06 Intentionally Omitted...................................................................72
SECTION 14.07 Principal Place of Business.............................................................72
SECTION 14.08 Frequency of Requests...................................................................72
SECTION 14.09 Change in Property Management...........................................................73
SECTION 14.10 Condominiums............................................................................73
SECTION 14.11 Restrictions on Partnership Distributions...............................................73
SECTION 14.12 Lines of Business.......................................................................73
SECTION 14.13 Limitation on Unimproved Real Property and New Construction.............................73
SECTION 14.14 No Encumbrance of Collateral Release Property...........................................73
ARTICLE XV FINANCIAL COVENANTS OF THE BORROWER PARTIES.........................................................74
SECTION 15.01 Financial Definitions...................................................................74
SECTION 15.02 Compliance with Debt Service Coverage Ratios............................................78
SECTION 15.03 Compliance with Loan to Value Ratios....................................................78
SECTION 15.04 Compliance with Concentration Test......................................................78
SECTION 15.05 Compliance with REIT's Net Worth Test...................................................78
SECTION 15.06 Compliance with REIT's Total Indebtedness to Gross Asset Value
Ratio.........................................................................................78
SECTION 15.07 Compliance with REIT's Consolidated EBITDA to Interest Ratio............................78
SECTION 15.08 Compliance with REIT's Consolidated EBITDA to Fixed Charge
Ratio.........................................................................................78
</TABLE>
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ARTICLE XVI FEES...............................................................................................79
SECTION 16.01 Standby Fee.............................................................................79
SECTION 16.02 Origination Fees........................................................................79
SECTION 16.03 Due Diligence Fees......................................................................79
SECTION 16.04 Legal Fees and Expenses.................................................................80
SECTION 16.05 MBS-Related Costs.......................................................................80
SECTION 16.06 Failure to Close any Request............................................................80
SECTION 16.07 Other Fees..............................................................................80
ARTICLE XVII EVENTS OF DEFAULT.................................................................................81
SECTION 17.01 Events of Default.......................................................................81
ARTICLE XVIII REMEDIES.........................................................................................83
SECTION 18.01 Remedies; Waivers.......................................................................83
SECTION 18.02 Waivers; Rescission of Declaration......................................................84
SECTION 18.03 The Lender's Right to Protect Collateral and Perform Covenants and
Other Obligations.............................................................................84
SECTION 18.04 No Remedy Exclusive.....................................................................84
SECTION 18.05 No Waiver...............................................................................84
SECTION 18.06 No Notice...............................................................................85
SECTION 18.07 Application of Payments.................................................................85
ARTICLE XIX RIGHTS OF FANNIE MAE...............................................................................85
SECTION 19.01 Special Pool Purchase Contract..........................................................85
SECTION 19.02 Assignment of Rights....................................................................85
SECTION 19.03 Release of Collateral...................................................................85
SECTION 19.04 Replacement of Lender...................................................................86
SECTION 19.05 Fannie Mae and Lender Fees and Expenses.................................................86
SECTION 19.06 Third-Party Beneficiary.................................................................86
ARTICLE XX INSURANCE, REAL ESTATE TAXES
AND REPLACEMENT RESERVES......................................................................86
SECTION 20.01 Insurance and Real Estate Taxes.........................................................86
SECTION 20.02 Replacement Reserves....................................................................86
ARTICLE XXI INTEREST RATE PROTECTION...........................................................................86
SECTION 21.01 Interest Rate Protection................................................................86
SECTION 21.02. Hedge Terms............................................................................87
SECTION 21.03 Hedge Security Agreement; Delivery of Hedge Payments....................................88
SECTION 21.04 Termination.............................................................................88
SECTION 21.05 Performance Under Hedge Documents.......................................................88
ARTICLE XXII LIMITS ON PERSONAL LIABILITY......................................................................88
SECTION 22.01 Limits on Personal Liability............................................................88
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<TABLE>
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ARTICLE XXIII MISCELLANEOUS PROVISIONS.........................................................................90
SECTION 23.01 Counterparts............................................................................90
SECTION 23.02 Amendments, Changes and Modifications...................................................90
SECTION 23.03 Payment of Costs, Fees and Expenses.....................................................90
SECTION 23.04 Payment Procedure.......................................................................91
SECTION 23.05 Payments on Business Days...............................................................91
SECTION 23.06 Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial............................91
SECTION 23.07 Severability............................................................................92
SECTION 23.08 Notices.................................................................................93
SECTION 23.09 Further Assurances and Corrective Instruments...........................................95
SECTION 23.10 Term of this Agreement..................................................................96
SECTION 23.11 Assignments; Third-Party Rights.........................................................96
SECTION 23.12 Headings................................................................................96
SECTION 23.13 General Interpretive Principles.........................................................96
SECTION 23.14 Interpretation..........................................................................96
SECTION 23.15 Standards for Decisions, Etc............................................................97
SECTION 23.16 Decisions in Writing....................................................................97
SECTION 23.17 Joint and Several Liability.............................................................97
</TABLE>
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<TABLE>
<S> <C> <C>
EXHIBIT A - Schedule of Initial Mortgaged Properties and Initial Valuations
EXHIBIT B - Base Facility Note
EXHIBIT C - Cash Management Agreement
EXHIBIT D - Compliance Certificate
EXHIBIT E - Sample Facility Debt Service
EXHIBIT F - Organizational Certificate
EXHIBIT G - REIT's Guaranty
EXHIBIT H - Revolving Credit Endorsement
EXHIBIT I-1 - Revolving Facility Note ($100,000,000)
EXHIBIT I-2 - Revolving Facility Note ($75,000,000)
EXHIBIT J - Tie-In Endorsement
EXHIBIT K - Conversion Request
EXHIBIT L - Conversion Amendment
EXHIBIT M - Rate Setting Form
EXHIBIT N - Rate Confirmation Instrument
EXHIBIT O - Advance Confirmation Instrument
EXHIBIT P - Future Advance Request
EXHIBIT Q - Collateral Addition Request
EXHIBIT R - Collateral Addition Description Package
EXHIBIT S - Collateral Addition Supporting Documents
EXHIBIT T - Collateral Release Request
EXHIBIT U - Confirmation of Obligations
EXHIBIT V - Credit Facility Expansion Request
EXHIBIT W - Revolving Facility Termination Request
EXHIBIT X - Revolving Facility Termination Document
EXHIBIT Y - Credit Facility Termination Request
EXHIBIT Z - Intentionally Omitted
EXHIBIT AA - Schedule of Approved Property Management Agreements
EXHIBIT BB - Independent Unit Encumbrances
EXHIBIT CC Hedge Security Agreement
</TABLE>
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<PAGE> 8
MASTER CREDIT FACILITY AGREEMENT
THIS MASTER CREDIT FACILITY AGREEMENT is made as of the 18th day of
December, 1998 and among (i) (a) WALDEN RESIDENTIAL PROPERTIES, INC., a Maryland
corporation ("REIT"), and (b) WALDEN/DREVER OPERATING PARTNERSHIP, a Delaware
limited partnership ("Borrower") (the REIT and the Borrower being collectively
referred to as the "Borrower Parties") and (ii) WMF WASHINGTON MORTGAGE CORP., a
Delaware corporation formerly known as Washington Mortgage Financial Group, Ltd.
("Lender").
RECITALS
A. The REIT owns directly and indirectly 100% of the voting interests
in the Borrower.
B. The Borrower owns one or more Multifamily Residential Properties
(capitalized terms used but not defined shall have the meanings ascribed to such
terms in Article I of this Agreement) as more particularly described in Exhibit
A to this Agreement.
C. The Borrower has requested that the Lender establish a $250,000,000
Credit Facility in favor of the Borrower, comprised initially of a $175,000,000
Revolving Facility, all or part of which can be converted to a Base Facility in
accordance with, and subject to, the terms and conditions of this Agreement and
a $75,000,000 Base Facility.
D. To secure the obligations of the Borrower Parties under this
Agreement and the other Loan Documents issued in connection with the Credit
Facility, the Borrower shall create a Collateral Pool in favor of the Lender.
The Collateral Pool shall be comprised of (i) Security Instruments on all of the
Multifamily Residential Properties owned by the Borrower and (ii) any other
Security Documents executed by either Borrower Party pursuant to this Agreement
or any other Loan Documents.
E. Each of the Security Documents shall be cross-defaulted (i.e., a
default under any Security Document, or under this Agreement, shall constitute a
default under each Security Document, and this Agreement) and
cross-collateralized (i.e., each Security Instrument shall secure all of the
Borrower Parties' obligations under this Agreement and the other Loan Documents
issued in connection with the Credit Facility) and it is the intent of the
parties to this Agreement that the Lender may accelerate any Note without the
necessity to accelerate any other Note and that in the exercise of its rights
and remedies under the Loan Documents, Lender may, except as provided in this
Agreement, exercise and perfect any and all of its rights in and under the Loan
Documents with regard to any Mortgaged Property without the necessity to
exercise and perfect its rights and remedies with respect to any other Mortgaged
Property and that any such exercise shall be without regard to the Allocable
Facility Amount assigned to such Mortgaged Property and that Lender may recover
an amount equal to the full amount outstanding in respect of any of the Notes in
connection with such exercise and any such amount shall be applied as determined
by Lender in its sole and absolute discretion.
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<PAGE> 9
F. Subject to the terms, conditions and limitations of this Agreement,
the Lender has agreed to establish the Credit Facility.
NOW, THEREFORE, the Borrower Parties and the Lender, in consideration
of the mutual promises and agreements contained in this Agreement, hereby agree
as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Acquiring Person" means a "person" or "group of persons"
within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended.
"Additional Mortgaged Property" means each Multifamily
Residential Property owned by the Borrower (either in fee simple or as
tenant under a ground lease meeting all of the requirements of the DUS
Guide) and added to the Collateral Pool after the Initial Closing Date
pursuant to Article VI.
"Advance" means a Revolving Advance or a Base Facility
Advance.
"Advance Confirmation Instrument" shall have the meaning set
forth in Section 4.02.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common
control with, that Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management (other
than property management) and policies of that Person, whether through
the ownership of voting securities, partnership interests or by
contract or otherwise.
"Aggregate Debt Service Coverage Ratio for the Trailing 12
Month Period" means, for any specified date, the ratio (expressed as a
percentage) of--
(a) the aggregate of the Net Operating Income for the Trailing
12 Month Period for the Mortgaged Properties
to
(b) the Facility Debt Service on the specified date.
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<PAGE> 10
"Aggregate Debt Service Coverage Ratio for the Trailing Three
Month Period" means, for any specified date, the ratio (expressed as a
percentage) of--
(a) the product obtained by multiplying--
(i) the aggregate of the Net Operating Income for
the Trailing Three Month Period for the
Mortgaged Properties, by
(ii) four
to
(b) the Facility Debt Service on the specified date.
"Aggregate Loan to Value Ratio for the Trailing 12 Month
Period" means, for any specified date, the ratio (expressed as a
percentage) of--
(a) the Advances Outstanding on the specified date,
to
(b) the aggregate of the Valuations most recently obtained
prior to the specified date for all of the Mortgaged
Properties.
"Agreement" means this Master Credit Facility Agreement, as it
may be amended, supplemented or otherwise modified from time to time,
including all Recitals and Exhibits to this Agreement, each of which is
hereby incorporated into this Agreement by this reference.
"Allocable Facility Amount" means the portion of the Credit
Facility allocated to a particular Mortgaged Property by Lender in
accordance with this Agreement.
"Amortization Period" means, with respect to each Base
Facility Advance, the period of not less than 25 years and not more
than 30 years.
"Applicable Law" means (a) all applicable provisions of all
constitutions, statutes, rules, regulations and orders of all
governmental bodies, all Governmental Approvals and all orders,
judgments and decrees of all courts and arbitrators, (b) all zoning,
building, environmental and other laws, ordinances, rules, regulations
and restrictions of any Governmental Authority affecting the ownership,
management, use, operation, maintenance or repair of any Mortgaged
Property, including the Americans with Disabilities Act (if
applicable), the Fair Housing Amendment Act of 1988 and Hazardous
Materials Laws, (c) any building permits or any conditions, easements,
rights-of-way, covenants, restrictions of record or any recorded or
unrecorded agreement affecting or concerning any Mortgaged Property
including planned development permits, condominium declarations, and
reciprocal
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<PAGE> 11
easement and regulatory agreements with any Governmental Authority, (d)
all laws, ordinances, rules and regulations, whether in the form of
rent control, rent stabilization or otherwise, that limit or impose
conditions on the amount of rent that may be collected from the units
of any Mortgaged Property, and (e) requirements of insurance companies
or similar organizations, affecting the operation or use of any
Mortgaged Property or the consummation of the transactions to be
effected by this Agreement or any of the other Loan Documents.
"Appraisal" means an appraisal of a Multifamily Residential
Property or Multifamily Residential Properties conforming to the
requirements of Chapter 5 of Part III of the DUS Guide, and accepted by
the Lender.
"Appraised Value" means the value set forth in an Appraisal.
"Base Facility" means the agreement of the Lender to make Base
Facility Advances to the Borrower pursuant to Section 3.01.
"Base Facility Advance" means a loan made by the Lender to the
Borrower under the Base Facility Commitment.
"Base Facility Availability Period" means the period beginning
on the Initial Closing Date and ending on the date nine (9) years and
six (6) months after the Initial Closing Date.
"Base Facility Commitment" means $75,000,000, plus such amount
as the Borrower may elect to add to the Base Facility Commitment in
accordance with Articles III or VIII.
"Base Facility Fee" means (i) 65 basis points for a Base
Facility Advance drawn from the Base Facility Commitment initially
available under this Agreement or converted from the Revolving
Commitment during the period ending on the date 12 months after the
Initial Closing Date, and (ii) for any Base Facility Advance drawn from
any portion of the Base Facility Commitment increased under Article
VIII or converted from any portion of the Revolving Commitment after
the period ending on the date 12 months after the Initial Closing Date,
the number of basis points determined at the time of such increase by
the Lender as the Base Facility Fee for such Base Facility Advances,
provided that in no event shall the Base Facility Fee for Base Facility
Advances converted from the Revolving Commitment (expressed as a number
of basis points) exceed the Revolving Facility Fee.
"Base Facility Note" means a promissory note, in the form
attached as Exhibit B to this Agreement, which will be issued by the
Borrower to the Lender, concurrently with the funding of each Base
Facility Advance, to evidence the Borrower's obligation to repay the
Base Facility Advance.
"Borrower" means Walden/Drever Operating Partnership, L.P., a
Delaware limited partnership.
4
<PAGE> 12
"Borrower Parties" means the REIT and the Borrower.
"Business Day" means a day on which Fannie Mae is open for
business.
"Calendar Quarter" means, with respect to any year, any of the
following three month periods: (a) January-February-March; (b)
April-May-June; (c) July-August- September; and (d)
October-November-December.
"Cap" means an interest rate cap provided pursuant to, and
satisfying the requirements of, Article XXI.
"Cap Rate" means, for each Mortgaged Property, a
capitalization rate selected by the Lender for use in determining the
Valuations.
"Cash Management Agreement" means that certain Cash Management
Security, Pledge and Assignment Agreement between the Borrower and the
Lender in the form attached as Exhibit C to this Agreement.
"Change of Control" means the earliest to occur of: (a) the
date on which the REIT ceases for any reason whatsoever to be the sole
general partner of Borrower, or (b) the date on which the REIT shall
cease for any reason to be the holder of 100% of the voting interest of
the Borrower or to own at least 40% of the equity, profits or other
limited partnership interests in, or Voting Equity Capital (or any
other Securities or ownership interests) of, the Borrower, or (c) the
date on which an Acquiring Person becomes (by acquisition,
consolidation, merger or otherwise), directly or indirectly, the
beneficial owner of more than 20% of the total Voting Equity Capital
(or of any other Securities or ownership interest) of the REIT then
outstanding, or (d) the replacement (other than solely by reason of
retirement at age sixty-five or older, death or disability) of more
than 50% (or such lesser percentage as is required for decision-making
by the board of directors or an equivalent governing body) of the
members of the board of directors or an equivalent governing body) of
the REIT over a one-year period from the directors who constituted such
board of directors at the beginning of such period and such replacement
shall not have been approved by a vote of at least a majority of the
board of directors of the REIT then still in office who either were
members of such board of directors at the beginning of such one-year
period or whose election as members of the board of directors was
previously so approved (it being understood and agreed that in the case
of any entity governed by a trustee, board of managers, or other
similar governing body, the foregoing clause (d) shall apply thereto by
substituting such governing body and the members thereof for the board
of directors and members thereof, respectively).
"Closing Date" means the Initial Closing Date and each date
after the Initial Closing Date on which the funding or other
transaction requested in a Request is required to take place.
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<PAGE> 13
"Collateral" means, the Mortgaged Properties and other
collateral from time to time or at any time encumbered by the Security
Instruments, or any other property securing any of the Borrower
Parties' obligations under the Loan Documents.
"Collateral Addition Fee" means, with respect to a Multifamily
Residential Property added to the Collateral Pool in accordance with
Article VI--
(i) 100 basis points, multiplied by
(ii) 65% of the Initial Valuation of the Multifamily
Residential Property, as determined by the Lender.
"Collateral Addition Loan Documents" means the Security
Instrument covering an Additional Mortgaged Property and any other
documents, instruments or certificates required by the Lender in
connection with the addition of the Additional Mortgaged Property to
the Collateral Pool pursuant to Article VI.
"Collateral Addition Request" shall have the meaning set forth
in Section 6.02(a).
"Collateral Pool" means the aggregate total of the Collateral.
"Collateral Release Request" shall have the meaning set forth
in Section 7.02(a).
"Collateral Release Property" shall have the meaning set forth
in Section 7.02(a).
"Commitment" means, at any time, the sum of the Base Facility
Commitment and the Revolving Facility Commitment.
"Complete Revolving Facility Termination" shall have the
meaning set forth in Section 9.02(a).
"Compliance Certificate" means a certificate of the Borrower
Parties in the form attached as Exhibit D to this Agreement.
"Conversion Documents" has the meaning specified in Section
3.07(b) hereof.
"Conversion Request" has the meaning specified in Section
3.07(a) hereof.
"Coupon Rate" means, with respect a Revolving Advance, the
imputed interest rate determined by the Lender pursuant to Section 2.05
for the Revolving Advance and, with respect a Base Facility Advance,
the interest rate determined by the Lender pursuant to Section 3.05 for
the Base Facility Advance.
"Coverage and LTV Tests" mean, for any specified date, each of
the following financial tests:
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<PAGE> 14
(a) The Aggregate Debt Service Coverage Ratio for the
Trailing 12 Month Period is not less than 135%.
(b) The Aggregate Debt Service Coverage Ratio for the
Trailing Three Month Period is not less than 125%.
(c) The Aggregate Loan to Value Ratio for the
Trailing 12 Month Period does not exceed 65%.
"Credit Facility" means the Base Facility and the Revolving
Facility.
"Credit Facility Expansion" means an increase in the
Commitment made in accordance with Article VIII.
"Credit Facility Expansion Loan Documents" means amendments to
the Revolving Facility Note or the Base Facility Note, as the case may
be, increasing the amount of such Note to the amount of the Commitment,
as expanded in accordance with Article VIII and amendments to the
Security Instruments, increasing the amount secured by such Security
Instruments to the amount of the Commitment.
"Credit Facility Expansion Request" shall have the meaning set
forth in Section 8.02(a).
"Credit Facility Termination Request" shall have the meaning
set forth in Section 10.02(a).
"Discount" means, with respect to any Revolving Advance, an
amount equal to the excess of --
(i) the face amount of the MBS backed by the Revolving
Advance, over
(ii) the Price of the MBS backed by the Revolving Advance.
"DUS Guide" means the Fannie Mae Multifamily Delegated
Underwriting and Servicing (DUS) Guide, as such Guide may be amended
from time to time, including exhibits to the DUS Guide and amendments
in the form of Lender Memos, Guide Updates and Guide Announcements
(and, if such Guide is no longer used by Fannie Mae, the term "DUS
Guide" as used in this Agreement means the Fannie Mae Multifamily
Negotiated Transactions Guide, as such Guide may be amended from time
to time, including amendments in the form of Lender Memos, Guide
Updates and Guide Announcements). All references to specific articles
and sections of, and exhibits to, the DUS Guide shall be deemed
references to such articles, sections and exhibits as they may be
amended, modified, updated, superseded, supplemented or replaced from
time to time.
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<PAGE> 15
"DUS Underwriting Requirements" means the overall underwriting
requirements for Multifamily Residential Properties as set forth in the
DUS Guide.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" means any event defined to be an "Event of
Default" under Article XVII.
"Facility Debt Service" means, as of any specified date, the
sum of:
(a) the amount of interest and principal amortization,
during the 12 month period immediately succeeding the
specified date, with respect to the Advances
Outstanding on the specified date, except that, for
these purposes:
(i) each Revolving Advance shall be deemed to
require level monthly payments of principal
and interest (at the Coupon Rate for the
Revolving Advance) in an amount necessary to
fully amortize the original principal amount
of the Revolving Advance over a 30-year
period, with such amortization deemed to
commence on the first day of the 12 month
period; and
(ii) each Base Facility Advance shall require
level monthly payments of principal and
interest (at the Coupon Rate for the Base
Facility Advance) in an amount necessary to
fully amortize the original principal amount
of the Base Facility Advance over a 30-year
period, with such amortization to commence
on the first day of the 12 month period; and
(b) the amount of the Standby Fees payable to the Lender
pursuant to Section 16.01 during such 12 month period
(assuming, for these purposes, that the Advances
Outstanding throughout the 12 month period are always
equal to the amount of Advances Outstanding on the
specified date).
Exhibit E to this Agreement contains an example of the determination of
the Facility Debt Service.
"Fannie Mae" means the federally-chartered and
stockholder-owned corporation organized and existing under the Federal
National Mortgage Association Charter Act, 12 U.S.C. ss. 1716 et seq.
"Financial Covenants" means the covenants set forth in Article
XV.
"Future Advance" means an Advance made after the Initial
Closing Date.
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<PAGE> 16
"Future Advance Request" shall have the meaning set forth in
Section 5.02.
"GAAP" means generally accepted accounting principles in the
United States in effect from time to time, consistently applied.
"General Conditions" shall have the meaning set forth in
Article XI.
"Geographical Diversification Requirements" means, prior to
the occurrence of an increase in the Commitment pursuant to Article
VIII, a requirement that the Collateral Pool consist of at least 35
Mortgaged Properties located in at least six states and, upon the
occurrence of any increase in the Commitment pursuant to Article VIII,
such requirements as to the geographical diversity of the Collateral
Pool as the Lender may determine and notify Borrower of at the time of
the increase. For purposes of this definition of Geographical
Diversification Requirements, each SMSA in Texas (up to a maximum of
four) shall be considered a state.
"Governmental Approval" means an authorization, permit,
consent, approval, license, registration or exemption from registration
or filing with, or report to, any Governmental Authority.
"Governmental Authority" means any court, board, agency,
commission, office or authority of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"Gross Revenues" means, for any specified period, with respect
to any Multifamily Residential Property, all income in respect of such
Multifamily Residential Property, as determined by the Lender in
accordance with the method described in paragraph 3 of Section 302.02
of Part V of the DUS Guide, except that for these purposes the
financial statements to be used need not be audited and paragraph (b)
of such paragraph 3 shall be taken into account in the Lender's
discretion.
"Guaranty" means the REIT's Guaranty.
"Hazardous Materials", with respect to any Mortgaged Property,
shall have the meaning given that term in the Security Instrument
encumbering the Mortgaged Property.
"Hazardous Materials Law", with respect to any Mortgaged
Property, shall have the meaning given that term in the Security
Instrument encumbering the Mortgaged Property.
"Hazardous Substance Activity" means any storage, holding,
existence, release, spill, leaking, pumping, pouring, injection,
escaping, deposit, disposal, dispersal, leaching, migration, use,
treatment, emission, discharge, generation, processing, abatement,
removal, disposition, handling or transportation of any Hazardous
Materials from, under, into or on any Mortgaged Property in violation
of
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<PAGE> 17
Hazardous Materials Laws, including the discharge of any Hazardous
Materials emanating from any Mortgaged Property in violation of
Hazardous Materials Laws through the air, soil, surface water,
groundwater or property and also including the abandonment or disposal
of any barrels, containers and other receptacles containing any
Hazardous Materials from or on any Mortgaged Property in violation of
Hazardous Materials Laws, in each case whether sudden or nonsudden,
accidental or nonaccidental.
"Hedge" means a Swap or a Cap satisfying the requirements of
Article XXI.
"Hedge Documents" has the meaning set forth in Section 21.02.
"Hedge Rate" has the meaning set forth in Section 21.02.
"Hedge Security Agreement" means, with respect to a Hedge, the
Interest Rate Hedge Security, Pledge and Assignment Agreement between
the Borrower and the Lender, for the benefit of the Lender, in the form
attached as Exhibit CC to this Agreement as such agreement may be
amended, modified, supplemented or restated from time to time.
"Impositions" means, with respect to any Mortgaged Property,
all (1) water and sewer charges which, if not paid, may result in a
lien on all or any part of the Mortgaged Property, (2) premiums for
fire and other hazard insurance, rent loss insurance and such other
insurance as Lender may require under any Security Instrument, (3)
Taxes, and (4) amounts for other charges and expenses which Lender at
any time reasonably deems necessary to protect the Mortgaged Property,
to prevent the imposition of liens on the Mortgaged Property, or
otherwise to protect Lender's interests.
"Indebtedness" means, with respect to any Person, as of any
specified date, without duplication, all:
(a) indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services (other than (i)
current trade liabilities incurred in the ordinary course of business
and payable in accordance with customary practices, and (ii) for
construction of improvements to property, if such person has a
non-contingent contract to purchase such property);
(b) other indebtedness of such Person which is
evidenced by a note, bond, debenture or similar instrument;
(c) obligations of such Person under any lease of
property, real or personal, the obligations of the lessee in respect of
which are required by GAAP to be capitalized on a balance sheet of the
lessee or to be otherwise disclosed as such in a note to such balance
sheet;
(d) obligations of such Person in respect of
acceptances (as defined in Article 3 of the Uniform Commercial Code of
the Commonwealth of Virginia) issued or created for the account of such
Person;
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<PAGE> 18
(e) liabilities secured by any Lien on any property
owned by such Person even though such Person has not assumed or
otherwise become liable for the payment of such liabilities; and
(f) as to any Person ("guaranteeing person"), any
obligation of (a) the guaranteeing person or (b) another Person
(including any bank under any letter of credit) to induce the creation
of a primary obligation (as defined below) with respect to which the
guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing, or in effect
guaranteeing, any indebtedness, lease, dividend or other obligation
("primary obligations") of any third person ("primary obligor") in any
manner, whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, to (1) purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (2) advance or supply funds for the purchase or
payment of any such primary obligation or to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (3) purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation (other than construction of
improvements to property, if the primary obligor has a non-contingent
contract to purchase such property), or (4) otherwise assure or hold
harmless the owner of any such primary obligation against loss in
respect of the primary obligation, provided, however, that the term
"Contingent Obligation" shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation of any guaranteeing person shall be
deemed to be the lesser of (i) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made and (ii) the maximum amount for which
such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Contingent Obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person
may be liable are not stated or determinable, in which case the amount
of such Contingent Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as
determined by Owner in good faith.
"Initial Advance" means the Revolving Advance made on the
Initial Closing Date in the amount of $175,000,000.
"Initial Advance Request" shall have the meaning set forth in
Section 5.01.
"Initial Closing Date" means the date of this Agreement.
"Initial Mortgaged Properties" means the Multifamily
Residential Properties described on Exhibit A to this Agreement and
which represent the Multifamily Residential Properties which are made
part of the Collateral Pool on the Initial Closing Date.
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<PAGE> 19
"Initial Security Instruments" means the Security Instruments
covering the Initial Mortgaged Properties.
"Initial Valuation" means, when used with reference to
specified Collateral, the Valuation initially performed for the
Collateral as of the date on which the Collateral was added to the
Collateral Pool. The Initial Valuation for each of the Initial
Mortgaged Properties is as set forth in Exhibit A to this Agreement.
"Insurance Policy" means, with respect to a Mortgaged
Property, the insurance coverage and insurance certificates evidencing
such insurance required to be maintained pursuant to the Security
Instrument encumbering the Mortgaged Property.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended. Each reference to the Internal Revenue Code shall be
deemed to include (a) any successor internal revenue law and (b) the
applicable regulations whether final, temporary or proposed.
"Lease" means any lease, any sublease or subsublease, license,
concession or other agreement (whether written or oral and whether now
or hereafter in effect) pursuant to which any Person is granted a
possessory interest in, or right to use or occupy all or any portion of
any space in any Mortgaged Property, and every modification, amendment
or other agreement relating to such lease, sublease, subsublease or
other agreement entered into in connection with such lease, sublease,
subsublease or other agreement, and every guarantee of the performance
and observance of the covenants, conditions and agreements to be
performed and observed by the other party thereto.
"Lender" shall have the meaning set forth in the first
paragraph of this Agreement, but shall refer to any replacement Lender
if the initial Lender is replaced pursuant to the terms of Section
19.04.
"Lien" means any mortgage, deed of trust, deed to secure debt,
security interest or other lien or encumbrance (including both
consensual and non-consensual liens and encumbrances).
"Loan Documents" means this Agreement, the Notes, the Advance
Confirmation Instruments for the Revolving Advances, the REIT's
Guaranty, the Security Documents, all documents executed by the
Borrower Parties pursuant to the General Conditions set forth in
Article XI of this Agreement and any other documents executed by a
Borrower Party from time to time in connection with this Agreement or
the transactions contemplated by this Agreement.
"Loan Year" means the 12-month period from the first day of
the first calendar month after the Initial Closing Date to and
including the last day before the first anniversary of the Initial
Closing Date, and each 12-month period thereafter.
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<PAGE> 20
"Material Adverse Effect" means, with respect to any
circumstance, act, condition or event of whatever nature (including any
adverse determination in any litigation, arbitration, or governmental
investigation or proceeding), whether singly or in conjunction with any
other event or events, act or acts, condition or conditions, or
circumstance or circumstances, whether or not related, a material
adverse change in or a materially adverse effect upon any of (a) the
business, operations, property or condition (financial or otherwise) of
any Borrower Party, (b) the present or future ability of any Borrower
Party to perform the Obligations for which it is liable, (c) the
validity, priority, perfection or enforceability of this Agreement or
any other Loan Document or the rights or remedies of the Lender under
any Loan Document, or (d) the value of, or the Lender's ability to have
recourse against, any Mortgaged Property.
"MBS" means a mortgage-backed security which is "backed" by an
Advance means that it is backed by an interest in the Notes and the
Collateral Pool securing the Notes, which interest permits the holder
of the MBS to participate in the Notes and the Collateral Pool to the
extent of such Advance.
"MBS Imputed Interest Rate" shall have the meaning set forth
in Section 2.05(a).
"MBS Issue Date" means the date on which a Fannie Mae MBS is
issued by Fannie Mae.
"MBS Delivery Date" means the date on which a Fannie Mae MBS
is delivered by Fannie Mae.
"MBS Pass-Through Rate" for a Base Facility Advance means the
interest rate as determined by the Lender (rounded to three places)
payable in respect of the Fannie Mae MBS issued pursuant to the MBS
Commitment backed by the Base Facility Advance as determined in
accordance with Section 4.01.
"Mortgaged Properties" means, collectively, the Additional
Mortgaged Properties and the Initial Mortgaged Properties, but
excluding each Collateral Release Property from and after the date of
the release of the Collateral Release Property from the Collateral
Pool.
"Multifamily Residential Property" means a residential
property, located in the United States, containing five or more
dwelling units in which not more than twenty percent (20%) of the net
rentable area is or will be rented to non-residential tenants, and
conforming to the requirements of Sections 201 and 203 of Part III of
the DUS Guide.
"Net Operating Income" means, for any specified period, with
respect to any Multifamily Residential Property, the aggregate net
income during such period equal to Gross Revenues during such period
less the aggregate Operating Expenses during such period. If a
Mortgaged Property is not owned by the Borrower for the entire
specified period, the Net Operating Income for the Mortgaged Property
for the time within the specified period during which the Mortgaged
Property was owned by the Borrower shall be the Mortgaged Property's
pro forma net operating income determined by the Lender in accordance
with the underwriting procedures set forth in Part III of the DUS
Guide.
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<PAGE> 21
"Note" means the Base Facility Note or the Revolving Facility
Note.
"Obligations" means the aggregate of the obligations of each
of the Borrower Parties under this Agreement and the other Loan
Documents.
"Operating Expenses" means, for any period, with respect to
any Multifamily Residential Property, all expenses in respect of the
Multifamily Residential Property, as determined by the Lender in
accordance with the method described in paragraph 3 of Section 302.02
of Part V of the DUS Guide, including replacement reserves under the
Replacement Reserve Agreements for the Mortgaged Properties.
"Organizational Certificate" means a certificate of the
Borrower Parties in the form attached as Exhibit F to this Agreement.
"Organizational Documents" means all certificates, instruments
and other documents pursuant to which an organization is organized or
operates, including but not limited to, (i) with respect to a
corporation, its articles of incorporation and bylaws, (ii) with
respect to a limited partnership, its limited partnership certificate
and partnership agreement, (iii) with respect to a general partnership
or joint venture, its partnership or joint venture agreement and (iv)
with respect to a limited liability company, its articles of
organization and operating agreement.
"Outstanding" means, when used in connection with promissory
notes, other debt instruments or Advances, for a specified date,
promissory notes or other debt instruments which have been issued, or
Advances which have been made, but have not been repaid in full as of
the specified date.
"Ownership Interests" means, with respect to any entity, any
ownership interests in the entity and any economic rights (such as a
right to distributions, net cash flow or net income) to which the owner
of such ownership interests is entitled.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permits" means all permits, or similar licenses or approvals
issued and/or required by an applicable Governmental Authority or any
Applicable Law in connection with the ownership, use, occupancy,
leasing, management, operation, repair, maintenance or rehabilitation
of any Mortgaged Property or any Borrower Party's business.
"Permitted Liens" means, with respect to a Mortgaged Property,
(i) the exceptions to title to the Mortgaged Property set forth in the
Title Insurance Policy for the Mortgaged
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<PAGE> 22
Property which are approved by the Lender, (ii) the Security Instrument
encumbering the Mortgaged Property, and (iii) any other Liens approved
by the Lender.
"Person" means an individual, an estate, a trust, a
corporation, a partnership, a limited liability company or any other
organization or entity (whether governmental or private).
"Potential Event of Default" means any event which, with the
giving of notice or the passage of time, or both, would constitute an
Event of Default.
"Price" means, with respect to an Advance, the proceeds of the
sale of the MBS backed by the Advance.
"Property" means any estate or interest in any kind of
property or asset, whether real, personal or mixed, and whether
tangible or intangible.
"Rate Confirmation Form" shall have the meaning set forth in
Section 4.01(c).
"Rate Setting Date" shall have the meaning set forth in
Section 4.01(b).
"Rate Setting Form" shall have the meaning set forth in
Section 4.01(b).
"REIT" means Walden Residential Properties, Inc., a Maryland
corporation.
"REIT's Guaranty" means that certain Guaranty executed by the
REIT and attached as Exhibit G to this Agreement.
"Release Fee" means, with respect to each Mortgaged Property
released from the Collateral Pool pursuant to Article VII, a fee equal
to $15,000.
"Release Price" shall have the meaning set forth in Section
7.02(c).
"Rent Roll" means, with respect to any Multifamily Residential
Property, a rent roll prepared and certified by the owner of the
Multifamily Residential Property, on Fannie Mae Form 4243, as set forth
in Exhibit III-3 of the DUS Guide, or on another form approved by the
Lender and containing substantially the same information as Form 4243
requires.
"Replacement Reserve Agreement" means a Replacement Reserve
and Security Agreement, reasonably required by the Lender, and
completed in accordance with the requirements of the DUS Guide.
"Request" means a Collateral Addition Request, a Collateral
Release Request, a Conversion Request, a Credit Facility Expansion
Request, a Credit Facility Termination Request, a Future Advance
Request, an Initial Advance Request or a Revolving Facility Termination
Request.
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<PAGE> 23
"Revolving Advance" means a loan made by the Lender to the
Borrower under the Revolving Facility Commitment.
"Revolving Credit Endorsement" means an endorsement to a Title
Insurance Policy which contains substantially the same coverages, and
is subject to substantially the same or fewer exceptions (or such other
exceptions as the Lender may approve), as the form attached as Exhibit
H to this Agreement.
"Revolving Facility" means the agreement of the Lender to make
Advances to the Borrower pursuant to Section 2.01.
"Revolving Facility Availability Period" means the period
beginning on the Initial Closing Date and ending on the 90th day before
the applicable Revolving Facility Termination Date.
"Revolving Facility Commitment" means an aggregate amount of
$175,000,000, of which $75,000,000 shall be available for a period of
five years (the "Five Year Revolving Facility") and be evidenced by the
Revolving Facility Note in the form attached hereto as Exhibit I-1, and
of which $100,000,000 shall be available for a period of ten years (the
"Ten Year Revolving Facility") and be evidenced by the Revolving
Facility Note in the form attached hereto as Exhibit I-2, plus such
amount as the Borrower may elect to add to the Revolving Facility
Commitment in accordance with Article VIII, and less such amount as the
Borrower may elect to convert from the Revolving Facility Commitment to
the Base Facility Commitment in accordance with Article III and less
such amount by which the Borrower may elect to reduce the Revolving
Facility Commitment in accordance with Article IX.
"Revolving Facility Fee" means (i) for the Five Year Revolving
Facility and the first five years of the term of the Ten Year Revolving
Facility, 80 basis points per annum (0.80%) for a Revolving Advance
drawn from the Revolving Commitment initially available under this
Agreement, (ii) for the second five years of the term of the Ten Year
Revolving Facility, the number of basis points per annum determined by
the Lender as the Revolving Facility Fee for such period, which fee
shall be set by Lender not less than 30 days prior to the commencement
of such period, and (iii) for any Revolving Advance drawn from any
portion of the Revolving Commitment increased under Article VIII, the
number of basis points per annum determined at the time of such
increase by the Lender as the Revolving Facility Fee for such Revolving
Advances.
"Revolving Facility Notes" means, collectively, the promissory
notes, in the forms attached as Exhibit I-1 and Exhibit I-2 to this
Agreement, which have been issued by the Borrower to the Lender to
evidence the Borrower's obligation to repay Revolving Advances.
"Revolving Facility Termination Date" means, with respect to a
Five Year Revolving Facility, the last day of the fifth Loan Year and,
with respect to the Ten Year Revolving Facility, the last day of the
tenth Loan Year.
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<PAGE> 24
"Revolving Facility Termination Fee" means, with respect to a
reduction in the Revolving Facility Commitment pursuant to Articles IX
or X, an amount equal to the product obtained by multiplying--
(1) the reduction in the Revolving Facility Commitment, by
(2) 25 basis points, by
(3) the present value factor calculated using the following
formula:
-n
1 - (1 + r)
---------------
r
[r = Yield Rate
n = the number of years, and any fraction thereof, remaining
between the Closing Date for the reduction in the
Revolving Facility Commitment and the Revolving Facility
Termination Date]
The "Yield Rate" means the rate on the Three-Month LIBOR on the second
Business Day preceding, as applicable,(x) the date of the reduction in
the Revolving Facility Commitment, (y) the date of the Complete
Revolving Facility Termination or (z) the date of Lender's acceleration
of the unpaid principal balance of the Revolving Facility Note.
"Security" means a "security" as set forth in Section 2(1) of
the Securities Act of 1933, as amended.
"Security Documents" means the Security Instruments, the Cash
Management Agreement, the Replacement Reserve Agreements and any other
documents executed by a Borrower Party from time to time to secure any
of the Borrower Parties' obligations under the Loan Documents.
"Security Instrument" means, for each Mortgaged Property, a
separate Multifamily Mortgage, Deed of Trust or Deed to Secure Debt,
Assignment of Leases and Rents and Security Agreement given by the
Borrower to or for the benefit of the Lender to secure the obligations
of the Borrower Parties under the Loan Documents. With respect to each
Mortgaged Property owned by the Borrower, the Security Instrument shall
be substantially in the form published by Fannie Mae for use in the
state in which the Mortgaged Property is located. The amount secured by
the Security Instrument shall be equal to the Commitment in effect from
time to time.
"Senior Management" means (i) the Chief Executive Officer,
Chairman of the Board, President, Chief Financial Officer and Chief
Operating Officer of the REIT, (ii) the Chief Executive Officer,
Chairman of the Board, President, Chief Financial Officer and Chief
Operating Officer of any advisor to the Borrower or the REIT and (iii)
any other individuals with responsibility for any of the functions
typically performed in a corporation by the officers described in
clauses (i) and (ii).
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<PAGE> 25
"Single-Purpose" means, with respect to a Person which is any
form of partnership or corporation or limited liability company, that
such Person at all times since its formation:
(i) has been a duly formed and existing partnership,
corporation or limited liability company, as the case
may be;
(ii) has been duly qualified in each jurisdiction in which
such qualification was at such time necessary for the
conduct of its business;
(iii) has complied with the provisions of its
organizational documents and the laws of its
jurisdiction of formation in all respects;
(iv) has observed all customary formalities regarding its
partnership or corporate existence, as the case may
be;
(v) has accurately maintained its financial statements,
accounting records and other partnership or corporate
documents separate from those of any other Person;
(vi) has not commingled its assets or funds with those of
any other Person;
(vii) has accurately maintained its own bank accounts and
books and accounts separate from those of any other
Person;
(viii) has paid its own liabilities from its own separate
assets;
(ix) has identified itself in all dealings with creditors
(other than trade creditors in the ordinary course of
business and creditors for the construction of
improvements to property on which such Person has a
non-contingent contract to purchase such property)
under its own name and as a separate and distinct
entity;
(x) has not identified itself as being a division or a
part of any other Person;
(xi) has not identified any other Person as being a
division or a part of such Person;
(xii) has been adequately capitalized in light of its
contemplated business operations;
(xiii) has not assumed, guaranteed or become obligated for
the liabilities of any other Person (except in
connection with the Credit Facility or the
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<PAGE> 26
endorsement of negotiable instruments in the ordinary
course of business) or held out its credit as being
available to satisfy the obligations of any other
Person;
(xiv) has not acquired obligations or securities of any
other Person;
(xv) in relation to the Borrower, except for loans made in
the ordinary course of business to the REIT or other
Affiliates, has not made loans or advances to any
other Person;
(xvi) has not entered into and was not a party to any
transaction with any Affiliate of such Person, except
in the ordinary course of business and on terms which
are no less favorable to such Person than would be
obtained in a comparable arm's-length transaction
with an unrelated third party;
(xvii) has conducted its own business in its own name;
(xviii) has paid the salaries of its own employees, if any,
and maintained a sufficient number of employees in
light of its contemplated business operations;
(xix) has allocated fairly and reasonably any overhead for
shared office space;
(xx) has not pledged its assets for the benefit of any
other entity or made any loans or advances to any
person or entity;
(xxi) has not engaged in a non-exempt prohibited
transaction described in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code;
(xxii has not acquired obligations or securities of its
partners or Affiliates; and
(xxiii) has corrected any known misunderstanding regarding
its separate identity.
"SMSA" means a "standard metropolitan statistical area," as
defined from time to time by the United States Office of Management and
Budget.
"Standby Fee" means, for any month, an amount equal to the
product obtained by multiplying: (i) 1/12, by (ii) 25 basis points, by
(iii) the Unused Capacity for such month.
"Subsequent Hedge" has the meaning set forth in Section 21.02
"Subsidiary" means, when used with reference to a specified
Person, (i) any Person that, directly or indirectly, through one or
more intermediaries, is controlled by the specified Person, (ii) any
Person of which the specified Person is, directly or indirectly, the
owner of more than 50% of any voting class of Ownership Interests or
(iii) any Person (A) which is a partnership and (B) of which the
specified Person is a general partner and owns more than 50% of the
partnership interests.
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<PAGE> 27
"Surveys" means the as-built surveys of the Mortgaged
Properties prepared in accordance with the requirements of Section 113
of the DUS Guide, or otherwise approved by the Lender.
"Swap" means an interest rate swap provided pursuant to, and
satisfying the requirements or, Article XXI.
"Taxes" means all taxes, assessments, vault rentals and other
charges, if any, general, special or otherwise, including all
assessments for schools, public betterments and general or local
improvements, which are levied, assessed or imposed by any public
authority or quasi-public authority, and which, if not paid, will
become a lien, on the Mortgaged Properties.
"Term of this Agreement" shall be determined as provided in
Section 23.10 to this Agreement.
"Termination Date" means, at any time during which Base
Facility Advances are Outstanding, the latest maturity date for any
Base Facility Advance Outstanding, and, at any time during which Base
Facility Advances are not Outstanding, the Revolving Facility
Termination Date.
"Three-Month LIBOR" means the London interbank offered rate
for three-month U.S. dollar deposits, as such rate is reported in The
Wall Street Journal. In the event that a rate is not published for the
Three-Month LIBOR, then the nearest equivalent duration London
interbank offered rate for U.S. Dollar deposits shall be selected at
Lender's reasonable discretion. If the publication of Three-Month LIBOR
is discontinued, Lender shall determine such rate from another source
selected by Lender..
"Tie-In Endorsement" means an endorsement to a Title Insurance
Policy which contains substantially the same coverages, and is subject
to substantially the same or fewer exceptions (or such other exceptions
as the Lender may approve), as the form attached as Exhibit J to this
Agreement.
"Title Company" means Chicago Title Insurance Company.
"Title Insurance Policies" means the mortgagee's policies of
title insurance issued by the Title Company from time to time relating
to each of the Security Instruments, conforming to the requirements of
Section 111 of the DUS Guide, together with such endorsements,
coinsurance, reinsurance and direct access agreements with respect to
such policies as the Lender may, from time to time, consider necessary
or appropriate, whether or not required by the DUS Guide, including
Revolving Credit Endorsements, if available, and Tie-In Endorsements,
if available, and with a limit of liability under the policy (subject
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<PAGE> 28
to the limitations contained in Sections 6(a)(i) and 6(a)(iii) of the
Stipulations and Conditions of the policy) equal to the Commitment.
"Trailing Three Month Period" means, for any specified date,
the three month period ending with the last day of the most recent
Calendar Quarter for which financial statements have been delivered by
the REIT to the Lender pursuant to Section 13.04(d).
"Trailing 12 Month Period" means, for any specified date, the
12 month period ending with the last day of the most recent Calendar
Quarter for which financial statements have been delivered by the REIT
to the Lender pursuant to Sections 13.04(c) and (d).
"Transfer" means (i) a sale, assignment, lease, pledge,
transfer or other disposition (whether voluntary or by operation of
law) of, or the granting or creating of a lien, encumbrance or security
interest in, any estate, rights, title or interest in a Multifamily
Residential Property, or any portion thereof, or (ii) a sale,
assignment, pledge, transfer or other disposition of any interest in
Borrower or the REIT, or (iii) the issuance or other creation of new
ownership interests in Borrower or the REIT or any other partnership,
corporation, real estate investment trust or other entity that has a
direct or indirect ownership interest in Borrower or the REIT, or (iv)
a merger or consolidation of Borrower or the REIT into another entity
or of another entity into Borrower or the REIT, or (v) the
reconstitution of Borrower or the REIT from one type of entity to
another type of entity, or (vi) the amendment, modification or any
other change in the governing instrument or instruments of such Person
which has the effect of changing the relative powers, rights,
privileges, voting rights or economic interests of the ownership
interests in such Person. "Transfer" does not include (i) a conveyance
of the Mortgaged Property at a judicial or non-judicial foreclosure
sale under any Security Instrument or (ii) the Mortgaged Property
becoming part of a bankruptcy estate by operation of law under the
United States Bankruptcy Code.
"Unused Capacity" means, for any month, the sum of the daily
average during such month of the undrawn amount of the Revolving
Facility Commitment available under Article II for the making of
Revolving Advances, without regard to any unclosed Requests or to the
fact that a Request must satisfy conditions precedent.
"Valuation" means, for any specified date, with respect to a
Multifamily Residential Property, (a) if an Appraisal of the
Multifamily Residential Property was more recently obtained than a Cap
Rate for the Multifamily Residential Property, the Appraised Value of
such Multifamily Residential Property, or (b) if a Cap Rate for the
Multifamily Residential Property was more recently obtained than an
Appraisal of the Multifamily Residential Property, the value derived by
dividing--
(i) the Net Operating Income of such Multifamily
Residential Property for the Trailing 12 Month
Period, by
(ii) the most recent Cap Rate determined by the Lender.
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Notwithstanding the foregoing, any Valuation for a Multifamily
Residential Property calculated for a date occurring before the first
anniversary of the date on which the Multifamily Residential Property
becomes a part of the Collateral Pool shall equal the Appraised Value
of such Multifamily Residential Property, unless the Lender determines
that changed market or property conditions warrant that the value be
determined as set forth in the preceding sentence.
"Voting Equity Capital" means Securities or partnership
interests of any class or classes, the holders of which are ordinarily,
in the absence of contingencies, entitled to elect a majority of the
board of directors (or Persons performing similar functions).
ARTICLE II
THE REVOLVING FACILITY COMMITMENT
SECTION 2.01 Revolving Facility Commitment. Subject to the terms, conditions and
limitations of this Agreement, the Lender agrees to make Revolving Advances to
the Borrower from time to time during the applicable Revolving Facility
Availability Period. The aggregate unpaid principal balance of the Revolving
Advances Outstanding at any time shall not exceed the Revolving Facility
Commitment. Subject to the terms, conditions and limitations of this Agreement,
the Borrower may re-borrow any amounts under the Revolving Facility which it has
previously borrowed and repaid under the Revolving Facility.
SECTION 2.02 Requests for Revolving Advances. The Borrower shall request a
Revolving Advance by giving the Lender an Initial Advance Request in accordance
with Section 5.01 or a Future Advance Request in accordance with Section 5.02,
as applicable.
SECTION 2.03 Maturity Date of Revolving Advances. Regardless of the date on
which a Revolving Advance is made, the maturity date of each Revolving Advance
shall be a date selected by the Borrower in its Request for the Revolving
Advance, which date shall be the last day of a calendar month occurring:
(a) no earlier than the date which completes three full months
after the Closing Date for the Revolving Advance; and
(b) no later than the date which completes nine full months
after the Closing Date for the Revolving Advance.
For these purposes, a year shall be deemed to consist of 12 30-day months. For
example, the date which completes three full months after September 15 shall be
December 15; and the date which completes three full months after November 30
shall be February 28.
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SECTION 2.04 Interest on Revolving Facility Advances.
(a) Discount. Each Revolving Advance shall be a discount loan.
The original stated principal amount of a Revolving Advance shall be the sum of
the Price of the Revolving Advance and the Discount of the Revolving Advance.
The Price and Discount of each Revolving Advance shall be determined in
accordance with the procedures set out in Section 4.01. The proceeds of the
Revolving Advance made available by the Lender to the Borrower will equal the
Price of the Revolving Advance. The Borrower shall pay to the Lender, in advance
of the Lender making a Revolving Advance requested by the Borrower, the entire
Discount for the Revolving Advance.
(b) Partial Month Interest. Notwithstanding anything to the
contrary in this Section, if a Revolving Advance is not made on the first day of
a calendar month, and the MBS Issue Date for the MBS backed by the Revolving
Advance is the first day of the month following the month in which the Revolving
Advance is made, the Borrower shall pay interest on the original stated
principal amount of the Revolving Advance for the partial month period
commencing on the Closing Date for the Revolving Advance and ending on the last
day of the calendar month in which the Closing Date occurs, at a rate per annum
equal to the greater of (i) the Coupon Rate for the Revolving Advance as
determined in accordance with Section 2.05(b) and (ii) a rate determined by the
Lender, based on the Lender's cost of funds and approved in advance, in writing,
by the Borrower, pursuant to the procedures mutually agreed upon by the Borrower
and the Lender.
(c) Revolving Facility Fee. In addition to paying the Discount
and the partial month interest, if any, the Borrower shall pay monthly
installments of the Revolving Facility Fee to the Lender on account of each
Revolving Advance over the whole number of calendar months the MBS backed by the
Revolving Advance is to run from the MBS Issue Date to the maturity date of the
MBS. The Revolving Facility Fee shall be payable in advance, in accordance with
the terms of the Revolving Facility Note. The first installment shall be payable
on or prior to the Closing Date for the Revolving Advance and shall apply to the
first full calendar month of the MBS backed by the Revolving Advance. Subsequent
installments shall be payable on the first day of each calendar month,
commencing on the first day of the second full calendar month of such MBS, until
the maturity of such MBS. Each installment of the Revolving Facility Fee shall
be in an amount equal to the product of multiplying (i) the Revolving Facility
Fee, by (ii) the amount of the Revolving Advance, by (iii) 1/12.
SECTION 2.05 Coupon Rates for Revolving Advances. The Coupon Rate for a
Revolving Advance shall be a rate, per annum, as follows:
(a) The Coupon Rate for a Revolving Advance shall equal the
sum of (i) an interest rate as determined by the Lender (rounded to three
places) payable for the Fannie Mae MBS pursuant to the MBS Commitment backed by
the Revolving Advance ("MBS Imputed Interest Rate") and (ii) the Revolving
Facility Fee.
(b) Notwithstanding anything to the contrary in this Section,
if a Revolving Advance is not made on the first day of a calendar month, and the
MBS Issue Date for the MBS
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backed by the Revolving Advance is the first day of the month following the
month in which the Revolving Advance is made, the Coupon Rate for such Revolving
Advance for such period shall be the greater of (i) the rate for the Revolving
Advance determined in accordance with subsection (a) of this Section and (ii) a
rate determined by the Lender, based on the Lender's cost of funds, and approved
in advance, in writing, by the Borrower, pursuant to procedures mutually agreed
upon by the Borrower and the Lender.
SECTION 2.06 Revolving Facility Notes. The obligation of the Borrower to repay
the Revolving Advances will be evidenced by the Revolving Facility Notes. The
Revolving Facility Notes shall be payable to the order of the Lender and shall
be made in the aggregate amount of the Revolving Facility Commitment.
ARTICLE III
THE BASE FACILITY COMMITMENT
SECTION 3.01 Base Facility Commitment. Subject to the terms, conditions and
limitations set forth in this Article, the Lender agrees to make Base Facility
Advances to the Borrower from time to time during the Base Facility Availability
Period. The aggregate original principal of the Base Facility Advances shall not
exceed the Base Facility Commitment. The borrowing of a Base Facility Advance
shall permanently reduce the Base Facility Commitment by the original principal
amount of the Base Facility Advance. The Borrower may not re-borrow any part of
the Base Facility Advance which it has previously borrowed and repaid.
SECTION 3.02 Requests for Base Facility Advances. The Borrower shall request a
Base Facility Advance by giving the Lender an Initial Advance Request in
accordance with Section 5.01 or a Future Advance Request in accordance with
Section 5.02, as applicable.
SECTION 3.03 Maturity Date of Base Facility Advances; Amortization Period. The
maturity date of each Base Facility Advance shall be the 10th anniversary of the
Initial Closing Date. The principal of each Base Facility Advance shall be
amortized on a 30-year schedule during the Amortization Period.
SECTION 3.04 Interest on Base Facility Advances.
(a) Advances. Each Base Facility Advance shall bear interest
at a rate, per annum, equal to the sum of (i) the MBS Pass-Through Rate
determined for such Base Facility Advance and (ii) the Base Facility Fee.
(b) Partial Month Interest. Notwithstanding anything to the
contrary in this Section, if a Base Facility Advance is not made on the first
day of a calendar month, and the MBS Issue Date for the MBS backed by the Base
Facility Advance is the first day of the month following the month in which the
Base Facility Advance is made, the Borrower shall pay interest on the original
stated principal amount of the Base Facility Advance for the partial month
period commencing on the Closing Date for the Base Facility Advance and ending
on the last day of the
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calendar month in which the Closing Date occurs at a rate, per annum, equal to
the greater of (i) the interest rate for the Base Facility Advance described in
the first sentence of this Section and (ii) a rate determined by the Lender,
based on the Lender's cost of funds, and approved in advance, in writing, by the
Borrower, pursuant to procedures mutually agreed upon by the Borrower and the
Lender.
SECTION 3.05 Coupon Rates for Base Facility Advances. The Coupon Rate for a Base
Facility Advance shall be the rate of interest applicable to such Base Facility
Advance pursuant to Section 3.04.
SECTION 3.06 Base Facility Note. The obligation of the Borrower to repay a Base
Facility Advance will be evidenced by a Base Facility Note. The Base Facility
Notes shall be payable to the order of the Lender and shall be made in the
original principal amount of each Base Facility Advance.
SECTION 3.07 Conversion of Commitment from Revolving Facility Commitment to Base
Facility Commitment. The Borrower shall have the right, from time to time during
the Base Facility Availability Period, to convert all or a portion of a
Revolving Facility Commitment to the Base Facility Commitment, in which event
the Revolving Facility Commitment shall be reduced by, and the Base Facility
Commitment shall be increased by, the amount of the conversion.
(a) Request. In order to convert all or a portion of the Revolving
Facility Commitment to the Base Facility Commitment, the Borrower shall deliver
a written request for a conversion ("Conversion Request") to the Lender, in the
form attached as Exhibit K to this Agreement. Each Conversion Request shall be
accompanied by a designation of the amount of the conversion and a designation
of any Revolving Advances Outstanding which will be prepaid on or before the
Closing Date for the conversion as required by Section 3.08(c).
(b) Closing. If none of the limitations contained in Section 3.08 is
violated, and all conditions contained in Section 3.09 are satisfied, the Lender
shall permit the requested conversion, at a closing to be held at offices
designated by the Lender on a Closing Date selected by the Lender, and occurring
within 30 Business Days after the Lender's receipt of the Conversion Request (or
on such other date to which the Borrower and the Lender may agree), by executing
and delivering, all at the sole cost and expense of the Borrower, an amendment
to this Agreement, in the form attached as Exhibit L to this Agreement, together
with an amendment to each Security Document and other applicable Loan Documents,
in form and substance satisfactory to the Lender, reflecting the change in the
Base Facility Commitment and the Revolving Facility Commitment. The documents
and instruments referred to in the preceding sentence are referred to in this
Article as the "Conversion Documents."
SECTION 3.08 Limitations on Right to Convert. The right of the Borrower to
convert all or a portion of the Revolving Facility Commitment to the Base
Facility Commitment is subject to the following limitations:
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(a) Closing Date. The Closing Date shall occur during the Base Facility
Availability Period.
(b) Minimum Request. Each Request for a conversion shall be in the
minimum amount of $25,000,000.
(c) Obligation to Prepay Revolving Advances. If, after the conversion,
the aggregate unpaid principal balance of all Revolving Advances Outstanding
will exceed the Revolving Facility Commitment, the Borrower shall be obligated
to prepay, as a condition precedent to the conversion, an amount of Revolving
Advances Outstanding which is at least equal to the amount of the excess. The
Borrower shall also pay any prepayment premium payable on account of such
prepayment in accordance with the terms of the Revolving Facility Note.
SECTION 3.09 Conditions Precedent to Conversion. The conversion of all or a
portion of the Revolving Facility Commitment to the Base Facility Commitment is
subject to the satisfaction of the following conditions precedent on or before
the Closing Date:
(a) After giving effect to the requested conversion, the
Coverage and LTV Tests will be satisfied;
(b) Prepayment by the Borrower in full of any Revolving
Advances Outstanding which the Borrower has designated for payment, together
with any associated prepayment premiums and other amounts due with respect to
the prepayment of such Revolving Advances;
(c) The receipt by the Lender of an endorsement to each Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date and showing no additional exceptions to coverage other than the
exceptions shown on the Initial Closing Date and other exceptions approved by
the Lender;
(d) Receipt by the Lender of one or more counterparts of each
Conversion Document, dated as of the Closing Date, signed by each of the parties
(other than the Lender) who is a party to such Conversion Document; and
(e) The satisfaction of all applicable General Conditions set
forth in Article XI.
SECTION 3.10 Defeasance. Base Facility Advances are not prepayable at any time,
provided that, notwithstanding the foregoing, Borrower may prepay any Base
Facility Advance during the last ninety (90) days of the term of such Base
Facility Advance and provided that Base Facility Advances may be defeased
pursuant to the terms and conditions of this Section.
(a) Conditions. Subject to Section 3.10(d), Borrower shall
have the right to obtain the release of Mortgaged Properties from the
lien of the related Security Instruments (and all collateral derived
from such Mortgage Properties, including assignment of leases, fixture
filings and other documents and instruments evidencing a lien or
security interest in Borrower's assets [except the Substitute
Collateral] shall be released) upon the satisfaction of all of the
following conditions:
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(1) Defeasance Notice. Borrower shall give Lender a
notice (the "Defeasance Notice", in the manner specified in
Section 3.10(g)(4), on a form provided by Lender, specifying a
Business Day (the "Defeasance Closing Date") which Borrower
desires to consummate the Defeasance. The Defeasance Closing
Date specified by Borrower may not be more than 45 calendar
days, nor less than 30 calendar days, after the date on which
the Defeasance Notice is received by Lender. Borrower shall
also specify in the Defeasance Notice the name, address and
telephone number of Borrower for notices pursuant to Section
3.10(g)(4). The form Defeasance Notice provided by Lender
specifies: (i) which Mortgaged Properties Borrower proposes to
be released, provided that any Mortgaged Property securing
only Base Facility Advances must be among the Mortgaged
Properties proposed to be released; (ii) the name, address and
telephone number of Lender for notices pursuant to Section
3.10(g)(4); (iii) the account(s) to which payments to Lender
are to be made; (iv) whether a Fannie Mae Investment Security
will be offered for use as the Substitute Collateral and, if
not, that U.S. Treasury Securities will be the Substitute
Collateral; (v) whether the Successor Borrower will be
designated by Lender or Borrower; and (vi) if a Fannie Mae
Investment Security is offered for use as the Substitute
Collateral, the Defeasance Notice shall also include the
amount of the Defeasance Commitment Fee.
Any applicable Defeasance Commitment fee must be paid by
Borrower and received by Lender no later than the date and
time when Lender receives the Defeasance Notice from Borrower.
(2) Confirmation. After Lender has confirmed that the
Defeasance is then permitted as provided in Section 3.10(d),
and has confirmed that the terms of the Defeasance Notice are
acceptable to Lender, Lender shall, with reasonable
promptness, notify Borrower of such confirmation by signing
the Defeasance Notice, attaching the Annual Yields for the
Mortgage Payments beginning on the first day of the second
calendar month after the Defeasance Closing Date and ending on
the Stated Maturity Date (if a Fannie Mae Investment Security
is offered as Substitute Collateral) and transmitting the
signed Defeasance Notice to Borrower pursuant to Section
3.10(g)(4). If, after Lender has notified Borrower of its
confirmation in accordance with the foregoing, Lender does not
receive the Defeasance Commitment Fee within five (5) Business
Days after the Defeasance Notice Effective Date, then
Borrower's right to obtain Defeasance pursuant to that
Defeasance Notice shall terminate.
(3) Substitute Collateral. On or before the
Defeasance Closing Date, Borrower shall deliver to Lender a
pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion (the "Pledge
Agreement"), creating a first priority perfected security
interest in favor of Lender in substitute
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collateral constituting an Investment Security (the
"Substitute Collateral"). The Pledge Agreement shall provide
Borrower's authorization and direction that all interest on,
principal of and other amounts payable with respect to the
Substitute Collateral shall be paid directly to Lender to be
applied to Mortgage Payments due under the Base Facility Note
subject to Defeasance. If the Substitute Collateral is issued
in a certificated form and Borrower has possession of the
certificate, the certificate shall be endorsed (either on the
certificate or on a separate writing attached thereto) by
Borrower as directed by Lender and delivered to Lender. If the
Substitute Collateral is issued in an uncertificated form, or
in a certificated form but Borrower does not have possession
of the certificate, Borrower shall execute and deliver to
Lender all documents and instruments required by Lender to
create in Lender's favor a first priority perfected security
interest in such Substitute Collateral, including a securities
account control agreement or any other instrument or document
required to perfect a security interest in each Substitute
Collateral.
(4) Closing Documents. Borrower shall deliver to
Lender on or before the Defeasance Closing Date the documents
described in Section 3.10(b).
(5) Amounts Payable by Borrower. On or before the
Defeasance Closing Date, Borrower shall pay to Lender an
amount equal to the sum of:
(A) the Next Scheduled P&I Payment;
(B) all other sums then due and payable
under the Base Facility Note subject
to Defeasance, the Security
Instruments related to the Mortgaged
Properties to be released; and
(C) all costs and expenses incurred by
Lender or Servicer in connection
with the Defeasance, including the
fees and disbursements of Lender's
or Servicer's legal counsel.
(6) Defeasance Deposit. If a Fannie Mae Investment
Security will be the Substitute Collateral, then, on or before
3:00 p.m., Washington, D.C. time, on the Defeasance Closing
Date, Borrower shall pay the Defeasance Deposit (reduced by
the Defeasance Commitment Fee) to Lender to be used by Lender
to purchase the Fannie Mae Investment Security as Borrower's
agent.
(7) Covenants, Representations and Warranties. On the
Defeasance Closing Date, all of the covenants of the Borrower
Parties set forth in Articles XIII, XIV and XV of this
Agreement and all of the representations and warranties of the
Borrower Parties set forth in Article XII of this Agreement
are true and correct in all material respects.
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(8) Geographical Diversification. If, as a result of
the Defeasance, Lender determines that the geographical
diversification of the Collateral Pool is compromised (whether
or not the Geographical Diversification Requirement is met),
Lender may require that Borrower add or substitute Multifamily
Residential Properties to the Collateral Pool in a number and
having a valuation required to restore the Geographical
Diversification of the Collateral Pool to a level at least as
diverse as before the Defeasance.
(b) Closing Documents. The documents required to be delivered
to Lender on or before the Defeasance Closing Date pursuant to Section
3.10(a)(4) are:
(1) an opinion of counsel for Borrower, in form and
substance satisfactory to Lender, to the effect that Lender
has a valid and perfected lien and security interest of first
priority in the Substitute Collateral and the principal and
interest payable thereunder;
(2) an opinion of counsel for Borrower, in form and
substance satisfactory to Lender, that the Defeasance,
including both Borrower's granting to Lender of a lien and
security interest in the Substitute Collateral and the
assignment and assumption by Successor Borrower, and each of
them, when considered in combination and separately, are not
subject to avoidance under any applicable federal or state
laws, including Sections 547 and 548 of the U.S. Bankruptcy
Code;
(3) if a Fannie Mae Investment Security is not used
as Substitute Collateral, and unless waived by Lender, a
certificate in form and substance satisfactory to Lender,
issued by an independent certified public accountant, or
financial institution, approved by Lender, to the effect that
the Substitute Collateral will generate the Scheduled
Defeasance Payments;
(4) unless waived by Lender, an opinion of counsel
for Borrower in form and substance satisfactory to Lender,
that the Defeasance will not result in a "sale or exchange" of
any Base Facility Note within the meaning of Section 1001(c)
of the Internal Revenue Code and the temporary and final
regulations promulgated thereunder;
(5) such other opinions, certificates, documents or
instruments as Lender may reasonably request; and
(7) three counterparts of the executed Assignment and
Assumption Agreement described in Section 3.10(e).
(c) Release. Upon Borrower's compliance with the requirements
of Sections 3.10(a)(1) through (7), the Mortgaged Properties shall be
released from the lien of the Security Instruments (and all collateral
derived from such Mortgaged Properties, including assignments of
leases, fixture filings and other documents and instruments evidencing
a lien or security interest in Borrower's assets [except the Substitute
Collateral] shall be released). Lender shall, with reasonable
promptness, execute and deliver to Borrower, at Borrower's
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cost and expense, any additional documents reasonably requested by
Borrower in order to evidence or confirm the release of Lender's liens
and security interests described in the immediately preceding sentence.
(d) Defeasance Not Allowed. Borrower shall not have the right
to obtain Defeasance at any of the following times:
(1) before the third anniversary of the date of the
relevant Base Facility Note;
(2) after the expiration of the Defeasance Period; or
(3) after Lender has accelerated the maturity of the
unpaid principal balance of, accrued interest on, and other
amounts payable under, any Note pursuant to Paragraph 6 of
such Note.
(e) Assignment and Assumption. Upon Borrower's compliance with
the requirements of Section 3.10(a), Borrower shall assign all its
obligations and rights under the relevant Base Facility Note, together
with the Substitute Collateral, to a successor entity (the "Successor
Borrower") designated by Lender or, if not so designated by Lender,
designated by Borrower and acceptable to Lender in its sole discretion.
Borrower and Successor Borrower shall execute and deliver to Lender an
assignment and assumption agreement on a form provided by Lender (the
"Assignment and Assumption Agreement"). The Assignment and Assumption
Agreement shall provide for (i) the transfer and assignment by Borrower
to Successor Borrower of the Substitute Collateral, subject to the lien
and security interest in favor of Lender, (ii) the assumption by
Successor Borrower of all liabilities and obligations of Borrower under
the relevant Base Facility Note, and (iii) the release by Lender of
Borrower from all liabilities and obligations under the relevant Base
Facility Note. Lender shall, at Borrower's request and expense, execute
and deliver releases, reconveyances and security interest terminations
with respect to the released Mortgage Properties and all other
collateral held by Lender (except the Defeasance Deposit). The
Assignment and Assumption Agreement shall be executed by Lender with a
counterpart to be returned by Lender to Borrower and Successor Borrower
thereafter; provided, however, in all events that it shall not be a
condition of Defeasance that the Assignment and Assumption Agreement be
executed by Lender, or any Successor Borrower that is designated by
Lender.
(f) Agent. If the Defeasance Notice provides that Lender will
make available a Fannie Mae Investment Security for purchase by
Borrower for use as the Substitute Collateral, Borrower hereby
authorizes Lender to use, and appoints Lender as its agent and
attorney-in-fact for the purpose of using, the Defeasance Deposit
(including any portion thereof that constitutes the Defeasance
Commitment Fee) to purchase a Fannie Mae Investment Security.
(g) Administrative Provisions.
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(1) Fannie Mae Security Liquidated Damages. If
Borrower timely pays the Defeasance Commitment Fee, and Lender
and Borrower timely transmit a signed facsimile copy of the
Defeasance Notice pursuant to Section 3.10(a)(2), but Borrower
fails to perform its other obligations under Sections 3.10(a)
and Section 3.10(e), Lender shall have the right to retain the
Defeasance Commitment Fee as liquidated damages for Borrower's
default, as Lender's sole and exclusive remedy, and, except as
provided in Section 3.10(g)(2), Borrower shall be released
from all further obligations under this Section 3.10. Borrower
acknowledges that, from and after the date on which Lender has
executed the Defeasance Notice under Section 3.10(a)(2) and
Borrower has delivered the Defeasance Commitment Fee, Lender
will incur financing costs in arranging and preparing for the
purchase of the Substitute Collateral and in arranging and
preparing for the release of the Mortgaged Properties from the
lien of the Security Instruments in reliance on the executed
Defeasance Notice. Borrower agrees that the Defeasance
Commitment Fee represents a fair and reasonable estimate,
taking into account all circumstances existing on the date of
this Agreement, of the damages Lender will incur by reason of
Borrower's default.
(2) Third Party Costs. In the event that the
Defeasance is not consummated on the Defeasance Closing Date
for any reason, Borrower agrees to reimburse Lender and
Servicer for all third party costs and expenses (other than
financing costs covered by Section 4.0l(g)(1) above),
including attorneys' fees and expenses, incurred by Lender in
reliance on the executed Defeasance Notice, within 10 Business
Days after Borrower receives a written demand for payment,
accompanied by a statement, in reasonable detail, of Lender's
and Servicer's third party costs and expenses.
(3) Payments. All payments required to be made by
Borrower to Lender or Servicer pursuant to this Section 3.10
shall be made by wire transfer of immediately available finds
to the account(s) designated by Lender or Servicer, as the
case may be, in the Defeasance Notice.
(4) Notice. The Defeasance Notice delivered pursuant
to this Section 4.0l(g)(4) shall be in writing and shall be
sent by telecopier or facsimile machine which automatically
generates a transmission report that states the date and time
of the transmission, the length of the document transmitted
and the telephone number of the recipient's telecopier or
facsimile machine (or shall be sent by any distribution media,
whether currently existing or hereafter developed, including
electronic mail and internet distribution, as approved by
Lender). Any notice so sent addressed to the parties at their
respective addresses designated in the Defeasance Notice
pursuant to Section 3.10(a), shall be deemed to have been
received on the date and time indicated on the transmission
report of recipient. To be effective, Borrower must send the
Defeasance Notice (as described above) so that Lender receives
the Defeasance Notice no earlier than 11:00 a.m. and no later
than 3:00 p.m. Washington, D.C. time on a Business Day.
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(h) Definitions. For purposes of this Section 3.10, the
following terms shall have the following meanings:
(1) The term "Annual Yield" means the yield for the
theoretical zero coupon U.S. Treasury Security as calculated
from the current "on-the-run" U.S. Treasury yield curve with a
term to maturity that most closely matches the Applicable
Defeasance Term for the Mortgage Payment, as published by
Fannie Mae on MORNET(R) (or in an alternative electronic
format) at 2:00 p.m. Washington, D.C. time on the Business Day
that Lender receives the Defeasance Notice in accordance with
Section 3.10(g)(4). If the publication of yields on MORNET(R)
is unavailable, Lender shall determine yields from another
source determined by Lender.
(2) The term "Applicable Defeasance Term" means, in
the case of each Mortgage Payment, the number of calendar
months, based on a year containing 12 calendar months with 30
days each, in the period beginning on the first day of the
first calendar month after the Defeasance Closing Date to the
date on which such Mortgage Payment is due and payable.
(3) The term "Defeasance" means the transaction in
which all (but not less than all) of the Mortgaged Properties
are released from the lien of the Security Instruments and
Lender receives, as substitute collateral, a valid and
perfected lien and security interest of first priority in the
Substitute Collateral and the principal and interest payable
thereunder.
(4) The term "Defeasance Commitment Fee" means the
amount specified in the Defeasance Notice as Borrower's good
faith deposit to ensure performance of its obligations under
this Section, which shall equal two percent (2%) of the
aggregate unpaid principal balance of the Base Facility Note
subject to Defeasance as of the Defeasance Notice Effective
Date, if the Successor Borrower is designated by Borrower
under Section 3.10(e), or one percent (1%) of the aggregate
unpaid principal balance of the Base Facility Note subject to
Defeasance as of the Defeasance Notice Effective Date if the
Successor Borrower is designated by Lender under Section
3.10(e). No Defeasance Commitment Fee will be applicable if
U.S. Treasury Securities are specified in the Defeasance
Notice as the applicable Investment Security.
(5) The term "Defeasance Deposit" means an amount
equal to the sum of the present value of each Mortgage Payment
that becomes due and payable during the period beginning on
the first day of the second calendar month after the
Defeasance Closing Date and ending on the Stated Maturity
Date, where the present value of each Mortgage Payment is
determined using the following formula:
the amount of the Mortgage Payment
--------------------------------------------------
n
(1 + (the Annual Yield/12)
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For this purpose, the last Mortgage Payment due and
payable on the Stated Maturity Date shall include the
amounts that would constitute the unpaid principal
balance of the Base Facility Note subject to
Defeasance on the Stated Maturity Date if all prior
Mortgage Payments were paid on their due dates and
"n" shall equal the Applicable Defeasance Term.
(6) The term "Defeasance Period" means the period
beginning on the earliest permitted date determined under
Section 3.10(d)(l) and ending on the 90th day before the
Stated Maturity Date.
(7) The term "Defeasance Notice Effective Date" means
the date on which Lender provides confirmation of the
Defeasance Notice pursuant to Section 3.10(a)(2).
(8) The term "Fannie Mae Investment Security" means
any bond, debenture, note, participation certificate or other
similar obligation issued by Fannie Mae in connection with the
Defeasance which provides for Scheduled Defeasance Payments
beginning in the second calendar month after the Defeasance
Closing Date.
(9) The term "Investment Security" means:
(A) If offered by Lender pursuant to the
Defeasance Notice, a Fannie Mae Investment Security
purchased in the manner described in Sections
3.10(a)(6) and 3.10(f), and
(B) If no Fannie Mae Investment Security is
offered by Lender pursuant to the Defeasance Notice,
U.S. Treasury Securities.
(10) The term "Mortgage Payment" means the amount of
each regularly scheduled monthly payment of principal and
interest due and payable under the Base Facility Note subject
to Defeasance during the period beginning on the first day of
the second calendar month after the Defeasance Closing Date
and ending on the Stated Maturity Date, and the amount that
would constitute the aggregate unpaid principal balance of the
Base Facility Note subject to Defeasance on the Stated
Maturity Date if all prior Mortgage Payments were paid on
their due dates.
(11) The term "Next Scheduled P&I Payment" means an
amount equal to the monthly installment of principal and
interest due under the Base Facility Note subject to
Defeasance on the first day of the first calendar month after
the Defeasance Closing Date.
(12) The term "Scheduled Defeasance Payments" means
payments prior and as close as possible to (but in no event
later than) the successive scheduled dates on which Mortgage
Payments are required to be paid under the Base Facility Note
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subject to Defeasance and in amounts equal to or greater than
the scheduled Mortgage Payments due and payable on such dates
under the Base Facility Note subject to Defeasance.
(13) The term "Stated Maturity Date" means the
Maturity Date specified in the Base Facility Note subject to
Defeasance determined without regard to Lender's exercise of
any right of acceleration of the Base Facility Note subject to
Defeasance.
(14) The term "U.S. Treasury Securities" means
direct, non-callable and non-redeemable obligations of the
United States of America which provided for Scheduled
Defeasance Payments beginning in the second calendar month
after the Defeasance Closing Date.
ARTICLE IV
RATE SETTING FOR THE ADVANCES
SECTION 4.01 Rate Setting for an Advance. Rates for an Advance shall be set in
accordance with the following procedures:
(a) Preliminary, Nonbinding Quote. At the Borrower's request
the Lender shall quote to the Borrower an estimate of the MBS Pass-Through Rate
(for a proposed Base Facility Advance) or MBS Imputed Interest Rate (for a
proposed Revolving Advance) for a Fannie Mae MBS backed by a proposed Advance.
The Lender's quote shall be based on (i) a solicitation of bids from
institutional investors selected by the Lender and (ii) the proposed terms and
amount of the Advance selected by the Borrower. The quote shall not be binding
upon the Lender.
(b) Rate Setting. If the Borrower satisfies all of the
conditions to the Lender's obligation to make the Advance in accordance with
Article V, then the Borrower may propose a MBS Pass-Through Rate (for a Base
Facility Advance) or MBS Imputed Interest Rate (for a Revolving Advance) by
submitting to the Lender by facsimile transmission a completed and executed
document, in the form attached as Exhibit M to this Agreement ("Rate Setting
Form"), before 1:00 p.m. Washington, D.C. time on any Business Day ("Rate
Setting Date"). The Rate Setting Form contains various factual certifications
required by the Lender and specifies:
(i) for a Revolving Advance, the amount, term, MBS
Issue Date, Revolving Facility Fee, the proposed maximum Coupon Rate
("Maximum Annual Coupon Rate") and Closing Date for the Advance; and
(ii) for a Base Facility Advance, the amount, term,
MBS Issue Date, Base Facility Fee, Maximum Annual Coupon Rate, Price
(which will be in a range between 99-1/2 and 100-1/2), Yield
Maintenance Period, Yield Rate Security, Amortization Period and
Closing Date for the Advance.
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(c) Rate Confirmation. Within one Business Day after receipt
of the completed and executed Rate Setting Form, the Lender shall solicit bids
from institutional investors selected by the Lender based on the information in
the Rate Setting Form and, provided the actual Coupon Rate (if the low bid were
accepted) would be at or below the Maximum Annual Coupon Rate, shall obtain a
commitment ("MBS Commitment") for the purchase of a Fannie Mae MBS having the
bid terms described in the related Rate Setting Form, and shall immediately
deliver to the Borrower by facsimile transmission a completed document, in the
form attached as Exhibit N to this Agreement ("Rate Confirmation Form"). The
Rate Confirmation Form will confirm:
(i) for a Revolving Advance, the amount, term, MBS
Issue Date, MBS Delivery Date, MBS Imputed Interest Rate, Revolving
Facility Fee, Coupon Rate, Discount, Price, and Closing Date for the
Advance; and
(ii) for a Base Facility Advance, the amount, term,
MBS Issue Date, MBS Delivery Date, MBS Pass-Through Rate, Base Facility
Fee, Coupon Rate, Price, Yield Maintenance Period, Specified U.S.
Treasury Security, Amortization Period and Closing Date for the
Advance.
SECTION 4.02 Advance Confirmation Instrument for Revolving Advances. On or
before the Closing Date for a Revolving Advance, the Borrower shall execute and
deliver to the Lender an instrument ("Advance Confirmation Instrument"), in the
form attached as Exhibit O to this Agreement, confirming the amount, term, MBS
Issue Date, MBS Delivery Date, MBS Imputed Interest Rate, Revolving Facility
Fee, Coupon Rate, Discount, Price and Closing Date for the Advance, and the
Borrower's obligation to repay the Advance in accordance with the terms of the
Notes and this Agreement. Upon the funding of the Revolving Advance, the Lender
shall note the date of funding in the appropriate space at the foot of the
Advance Confirmation Instrument and deliver a copy of the completed Advance
Confirmation Instrument to the Borrower. The Lender's failure to do so shall not
invalidate the Advance Confirmation Instrument or otherwise affect in any way
any obligation of the Borrower to repay Revolving Advances in accordance with
the Advance Confirmation Instrument, the Revolving Facility Note or the other
Loan Documents, but is merely meant to facilitate evidencing the date of funding
and to confirm that the Advance Confirmation Instrument is not effective until
the date of funding.
SECTION 4.03 Breakage and other Costs. In the event that the Lender obtains an
MBS Commitment and the Lender fails to fulfill the MBS Commitment because the
Advance is not made (for a reason other than the default of the Lender to make
the Advance), the Borrower shall pay all breakage and other costs, fees and
damages incurred by the Lender in connection with its failure to fulfill the MBS
Commitment.
ARTICLE V
MAKING THE ADVANCES
SECTION 5.01 Initial Advance. The Borrower may make a request ("Initial Advance
Request") for the Lender to make the Initial Advance. If all conditions
contained in this Section are satisfied
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<PAGE> 43
on or before the Closing Date for the Initial Advance, the Lender shall make the
Initial Advance on the Initial Closing Date or on another date selected by the
Borrower and approved by the Lender. The obligation of the Lender to make the
Initial Advance is subject to the following conditions precedent:
(a) Receipt by the Lender of the Initial Advance Request;
(b) Receipt by the Lender of one or more counterparts of the
Cash Management Agreement, dated as of the Initial Closing Date;
(c) Receipt by the Lender of one or more counterparts of the
Hedge Security Agreement, dated as of the Initial Closing Date, signed by the
Borrower;
(d) The delivery to the Title Company, for filing and/or
recording in all applicable jurisdictions, of all applicable Loan Documents
required by the Lender, including duly executed and delivered original copies of
the Revolving Facility Note, a Base Facility Note, the REIT's Guaranty, the
Initial Security Instruments covering the Initial Mortgaged Properties and UCC-1
Financing Statements covering the portion of the Collateral comprised of
personal property, and other appropriate instruments, in form and substance
satisfactory to the Lender and in form proper for recordation, as may be
necessary in the opinion of the Lender to perfect the Liens created by the
applicable Security Instruments and any other Loan Documents creating a Lien in
favor of the Lender, and the payment of all taxes, fees and other charges
payable in connection with such execution, delivery, recording and filing;
(e) If the Advance is a Revolving Advance, the receipt by the
Lender of the first installment of Revolving Facility Fee for the Revolving
Advance and the entire Discount for the Revolving Advance payable by the
Borrower pursuant to Section 2.04;
(f) The receipt by the Lender of the Initial Origination Fee
pursuant to Section 16.02(a), the Initial Due Diligence Fee pursuant to Section
16.03(a), all legal fees and expenses payable pursuant to Section 16.04(a) and
all legal fees and expenses payable in connection with the Initial Advance
pursuant to Section 16.04(b); and
(g) The satisfaction of all applicable General Conditions set
forth in Article XI.
SECTION 5.02 Future Advances. In order to obtain a Future Advance, the Borrower
may from time to time deliver a written request for a Future Advance ("Future
Advance Request") to the Lender, in the form attached as Exhibit P to this
Agreement. Each Future Advance Request shall be accompanied by (a) a designation
of the amount of the Future Advance requested, and (b) a designation of the
maturity date of the Advance. Each Future Advance Request shall be in the
minimum amount of $3,000,000. If all conditions contained in Section 5.03 are
satisfied, the Lender shall make the requested Future Advance, at a closing to
be held at offices designated by the Lender on a Closing Date selected by the
Lender, and occurring on a date selected by the Borrower, which date shall be
not more than three (3) Business Days, after the Lender's receipt of the Future
Advance Request and the Borrower's receipt of the Rate Confirmation Form (or on
such
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<PAGE> 44
other date to which the Borrower and the Lender may agree). The Lender reserves
the right to require that the Borrower post a deposit at the time the MBS
Commitment is obtained as an additional condition to the Lender's obligation to
make the Future Advance.
SECTION 5.03 Conditions Precedent to Future Advances. The obligation of the
Lender to make a requested Future Advance is subject to the following conditions
precedent:
(a) The receipt by the Lender of a Future Advance Request;
(b) The Lender has delivered the Rate Setting Form for the
Future Advance to the Borrower;
(c) After giving effect to the requested Future Advance, the
Coverage and LTV Tests will be satisfied;
(d) If the Advance is a Base Facility Advance, delivery of a
Base Facility Note, duly executed by the Borrower, in the amount of the Advance,
reflecting all of the terms of the Base Facility Advance;
(e) If the Advance is a Revolving Advance, delivery of the
Advance Confirmation Instrument, duly executed by the Borrower;
(f) For any Title Insurance Policy not containing a Revolving
Credit Endorsement, the receipt by the Lender of an endorsement to the Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date and showing no additional exceptions to coverage other than the
exceptions shown on the Initial Closing Date and other exceptions approved by
the Lender;
(g) If the Advance is a Revolving Advance, the receipt by the
Lender of the first installment of Revolving Facility Fee for the Revolving
Advance and the entire Discount for the Revolving Advance payable by the
Borrower pursuant to Section 2.04;
(h) The receipt by the Lender of all legal fees and expenses
payable by the Borrower in connection with the Future Advance pursuant to
Section 16.04(b); and
(i) The satisfaction of all applicable General Conditions set
forth in Article XI.
ARTICLE VI
ADDITIONS OF COLLATERAL
SECTION 6.01 Right to Add Collateral. Subject to the terms and conditions of
this Article, the Borrower shall have the right, from time to time during the
Term of this Agreement, to add Multifamily Residential Properties to the
Collateral Pool in accordance with the provisions of this Article.
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SECTION 6.02 Procedure for Adding Collateral. The procedure for adding
Collateral set forth in this Section 6.02 shall apply to all additions of
Collateral in connection with this Agreement, including but not limited to
additions of Collateral in connection with substitutions of Collateral and
expansion of the Credit Facility.
(a) Request. The Borrower may, not more than once each
Calendar Quarter, deliver a written request ("Collateral Addition Request") to
the Lender, in the form attached as Exhibit Q to this Agreement, to add one or
more Multifamily Residential Properties to the Collateral Pool. Each Collateral
Addition Request shall be accompanied by the following:
(i) The information relating to the proposed
Additional Mortgaged Property required by the form attached as Exhibit
R to this Agreement ("Collateral Addition Description Package"), as
amended from time to time to include information required under the DUS
Guide; and
(ii) The payment of all Additional Collateral Due
Diligence Fees pursuant to Section 16.03(b).
(b) Additional Information. The Borrower shall promptly
deliver to the Lender any additional information concerning the proposed
Additional Mortgaged Property that the Lender may from time to time reasonably
request.
(c) Underwriting. The Lender shall evaluate the proposed
Additional Mortgaged Property, and shall make underwriting determinations as to
the Aggregate Debt Service Coverage Ratios for the Trailing 12 Month Period and
the Aggregate Loan to Value Ratio for the Trailing 12 Month Period applicable to
the Collateral Pool, on the basis of the lesser of (i) the acquisition price of
the proposed Additional Mortgaged Property or (ii) a Valuation made with respect
to the proposed Additional Mortgaged Property, and otherwise in accordance with
Fannie Mae's DUS Underwriting Requirements. Within 30 days after receipt of (i)
the Collateral Addition Request for the Additional Mortgaged Property and (ii)
all reports, certificates and documents set forth on Exhibit S to this
Agreement, including a zoning analysis undertaken in accordance with Section 206
of the DUS Guide, the Lender shall notify the Borrower whether or not it shall
consent to the addition of the proposed Additional Mortgaged Property to the
Collateral Pool and, if it shall so consent, shall set forth the Aggregate Debt
Service Coverage Ratios for the Trailing 12 Month Period and the Aggregate Loan
to Value Ratio for the Trailing 12 Month Period which it estimates shall result
from the addition of the proposed Additional Mortgaged Property to the
Collateral Pool. If the Lender declines to consent to the addition of the
proposed Additional Mortgaged Property to the Collateral Pool, the Lender shall
include, in its notice, a brief statement of the reasons for doing so. Within
five Business Days after receipt of the Lender's notice that it shall consent to
the addition of the proposed Additional Mortgaged Property to the Collateral
Pool, the Borrower shall notify the Lender whether or not it elects to cause the
proposed Additional Mortgaged Property to be added to the Collateral Pool. If
the Borrower fails to respond within the period of five Business Days, it shall
be conclusively deemed to have elected not to cause the proposed Additional
Mortgaged Property to be added to the Collateral Pool.
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(d) Closing. If, pursuant to subsection (c), the Lender
consents to the addition of the proposed Additional Mortgaged Property to the
Collateral Pool, the Borrower timely elects to cause the proposed Additional
Mortgaged Property to be added to the Collateral Pool and all conditions
contained in Section 6.03 are satisfied, the Lender shall permit the proposed
Additional Mortgaged Property to be added to the Collateral Pool, at a closing
to be held at offices designated by the Lender on a Closing Date selected by the
Lender, and occurring within 30 Business Days after the Lender's receipt of the
Borrower's election (or on such other date to which the Borrower and the Lender
may agree), provided that in any Calendar Quarter, the Closing Date for any
addition of an Additional Mortgaged Property to the Collateral Pool shall be on
the same day as the Closing Date of any release or substitution pursuant to
Article VII of this Agreement and any increase in the Credit Facility pursuant
to Article VIII of this Agreement.
SECTION 6.03 Conditions Precedent to Addition of an Additional Mortgaged
Property to the Collateral Pool. The addition of an Additional Mortgaged
Property to the Collateral Pool on the Closing Date applicable to the Additional
Mortgaged Property is subject to the satisfaction of the following conditions
precedent:
(a) The receipt by the Lender of the Collateral Addition Fee
and all legal fees and expenses payable by the Borrower in connection with the
Collateral Addition pursuant to Section 16.04(b);
(b) The delivery to the Title Company, with fully executed
instructions directing the Title Company to file and/or record in all applicable
jurisdictions, all applicable Collateral Addition Loan Documents required by the
Lender, including duly executed and delivered original copies of any Security
Instruments and UCC-1 Financing Statements covering the portion of the
Additional Mortgaged Property comprised of personal property, and other
appropriate documents, in form and substance satisfactory to the Lender and in
form proper for recordation, as may be necessary in the opinion of the Lender to
perfect the Lien created by the applicable additional Security Instrument, and
any other Collateral Addition Loan Document creating a Lien in favor of the
Lender, and the payment of all taxes, fees and other charges payable in
connection with such execution, delivery, recording and filing;
(c) If required by the Lender, amendments to the Notes and the
Security Instruments, reflecting the addition of the Additional Mortgaged
Property to the Collateral Pool and, as to any Security Instrument so amended,
the receipt by the Lender of an endorsement to the Title Insurance Policy
insuring the Security Instrument, amending the effective date of the Title
Insurance Policy to the Closing Date and showing no additional exceptions to
coverage other than the exceptions shown on the Initial Closing Date and other
exceptions approved by the Lender;
(d) If the Title Insurance Policy for the Additional Mortgaged
Property contains a Tie-In Endorsement, an endorsement to each other Title
Insurance Policy containing a Tie-In Endorsement, adding a reference to the
Additional Mortgaged Property; and
(e) The satisfaction of all applicable General Conditions set
forth in Article XI.
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ARTICLE VII
RELEASES OF COLLATERAL
SECTION 7.01 Right to Obtain Releases of Collateral. Subject to the terms and
conditions of this Article, the Borrower shall have the right to obtain a
release of Collateral from the Collateral Pool in accordance with the provisions
of this Article.
SECTION 7.02 Procedure for Obtaining Releases of Collateral.
(a) Request. In order to obtain a release of Collateral from
the Collateral Pool, the Borrower may, not more than once each Calendar Quarter,
deliver a written request for the release of Collateral from the Collateral Pool
("Collateral Release Request") to the Lender, in the form attached as Exhibit T
to this Agreement. The Collateral Release Request shall not result in a
termination of all or any part of the Credit Facility. The Borrower may only
terminate all or any part of the Credit Facility by delivering a Revolving
Facility Termination Request or Credit Facility Termination Request pursuant to
Articles IX or X. The Collateral Release Request shall be accompanied by (and
shall not be effective unless it is accompanied by) the name, address and
location of the Mortgaged Property to be released from the Collateral Pool
("Collateral Release Property").
(b) Closing. If all conditions contained in Section 7.03 are
satisfied, the Lender shall cause the Collateral Release Property to be released
from the Collateral Pool, at a closing to be held at offices designated by the
Lender on a Closing Date selected by the Lender, and occurring within 30 days
after the Lender's receipt of the Collateral Release Request (or on such other
date to which the Borrower and the Lender may agree, provided that in any
Calendar Quarter, the Closing Date for any release shall be on the same day as
the Closing Date of any addition of an Additional Mortgaged Property to the
Collateral Pool pursuant to Article VI of this Agreement or any increase in the
Credit Facility pursuant to Article VIII of this Agreement), by executing and
delivering, and causing all applicable parties to execute and deliver, all at
the sole cost and expense of the Borrower, instruments, in the form customarily
used by the Lender for releases in the jurisdiction governing the perfection of
the security interest being released, releasing the applicable Security
Instrument as a Lien on the Collateral Release Property, and UCC-3 Termination
Statements terminating the UCC-1 Financing Statements perfecting a Lien on the
portion of the Collateral Release Property comprised of personal property and
such other documents and instruments as the Borrower may reasonably request
evidencing the release of the applicable Collateral from any lien securing the
Obligations (including a termination of any restriction on the use of any
accounts relating to the Collateral Release Property) and the release and return
to the Borrower of any and all escrowed amounts relating thereto. The
instruments referred to in the preceding sentence are referred to in this
Article as the "Collateral Release Documents."
(c) Release Price. The "Release Price" for each Mortgaged
Property means the greater of (i) 125% of the Allocable Facility Amount for the
Mortgaged Property to be released and (ii) the amount, if any, of Advances
Outstanding which are required to be repaid by the Borrower to the Lender in
connection with the proposed release of the Mortgaged Property from the
Collateral
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Pool, so that, immediately after the release, the Coverage and LTV Tests will be
satisfied and neither the Aggregate Debt Service Coverage Ratios for the
Trailing 12 Month Period will be reduced nor the Aggregate Loan to Value Ratio
for the Trailing 12 Month Period will be increased as a result of such release.
Notwithstanding the foregoing, in the case of releases of Mortgaged Properties
on the Revolving Facility Termination Date with respect to the Five Year
Revolving Facility, the Release Price shall be (ii) above. In addition to the
Release Price, the Borrower shall pay to the Lender all associated prepayment
premiums and other amounts due under the Notes and any Advance Confirmation
Instruments evidencing the Advances being repaid. Lender shall determine the
Allocable Facility Amount for each Mortgaged Property on the Initial Closing
Date and on or before March 1 of each year (commencing March 1, 2000) during the
term of this Agreement (the "Determination Date"). Once determined by Lender as
aforesaid, the Allocable Facility Amount for each Mortgaged Property shall be
promptly disclosed to Borrower by Lender and shall remain in effect until the
next Determination Date.
(d) Application of Release Price. The Release Price shall be
applied against the Revolving Advances Outstanding until there are no further
Revolving Advances Outstanding, and thereafter shall be held by the Lender (or
its appointed collateral agent) as substituted Collateral ("Substituted Cash
Collateral"), in accordance with a security agreement and other documents in
form and substance acceptable to the Lender (or, at the Borrower's option, may
be applied against the prepayment of Base Facility Advances, so long as the
prepayment is permitted under the Base Facility Note for the Base Facility
Advance). Any portion of the Release Price held as Substituted Cash Collateral
may be released if, immediately after giving effect to the release, each of the
conditions set forth in Section 7.03(a) below shall have been satisfied. If, on
the date on which the Borrower pays the Release Price, Revolving Advances are
Outstanding but are not then due and payable, the Lender shall hold the payments
as additional Collateral for the Credit Facility, until the next date on which
Revolving Advances are due and payable, at which time the Lender shall apply the
amounts held by it to the amounts of the Revolving Advances due and payable.
SECTION 7.03 Conditions Precedent to Release of Collateral Release Property from
the Collateral. The obligation of the Lender to release a Collateral Release
Property from the Collateral Pool by executing and delivering the Collateral
Release Documents on the Closing Date, are subject to the satisfaction of the
following conditions precedent on or before the Closing Date:
(a) Immediately after giving effect to the requested release
the Coverage and LTV Tests will be satisfied, and in the case of any
substitution effected pursuant to Section 7.04 of this Agreement, the Coverage
and LTV Tests are not adversely affected after giving effect to the proposed
substitution;
(b) Receipt by the Lender of the Release Price;
(c) Receipt by the Lender of the Release Fee for the
Collateral Release Property and all legal fees and expenses payable by the
Borrower in connection with the release pursuant to Section 16.04(b);
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(d) Receipt by the Lender on the Closing Date of one or more
counterparts of each Collateral Release Document, dated as of the Closing Date,
signed by each of the parties (other than the Lender) who is a party to such
Collateral Release Document;
(e) If required by the Lender, amendments to the Notes and the
Security Instruments, reflecting the release of the Collateral Release Property
from the Collateral Pool and, as to any Security Instrument so amended, the
receipt by the Lender of an endorsement to the Title Insurance Policy insuring
the Security Instrument, amending the effective date of the Title Insurance
Policy to the Closing Date and showing no additional exceptions to coverage
other than the exceptions shown on the Initial Closing Date and other exceptions
approved by the Lender;
(f) If the Lender determines the Collateral Release Property
to be one phase of a project, and one or more other phases of the project are
Mortgaged Properties which will remain in the Collateral Pool ("Remaining
Mortgaged Properties"), the Lender's determination that the Remaining Mortgaged
Properties can be operated separately from the Collateral Release Property and
any other phases of the project which are not Mortgaged Properties. In making
this determination, the Lender shall evaluate whether the Remaining Mortgaged
Properties comply with the terms of Sections 203 and 208 of the DUS Guide,
which, as of the date of this Agreement, require, among other things, that a
phase which constitutes collateral for a loan made in accordance with the terms
of the DUS Guide (i) have adequate ingress and egress to existing public
roadways, either by location of the phase on a dedicated, all-weather road or by
access to such a road by means of a satisfactory easement, (ii) have access
which is sufficiently attractive and direct from major thoroughfares to be
conducive to continued good marketing, (iii) have a location which is not (A)
inferior to other phases, (B) such that inadequate maintenance of other phases
would have a significant negative impact on the phase, and (C) such that the
phase is visible only after passing through the other phases of the project and
(iv) comply with such other issues as are dictated by prudent practice;
(g) Receipt by the Lender of endorsements to the Tie-In
Endorsements of the Title Insurance Policies, if deemed necessary by the Lender,
to reflect the release;
(h) Receipt by the Lender on the Closing Date of a writing,
dated as of the Closing Date, signed by the Borrower Parties, in the form
attached as Exhibit U to this Agreement, pursuant to which the Borrower Parties
confirm that their obligations under the Loan Documents are not adversely
affected by the release of the Collateral Release Property from the Collateral;
(i) The remaining Mortgaged Properties in the Collateral Pool
shall satisfy the then-existing Geographical Diversification Requirements; and
(j) The satisfaction of all applicable General Conditions set
forth in Article XI.
SECTION 7.04 Substitutions. Subject to the terms, conditions and limitations of
Articles VI and VII and provided that the Valuation of the Multifamily
Residential Property sought to be added to the Collateral Pool equals or exceeds
the Valuation of the Mortgaged Property sought to be released from the
Collateral Pool, the Borrower may simultaneously add a Multifamily Residential
Property
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to the Collateral Pool and release a Mortgaged Property from the Collateral
Pool, thereby effecting a substitution of Collateral, provided that Sections
7.02(c), 7.02(d) and 7.03(b) shall not apply to a substitution of Collateral.
ARTICLE VIII
EXPANSION OF CREDIT FACILITY
SECTION 8.01 Right to Increase Commitment. Subject to the terms, conditions and
limitations of this Article, the Borrower shall have the right, at any time or
from time to time during the Base Facility Availability Period, to increase the
Base Facility Commitment, the Revolving Facility Commitment, or both. The
Borrower's right to increase the Commitment is subject to the following
limitations:
(a) Commitment. After giving effect to the proposed increase,
the Commitment (without regard to the actual amount of Revolving Advances
Outstanding, but taking into account the aggregate original principal amount of
all Base Facility Advances made under this Agreement to the Closing Date) shall
not exceed $350,000,000.
(b) Minimum Request. Each Request for an increase in the
Commitment shall be in the minimum amount of $25,000,000.
(c) Terms and Conditions. The terms and conditions of this
Agreement shall apply to any increase in the Commitment closed not later than
the date 12 months after the Initial Closing Date. The terms and conditions
(including pricing) applicable to any increase in the Commitment after the date
12 months after the Initial Closing Date shall be acceptable to Lender in its
discretion.
SECTION 8.02 Procedure for Obtaining Increases in Commitment.
(a) Request. In order to obtain an increase in the Commitment,
the Borrower shall deliver a written request for an increase (a "Credit Facility
Expansion Request") to the Lender, in the form attached as Exhibit V to this
Agreement. Each Credit Facility Expansion Request shall be accompanied by the
following:
(i) A designation of the amount of the proposed
increase;
(ii) A designation of the increase in the Base
Facility Credit Commitment and the Revolving Facility Credit
Commitment;
(iii) A request that the Lender inform the Borrower
of any change in the Geographical Diversification Requirements; and
(iv) A request that the Lender inform the Borrower of
the Base Facility Fee and the Revolving Facility Fee to apply to
Advances drawn from such increase in the Commitment.
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(b) Closing. If all conditions contained in Section 8.03 are
satisfied, the Lender shall permit the requested increase in the Commitment, at
a closing to be held at offices designated by the Lender on a Closing Date
selected by the Lender, and occurring within fifteen (15) Business Days after
the Lender's receipt of the Credit Facility Expansion Request (or on such other
date to which the Borrower and the Lender may agree), provided that in any
Calendar Quarter the Closing Date for addition of an Additional Mortgaged
Property to the Collateral Pool pursuant to Article VI of this Agreement and any
increase of the Credit Facility shall be on the same day as the Closing Date for
any release or substitution pursuant to Article VII of this Agreement.
SECTION 8.03 Conditions Precedent to Increase in Commitment. The right of the
Borrower to increase the Commitment is subject to the satisfaction of the
following conditions precedent on or before the Closing Date:
(a) After giving effect to the requested increase the Coverage
and LTV Tests will be satisfied;
(b) Payment by the Borrower of the Expansion Origination Fee
in accordance with Section 16.02(b) and all legal fees and expenses payable by
the Borrower in connection with the expansion of the Commitment pursuant to
Section 16.04(b);
(c) The receipt by the Lender of an endorsement to each Title
Insurance Policy, amending the effective date of the Title Insurance Policy to
the Closing Date, increasing the limits of liability to the Commitment, as
increased under this Article, showing no additional exceptions to coverage other
than the exceptions shown on the Initial Closing Date (or, if applicable, the
last Closing Date with respect to which the Title Insurance Policy was endorsed)
and other exceptions approved by the Lender, together with any reinsurance
agreements required by the Lender;
(d) The receipt by the Lender of fully executed original
copies of all Credit Facility Expansion Loan Documents, each of which shall be
in full force and effect, and in form and substance satisfactory to the Lender
in all respects;
(e) if determined necessary by the Lender, the Borrower's
agreement to such geographical diversification requirements as the Lender may
determine; and
(f) The satisfaction of all applicable General Conditions set
forth in Article XI.
ARTICLE IX
COMPLETE OR PARTIAL TERMINATION OF REVOLVING FACILITY
SECTION 9.01 Right to Complete or Partial Termination of Revolving Facility.
Subject to the terms and conditions of this Article, the Borrower shall have the
right to permanently reduce the Revolving Facility Commitment in accordance with
the provisions of this Article.
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SECTION 9.02 Procedure for Complete or Partial Termination of Revolving
Facility.
(a) Request. In order to permanently reduce the Revolving
Facility Commitment, the Borrower may deliver a written request for the
reduction ("Revolving Facility Termination Request") to the Lender, in the form
attached as Exhibit W to this Agreement. A permanent reduction of the Revolving
Facility Commitment to $0 shall be referred to as a "Complete Revolving Facility
Termination." The Revolving Facility Termination Request shall be accompanied by
the following:
(i) A designation of the proposed amount of the
reduction in the Revolving Facility Commitment; and
(ii) Unless there is a Complete Revolving Facility
Termination, a designation by the Borrower of any Revolving Advances
which will be prepaid.
Any release of Collateral, whether or not made in connection with a Revolving
Facility Termination Request, must comply with all conditions to a release which
are set forth in Article VII.
(b) Closing. If all conditions contained in Section 9.03 are
satisfied, the Lender shall permit the Revolving Facility Commitment to be
reduced to the amount designated by the Borrower, at a closing to be held at
offices designated by the Lender on a Closing Date selected by the Lender,
within fifteen (15) Business Days after the Lender's receipt of the Revolving
Facility Termination Request (or on such other date to which the Borrower and
the Lender may agree), by executing and delivering a counterpart of an amendment
to this Agreement, in the form attached as Exhibit X to this Agreement,
evidencing the reduction in the Revolving Facility Commitment. The document
referred to in the preceding sentence is referred to in this Article as the
"Revolving Facility Termination Document."
SECTION 9.03 Conditions Precedent to Complete or Partial Termination of
Revolving Facility. The right of the Borrower to reduce the Revolving Facility
Commitment and the obligation of the Lender to execute the Revolving Facility
Termination Document, are subject to the satisfaction of the following
conditions precedent on or before the Closing Date:
(a) Payment by the Borrower in full of all of the Revolving
Advances Outstanding required to be paid in order that the aggregate unpaid
principal balance of all Revolving Advances Outstanding is not greater than the
Revolving Facility Commitment, including any associated prepayment premiums or
other amounts due under the Notes (but if the Borrower is not required to prepay
all of the Revolving Advances, the Borrower shall have the right to select which
of the Revolving Advances shall be repaid);
(b) Payment by the Borrower of the Revolving Facility
Termination Fee;
(c) Receipt by the Lender on the Closing Date of one or more
counterparts of the Revolving Facility Termination Document, dated as of the
Closing Date, signed by each of the parties (other than the Lender) who is a
party to such Revolving Facility Termination Document; and
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(d) The satisfaction of all applicable General Conditions set
forth in Article XI.
ARTICLE X
TERMINATION OF CREDIT FACILITY
SECTION 10.01 Right to Terminate Credit Facility. Subject to the terms and
conditions of this Article, the Borrower shall have the right to terminate this
Agreement and the Credit Facility and receive a release of all of the Collateral
from the Collateral Pool in accordance with the provisions of this Article.
SECTION 10.02 Procedure for Terminating Credit Facility.
(a) Request. In order to terminate this Agreement and the
Credit Facility, the Borrower shall deliver a written request for the
termination ("Credit Facility Termination Request") to the Lender, in the form
attached as Exhibit Y to this Agreement.
(b) Closing. If all conditions contained in Section 10.03 are
satisfied, this Agreement shall terminate, and the Lender shall cause all of the
Collateral to be released from the Collateral Pool, at a closing to be held at
offices designated by the Lender on a Closing Date selected by the Lender,
within 30 Business Days after the Lender's receipt of the Credit Facility
Termination Request (or on such other date to which the Borrower and the Lender
may agree), by executing and delivering, and causing all applicable parties to
execute and deliver, all at the sole cost and expense of the Borrower, (i)
instruments, in the form customarily used by the Lender for releases in the
jurisdictions in which the Mortgaged Properties are located, releasing all of
the Security Instruments as a Lien on the Mortgaged Properties, (ii) UCC-3
Termination Statements terminating all of the UCC-1 Financing Statements
perfecting a Lien on the personal property located on the Mortgaged Properties,
in form customarily used in the jurisdiction governing the perfection of the
security interest being released, (iii) such other documents and instruments as
the Borrower may reasonably request evidencing the release of the Collateral
from any lien securing the Obligations (including a termination of any
restriction on the use of any accounts relating to the Collateral) and the
release and return to the Borrower of any and all escrowed amounts relating
thereto, (iv) instruments releasing the REIT from its obligations under the
REIT's Guaranty and this Agreement and any and all other Loan Documents, and (v)
the Notes, each marked paid and canceled. The instruments referred to in the
preceding sentence are referred to in this Article as the "Facility Termination
Documents."
SECTION 10.03 Conditions Precedent to Termination of Credit Facility. The right
of the Borrower to terminate this Agreement and the Credit Facility and to
receive a release of all of the Collateral from the Collateral Pool and the
Lender's obligation to execute and deliver the Facility Termination Documents on
the Closing Date are subject to the following conditions precedent:
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(a) Payment by the Borrower in full of all of the Notes
Outstanding on the Closing Date, including any associated prepayment premiums or
other amounts due under the Notes and all other amounts owing by the Borrower to
the Lender under this Agreement;
(b) Defeasance by the Borrower, in accordance with the
provisions of Section 3.10 of this Agreement, with respect to all Base Facility
Notes Outstanding on the Closing Date;
(c) Payment of the Revolving Facility Termination Fee; and
(d) The satisfaction of all applicable General Conditions set
forth in Article XI.
ARTICLE XI
GENERAL CONDITIONS PRECEDENT TO ALL REQUESTS
The obligation of the Lender to close the transaction requested in a
Request shall be subject to the following conditions precedent ("General
Conditions") in addition to any other conditions precedent set forth in this
Agreement:
SECTION 11.01 Conditions Applicable to All Requests. Each of the following
conditions precedent shall apply to all Requests:
(a) Payment of Expenses. The payment by the Borrower of the
Lender's fees and expenses payable in accordance with this Agreement for which
the Lender has presented an invoice on or before the Closing Date for the
Request.
(b) No Material Adverse Change. There has been no material
adverse change in the financial condition, business or prospects of the Borrower
Parties or in the physical condition, operating performance or value of any of
the Mortgaged Properties since the Initial Closing Date (or, with respect to the
conditions precedent to the Initial Advance, from the condition, business or
prospects reflected in the financial statements, reports and other information
obtained by the Lender during its review of the Borrower Parties and the Initial
Mortgaged Properties).
(c) No Default. There shall exist no Event of Default or
Potential Event of Default on the Closing Date for the Request and, after giving
effect to the transaction requested in the Request, no Event of Default or
Potential Event of Default shall have occurred.
(d) No Insolvency. Receipt by the Lender on the Closing Date
for the Request of evidence satisfactory to the Lender that no Borrower Party is
insolvent (within the meaning of any applicable federal or state laws relating
to bankruptcy or fraudulent transfers) or will be rendered insolvent by the
transactions contemplated by the Loan Documents, including the making of a
Future Advance, or, after giving effect to such transactions, will be left with
an unreasonably small capital with which to engage in its business or
undertakings, or will have intended to incur, or believe that it has incurred,
debts beyond its ability to pay such debts as they mature or will have intended
to hinder, delay or defraud any existing or future creditor.
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(e) No Untrue Statements. The Loan Documents shall not contain
any untrue or misleading statement of a material fact and shall not fail to
state a material fact necessary in order to make the information contained
therein not misleading.
(f) Representations and Warranties. All representations and
warranties made by any Borrower Party in the Loan Documents shall be true and
correct in all material respects on the Closing Date for the Request with the
same force and effect as if such representations and warranties had been made on
and as of the Closing Date for the Request.
(g) No Condemnation or Casualty. There shall not be pending or
threatened any condemnation or other taking, whether direct or indirect, against
any Mortgaged Property and there shall not have occurred any casualty to any
improvements located on any Mortgaged Property.
(h) Delivery of Closing Documents. The receipt by the Lender
of the following, each dated as of the Closing Date for the Request, in form and
substance satisfactory to the Lender in all respects:
(i) A Compliance Certificate;
(ii) An Organizational Certificate; and
(iii) Such other documents, instruments, approvals
(and, if requested by the Lender, certified duplicates of executed
copies thereof) and opinions as the Lender may request.
(i) Covenants. The Borrower Parties are in full compliance
with each of the covenants set forth in Articles XIII, XIV and XV of this
Agreement, without giving effect to any notice and cure rights of the Borrower
Parties.
SECTION 11.02 Delivery of Closing Documents Relating to Initial Advance Request,
Collateral Addition Request, Credit Facility Expansion Request or Future Advance
Request. With respect to the closing of the Initial Advance Request, a
Collateral Addition Request, or a Credit Facility Expansion Request, it shall be
a condition precedent that the Lender receives each of the following, each dated
as of the Closing Date for the Request, in form and substance satisfactory to
the Lender in all respects:
(a) Loan Documents. Fully executed original copies of each
Loan Document required to be executed in connection with the Request, duly
executed and delivered by the parties thereto (other than the Lender), each of
which shall be in full force and effect.
(b) Opinion. Favorable opinions of counsel to the Borrower
Parties, as to the due organization and qualification of the Borrower Parties,
the due authorization, execution, delivery and enforceability of each Loan
Document executed in connection with the Request and such other matters as the
Lender may require.
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SECTION 11.03 Delivery of Property-Related Documents. With respect to each of
the Mortgaged Properties to be made part of the Collateral Pool on the Closing
Date for the Initial Advance Request or a Collateral Addition Request, it shall
be a condition precedent that the Lender receive each of the following, each
dated as of the Closing Date for the Initial Advance Request or Collateral
Addition Request, as the case may be, in form and substance satisfactory to the
Lender in all respects:
(a) A favorable opinion of local counsel to the Borrower
Parties or the Lender as to the enforceability of the Security Instrument, and
any other Loan Documents, executed in connection with the Request.
(b) A commitment for the Title Insurance Policy applicable to
the Mortgaged Property and a pro forma Title Insurance Policy based on the
Commitment.
(c) The Insurance Policy (or a certified copy of the Insurance
Policy) applicable to the Mortgaged Property.
(d) The Survey applicable to the Mortgaged Property.
(e) Evidence satisfactory to the Lender of compliance of the
Mortgaged Property with property laws as required by Sections 205 and 206 of
Part III of the DUS Guide.
(f) An Appraisal of the Mortgaged Property.
(g) A Replacement Reserve Agreement, providing for the
establishment of a replacement reserve account, to be pledged to the Lender, in
which the owner shall (unless waived by the Lender) periodically deposit amounts
for replacements for improvements at the Mortgaged Property and as additional
security for the Borrower Parties' obligations under the Loan Documents.
(h) A Completion/Repair and Security Agreement, on the
standard form required by the DUS Guide.
(i) An Assignment of Management Agreement, on the standard
form required by the DUS Guide.
(j) An Assignment of Leases and Rents, if the Lender
determines one to be necessary or desirable, provided that the provisions of any
such assignment shall be substantively identical to those in the Security
Instrument covering the Collateral, with such modifications as may be
necessitated by applicable state or local law.
(k) With respect to a Collateral Addition Request, an
amendment to the Cash Management Agreement executed by the Borrower on the
Initial Closing Date, adding the Borrower as a party and adding a Property
Account for the Mortgaged Property.
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ARTICLE XII
REPRESENTATIONS AND WARRANTIES
SECTION 12.01 Representations and Warranties of the Borrower Parties. Each
Borrower Party hereby represents and warrants to the Lender, with respect to
itself, as follows:
(a) Due Organization; Qualification.
(1) The REIT is qualified to transact business and is
in good standing in the State of Maryland. The Borrower Party is
qualified to transact business and is in good standing in the State in
which it is organized and in each other jurisdiction in which such
qualification and/or standing is necessary to the conduct of its
business and where the failure to be so qualified would adversely
affect the validity of, the enforceability of, or the ability of the
Borrower Party to perform the Obligations under this Agreement and the
other Loan Documents. The Borrower is qualified to transact business
and is in good standing in each State in which it owns a Mortgaged
Property.
(2) The Borrower Party's principal place of business,
principal office and office where it keeps its books and records as to
the Collateral is located at its address set out in Section 23.08.
(b) Power and Authority. The Borrower Party has the requisite
power and authority (i) to own its properties and to carry on its business as
now conducted and as contemplated to be conducted in connection with the
performance of the Obligations hereunder and under the other Loan Documents and
(ii) to execute and deliver this Agreement and the other Loan Documents and to
carry out the transactions contemplated by this Agreement and the other Loan
Documents.
(c) Due Authorization. The execution, delivery and performance
of this Agreement and the other Loan Documents have been duly authorized by all
necessary action and proceedings by or on behalf of the Borrower Party, and no
further approvals or filings of any kind, including any approval of or filing
with any Governmental Authority, are required by or on behalf of the Borrower
Party as a condition to the valid execution, delivery and performance by the
Borrower Party of this Agreement or any of the other Loan Documents.
(d) Valid and Binding Obligations. This Agreement and the
other Loan Documents have been duly authorized, executed and delivered by the
Borrower Party and constitute the legal, valid and binding obligations of the
Borrower Party, enforceable against the Borrower Party in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles affecting the enforcement of creditors' rights generally or by
equitable principles or by the exercise of discretion by any court.
(e) Non-contravention; No Liens. Neither the execution and
delivery of this Agreement and the other Loan Documents, nor the fulfillment of
or compliance with the terms and conditions of this Agreement and the other Loan
Documents nor the performance of the Obligations:
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(1) does or will conflict with or result in any
breach or violation of any Applicable Law enacted or issued by any
Governmental Authority or other agency having jurisdiction over the
Borrower Party, any of the Mortgaged Properties or any other portion of
the Collateral or other assets of the Borrower Party, or any judgment
or order applicable to the Borrower Party or to which the Borrower
Party, any of the Mortgaged Properties or other assets of the Borrower
Party are subject;
(2) does or will conflict with or result in any
material breach or violation of, or constitute a default under, any of
the terms, conditions or provisions of the Borrower Party's
Organizational Documents, any indenture, existing agreement or other
instrument to which the Borrower Party is a party or to which the
Borrower Party, any of the Mortgaged Properties or any other portion of
the Collateral or other assets of the Borrower Party are subject;
(3) does or will result in or require the creation of
any Lien on all or any portion of the Collateral or any of the
Mortgaged Properties, except for the Permitted Liens; or
(4) does or will require the consent or approval of
any creditor of the Borrower Party, any Governmental Authority or any
other Person except such consents or approvals which have already been
obtained.
(f) Pending Litigation or other Proceedings. There is no
pending or, to the best knowledge of the Borrower Party, threatened action,
suit, proceeding or investigation, at law or in equity, before any court, board,
body or official of any Governmental Authority or arbitrator against or
affecting any Mortgaged Property or any other portion of the Collateral or other
assets of the Borrower Party, which, if decided adversely to the Borrower Party,
would have, or may reasonably be expected to have, a Material Adverse Effect.
The Borrower Party is not in default with respect to any order of any
Governmental Authority.
(g) Solvency. The Borrower Party is not insolvent and will not
be rendered insolvent by the transactions contemplated by this Agreement or the
other Loan Documents and after giving effect to such transactions, the Borrower
Party will not be left with an unreasonably small amount of capital with which
to engage in its business or undertakings, nor will the Borrower Party have
incurred, have intended to incur, or believe that it has incurred, debts beyond
its ability to pay such debts as they mature. The Borrower Party did not receive
less than a reasonably equivalent value in exchange for incurrence of the
Obligations. There (i) is no contemplated, pending or, to the best of the
Borrower Party's knowledge, threatened bankruptcy, reorganization, receivership,
insolvency or like proceeding, whether voluntary or involuntary, affecting the
Borrower Party or any of the Mortgaged Properties and (ii) has been no assertion
or exercise of jurisdiction over the Borrower Party or any of the Mortgaged
Properties by any court empowered to exercise bankruptcy powers.
(h) No Contractual Defaults. There are no defaults by the
Borrower Party or, to the knowledge of the Borrower Party, by any other Person
under any contract to which the Borrower
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Party is a party relating to any Mortgaged Property, including any management,
rental, service, supply, security, maintenance or similar contract, other than
defaults which do not permit the non-defaulting party to terminate the contract
and which do not have, and are not reasonably be expected to have, a Material
Adverse Effect. Neither the Borrower Party nor, to the knowledge of the Borrower
Party, any other Person, has received notice or has any knowledge of any
existing circumstances in respect of which it could receive any notice of
default or breach in respect of any contracts affecting or concerning any
Mortgaged Property.
(i) Compliance with the Loan Documents. The Borrower Party is
in compliance with all provisions of the Loan Documents to which it is a party
or by which it is bound. The representations and warranties made by the Borrower
Party in the Loan Documents are true, complete and correct as of the Closing
Date and do not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(j) ERISA. The Borrower Party is in compliance in all material
respects with all applicable provisions of ERISA and has not incurred any
liability to the PBGC on a Plan under Title IV of ERISA. None of the assets of
the Borrower Party constitute plan assets (within the meaning of Department of
Labor Regulation ss. 2510.3-101) of any employee benefit plan subject to Title I
of ERISA.
(k) Financial Information. The financial projections relating
to the Borrower Party and delivered to the Lender on or prior to the date
hereof, if any, were prepared on the basis of assumptions believed by the
Borrower Party, in good faith at the time of preparation, to be reasonable and
the Borrower Party is not aware of any fact or information that would lead it to
believe that such assumptions are incorrect or misleading in any material
respect; provided, however, that no representation or warranty is made that any
result set forth in such financial projections shall be achieved. The financial
statements of the Borrower Party which have been furnished to the Lender are
complete and accurate in all material respects and present fairly the financial
condition of the Borrower Party, as of its date in accordance with GAAP, applied
on a consistent basis, and since the date of the most recent of such financial
statements no event has occurred which would have, or may reasonably be expected
to have a Material Adverse Effect, and there has not been any material
transaction entered into by the Borrower Party other than transactions in the
ordinary course of business. The Borrower Party has no material contingent
obligations which are not otherwise disclosed in its most recent financial
statements.
(l) Accuracy of Information. No information, statement or
report furnished in writing to the Lender by the Borrower Party in connection
with this Agreement or any other Loan Document or in connection with the
consummation of the transactions contemplated hereby and thereby contains any
material misstatement of fact or omits to state a material fact necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading; and the representations and warranties of the
Borrower Party and the statements, information and descriptions contained in the
Borrower Party's closing certificates, as of the Closing Date, are true, correct
and complete in all material respects, do not contain any untrue statement or
misleading statement of a material fact, and do not omit to state a material
fact required to be stated
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therein or necessary to make the certifications, representations, warranties,
statements, information and descriptions contained therein, in light of the
circumstances under which they were made, not misleading; and the estimates and
the assumptions contained herein and in any certificate of the Borrower Party
delivered as of the Closing Date are reasonable and based on the best
information available to the Borrower Party.
(m) No Conflicts of Interest. To the best knowledge of the
Borrower Party, no member, officer, agent or employee of the Lender has been or
is in any manner interested, directly or indirectly, in that Person's own name,
or in the name of any other Person, in the Loan Documents, the Borrower Party or
any Mortgaged Property, in any contract for property or materials to be
furnished or used in connection with such Mortgaged Property or in any aspect of
the transactions contemplated by the Loan Documents.
(n) Governmental Approvals. No Governmental Approval not
already obtained or made is required for the execution and delivery of this
Agreement or any other Loan Document or the performance of the terms and
provisions hereof or thereof by the Borrower Party.
(o) Governmental Orders. The Borrower Party is not presently
under any cease or desist order or other orders of a similar nature, temporary
or permanent, of any Governmental Authority which would have the effect of
preventing or hindering performance of its duties hereunder, nor are there any
proceedings presently in progress or to its knowledge contemplated which would,
if successful, lead to the issuance of any such order.
(p) No Reliance. The Borrower Party acknowledges, represents
and warrants that it understands the nature and structure of the transactions
contemplated by this Agreement and the other Loan Documents, that it is familiar
with the provisions of all of the documents and instruments relating to such
transactions; that it understands the risks inherent in such transactions,
including the risk of loss of all or any of the Mortgaged Properties; and that
it has not relied on the Lender or Fannie Mae for any guidance or expertise in
analyzing the financial or other consequences of the transactions contemplated
by this Agreement or any other Loan Document or otherwise relied on the Lender
or Fannie Mae in any manner in connection with interpreting, entering into or
otherwise in connection with this Agreement, any other Loan Document or any of
the matters contemplated hereby or thereby.
(q) Compliance with Applicable Law. The Borrower Party is in
compliance with Applicable Law, including all Governmental Approvals, if any,
except for such items of noncompliance that, singly or in the aggregate, have
not had and are not reasonably expected to cause, a Material Adverse Effect.
(r) Contracts with Affiliates. Except as otherwise approved in
writing by the Lender, the Borrower Party has not entered into and is not a
party to any contract, lease or other agreement with any Affiliate of the
Borrower Party for the provision of any service, materials or supplies to any
Mortgaged Property (including any contract, lease or agreement for the provision
of property management services, cable television services or equipment, gas,
electric or other utilities, security services or equipment, laundry services or
equipment or telephone services or equipment). The Lender hereby approves the
property management agreements set forth on Exhibit AA to this Agreement.
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(s) Lines of Business. The Borrower Party is not engaged in
any businesses other than the acquisition, ownership, development, construction,
leasing, financing or management of Multifamily Residential Properties, and the
conduct of these businesses does not violate the Organizational Documents
pursuant to which it is formed.
(t) Status as a Real Estate Investment Trust. The REIT is
qualified, and is taxed as, a real estate investment trust under Subchapter M of
the Internal Revenue Code, and is not engaged in any activities which would
jeopardize such qualification and tax treatment.
(u) Year 2000 Compliance. The Borrower Party has conducted a
comprehensive review and assessment of its computer systems and applications and
made inquiry of the Borrower Party's key suppliers and vendors with respect to
the so-called "year 2000 problem" (the risk that computer applications may not
be able to properly perform date-sensitive functions after December 31, 1999)
and, based on that review and inquiry, the Borrower Party does not believe that
the "year 2000 problem" will result in a material adverse change in the ability
of the Borrower Party and its Subsidiaries to manage and operate their
properties and pay and perform their obligations hereunder.
SECTION 12.02 Representations and Warranties of the Borrower. The Borrower
hereby represents and warrants to the Lender as follows with respect to each of
the Mortgaged Properties:
(a) Title. The Borrower has good, valid, marketable and
indefeasible title to each Mortgaged Property (either in fee simple or as tenant
under a ground lease meeting all of the requirements of the DUS Guide), free and
clear of all Liens whatsoever except the Permitted Liens. Each Security
Instrument, if and when properly recorded in the appropriate records, together
with any Uniform Commercial Code financing statements required to be filed in
connection therewith, will create a valid, perfected first lien on the Mortgaged
Property intended to be encumbered thereby (including the Leases related to such
Mortgaged Property and the rents and all rights to collect rents under such
Leases), subject only to Permitted Liens. Except for any Permitted Liens, there
are no Liens or claims for work, labor or materials affecting any Mortgaged
Property which are or may be prior to, subordinate to, or of equal priority
with, the Liens created by the Loan Documents. The Permitted Liens do not have,
and may not reasonably be expected to have, a Material Adverse Effect.
(b) Impositions. The Borrower has filed all property and
similar tax returns required to have been filed by it with respect to each
Mortgaged Property and has paid and discharged, or caused to be paid and
discharged, all installments for the payment of all Taxes due to date, and all
other material Impositions imposed against, affecting or relating to each
Mortgaged Property other than those which have not become due, together with any
fine, penalty, interest or cost for nonpayment pursuant to such returns or
pursuant to any assessment received by it. The Borrower has no knowledge of any
new proposed Tax, levy or other governmental or private assessment or charge in
respect of any Mortgaged Property which has not been disclosed in writing to the
Lender.
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(c) Zoning. Each Mortgaged Property complies in all material
respects with all Applicable Laws affecting such Mortgaged Property. Without
limiting the foregoing, all material Permits, including certificates of
occupancy, have been issued and are in full force and effect. Neither the
Borrower nor, to the knowledge of the Borrower, any former owner of any
Mortgaged Property, has received any written notification or threat of any
actions or proceedings regarding the noncompliance or nonconformity of any
Mortgaged Property with any Applicable Laws or Permits, nor is the Borrower
otherwise aware of any such pending actions or proceedings.
(d) Leases. The Borrower has delivered to the Lender a true
and correct copy of its form apartment lease for each Mortgaged Property (and,
with respect to leases executed prior to the date on which the Borrower first
owned the Mortgaged Property, the form apartment lease used for such leases),
and each Lease with respect to such Mortgaged Property is in the form thereof,
with no material modifications thereto, except as previously disclosed in
writing to the Lender. Except as set forth in a Rent Roll, no Lease for any unit
in any Mortgaged Property (i) is for a term in excess of one year, including any
renewal or extension period unless such renewal or extension period is subject
to termination by the Borrower upon not more than 30 days' written notice, (ii)
provides for prepayment of more than one month's rent, or (iii) was entered into
in other than the ordinary course of business.
(e) Rent Roll. The Borrower has executed and delivered to the
Lender a Rent Roll for each Mortgaged Property, each dated as of and delivered
within 30 days prior to the Closing Date. Each Rent Roll sets forth each and
every unit subject to a Lease which is in full force and effect as of the date
of such Rent Roll. The information set forth on each Rent Roll is true, correct
and complete in all material respects as of its date and there has occurred no
material adverse change in the information shown on any Rent Roll from the date
of each such Rent Roll to the Closing Date. Except as disclosed in the Rent Roll
with respect to each Mortgaged Property or otherwise previously disclosed in
writing to the Lender, no Lease is in effect as of the date of the Rent Roll
with respect to such Mortgaged Property. Notwithstanding the foregoing, any
representation in this subsection (e) made with respect to a time period
occurring prior to the date on which the Borrower owned the Mortgaged Property
is made to the best of the Borrower's knowledge.
(f) Status of Landlord under Leases. Except for any assignment
of leases and rents which is a Permitted Lien or which is to be released in
connection with the consummation of the transactions contemplated by this
Agreement, the Borrower is the owner and holder of the landlord's interest under
each of the Leases of units in each Mortgaged Property and there are no prior
outstanding assignments of any such Lease, or any portion of the rents,
additional rents, charges, issues or profits due and payable or to become due
and payable thereunder.
(g) Enforceability of Leases. Each Lease constitutes the
legal, valid and binding obligation of the Borrower and, to the knowledge of the
Borrower, of each of the other parties thereto, enforceable in accordance with
its terms, subject only to bankruptcy, insolvency, reorganization or other
similar laws relating to creditors' rights generally, and equitable principles,
and except as disclosed in writing to the Lender, no notice of any default by
the Borrower which remains uncured has been sent by any tenant under any such
Lease, other than defaults which do not have, and are not reasonably expected to
have, a Material Adverse Effect on the Mortgaged Property subject to the Lease.
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(h) No Lease Options. All premises demised to tenants under
Leases are occupied by such tenants as tenants only. No Lease contains any
option or right to purchase, right of first refusal or any other similar
provisions. No option or right to purchase, right of first refusal, purchase
contract or similar right exists with respect to any Mortgaged Property.
(i) Insurance. The Borrower has delivered to the Lender true
and correct certified copies of all Insurance Policies currently in effect as of
the date of this Agreement with respect to the Mortgaged Property which it owns.
Each such Insurance Policy complies in all material respects with the
requirements set forth in the Loan Documents.
(j) Tax Parcels. Each Mortgaged Property is on one or more
separate tax parcels, and each such parcel (or parcels) is (or are) separate and
apart from any other property.
(k) Encroachments. Except as disclosed on the Survey with
respect to each Mortgaged Property, none of the improvements located on any
Mortgaged Property encroaches upon the property of any other Person or upon any
easement encumbering the Mortgaged Property, nor lies outside of the boundaries
and building restriction lines of such Mortgaged Property and no improvement
located on property adjoining such Mortgaged Property lies within the boundaries
of or in any way encroaches upon such Mortgaged Property.
(l) Independent Unit. Except for Permitted Liens and as
disclosed on Exhibit BB to this Agreement, or as disclosed in a Title Insurance
Policy or Survey for the Mortgaged Property, each Mortgaged Property is an
independent unit which does not rely on any drainage, sewer, access, parking,
structural or other facilities located on any Property not included either in
such Mortgaged Property or on public or utility easements for the (i)
fulfillment of any zoning, building code or other requirement of any
Governmental Authority that has jurisdiction over such Mortgaged Property, (ii)
structural support, or (iii) the fulfillment of the requirements of any Lease or
other agreement affecting such Mortgaged Property. The Borrower, directly or
indirectly, has the right to use all amenities, easements, public or private
utilities, parking, access routes or other items necessary or currently used for
the operation of each Mortgaged Property. All public utilities are installed and
operating at each Mortgaged Property and all billed installation and connection
charges have been paid in full. Each Mortgaged Property is either (x) contiguous
to or (y) benefits from an irrevocable unsubordinated easement permitting access
from such Mortgaged Property to a physically open, dedicated public street, and
has all necessary permits for ingress and egress and is adequately serviced by
public water, sewer systems and utilities. No building or other improvement not
located on a Mortgaged Property relies on any part of the Mortgaged Property to
fulfill any zoning requirements, building code or other requirement of any
Governmental Authority that has jurisdiction over the Mortgaged Property, for
structural support or to furnish to such building or improvement any essential
building systems or utilities.
(m) Condition of the Mortgaged Properties. Except as disclosed
in any third party report delivered to the Lender prior to the date on which the
Borrower's Mortgaged Property is
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added to the Collateral Pool, or otherwise disclosed in writing by the Borrower
to the Lender prior to such date, each Mortgaged Property is in good condition,
order and repair, there exist no structural or other material defects in such
Mortgaged Property (whether patent or, to the best knowledge of the Borrower,
latent or otherwise) and the Borrower has not received notice from any insurance
company or bonding company of any defects or inadequacies in such Mortgaged
Property, or any part of it, which would adversely affect the insurability of
such Mortgaged Property or cause the imposition of extraordinary premiums or
charges for insurance or of any termination or threatened termination of any
policy of insurance or bond. No claims have been made against any contractor,
architect or other party with respect to the condition of any Mortgaged Property
or the existence of any structural or other material defect therein. No
Mortgaged Property has been materially damaged by casualty which has not been
fully repaired or for which insurance proceeds have not been received or are not
expected to be received except as previously disclosed in writing to the Lender.
There are no proceedings pending for partial or total condemnation of any
Mortgaged Property except as disclosed in writing to the Lender.
SECTION 12.03 Representations and Warranties of the Lender. The Lender hereby
represents and warrants to the Borrower Parties as follows:
(a) Due Organization. The Lender is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Power and Authority. The Lender has the requisite power
and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement.
(c) Due Authorization. The execution and delivery by the
Lender of this Agreement, and the consummation by it of the transactions
contemplated thereby, and the performance by it of its obligations thereunder,
have been duly and validly authorized by all necessary action and proceedings by
it or on its behalf.
ARTICLE XIII
AFFIRMATIVE COVENANTS OF THE BORROWER PARTIES
Each Borrower Party, with respect to itself, agrees and covenants with the
Lender that, at all times during the Term of this Agreement:
SECTION 13.01 Compliance with Agreements; No Amendments. The Borrower Party
shall comply with all the terms and conditions of each Loan Document to which it
is a party or by which it is bound; provided, however, that the Borrower Party's
failure to comply with such terms and conditions shall not be an Event of
Default until the expiration of the applicable notice and cure periods, if any,
specified in the applicable Loan Document.
SECTION 13.02 Maintenance of Existence. The Borrower Party shall maintain its
existence and continue to be a limited partnership or corporation, as the case
may be, organized under the laws of the state of its organization. The Borrower
Party shall continue to be duly qualified to do
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business in each jurisdiction in which such qualification is necessary to the
conduct of its business and where the failure to be so qualified would adversely
affect the validity of, the enforceability of, or the ability to perform, its
obligations under this Agreement or any other Loan Document.
SECTION 13.03 Maintenance of REIT Status. During the Term of this Agreement, the
REIT shall qualify, and be taxed as, a real estate investment trust under
Subchapter M of the Internal Revenue Code, and will not be engaged in any
activities which would jeopardize such qualification and tax treatment.
SECTION 13.04 Financial Statements; Accountants' Reports; Other Information. The
Borrower Party shall keep and maintain at all times complete and accurate books
of accounts and records in sufficient detail to correctly reflect (x) all of the
Borrower Party's financial transactions and assets and (y) the results of the
operation of each Mortgaged Property and copies of all written contracts, Leases
and other instruments which affect each Mortgaged Property (including all bills,
invoices and contracts for electrical service, gas service, water and sewer
service, waste management service, telephone service and management services).
In addition, the Borrower Parties shall furnish, or cause to be furnished, to
the Lender:
(a) Annual Financial Statements. As soon as available, and in
any event within 90 days after the close of its fiscal year during the Term of
this Agreement, the audited balance sheet of the REIT and its Subsidiaries as of
the end of such fiscal year, the audited statement of income, Borrowers' equity
and retained earnings of the REIT and its Subsidiaries for such fiscal year and
the audited statement of cash flows of the REIT and its Subsidiaries for such
fiscal year, all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the prior fiscal
year, prepared in accordance with GAAP, consistently applied, and accompanied by
a certificate of the REIT's independent certified public accountants to the
effect that such financial statements have been prepared in accordance with
GAAP, consistently applied, and that such financial statements fairly present
the results of its operations and financial condition for the periods and dates
indicated, with such certification to be free of exceptions and qualifications
as to the scope of the audit or as to the going concern nature of the business.
(b) Quarterly Financial Statements. As soon as available, and
in any event within 45 days after each of the first three fiscal quarters of
each fiscal year during the Term of this Agreement, the unaudited balance sheet
of the REIT and its Subsidiaries as of the end of such fiscal quarter, the
unaudited statement of income and retained earnings of the REIT and its
Subsidiaries and the unaudited statement of cash flows of the REIT and its
Subsidiaries for the portion of the fiscal year ended with the last day of such
quarter, all in reasonable detail and stating in comparative form the respective
figures for the corresponding date and period in the previous fiscal year,
accompanied by a certificate of the Chief Financial Officer of the REIT to the
effect that such financial statements have been prepared in accordance with
GAAP, consistently applied, and that such financial statements fairly present
the results of its operations and financial condition for the periods and dates
indicated subject to year end adjustments in accordance with GAAP.
(c) Quarterly Property Statements. As soon as available, and
in any event within 45 days after each Calendar Quarter, a statement of income
and expenses of each Mortgaged
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Property accompanied by a certificate of the Chief Financial Officer of the REIT
to the effect that each such statement of income and expenses fairly, accurately
and completely presents the operations of each such Mortgaged Property for the
period indicated.
(d) Annual Property Statements. On an annual basis within
forty-five (45) days of the end of its fiscal year, an annual statement of
income and expenses of each Mortgaged Property accompanied by a certificate of
the Chief Financial Officer of the REIT to the effect that each such statement
of income and expenses fairly, accurately and completely presents the operations
of each such Mortgaged Property for the period indicated.
(e) Updated Rent Rolls. Upon the Lender's request (but not
more frequently than quarterly), a current Rent Roll for each Mortgaged
Property, showing the name of each tenant, and for each tenant, the space
occupied, the lease expiration date, the rent payable, the rent paid and any
other information requested by the Lender and accompanied by a certificate of
the Chief Financial Officer of the Borrower or the REIT to the effect that each
such Rent Roll fairly, accurately and completely presents the information
required therein.
(f) Security Deposit Information. Upon the Lender's request,
an accounting of all security deposits held in connection with any Lease of any
part of any Mortgaged Property, including the name and identification number of
the accounts in which such security deposits are held, the name and address of
the financial institutions in which such security deposits are held and the name
and telephone number of the person to contact at such financial institution,
along with any authority or release necessary for the Lender to access
information regarding such accounts.
(g) Security Law Reporting Information. So long as the REIT is
a reporting company under the Securities and Exchange Act of 1934, promptly upon
becoming available, (a) copies of all financial statements, reports and proxy
statements sent or made available generally by the REIT or the Borrower, or any
of their Affiliates, to their respective security holders, (b) all regular and
periodic reports and all registration statements (other than the exhibits
thereto and any registration statements on Form S-8 or a similar form) and
prospectuses, if any, filed by the REIT or the Borrower, or any of their
Affiliates, with the Securities and Exchange Commission or other Governmental
Authorities, and (c) all press releases and other statements made available
generally by the REIT or the Borrower, or any of their Affiliates, to the public
concerning material developments in the business of the REIT or other party.
(h) Accountants' Reports. Promptly upon receipt thereof,
copies of any reports or management letters submitted to the Borrower Party by
its independent certified public accountants in connection with the examination
of its financial statements made by such accountants (except for reports
otherwise provided pursuant to subsection (a) above); provided, however, that
the Borrower Party shall only be required to deliver such reports and management
letters to the extent that they relate to any Borrower Party or any Mortgaged
Property.
(i) Annual Budgets. Promptly, and in any event within 60 days
after the start of its fiscal year, an annual budget for each Mortgaged Property
for such fiscal year, setting forth
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an estimate of all of the costs and expenses, including capital expenses, of
maintaining and operating each Mortgaged Property.
(j) REIT Plans and Projections. Within 90 days after the
beginning of each fiscal year, copies of (1) the REIT's business plan for the
current and the succeeding two fiscal years, (2) the REIT's annual budget
(including capital expenditure budgets) and projections for each Mortgaged
Property; and (3) the REIT's financial projections for the current and the
succeeding two fiscal years, as prepared by the REIT's Chief Financial Officer
and in a format and with such detail as the Lender may require.
(k) Strategic Plan. Within 90 days after the end of each
fiscal year of the REIT, the REIT shall deliver to the Lender a written
narrative discussing the REIT's short and long range plans, including its plans
for operations, mergers, acquisitions and management, and accompanied by
supporting financial projections and schedules, certified by a member of Senior
Management as true, correct and complete ("Strategic Plan") If the REIT's or the
Borrower's Strategic Plan materially changes, then such person shall deliver to
the Lender the Strategic Plan as so changed.
(l) Annual Rental and Sales Comparable Analysis. Within 30
days after the Lender's request, a rental and sales comparable analysis of the
local real estate market in which each Mortgaged Property is located, in a form
approved by the Lender.
(m) Other Reports. Promptly upon receipt thereof, all
schedules, financial statements or other similar reports delivered by the
Borrower Party pursuant to the Loan Documents or requested by the Lender with
respect to the Borrower Party's business affairs or condition (financial or
otherwise) or any of the Mortgaged Properties.
(n) Certification. All certifications required to be delivered
pursuant to this Section 13.04 shall run directly to and be for the benefit of
Lender and Fannie Mae.
SECTION 13.05 Certificate of Compliance. The Borrower Party shall deliver to the
Lender concurrently with the delivery of the financial statements and/or reports
required to be delivered pursuant to Section 13.04 (a) and (b) above a
certificate signed by the Chief Financial Officer of the Borrower or the REIT
stating that, to the best knowledge of such individual following reasonable
inquiry, (i) setting forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the requirements of
Sections 15.02 through 15.08 on the date of such financial statements, and (ii)
stating that, to the best knowledge of such individual following reasonable
inquiry, no Event of Default or Potential Event of Default has occurred, or if
an Event of Default or Potential Event of Default has occurred, specifying the
nature thereof in reasonable detail and the action which the Borrower is taking
or proposes to take with respect thereto. Any certificate required by this
Section 13.05 shall run directly to and be for the benefit of Lender and Fannie
Mae.
SECTION 13.06 Maintain Licenses. The Borrower Party shall procure and maintain
in full force and effect all licenses, Permits, charters and registrations which
are material to the conduct of its business and shall abide by and satisfy all
terms and conditions of all such licenses, Permits, charters and registrations.
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SECTION 13.07 Access to Records; Discussions With Officers and Accountants. To
the extent permitted by law and in addition to the applicable requirements of
the Security Instruments, the Borrower Party shall permit the Lender:
(a) to inspect, make copies and abstracts of, and have
reviewed or audited, such of the Borrower Party's books and records as may
relate to the Obligations or any Mortgaged Property;
(b) to discuss the Borrower Party's affairs, finances and
accounts with any of the Borrower Party's officers, partners and employees;
(c) to discuss the Borrower Party's affairs, finances and
accounts with its independent public accountants, provided that the Chief
Financial Officer of the Borrower Party has been given the opportunity by the
Lender to be a party to such discussions; and
(d) to receive any other information that the Lender deems
necessary or relevant in connection with any Advance, any Loan Document or the
Obligations.
Notwithstanding the foregoing, prior to an Event of Default or Potential Event
of Default, all inspections shall be conducted at reasonable times during normal
business hours.
SECTION 13.08 Inform the Lender of Material Events. The Borrower Party shall
promptly inform the Lender in writing of any of the following (and shall deliver
to the Lender copies of any related written communications, complaints, orders,
judgments and other documents relating to the following) of which the Borrower
Party has actual knowledge:
(a) Defaults. The occurrence of any Event of Default or any
Potential Event of Default under this Agreement or any other Loan Document;
(b) Regulatory Proceedings. The commencement of any rulemaking
or disciplinary proceeding or the promulgation of any proposed or final rule
which would have, or may reasonably be expected to have, a Material Adverse
Effect;
(c) Legal Proceedings. The commencement or threat of, or
amendment to, any proceedings by or against the Borrower Party in any Federal,
state or local court or before any Governmental Authority, or before any
arbitrator, which, if adversely determined, would have, or at the time of
determination may reasonably be expected to have, a Material Adverse Effect;
(d) Bankruptcy Proceedings. The commencement of any
proceedings by or against the Borrower Party under any applicable bankruptcy,
reorganization, liquidation, insolvency or other similar law now or hereafter in
effect or of any proceeding in which a receiver, liquidator, trustee or other
similar official is sought to be appointed for it;
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(e) Regulatory Supervision or Penalty. The receipt of notice
from any Governmental Authority having jurisdiction over the Borrower Party that
(A) the Borrower Party is being placed under regulatory supervision, (B) any
license, Permit, charter, membership or registration material to the conduct of
the Borrower Party's business or the Mortgaged Properties is to be suspended or
revoked or (C) the Borrower Party is to cease and desist any practice, procedure
or policy employed by the Borrower Party, as the case may be, in the conduct of
its business, and such cessation would have, or may reasonably be expected to
have, a Material Adverse Effect;
(f) Environmental Claim. The receipt from any Governmental
Authority or other Person of any notice of violation, claim, demand, abatement,
order or other order or direction (conditional or otherwise) for any damage,
including personal injury (including sickness, disease or death), tangible or
intangible property damage, contribution, indemnity, indirect or consequential
damages, damage to the environment, pollution, contamination or other adverse
effects on the environment, removal, cleanup or remedial action or for fines,
penalties or restrictions, resulting from or based upon (a) the existence or
occurrence, or the alleged existence or occurrence, of a Hazardous Substance
Activity or (b) the violation, or alleged violation, of any Hazardous Materials
Laws in connection with any Mortgaged Property or any of the other assets of a
Borrower Party;
(g) Material Adverse Effects. The occurrence of any act,
omission, change or event which has a Material Adverse Effect, subsequent to the
date of the most recent audited financial statements of the Borrower delivered
to the Lender pursuant to Section 13.04;
(h) Accounting Changes. Any material change in any Borrower
Party's accounting policies or financial reporting practices; and
(i) Legal and Regulatory Status. The occurrence of any act,
omission, change or event, including any Governmental Approval, the result of
which is to change or alter in any way the legal or regulatory status of any
Borrower Party.
SECTION 13.09 Single-Purpose Entities. The Borrower shall at all times maintain
and conduct itself as a Single-Purpose entity.
SECTION 13.10 Inspection. The Borrower shall permit any Person designated by the
Lender: (i) to make entries upon and inspections of the Mortgaged Properties;
and (ii) to otherwise verify, examine and inspect the amount, quantity, quality,
value and/or condition of, or any other matter relating to, any Mortgaged
Property; provided, however, that prior to an Event of Default or Potential
Event of Default, all such entries, examinations and inspections shall be
conducted at reasonable times during normal business hours.
SECTION 13.11 Compliance with Applicable Laws. The Borrower Party shall comply
in all material respects with all Applicable Laws now or hereafter affecting any
Mortgaged Property or any part of any Mortgaged Property or requiring any
alterations, repairs or improvements to any Mortgaged Property. The Borrower
Party shall procure and continuously maintain in full force and effect, and
shall abide by and satisfy all material terms and conditions of all Permits.
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SECTION 13.12 Warranty of Title. The Borrower shall warrant and defend (a) the
title to each Mortgaged Property and every part of each Mortgaged Property,
subject only to Permitted Liens, and (b) the validity and priority of the lien
of the applicable Loan Documents, subject only to Permitted Liens, in each case
against the claims of all Persons whatsoever. The Borrower shall reimburse the
Lender for any losses, costs, damages or expenses (including reasonable
attorneys' fees and court costs) incurred by the Lender if an interest in any
Mortgaged Property, other than with respect to a Permitted Lien, is claimed by
others.
SECTION 13.13 Defense of Actions. The Borrower Party shall appear in and defend
any action or proceeding purporting to affect the security for this Agreement or
the rights or power of the Lender hereunder, and shall pay all costs and
expenses, including the cost of evidence of title and reasonable attorneys'
fees, in any such action or proceeding in which the Lender may appear. If the
Borrower Party fails to perform any of the covenants or agreements contained in
this Agreement, or if any action or proceeding is commenced that is not
diligently defended by the Borrower Party which affects in any material respect
the Lender's interest in any Mortgaged Property or any part thereof, including
eminent domain, code enforcement or proceedings of any nature whatsoever under
any Applicable Law, whether now existing or hereafter enacted or amended, then
the Lender may, but without obligation to do so and without notice to or demand
upon the Borrower Party and without releasing the Borrower Party from any
Obligation, make such appearances, disburse such sums and take such action as
the Lender deems necessary or appropriate to protect the Lender's interest,
including disbursement of attorney's fees, entry upon such Mortgaged Property to
make repairs or take other action to protect the security of said Mortgaged
Property, and payment, purchase, contest or compromise of any encumbrance,
charge or lien which in the judgment of the Lender appears to be prior or
superior to the Loan Documents. In the event (i) that any Security Instrument is
foreclosed in whole or in part or that any Loan Document is put into the hands
of an attorney for collection, suit, action or foreclosure, or (ii) of the
foreclosure of any mortgage, deed to secure debt, deed of trust or other
security instrument prior to or subsequent to any Security Instrument or any
Loan Document in which proceeding the Lender is made a party or (iii) of the
bankruptcy of the Borrower Party or an assignment by the Borrower Party for the
benefit of their respective creditors, the Borrower Party shall be chargeable
with and agrees to pay all costs of collection and defense, including actual
attorneys' fees in connection therewith and in connection with any appellate
proceeding or post-judgment action involved therein, which shall be due and
payable together with all required service or use taxes.
SECTION 13.14 Alterations to the Mortgaged Properties. Except as otherwise
provided in the Loan Documents, the Borrower shall have the right to undertake
any alteration, improvement, demolition, removal or construction (collectively,
"Alterations") to the Mortgaged Property which it owns without the prior consent
of the Lender; provided, however, that in any case, no such Alteration shall be
made to any Mortgaged Property without the prior written consent of the Lender
if (i) such Alteration could reasonably be expected to adversely affect the
value of such Mortgaged Property or its operation as a multifamily housing
facility in substantially the same manner in which it is being operated on the
date such property became Collateral, (ii) the construction of such Alteration
could reasonably be expected to result in interference to the occupancy of
tenants of such Mortgaged Property such that tenants in occupancy with respect
to five percent (5%) or more of the Leases would be permitted to terminate their
Leases or to abate the payment of all or any portion
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of their rent, or (iii) such Alteration will be completed in more than 12 months
from the date of commencement or in the last year of the Term of this Agreement.
Notwithstanding the foregoing, the Borrower must obtain the Lender's prior
written consent to construct Alterations with respect to the Mortgaged Property
costing in excess of $125,000 and the Borrower must give prior written notice to
the Lender of its intent to construct Alterations with respect to such Mortgaged
Property costing in excess of $50,000; provided, however, that the preceding
requirements shall not be applicable to Alterations made, conducted or
undertaken by the Borrower as part of the Borrower's routine maintenance and
repair of the Mortgaged Properties as required by the Loan Documents.
SECTION 13.15 ERISA. The Borrower Party shall at all times remain in compliance
in all material respects with all applicable provisions of ERISA and similar
requirements of the PBGC.
SECTION 13.16 Loan Document Taxes. If any tax, assessment or Imposition (other
than a franchise tax imposed on or measured by, the net income or capital
(including branch profits tax) of the Lender (or any transferee or assignee
thereof, including a participation holder)) ("Loan Document Taxes") is levied,
assessed or charged by the United States, or any State in the United States, or
any political subdivision or taxing authority thereof or therein upon any of the
Loan Documents or the obligations secured thereby, the interest of the Lender in
the Mortgaged Properties, or the Lender by reason of or as holder of the Loan
Documents, the Borrower Party shall pay all such Loan Document Taxes to, for, or
on account of the Lender (or provide funds to the Lender for such payment, as
the case may be) as they become due and payable and shall promptly furnish proof
of such payment to the Lender, as applicable. In the event of passage of any law
or regulation permitting, authorizing or requiring such Loan Document Taxes to
be levied, assessed or charged, which law or regulation in the opinion of
counsel to the Lender may prohibit the Borrower Party from paying the Loan
Document Taxes to or for the Lender, the Borrower Party shall enter into such
further instruments as may be permitted by law to obligate the Borrower Party to
pay such Loan Document Taxes.
SECTION 13.17 Further Assurances. The Borrower Party, at the request of the
Lender, shall execute and deliver and, if necessary, file or record such
statements, documents, agreements, UCC financing and continuation statements and
such other instruments and take such further action as the Lender from time to
time may request as reasonably necessary, desirable or proper to carry out more
effectively the purposes of this Agreement or any of the other Loan Documents or
to subject the Collateral to the lien and security interests of the Loan
Documents or to evidence, perfect or otherwise implement, to assure the lien and
security interests intended by the terms of the Loan Documents or in order to
exercise or enforce its rights under the Loan Documents.
SECTION 13.18 Monitoring Compliance. Upon the request of the Lender, from time
to time, the Borrower Party shall promptly provide to the Lender such documents,
certificates and other information as may be deemed necessary to enable the
Lender to perform its functions under the Servicing Agreement.
SECTION 13.19 Leases. Each unit in each Mortgaged Property will be leased
pursuant to the form lease delivered to, and acceptable to, the Lender, with no
material modifications to such approved form lease, except as disclosed in
writing to the Lender.
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SECTION 13.20 Appraisals. At any time and from time to time (but not to exceed
once per calendar year), the Lender shall be entitled to obtain an Appraisal of
any Mortgaged Property. At the time of the addition of a Mortgaged Property to
the Collateral Pool, the Lender shall be entitled to obtain an Appraisal of such
Mortgaged Property. The Borrower shall pay all of the Lender's costs of
obtaining the Appraisal.
SECTION 13.21 Transfer of Ownership Interests of the Borrower and the REIT.
(a) Prohibition on Transfers. Subject to paragraph (b) of this
Section 13.21, the Borrower Party shall not cause or permit a Transfer or a
Change of Control.
(b) Permitted Transfers. Notwithstanding the provisions (a) of
this Section 13.21, the following Transfers by the Borrower Party are permitted
without the consent of the Lender:
(i) A Transfer that occurs by inheritance, devise, or
bequest or by operation of law upon the death of a natural person who
is an owner of a Mortgaged Property or the owner of a direct or
indirect ownership interest in the Borrower.
(ii) The grant of a leasehold interest in individual
dwelling units or commercial spaces in accordance with the Security
Instrument.
(iii) A sale or other disposition of obsolete or worn
out personal property which is contemporaneously replaced by comparable
personal property of equal or greater value which is free and clear of
liens, encumbrances and security interests other than those created by
the Loan Documents.
(iv) The creation of a mechanic's or materialmen's
lien or judgment lien against a Mortgaged Property which is released of
record or otherwise remedied to Lender's satisfaction within 30 days of
the date of creation.
(v) The grant of an easement, if prior to the
granting of the easement the Borrower causes to be submitted to Lender
all information required by Lender to evaluate the easement, and if
Lender consents to such easement based upon Lender's determination
that the easement will not materially affect the operation of the
Mortgaged Property or Lender's interest in the Mortgaged Property and
Borrower pays to Lender, on demand, all costs and expenses incurred by
Lender in connection with reviewing Borrower's request. Lender shall
not unreasonably withhold its consent to or withhold its agreement to
subordinate the lien of a Security Instrument to (A) the grant of a
utility easement serving a Mortgaged Property to a publicly operated
utility, or (B) the grant of an easement related to expansion or
widening of roadways, provided that any such easement is in form and
substance reasonably acceptable to Lender and does not materially and
adversely affect the access, use or marketability of a Mortgaged
Property.
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(vi) The Transfer of shares of common stock, limited
partnership interests or other beneficial or ownership interest or
other forms of securities in the REIT, and the issuance of all
varieties of convertible debt, equity and other similar securities of
the REIT, and the subsequent Transfer of such securities; provided,
however, that no Change in Control occurs as a result of such Transfer,
either upon such Transfer or upon the subsequent conversion to equity
or such convertible debt or other securities.
(vii) The Transfer of limited partnership interests
by the limited partners of Borrower, including, without limitation, the
conversion or exchange of limited partnership interests in Borrower to
shares of common stock or other beneficial or ownership interests or
other forms of securities in the REIT; provided, however, that no
Change in Control occurs as the result of such Transfer.
(viii) The issuance by Borrower of additional limited
partnership units or convertible debt, equity and other similar
securities, and the subsequent Transfer of such units or other
securities; provided, however, that no Change in Control occurs as the
result of such Transfer, either upon such Transfer or upon the
subsequent conversion to equity of such convertible debt or other
securities.
(ix) A merger with or acquisition of another entity
by Borrower or the REIT, provided that (A) Borrower or the REIT, as the
case may be, is the surviving entity after such merger or acquisition,
(B) no Change in Control occurs, and (C) such merger or acquisition
does not result in an Event of Default, as such terms are defined in
this Agreement.
(x) A Transfer in connection with any substitution or
release pursuant to the terms and conditions of Article VII of this
Agreement.
(c) Consent to Prohibited Transfers. Lender may, in its sole
and absolute discretion, consent to a Transfer that would otherwise violate this
Section 13.21 if, prior to the Transfer, Borrower has satisfied each of the
following requirements:
(i) the submission to Lender of all information
required by Lender to make the determination required by this Section
13.21(c);
(ii) the absence of any Event of Default;
(iii) the transferee meets all of the eligibility,
credit, management and other standards (including any standards with
respect to previous relationships between Lender and the transferee and
the organization of the transferee) customarily applied by Lender at
the time of the proposed Transfer to the approval of borrowers in
connection with the origination or purchase of similar mortgages, deeds
of trust or deeds to secure debt on multifamily properties;
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(iv) in the case of a Transfer of direct or indirect
ownership interests in Borrower or the REIT, if transferor or any other
person has obligations under any Loan Documents, the execution by the
transferee of one or more individuals or entities acceptable to Lender
of an assumption agreement that is acceptable to Lender and that, among
other things, requires the transferee to perform all obligations of
transferor or such person set forth in such Loan Document, and may
require that the transferee comply with any provisions of this
Instrument or any other Loan Document which previously may have been
waived by Lender;
(v) Lender's receipt of all of the following:
(A) a transfer fee equal to 1 percent of the
Commitment immediately prior to the transfer.
(B) In addition, Borrower shall be required
to reimburse Lender for all of Lender's out-of-pocket costs
(including reasonable attorneys' fees) incurred in reviewing
the Transfer request.
SECTION 13.22 Change in Senior Management.
(a) The Borrower shall give the Lender notice of any change in
the identity of the Chief Executive Officer or the Chief Financial Officer of
the REIT.
(b) Within 30 Business Days after receipt of the Borrower's
notice, the Lender shall have the right to terminate this Agreement and the
Credit Facility by giving a notice of such termination to the Borrower. In such
event, this Agreement and the Credit Facility shall terminate with the same
effect as if the Lender had approved a Credit Facility Termination Request
(including the Borrower's obligation, pursuant to Section 10.03(a), to pay in
full all of the Notes Outstanding on the Closing Date, including any other
charges under the Notes), except that, for these purposes, the Closing Date
shall be the 180th day after the date on which the Borrower first receives the
Lender's termination notice.
(c) If the Lender exercises its termination right pursuant to
subsection (b), the Borrower shall have a period of 90 days, commencing with the
date on which the Borrower receives the Lender's termination notice, to request
that the Lender rescind its termination notice. The Borrower may include in its
request any undertakings which it is willing to make in order to obtain such a
rescission. The Lender shall give the Borrower Parties notice of its acceptance
or rejection of the Borrower Parties' request within 30 Business Days after the
Borrower makes the request. If the Lender accepts the request, the Lender shall
give the Borrower a notice that the termination notice shall be deemed rescinded
and of no further force or effect, and this Agreement and the Credit Facility
shall continue in accordance with, and subject to the terms, conditions and
limitations contained in, this Agreement.
SECTION 13.23 Date-Down Endorsements. At any time and from time to time, a
Lender may obtain an endorsement to each Title Insurance Policy containing a
Revolving Credit Endorsement,
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amending the effective date of the Title Insurance Policy to the date of the
title search performed in connection with the endorsement. The Borrower shall
pay for the cost and expenses incurred by the Lender to the Title Company in
obtaining such endorsement, provided that, for each Title Insurance Policy, it
shall not be liable to pay for more than one such endorsement in any consecutive
12 month period.
SECTION 13.24 Geographical Diversification. The Borrower shall maintain
Mortgaged Properties in the Collateral Pool so that the Collateral Pool consists
of at least 35 Mortgaged Properties located in at least six states, provided
that for purposes of this Section 13.24, SMSA's in the State of Texas (up to a
maximum of four) shall count as states and provided, however, that, upon the
occurrence of any increase in the Commitment pursuant to Article VIII, the
Borrower shall at all times thereafter cause the Collateral Pool to satisfy such
other Geographical Diversification Requirements as the Lender may determine and
notify Borrower of at the time of the increase.
SECTION 13.25 Ownership of Mortgaged Properties. The Borrower shall be the sole
owner of each of the Mortgaged Properties free and clear of any Liens other than
Permitted Liens.
ARTICLE XIV
NEGATIVE COVENANTS OF THE BORROWER PARTIES
Each Borrower Party, with respect to itself, agrees and covenants with the
Lender that, at all times during the Term of this Agreement:
SECTION 14.01 Other Activities. No Borrower Party shall:
(a) either directly or indirectly sell, transfer, exchange or
otherwise dispose of any of its assets except as permitted hereunder, by the
Security Instruments or the Cash Management Agreement;
(b) engage in any business or activity other than in
connection with the Ownership, management and operation of Multifamily
Residential Properties;
(c) amend its Organizational Documents in any material respect
without the prior written consent of the Lender;
(d) dissolve or liquidate in whole or in part;
(e) merge or consolidate with any Person; or
(f) use, or permit to be used, any Mortgaged Property for any
uses or purposes other than as a Multifamily Residential Property.
SECTION 14.02 Value of Security. The Borrower Party shall not take any action
which could reasonably be expected to have any Material Adverse Effect.
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SECTION 14.03 Zoning. The Borrower Party shall not initiate or consent to any
zoning reclassification of any Mortgaged Property or seek any variance under any
zoning ordinance or use or permit the use of any Mortgaged Property in any
manner that could result in the use becoming a nonconforming use under any
zoning ordinance or any other applicable land use law, rule or regulation.
SECTION 14.04 Liens. The Borrower Party shall not create, incur, assume or
suffer to exist any Lien on any Mortgaged Property or any part of any Mortgaged
Property, except the Permitted Liens.
SECTION 14.05 Sale. The Borrower shall not Transfer any Mortgaged Property or
any part of any Mortgaged Property without the prior written consent of the
Lender (which consent may be granted or withheld in the Lender's discretion), or
any interest in any Mortgaged Property, other than to enter into Leases for
units in a Mortgaged Property to any tenant in the ordinary course of business.
SECTION 14.06 Intentionally Omitted.
SECTION 14.07 Principal Place of Business. The Borrower Party shall not change
its principal place of business or the location of its books and records, each
as set forth in Section 12.01(a), without first giving 30 days' prior written
notice to the Lender.
SECTION 14.08 Frequency of Requests. The Borrower shall make all Requests (other
than a Future Advance Request) in any Calendar Quarter on the same day in the
Calendar Quarter. Accordingly, once the Borrower makes one or more Requests
(other than a Future Advance Request or a Collateral Addition Request) in a
Calendar Quarter, it shall not make any further Requests (other than a Future
Advance Request) in the Calendar Quarter. The Borrower shall have the right,
subject to the terms, conditions and limitations of this Agreement, to make a
Future Advance Request for a Revolving Facility Advance on any day until the
expiration of the Revolving Facility Availability Period and to make a Future
Advance Request for a Base Facility Advance on any day until the expiration of
the Base Facility Availability Period.
SECTION 14.09 Change in Property Management. The Borrower shall not change the
management agent for any Mortgaged Property except to a management agent which
the Lender determines is qualified in accordance with the criteria set forth in
Section 701 of the DUS Guide.
SECTION 14.10 Condominiums. The Borrower shall not submit any Mortgaged Property
to a condominium regime during the Term of this Agreement.
SECTION 14.11 Restrictions on Partnership Distributions. The Borrower Party
shall not make any distributions of any nature or kind whatsoever to the owners
of its Ownership Interests as such if, at the time of such distribution, a
Potential Event of Default or an Event of Default has occurred and remains
uncured.
SECTION 14.12 Lines of Business. The Borrower Party shall not be substantially
involved in any businesses other than the acquisition, Ownership, development,
construction, leasing, financing or
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management, directly or through Affiliates, of Multifamily Residential
Properties, and the conduct of these businesses shall not violate the
Organizational Documents pursuant to which it is formed.
SECTION 14.13 Limitation on Unimproved Real Property and New Construction. The
Borrower Party shall not permit:
(a) the value of its real property which is not improved
(except real property on which phases of a Mortgaged Property are contemplated
to be constructed) by one or more buildings leased, or held out for lease, to
third parties ("Unimproved Real Property") to exceed 10% of the value of all of
its "Real Estate Assets" (as that term is defined in Section 856(c)(6)(B) of the
Internal Revenue Code and the regulations thereunder); and
(b) the sum of (i) the value of its Unimproved Real Property
and (ii) the value of its Real Estate Assets which are under construction or
subject to substantial rehabilitation to exceed 20% of the value of all of its
Real Estate Assets.
All of the foregoing values shall be determined by the Lender.
SECTION 14.14 No Encumbrance of Collateral Release Property. Unless the Borrower
sells a Collateral Release Property to a Person who is not an Affiliate of a
Borrower Party substantially simultaneously with the release of the Collateral
Release Property from the Collateral Pool, the Borrower shall not encumber the
Collateral Release Property for a period of 120 days following the release of
the Collateral Release Property from the Collateral Pool.
ARTICLE XV
FINANCIAL COVENANTS OF THE BORROWER PARTIES
Each Borrower Party agrees and covenants with the Lender that, at all times
during the Term of this Agreement:
SECTION 15.01 Financial Definitions. For all purposes of this Agreement, the
following terms shall have the respective meanings set forth below:
"Consolidated EBITDA" means, for any period, and without double
counting any item, the EBITDA for the Borrower, the REIT and their respective
Subsidiaries for such period on a consolidated basis.
"Consolidated EBITDA to Fixed Charges Ratio" means, for any period of
determination, the ratio (expressed as a percentage) of--
(a) the excess of--
(i) the Consolidated EBITDA for the period, less
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(ii) the Imputed Capital Expenditures for the period;
to
(b) the Consolidated Fixed Charges for the period.
"Consolidated EBITDA to Interest Ratio" means, for any period of
determination, the ratio (expressed as a percentage) of--
(a) the excess of--
(i) the Consolidated EBITDA for the period, less
(ii) the Imputed Capital Expenditures for the period;
to
(b) the Consolidated Interest Expense for the period.
"Consolidated Fixed Charges" means, for any period of determination,
the sum of--
(a) the Consolidated Interest Expense for the period;
(b) the Consolidated Scheduled Amortization for the period;
and
(c) Preferred Distributions for the period.
"Consolidated Interest Expense" means, for any period of
determination, and without double counting any item, the sum of the Interest
Expense for the Borrower, the REIT and their respective Subsidiaries for such
period on a consolidated basis.
"Consolidated Scheduled Amortization" means, for any period of
determination, and without double counting any item, the sum of the Scheduled
Amortization for the Borrower, the REIT and their respective Subsidiaries for
such period on a consolidated basis.
"Consolidated Total Assets" means, for any Person, all assets
of such Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP; provided that all assets composed of real property shall
be valued on an undepreciated cost basis. The assets of a Person and its
Subsidiaries shall be adjusted to reflect such Person's allocable share of such
assets, for the relevant period or as of the date of determination, taking into
account (a) the relative proportion of each such item derived from assets
directly owned by such Person and from assets owned by its Subsidiaries, and (b)
such Persons' respective ownership interest in its Subsidiaries.
"Consolidated Total Indebtedness" means, as of any date, and
without double counting any item, the Total Indebtedness for the Borrower, the
REIT and their respective Subsidiaries as of such date (including the Total
Indebtedness of the Borrower Parties as of such date).
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"EBITDA" means, for any period, the sum determined in
accordance with GAAP, of the following, for any Person on a consolidated basis--
(a) the net income (or net loss) of such Person during such
Period;
(b) all amounts treated as expenses for depreciation, Interest
Expense and the amortization of intangibles of any kind to the extent included
in the determination of such net income (or loss); and
(c) all accrued taxes on or measured by income to the extent
included in the determination of such net income (or loss);
provided, however, that net income (or loss) shall be computed
for these purposes without giving effect to extraordinary losses or
extraordinary gains.
"Imputed Capital Expenditures" means, for any four (4)
consecutive quarters, an amount equal to the average number of apartment units
owned by the Borrower, the REIT or the Subsidiaries of the Borrower or the REIT
during such period multiplied by Three Hundred Dollars ($300.00)] per apartment
unit, and for any period of less than four (4) consecutive quarters, an
appropriate proration of such figure.
"Interest Expense" means, for any period, the sum of--
(a) gross interest expense for the period (including all
commissions, discounts, fees and other charges in connection with standby
letters of credit and similar instruments) for the Borrower, the REIT and their
respective Subsidiaries; and
(b) the portion of the up-front costs and expenses for Rate
Contracts entered into by the Borrower, the REIT and their respective
Subsidiaries (to the extent not included in gross interest expense) fairly
allocated to such Rate Contracts as expenses for such period, as determined in
accordance with GAAP;
(c) provided, that, all interest expense accrued by the
Borrower, the REIT and their respective Subsidiaries during such period, even if
not payable on or before the Credit Facility Termination Date, shall be included
within "Interest Expense." Notwithstanding the foregoing, interest accrued under
any Intra-Company Debt shall not be included within "Interest Expense" for any
purposes hereof.
"Intra-Company Debt" means Indebtedness (whether book-entry or
evidenced by a term, demand or other note or other instrument) owed by the
Borrower, the REIT or any of their respective Subsidiaries to any Subsidiary,
and incurred or assumed for the purpose of capitalizing a Subsidiary of the REIT
or the Borrower.
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"Management Entity" means the REIT.
"Net Worth" means, as of any specified date, for any Person,
the excess of the Person's assets over the Person's liabilities, determined in
accordance with GAAP, on a consolidated basis.
"Pledged Cash" shall mean the amount held on deposit in the
Pledgee Account.
"Preferred Distributions" means, for any period, the amount of
any and all distributions due and payable to the holders of any form of
preferred stock (whether perpetual, convertible or otherwise) or other ownership
or beneficial interest in the REIT or any of its Subsidiaries that entitles the
holders thereof to preferential payment or distribution priority with respect to
dividends, assets or other payments over the holders of any other stock or other
ownership or beneficial interest in such Person.
"Rate Contracts" means interest rate and currency swap
agreements, cap, floor and collar agreements, interest rate insurance, currency
spot and forward contracts and other agreements or arrangements designed to
provide protection against fluctuations in interest or currency exchange rates.
"Restricted Cash" means the sum of Pledged Cash plus any cash
pledged by the Borrower, the REIT or any of their respective Subsidiaries to
other lenders, as indicated in the line item for "restricted cash" in the REIT's
or the Borrower's balance sheet from time to time.
"Scheduled Amortization" means, with respect to any Person,
the sum, as of any date of determination, of the current portion (i.e., such
portion as is scheduled to be paid by the obligor thereof within 12 months from
the date of determination) of all regularly scheduled amortization payments due
on such Person's long-term fully amortizing mortgage Indebtedness (exclusive of
balloon payments).
"Stock" means all shares, options, warrants, interests,
participations or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, perpetual preferred stock or any other "equity security"
(as such term is defined in Rule 3a11-1 of the General Rules and Regulations
promulgated by the Securities and Exchange Commission under the Securities and
Exchange Act of 1934, and regulations promulgated thereunder).
"Total Indebtedness" means, as of any date of determination,
and in respect of any Person, all outstanding Indebtedness, and in the case of
clause (iii) below, Indebtedness available to be drawn, of a Person, and shall
include, without limitation: (i) such Person's share of the Indebtedness of any
partnership or joint venture in which such Person directly or indirectly holds
any interest; (ii) any recourse or contingent obligations, directly or
indirectly, of such Person with respect to any Indebtedness of such partnership
or joint venture in excess of its proportionate share and (iii) such Person's
liability in respect of letters of credit, whether such liability is contingent
or fixed (such liability to be determined on the assumption that all conditions
for drawing upon such
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letters of credit have been complied with). Notwithstanding the foregoing, (x)
Intra-Company Debt, and (y) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of business in accordance with customary
terms and paid within the specified time, shall be excluded from the calculation
of "Total Indebtedness" but shall not otherwise be excluded as Indebtedness for
any other purpose hereof.
"Unconsolidated Partnership" means any partnership or joint
venture (a) in which the Borrower or any Subsidiary of the Borrower or the REIT
holds an interest which is not consolidated in the financial statements of the
REIT or (b) which is not a Subsidiary.
"Wholly-Owned Subsidiary" means a Subsidiary of the Borrower
or the REIT one hundred percent (100%) of the Stock or other equity or other
beneficial interests (in the case of Persons other than corporations) is owned
directly or indirectly by (i) the Borrower and/or (ii) the REIT; provided,
however, that where such term is qualified with respect to a specific Person
(e.g., "Wholly-Owned Subsidiary of the REIT") such terms means a Subsidiary one
hundred percent (100%) of the Stock or other equity or other beneficial
interests (in the case of Persons other than corporations) is owned directly or
indirectly by the specified Person.
SECTION 15.02 Compliance with Debt Service Coverage Ratios.
(a) The Borrower shall at all times maintain the Aggregate
Debt Service Coverage Ratio for the Trailing 12 Month Period so that it is not
less than 1.35:1.0.
(b) The Borrower shall at all times maintain the Aggregate
Debt Service Coverage Ratio for the Trailing Three Month Period so that it is
not less than 1.25:1.0.
SECTION 15.03 Compliance with Loan to Value Ratios. The Borrower shall at all
times maintain the Aggregate Loan to Value Ratio for the Trailing 12 Month
Period so that it is not greater than 65%.
SECTION 15.04 Compliance with Concentration Test.
(a) The Borrower shall at all times maintain the Collateral so
that the aggregate Valuations of any group of Mortgaged Properties located
within a one mile radius shall not exceed 25% of the aggregate Valuations of all
Mortgaged Properties.
(b) The Borrower shall at all times after the first Loan Year
maintain the Collateral so that the Valuation of any one Mortgaged Property
shall not exceed 10% of the aggregate Valuations of all Mortgaged Properties.
SECTION 15.05 Compliance with REIT's Net Worth Test. The REIT shall at all times
maintain its Net Worth so that it is not less than $600,000,000 plus 65% of
proceeds (less all reasonable and customary expenses and costs) of equity
offerings consummated by the REIT after the date of this Agreement.
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SECTION 15.06 Compliance with REIT's Total Indebtedness to Gross Asset Value
Ratio. The REIT shall not permit the ratio of Consolidated Total Indebtedness to
Gross Asset Value to exceed 56% at any time.
SECTION 15.07 Compliance with REIT's Consolidated EBITDA to Interest Ratio. The
REIT shall not permit the Consolidated EBITDA to Interest Ratio computed for any
fiscal quarter to be less than 200% for any period of four consecutive fiscal
quarters (treated as a single accounting period).
SECTION 15.08 Compliance with REIT's Consolidated EBITDA to Fixed Charge Ratio.
The REIT shall not permit the Consolidated EBITDA to Fixed Charges Ratio
computed for any fiscal quarter or year to be less than 150% for any period of
four consecutive fiscal quarters (treated as a single accounting period).
ARTICLE XVI
FEES
SECTION 16.01 Standby Fee. The Borrower shall pay the Standby Fee to the Lender
for the period from the date of this Agreement to the end of the Term of this
Agreement. The Standby Fee shall be payable monthly, in arrears, on the first
Business Day following the end of the month, except that the Standby Fee for the
last month during the Term of this Agreement shall be paid on the last day of
the Term of this Agreement.
SECTION 16.02 Origination Fees.
(a) Initial Origination Fee. The Borrower shall pay to the
Lender an origination fee ("Initial Origination Fee") equal to $2,500,000 (which
is equal to the product obtained by multiplying (i) the Commitment as of the
date of this Agreement ($250,000,000), by (ii) 1.0%). The Borrower shall pay the
Initial Origination Fee on the date of this Agreement.
(b) Expansion Origination Fee. Upon the closing of a Credit
Facility Expansion Request under Article VIII, the Borrower shall pay to the
Lender an origination fee ("Expansion Origination Fee") equal to the product
obtained by multiplying (i) the increase in the Commitment made on the Closing
Date for the Credit Facility Expansion Request, by (ii) 1%. The Borrower shall
pay the Expansion Origination Fee on or before the Closing Date for the Credit
Facility Expansion Request.
SECTION 16.03 Due Diligence Fees.
(a) Initial Due Diligence Fees. The Borrower shall pay to the
Lender due diligence fees ("Initial Due Diligence Fees") with respect to the
Initial Mortgaged Properties in an amount not to exceed the product obtained by
multiplying:
(A) $16,000, by
(B) the number of Initial Mortgaged Properties;
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The Borrower has previously paid to the Lender a portion of the Initial Due
Diligence Fees and shall pay the remainder of the Initial Due Diligence Fees to
the Lender on the Initial Closing Date.
(b) Additional Due Diligence Fees for Additional Collateral.
The Borrower shall pay to the Lender additional due diligence fees (the
"Additional Collateral Due Diligence Fees") with respect to each Additional
Mortgaged Property in an amount not to exceed the sum of $16,000. The Borrower
shall pay Additional Collateral Due Diligence Fees for the Additional Mortgaged
Property to the Lender on the date on which it submits the Collateral Addition
Request for the addition of the Additional Mortgaged Property to the Collateral
Pool.
SECTION 16.04 Legal Fees and Expenses.
(a) Initial Legal Fees. The Borrower shall pay, or reimburse
the Lender for, all out-of-pocket legal fees and expenses incurred by the Lender
and by Fannie Mae in connection with the preparation, review and negotiation of
this Agreement and any other Loan Documents executed on the date of this
Agreement. On the date of this Agreement, the Borrower shall pay all such legal
fees and expenses not previously paid or for which funds have not been
previously provided.
(b) Fees and Expenses Associated with Requests. The Borrower
shall pay, or reimburse the Lender for, all costs and expenses incurred by the
Lender, including the out-of-pocket legal fees and expenses incurred by the
Lender in connection with the preparation, review and negotiation of all
documents, instruments and certificates to be executed and delivered in
connection with each Request, the performance by the Lender of any of its
obligations with respect to the Request, the satisfaction of all conditions
precedent to the Borrower's rights or the Lender's obligations with respect to
the Request, and all transactions related to any of the foregoing, including the
cost of title insurance premiums and applicable recordation and transfer taxes
and charges and all other costs and expenses in connection with a Request. The
obligations of the Borrower under this subsection shall be absolute and
unconditional, regardless of whether the transaction requested in the Request
actually occurs. The Borrower shall pay such costs and expenses to the Lender on
the Closing Date for the Request, or, as the case may be, after demand by the
Lender when the Lender determines that such Request will not close.
SECTION 16.05 MBS-Related Costs. The Borrower shall pay to the Lender, within 30
days after demand, all fees and expenses incurred by the Lender or Fannie Mae in
connection with the issuance of any MBS backed by an Advance, including the fees
charged by Depository Trust Company and State Street Bank or any successor
fiscal agent or custodian.
SECTION 16.06 Failure to Close any Request. If the Borrower makes a Request and
fails to close on the Request for any reason other than the default by the
Lender, then the Borrower shall pay to the Lender and Fannie Mae all damages
incurred by the Lender and Fannie Mae in connection with the failure to close.
SECTION 16.07 Other Fees. The Borrower shall pay the following additional fees
and payments, if and when required pursuant to the terms of this Agreement:
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(a) The Collateral Addition Fee, pursuant to Section 6.03(b),
in connection with the addition of an Additional Mortgaged Property to the
Collateral Pool pursuant to Article VI;
(b) The Release Price, pursuant to Section 7.02(c), in
connection with the release of a Mortgaged Property from the Collateral Pool
pursuant to Article VII;
(c) The Release Fee, pursuant to Section 7.03(c), in
connection with the release of a Mortgaged Property from the Collateral Pool
pursuant to Article VII;
(d) The Revolving Facility Termination Fee, pursuant to
Section 9.03(b) in connection with a complete or partial termination of the
Revolving Facility pursuant to Article IX; and
(e) The Revolving Facility Termination Fee, pursuant to
Section 10.03(b), in connection with the termination of the Credit Facility
pursuant to Article X.
ARTICLE XVII
EVENTS OF DEFAULT
SECTION 17.01 Events of Default. Each of the following events shall constitute
an "Event of Default" under this Agreement, whatever the reason for such event
and whether it shall be voluntary or involuntary, or within or without the
control of a Borrower Party, or be effected by operation of law or pursuant to
any judgment or order of any court or any order, rule or regulation of any
Governmental Authority:
(a) the occurrence of a default under any Loan Document beyond
the cure period, if any, set forth therein; or
(b) the failure by the Borrower to pay when due any amount
payable by the Borrower under any Note, any Mortgage, this Agreement or any
other Loan Document, including any fees, costs or expenses; or
(c) the failure by any Borrower Party to perform or observe
any covenant set forth in Sections 13.01 through 13.24 or Sections 14.01 through
14.14, provided that such period shall be extended for up to 30 additional days
if the Borrower, in the discretion of the Lender, is diligently pursuing a cure
of such default within 30 days after receipt of notice from the Lender; or
(d) any warranty, representation or other written statement
made by or on behalf of a Borrower Party contained in this Agreement, any other
Loan Document or in any instrument furnished in compliance with or in reference
to any of the foregoing, is false or misleading in any material respect on any
date when made or deemed made; or
(e) any other Indebtedness in an aggregate amount in excess of
$1,000,000 of any Borrower Party or assumed by any Borrower Party (i) is not
paid when due nor within any
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applicable grace period in any agreement or instrument relating to such
Indebtedness or (ii) becomes due and payable before its normal maturity by
reason of a default or event of default, however described, or any other event
of default shall occur and continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness; or
(f) (i) A Borrower Party shall (A) commence a voluntary case
under the Federal bankruptcy laws (as now or hereafter in effect), (B) file a
petition seeking to take advantage of any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, debt adjustment, winding up
or composition or adjustment of debts, (C) consent to or fail to contest in a
timely and appropriate manner any petition filed against it in an involuntary
case under such bankruptcy laws or other laws, (D) apply for or consent to, or
fail to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of a substantial part of its property, domestic or foreign, (E) admit in
writing its inability to pay, or generally not be paying, its debts as they
become due, (F) make a general assignment for the benefit of creditors, (G)
assert that the Borrower Party has no liability or obligations under this
Agreement or any other Loan Document to which it is a party; or (H) take any
action for the purpose of effecting any of the foregoing; or (ii) a case or
other proceeding shall be commenced against a Borrower Party in any court of
competent jurisdiction seeking (A) relief under the Federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding upon or composition
or adjustment of debts, or (B) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower Party, or of all or a
substantial part of the property, domestic or foreign, of the Borrower Party and
any such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or any order granting the relief requested in
any such case or proceeding against the Borrower Party (including an order for
relief under such Federal bankruptcy laws) shall be entered; or
(g) if any provision of this Agreement or any other Loan
Document or the lien and security interest purported to be created hereunder or
under any Loan Document shall at any time for any reason cease to be valid and
binding in accordance with its terms on any Borrower Party, or shall be declared
to be null and void, or the validity or enforceability hereof or thereof or the
validity or priority of the lien and security interest created hereunder or
under any other Loan Document shall be contested by any Borrower Party seeking
to establish the invalidity or unenforceability hereof or thereof, or any
Borrower Party shall deny that it has any further liability or obligation
hereunder or thereunder; or
(h) (i) the execution by the Borrower of a chattel mortgage or
other security agreement on any materials, fixtures or articles used in the
construction or operation of the improvements located on any Mortgaged Property
or on articles of personal property located therein, or (ii) if any such
materials, fixtures or articles are purchased pursuant to any conditional sales
contract or other security agreement or otherwise so that the Ownership thereof
will not vest unconditionally in the Borrower free from encumbrances, or (iii)
if the Borrower does not furnish to the Lender upon request the contracts, bills
of sale, statements, receipted vouchers and agreements, or any of them, under
which the Borrower claims title to such materials, fixtures, or articles; or
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(i) the failure by any Borrower Party to comply with any
requirement of any Governmental Authority within 30 days after written notice of
such requirement shall have been given to the Borrower Party by such
Governmental Authority; provided that, if action is commenced and diligently
pursued by the Borrower Party within such 30 days, then the Borrower Party shall
have an additional 30 days to comply with such requirement; or
(j) a dissolution or liquidation for any reason (whether
voluntary or involuntary) of any Borrower Party; or
(k) any judgment against any Borrower Party, any attachment or
other levy against any portion of any Borrower Party's assets with respect to a
claim or claims in an amount in excess of $500,000 in the aggregate remains
unpaid, unstayed on appeal undischarged, unbonded, not fully insured or
undismissed for a period of 60 days; or
(l) the failure by the Borrower to cause the Gross Revenues
with respect to any Mortgaged Property to be deposited into the applicable
Pledgee Account in accordance with the requirements of the Cash Management
Agreement; or
(m) The failure of the Borrower Party to perform or observe
any of the Financial Covenants, which failure shall continue for a period of 30
days after the date on which the Borrower Party receives a notice from the
Lender specifying the failure; or
(n) The failure of the Borrower to maintain the Hedges
required by Article XXI of this Agreement; or
(o) the failure by any Borrower Party to perform or observe
any term, covenant, condition or agreement hereunder, other than as set forth in
subsections (a) through (m) above, or in any other Loan Document, within 30 days
after receipt of notice from the Lender identifying such failure.
ARTICLE XVIII
REMEDIES
SECTION 18.01 Remedies; Waivers. Upon the occurrence of an Event of Default, the
Lender may do any one or more of the following (without presentment, protest or
notice of protest, all of which are expressly waived by the Borrower):
(a) by written notice to the Borrower, to be effective upon
dispatch, terminate the Commitment and declare the principal of, and interest
on, the Advances and all other sums owing by the Borrower to the Lender under
any of the Loan Documents forthwith due and payable, whereupon the Commitment
will terminate and the principal of, and interest on, the Advances and all other
sums owing by the Borrower to the Lender under any of the Loan Documents will
become forthwith due and payable.
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(b) The Lender shall have the right to pursue any other
remedies available to it under any of the Loan Documents.
(c) The Lender shall have the right to pursue all remedies
available to it at law or in equity, including obtaining specific performance
and injunctive relief.
SECTION 18.02 Waivers; Rescission of Declaration. The Lender shall have the
right, to be exercised in its complete discretion, to waive any breach hereunder
(including the occurrence of an Event of Default), by a writing setting forth
the terms, conditions, and extent of such waiver signed by the Lender and
delivered to the Borrower Parties. Unless such writing expressly provides to the
contrary, any waiver so granted shall extend only to the specific event or
occurrence which gave rise to the waiver and not to any other similar event or
occurrence which occurs subsequent to the date of such waiver.
SECTION 18.03 The Lender's Right to Protect Collateral and Perform Covenants and
Other Obligations. If any Borrower Party fails to perform the covenants and
agreements contained in this Agreement or any of the other Loan Documents, then
the Lender at the Lender's option may make such appearances, disburse such sums
and take such action as the Lender deems necessary, in its sole discretion, to
protect the Lender's interest, including (i) disbursement of attorneys' fees,
(ii) entry upon the Mortgaged Property to make repairs and Replacements, (iii)
procurement of satisfactory insurance as provided in paragraph 5 of the Security
Instrument encumbering the Mortgaged Property, and (iv) if the Security
Instrument is on a leasehold, exercise of any option to renew or extend the
ground lease on behalf of the Borrower and the curing of any default of the
Borrower in the terms and conditions of the ground lease. Any amounts disbursed
by the Lender pursuant to this Section, with interest thereon, shall become
additional indebtedness of the Borrower secured by the Loan Documents. Unless
the Borrower and the Lender agree to other terms of payment, such amounts shall
be immediately due and payable and shall bear interest from the date of
disbursement at the weighted average, as determined by Lender, of the interest
rates in effect from time to time for each Advance unless collection from the
Borrower of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from the Borrower under applicable law. Nothing contained in this
Section shall require the Lender to incur any expense or take any action
hereunder.
SECTION 18.04 No Remedy Exclusive. Unless otherwise expressly provided, no
remedy herein conferred upon or reserved is intended to be exclusive of any
other available remedy, but each remedy shall be cumulative and shall be in
addition to other remedies given under the Loan Documents or existing at law or
in equity.
SECTION 18.05 No Waiver. No delay or omission to exercise any right or power
accruing under any Loan Document upon the happening of any Event of Default or
Potential Event of Default shall impair any such right or power or shall be
construed to be a waiver thereof, but any such right and power may be exercised
from time to time and as often as may be deemed expedient.
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SECTION 18.06 No Notice. In order to entitle the Lender to exercise any remedy
reserved to the Lender in this Article, it shall not be necessary to give any
notice, other than such notice as may be required under the applicable
provisions of this Agreement or any of the other Loan Documents.
SECTION 18.07 Application of Payments. Except as otherwise expressly provided in
the Loan Documents, and unless applicable law provides otherwise, (i) all
payments received by the Lender from any of the Borrower Parties under the Loan
Documents shall be applied by the Lender against any amounts then due and
payable under the Loan Documents by any of the Borrower Parties, in any order of
priority that the Lender may determine and (ii) the Borrower shall have no right
to determine the order of priority or the allocation of any payment it makes to
the Lender.
ARTICLE XIX
RIGHTS OF FANNIE MAE
SECTION 19.01 Special Pool Purchase Contract. The Borrower Parties acknowledge
that Fannie Mae is entering into an agreement with the Lender ("Special Pool
Purchase Contract"), pursuant to which, inter alia, (i) the Lender shall agree
to assign all of its rights under this Agreement to Fannie Mae, (ii) Fannie Mae
shall accept the assignment of the rights, (iii) subject to the terms,
limitations and conditions set forth in the Special Pool Purchase Contract,
Fannie Mae shall agree to purchase a 100% participation interest in each Advance
issued under this Agreement by issuing to the Lender a Fannie Mae MBS, in the
amount and for a term equal to the Advance purchased and backed by an interest
in the Base Facility Note or the Revolving Facility Note, as the case may be,
and the Collateral Pool securing the Notes, (iv) the Lender shall agree to
assign to Fannie Mae all of the Lender's interest in the Notes and Collateral
Pool securing the Notes, and (v) the Lender shall agree to service the loans
evidenced by the Notes.
SECTION 19.02 Assignment of Rights. The Borrower Parties acknowledge and consent
to the assignment to Fannie Mae of all of the rights of the Lender under this
Agreement and all other Loan Documents, including the right and power to make
all decisions on the part of the Lender to be made under this Agreement and the
other Loan Documents, but Fannie Mae, by virtue of this assignment, shall not be
obligated to perform the obligations of the Lender under this Agreement or the
other Loan Documents.
SECTION 19.03 Release of Collateral. The Borrower Parties hereby acknowledge
that, after the assignment of Loan Documents contemplated in Section 19.02, the
Lender shall not have the right or power to effect a release of any Collateral
pursuant to Articles VII or X. The Borrower Parties acknowledge that the
Security Instruments provide for the release of the Collateral under Articles
VII and X. Accordingly, the Borrower Parties shall not look to the Lender for
performance of any obligations set forth in Articles VII and X, but shall look
solely to the party secured by the Collateral to be released for such
performance. The Lender represents and warrants to the Borrower Parties that the
party secured by the Collateral shall be subject to the release provisions
contained in Articles VII and X by virtue of the release provisions in each
Security Instrument.
SECTION 19.04 Replacement of Lender. At the request of Fannie Mae, the Borrower
Parties and the Lender shall agree to the assumption by another lender
designated by Fannie Mae, of all of the
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obligations of the Lender under this Agreement and the other Loan Documents,
and/or any related servicing obligations, and, at Fannie Mae's option, the
concurrent release of the Lender from its obligations under this Agreement and
the other Loan Documents, and/or any related servicing obligations, and shall
execute all releases, modifications and other documents which Fannie Mae
determines are necessary or desirable to effect such assumption.
SECTION 19.05 Fannie Mae and Lender Fees and Expenses. The Borrower Parties
agree that any provision providing for the payment of fees, costs or expenses
incurred or charged by the Lender pursuant to this Agreement shall be deemed to
provide for the Borrower's payment of all fees, costs and expenses incurred or
charged by the Lender or Fannie Mae in connection with the matter for which
fees, costs or expenses are payable.
SECTION 19.06 Third-Party Beneficiary. The Borrower Parties hereby acknowledge
and agree that Fannie Mae is a third party beneficiary of all of the
representations, warranties and covenants made by any Borrower Parties to, and
all rights under this Agreement conferred upon, the Lender, and, by virtue of
its status as third-party beneficiary and/or assignee of the Lender's rights
under this Agreement, Fannie Mae shall have the right to enforce all of the
provisions of this Agreement against the Borrower Parties.
ARTICLE XX
INSURANCE, REAL ESTATE TAXES
AND REPLACEMENT RESERVES
SECTION 20.01 Insurance and Real Estate Taxes. The Borrower shall (unless waived
by Lender) establish funds for taxes, insurance premiums and certain other
charges for each Mortgaged Property in accordance with Section 7(a) of the
Security Instrument for each Mortgaged Property.
SECTION 20.02 Replacement Reserves. The Borrower shall execute a Replacement
Reserve Agreement for the Mortgaged Property which it owns and shall (unless
waived by the Lender) make all deposits for replacement reserves in accordance
with the terms of the Replacement Reserve Agreement.
ARTICLE XXI
INTEREST RATE PROTECTION
SECTION 21.01 Interest Rate Protection.
(a) The Initial Hedge. To protect against fluctuations in interest
rates, the Borrower shall make arrangements for a Hedge to be in place and
maintained at all times with respect to each Revolving Facility Commitment. The
Hedge for the initial Revolving Facility Commitment shall be a Swap for a period
beginning on the Closing Date and ending not earlier than the date which is the
fifth anniversary of the Initial Closing Date (the "Initial Hedge Period").
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(b) Subsequent Hedges. Additional Hedges (each, a "Subsequent Hedge")
shall be required (i) for the remaining term of the Revolving Credit Facility
Commitment, upon the expiration of the Swap in place for the Initial Hedge
Period and (ii) if and at such times as a new Revolving Facility Commitment is
funded, such Subsequent Hedge to be in effect for a period beginning on the
Closing Date of the Future Advance Request and ending on the earlier of the
Revolving Facility Termination Date or the date of termination of the Revolving
Facility Commitment pursuant to which the advance is made. It is the intention
of the parties, and a condition of the Revolving Facility Commitment, that the
Borrower shall obtain, and shall maintain at all times during the term of this
Agreement so long as the Revolving Facility Commitment is Outstanding, a Hedge
or Hedges in an aggregate notional principal amount equal to the Revolving
Facility Commitment in effect from time to time and covering the entire term of
the Revolving Facility Commitment. If the Revolving Facility Commitment
decreases in accordance with the provisions of Article IX, the Borrower may
amend the Hedge or Hedges to provide for a decrease in the notional amount to an
amount equal to the reduced amount of the Revolving Facility Commitment,
provided that the Lender gives its prior written approval to the documents
reflecting the amendment (which approval shall not be unreasonably withheld,
delayed or conditioned).
SECTION 21.02. Hedge Terms. Each Hedge shall:
(i) provide for a notional principal amount equal at all times
to the outstanding principal balance of the Revolving Facility Commitment;
(ii) except the Swap in effect for the Initial Hedge Period,
be in effect for the entire term of the Revolving Facility Commitment;
(iii) provide for a notional interest rate equal to the Three
Month Libor Rate in effect from time to time (the "Hedge Rate");
(iv) require the counterparty to make interest payments on the
notional principal amount at a rate equal to the amount by which Coupon Rate
exceeds the Hedge Rate;
(v) require the counterparty to make such interest payments to
an account pledged to the Lender pursuant to the Hedge Security Agreement; and
(vi) be evidenced, governed and secured on terms and
conditions, and pursuant to documentation (the "Hedge Documents"), in form and
content acceptable to Fannie Mae, and with a counterparty (a "Counterparty")
approved by Fannie Mae.
SECTION 21.03 Hedge Security Agreement; Delivery of Hedge Payments. Pursuant to
a Hedge Security Agreement, the Lender shall be granted an enforceable,
perfected, first priority lien on and security interest in each Hedge and
payments due under the Hedge (including scheduled and termination payments) in
order to secure the Borrower's obligations to the Lender under this Agreement.
With respect to each Hedge, the Hedge Security Agreement must be delivered by
the Borrower to the Lender no later than the effective date of the Hedge.
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SECTION 21.04 Termination. The Borrower shall not terminate, transfer or consent
to any transfer of any existing Hedge without the Lender's prior written consent
as long as the Borrower is required to maintain a Hedge pursuant to this
Agreement; provided, however, that if, and at such time as, any Revolving
Facility Commitment terminates, the Borrower shall have the right to terminate
the existing Hedge with respect to such Revolving Facility Commitment.
SECTION 21.05 Performance Under Hedge Documents. The Borrower agrees to comply
fully with, and to otherwise perform when due, its obligations under, all
applicable Hedge Documents and all other agreements evidencing, governing and/or
securing any Hedge arrangement contemplated under this Article XXI. The Borrower
shall not exercise, without the Lender's prior written consent, and shall
exercise, at the Lender's direction, any rights or remedies under any Hedge
Document, including without limitation the right of termination.
ARTICLE XXII
LIMITS ON PERSONAL LIABILITY
SECTION 22.01 Limits on Personal Liability.
(a) Limits on Personal Liability. Except as otherwise provided
in this Article, the personal liability of the Borrower Parties under this
Agreement, the Notes, the Security Instrument or any other Loan Document for the
performance of any Obligations of any Borrower Party under the Loan Documents
shall be limited to an amount equal to 15% of the amount of the then current
Commitment regardless of the amount of the Credit Facility that is outstanding,
and the Lender's only recourse for the payment and performance of the
Obligations in excess of such amount shall be the Lender's exercise of its
rights and remedies with respect to the Mortgaged Property and any other
Collateral held by the Lender as security for the Obligations. The personal
liability of the Borrower Parties pursuant to the preceding sentence shall be
joint and several and shall be payable upon demand without notice or setoff.
This limitation on the Borrower Parties' liability shall not limit or impair the
Lender's enforcement of its rights against any guarantor of all or part of the
Obligations but, if such guarantor is a Borrower Party, such guarantor's
liability shall also be limited to the extent set forth in this Article.
(b) Exceptions to Limits on Personal Liability. In addition to
amounts the Borrower Parties are personally liable for pursuant to paragraph (a)
above, the Borrower Parties shall also be personally liable to the Lender on a
joint and several basis for the repayment of a portion of the Advances and other
amounts due under the Loan Documents equal to any loss or damage suffered by the
Lender as a result of (1) failure of the Borrower to pay to the Lender upon
demand after an Event of Default all Rents to which the Lender is entitled under
Section 3(a) of the Security Instrument encumbering the Mortgaged Property and
the amount of all security deposits collected by the Borrower from tenants then
in residence; (2) failure of the Borrower to apply all insurance proceeds and
condemnation proceeds as required by the Security Instrument encumbering the
Mortgaged Property; (3) failure of the Borrower to comply with Section 13.04
relating to the delivery of books and records, statements, schedules and
reports; (4) fraud or written material misrepresentation by any Borrower Party
or any officer, director, partner, member or employee of
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any Borrower Party in connection with the application for or creation of the
Obligations or any request for any action or consent by the Lender; (5) failure
to apply Rents, first, to the payment of reasonable operating expenses and then
to amounts ("Debt Service Amounts") payable under the Loan Documents (except
that the Borrower Party will not be personally liable (i) to the extent that the
Borrower Party lacks the legal right to direct the disbursement of such sums
because of a bankruptcy, receivership or similar judicial proceeding, or (ii)
with respect to Rents of a Mortgaged Property that are distributed in any
calendar year if the Borrower has paid all operating expenses and Debt Service
Amounts for that calendar year); or (6) the Borrower's failure to deposit all
Gross Revenues into a Property Account (as defined in the Cash Management
Agreement) in accordance with the Cash Management Agreement.
(c) Full Recourse. The Borrower Parties shall become
personally liable to the Lender for the payment and performance of all
Obligations upon the occurrence of any of the following Events of Default: (1)
the Borrower's acquisition of any property or operation of any business not
permitted by Section 33 of the Security Instrument; or (2) a Transfer that is an
Event of Default under Section 21 of the Security Instrument.
(d) Permitted Transfer Not Release. No Transfer by the REIT of
its Ownership Interests in the Borrower shall release the Borrower from
liability under this Article, this Agreement or any other Loan Document, unless
the Lender shall have approved the Transfer and shall have expressly released
the Borrower in connection with the Transfer.
(e) Miscellaneous. To the extent that a Borrower Party has
personal liability under this Section, the Lender may exercise its rights
against the Borrower Party personally without regard to whether the Lender has
exercised any rights against the Mortgaged Property or any other security, or
pursued any rights against any guarantor, or pursued any other rights available
to the Lender under the Loan Documents or applicable law. For purposes of this
Article, the term "Mortgaged Property" shall not include any funds that (1) have
been applied by any Borrower Party as required or permitted by the Loan
Documents prior to the occurrence of an Event of Default, or (2) are owned by a
Borrower Party and which the Borrower Party was unable to apply as required or
permitted by the Loan Documents because of a bankruptcy, receivership, or
similar judicial proceeding.
ARTICLE XXIII
MISCELLANEOUS PROVISIONS
SECTION 23.01 Counterparts. To facilitate execution, this Agreement may be
executed in any number of counterparts. It shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart, but it shall be
sufficient that the signature of, or on behalf of, each party, appear on one or
more counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than the number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
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SECTION 23.02 Amendments, Changes and Modifications. This Agreement may be
amended, changed, modified, altered or terminated only by written instrument or
written instruments signed by all of the parties hereto.
SECTION 23.03 Payment of Costs, Fees and Expenses. The Borrower shall pay, on
demand, all fees, costs, charges or expenses (including the fees and expenses of
attorneys, accountants and other experts) incurred by the Lender in connection
with:
(a) Any amendment, consent or waiver to this Agreement or any
of the Loan Documents (whether or not any such amendments, consents or waivers
are entered into).
(b) Defending or participating in any litigation arising from
actions by third parties and brought against or involving the Lender with
respect to (i) any Mortgaged Property, (ii) any event, act, condition or
circumstance in connection with any Mortgaged Property or (iii) the relationship
between the Lender and the Borrower or the REIT in connection with this
Agreement or any of the transactions contemplated by this Agreement.
(c) The administration or enforcement of, or preservation of
rights or remedies under, this Agreement or any other Loan Documents or in
connection with the foreclosure upon, sale of or other disposition of any
Collateral granted pursuant to the Loan Documents.
(d) The REIT's Registration Statement, or similar disclosure
documents, including fees payable to any rating agencies, including the fees and
expenses of the Lender's attorneys and accountants.
The Borrower shall also pay, on demand, any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution, delivery, filing, recordation, performance or enforcement of any of
the Loan Documents or the Advances. However, the Borrower will not be obligated
to pay any franchise, estate, inheritance, income, excess profits or similar tax
on the Lender. Any attorneys' fees and expenses payable by the Borrower pursuant
to this Section shall be recoverable separately from and in addition to any
other amount included in such judgment, and such obligation is intended to be
severable from the other provisions of this Agreement and to survive and not be
merged into any such judgment. Any amounts payable by the Borrower pursuant to
this Section, with interest thereon if not paid when due, shall become
additional indebtedness of the Borrower secured by the Loan Documents. Such
amounts shall bear interest from the date such amounts are due until paid in
full at the weighted average, as determined by Lender, of the interest rates in
effect from time to time for each Advance unless collection from the Borrower of
interest at such rate would be contrary to applicable law, in which event such
amounts shall bear interest at the highest rate which may be collected from the
Borrower under applicable law. The provisions of this Section are cumulative
with, and do not exclude the application and benefit to the Lender of, any
provision of any other Loan Document relating to any of the matters covered by
this Section.
SECTION 23.04 Payment Procedure. All payments to be made to the Lender pursuant
to this Agreement or any of the Loan Documents shall be made in lawful currency
of the United States of
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America and in immediately available funds by wire transfer to an account
designated by the Lender before 1:00 p.m. (Washington, D.C. time) on the date
when due.
SECTION 23.05 Payments on Business Days. In any case in which the date of
payment to the Lender or the expiration of any time period hereunder occurs on a
day which is not a Business Day, then such payment or expiration of such time
period need not occur on such date but may be made on the next succeeding
Business Day with the same force and effect as if made on the day of maturity or
expiration of such period, except that interest shall continue to accrue for the
period after such date to the next Business Day.
SECTION 23.06 Choice of Law; Consent to Jurisdiction; Waiver of Jury Trial.
NOTWITHSTANDING ANYTHING IN THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE
OTHER LOAN DOCUMENTS TO THE CONTRARY, EACH OF THE TERMS AND PROVISIONS, AND
RIGHTS AND OBLIGATIONS OF EACH BORROWER PARTY UNDER THE NOTES, AND EACH BORROWER
PARTY UNDER THE OTHER LOAN DOCUMENTS, SHALL BE GOVERNED BY, INTERPRETED,
CONSTRUED AND ENFORCED PURSUANT TO AND IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF VIRGINIA (EXCLUDING THE LAW APPLICABLE TO CONFLICTS OR CHOICE OF
LAW) EXCEPT TO THE EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO
(1) THE CREATION, PERFECTION AND FORECLOSURE OF LIENS AND SECURITY INTERESTS,
AND ENFORCEMENT OF THE RIGHTS AND REMEDIES, AGAINST THE MORTGAGED PROPERTIES,
WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE
MORTGAGED PROPERTY IS LOCATED, (2) THE PERFECTION, THE EFFECT OF PERFECTION AND
NON-PERFECTION AND FORECLOSURE OF SECURITY INTERESTS ON PERSONAL PROPERTY (OTHER
THAN DEPOSIT ACCOUNTS), WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE
JURISDICTION DETERMINED BY THE CHOICE OF LAW PROVISIONS OF THE VIRGINIA UNIFORM
COMMERCIAL CODE AND (3) THE PERFECTION, THE EFFECT OF PERFECTION AND
NON-PERFECTION AND FORECLOSURE OF DEPOSIT ACCOUNTS, WHICH MATTERS SHALL BE
GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH THE DEPOSIT ACCOUNT IS
LOCATED. THE BORROWER PARTIES AGREE THAT ANY CONTROVERSY ARISING UNDER OR IN
RELATION TO THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER LOAN DOCUMENT SHALL
BE, EXCEPT AS OTHERWISE PROVIDED HEREIN, LITIGATED IN VIRGINIA. THE LOCAL AND
FEDERAL COURTS AND AUTHORITIES WITH JURISDICTION IN VIRGINIA SHALL, EXCEPT AS
OTHERWISE PROVIDED HEREIN, HAVE JURISDICTION OVER ALL CONTROVERSIES WHICH MAY
ARISE UNDER OR IN RELATION TO THE LOAN DOCUMENTS, INCLUDING THOSE CONTROVERSIES
RELATING TO THE EXECUTION, JURISDICTION, BREACH, ENFORCEMENT OR COMPLIANCE WITH
THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER ISSUE ARISING UNDER, RELATING TO,
OR IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. EACH BORROWER PARTY IRREVOCABLY
CONSENTS TO SERVICE, JURISDICTION, AND VENUE OF SUCH COURTS FOR ANY LITIGATION
ARISING FROM THE NOTES, THE SECURITY DOCUMENTS OR ANY OF THE OTHER LOAN
DOCUMENTS, AND WAIVES ANY OTHER VENUE TO WHICH IT MIGHT BE ENTITLED
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<PAGE> 95
BY VIRTUE OF DOMICILE, HABITUAL RESIDENCE OR OTHERWISE. NOTHING CONTAINED
HEREIN, HOWEVER, SHALL PREVENT THE LENDER FROM BRINGING ANY SUIT, ACTION OR
PROCEEDING OR EXERCISING ANY RIGHTS AGAINST THE BORROWER PARTIES, AND AGAINST
THE COLLATERAL IN ANY OTHER JURISDICTION. INITIATING SUCH SUIT, ACTION OR
PROCEEDING OR TAKING SUCH ACTION IN ANY OTHER JURISDICTION SHALL IN NO EVENT
CONSTITUTE A WAIVER OF THE AGREEMENT CONTAINED HEREIN THAT THE LAWS OF VIRGINIA
SHALL GOVERN THE RIGHTS AND OBLIGATIONS OF THE BORROWER PARTIES AND THE LENDER
AS PROVIDED HEREIN OR THE SUBMISSION HEREIN BY THE BORROWER PARTIES TO PERSONAL
JURISDICTION WITHIN VIRGINIA EACH BORROWER PARTY (I) COVENANTS AND AGREES NOT TO
ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING UNDER ANY OF THE LOAN
DOCUMENTS TRIABLE BY A JURY AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO
A JURY TRIAL WOULD OTHERWISE ACCRUE. FURTHER, EACH BORROWER PARTY HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING, BUT NOT LIMITED
TO, LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO EACH BORROWER
PARTY THAT LENDER WILL NOT SEEK TO ENFORCE THE PROVISIONS OF THIS SECTION. THE
FOREGOING PROVISIONS WERE KNOWINGLY, WILLINGLY AND VOLUNTARILY AGREED TO BY THE
BORROWER PARTIES UPON CONSULTATION WITH INDEPENDENT LEGAL COUNSEL SELECTED BY
THE BORROWER PARTIES' FREE WILL.
SECTION 23.07 Severability. In the event any provision of this Agreement or in
any other Loan Document shall be held invalid, illegal or unenforceable in any
jurisdiction, such provision will be severable from the remainder hereof as to
such jurisdiction and the validity, legality and enforceability of the remaining
provisions will not in any way be affected or impaired in any jurisdiction.
SECTION 23.08 Notices.
(a) Manner of Giving Notice. Each notice, direction,
certificate or other communication hereunder (in this Section referred to
collectively as "notices" and singly as a "notice") which any party is required
or permitted to give to the other party pursuant to this Agreement shall be in
writing and shall be deemed to have been duly and sufficiently given if:
(1) personally delivered with proof of delivery
thereof (any notice so delivered shall be deemed to have been received
at the time so delivered);
(2) sent by Federal Express (or other similar
overnight courier) designating morning delivery (any notice so
delivered shall be deemed to have been received on the Business Day it
is delivered by the courier);
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<PAGE> 96
(3) sent by United States registered or certified
mail, return receipt requested, postage prepaid, at a post office
regularly maintained by the United States Postal Service (any notice so
sent shall be deemed to have been received on the Business Day it is
delivered); or
(4) sent by telecopier or facsimile machine which
automatically generates a transmission report that states the date and
time of the transmission, the length of the document transmitted, and
the telephone number of the recipient's telecopier or facsimile machine
(to be confirmed with a copy thereof sent in accordance with paragraphs
(1), (2) or (3) above within two Business Days) (any notice so
delivered shall be deemed to have been received (i) on the date of
transmission, if so transmitted before 5:00 p.m. (local time of the
recipient) on a Business Day, or (ii) on the next Business Day, if so
transmitted on or after 5:00 p.m. (local time of the recipient) on a
Business Day or if transmitted on a day other than a Business Day);
addressed to the parties as follows:
As to any Borrower Party:
c/o Walden Residential Properties, Inc.
5080 Spectrum Drive, Suite 1000 East
Addison, Texas 75001
Attention: Mark S. Dillinger
Executive Vice President and
Chief Financial Officer
Telecopy No.: (972) 386-1600
with a copy to:
c/o Walden Residential Properties, Inc.
5080 Spectrum Drive, Suite 1000 East
Addison, Texas 75001
Attention: Robin K. Minick, Esq.
Senior Vice President and
In-House Counsel
Telecopy No.: (972) 386-1600
As to the Lender:
WMF Washington Mortgage Corp.
1593 Spring Hill Road
Vienna, Virginia 22182
Attention: Ms. Leslie Dixon-Cook
Telecopy No.: (703) 610-1422
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<PAGE> 97
with a copy to:
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
Attention: Gary S. Smuckler, Esq.
Telecopy No.: (202) 467-7176
As to Fannie Mae:
Fannie Mae
3939 Wisconsin Avenue, N.W.
Washington, D.C. 20016-2899
Attention: Vice President for
Multifamily Asset Management
Telecopy No.: (202) 752-5016
with a copy to:
Arter & Hadden LLP
1801 K Street, N.W.
Suite 400K
Washington, D.C. 200006
Attention: Lawrence H. Gesner, Esq.
Telecopy No.: (202) 857-0172
(b) Change of Notice Address. Any party may, by notice given
pursuant to this Section, change the person or persons and/or address or
addresses, or designate an additional person or persons or an additional address
or addresses, for its notices, but notice of a change of address shall only be
effective upon receipt. Each party agrees that it shall not refuse or reject
delivery of any notice given hereunder, that it shall acknowledge, in writing,
receipt of the same upon request by the other party and that any notice rejected
or refused by it shall be deemed for all purposes of this Agreement to have been
received by the rejecting party on the date so refused or rejected, as
conclusively established by the records of the U.S. Postal Service, the courier
service or facsimile.
SECTION 23.09 Further Assurances and Corrective Instruments.
(a) Further Assurances. To the extent permitted by law, the
parties hereto agree that they shall, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
supplements hereto and such further instruments as the Lender or the Borrower
Parties may request and as may be required in the opinion of the Lender or its
counsel to effectuate the intention of or facilitate the performance of this
Agreement or any Loan Document.
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<PAGE> 98
(b) Further Documentation. Without limiting the generality of
subsection (a), in the event any further documentation or information is
required by the Lender to correct patent mistakes in the Loan Documents,
materials relating to the Title Insurance Policies or the funding of the
Advances, the Borrower Parties shall provide, or cause to be provided to the
Lender, at their cost and expense, such documentation or information. The
Borrower Parties shall execute and deliver to the Lender such documentation,
including any amendments, corrections, deletions or additions to the Notes, the
Security Instruments or the other Loan Documents as is required by the Lender.
(c) Compliance with Investor Requirements. Without limiting
the generality of subsection (a), the Borrower Parties shall do anything
necessary to comply with the requirements of the Lender in order to enable the
Lender to sell the MBS backed by an Advance.
SECTION 23.10 Term of this Agreement. This Agreement shall continue in effect
until the Credit Facility Termination Date.
SECTION 23.11 Assignments; Third-Party Rights. No Borrower Party shall assign
this Agreement, or delegate any of its obligations hereunder, without the prior
written consent of the Lender. The Lender may assign its rights and obligations
under this Agreement separately or together, without the Borrower Parties'
consent, only to Fannie Mae, but may not delegate its obligations under this
Agreement unless required to do so pursuant to Section 19.04.
SECTION 23.12 Headings. Article and Section headings used herein are for
convenience of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 23.13 General Interpretive Principles. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
(i) the terms defined in Article I, Section 15.01, Section 16.01 and elsewhere
in this Agreement have the meanings assigned to them in this Agreement and
include the plural as well as the singular, and the use of any gender herein
shall be deemed to include the other genders; (ii) accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP; (iii) references herein to "Articles," "Sections," "subsections,"
"paragraphs" and other subdivisions without reference to a document are to
designated Articles, Sections, subsections, paragraphs and other subdivisions of
this Agreement; (iv) a reference to a subsection without further reference to a
Section is a reference to such subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to paragraphs and
other subdivisions; (v) a reference to an Exhibit or a Schedule without a
further reference to the document to which the Exhibit or Schedule is attached
is a reference to an Exhibit or Schedule to this Agreement; (vi) the words
"herein," "hereof," "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular provision; and (vii) the word
"including" means "including, but not limited to."
SECTION 23.14 Interpretation. The parties hereto acknowledge that each party and
their respective counsel have participated in the drafting and revision of this
Agreement and the Loan Documents. Accordingly, the parties agree that any rule
of construction which disfavors the
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<PAGE> 99
drafting party shall not apply in the interpretation of this Agreement and the
Loan Documents or any amendment or supplement or exhibit hereto or thereto.
SECTION 23.15 Standards for Decisions, Etc. If the Lender's approval is required
for any matter hereunder, such approval may be granted or withheld in the
Lender's sole and absolute discretion. If the Lender's designation,
determination, selection, estimate, action or decision is required, permitted or
contemplated hereunder, such designation, determination, selection, estimate,
action or decision shall be made in the Lender's sole and absolute discretion.
SECTION 23.16 Decisions in Writing. Any approval, designation, determination,
selection, action or decision of the Lender must be in writing to be effective.
SECTION 23.17 Joint and Several Liability. Each Borrower Party shall be jointly
and severally liable for the payment and performance of each obligation of any
Borrower Party arising under any of the Loan Documents.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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<PAGE> 100
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Borrower Parties
WALDEN RESIDENTIAL PROPERTIES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
WALDEN/DREVER OPERATING PARTNERSHIP, L.P.
By: Walden Residential Properties, Inc.,
General Partner
By:
--------------------------------
Mark S. Dillinger
Executive Vice President and
Chief Financial Officer
Lender
WMF WASHINGTON MORTGAGE CORP., a Delaware
corporation, formerly known as Washington
Mortgage Financial Group, Ltd.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
DATED AS OF DECEMBER 18, 1998
AMONG
WALDEN RESIDENTIAL PROPERTIES, INC.,
WALDEN/DREVER OPERATING PARTNERSHIP, L.P.
AND
BANKBOSTON, N.A.,
THE OTHER BANKS WHICH
ARE A PARTY TO THIS AGREEMENT,
AND
THE OTHER BANKS WHICH MAY BECOME
PARTIES TO THIS AGREEMENT
AND
BANKBOSTON, N.A.,
AS AGENT
<PAGE> 2
FIRST AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as
of the 18th day of December, 1998, by and among WALDEN RESIDENTIAL PROPERTIES,
INC., a Maryland corporation having its principal place of business at 5080
Spectrum Drive, Suite 1000 East, Addison, Texas 75001 ("Walden"), WALDEN/DREVER
OPERATING PARTNERSHIP, L.P., a Delaware limited partnership having its
principal place of business at 5080 Spectrum Drive, Suite 1000 East, Addison,
Texas 75001 ("WDOP"; Walden and WDOP are hereinafter referred to collectively
as the "Borrowers"), BANKBOSTON, N.A., and the other lending institutions which
may become parties hereto pursuant to Section 18 (the "Banks"), and BANKBOSTON,
N.A., as Managing Agent for the Banks (the "Agent").
RECITALS.
WHEREAS, Borrowers, Agent and certain of the Banks have entered into
that certain Revolving Credit Agreement dated December 15, 1998 (the "Original
Credit Agreement"); and
WHEREAS, Borrowers have requested that the Banks extend the Maturity
Date and modify certain other provisions of the Original Credit Agreement; and
WHEREAS, Borrower, Agent and the Banks desire to amend and restate the
Original Credit Agreement in its entirety;
NOW, THEREFORE, in consideration of the recitals herein and the mutual
covenants contained herein, the parties hereto amend and restate the Original
Credit Agreement in its entirety as follows:
Section 1. DEFINITIONS AND RULES OF INTERPRETATION.
Section 1.1. Definitions. The following terms shall have the meanings
set forth in this Section l or elsewhere in the provisions of this Agreement
referred to below:
Affiliates. An Affiliate, as applied to any Person, shall mean any
other Person directly or indirectly controlling, controlled by, or under common
control with, that Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means (a) the
possession, directly or indirectly, of the power to vote ten percent (10%) or
more of the stock, shares, voting trust certificates, beneficial interest,
partnership interests, member interests or other interests having voting power
for the election of directors of such Person or otherwise to direct or cause
the direction of the management and policies of that Person, whether through
the ownership of voting securities or by contract or otherwise, or (b) the
ownership of (i) a general partnership interest, (ii) a managing member's
interest in a limited liability company or (iii) a
<PAGE> 3
limited partnership interest or preferred stock (or other ownership interest)
representing ten percent (10%) or more of the outstanding limited partnership
interests, preferred stock or other ownership interests of such Person.
Agent. BankBoston, N.A. acting as managing agent for the Banks, its
successors and assigns.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time by notice to the Borrowers and the Banks.
Agent's Special Counsel. Long Aldridge & Norman LLP or such other
counsel as may be approved by the Agent.
Agreement. This First Amended and Restated Revolving Credit Agreement,
including the Schedules and Exhibits hereto.
Agreement Regarding Fees. The Agreement Regarding Fees dated of even
date herewith between the Borrowers and BKB.
Applicable Margin. On any date, the Applicable Margin shall be as set
forth below based on the ratio of the Consolidated Total Liabilities of Walden
to the Consolidated Total Assets of Walden:
<TABLE>
<CAPTION>
Ratio Base Rate Loans LIBOR Rate Loans
----- --------------- ----------------
<S> <C> <C>
Less than 25% 0% 1.375%
25% or more but not
greater than 40% 0.25% 1.625%
Greater than 40% 0.50% 1.875%
</TABLE>
The Applicable Margin shall be determined as if the ratio of Walden's
Consolidated Total Liabilities to Consolidated Total Assets was greater than
40% until five (5) Business Days following the delivery by Walden to Agent of
such evidence as the Agent may require (including without limitation, the
delivery of the Compliance Certificate to the Agent) that such ratio is forty
percent (40%) or less. In the event of any change in such ratio that would
cause the Applicable Margin to increase, the Borrower shall notify the Agent
within five (5) Business Days of such event, and regardless of whether Agent
has received notice of such event, such event shall effect a change in the
Applicable Margin on the first to occur of (a) the first Business Day after the
delivery of such notice to Agent of such event or (b) six (6) Business Days
following the increase of such ratio.
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<PAGE> 4
Asset Value. The purchase price of Real Estate (including improvements
and related fixtures, personal property and intangibles) and ordinary related
purchase transaction costs without deduction for depreciation, or if the Real
Estate has been developed by such Person, the completed construction costs
determined in accordance with generally accepted accounting principles without
deduction for depreciation. If the Real Estate is purchased as a part of a
group of properties, the Asset Value shall be calculated based upon a
reasonable allocation by such Person of the aggregate purchase price among all
Real Estate purchased in such transaction.
Assignment of Leases and Rents. Each of the collateral assignments of
leases and rents from a Borrower to the Agent, as the same may be modified or
amended, pursuant to which, effective upon the occurrence of an Event of
Default, there shall be assigned to the Agent for the benefit of the Banks a
security interest in the interest of such Person as lessor with respect to all
leases of all or any part of an Unencumbered Operating Property, each such
collateral assignment to be substantially in the form of Exhibit A hereto.
Assignment of Management Agreement and Subordination. The assignment
of the Management Agreements from a Borrower to the Agent, as the same may be
modified or amended, pursuant to which, effective upon the occurrence of an
Event of Default, there shall be assigned to the Agent for the benefit of the
Banks a security interest in the interest of such Person with respect to the
Management Agreements, together with the consent of the manager thereunder to
such assignment and a subordination of the manager's rights with respect to the
Unencumbered Operating Property to the rights of the Agent with respect
thereto, each such assignment to be substantially in the form of Exhibit B
hereto.
Balance Sheet Date. September 30, 1998.
Banks. BKB, the other lending institutions party to this Agreement,
and any other Person who becomes an assignee of any rights of a Bank pursuant
to Section 18 (but not including any Participant, as defined in Section 18).
Base Rate. The annual rate of interest announced from time to time by
Agent at Agent's Head Office as its "base rate". Any change in the rate of
interest payable hereunder resulting from a change in the Base Rate shall
become effective as of the opening of business on the day on which such change
in the Base Rate becomes effective.
Base Rate Loans. Those Loans bearing interest calculated by reference
to the Base Rate.
Borrowers. As defined in the preamble hereto.
BKB. BankBoston, N.A.
Borrowing Base. The Borrowing Base shall be the amount which is the
lesser of (a) the maximum amount which, when added to the total outstanding
balance of all unsecured Indebtedness of Walden and its Subsidiaries (including
the Loans), would not exceed fifty percent (50%) of the aggregate Asset Value
of the Unencumbered Operating Properties, and (b)
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<PAGE> 5
the maximum amount which, when added to the total outstanding balance of all
unsecured Indebtedness of Walden and its Subsidiaries (including the Loans)
would not exceed the Debt Service Coverage Amount for the Unencumbered
Operating Properties.
Business Day. Any day on which banking institutions located in the
same city and State as Agent's Head Office are located and are open for the
transaction of banking business and, in the case of LIBOR Rate Loans, which
also is a LIBOR Business Day.
Capital Improvement Reserve. For any period, an amount equal to $200
per annum multiplied by the average total number of apartment units owned by
Walden and its Subsidiaries during such period; provided, however, that at any
time that Walden capitalizes the cost of carpeting in its financial reporting,
such reserve shall be increased to $290 per unit per annum.
Capitalized Lease. A lease under which a Person is the lessee or
obligor, the discounted future rental payment obligations under which are
required to be capitalized on the balance sheet of the lessee or obligor in
accordance with generally accepted accounting principles.
CERCLA. See Section 6.17(a).
Closing Date. The first date on which all of the conditions set forth
in Section 10 and Section 11 have been satisfied.
Code. The Internal Revenue Code of 1986, as amended.
Collateral. All of the property, rights and interests of the Borrowers
which from and after the occurrence of an Event of Default are subject to the
security interests, liens and mortgages created by the Security Documents.
Collateral Borrowing Base. The Collateral Borrowing Base shall be the
amount which is the lesser of (a) fifty percent (50%) of the aggregate Asset
Value of the Unencumbered Operating Properties with respect to which the
requirements of Section 5.2(a) and (b) have been satisfied, and (b) the maximum
amount which would not exceed the Debt Service Coverage Amount for the
Unencumbered Operating Properties with respect to which the requirements of
Section 5.2(a) and (b) have been satisfied. Notwithstanding the foregoing, the
Collateral Borrowing Base attributable to an Unencumbered Operating Property
shall not exceed the amount to which recovery under the applicable Escrowed
Security Documents is limited, unless such Escrowed Security Documents are
amended to increase any such limit.
Commitment. With respect to each Bank, the amount set forth on
Schedule 1 hereto as the amount of such Bank's Commitment to make or maintain
Loans (other than Swing Loans) to the Borrowers, as the same may be changed
from time to time in accordance with the terms of this Agreement.
Commitment Percentage. With respect to each Bank, the percentage set
forth on Schedule 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
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<PAGE> 6
Compliance Certificate. See Section 7.4(e).
Consolidated or combined. With reference to any term defined herein,
that term as applied to the accounts of a Person and its Subsidiaries,
consolidated or combined in accordance with generally accepted accounting
principles.
Consolidated Operating Cash Flow. With respect to any period of a
Person, an amount equal to the Operating Cash Flow of such Person and its
Subsidiaries for such period consolidated in accordance with generally accepted
accounting principles.
Consolidated Total Assets. All assets of a Person and its Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that all real estate assets shall be valued on
an undepreciated cost basis. The assets of a Person and its Subsidiaries on the
consolidated financial statements of such Person and its Subsidiaries shall be
adjusted to reflect such Person's allocable share of such asset, for the
relevant period or as of the date of determination, taking into account (a) the
relative proportion of each such item derived from assets directly owned by
such Person and from assets owned by its Subsidiaries, and (b) such Person's
respective ownership interest in its Subsidiaries.
Consolidated Total Liabilities. All liabilities of a Person and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles and all Indebtedness of such Person and its
Subsidiaries, whether or not so classified. In the event that a Person has an
ownership or other equity interest in any other Person, which investment is not
consolidated in accordance with generally accepted accounting principles (that
is, such interest is a "minority interest"), then the liabilities of a Person
and its Subsidiaries shall include such Person's or its Subsidiaries' allocable
share of all indebtedness of such Person in which a minority interest is owned
based on such Person's respective ownership interest in such other Person.
Conversion Request. A notice given by the Borrowers to the Agent of
their election to convert or continue a Loan in accordance with Section 4.1.
Debt Offering. The issuance and sale by any Borrower of any debt
securities of such Borrower.
Debt Service. For any period, the sum of all interest (including
capitalized interest) and mandatory or scheduled principal payments due and
payable during such period excluding any balloon payments due upon maturity of
any indebtedness.
Debt Service Coverage Amount. At any time determined by Agent, an
amount equal to the maximum principal loan amount which, when bearing interest
at a rate per annum equal to the greater of (a) the then-current annual yield
on ten (10) year obligations issued by the United States Treasury most recently
prior to the date of determination plus two percent (2.0%) and payable based on
a twenty-five year mortgage style amortization schedule (expressed as a
mortgage constant percentage), (b) nine percent (9%) and (c) the actual blended
effective rate of
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<PAGE> 7
interest payable on the Loans as of the date of determination, could be paid by
the monthly principal and interest payment amount resulting from dividing (x)
the quotient obtained by dividing an amount equal to (i) the sum of the
aggregate Operating Cash Flow from the Unencumbered Operating Properties for
the preceding four fiscal quarters, minus the Capital Improvement Reserve, by
(ii) 2.00, by (y) 12. An example of the calculation of the Debt Service
Coverage Amount is set forth in Schedule 2 attached hereto. In the event that
the Borrowers shall have owned a property within the Unencumbered Operating
Properties for less than four consecutive fiscal quarters, then for the
purposes of performing such calculation, the Operating Cash Flow with respect
to such property shall be annualized in such manner as the Majority Banks shall
reasonably determine.
Default. See Section 12.1.
Distribution. With respect to any Person, the declaration or payment
of any cash, cash flow, dividend or distribution on or in respect of any shares
of any class of stock or other beneficial interest of a Person, other than
dividends or distributions payable solely in equity securities of such Person;
the purchase, redemption, exchange or other retirement of any shares of any
class of stock or other beneficial interest of a Person, directly or indirectly
through a Subsidiary of such Person or otherwise; the return of capital by a
Person to its shareholders or partners as such; or any other distribution on or
in respect of any shares of any class of stock or other beneficial interest of
a Person.
Dollars or $. Dollars in lawful currency of the United States of
America.
Domestic Lending Office. Initially, the office of each Bank designated
as such in Schedule 1 hereto; thereafter, such other office of such Bank, if
any, located within the United States that will be making or maintaining Base
Rate Loans.
Drawdown Date. The date on which any Loan is made or is to be made,
and the date on which any Loan which is made prior to the Maturity Date is
converted or combined in accordance with Section 4.1.
Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by Walden or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws. See Section 6.17(a).
Equity Offering. The issuance and sale by any Borrower of any equity
securities of such Borrower.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect from time to time and any rules and regulations promulgated
pursuant thereto.
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<PAGE> 8
ERISA Affiliate. Any Person which is treated as a single employer with
Walden under Section 414 of the Code.
ERISA Reportable Event. A reportable event with respect to a
Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has
not been waived.
Escrowed Security Documents. The Security Documents that are executed
and delivered to Agent pursuant to Section 5.2 and which are not to be recorded
until the occurrence of the events specified in Section 5.2 (it being
acknowledged that any Guaranty is not an Escrowed Security Document).
Event of Default. See Section 12.1.
Funds from Operations. With respect to any Person for any fiscal
period, the Net Income (or Deficit) of such Person computed in accordance with
generally accepted accounting principles, excluding financing costs and gains
(or losses) from debt restructuring and sales of property, plus depreciation
and amortization and other non-cash items.
General Partner. Walden, as the general partner of WDOP.
Generally Accepted Accounting Principles. Principles that are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (b) consistently applied with past financial statements of the Person
adopting the same principles; provided that a certified public accountant
would, insofar as the use of such accounting principles is pertinent, be in a
position to deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by Walden or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Guarantors. Individually, any Person that becomes a guarantor of the
Obligations, and collectively all of such Persons.
Guaranty. Collectively, each Unconditional Guaranty of Payment and
Performance made by a Guarantor in favor of Agent and the Banks, as the same
may be modified or amended, such Guaranty to be in form and substance
satisfactory to the Agent.
Hazardous Substances. See Section 6.17(b).
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<PAGE> 9
Implied Rating. With respect to a Person, the most recent rating
issued from time to time by the Rating Agencies as is applicable to such
Person's senior unsecured long-term debt, or if no such senior unsecured
long-term debt is outstanding, then the most recent rating issued from time to
time by the Rating Agencies as would hypothetically be applicable to such
Person's senior unsecured long-term debt (i.e., an implied rating).
Indebtedness. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should
be made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect (including, without limitation, any obligations evidenced by bonds,
debentures, notes or similar debt instruments and all subordinated debt); (b)
all liabilities secured by any mortgage, pledge, security interest, lien,
charge or other encumbrance existing on property owned or acquired subject
thereto, whether or not the liability secured thereby shall have been assumed;
(c) all guarantees, endorsements and other contingent obligations whether
direct or indirect in respect of indebtedness of others, including any
obligation to supply funds to or in any manner to invest directly or indirectly
in a Person, to purchase indebtedness, or to assure the owner of indebtedness
against loss through an agreement to purchase goods, supplies or services for
the purpose of enabling the debtor to make payment of the indebtedness held by
such owner or otherwise, and the obligation to reimburse the issuer in respect
of any letter of credit; (d) any obligation as a lessee or obligor under a
Capitalized Lease; (e) all obligations to purchase under agreements to acquire,
or otherwise to contribute money with respect to, properties under
"development" within the meaning of Section 8.9; and (f) a Person's pro rata
share of any of the above-described obligations of its unconsolidated
affiliates. Notwithstanding the foregoing, in the event that a Person has
incurred Indebtedness with respect to which another Person included within the
consolidated financial statements of the first Person is also liable (by reason
of a guaranty or otherwise), such Indebtedness shall only be counted once for
the purposes of such consolidated financial statements.
Indemnity Agreement. The Indemnity Agreements Regarding Hazardous
Materials, made by the Borrowers, in favor of the Agent and the Banks, pursuant
to which from and after the occurrence of an Event of Default such Persons
agree to indemnify the Agent and the Banks with respect to Hazardous Substances
and Environmental Laws, such Indemnity Agreement to be in substantially the
form of Exhibit C hereto.
Interest Expense. For any period, the sum of all interest (including
capitalized interest) due and payable during such period.
Interest Payment Date. As to each Loan, the first day of each calendar
month during the term of such Loan, and with respect to each LIBOR Rate Loan,
the last day of the Interest Period relating thereto; provided that so long as
the Interest Period with respect to a LIBOR Rate Loan is one month, the
Interest Payment Date with respect to each such LIBOR Rate Loan shall be the
last day of the Interest Period relating thereto.
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Interest Period. With respect to each LIBOR Rate Loan (a) initially,
the period commencing on the Drawdown Date of such Loan and ending one, two,
three, six or twelve months thereafter, and (b) thereafter, each period
commencing on the day following the last day of the next preceding Interest
Period applicable to such Loan and ending on the last day of one of the periods
set forth above, as selected by the Borrowers in a Conversion Request; provided
that all of the foregoing provisions relating to Interest Periods are subject
to the following:
(i) if any Interest Period with respect to a LIBOR Rate Loan
would otherwise end on a day that is not a LIBOR Business Day, that
Interest Period shall end and the next Interest Period shall commence
on the next preceding or succeeding LIBOR Business Day as determined
conclusively by the Reference Bank in accordance with the then current
bank practice in the applicable LIBOR interbank market;
(ii) if the Borrowers shall fail to give notice as provided
in Section 4.1, the Borrowers shall be deemed to have requested a
conversion of the affected LIBOR Rate Loan to a Base Rate Loan on the
last day of the then current Interest Period with respect thereto; and
(iii) no Interest Period relating to any LIBOR Rate Loan
shall extend beyond the Maturity Date.
Investment Grade Rating. With respect to any Person, an Implied Rating
equal to or more favorable than BBB- with respect to a rating issued by
Standard & Poor's Corporation (or in the case of a rating issued by Moody's
Investors Service, Inc., a rating of Baa3). If, at any time after a Person
obtains an Investment Grade Rating, (a) no Implied Rating for such Person's
senior unsecured long-term debt shall have been issued or confirmed in writing
by either of the Rating Agencies within the previous 365 days, or (b) the
rating system of either of the Rating Agencies (as opposed to the rating of a
Person) shall change, or (c) either of the Rating Agencies shall no longer
perform the functions of a securities rating agency, then the Borrowers and the
Agent shall promptly negotiate in good faith to amend the reference to the
specific ratings in this definition for the determination of the Investment
Grade Rating, and pending such amendment, the applicable rating in effect as of
the date the event described in this paragraph occurred shall continue to
apply.
Investments. With respect to any Person, all shares of capital stock,
evidences of Indebtedness and other securities issued by any other Person, all
loans, advances, or extensions of credit to, or contributions to the capital
of, any other Person, all purchases of the securities or business or integral
part of the business of any other Person and commitments and options to make
such purchases, all interests in real property, and all other investments;
provided, however, that the term "Investment" shall not include (i) equipment,
inventory and other tangible personal property acquired in the ordinary course
of business, or (ii) current trade and customer accounts receivable for
services rendered in the ordinary course of business and payable in accordance
with customary trade terms. In determining the aggregate amount of Investments
outstanding at any particular time: (a) the amount of any investment
represented as a guaranty shall be taken at not less than the principal amount
of the obligations guaranteed and still outstanding; (b) there
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<PAGE> 11
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution); (d)
there shall not be deducted in respect of any Investment any amounts received
as earnings on such Investment, whether as dividends, interest or otherwise,
except that accrued interest included as provided in the foregoing clause (b)
may be deducted when paid; and (e) there shall not be deducted from the
aggregate amount of Investments any decrease in the value thereof.
LIBOR Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in the London
interbank market.
LIBOR Lending Office. Initially, the office of each Bank designated as
such in Schedule 1 hereto; thereafter, such other office of such Bank, if any,
that shall be making or maintaining LIBOR Rate Loans.
LIBOR Rate. For any Interest Period with respect to a LIBOR Rate Loan,
the rate per annum as determined by the Reference Bank's LIBOR Lending Office
to be the rate (rounded upwards to the nearest 1/16 of one percent) at which
Dollar deposits are offered to prime banks by such banks in the London
Interbank Market as are selected in good faith by the Reference Bank at
approximately 11:00 a.m. London time two LIBOR Business Days prior to the
beginning of such Interest Period for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of the LIBOR Rate Loan to which such Interest Period
applies.
LIBOR Rate Loans. Loans bearing interest calculated by reference to a
LIBOR Rate.
Liens. See Section 8.2.
Loan Documents. This Agreement, the Notes, the Guaranty and all other
documents, instruments or agreements now or hereafter executed or delivered by
or on behalf of the Borrowers or the Guarantors in connection with the Loans;
provided, however, that until the occurrence of an Event of Default, the
Escrowed Security Documents shall not be considered as Loan Documents
hereunder.
Loan Request. See Section 2.6.
Loans. The aggregate Loans (including Swing Loans) to be made by the
Banks hereunder.
Majority Banks. As of any date, the Bank or Banks whose aggregate
Commitment Percentage is equal to or greater than the required percentage, as
determined by the Banks, required to approve such matter, as disclosed by the
Agent to the Borrowers from time to time.
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Management Agreements. Agreements, whether written or oral, providing
for the management of the Unencumbered Operating Properties or any of them.
Maturity Date. February 8, 2001, as the same may be extended as
provided in Section 2.8, or such earlier date on which the Loans shall become
due and payable pursuant to the terms hereof.
Multiemployer Plan. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by Walden or any ERISA
Affiliate.
Net Income (or Deficit). With respect to any Person (or any asset of
any Person) for any fiscal period, the net income (or deficit) of such Person
(or attributable to such asset), after deduction of all expenses, taxes and
other proper charges, determined in accordance with generally accepted
accounting principles.
Non-Recourse Indebtedness. Indebtedness for borrowed money of a Person
which is secured by one or more parcels of Real Estate and related personal
property or interests therein and is not a general obligation of such Person,
the holder of such Indebtedness having recourse solely to the parcels of Real
Estate, the personal property related thereto and the leases, rents and profits
relating thereto specifically pledged as security for such Indebtedness.
Notes. Collectively the Revolving Credit Notes and the Swing Loan
Note.
Notice. See Section 19.
Obligations. All indebtedness, obligations and liabilities of the
Borrowers to any of the Banks and the Agent, individually or collectively,
under this Agreement or any of the other Loan Documents or in respect of any of
the Loans or the Notes, or other instruments at any time evidencing any of the
foregoing, whether existing on the date of this Agreement or arising or
incurred hereafter, direct or indirect, joint or several, absolute or
contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise.
Operating Cash Flow. With respect to any Person (or any asset of any
Person) for any period, an amount equal to the sum of (a) the Net Income of
such Person (or attributable to such asset) for such period plus (b)
depreciation and amortization, interest expense, and any extraordinary or
non-recurring losses deducted in calculating such Net Income minus (c) any
extraordinary or nonrecurring gains included in calculating such Net Income all
as determined in accordance with generally accepted accounting principles.
Outstanding. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002
of ERISA and any successor entity or entities having similar responsibilities.
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Permitted Liens. Liens, security interests and other encumbrances
permitted by Section 8.2.
Person. Any individual, corporation, partnership, trust,
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Preferred Distributions. For any period, the amount of any and all
Distributions due and payable to the holders of any form of preferred stock
(whether perpetual, convertible or otherwise) or other ownership or beneficial
interest in Walden or any of its Subsidiaries that entitles the holders thereof
to preferential payment or distribution priority with respect to dividends,
assets or other payments over the holders of any other stock or other ownership
or beneficial interest in such Person.
Property Certificate. A certificate in the form of Exhibit D attached
hereto and made a part hereof, with such changes thereto as may be reasonably
required by the Agent to reflect the nature of the Unencumbered Operating
Property, and with such changes thereto requested by the Borrowers as the Agent
may approve.
Prospectus. The 10K of Walden dated December 31, 1997 and filed with
the SEC.
Rating Agencies. Standard & Poor's Corporation and Moody's Investors
Service, Inc.
Rating Notice. See Section 7.4(j).
Rating Notice Date. The earlier of (a) the date a Rating Notice is
received by the Agent, or (b) the date the Agent, having received actual notice
of a change by a Rating Agency of its Implied Rating, sends notice to the
Borrowers of such change, provided that nothing contained herein shall imply
any obligation of the Agent to monitor such rating changes.
Real Estate. All real property at any time owned or leased (as lessee
or sublessee) by Walden, WDOP or any of their respective Subsidiaries, unless
the context limits such reference to Real Estate owned by a particular Person.
Record. The grid attached to any Note, or the continuation of such
grid, or any other similar record, including computer records, maintained by
any Bank with respect to any Loan referred to in such Note.
Reference Bank. Agent.
Register. See Section 18.2.
REIT Status. With respect to Walden, its status as a real estate
investment trust as defined in Section 856(a) of the Code.
Release. See Section 6.17(c)(iii).
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Revolving Credit Notes. See Section 2.4.
SEC. The federal Securities and Exchange Commission.
Security Deeds. The Mortgages, Deeds to Secure Debt and Deeds of Trust
from a Borrower to the Agent for the benefit of the Banks (or to trustees named
therein acting on behalf of the Agent for the benefit of the Banks), as the
same may be modified or amended, pursuant to which, effective upon the
occurrence of an Event of Default, such Person has conveyed an Unencumbered
Operating Property as security for the Obligations, such document to be
substantially in the form of Exhibit E hereto.
Security Documents. The Security Deeds, the Assignments of Rents and
Leases, the Assignment of Management Agreements and Subordination, the
Indemnity Agreement, the Guaranty, and any further collateral assignments to
the Agent for the benefit of the Banks, including, without limitation, UCC-1
financing statements executed and delivered in connection therewith.
Shareholder's Equity. At any date, the total consolidated
shareholder's equity of Walden and its Subsidiaries (including minority
interests), determined in accordance with generally accepted accounting
principles.
Short-term Investments. Investments described in subsections (a)
through (g), inclusive, of Section 8.3. For all purposes of this Agreement and
the other Loan Documents, the value of Eligible Short-term Investments at any
time shall be the current market value thereof determined in a manner
reasonably satisfactory to the Agent.
State. A state of the United States of America.
Swing Loan. See Section 2.4A.
Swing Loan Bank. BKB, in its capacity as Swing Loan Bank.
Swing Loan Commitment. The sum of $10,000,000.00, as the same may be
changed from time to time in accordance with the terms of this Agreement.
Swing Loan Note. See Section 2.4A.
Subsidiary. Any corporation, association, partnership, trust, or other
business entity of which the designated parent shall at any time own directly
or indirectly through a Subsidiary or Subsidiaries at least a majority (by
number of votes or controlling interests) of the outstanding Voting Interests,
and any other entity the accounts of which are consolidated with the accounts
of the designated parent. Without limiting the foregoing, WDOP is a Subsidiary
of Walden.
Test Period. See Section 9.2.
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<PAGE> 15
Total Commitment. The sum of the Commitments of the Banks, as in
effect from time to time.
Type. As to any Loan, its nature as a Base Rate Loan or a LIBOR Rate
Loan.
Under Development. Any Real Estate shall be considered under
development until such time as (a) seventy percent (70%) of the total net
leasable area to be included as a part of such development is leased and
occupied, and (b) the gross revenue from the operation of such Real Estate
shall have been not less than the operating costs for three (3) consecutive
months.
Unencumbered Operating Properties. Unencumbered Operating Properties
shall mean Real Estate which is owned one hundred percent (100%) in fee simple
by the Borrowers which satisfies all of the following conditions:
(a) each of the Unencumbered Operating Properties shall be free and
clear of all Liens other than the Liens permitted in Section 8.2(i), (iii) and
(v);
(b) to the best of the Borrowers' knowledge and belief, none of the
Unencumbered Operating Properties shall have any material title, survey,
environmental or other defects that would give rise to a materially adverse
effect as to the value, use of or ability to sell or refinance such property;
and
(c) each of the Unencumbered Operating Properties shall consist solely
of Real Estate (i) which is an income producing operating property utilized
principally for multifamily housing, (ii) which is fully operational, and (iii)
with respect to which valid certificates of occupancy or the equivalent for all
buildings thereon have been issued and are in full force and effect.
Certain of the initial Unencumbered Operating Properties are owned by Walden.
After the date of this Agreement all new or replacement Unencumbered Operating
Properties shall be owned by WDOP.
Voting Interests. Stock or similar ownership interests, of any class
or classes (however designated), the holders of which are at the time entitled,
as such holders, (a) to vote for the election of a majority of the directors
(or persons performing similar functions) of the corporation, association,
partnership, trust or other business entity involved, or (b) to control,
manage, or conduct the business of the corporation, partnership, association,
trust or other business entity involved.
Walden. As defined in the preamble hereto.
Walden Operating, Inc. Walden Operating, Inc., a Delaware corporation
having its principal place of business at 5080 Spectrum Drive, Suite 1000 East,
Addison, Texas 75001.
WDN Properties, Inc. WDN Properties, Inc., a New York corporation
having its principal place of business at 2529 W. Cactus, Phoenix, Arizona
85029.
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WDN Properties, Ltd. WDN Properties, Ltd., a Texas limited partnership
having its principal place of business at 5080 Spectrum Drive, Suite 1000 East,
Addison, Texas 75001.
WROP. Walden Residential Operating Partnership, L.P., a Georgia
limited partnership having its principal place of business at 5080 Spectrum
Drive, Suite 1000 East, Addison, Texas 75248.
Year 2000 Compliant. All computers, hardware, imbedded microchips,
software and material date-affected technology used in Borrowers' business
operations are able to correctly and effectively store, process and otherwise
deal with date data from, into, between and otherwise concerning the twentieth
and twenty-first centuries, and otherwise continue to function properly and
unimpaired with respect to all calendar dates falling on or after January 1,
2000.
Section 1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural
includes the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by generally accepted accounting principles applied
on a consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are
not limiting.
(g) The words "approval" and "approved", as the context so
determines, means an approval in writing given to the party seeking approval
after full and fair disclosure to the party giving approval of all material
facts necessary in order to determine whether approval should be granted.
(h) All terms not specifically defined herein or by
generally accepted accounting principles, which terms are defined in the
Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein.
(i) Reference to a particular "Section", refers to that
section of this Agreement unless otherwise indicated.
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(j) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
Section 2. THE REVOLVING CREDIT FACILITY
Section 2.1. Commitment to Lend. Subject to the terms and conditions
set forth in this Agreement, each of the Banks severally agrees to lend to the
Borrowers, and the Borrowers may borrow (and repay and reborrow) from time to
time between the Closing Date and the Maturity Date upon notice by the
Borrowers to the Agent given in accordance with Section 2.6, such sums as are
requested by the Borrowers for the purposes set forth in Section 7.11 up to the
lesser of (a) a maximum aggregate principal amount outstanding (after giving
effect to all amounts requested) at any one time equal to such Bank's
Commitment and (b) such Bank's Commitment Percentage of the Borrowing Base and
the Collateral Borrowing Base (whichever is less), provided, that, in all
events no Default or Event of Default shall have occurred and be continuing;
and provided, further, that the outstanding principal amount of the Loans
(after giving effect to all amounts requested) shall not at any time exceed the
Total Commitment. The Loans (other than Swing Loans) shall be made pro rata in
accordance with each Bank's Commitment Percentage. Each request for a Loan
hereunder shall constitute a representation and warranty by the Borrowers that
all of the conditions set forth in Section 10 and Section 11, in the case of
the initial Loan, and Section 11, in the case of all other Loans, have been
satisfied on the date of such request. No Bank shall have any obligation to
make Loans to the Borrowers in the maximum aggregate principal amount
outstanding of more than the principal face amount of its Note.
Section 2.2. Facility Fee. The Borrowers agree to pay to the Agent for
the account of the Banks in accordance with their respective Commitment
Percentages a facility fee calculated at the rate per annum as set forth below
on the average daily amount by which the Total Commitment exceeds the
outstanding principal amount of Loans during each calendar quarter or portion
thereof commencing on the date hereof and ending on the Maturity Date. The
facility fee shall be calculated based on the ratio (expressed as a percentage)
of (a) the average daily amount of the outstanding principal amount of the
Loans during such quarter to (b) the Total Commitment as follows:
<TABLE>
<CAPTION>
Ratio of Outstanding Principal
Balance to Total Commitment Rate
------------------------------ -----
<S> <C>
33.33% or less 0.25%
Greater than 33.33% but not
more than 66.67% 0.20%
Greater than 66.67% 0.15%
</TABLE>
The facility fee shall be payable quarterly in arrears on the first day of each
calendar quarter for the immediately preceding calendar quarter or portion
thereof, and on any earlier date on which the Commitments shall be reduced or
shall terminate as provided in Section 2.3, with a final payment on the
Maturity Date.
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Section 2.3. Reduction and Termination of Commitment. The Borrowers
shall have the right at any time and from time to time upon five Business Days'
prior written notice to the Agent to reduce by $5,000,000 or an integral
multiple of $1,000,000 in excess thereof (provided that in no event shall the
Total Commitment be reduced to an amount less than $50,000,000.00) or to
terminate entirely the unborrowed portion of the Commitments, whereupon the
Commitments of the Banks shall be reduced pro rata in accordance with their
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated, any such termination or reduction to be without
penalty (unless such termination or reduction requires repayment of a LIBOR
Rate Loan); provided, however, that no such termination or reduction shall be
permitted if, after giving effect thereto, the Outstanding Loans would exceed
the Commitments of the Banks as so terminated or reduced. In the event that as
a result of the reduction or termination of the Commitments, the Commitment of
the Swing Loan Bank shall be reduced to an amount less than the Swing Loan
Commitment, the Swing Loan Commitment shall automatically and without further
action of the parties be reduced to an equal amount. Promptly after receiving
any notice of the Borrowers delivered pursuant to this Section 2.3, the Agent
will notify the Banks of the substance thereof. Upon the effective date of any
such reduction or termination, the Borrowers shall pay to the Agent for the
respective accounts of the Banks the full amount of any facility fee under
Section 2.2 then accrued on the amount of the reduction. No reduction or
termination of the Commitment or Swing Loan Commitment may be reinstated.
Section 2.4. Notes. The Loans (other than Swing Loans) shall be
evidenced by separate promissory notes of the Borrowers in substantially the
form of Exhibit F hereto (collectively, the "Revolving Credit Notes"), dated
the date of this Agreement and completed with appropriate insertions. One
Revolving Credit Note shall be payable to the order of each Bank in the
principal face amount equal to such Bank's Commitment and shall be payable as
set forth below. The Borrowers irrevocably authorize each Bank to make or cause
to be made, at or about the time of the Drawdown Date of any Loan (other than
Swing Loans) or at the time of receipt of any payment of principal thereof, an
appropriate notation on such Bank's Record reflecting the making of such Loan
or (as the case may be) the receipt of such payment. The outstanding amount of
the Loans (other than Swing Loans) set forth on such Bank's Record shall be
prima facie evidence of the principal amount thereof owing and unpaid to such
Bank, but the failure to record, or any error in so recording, any such amount
on such Bank's Record shall not limit or otherwise affect the obligations of
the Borrowers hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note when due. By delivery of
the Revolving Credit Notes, there shall not be deemed to have occurred, and
there has not otherwise occurred, any payment, satisfaction or novation of the
indebtedness evidenced by the "Notes" as defined in the Original Credit
Agreement, which indebtedness is instead allocated among the Banks as of the
date hereof and evidenced by the Revolving Credit Notes in accordance with
their respective Commitment Percentages.
Section 2.4A Swing Loan Commitments.
(a) Subject to the terms and conditions set forth in this
Agreement, and if necessary to meet the Borrowers' funding deadlines, Swing
Loan Bank agrees to lend to the Borrowers (the "Swing Loans"), and the
Borrowers may borrow (and repay and reborrow) from
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<PAGE> 19
time to time between the Closing Date and the date which is seven (7) Business
Days prior to the Maturity Date upon notice by the Borrowers to the Swing Loan
Bank given in accordance with this Section 2.4A, such sums as are requested by
the Borrowers for the purposes set forth in Section 7.11 in an aggregate
principal amount at any one time outstanding not exceeding the Swing Loan
Commitment; provided that at no time shall the aggregate principal balance of
Swing Loans then outstanding, when added to the Swing Loan Bank's Commitment
Percentage of all other Outstanding Loans (after giving effect to all amounts
requested), exceed the lesser of (i) such Bank's Commitment and (ii) such
Bank's Commitment Percentage of the Borrowing Base and the Collateral Borrowing
Base (whichever is less), provided, further, that in all events no Default or
Event of Default shall have occurred and be continuing; and provided, further,
that the outstanding principal amount of the Loans (after giving effect to all
amounts requested) shall not at any time exceed the Total Commitment. Swing
Loans shall constitute "Loans" for all purposes hereunder, but shall not be
considered the utilization of a Bank's Commitment. The funding of a Swing Loan
hereunder shall constitute a representation and warranty by the Borrowers that
all of the conditions set forth in Section 10 and Section 11, in the case of
the initial Swing Loan, and Section 11, in the case of all other Swing Loans,
have been satisfied on the date of such funding.
(b) The Swing Loans shall be evidenced by a separate
promissory note of the Borrowers in substantially the form of Exhibit G hereto
(the "Swing Loan Note"), dated the date of this Agreement and completed with
appropriate insertions. The Swing Loan Note shall be payable to the order of
the Swing Loan Bank in the principal face amount equal to the Swing Loan
Commitment and shall be payable as set forth below. The Borrowers irrevocably
authorize the Swing Loan Bank to make or cause to be made, at or about the time
of the Drawdown Date of any Swing Loan or at the time of receipt of any payment
of principal thereof, an appropriate notation on the Swing Loan Bank's Record
reflecting the making of such Swing Loan or (as the case may be) the receipt of
such payment. The outstanding amount of the Swing Loans set forth on the Swing
Loan Bank's Record shall be prima facia evidence of the principal amount
thereof owing and unpaid to the Swing Loan Bank, but the failure to record, or
any error in so recording, any such amount on the Swing Loan Bank's Record
shall not limit or otherwise affect the obligations of the Borrowers hereunder
or under the Swing Loan Note to make payments of principal of or interest on
any Swing Loan Note when due.
(c) Each borrowing of Swing Loan shall be subject to the
limits for Base Rate Loans and LIBOR Rate Loans set forth in Section 2.6.
Borrowers shall request a Swing Loan by delivering to the Swing Loan Bank a
Loan Request no later than 9:00 a.m. (Boston time) on the requested Drawdown
Date specifying the amount of the requested Swing Loan. The Loan Request shall
also contain the statements and certifications required by Section 2.6(i) and
(ii). Each such Loan Request shall be irrevocable and binding on the Borrowers
and shall obligate the Borrowers to accept such Swing Loan on the Drawdown
Date. Notwithstanding anything herein to the contrary, a Swing Loan shall
either be a Base Rate Loan or a LIBOR Rate Loan having an Interest Period of
one month, and in the event that the Borrowers fail to specify whether they
have selected a Base Rate Loan or a LIBOR Rate Loan, the Borrowers shall be
deemed conclusively to have selected a LIBOR Rate Loan with an Interest Period
of one month. Notwithstanding the foregoing, upon the date that the Banks shall
be required to fund the Loans
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pursuant to Section 2.4A(d) to refund such Swing Loan, the interest rate shall
be reset to a LIBOR Rate Loan with an Interest Period as specified in the Loan
Request given by the Borrowers to the Agent in connection with such Swing Loan,
or if no Interest Period is specified, then as a Base Rate Loan. The proceeds
of the Swing Loan will be made available by the Swing Loan Bank to the
Borrowers at the Agent's Head Office by crediting the account of the Borrowers
at such office with such proceeds.
(d) The Swing Loan Bank shall within three (3) Business
Days after the Drawdown Date with respect to such Swing Loan, request each
Bank, including the Swing Loan Bank, to make a Loan pursuant to Section 2.1 in
an amount equal to such Bank's Commitment Percentage of the amount of the Swing
Loan outstanding on the date such notice is given. Borrowers hereby irrevocably
authorize and direct the Swing Loan Bank to so act on its behalf, and agree
that any amount advanced to the Agent for the benefit of the Swing Loan Bank
pursuant to this Section 2.4A(d) shall be considered a Loan pursuant to Section
2.1. Unless any of the events described in paragraph (h), (i) or (j) of Section
12.1 shall have occurred (in which event the procedures of Section 2.4A(e)
shall apply), each Bank shall make the proceeds of its Loan available to the
Swing Loan Bank for the account of the Swing Loan Bank at the Agent's Head
Office prior to 12:00 noon (Boston time) in funds immediately available no
later than the third (3rd) Business Day after the date such notice is given
just as if the Banks were funding directly to the Borrowers, so that thereafter
such Obligations shall be evidenced by the Revolving Credit Notes. The proceeds
of such Loan shall be immediately applied to repay the Swing Loans.
(e) If prior to the making of a Loan pursuant to Section
2.4A(d) by all of the Banks, one of the events described in Section 12.1(h),
(i) or (j) shall have occurred, each Bank will, on the date such Loan pursuant
to Section 2.4A(d) was to have been made, purchase an undivided participating
interest in the Swing Loan in an amount equal to its Commitment Percentage of
such Swing Loan. Each Bank will immediately transfer to the Swing Loan Bank in
immediately available funds the amount of its participation and upon receipt
thereof the Swing Loan Bank will deliver to such Bank a Swing Loan
participation certificate dated the date of receipt of such funds and in such
amount.
(f) Whenever at any time after the Swing Loan Bank has
received from any Bank such Bank's participating interest in a Swing Loan, the
Swing Loan Bank receives any payment on account thereof, the Swing Loan Bank
will distribute to such Bank its participating interest in such amount
(appropriately adjusted in the case of interest payments to reflect the period
of time during which such Bank's participating interest was outstanding and
funded); provided, however, that in the event that such payment received by the
Swing Loan Bank is required to be returned, such Bank will return to the Swing
Loan Bank any portion thereof previously distributed by the Swing Loan Bank to
it.
(g) Each Bank's obligation to fund a Loan as provided in
Section 2.4A(d) or to purchase participating interests pursuant to Section
2.4A(e) shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right which such Bank or the Borrowers or
Guarantors may have against the Swing Loan Bank, the Borrowers or Guarantors or
anyone else for any reason
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whatsoever; (ii) the occurrence or continuance of a Default or an Event of
Default; (iii) any adverse change in the condition (financial or otherwise) of
the Borrowers or Guarantors or any of their respective Subsidiaries; (iv) any
breach of this Agreement or any of the other Loan Documents by the Borrowers or
Guarantors or any Bank; or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. Any portions of a
Swing Loan not so purchased or converted may be treated by the Swing Loan Bank
as a Loan which was not funded by the non-purchasing Bank as contemplated by
Section 2.7 and Section 12.4. Each Swing Loan, once so sold or converted, shall
cease to be a Swing Loan for the purposes of this Agreement, but shall be a
Loan made by each Bank under its Commitment.
Section 2.5. Interest on Loans
(a) Each Base Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the date on
which such Base Rate Loan is repaid or converted to a LIBOR Rate Loan at the
rate per annum equal to the sum of the Applicable Margin plus the Base Rate.
(b) Each LIBOR Rate Loan shall bear interest for the
period commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate per annum equal to the sum
of the Applicable Margin plus the LIBOR Rate determined for such Interest
Period.
(c) The Borrowers promise to pay interest on each Loan in
arrears on each Interest Payment Date with respect thereto. In the event that
any additional interest becomes due and payable for any period with respect to
a Loan as a result of a change in the Applicable Margin, and the interest for
such period has previously been paid by the Borrowers, the Borrowers shall pay
to the Agent for the account of the Banks the amount of such increase within
ten (10) days of demand.
(d) Base Rate Loans and LIBOR Rate Loans may be converted
to Loans of the other Type as provided in Section 4.1.
Section 2.6. Requests for Loans. Except with respect to the initial
Loan on the Closing Date and Swing Loans, the Borrowers (a) shall notify the
Agent of a potential request for a Loan as soon as possible, and (b) shall give
to the Agent written notice in the form of Exhibit H hereto (or telephonic
notice confirmed in writing in the form of Exhibit H hereto) of each Loan
requested hereunder (a "Loan Request") no less than five (5) Business Days
prior to the proposed Drawdown Date. Each such notice shall specify with
respect to the requested Loan the proposed principal amount, Drawdown Date,
Interest Period (if applicable) and Type. Each such notice shall also contain
(i) a statement as to the purpose for which such advance shall be used (which
purpose shall be in accordance with the terms of Section 7.11), and (ii) a
certification by the chief financial or chief accounting officer of the sole
general partner of WDOP and the chief financial or chief accounting officer of
Walden that the Borrowers are and will be in compliance with all covenants
under the Loan Documents after giving effect to the making of such Loan.
Promptly upon receipt of any such notice, the Agent shall notify each of the
Banks thereof. Except as
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provided in this Section 2.6, each such Loan Request shall be irrevocable and
binding on the Borrowers and shall obligate the Borrowers to accept the Loan
requested from the Banks on the proposed Drawdown Date, provided that, in
addition to the Borrowers' other remedies against any Bank which fails to
advance its proportionate share of a requested Loan, such Loan Request may be
revoked by the Borrowers by notice received by the Agent no later than the
Drawdown Date if any Bank fails to advance its proportionate share of the
requested Loan in accordance with the terms of this Agreement, provided further
that the Borrowers shall be liable in accordance with the terms of this
Agreement to any Bank which is prepared to advance its proportionate share of
the requested Loan for any costs, expenses or damages incurred by such Bank as
a result of the Borrowers' election to revoke such Loan Request. Nothing herein
shall prevent the Borrowers from seeking recourse against any Bank that fails
to advance its proportionate share of a requested Loan as required by this
Agreement. The Borrowers may without cost or penalty revoke a Loan Request by
delivering notice thereof to each of the Banks no later than three (3) Business
Days prior to the Drawdown Date. Each Loan Request shall be (a) for a Base Rate
Loan in a minimum aggregate amount of $1,000,000 or an integral multiple of
$100,000 in excess thereof, or (b) for a LIBOR Rate Loan in a minimum aggregate
amount of $2,000,000 or an integral multiple of $100,000 in excess thereof;
provided, however, that there shall be no more than ten (10) LIBOR Rate Loans
outstanding at any one time.
Section 2.7. Funds for Loans.
(a) Not later than 11:00 a.m. (Boston time) on the
proposed Drawdown Date of any Loans (other than Swing Loans), each of the Banks
will make available to the Agent, at the Agent's Head Office, in immediately
available funds, the amount of such Bank's Commitment Percentage of the amount
of the requested Loans which may be disbursed pursuant to Section 2.1. Upon
receipt from each Bank of such amount, and upon receipt of the documents
required by Section 10 and Section 11 and the satisfaction of the other
conditions set forth therein, to the extent applicable, the Agent will make
available to the Borrowers the aggregate amount of such Loans made available to
the Agent by the Banks by crediting such amount to the account of the Borrowers
maintained at the Agent's Head Office. The failure or refusal of any Bank to
make available to the Agent at the aforesaid time and place on any Drawdown
Date the amount of its Commitment Percentage of the requested Loans shall not
relieve any other Bank from its several obligation hereunder to make available
to the Agent the amount of such other Bank's Commitment Percentage of any
requested Loans, including any additional Loans that may be requested subject
to the terms and conditions hereof to provide funds to replace those not
advanced by the Bank so failing or refusing, provided that the Borrowers may by
notice received by the Agent no later than the Drawdown Date refuse to accept
any Loan which is not fully funded in accordance with the Borrowers' Loan
Request subject to the terms of Section 2.6. In the event of any such failure
or refusal, the Banks not so failing or refusing shall be entitled to a
priority position as against the Bank or Banks so failing or refusing for such
Loans as provided in Section 12.4.
(b) Unless Agent shall have been notified by any Bank
prior to the applicable Drawdown Date that such Bank will not make available to
Agent such Bank's pro rata share of a proposed Loan, Agent may in its
discretion assume that such Bank has made such Loan available
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<PAGE> 23
to Agent in accordance with the provisions of this Agreement and Agent may, if
it chooses, in reliance upon such assumption make such Loan available to
Borrowers, and such Bank shall be liable to the Agent for the amount of such
advance.
Section 3. REPAYMENT OF THE LOANS.
Section 3.1. Stated Maturity. The Borrowers promise to pay on the
Maturity Date and there shall become absolutely due and payable on the Maturity
Date, all of the Loans outstanding on such date, together with any and all
accrued and unpaid interest thereon.
Section 3.2. Mandatory Prepayments.
(a) If at any time the aggregate outstanding principal
amount of the Loans exceeds the Total Commitment, the Borrowing Base or the
Collateral Borrowing Base, then the Borrowers shall immediately pay the amount
of such excess to the Agent for the respective accounts of the Banks for
application to the Loans, except that the amount of any Swing Loans shall be
paid solely to the Swing Loan Bank.
(b) All of the Borrowers' interest in the gross proceeds
of each and every sale or refinancing of real estate assets of the Borrowers
and their respective Subsidiaries (whether held directly or indirectly), less
all reasonable costs, expenses and commissions paid to unrelated parties and
less any Indebtedness (other than the Obligations) secured by such asset to be
satisfied as a part of such sale or refinance, shall be promptly paid by the
Borrowers to the Agent for the account of the Banks as a prepayment of the
Loans to the extent of the outstanding balance of the Loans.
Section 3.3. Optional Prepayments. The Borrowers shall have the right,
at their election, to prepay the outstanding amount of the Loans, as a whole or
in part, at any time without penalty or premium; provided, that the full or
partial prepayment of the outstanding amount of any LIBOR Rate Loans pursuant
to this Section 3.3 may be made only on the last day of the Interest Period
relating thereto except as otherwise required pursuant to Section 4.7. The
Borrowers shall give the Agent, no later than 10:00 a.m., Boston time, at least
five Business Days prior written notice of any prepayment pursuant to this
Section 3.3, in each case specifying the proposed date of payment of Loans and
the principal amount to be paid. Notwithstanding the foregoing, no prior notice
shall be required for the prepayment of any Swing Loan.
Section 3.4. Partial Prepayments. Each partial prepayment of the Loans
under Section 3.2 and Section 3.3 shall be in an integral multiple of $100,000,
shall be accompanied by the payment of accrued interest on the principal
prepaid to the date of payment and, after payment of such interest, shall be
applied, in the absence of instruction by the Borrowers, first to the principal
of any Outstanding Swing Loans, and next to the principal of Base Rate Loans
and then to the principal of LIBOR Rate Loans.
Section 3.5. Effect of Prepayments. Amounts of the Loans prepaid under
Section 3.2 and Section 3.3 prior to the Maturity Date may be reborrowed as
provided in Section 2.
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Section 3.6. Proceeds from Debt or Equity Offering. Unless otherwise
approved by the Majority Banks, the Borrowers shall cause all gross proceeds of
each and every Debt Offering and Equity Offering, less all reasonable costs,
fees, expenses, underwriting commissions, fees and discounts incurred in
connection therewith, to be paid by the Borrowers to the Agent for the account
of the Banks as a prepayment of the Loans within thirty (30) days of the date
of such offering to the extent of the outstanding balance of the Loans.
Section 4. CERTAIN GENERAL PROVISIONS.
Section 4.1. Conversion Options.
(a) The Borrowers may elect from time to time to convert
any outstanding Loan to a Loan of another Type and such Loan shall thereafter
bear interest as a Base Rate Loan or a LIBOR Rate Loan, as applicable; provided
that (i) with respect to any such conversion of a LIBOR Rate Loan to a Base
Rate Loan, the Borrowers shall give the Agent at least three Business Days'
prior written notice of such election, and such conversion shall only be made
on the last day of the Interest Period with respect to such LIBOR Rate Loan;
(ii) with respect to any such conversion of a Base Rate Loan to a LIBOR Rate
Loan, the Borrowers shall give the Agent at least four LIBOR Business Days'
prior written notice of such election and the Interest Period requested for
such Loan, the principal amount of the Loan so converted shall be in a minimum
aggregate amount of $2,000,000 or an integral multiple of $100,000 in excess
thereof and, after giving effect to the making of such Loan, there shall be no
more than ten (10) LIBOR Rate Loans outstanding at any one time; and (iii) no
Loan may be converted into a LIBOR Rate Loan when any Default or Event of
Default has occurred and is continuing. Promptly upon receipt of any such
Conversion Request, the Agent shall notify each of the Banks thereof. All or
any part of the outstanding Loans of any Type may be converted as provided
herein, provided that no partial conversion shall result in a Base Rate Loan in
an aggregate principal amount of less than $1,000,000 or a LIBOR Rate Loan in
an aggregate principal amount of less than $2,000,000 and that the aggregate
principal amount of each Loan shall be in an integral multiple of $100,000. On
the date on which such conversion is being made, each Bank shall take such
action as is necessary to transfer its Commitment Percentage of such Loans to
its Domestic Lending Office or its LIBOR Lending Office, as the case may be.
Each Conversion Request relating to the conversion of a Base Rate Loan to a
LIBOR Rate Loan shall be irrevocable by the Borrowers.
(b) Any Loan may be continued as such Type upon the
expiration of an Interest Period with respect thereto by compliance by the
Borrowers with the terms of Section 4.1; provided that no LIBOR Rate Loan may
be continued as such when any Default or Event of Default has occurred and is
continuing, but shall be automatically converted to a Base Rate Loan on the
last day of the Interest Period relating thereto ending during the continuance
of any Default or Event of Default.
(c) In the event that the Borrowers do not notify the
Agent of their election hereunder with respect to any Loan, such Loan shall be
automatically converted to a Base Rate Loan at the end of the applicable
Interest Period.
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Section 4.2. Closing Fee.
(a) The Borrowers have previously paid to BKB certain closing and
structuring fees pursuant to the Original Credit Agreement, which fees are
non-refundable.
(b) The Borrowers agree to pay to BKB certain fees for services
rendered or to be rendered in connection with the Loan as provided pursuant to
the Agreement Regarding Fees. Upon payment of such fees, BKB shall pay to the
Banks a closing fee in accordance with their separate agreement. All such fees
shall be non-refundable.
Section 4.3. Agent's Fee. The Borrowers shall pay to the Agent, for
the Agent's own account, an annual Agent's fee as provided in the Agreement
Regarding Fees. The Agent's fee shall be payable quarterly in arrears on the
first day of each calendar quarter for the immediately preceding calendar
quarter or portion thereof. The Agent's fee shall also be paid upon the
Maturity Date or earlier termination of the Commitments. The Agent's fee for
any partial quarter shall be prorated.
Section 4.4. Funds for Payments.
(a) All payments of principal, interest, facility fees,
Agent's fees, closing fees, and any other amounts due hereunder or under any of
the other Loan Documents shall be made to the Agent, for the respective
accounts of the Banks and the Agent, as the case may be, at the Agent's Head
Office, not later than 11:00 a.m. (Boston time) on the day when due, in each
case in immediately available funds. The Agent is hereby authorized to charge
the account of the Borrowers with BKB, on the dates when the amount thereof
shall become due and payable, with the amounts of the principal of and interest
on the Loans and all fees, charges, expenses and other amounts owing to the
Agent and/or the Banks (including the Swing Loan Bank) under the Loan
Documents.
(b) All payments by the Borrowers hereunder and under any
of the other Loan Documents shall be made without setoff or counterclaim and
free and clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction
or any political subdivision thereof or taxing or other authority therein
unless the Borrowers are compelled by law to make such deduction or
withholding. If any such obligation is imposed upon the Borrowers with respect
to any amount payable by it hereunder or under any of the other Loan Documents,
the Borrowers will pay to the Agent, for the account of the Banks (including
the Swing Loan Bank) or (as the case may be) the Agent, on the date on which
such amount is due and payable hereunder or under such other Loan Document,
such additional amount in Dollars as shall be necessary to enable the Banks or
the Agent to receive the same net amount which the Banks or the Agent would
have received on such due date had no such obligation been imposed upon the
Borrowers. The Borrowers will deliver promptly to the Agent certificates or
other valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by the Borrowers hereunder or under such other Loan
Document.
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Section 4.5. Computations. All computations of interest on the Loans
and of other fees to the extent applicable shall be based on a 360-day year and
paid for the actual number of days elapsed. Except as otherwise provided in the
definition of the term "Interest Period" with respect to LIBOR Rate Loans,
whenever a payment hereunder or under any of the other Loan Documents becomes
due on a day that is not a Business Day, the due date for such payment shall be
extended to the next succeeding Business Day, and interest shall accrue during
such extension. The outstanding amount of the Loans as reflected on the records
of the Agent from time to time shall be considered prima facie evidence of such
amount.
Section 4.6. Inability to Determine LIBOR Rate. In the event that,
prior to the commencement of any Interest Period relating to any LIBOR Rate
Loan, the Agent shall determine that adequate and reasonable methods do not
exist for ascertaining the LIBOR Rate for such Interest Period, the Agent shall
forthwith give notice of such determination (which shall be conclusive and
binding on the Borrowers and the Banks) to the Borrowers and the Banks. In such
event (a) any Loan Request with respect to LIBOR Rate Loans shall be
automatically withdrawn and shall be deemed a request for Base Rate Loans, and
(b) each LIBOR Rate Loan will automatically, on the last day of the then
current Interest Period thereof, become a Base Rate Loan, and the obligations
of the Banks to make LIBOR Rate Loans shall be suspended until the Agent
determines that the circumstances giving rise to such suspension no longer
exist, whereupon the Agent shall so notify the Borrowers and the Banks.
Section 4.7. Illegality. Notwithstanding any other provisions herein,
if any present or future law, regulation, treaty or directive or the
interpretation or application thereof shall make it unlawful, or any central
bank or other governmental authority having jurisdiction over a Bank or its
LIBOR Lending Office shall assert that it is unlawful, for any Bank to make or
maintain LIBOR Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Agent and the Borrowers and thereupon (a) the commitment
of the Banks to make LIBOR Rate Loans or convert Loans of another type to LIBOR
Rate Loans shall forthwith be suspended and (b) the LIBOR Rate Loans then
outstanding shall be converted automatically to Base Rate Loans on the last day
of each Interest Period applicable to such LIBOR Rate Loans or within such
earlier period as may be required by law.
Section 4.8. Additional Interest. If any LIBOR Rate Loan or any
portion thereof is repaid or is converted to a Base Rate Loan for any reason on
a date which is prior to the last day of the Interest Period applicable to such
LIBOR Rate Loan, the Borrowers will pay to the Agent upon demand for the
account of the Banks in accordance with their respective Commitment Percentages
(or to the Swing Loan Bank with respect to a Swing Loan), in addition to any
amounts of interest otherwise payable hereunder, any amounts required to
compensate the Banks for any losses, costs or expenses which may reasonably be
incurred as a result of such payment or conversion, including, without
limitation, an amount equal to daily interest for the unexpired portion of such
Interest Period on the LIBOR Rate Loan or portion thereof so repaid or
converted at a per annum rate equal to the excess, if any, of (a) the interest
rate calculated on the basis of the LIBOR Rate applicable to such LIBOR Rate
Loan minus (b) the yield obtainable by the Agent upon the purchase of debt
securities customarily issued by the Treasury of the United States of America
which have a maturity date most closely approximating the last day of such
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Interest Period (it being understood that the purchase of such securities shall
not be required in order for such amounts to be payable and that a Bank shall
not be obligated or required to have actually obtained funds at the LIBOR Rate
or to have actually reinvested such amount as described above).
Section 4.9. Additional Costs, Etc. Notwithstanding anything herein to
the contrary, if any present or future applicable law, which expression, as
used herein, includes statutes, rules and regulations thereunder and legally
binding interpretations thereof by any competent court or by any governmental
or other regulatory body or official with appropriate jurisdiction charged with
the administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon
or otherwise issued to any Bank or the Agent by any central bank or other
fiscal, monetary or other authority (whether or not having the force of law),
shall:
(a) subject any Bank or the Agent to any tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature with respect
to this Agreement, the other Loan Documents, such Bank's Commitment (including
the Swing Loan Commitment) or the Loans (other than taxes based upon or
measured by the income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for
changes in taxes on income or profits) of payments to any Bank of the principal
of or the interest on any Loans or any other amounts payable to any Bank under
this Agreement or the other Loan Documents, or
(c) impose or increase or render applicable any special
deposit, reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held by,
or deposits in or for the account of, or loans by, or letters of credit from,
or commitments of an office of any Bank, or
(d) impose on any Bank or the Agent any other conditions
or requirements with respect to this Agreement, the other Loan Documents, the
Loans, such Bank's Commitment (including the Swing Loan Commitment), or any
class of loans or commitments of which any of the Loans or such Bank's
Commitment (including the Swing Loan Commitment) forms a part; and the result
of any of the foregoing is
(i) to increase the cost to any Bank of making,
funding, issuing, renewing, extending or maintaining any of the Loans or such
Bank's Commitment (including the Swing Loan Commitment), or
(ii) to reduce the amount of principal, interest or
other amount payable to such Bank or the Agent hereunder on account of such
Bank's Commitment (including the Swing Loan Commitment) or any of the Loans, or
(iii) to require such Bank or the Agent to make any
payment or to forego any interest or other sum payable hereunder, the amount of
which payment or foregone
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<PAGE> 28
interest or other sum is calculated by reference to the gross amount of any sum
receivable or deemed received by such Bank or the Agent from the Borrowers
hereunder,
then, and in each such case, the Borrowers will, within fifteen (15) days of
demand made by such Bank or (as the case may be) the Agent at any time and from
time to time and as often as the occasion therefor may arise, pay to such Bank
or the Agent such additional amounts as such Bank or the Agent shall determine
in good faith to be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or other sum. Each
Bank and the Agent in determining such amounts may use any reasonable averaging
and attribution methods, generally applied by such Bank or the Agent.
Section 4.10. Capital Adequacy. If after the date hereof any Bank
determines that (a) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies or
any change in the interpretation or application thereof by any governmental
authority charged with the administration thereof, or (b) compliance by such
Bank or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Bank's or such
holding company's capital as a consequence of such Bank's commitment to make
Loans hereunder to a level below that which such Bank or holding company could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or such holding company's then existing policies with
respect to capital adequacy and assuming the full utilization of such entity's
capital) by any amount deemed by such Bank to be material, then such Bank may
notify the Borrowers thereof. The Borrowers agree to pay to such Bank the
amount of such reduction in the return on capital as and when such reduction is
determined, upon presentation by such Bank of a statement of the amount setting
forth the Bank's calculation thereof. In determining such amount, such Bank may
use any reasonable averaging and attribution methods.
Section 4.11. Indemnity of Borrowers. The Borrowers agree to indemnify
each Bank and to hold each Bank harmless from and against any loss, cost or
expense that such Bank may sustain or incur as a consequence of (a) default by
the Borrowers in payment of the principal amount of or any interest on any
LIBOR Rate Loans as and when due and payable, including any such loss or
expense arising from interest or fees payable by such Bank to lenders of funds
obtained by it in order to maintain its LIBOR Rate Loans, or (b) default by the
Borrowers in making a borrowing or conversion after the Borrowers have given
(or are deemed to have given) a Loan Request or a Conversion Request.
Section 4.12. Interest on Overdue Amounts; Late Charge. Overdue
principal and (to the extent permitted by applicable law) interest on the Loans
and all other overdue amounts payable hereunder or under any of the other Loan
Documents shall bear interest payable on demand at a rate per annum equal to
five percent (5.00%) above the Base Rate until such amount shall be paid in
full (after as well as before judgment). In addition, the Borrowers shall pay a
late charge equal to three percent (3%) of any amount of interest and/or
principal payable on the Loans or any other amounts payable hereunder or under
the Loan Documents, which is not paid within ten days of the date when due.
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Section 4.13. Certificate. A certificate setting forth any amounts
payable pursuant to Section 4.8, Section 4.9, Section 4.10, Section 4.11 or
Section 4.12 and a brief explanation of such amounts which are due, submitted
by any Bank or the Agent to the Borrowers, shall be conclusive in the absence
of manifest error.
Section 4.14. Limitation on Interest. Notwithstanding anything in this
Agreement to the contrary, all agreements between the Borrowers and the Banks
and the Agent, whether now existing or hereafter arising and whether written or
oral, are hereby limited so that in no contingency, whether by reason of
acceleration of the maturity of any of the Obligations or otherwise, shall the
interest contracted for, charged or received by the Banks exceed the maximum
amount permissible under applicable law. If, from any circumstance whatsoever,
interest would otherwise be payable to the Banks in excess of the maximum
lawful amount, the interest payable to the Banks shall be reduced to the
maximum amount permitted under applicable law; and if from any circumstance the
Banks shall ever receive anything of value deemed interest by applicable law in
excess of the maximum lawful amount, an amount equal to any excessive interest
shall be applied to the reduction of the principal balance of the Obligations
and to the payment of interest or, if such excessive interest exceeds the
unpaid balance of principal of the Obligations, such excess shall be refunded
to the Borrowers. All interest paid or agreed to be paid to the Banks shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full period until payment in full of the principal of the
Obligations (including the period of any renewal or extension thereof) so that
the interest thereon for such full period shall not exceed the maximum amount
permitted by applicable law. This section shall control all agreements between
the Borrowers and the Banks and the Agent.
Section 5. SECURITY.
Section 5.1. Security. The Banks have agreed to make the Loans to the
Borrowers on an unsecured basis. Notwithstanding the foregoing, the Obligations
shall be guaranteed by the Guarantors pursuant to the Guaranty.
Section 5.2. Escrowed Security Documents.
(a) The Borrowers shall at all times have delivered
Escrowed Security Documents and otherwise satisfied the conditions of this
Section 5.2 such that all the following conditions are satisfied:
(i) The Unencumbered Operating Properties included
within the Collateral Borrowing Base shall satisfy the conditions of Section
7.14 as applied solely to such properties; and
(ii) The Escrowed Security Documents shall encumber
such number of Unencumbered Operating Properties such that the covenants in
this Agreement with respect to the Collateral Borrowing Base are satisfied.
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(b) In order for an Unencumbered Operating Property to be
included within the Collateral Borrowing Base, the Borrowers shall provide each
of the following to the Agent as a condition precedent thereto:
(i) the Security Documents and such other documents and
consents as are reasonably required by the Agent to mortgage or pledge the
applicable Borrower's interest in such Real Estate;
(ii) a ratification and acknowledgment executed by the
Guarantor, if any, that the "Loan Documents" described in the Guaranty include
the Escrowed Security Documents, in form and substance satisfactory to the
Agent;
(iii) a copy of the owner's policy of title insurance
obtained by the applicable Borrower or its predecessor by merger in connection
with the acquisition of such Unencumbered Operating Property issued by a title
insurance company reasonably satisfactory to the Agent, together with a
"datedown" or "nothing further" endorsement through the date of delivery of the
Security Documents to the Agent, or other evidence satisfactory to the Agent,
which shall evidence Borrowers' compliance with clause (a) of the definition of
Unencumbered Operating Property;
(iv) current evidence acceptable to the Agent that the
applicable UCC records disclose no security interest or lien on the applicable
Unencumbered Operating Property;
(v) the "Phase I" environmental study of the applicable
Unencumbered Operating Property obtained by the applicable Borrower or its
predecessor by merger in connection with the acquisition of such Real Estate,
and if recommended by the "Phase I" study, a "Phase II" environmental study,
which shall evidence compliance with Section 6.17 and Section 6.20;
(vi) an updated or current "as-built" survey and a
property condition report obtained by the applicable Borrower or its
predecessor by merger in connection with the acquisition of such Real Estate,
and evidence of the existence of property and liability insurance with respect
to the applicable Unencumbered Operating Property;
(vii) a current rent roll and operating statement for the
previous four (4) quarters with respect to such Unencumbered Operating
Property, each in form and substance satisfactory to the Agent;
(viii) a Property Certificate with respect to the
applicable Unencumbered Operating Property;
(ix) an owner's affidavit as to title matters in form
and substance reasonably satisfactory to the Agent;
(x) a legal opinion of Borrowers' counsel in form and
substance reasonably satisfactory to the Agent (A) stating that the Escrowed
Security Documents have been
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duly authorized, executed and delivered by the applicable Borrower and, upon
the occurrence of an Event of Default, shall be valid, binding and enforceable
against the applicable Borrower including, without limitation, the choice of
law provisions of the Escrowed Security Documents, (B) indicating the due
organization, legal existence and good standing of the Borrowers and Guarantor
in the state of its formation, (C) stating that to Borrowers' counsel's current
actual knowledge there is no material action, suit or proceeding pending or
threatened against or affecting any Borrower or Guarantor before any court,
administrative agency, arbitrator or governmental authority, and (D) such other
matters as are reasonably requested by Agent; and
(xi) copies of all Management Agreements relating to such
Unencumbered Operating Property, which management agreements must be
subordinate to the Security Documents.
(c) The documents delivered to the Agent pursuant to Section
5.2(b)(i)-(iii) are hereinafter referred to as the Escrowed Security Documents.
The Escrowed Security Documents shall be deemed to have been delivered,
effective and irrevocable, but shall not be recorded until the occurrence of an
Event of Default; it being understood that the Escrowed Security Documents
shall not constitute Loan Documents until the occurrence of an Event of Default
nor shall the parties thereto be required to comply with the terms thereof
prior to the occurrence of an Event of Default, except as required by this
Agreement. The Borrowers shall upon the demand of the Agent re-execute such of
the Escrowed Security Documents as the Agent may require in order for the same
to remain effective and recordable. The Borrowers shall upon the request of the
Agent provide to the Agent updates of the information required pursuant to
Section 5.2(b)(iii) and (iv) to evidence Borrowers' compliance with the terms
of this Agreement. Upon the occurrence of an Event of Default, the Agent may,
and upon the direction of the Majority Banks, shall, record the Escrowed
Security Documents in the public records as directed by the Majority Banks
without any further action of or notice to Borrowers or any other party and
without waiving such Event of Default. Thereafter, the Escrowed Security
Documents shall become effective as Loan Documents. In addition, the Borrowers
shall promptly deliver to Agent such further documents as may be reasonably
requested by the Agent relating to the Unencumbered Operating Properties,
including without limitation, owner's affidavits, updated legal opinions in
accordance with Section 5.2(b)(x) and copies of leases and such changes to the
Escrowed Security Documents as may be necessary or desirable to comply with
changes in applicable law. In connection with the recording of the Escrowed
Security Documents, the Agent may obtain a mortgagee's title insurance policy
in such amount as is determined by the Majority Banks at the Borrower's sole
cost and expense, with respect to each Unencumbered Operating Property. The
Borrowers shall upon demand pay the cost of any such mortgagee's title
insurance policy, the cost of any updated UCC searches, all recording costs and
fees, and any and all intangible taxes or other documentary or mortgage taxes,
assessments or charges which are demanded in connection with the recording of
any of the Escrowed Security Documents. In addition, the Borrowers shall pay
within five (5) days after demand any and all costs, fees, intangible tax,
documentary or mortgage tax, assessments or charges as are demanded by any
governmental authority by reason of the Escrowed Security Documents prior to
the recording of the same. In the event that the Borrowers fail to pay such
amounts as provided in this Section 5.2, then the Banks may advance such
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amounts as are required to be paid as Loans hereunder, which Loans shall bear
interest at the rate for overdue payments set forth in Section 4.12.
(d) Each of the documents described in Section 5.2(b) shall
be delivered to the Agent with respect to any Real Estate hereafter acquired by
the Borrowers within thirty (30) days of a Borrower's acquisition thereof
unless the Borrowers elect to not include such asset within the Collateral
Borrowing Base (it being acknowledged that no such asset shall become an
Unencumbered Operating Property within the Collateral Borrowing Base until the
requirements of Section 5.2(a) and (b) are satisfied).
(e) The Borrowers may elect by the delivery of written notice
to the Agent to remove any Unencumbered Operating Property from the Borrowing
Base and the Collateral Borrowing Base in order to sell such asset or to
encumber such asset as permitted pursuant to Section 8.2, provided that no
Default or Event of Default has occurred or would be caused thereby, and
provided further that the Escrowed Security Documents relating thereto have not
previously been recorded pursuant hereto. Such request shall be accompanied by
a statement certified by the principal financial or accounting officer of
Walden that no Default or Event of Default exists or will exist following the
requested release and a Compliance Certificate demonstrating that the Borrowers
will be in compliance with their covenants referred to therein after giving
effect to such release and sale or refinance. Upon the satisfaction of the
foregoing conditions, the Agent shall return the Escrowed Security Documents
relating to such Unencumbered Operating Property to the applicable Borrower.
(f) The Majority Banks may, in their discretion, elect by the
delivery of written notice to the Borrowers to cause the Borrowers to remove
any Unencumbered Operating Property from the Collateral Borrowing Base and to
cause such Unencumbered Operating Property to be replaced by any other
Unencumbered Operating Properties owned by either of the Borrowers which are
not included within the Collateral Borrowing Base. The Borrowers shall within
thirty (30) days of receipt of such notice cause such Unencumbered Operating
Properties to be included within the Collateral Borrowing Base by delivering
each of the documents described in Section 5.2(b) within such period.
Section 6. REPRESENTATIONS AND WARRANTIES.
The Borrowers represent and warrant to the Agent and the Banks as
follows:
Section 6.1. Corporate Authority, Etc.
(a) Incorporation; Good Standing. WDOP is a Delaware
limited partnership duly organized pursuant to a limited partnership agreement
dated August 12, 1997 and is validly existing and in good standing under the
laws of Delaware. WROP is a Georgia limited partnership duly organized pursuant
to a limited partnership agreement dated February 11, 1993 and is validly
existing and in good standing under the laws of Georgia. Walden is a Maryland
corporation duly organized pursuant to its Articles of Incorporation and
amendments thereto filed with the Secretary of the State of Maryland and is
validly existing and in good standing under the
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laws of Maryland. WDN Properties, Inc. is a New York corporation duly organized
pursuant to its Articles of Incorporation and amendments thereto filed with the
Secretary of State of New York and is validly existing and in good standing
under the laws of New York. Walden Operating, Inc. is a Delaware corporation
duly organized pursuant to its Articles of Incorporation and amendments thereto
filed with the Secretary of State of Delaware and is validly existing and in
good standing under the laws of Delaware. Each of the Borrowers, the Guarantors
and Walden Operating, Inc. (i) has all requisite power to own its respective
property and conduct its respective business as now conducted and as presently
contemplated, and (ii) as to WDOP and Walden and Walden Operating, Inc. (as
general partners of WDOP and WROP, respectively) only, is in good standing as a
foreign entity and is duly authorized to do business in the jurisdictions where
the Unencumbered Operating Properties are located and in each other
jurisdiction where a failure to be so qualified in such other jurisdiction
could have a materially adverse effect on the business, assets or financial
condition of such Person. Walden is a real estate investment trust in full
compliance with and entitled to the benefits of Section 856 of the Code.
(b) Subsidiaries. Each of the Subsidiaries of the Borrowers
(i) is a corporation, limited partnership, limited liability company or trust
duly organized under the laws of its State of organization and is validly
existing and in good standing under the laws thereof, (ii) has all requisite
power to own its property and conduct its business as now conducted and as
presently contemplated, and (iii) is in good standing and is duly authorized to
do business in each jurisdiction where a failure to be so qualified could have
a materially adverse effect on the business, assets or financial condition of
such Borrower or such Subsidiary.
(c) Authorization. The execution, delivery and performance of
this Agreement and the other Loan Documents to which any of the Borrowers, the
General Partner or the Guarantors is or is to become a party and the
transactions contemplated hereby and thereby (i) are within the authority of
such Person, (ii) have been duly authorized by all necessary proceedings on the
part of such Person, (iii) do not and will not conflict with or result in any
breach or contravention of any provision of law, statute, rule or regulation to
which such Person is subject or any judgment, order, writ, injunction, license
or permit applicable to such Person, (iv) do not and will not conflict with or
constitute a default (whether with the passage of time or the giving of notice,
or both) under any provision of the articles of incorporation, partnership
agreement, declaration of trust or other charter documents or bylaws of, or any
agreement or other instrument binding upon, such Person or any of its
properties, and (v) do not and will not result in or require the imposition of
any lien or other encumbrance on any of the properties, assets or rights of
such Person.
(d) Enforceability. The execution and delivery of this
Agreement and the other Loan Documents to which any of the Borrowers, the
General Partner or the Guarantors is or is to become a party are valid and
legally binding obligations of such Person enforceable in accordance with the
respective terms and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
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Section 6.2. Governmental Approvals. The execution, delivery and
performance by the Borrowers, the General Partner and the Guarantors of this
Agreement and the other Loan Documents to which such Person is a party and the
transactions contemplated hereby and thereby do not require the approval or
consent of, or filing with, any governmental agency or authority other than
those already obtained.
Section 6.3. Title to Properties; Leases. Walden and its Subsidiaries
own all of the assets reflected in the consolidated balance sheet of Walden as
at the Balance Sheet Date or acquired since that date (except property and
assets sold or otherwise disposed of in the ordinary course of business since
that date), subject to no rights of others, including any mortgages, leases,
conditional sales agreements, title retention agreements, liens or other
encumbrances except Permitted Liens. Without limiting the foregoing, Walden and
its Subsidiaries have good and marketable fee simple title to all real property
reasonably necessary for the operation of its business in whole, free from all
liens or encumbrances of any nature whatsoever, except for Permitted Liens.
Walden or its Subsidiaries, as the case may be, is the insured under owner's
policies of title insurance covering all real property owned by it, in each
case in an amount not less than the purchase price for such real property.
Section 6.4. Financial Statements. The Borrowers have furnished to
each of the Banks: (a) the consolidated balance sheet of Walden and its
Subsidiaries as of the Balance Sheet Date, (b) an unaudited statement of
operating income for each of the properties within the Unencumbered Operating
Properties as of the Closing Date for the fiscal quarter ended September 30,
1998 satisfactory in form to the Majority Banks and certified by the chief
financial or accounting officer of Walden, for Walden and as the sole general
partner of WDOP, as fairly presenting the operating income for such parcels for
such periods, and (c) certain other financial information relating to the
Borrowers and the Real Estate. Such balance sheet and statements have been
prepared in accordance with generally accepted accounting principles and fairly
present the financial condition of the Borrowers and their respective
Subsidiaries as of such dates and the results of the operations of the
Borrowers and their respective Subsidiaries for such periods. There are no
liabilities, contingent or otherwise, of the Borrowers or any of their
respective Subsidiaries involving material amounts not disclosed in said
financial statements and the related notes thereto.
Section 6.5. No Material Changes. Since the Balance Sheet Date, there
has occurred no materially adverse change in the financial condition or
business of the Borrowers and their respective Subsidiaries taken as a whole as
shown on or reflected in the consolidated balance sheet of the Borrowers, as of
the Balance Sheet Date, or their respective consolidated statement of income or
cash flows for the fiscal year then ended, other than changes in the ordinary
course of business that have not had any materially adverse effect either
individually or in the aggregate on the business or financial condition of such
Person.
Section 6.6. Franchises, Patents, Copyrights, Etc. The Borrowers, the
General Partner, the Guarantors and their respective Subsidiaries possess all
franchises, patents, copyrights, trademarks, trade names, servicemarks,
licenses and permits, and rights in respect of the
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foregoing, adequate for the conduct of their business substantially as now
conducted without known conflict with any rights of others.
Section 6.7. Litigation. There are no actions, suits, proceedings or
investigations of any kind pending or to the knowledge of such Person
threatened against the Borrowers, the Guarantors, the General Partner or any of
their respective Subsidiaries before any court, tribunal or administrative
agency or board that, if adversely determined, might, either in any case or in
the aggregate, materially adversely affect the properties, assets, financial
condition or business of such Person or materially impair the right of such
Person to carry on business substantially as now conducted by it, or result in
any liability not adequately covered by insurance, or for which adequate
reserves are not maintained on the balance sheet of such Person, or which
question the validity of this Agreement or any of the other Loan Documents, any
action taken or to be taken pursuant hereto or thereto or any lien or security
interest created or intended to be created pursuant hereto or thereto, or which
will adversely affect the ability of the Borrowers or the Guarantors to pay and
perform the Obligations in the manner contemplated by this Agreement and the
other Loan Documents.
Section 6.8. No Materially Adverse Contracts, Etc. None of the
Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries is subject to any charter, corporate or other legal restriction,
or any judgment, decree, order, rule or regulation that has or is expected in
the future to have a materially adverse effect on the business, assets or
financial condition of such Person. None of the Borrowers, the General Partner,
the Guarantors or any of their respective Subsidiaries is a party to any
contract or agreement that has or is expected, in the judgment of the officers
or partners of such Person, to have any materially adverse effect on the
business of any of them.
Section 6.9. Compliance with Other Instruments, Laws, Etc. None of the
Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries is in violation of any provision of its charter or other
organizational documents, bylaws, or any agreement or instrument to which it
may be subject or by which it or any of its properties may be bound or any
decree, order, judgment, statute, license, rule or regulation, in any of the
foregoing cases in a manner that could result in the imposition of substantial
penalties or materially and adversely affect the financial condition,
properties or business of such Person.
Section 6.10. Tax Status. The Borrowers, the General Partner, the
Guarantors and each of their respective Subsidiaries (a) has made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (b) has paid all taxes and
other governmental assessments and charges shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith and by appropriate proceedings and (c) has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers or partners of such
Person know of no basis for any such claim.
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Section 6.11. No Event of Default. No Default or Event of Default has
occurred and is continuing.
Section 6.12. Holding Company and Investment Company Acts. None of the
Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company", as such terms are defined
in the Public Utility Holding Company Act of 1935; nor is any of such Persons
an "investment company", or an "affiliated company" or a "principal
underwriter" of an "investment company", as such terms are defined in the
Investment Company Act of 1940.
Section 6.13. Absence of UCC Financing Statements, Etc. Except with
respect to Permitted Liens, there is no financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry, or other public office, that
purports to cover, affect or give notice of any present or possible future lien
on, or security interest or security title in, any property of the Borrowers or
their respective Subsidiaries or rights thereunder.
Section 6.14. Certain Transactions. Except as set forth in the
Prospectus, none of the partners, officers, trustees, directors, or employees
of the Borrowers, the General Partner or the Guarantors or any of their
respective Subsidiaries is a party to any transaction with either or both of
the Borrowers or any of their respective Subsidiaries (other than for services
as partners, employees, officers, trustees and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any partner, officer, trustee,
director or such employee or, to the knowledge of the Borrowers, any
corporation, partnership, trust or other entity in which any partner, officer,
trustee, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
Section 6.15. Employee Benefit Plans. Walden and each ERISA Affiliate
has fulfilled its obligations under the minimum funding standards of ERISA and
the Code with respect to each Employee Benefit Plan, Multiemployer Plan or
Guaranteed Pension Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Code with respect to each
Employee Benefit Plan, Multiemployer Plan or Guaranteed Pension Plan. Neither
Walden nor any ERISA Affiliate has (a) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any Employee Benefit Plan,
Multiemployer Plan or Guaranteed Pension Plan, (b) failed to make any
contribution or payment to any Employee Benefit Plan, Multiemployer Plan or
Guaranteed Pension Plan, or made any amendment to any Employee Benefit Plan,
Multiemployer Plan or Guaranteed Pension Plan, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code, or (c) incurred any liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of ERISA.
None of the Unencumbered Operating Properties constitutes a "plan asset" of any
Employee Plan, Multiemployer Plan or Guaranteed Pension Plan.
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Section 6.16. Regulations U and X. No portion of any Loan is to be
used for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
Section 6.17. Environmental Compliance. The Borrowers have taken or
caused to be taken all commercially reasonable steps to investigate the past
and present conditions and usage of the Real Estate and the operations
conducted thereon and, based upon such investigation, makes the following
representations and warranties.
(a) With respect to the Unencumbered Operating
Properties, and to the best of the Borrowers' knowledge with respect to any
other Real Estate, except as set forth in Schedule 6.17, none of the Borrowers
or their respective Subsidiaries or any operator of the Real Estate, or any
operations thereon is in violation, or alleged violation, of any judgment,
decree, order, law, license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act,
or any state or local statute, regulation, ordinance, order or decree relating
to the environment (hereinafter "Environmental Laws"), which violation involves
the Unencumbered Operating Properties or other Real Estate and would have a
material adverse effect on the environment or the business, assets or financial
condition of the Borrowers or any of their respective Subsidiaries. Although
not a violation of any Environmental Law, Borrowers have disclosed to Agent
that the Unencumbered Operating Properties commonly known as Preston Greens,
Post Oak and Fountaingate/Willow Creek contain elevated levels of lead in the
drinking water as described in environmental reports previously submitted to
Agent.
(b) Neither the Borrowers nor any of their respective
Subsidiaries has received notice from any third party including, without
limitation, any federal, state or local governmental authority, (i) that it has
been identified by the United States Environmental Protection Agency ("EPA") as
a potentially responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that
any hazardous waste, as defined by 42 U.S.C. Section 9601(5), any hazardous
substances as defined by 42 U.S.C. Section 9601(14), any pollutant or
contaminant as defined by 42 U.S.C. Section 9601(33) or any toxic substances,
oil or hazardous materials or other chemicals or substances regulated by any
Environmental Laws ("Hazardous Substances") which it has generated, transported
or disposed of have been found at any site at which a federal, state or local
agency or other third party has conducted or has ordered that the Borrowers or
any of their respective Subsidiaries conduct a remedial investigation, removal
or other response action pursuant to any Environmental Law; or (iii) that it is
or shall be a named party to any claim, action, cause of action, complaint, or
legal or administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Substances.
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(c) With respect to the Unencumbered Operating
Properties, and to the best of the Borrowers' knowledge, with respect to any
other Real Estate, except as set forth in Schedule 6.17, or in the case of Real
Estate acquired after the date hereof, except as may be disclosed in writing to
the Agent upon the acquisition of the same: (i) no portion of the Real Estate
has been used for the handling, processing, storage or disposal of Hazardous
Substances except in accordance with applicable Environmental Laws, and no
underground tank or other underground storage receptacle for Hazardous
Substances is located on any portion of such Real Estate; (ii) in the course of
any activities conducted by the Borrowers or any of their respective
Subsidiaries or the operators of any of their properties, no Hazardous
Substances have been generated or are being used on the Real Estate of such
Person except in the ordinary course of business and in accordance with
applicable Environmental Laws; (iii) there has been no past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping (a "Release") or
threatened Release of Hazardous Substances on, upon, into or from such Real
Estate, or, to the best of the Borrowers' knowledge, on, upon, into or from the
other properties of the Borrowers or any of their respective Subsidiaries,
which Release would have a material adverse effect on the value of any of such
Real Estate or adjacent properties or the environment; (iv) to the best of the
Borrowers' knowledge, there have been no Releases on, upon, from or into any
real property in the vicinity of any of such Real Estate which, through soil or
groundwater contamination, may have come to be located on, and which would have
a material adverse effect on the value of, such Real Estate; and (v) any
Hazardous Substances that have been generated on any of such Real Estate have
been transported off-site only by carriers having an identification number
issued by the EPA or approved by a state or local environmental regulatory
authority having jurisdiction regarding the transportation of such substance
and treated or disposed of only by treatment or disposal facilities maintaining
valid permits as required under all applicable Environmental Laws, which
transporters and facilities have been and are, to the best of the Borrowers'
knowledge operating in compliance with such permits and applicable
Environmental Laws. Upon the receipt by the Agent of any such disclosure, the
Agent shall promptly notify the Banks thereof.
(d) Neither the Borrowers, their respective Subsidiaries
nor any Real Estate of such Person is subject to any applicable Environmental
Law requiring the performance of Hazardous Substances site assessments, or the
removal or remediation of Hazardous Substances, or the giving of notice to any
governmental agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the transactions
set forth herein and contemplated hereby, or as a condition to the recording of
the Escrowed Security Documents or to the effectiveness of any other
transactions contemplated hereby.
Section 6.18. Subsidiaries. Schedule 6.18 sets forth all of the
Subsidiaries of WDOP and Walden. The form and jurisdiction of organization of
each of the Subsidiaries, and WDOP's and Walden's ownership interest therein,
is set forth in said Schedule 6.18.
Section 6.19. Loan Documents and the Guarantors. All of the
representations and warranties of the Borrowers and the Guarantors made in this
Agreement and the other Loan Documents or any document or instrument delivered
to the Agent or the Banks pursuant to or in connection with any of such Loan
Documents are true and correct in all material respects, and none of the
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Borrowers nor the Guarantors has failed to disclose such information as is
necessary to make such representations and warranties not misleading.
Section 6.20. Property. All of the Borrowers', the Guarantors' and
their respective Subsidiaries' properties are in good repair and condition,
subject to ordinary wear and tear, other than with respect to deferred
maintenance existing as of the date of acquisition of such property as
permitted in this Section 6.20. The Borrowers further have completed or caused
to be completed an appropriate investigation of the environmental condition of
each such property as of the later of the date of the Borrowers', the
Guarantors' or such Subsidiaries' purchase thereof or the date upon which such
property was last security for Indebtedness of such Borrower, such Guarantor or
such Subsidiary, including preparation of a "Phase I" report and, if
appropriate, a "Phase II" report, in each case prepared by a recognized
environmental engineer in accordance with customary standards which discloses
that such property is not in violation of the representations and covenants set
forth in this Agreement, unless such violation has been disclosed in writing to
the Agent and satisfactory remediation actions are being taken. There are no
unpaid or outstanding real estate or other taxes or assessments on or against
any property of any Borrower, any Guarantor or any of their respective
Subsidiaries which are payable by such Person (except only real estate or other
taxes or assessments, that are not yet due and payable). There are no pending
eminent domain proceedings against any property of Borrowers, the Guarantors or
their respective Subsidiaries or any part thereof, and, to the knowledge of the
Borrowers, no such proceedings are presently threatened or contemplated by any
taking authority which may individually or in the aggregate have any materially
adverse effect on the business or financial condition of the Borrowers or the
Guarantors. None of the property of Borrowers, the Guarantors or their
respective Subsidiaries is now damaged or injured as a result of any fire,
explosion, accident, flood or other casualty in any manner which individually
or in the aggregate would have any materially adverse effect on the business or
financial condition of the Borrowers or the Guarantors. The Real Estate owned
by Walden, WDOP and their respective Subsidiaries is set forth on Schedule 6.20
hereto.
Section 6.21. Brokers. None of the Borrowers nor any of their
respective Subsidiaries has engaged or otherwise dealt with any broker, finder
or similar entity in connection with this Agreement or the Loans contemplated
hereunder.
Section 6.22. Other Debt. None of the Borrowers, the General Partner,
the Guarantors or any of their respective Subsidiaries is in default in the
payment of any other Indebtedness or under any agreement, mortgage, deed of
trust, security agreement, financing agreement, indenture or lease to which any
of them is a party. None of the Borrowers is a party to or bound by any
agreement, instrument or indenture that may require the subordination in right
or time of payment of any of the Obligations to any other indebtedness or
obligation of such Borrower. The Borrowers have provided to the Agent copies of
all agreements, mortgages, deeds of trust, financing agreements or other
material agreements binding upon Borrowers, the General Partner, the Guarantors
or their respective properties and entered into by such Person as of the date
of this Agreement with respect to any Indebtedness of such Person. Schedule
6.22 hereto sets forth all of the Indebtedness of the type described in Section
8.1(g) and (h) of the Borrowers and their respective Subsidiaries as of the
date hereof.
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Section 6.23. Solvency. As of the Closing Date and after giving effect
to the transactions contemplated by this Agreement and the other Loan
Documents, including all of the Loans made or to be made hereunder, neither the
Borrowers nor any Guarantor is insolvent on a balance sheet basis such that the
sum of such Person's assets exceeds the sum of such Person's liabilities, each
Borrower and each Guarantor is able to pay its debts as they become due, and
each Borrower and each Guarantor has sufficient capital to carry on its
business.
Section 6.24. Partners. Walden is the sole general partner of WDOP and
owns a 1% partnership interest in WDOP. Walden Operating, Inc. is the sole
general partner of WROP and owns a 1% partnership interest in WROP. WDN
Properties, Inc. is a limited partner of WDOP and WROP and owns an
approximately 58% partnership interest in WDOP and a 77.3784% partnership
interest in WROP. WROP is a limited partner of WDOP and owns an approximately
11% partnership interest in WDOP. Walden owns one hundred percent (100%) of the
issued and outstanding shares of stock of WDN Properties, Inc. and Walden
Operating, Inc.
Section 6.25. No Fraudulent Intent. Neither the execution and delivery
of this Agreement or any of the other Loan Documents nor the performance of any
actions required hereunder or thereunder is being undertaken by any Borrower or
any Guarantor with or as a result of any actual intent by any of such Persons
to hinder, delay or defraud any entity to which any of such Persons is now or
will hereafter become indebted.
Section 6.26. Transaction in best interests of Borrowers;
Consideration. The transaction evidenced by this Agreement and the other Loan
Documents is in the best interests of the Borrowers and the creditors of such
Persons. The direct and indirect benefits to inure to the Borrowers pursuant to
this Agreement and the other Loan Documents constitute substantially more than
"reasonably equivalent value" (as such term is used in Section 548 of the
Bankruptcy Code) and "valuable consideration," "fair value," and "fair
consideration" (as such terms are used in any applicable state fraudulent
conveyance law), in exchange for the benefits to be provided by the Borrowers
pursuant to this Agreement and the other Loan Documents, and but for the
willingness of the Borrowers to be jointly and severally liable as co-borrowers
for the Loan, Borrowers would be unable to obtain the financing contemplated
hereunder which financing will enable the Borrowers and their respective
Subsidiaries to have available financing to conduct and expand their business.
Section 6.27. Year 2000 Compliant. Borrowers have (i) undertaken a
detailed inventory, review and assessment of all areas within their business
and operations that could be adversely affected by the failure to be Year 2000
Compliant on a timely basis, (ii) developed a detailed plan and timeline for
becoming Year 2000 Compliant on a timely basis, and (iii) to date, implemented
that plan in accordance with that timetable in all material aspects. Borrowers
reasonably anticipate that they will be Year 2000 Compliant by September 30,
1999 or such earlier date as is necessary to avoid any material disruption of
Borrowers' business and have committed and will commit reasonably adequate
resources to be Year 2000 Compliant.
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Section 7. AFFIRMATIVE COVENANTS OF THE BORROWERS.
The Borrowers covenant and agree that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans:
Section 7.1. Punctual Payment. The Borrowers will duly and punctually
pay or cause to be paid the principal and interest on the Loans and all
interest and fees provided for in this Agreement, all in accordance with the
terms of this Agreement and the Notes as well as all other sums owing pursuant
to the Loan Documents.
Section 7.2. Maintenance of Office. The Borrowers will maintain their
chief executive offices at 5080 Spectrum Drive, Suite 1000 East, Addison,
Dallas County, Texas 75001, or at such other place in the United States of
America as the Borrowers shall designate upon prior written notice to the Agent
and the Banks, where notices, presentations and demands to or upon the
Borrowers in respect of the Loan Documents may be given or made.
Section 7.3. Records and Accounts. The Borrowers will (a) keep, and
cause each of its Subsidiaries to keep, true and accurate records and books of
account in which full, true and correct entries will be made in accordance with
generally accepted accounting principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion and
amortization of its properties and the properties of its Subsidiaries,
contingencies and other reserves. Neither of the Borrowers nor any of their
respective Subsidiaries shall, without the prior written consent of the
Majority Banks, (x) make any material change to the accounting procedures used
by such Person in preparing the financial statements and other information
described Section 6.4 or (y) change its fiscal year.
Section 7.4. Financial Statements, Certificates and Information. The
Borrowers will deliver or cause to be delivered to each of the Banks:
(a) as soon as practicable, but in any event not later
than 90 days after the end of each fiscal year of Walden and WDOP, the audited
consolidated balance sheet of Walden and its Subsidiaries and of WDOP and its
Subsidiaries at the end of such year, and the related audited consolidated
statements of income, changes in shareholder's equity and cash flows for such
year, each setting forth in comparative form the figures for the previous
fiscal year and all such statements to be in reasonable detail, prepared in
accordance with generally accepted accounting principles, and accompanied by an
auditor's report prepared without qualification by Deloitte & Touche or by
another "Big Six" accounting firm, the Form 10-K filed with the SEC (unless the
SEC has approved an extension, in which event Walden and WDOP will deliver to
the Agent and each of the Banks a copy of the Form 10-K simultaneously with
delivery to the SEC), and any other information the Banks may need to complete
a financial analysis of Walden and its Subsidiaries and WDOP and its
Subsidiaries, together with a written statement from such accountants to the
effect that they have read a copy of this Agreement, and that, in making the
examination necessary to said certification, they have obtained no knowledge of
any Default or Event of Default, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default they shall disclose
in such statement any such Default or Event of
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Default; provided that such accountants shall not be liable to the Agent or the
Banks for failure to obtain knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later
than 45 days after the end of each of the first three fiscal quarters of Walden
and WDOP, copies of the unaudited consolidated balance sheet of Walden and its
Subsidiaries and of WDOP and its Subsidiaries, respectively as at the end of
such quarter, and the related unaudited consolidated statements of income,
changes in shareholder's equity and cash flows for the portion of Walden's and
WDOP's fiscal year then elapsed, all in reasonable detail and prepared in
accordance with generally accepted accounting principles (which may be provided
by inclusion in the Form 10-Q of Walden and WDOP for such period provided
pursuant to subsection (c) below), together with a certification by the
principal financial or accounting officer of Walden, for Walden and as the
general partner of WDOP, that the information contained in such financial
statements fairly presents the financial position of Walden and its
Subsidiaries and WDOP and its Subsidiaries on the date thereof (subject to
year-end adjustments);
(c) as soon as practicable, but in any event not later
than 45 days after the end of each of the first three fiscal quarters of Walden
and WDOP in each year, copies of Form 10-Q filed with the SEC (unless the SEC
has approved an extension in which event Walden and WDOP will deliver such
copies of the Form 10-Q to the Agent and each of the Banks simultaneously with
delivery to the SEC);
(d) as soon as practicable, but in any event not later
than 45 days after the end of each fiscal quarter of Walden (including the
fourth fiscal quarter in each year), copies of a consolidated statement of
Operating Cash Flow for such fiscal quarter for Walden and its Subsidiaries,
prepared on a basis consistent with the statement furnished pursuant to Section
6.4, together with a certification by the chief financial or chief accounting
officer of Walden that the information contained in such statement fairly
presents the Operating Cash Flow of Walden and its Subsidiaries for such
period;
(e) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a statement (a
"Compliance Certificate") certified by the principal financial or accounting
officer of the general partner of WDOP and the principal financial or
accounting officer of Walden in the form of Exhibit I hereto (or in such other
form as the Agent may approve from time to time) setting forth in reasonable
detail computations evidencing compliance with the covenants contained in
Section 9 and the other covenants described therein, and (if applicable)
reconciliations to reflect changes in generally accepted accounting principles
since the Balance Sheet Date;
(f) concurrently with the delivery of the financial
statements described in subsection (b) above, a certificate signed by the
President or Chief Financial Officer of Walden, for Walden and as the general
partner of WDOP, to the effect that, having read this Agreement, and based upon
an examination which they deem sufficient to enable them to make an informed
statement, there does not exist any Default or Event of Default, or if such
Default or Event of Default has occurred, specifying the facts with respect
thereto;
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(g) contemporaneously with the filing or mailing thereof,
copies of all material of a financial nature filed with the SEC or sent to the
stockholders of Walden or the partners of WDOP;
(h) as soon as practicable but in any event not later than
45 days after the end of each fiscal quarter of the Borrowers (including the
fourth fiscal quarter in each year), a summary rent roll with respect to the
Unencumbered Operating Properties in form reasonably satisfactory to the
Majority Banks;
(i) promptly after they are filed with the Internal
Revenue Service, copies of all annual federal income tax returns and amendments
thereto of each of the Borrowers;
(j) not later than five (5) Business Days after Walden
receives notice of the same from either Rating Agency or otherwise learns of
the same, notice of the issuance of any change in the rating by either Rating
Agency in respect of any debt of Walden (including any change in an Implied
Rating), together with the details thereof, and of any announcement by either
Rating Agency that any such rating is "under review" or that any such rating
has been placed on a watch list or that any similar action has been taken by
either Rating Agency (collectively a "Rating Notice");
(k) not later than forty-five (45) days after the end of
each fiscal quarter of the Borrowers (including the fourth fiscal quarter in
each year), a list setting forth the following information with respect to each
new Subsidiary of WDOP: (i) the name and structure of the Subsidiary, (ii) a
description of the property owned by such Subsidiary, and (iii) such other
information as the Agent may reasonably request;
(l) simultaneously within the delivery of the financial
statement referred to in subsection (a) above, a statement (i) listing the Real
Estate owned by Walden and its Subsidiaries (or in which Walden or its
Subsidiaries owns an interest) and stating the location thereof, the date
acquired and the acquisition cost, (ii) listing the Indebtedness of Walden and
its Subsidiaries (excluding Indebtedness of the type described in Section
8.1(b)-(e)), which statement shall include, without limitation, a statement of
the original principal amount of such Indebtedness and the current amount
outstanding, the holder thereof, the maturity date and any extension options,
the interest rate, the collateral provided for such Indebtedness and whether
such Indebtedness is recourse or non-recourse, and (iii) listing the properties
of Walden and its respective Subsidiaries which are under "development" (as
used in Section 8.9) and providing a brief summary of the status of such
development;
(m) not later than five (5) Business Days after the
occurrence of the same, notice of a change in the ratio of Walden's
Consolidated Total Liabilities to Consolidated Total Assets which causes a
change in the Applicable Margin; and
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(n) from time to time such other financial data and
information in the possession of the Borrowers or their respective Subsidiaries
(including without limitation auditors' management letters, evidence of payment
of taxes, property inspection and environmental reports and information as to
zoning and other legal and regulatory changes affecting any of such Persons) as
the Agent may reasonably request.
Section 7.5. Notices.
(a) Defaults. The Borrowers will promptly notify the Agent
in writing of the occurrence of any Default or Event of Default. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Agreement or under
any note, evidence of indebtedness, indenture or other obligation to which or
with respect to which the Borrowers, the General Partner, the Guarantors or any
of their respective Subsidiaries is a party or obligor, whether as principal or
surety, and such default would permit the holder of such note or obligation or
other evidence of indebtedness to accelerate the maturity thereof, which
acceleration would have a material adverse effect on the Borrowers, the General
Partner or the Guarantors or the existence of which claimed default might
become an Event of Default under Section 12.1(g), the Borrowers shall forthwith
give written notice thereof to the Agent and each of the Banks, describing the
notice or action and the nature of the claimed default.
(b) Environmental Events. The Borrowers will promptly give
notice to the Agent (i) upon the Borrowers or the Guarantors obtaining
knowledge of any potential or known Release, or threat of Release, of any
Hazardous Substances at or from any Real Estate; (ii) of any violation of any
Environmental Law that either Borrower, the Guarantors or any of their
respective Subsidiaries reports in writing or is reportable by such Person in
writing (or for which any written report supplemental to any oral report is
made) to any federal, state or local environmental agency; and (iii) upon
becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental
liability, of any federal, state or local environmental agency or board, that
in either case involves any Real Estate or has the potential to materially
affect the assets, liabilities, financial conditions or operations of such
Person or the Agent's liens on the Collateral pursuant to the Security
Documents in the event the same are recorded as provided herein.
(c) Notice of Litigation and Judgments. The Borrowers will
give notice to the Agent in writing within 15 days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation and
proceedings affecting either Borrower, the General Partner, the Guarantors or
any of their respective Subsidiaries or to which any of such Persons is or is
to become a party involving an uninsured claim against such Person that could
reasonably be expected to have a materially adverse effect on either Borrower
or any Guarantor and stating the nature and status of such litigation or
proceedings. The Borrowers will give notice to the Agent, in writing, in form
and detail satisfactory to the Agent and each of the Banks, within ten days of
any judgment not covered by insurance, whether final or otherwise, against a
Borrower, the General Partner, a Guarantor or any of their respective
Subsidiaries in an amount in excess of $1,000,000.00.
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(d) Notice of Proposed Sales, Encumbrances, Refinance or
Transfer. The Borrowers will give notice to the Agent of any proposed or
completed sale, encumbrance, refinance or transfer of any Real Estate within
any fiscal quarter of the Borrowers, such notice to be submitted together with
the Compliance Certificate provided or required to be provided to the Banks
under Section 7.4 with respect to such fiscal quarter. The Compliance
Certificate shall with respect to any proposed or completed sale, encumbrance,
refinance or transfer be adjusted in the best good-faith estimate of the
Borrowers to give effect to such sale, encumbrance, refinance or transfer and
demonstrate that no Default or Event of Default with respect to the covenants
referred to therein shall exist after giving effect to such sale, encumbrance,
refinance or transfer. Notwithstanding the foregoing, in the event of any sale,
encumbrance, refinance or transfer of any Real Estate involving an aggregate
amount in excess of $25,000,000.00, the Borrowers shall promptly give notice to
the Agent of such transaction, which notice shall be accompanied by a
certification of the chief financial officer of Walden for itself and as the
sole general partner of WDOP that no Default or Event of Default shall exist
after giving affect to such event.
(e) Notification of Claims Against Collateral. The
Borrowers will, immediately upon becoming aware thereof, notify the Agent in
writing of any setoff, claims (including environmental claims), withholdings or
other defenses to which any of the Collateral (including for the purposes
hereof any collateral subject to the Escrowed Security Documents), or the
rights of the Agent or the Banks with respect to the Collateral (including for
the purposes hereof any collateral subject to the Escrowed Security Documents),
are subject.
(f) Notification of Banks. Promptly after receiving any
notice under this Section 7.5, the Agent will forward a copy thereof to each of
the Banks, together with copies of any certificates or other written
information that accompanied such notice.
Section 7.6. Existence; Maintenance of Properties.
(a) The Borrowers will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence as a
Delaware limited partnership or Maryland corporation, as applicable. The
Borrowers will cause each of their respective Subsidiaries to do or cause to be
done all things necessary to preserve and keep in full force and effect its
legal existence. Each Borrower will do or cause to be done all things necessary
to preserve and keep in full force all of its rights and franchises and those
of its Subsidiaries. Each Borrower will, and will cause each of its
Subsidiaries to, continue to engage primarily in the businesses now conducted
by it and in related businesses.
(b) Irrespective of whether proceeds of the Loans are
available for such purpose, each Borrower (i) will cause all of its properties
and those of its Subsidiaries used or useful in the conduct of its business or
the business of its Subsidiaries to be maintained and kept in good condition,
repair and working order (ordinary wear and tear excepted) and supplied with
all necessary equipment, and (ii) will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof in all cases in
which the failure so to do would have a material adverse effect on the
condition of its properties or on the financial condition, assets or operations
of such Borrower and its Subsidiaries.
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(c) The common stock of Walden shall at all times be
listed for trading and be traded on the New York Stock Exchange.
Section 7.7. Insurance. The Borrowers will, at their expense, procure
and maintain or cause to be procured and maintained insurance covering the
Borrowers, their respective Subsidiaries and their respective properties in
such amounts and against such risks and casualties as are customary for
properties of similar character and location, due regard being given to the
type of improvements thereon, their construction, location, use and occupancy.
Section 7.8. Taxes. The Borrowers and their respective Subsidiaries
will duly pay and discharge, or cause to be paid and discharged, before the
same shall become overdue, all taxes, assessments and other governmental
charges imposed upon each of them and upon the Real Estate, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by
law become a lien or charge upon any of its property; provided that any such
tax, assessment, charge, levy or claim need not be paid if the validity or
amount thereof shall currently be contested in good faith by appropriate
proceedings and if such Borrower or such Subsidiary shall have set aside on its
books adequate reserves with respect thereto; and provided, further, that
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor, each Borrower and each Subsidiary of the
Borrowers either (i) will provide a bond issued by a surety reasonably
acceptable to the Agent and sufficient to stay all such proceedings or (ii) if
no such bond is provided, will pay each such tax, assessment, charge, levy or
claim. The Borrowers shall certify annually to the Agent that this Section 7.8
has been satisfied with respect to the Unencumbered Operating Properties.
Section 7.9. Inspection of Properties and Books. The Borrowers shall
permit the Banks, through the Agent or any representative designated by the
Agent, at the Borrowers' expense to visit and inspect any of the properties of
the Borrowers or any of their respective Subsidiaries, to examine the books of
account of the Borrowers and their respective Subsidiaries (and to make copies
thereof and extracts therefrom) and to discuss the affairs, finances and
accounts of the Borrowers and their respective Subsidiaries with, and to be
advised as to the same by, its officers, all at such reasonable times and
intervals as the Agent or any Bank may reasonably request. The Banks shall use
good faith efforts to coordinate such visits and inspections so as to minimize
the interference with and disruption to the Borrowers' normal business
operations.
Section 7.10. Compliance with Laws, Contracts, Licenses, and Permits.
Each Borrower will comply with, and will cause each of its Subsidiaries to
comply in all respects with (i) all applicable laws and regulations now or
hereafter in effect wherever its business is conducted, including all
Environmental Laws, (ii) the provisions of its corporate charter, partnership
agreement or declaration of trust, as the case may be, and other charter
documents and bylaws, (iii) all agreements and instruments to which it is a
party or by which it or any of its properties may be bound, (iv) all applicable
decrees, orders, and judgments, and (v) all licenses and permits required by
applicable laws and regulations for the conduct of its business or the
ownership, use or operation of its properties. If at any time while any Loan or
Note is outstanding or the Banks have any obligation to make Loans hereunder,
any authorization, consent, approval, permit or
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license from any officer, agency or instrumentality of any government shall
become necessary or required in order that the Borrowers may fulfill any of
their obligations hereunder, the Borrowers will immediately take or cause to be
taken all steps necessary to obtain such authorization, consent, approval,
permit or license and furnish the Agent and the Banks with evidence thereof.
Section 7.11. Use of Proceeds. The Borrowers will use the proceeds of
the Loans solely to provide short-term financing (a) for the acquisition of fee
interests by WDOP in Real Estate which is utilized principally for multifamily
housing (including reasonable transaction costs related thereto) (provided that
no more than $20,000,000.00 in the aggregate for the term of the Loans may be
used by WDOP for the acquisition of fee interests in such Real Estate by
wholly-owned Subsidiaries of WDOP as provided in Section 7.16), (b) for working
capital purposes of WDOP and Walden, (c) for Investments permitted pursuant to
Section 8.3(k), and (d) for such other purposes as the Majority Banks in their
discretion from time to time may agree to in writing. Notwithstanding anything
herein to the contrary, the amount of Loans outstanding at any time which has
been advanced for the purpose described in Section 7.11(b) shall not exceed
$25,000,000.00. Any repayment of a principal portion of the Loans at a time
when any amount of Loans has been advanced for the purpose described in Section
7.11(b) shall be first allocated for the purposes of this Section 7.11 to
reduce the amount advanced for the purpose described in Section 7.11(b).
Section 7.12. Further Assurances. The Borrowers will cooperate with,
and will cause each of the Guarantors and their respective Subsidiaries to
cooperate with the Agent and the Banks and execute such further instruments and
documents as the Banks or the Agent shall reasonably request to carry out to
their satisfaction the transactions contemplated by this Agreement and the
other Loan Documents.
Section 7.13. Management; Business Operations. The Borrowers shall
cause all Unencumbered Operating Properties at all times to be managed by
Walden and no change shall occur in such management without the prior written
approval of the Majority Banks. The Borrowers and the Guarantors shall operate
their respective businesses as described in the Prospectus and in compliance
with the terms and conditions of this Agreement and the Loan Documents. Walden
shall at all time comply with all requirements of applicable laws necessary to
maintain REIT Status and shall operate, and shall cause its Subsidiaries to
operate, their respective businesses as described in the Prospectus and in
compliance with the terms and conditions of this Agreement.
Section 7.14. Unencumbered Operating Properties.
(a) The Borrowers shall at all times own Unencumbered
Operating Properties which satisfy all of the following conditions:
(i) the Unencumbered Operating Properties shall
consist solely of Real Estate which has an aggregate occupancy level
(on a portfolio basis) of at least ninety percent (90%) for the
previous four (4) fiscal quarters of the Borrowers based on bona fide
arms-length tenant leases requiring current rental payments; and
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(ii) no more than thirty percent (30%) of the Asset
Value of the Unencumbered Operating Properties may be located in any
one city or metropolitan area (it being agreed that Dallas and Fort
Worth and their respective suburbs shall be considered as separate
cities for the purposes hereof).
(b) The Borrowers shall provide to the Agent and each of
the Banks as of the Closing Date and concurrently with the delivery of the
financial statements described in Section 7.4(a) (i) a list of the Unencumbered
Operating Properties, (ii) the certification of the chief financial or chief
accounting officer of Walden, for itself and as the sole general partner of
WDOP of the Asset Values and that such properties are in compliance with
Section 7.14(a) and Section 9.1, (iii) operating statements setting forth the
Operating Cash Flow and capital expenditures for each of the Unencumbered
Operating Properties for the previous four (4) fiscal quarters certified as
true and correct by the chief financial or chief accounting officer of Walden,
for itself and as the sole general partner of WDOP, and (iv) that the
Unencumbered Operating Properties comply with the terms of Section Section 6.17
and 6.20. In the event that all or any material portion of a property within
the Unencumbered Operating Properties shall be damaged or taken by
condemnation, then such property shall no longer be a part of the Unencumbered
Operating Properties unless and until any damage to such Real Estate is
repaired or restored, such Real Estate becomes fully operational and the Agent
shall receive evidence satisfactory to the Agent of the value and Operating
Cash Flow of such Real Estate following such repair or restoration.
Section 7.15. Limiting Agreements.
(a) Neither Borrower, any Guarantor nor any of their
respective Subsidiaries shall enter into, any agreement, instrument or
transaction which has or may have the effect of prohibiting or limiting such
Borrower's or any Guarantor's ability to pledge to Agent the Unencumbered
Operating Properties, Real Estate which is owned by the Borrowers or such
Guarantors which is free and clear of all Liens other than the Liens permitted
in Section 8.2(i), (iii) and (v) or any other assets of the Borrowers or such
Guarantor as security for the Loans. Borrowers shall take, and shall cause the
Guarantors and their respective Subsidiaries to take, such actions as are
necessary to preserve the right and ability of Borrowers and the Guarantors to
pledge those Real Estate and other assets as security for the Loans without any
such pledge after the date hereof causing or permitting the acceleration (after
the giving of notice or the passage of time, or otherwise) of any other
Indebtedness of Borrowers, the Guarantors or any of their respective
Subsidiaries.
(b) Borrowers shall upon demand provide to the Agent such
evidence as the Agent may reasonably require to evidence compliance with this
Section 7.15, which evidence shall include, without limitation, copies of any
agreements or instruments which would in any way restrict or limit a Borrower's
or any Guarantor's ability to pledge assets as security for Indebtedness, or
which provide for the occurrence of a default (after the giving of notice or
the passage of time, or otherwise) if assets are pledged in the future as
security for Indebtedness of such Borrower or any of its Subsidiaries.
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Section 7.16. Ownership of Real Estate. Without the prior written
consent of the Majority Banks, which consent may be withheld by the Majority
Banks in their sole discretion, all interests (whether direct or indirect) of
the Borrowers, the General Partner, the Guarantors or their respective
Subsidiaries in income-producing real estate assets acquired after the Closing
Date shall be owned directly by WDOP except as permitted by Section 8.3(k).
Notwithstanding the foregoing, Walden and WDOP may acquire income-producing
real estate assets after the Closing Date (a) as provided in Section 8.11, and
(b) in a like-kind exchange of Real Estate owned by such Person as of the
Closing Date. In addition, WDOP may subject to the terms of this Agreement
acquire through a wholly-owned Subsidiary of WDOP Real Estate that is
encumbered by Indebtedness that is to be assumed by such Subsidiary in
connection with the acquisition thereof and which acquisition is financed in
part with proceeds of the Loans as provided in Section 7.11(a).
Section 7.17. Distributions of Income to the Borrowers. Each Borrower
shall cause all of its Subsidiaries to promptly distribute to such Borrower
(but not less frequently than once each fiscal quarter of such Borrower),
whether in the form of dividends, distributions or otherwise, all profits,
proceeds or other income relating to or arising from its Subsidiaries' use,
operation, financing, refinancing, sale or other disposition of their
respective assets and properties after (a) the payment by each Subsidiary of
its Debt Service and operating expenses for such quarter and (b) the
establishment of reasonable reserves for the payment of operating expenses not
paid on at least a quarterly basis and capital improvements to be made to such
Subsidiary's assets and properties approved by such Subsidiary in the ordinary
course of business consistent with its past practices.
Section 7.18. More Restrictive Agreements. Should any Borrower or any
Guarantor enter into or modify any agreements or documents pertaining to any
existing or future Indebtedness, Debt Offering or Equity Offering, which
agreements or documents include covenants (whether affirmative or negative),
warranties, representations, defaults or events of default (or any other
provision which may have the same practical effect as any of the foregoing)
which are individually or in the aggregate more restrictive against either
Borrower, any Guarantor or their respective Subsidiaries than those set forth
herein or in any of the other Loan Documents or which provide for a guaranty of
the obligations thereunder by a Person that is not liable for the Obligations,
the Borrowers shall promptly notify the Agent and, if requested by the Majority
Banks, the Borrowers, the Agent, and the Majority Banks shall (and if
applicable, the Borrower shall cause the Guarantors to) promptly amend this
Agreement and the other Loan Documents to include some or all of such more
restrictive provisions or provide for a guaranty of the Obligations by such
Person as determined by the Majority Banks in their sole discretion.
Section 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS.
The Borrowers covenant and agree that, so long as any Loan or Note is
outstanding or any of the Banks has any obligation to make any Loans:
Section 8.1. Restrictions on Indebtedness. The Borrowers will not, and
will not permit any of their respective Subsidiaries to, create, incur, assume,
guarantee or be or remain liable, contingently or otherwise, with respect to
any Indebtedness other than:
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(a) Indebtedness to the Banks arising under any of the
Loan Documents;
(b) current liabilities of the Borrowers or their
respective Subsidiaries incurred in the ordinary course of business but not
incurred through (i) the borrowing of money, or (ii) the obtaining of credit
except for credit on an open account basis customarily extended and in fact
extended in connection with normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of Section 7.8;
(d) Indebtedness in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the
applicable Borrower shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation
and warranties of products or services, in each case incurred in the ordinary
course of business;
(f) Indebtedness in respect of reverse repurchase
agreements having a term of not more than 180 days with respect to Investments
described in Section 8.3(d) or (e);
(g) subject to the provisions of Section 8.1(h)(i) and
Section 9, secured Indebtedness of Walden and its Subsidiaries in an aggregate
outstanding principal amount not exceeding forty-six percent (46%) of Walden's
Consolidated Total Assets; provided that neither Walden nor any of its
Subsidiaries may incur any secured Indebtedness following the date hereof
unless the secured Indebtedness of Walden and its Subsidiaries in aggregate
outstanding principal amount as of the date of incurrence thereof and at all
times thereafter shall not exceed forty percent (40%) of Walden's Consolidated
Total Assets; and
(h) subject to the provisions of Section 9, secured or
unsecured recourse Indebtedness of the Borrowers, provided that (i) the
aggregate outstanding principal amount of such Indebtedness (excluding the
Obligations) and the portion of the Indebtedness described in Section 8.1(g)
that is recourse to Walden and its Subsidiaries shall not exceed five percent
(5%) of Walden's Consolidated Total Assets (provided, however, that with
respect to senior unsecured recourse Indebtedness of the Borrowers only, the
aggregate outstanding amount of such Indebtedness (excluding the Obligations,
but including any of such Indebtedness permitted within the five percent (5%)
threshold described above) shall not exceed fifty percent (50%) of Walden's
Consolidated Total Assets), (ii) at the time such Indebtedness is issued the
scheduled maturity date of such Indebtedness is not sooner than 180 days after
the Maturity Date (after giving effect to any extension of the Maturity Date
which may have been requested by the Borrowers prior to the issuance of such
Indebtedness or approved by the Banks, whether or not the same has become
effective), and (iii) any covenants or restrictions imposed upon the Borrowers
or their respective Subsidiaries in connection with such Indebtedness shall not
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individually or in the aggregate be more restrictive against the Borrowers and
their respective Subsidiaries than the covenants and restrictions imposed
pursuant to this Agreement or the other Loan Documents, and provided further
that neither Walden nor any of its Subsidiaries shall incur any of the
Indebtedness described in this Section 8.1(h) unless it shall have provided to
the Banks (A) prior written notice of the proposed issuance of such
Indebtedness, a statement that no Default or Event of Default exists and a
certificate that the Borrowers will be in compliance with its covenants
referred to therein after giving effect to such incurrence, (B) evidence
reasonably satisfactory to the Agent that the Rating Agencies have been advised
of the issuance of such Indebtedness within five (5) days of such issuance, and
(C) upon the request of Agent, evidence that the annual rating maintenance fee
has been paid to the Rating Agencies;
(i) [Intentionally Omitted]; and
(j) unsecured Indebtedness between Walden and WDOP
provided that the terms of such Indebtedness are satisfactory to the Majority
Banks and the repayment of such Indebtedness shall be subordinate at all times
to repayment of the Obligations pursuant to a subordination and standstill
agreement in form and substance satisfactory to the Majority Banks.
Section 8.2. Restrictions on Liens, Etc. The Borrowers will not, and
will not permit any of their respective Subsidiaries to, (a) create or incur or
suffer to be created or incurred or to exist any lien, encumbrance, mortgage,
pledge, negative pledge, charge, restriction or other security interest of any
kind upon any of its property or assets of any character whether now owned or
hereafter acquired, or upon the income or profits therefrom; (b) transfer any
of its property or assets or the income or profits therefrom for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to payment of its general creditors; (c) acquire, or
agree or have an option to acquire, any property or assets upon conditional
sale or other title retention or purchase money security agreement, device or
arrangement; (d) suffer to exist for a period of more than 30 days after the
same shall have been incurred any Indebtedness or claim or demand against it
that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be
given any priority whatsoever over its general creditors; (e) sell, assign,
pledge, encumber or otherwise transfer any accounts, contract rights, general
intangibles, chattel paper or instruments, with or without recourse; or (f)
incur or maintain any obligation to any holder of Indebtedness of the Borrowers
or such Subsidiaries which prohibits the creation or maintenance of any lien
securing the Obligations (collectively "Liens"); provided that the Borrowers
and any of their respective Subsidiaries may create or incur or suffer to be
created or incurred or to exist:
(i) liens on properties to secure taxes, assessments and
other governmental charges or claims for labor, material or supplies
in respect of obligations not overdue;
(ii) liens on properties in respect of judgments, awards
or indebtedness, the Indebtedness with respect to which is permitted by
Section 8.1(d) or Section 8.1(g);
(iii) encumbrances on properties consisting of easements,
rights of way, zoning restrictions, restrictions on the use of real
property, landlord's or lessor's liens under
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leases to which the Borrowers or a Subsidiary of such Person is a
party, and other minor non-monetary liens or encumbrances none of
which interferes materially with the use of the property affected in
the ordinary conduct of the business of the Borrowers or their
respective Subsidiaries, which defects do not individually or in the
aggregate have a materially adverse effect on the business of such
Borrower individually or of such Person and its Subsidiaries on a
consolidated basis;
(iv) liens on Real Estate (other than Real Estate of WDOP)
and Short-term Investments securing Indebtedness permitted by Section
8.1(g) or Section 8.1(h); and
(v) liens in favor of the Agent and the Banks as security
for the Obligations.
Section 8.3. Restrictions on Investments. The Borrowers will not, and
will not permit any of their respective Subsidiaries to, make or permit to
exist or to remain outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the
United States of America that mature within one (1) year from the date of
purchase by such Borrower or its Subsidiary;
(b) marketable direct obligations of any of the following:
Federal Home Loan Mortgage Corporation, Student Loan Marketing Association,
Federal Home Loan Banks, Federal National Mortgage Association, Government
National Mortgage Association, Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Financing Banks, Export-Import Bank of the United States,
Federal Land Banks, or any other agency or instrumentality of the United States
of America;
(c) demand deposits, certificates of deposit, bankers
acceptances and time deposits of United States banks having total assets in
excess of $100,000,000; provided, however, that the aggregate amount at any
time so invested with any single bank having total assets of less than
$1,000,000,000 will not exceed $200,000;
(d) securities commonly known as "commercial paper"
issued by a corporation organized and existing under the laws of the United
States of America or any State which at the time of purchase are rated by
Moody's Investors Service, Inc. or by Standard & Poor's Corporation at not less
than "P 1" if then rated by Moody's Investors Service, Inc., and not less than
"A 1", if then rated by Standard & Poor's Corporation;
(e) mortgage-backed securities guaranteed by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation and other
mortgage-backed bonds which at the time of purchase are rated by Moody's
Investors Service, Inc. or by Standard & Poor's Corporation at not less than
"Aa" if then rated by Moody's Investors Service, Inc. and not less than "AA" if
then rated by Standard & Poor's Corporation;
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(f) repurchase agreements having a term not greater than
90 days and fully secured by securities described in the foregoing subsection
(a), (b) or (e) with banks described in the foregoing subsection (c) or with
financial institutions or other corporations having total assets in excess of
$500,000,000;
(g) shares of so-called "money market funds" registered
with the SEC under the Investment Company Act of 1940 which maintain a level
per-share value, invest principally in investments described in the foregoing
subsections (a) through (f) and have total assets in excess of $50,000,000;
(h) investments in fee interests in Real Estate utilized
principally for multifamily housing, including earnest money deposits relating
thereto and transaction costs;
(i) subject to the terms of this Agreement, Investments in
Subsidiaries of such Borrower existing as of the date hereof, and Investments
in new Subsidiaries of WDOP created after the date of this Agreement; provided
that in no event shall the aggregate of such Investments in new Subsidiaries
created after the date of this Agreement exceed ten percent (10%) of Walden's
Consolidated Total Assets, and provided further that in no event shall such
Investments in the form of note receivables from all Subsidiaries whenever
created (including the principal amount payable pursuant to such notes) exceed
ten percent (10%) of Walden's Consolidated Total Assets. For the purposes
hereof, notes receivable from Subsidiaries shall be valued at face value
subject to impairment;
(j) investments in real estate investment trusts which own
real property which is used principally for multifamily housing, provided that
in no event shall the aggregate cost of all Investments pursuant to this
Section 8.3(j) exceed $25,000,000.00; and
(k) investments in Affiliates of Walden the accounts of
which are not consolidated with the accounts of Walden or other entities the
accounts of which are not consolidated with the accounts of Walden or in
mortgages and notes receivables from Affiliates, provided that in no event
shall such Investments (including the principal amount payable pursuant to such
notes) in the aggregate exceed $35,000,000.00.
Section 8.4. Merger, Consolidation. Each of the Borrowers will not,
and will not permit any of its Subsidiaries to, become a party to any merger,
consolidation or other business combination, or agree to effect any asset
acquisition, stock acquisition or other acquisition without the prior written
consent of the Majority Banks, which consent shall not be unreasonably
withheld, except (i) the merger or consolidation of one or more of the
Subsidiaries of a Borrower with and into such Borrower and (ii) the merger or
consolidation of two or more Subsidiaries of a Borrower; provided that in no
event shall WDOP be merged, consolidated or combined with Walden without the
prior written consent of the Majority Banks.
Section 8.5. Sale and Leaseback. Each of the Borrowers will not, and
will not permit any of its Subsidiaries to, enter into any arrangement,
directly or indirectly, whereby a Borrower or any
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Subsidiary thereof shall sell or transfer any Real Estate owned by it in order
that then or thereafter such Person shall lease back such Real Estate.
Section 8.6. Compliance with Environmental Laws. Each of the Borrowers
will not, and will not permit any of its Subsidiaries to, do any of the
following: (a) use any of the Real Estate or any portion thereof as a facility
for the handling, processing, storage or disposal of Hazardous Substances,
except for small quantities of Hazardous Substances used in the ordinary course
of business and in compliance with all applicable Environmental Laws, (b) cause
or permit to be located on any of the Real Estate any underground tank or other
underground storage receptacle for Hazardous Substances except in full
compliance with Environmental Laws, (c) generate any Hazardous Substances on
any of the Real Estate except in full compliance with Environmental Laws, (d)
conduct any activity at any Real Estate or use any Real Estate in any manner so
as to cause a Release of Hazardous Substances on, upon or into the Real Estate
or any surrounding properties or any threatened Release of Hazardous Substances
which might give rise to liability under CERCLA or any other Environmental Law,
or (e) directly or indirectly transport or arrange for the transport of any
Hazardous Substances (except in compliance with all Environmental Laws).
The Borrowers shall:
(i) in the event of any change in Environmental Laws
governing the assessment, release or removal of Hazardous Substances, which
change would lead a prudent lender to require additional testing to avail
itself of any statutory insurance or limited liability, take all action
(including, without limitation, the conducting of engineering tests at the sole
expense of the Borrowers) to confirm that no Hazardous Substances are or ever
were Released or disposed of on the Real Estate; and
(ii) if any Release or disposal of Hazardous Substances
shall occur or shall have occurred on the Real Estate of the Borrowers or any
of their respective Subsidiaries (including without limitation any such Release
or disposal occurring prior to the acquisition of such Real Estate by such
Person) cause the prompt containment and removal of such Hazardous Substances
and remediation of such Real Estate in full compliance with all applicable laws
and regulations and to the satisfaction of the Majority Banks; provided, that
the Borrowers shall be deemed to be in compliance with Environmental Laws for
the purpose of this clause (ii) so long as it or a responsible third party with
sufficient financial resources is taking reasonable action to remediate or
manage any event of noncompliance to the satisfaction of the Majority Banks and
no action shall have been commenced by any enforcement agency. The Majority
Banks may engage their own environmental engineer to review the environmental
assessments and the Borrowers' compliance with the covenants contained herein.
At any time after an Event of Default shall have occurred hereunder,
or, whether or not an Event of Default shall have occurred, at any time that
the Agent or the Majority Banks shall have reasonable grounds to believe that a
Release or threatened Release of Hazardous Substances may have occurred,
relating to any Real Estate, or that any of the Real Estate is not in
compliance with the Environmental Laws, the Agent may at its election (and will
at the request of the
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Majority Banks) obtain such environmental assessments of such Real Estate
prepared by an environmental engineer as may be necessary or advisable for the
purpose of evaluating or confirming (i) whether any Hazardous Substances are
present in the soil or water at or adjacent to such Real Estate and (ii)
whether the use and operation of such Real Estate comply with all Environmental
Laws. Environmental assessments may include detailed visual inspections of such
Real Estate including, without limitation, any and all storage areas, storage
tanks, drains, dry wells and leaching areas, and the taking of soil samples, as
well as such other investigations or analyses as are necessary or appropriate
for a complete determination of the compliance of such Real Estate and the use
and operation thereof with all applicable Environmental Laws. All such
environmental assessments shall be at the sole cost and expense of the
Borrowers.
Section 8.7. Distributions. The Borrowers shall not make any
Distributions which would cause it to violate any of the following covenants:
(a) Walden shall not pay any Distribution to the
shareholders of Walden if such Distribution is in excess of the amount which,
when added to the amount of all other Distributions paid in the same fiscal
quarter and the preceding three (3) fiscal quarters, would exceed ninety
percent (90%) of its Funds from Operations for the four consecutive fiscal
quarters ending prior to the quarter in which such Distribution is paid;
(b) In the event that an Event of Default shall have
occurred and be continuing, WDOP shall make no Distributions other than
Distributions to Walden in an amount equal to the minimum Distributions
required under the Code to maintain the REIT Status of Walden, as evidenced by
a certification of the principal financial or accounting officer of Walden
containing calculations in reasonable detail satisfactory in form and substance
to Agent; and
(c) In the event that an Event of Default shall have
occurred and be continuing, Walden shall make no Distributions other than the
minimum Distributions required under the Code to maintain the REIT Status of
Walden, as evidenced by a certification of the principal financial or
accounting officer of Walden containing calculations in reasonable detail
satisfactory in form and substance to Agent;
(d) Notwithstanding the foregoing, at any time when an
Event of Default shall have occurred and the maturity of the Obligations has
been accelerated, at the option of the Majority Banks, neither Borrower shall
make any Distributions whatsoever, directly or indirectly.
Section 8.8. Asset Sales. Neither Borrower nor any Subsidiary thereof
shall sell, transfer or otherwise dispose of any Real Estate or any of the
Unencumbered Operating Properties in excess of $25,000,000.00 (except as the
result of a condemnation or casualty and except for the granting of Permitted
Liens, as applicable) unless there shall have been delivered to the Banks a
statement that no Default or Event of Default exists or will exist and a
certification that the Borrowers will be in compliance with its covenants
referred to therein after giving effect to such sale, transfer or other
disposition.
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Section 8.9. Development Activity. Neither Borrower nor any Subsidiary
thereof shall engage, directly or indirectly, in the development of properties
to be used principally for multifamily housing or otherwise, except that a
Borrower or a Subsidiary or Affiliate thereof may develop for its own account
properties to be used principally for multifamily housing provided that the
aggregate cost of acquiring the Real Estate and developing the improvements
thereon of properties Under Development (assuming the full costs of developing
such properties) is not reasonably anticipated to exceed ten percent (10%) of
the Asset Value of Walden's Consolidated Total Assets. For purposes of this
Section 8.9, the term "development" shall include the new construction of an
apartment complex or the substantial renovation of improvements to real
property, but shall not include the addition of amenities or other related
facilities to existing Real Estate which is already used principally for
multifamily housing. Nothing herein shall prohibit a Borrower or any Subsidiary
or Affiliate thereof from entering into an agreement to acquire Real Estate
which has been developed and initially leased by another Person.
Section 8.10. Restriction on Prepayment of Indebtedness. Neither
Borrower shall prepay the principal amount, in whole or in part, of any
Indebtedness other than the Obligations after the occurrence of any Event of
Default; provided, however, that this Section 8.11 shall not prohibit the
prepayment of Indebtedness which is financed solely from the proceeds of a new
loan which would otherwise be permitted by the terms of Section 8.1.
Section 8.11. Bankruptcy Remote Subsidiaries. Without the consent of
the Majority Banks, neither Borrower nor any of their respective Subsidiaries
shall create any new single purpose, special purpose or other so-called
bankruptcy remote subsidiaries (such as a REMIC), as determined by the Agent in
its reasonable discretion; provided, however, that without the consent of the
Majority Banks, WROP may create such a Subsidiary for the purpose of acquiring
a property or properties having an Asset Value of not more than $15,000,000.00
financed with tax-exempt bonds.
Section 8.12. Restrictions on Transfer. Walden will not, directly or
indirectly, make or permit to be made, by voluntary or involuntary means, (a)
any sale, assignment, transfer, disposition, mortgage, pledge, hypothecation or
encumbrance of its interest in WDOP, WDN Properties, Inc., WDN Properties,
Ltd., WROP, or WDN Operating, Inc., or any dilution of its interest in WDOP,
WDN Properties, Inc., WDN Properties, Ltd., WROP, or WDN Operating, Inc., (b)
any sale, assignment, transfer, disposition, mortgage, pledge, hypothecation or
encumbrance of the interest of Walden Operating, Inc. in WROP, or any dilution
of the interest of Walden Operating, Inc. in WROP, (c) any sale, assignment,
transfer, disposition, mortgage, pledge, hypothecation or encumbrance of the
interest of WDOP in any of its direct or indirect Subsidiaries; (d) any sale,
assignment, transfer, disposition, mortgage, pledge, hypothecation or
encumbrance of the interest of WDN Properties, Inc. in WDOP, WDN Properties,
Ltd. or WROP, or any dilution of its interest in WDOP, WDN Properties, Ltd., or
WROP; or (e) any sale, assignment, transfer, disposition, mortgage, pledge,
hypothecation, or encumbrance of the interest of WROP in WDOP, or any dilution
of its interest in WDOP. Walden is and shall remain the sole general partner of
WDOP and shall not in any manner transfer, assign, diminish or otherwise
restrict its Voting Interests in WDOP.
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Section 9. FINANCIAL COVENANTS OF THE BORROWERS
Section 9.1. Borrowing Base Covenant of the Borrowers. The Borrowers
covenant and agree that, so long as any Loan or Note is outstanding or any Bank
has any obligation to make any Loans, the Borrowers will not, at the end of any
fiscal quarter, permit the outstanding principal balance of the Loans as of the
date of determination to be greater than either the Borrowing Base or the
Collateral Borrowing Base as determined as of the same date.
Section 9.2 Covenants of Walden. The Borrowers covenant and agree
that, so long as any Loan or Note is outstanding or any Bank has any
obligations to make any Loans, Walden will comply with the following:
(a) Liabilities to Assets Ratio. Walden will not, at the
end of any fiscal quarter, permit the ratio of Consolidated Total Liabilities
to Consolidated Total Assets of Walden to exceed 0.55 to 1.
(b) Consolidated Operating Cash Flow Coverage. Walden will
not, at the end of any fiscal quarter, permit the sum equal to (i) the
Consolidated Operating Cash Flow of Walden and its Subsidiaries for any period
of four consecutive fiscal quarters (treated as a single accounting period)
(the "Test Period") minus (ii) the Capital Improvement Reserve for the Test
Period to be less than two (2) times the Interest Expense of Walden and its
Subsidiaries for the Test Period. In the event that Walden and its Subsidiaries
shall not have any of the foregoing components for four (4) consecutive fiscal
quarters, then such components shall be annualized in such manner as the
Majority Banks shall reasonably determine.
(c) Fixed Charge Coverage. Walden will not, at the end of
any fiscal quarter, permit the ratio of the sum of (i) Consolidated Operating
Cash Flow of Walden and its Subsidiaries for the Test Period plus (ii)
Preferred Distributions of Walden, WDOP and their respective Subsidiaries for
the Test Period to be less than 1.50 times the sum of (x) the Debt Service of
Walden and its Subsidiaries plus (y) the Capital Improvement Reserve plus (z)
Preferred Distributions of Walden, WDOP and their respective Subsidiaries for
the Test Period. In the event that Walden and its Subsidiaries shall not have
any of the foregoing components for four (4) consecutive fiscal quarters, then
such components shall be annualized in such manner as the Majority Banks shall
reasonably determine.
(d) Shareholder's Equity. Walden will not, at the end of
any fiscal quarter, permit the Shareholder's Equity to be less than the sum of
(a) $700,000,000.00 plus (b) ninety percent (90%) of the net proceeds from any
Equity Offering of Walden made after the Closing Date.
Section 10. CLOSING CONDITIONS.
The obligations of the Agent and the Banks to make the initial Loans
shall be subject to the satisfaction of the following conditions precedent on
or prior to December 18, 1998;
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Section 10.1. Loan Documents. Each of the Loan Documents shall have
been duly executed and delivered by the respective parties thereto, shall be in
full force and effect and shall be in form and substance satisfactory to the
Majority Banks. The Agent shall have received a fully executed copy of each
such document, except that each Bank shall have received a fully executed
counterpart of its Note.
Section 10.2. Certified Copies of Organizational Documents. The Agent
shall have received from the Borrowers a copy, certified as of a recent date by
the appropriate officer of each State in which the Borrowers and the General
Partner, as applicable, is organized or in which the Unencumbered Operating
Properties are located and a duly authorized officer or partner of such Person,
as applicable, to be true and complete, of the partnership agreement or
corporate charter of the Borrowers and the General Partner, as applicable, or
its qualification to do business, as applicable, as in effect on such date of
certification.
Section 10.3. Bylaws; Resolutions. All action on the part of the
Borrowers and the General Partner, as applicable, necessary for the valid
execution, delivery and performance by such Person of this Agreement and the
other Loan Documents to which such Person is or is to become a party shall have
been duly and effectively taken, and evidence thereof satisfactory to
the Agent shall have been provided to the Agent. The Agent shall have received
from the General Partner a true copy of its bylaws and the resolutions adopted
by its board of directors authorizing the transactions described herein,
certified by its secretary as of a recent date to be true and complete.
Section 10.4. Incumbency Certificate; Authorized Signers. The Agent
shall have received from the General Partner an incumbency certificate, dated
as of the Closing Date, signed by a duly authorized officer of such Person and
giving the name and bearing a specimen signature of each individual who shall
be authorized to sign, in the name and on behalf of such Person, each of the
Loan Documents to which such Person is or is to become a party. The Agent shall
have also received from the Borrowers a certificate, dated as of the Closing
Date, signed by a duly authorized partner or officer of each Borrower and
giving the name of and specimen signature of each individual who shall be
authorized to make Loan and Conversion Requests and to give notices and to take
other action on behalf of the Borrowers under the Loan Documents.
Section 10.5. Opinion of Counsel. The Agent shall have received a
favorable opinion addressed to the Banks and the Agent and dated as of the
Closing Date, in form and substance satisfactory to the Agent, from counsel of
the Borrowers and the General Partner, as to such matters as the Agent shall
reasonably request.
Section 10.6. Payment of Fees. The Borrowers shall have paid to the
Agent the fees required to be paid as of the Closing Date pursuant to Section
4.2(b).
Section 10.7. Performance; No Default. The Borrowers shall have
performed and complied with all terms and conditions herein required to be
performed or complied with by them on or prior to the Closing Date, and on the
Closing Date there shall exist no Default or Event of Default.
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Section 10.8. Representations and Warranties. The representations and
warranties made by the Borrowers in the Loan Documents or otherwise made by or
on behalf of the Borrowers, the General Partner or any Subsidiaries thereof in
connection therewith or after the date thereof shall have been true and correct
in all material respects when made and shall also be true and correct in all
material respects on the Closing Date.
Section 10.9. Proceedings and Documents. All proceedings in connection
with the transactions contemplated by this Agreement and the other Loan
Documents shall be reasonably satisfactory to the Agent and the Agent's Special
Counsel in form and substance, and the Agent shall have received all
information and such counterpart originals or certified copies of such
documents and such other certificates, opinions or documents as the Agent and
the Agent's Special Counsel may reasonably require.
Section 10.10. Compliance Certificate. A Compliance Certificate dated
as of the date of the Closing Date demonstrating compliance with each of the
covenants calculated therein as of the most recent fiscal quarter end for which
the Borrowers have provided financial statements under Section 6.4 adjusted in
the best good faith estimate of the Borrowers dated as of the date of the
Closing Date shall have been delivered to the Agent.
Section 10.11. Partner Consents. The Agent shall have received
evidence satisfactory to the Agent that all necessary partner consents required
in connection with the consummation of the transactions contemplated by this
Agreement and the other Loan Documents have been obtained.
Section 10.12. Escrowed Security Documents. The Escrowed Security
Documents for each parcel of the Unencumbered Operating Properties as of the
Closing Date shall have been delivered to the Agent at the Borrowers' expense.
Section 10.13. Other. The Agent shall have reviewed such other
documents, instruments, certificates, opinions, assurances, consents and
approvals as the Agent or the Agent's Special Counsel may reasonably have
requested.
Section 11. CONDITIONS TO ALL BORROWINGS.
The obligations of the Banks to make any Loan, whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
Section 11.1. Prior Conditions Satisfied. All conditions set forth in
Section 10 shall continue to be satisfied as of the date upon which any Loan is
to be made.
Section 11.2. Representations True; No Default. Each of the
representations and warranties made by or on behalf of the Borrowers, the
General Partner or the Guarantors contained in this Agreement, the other Loan
Documents or in any document or instrument delivered pursuant to or in
connection with this Agreement shall be true as of the date as of which they
were made and shall also be true at and as of the time of the making of such
Loan, with the same effect as if made at and as of that time (except to the
extent of changes resulting from transactions
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contemplated or permitted by this Agreement and the other Loan Documents and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and except to the extent that such
representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
Section 11.3. No Legal Impediment. There shall be no law or
regulations thereunder or interpretations thereof that in the reasonable
opinion of any Bank would make it illegal for such Bank to make such Loan.
Section 11.4. Governmental Regulation. Each Bank shall have received
such statements in substance and form reasonably satisfactory to such Bank as
such Bank shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
Section 11.5. Proceedings and Documents. All proceedings in connection
with the Loan shall be satisfactory in substance and in form to the Agent, and
the Agent shall have received all information and such counterpart originals or
certified or other copies of such documents as the Agent may reasonably
request.
Section 11.6. Borrowing Documents. In the case of any request for a
Loan, the Agent shall have received a copy of the request for a Loan required
by Section 2.6 in the form of Exhibit H hereto, fully completed.
Section 12. EVENTS OF DEFAULT; ACCELERATION; ETC.
Section 12.1. Events of Default and Acceleration. If any of the
following events ("Events of Default" or, if the giving of notice or the lapse
of time or both is required, then, prior to such notice or lapse of time,
"Defaults") shall occur:
(a) the Borrowers shall fail to pay any principal of the
Loans when the same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for
payment;
(b) the Borrowers shall fail to pay any interest on the
Loans or any other sums due hereunder or under any of the other Loan Documents,
when the same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for
payment;
(c) the Borrowers shall fail to comply with any covenant
contained in Section 5.2, Section 7.14 or Section 7.15;
(d) the Borrowers shall fail to comply with any covenant
contained in Section 9, and such failure shall continue for 30 days after
written notice thereof shall have been given to the Borrowers by the Agent;
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(e) any of the Borrowers, the General Partner, the
Guarantors or any of their respective Subsidiaries shall fail to perform any
other term, covenant or agreement contained herein or in any of the other Loan
Documents (other than those specified above in this Section 12);
(f) any representation or warranty made by or on behalf
of the Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries in this Agreement or any other Loan Document, or in any Property
Certificate, report, certificate, financial statement, request for a Loan, or
in any other document or instrument delivered pursuant to or in connection with
this Agreement, any advance of a Loan or any of the other Loan Documents shall
prove to have been false in any material respect upon the date when made or
deemed to have been made or repeated;
(g) any of the Borrowers, the General Partner, the
Guarantors or any of their respective Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for borrowed
money or credit received or other Indebtedness, or fail to observe or perform
any material term, covenant or agreement contained in any agreement by which it
is bound, evidencing or securing any such borrowed money or credit received or
other Indebtedness for such period of time as would permit (assuming the giving
of appropriate notice if required) the holder or holders thereof or of any
obligations issued thereunder to accelerate the maturity thereof;
(h) any of the Borrowers, the General Partner, the
Guarantors or any of their respective Subsidiaries, (i) shall make an
assignment for the benefit of creditors, or admit in writing its general
inability to pay or generally fail to pay its debts as they mature or become
due, or shall petition or apply for the appointment of a trustee or other
custodian, liquidator or receiver of any such Person or of any substantial part
of the assets of any thereof, (ii) shall commence any case or other proceeding
relating to any such Person under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or (iii) shall take any action to
authorize or in furtherance of any of the foregoing;
(i) a petition or application shall be filed for the
appointment of a trustee or other custodian, liquidator or receiver of any of
the Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries or any substantial part of the assets of any thereof, or a case or
other proceeding shall be commenced against any such Person under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or hereafter
in effect, and any such Person shall indicate its approval thereof, consent
thereto or acquiescence therein or such petition, application, case or
proceeding shall not have been dismissed within 60 days following the filing or
commencement thereof;
(j) a decree or order is entered appointing any such
trustee, custodian, liquidator or receiver or adjudicating any of the
Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries bankrupt or insolvent, or approving a petition in any such
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case or other proceeding, or a decree or order for relief is entered in respect
of any such Person, in an involuntary case under federal bankruptcy laws as now
or hereafter constituted;
(k) there shall remain in force, undischarged,
unsatisfied and unstayed, for more than 60 days, whether or not consecutive,
any uninsured final judgment against any of the Borrowers, the General Partner,
the Guarantors or any of their respective Subsidiaries that, with other
outstanding uninsured final judgments, undischarged, against such Persons
exceeds in the aggregate $1,000,000.00;
(l) if any of the Loan Documents or the Escrowed Security
Documents shall be canceled, terminated, revoked or rescinded otherwise than in
accordance with the terms thereof or with the express prior written agreement,
consent or approval of the Banks, or any action at law, suit in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan Documents or the
Escrowed Security Documents shall be commenced by or on behalf of any of the
Borrowers, the General Partner, the Guarantors or any of their respective
holders of Voting Interests, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the effect
that, any one or more of the Loan Documents or the Escrowed Security Documents
is illegal, invalid or unenforceable in accordance with the terms thereof;
(m) any dissolution, termination, partial or complete
liquidation, merger or consolidation of any of the Borrowers, the General
Partner or the Guarantors or any sale, transfer or other disposition of the
assets of any of the Borrowers, the General Partner or the Guarantors other
than as permitted under the terms of this Agreement or the other Loan
Documents;
(n) any suit or proceeding shall be filed against any of
the Borrowers, the General Partner or the Guarantors or any of their respective
assets which in the good faith business judgment of the Majority Banks after
giving consideration to the likelihood of success of such suit or proceeding
and the availability of insurance to cover any judgment with respect thereto
and based on the information available to them, if adversely determined, would
have a materially adverse affect on the ability of the Borrowers or a Guarantor
to perform each and every one of their respective obligations under and by
virtue of the Loan Documents;
(o) any of the Borrowers, the General Partner or the
Guarantors shall be indicted for a federal crime, a punishment for which could
include the forfeiture of any assets of such Person;
(p) with respect to any Guaranteed Pension Plan, an ERISA
Reportable Event shall have occurred and the Majority Banks shall have
determined in their reasonable discretion that such event reasonably could be
expected to result in liability of any of the Borrowers, the General Partner,
the Guarantors or any of their Subsidiaries to the PBGC or such Guaranteed
Pension Plan in an aggregate amount exceeding $1,000,000 and such event in the
circumstances occurring reasonably could constitute grounds for the termination
of such Guaranteed Pension Plan by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer such
Guaranteed Pension Plan; or a trustee shall have been appointed by the
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United States District Court to administer such Plan; or the PBGC shall have
instituted proceedings to terminate such Guaranteed Pension Plan;
(q) any of the Guarantors denies that such Guarantor has
any liability or obligation under the Guaranty or any other Loan Document, or
shall notify the Agent or any of the Banks of such Guarantor's intention to
attempt to cancel or terminate the Guaranty or any other Loan Document, or
shall fail to observe or comply with any term, covenant, condition or agreement
under the Guaranty or any other Loan Document;
(r) Marshall B. Edwards, Mark S. Dillinger and the
members of the board of directors of Walden that are also officers of Walden
shall in the aggregate own directly or indirectly less than five percent (5.0%)
of the issued and outstanding shares of the capital stock of Walden;
(s) Marshall B. Edwards shall cease to be the President
of, or Mark S. Dillinger shall cease to be the Chief Financial Officer of,
Walden, and a competent and experienced successor for such Person shall not be
approved by the Majority Banks within six (6) months of such event, such
approval not to be unreasonably withheld; or
(t) any Event of Default as defined in any of the other
Loan Documents, shall occur;
then, and in any such event, the Agent may, and upon the request of the
Majority Banks shall, by notice in writing to the Borrowers declare all amounts
owing with respect to this Agreement, the Notes and the other Loan Documents to
be, and they shall thereupon forthwith become, immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrowers; provided that in the event of any
Event of Default specified in Section 12.1(h), Section 12.1(i) or Section
12.1(j), all such amounts shall become immediately due and payable
automatically and without any requirement of notice from any of the Banks or
the Agent. The Borrowers and any other Person shall be entitled to conclusively
rely on a statement from the Agent that it has the authority to act for and
bind the Banks pursuant to this Agreement and the other Loan Documents.
Section 12.1A. Limitation of Cure Periods.
(a) Notwithstanding anything contained in Section 12.1
to the contrary, (i) no Event of Default shall exist hereunder upon the
occurrence of any failure described in Section 12.1(a) or Section 12.1(b) in
the event that the Borrowers cure such default within five (5) days following
receipt of written notice of such default, provided, however, that Borrowers
shall not be entitled to receive more than two (2) notices in the aggregate
pursuant to this clause (i) in any period of 365 days ending on the date of any
such occurrence of default, and provided further that no such cure period shall
apply to any payments due upon the maturity of the Notes, and (ii) no Event of
Default shall exist hereunder upon the occurrence of any failure described in
Section 12.1(e) in the event that the Borrowers cure such default within thirty
(30) days following receipt of written notice of such default, provided that
the provisions of this clause (ii) shall not pertain to any
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default consisting of a failure to comply with Section 7.4(e), or to any
default excluded from any provision of cure of defaults contained in any other
of the Loan Documents.
(b) Notwithstanding the provisions of subsections (d)
and (e) of Section 12.1, the cure periods provided therein shall not be allowed
and the occurrence of a Default thereunder immediately shall constitute an
Event of Default for all purposes of this Agreement and the other Loan
Documents if, within the period of twelve months immediately preceding the
occurrence of such Default, there shall have occurred two periods of cure or
portions thereof under any one or more than one of said subsections.
Section 12.2. Termination of Commitments. If any one or more Events of
Default specified in Section 12.1(h), Section 12.1(i) or Section 12.1(j) shall
occur, then immediately and without any action on the part of the Agent or any
Bank any unused portion of the credit hereunder shall terminate and the Banks
shall be relieved of all obligations to make Loans to the Borrowers. If any
other Event of Default shall have occurred, the Agent, upon the election of the
Majority Banks, may by notice to the Borrowers terminate the obligation to make
Loans to the Borrowers. No termination under this Section 12.2 shall relieve
the Borrowers of their obligations to the Banks arising under this Agreement or
the other Loan Documents.
Section 12.3. Remedies. In case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the Banks
shall have accelerated the maturity of the Loans pursuant to Section 12.1, the
Agent on behalf of the Banks, may, with the consent of the Majority Banks but
not otherwise, proceed to protect and enforce their rights and remedies under
this Agreement, the Notes or any of the other Loan Documents by suit in equity,
action at law or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Agreement and the
other Loan Documents or any instrument pursuant to which the Obligations are
evidenced, including to the full extent permitted by applicable law the
obtaining of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right. No remedy herein conferred upon
the Agent or the holder of any Note is intended to be exclusive of any other
remedy and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or any other provision of law. In the event that all or
any portion of the Obligations is collected by or through an attorney-at-law,
the Borrowers shall pay all costs of collection including, but not limited to,
reasonable attorney's fees not to exceed fifteen percent (15%) of such portion
of the Obligations.
Section 12.4. Distribution of Proceeds. In the event that, following
the occurrence or during the continuance of any Event of Default, any monies
are received in connection with the enforcement of any of the Loan Documents,
or otherwise with respect to the realization upon any of the assets of the
Borrowers or any other Person liable with respect to the Obligations
(including, without limitation, any Collateral), such monies shall be
distributed for application as follows:
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(a) First, to the payment of, or (as the case may be) the
reimbursement of, the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or sustained
by the Agent to protect or preserve any collateral or in connection with the
collection of such monies by the Agent, for the exercise, protection or
enforcement by the Agent of all or any of the rights, remedies, powers and
privileges of the Agent under this Agreement or any of the other Loan Documents
or in respect of any collateral or in support of any provision of adequate
indemnity to the Agent against any taxes or liens which by law shall have, or
may have, priority over the rights of the Agent to such monies;
(b) Second, to all other Obligations in such order or
preference as the Majority Banks shall determine; provided, however, that (i)
Swing Loans shall be repaid first, (ii) distributions in respect of such other
Obligations shall be made pari passu among Obligations with respect to the
Agent's fee payable pursuant to Section 4.3 and all other Obligations, (iii) in
the event that any Bank shall have wrongfully failed or refused to make an
advance under Section 2.7 and such failure or refusal shall be continuing,
advances made by other Banks during the pendency of such failure or refusal
shall be entitled to be repaid as to principal and accrued interest in priority
to the other Obligations described in this subsection (b), and (iv) Obligations
owing to the Banks with respect to each type of Obligation such as interest,
principal, fees and expenses (but excluding Swing Loans), shall be made among
the Banks pro rata; and provided, further that the Majority Banks may in their
discretion make proper allowance to take into account any Obligations not then
due and payable; and
(c) Third, the excess, if any, shall be returned to the
Borrowers or to such other Persons as are entitled thereto.
Section 13. SETOFF.
Regardless of the adequacy of any collateral, during the continuance
of any Event of Default, any deposits (general or specific, time or demand,
provisional or final, regardless of currency, maturity, or the branch of where
such deposits are held) or other sums credited by or due from any of the Banks
to the Borrowers or the Guarantors and any securities or other property of the
Borrowers or the Guarantors in the possession of such Bank may be applied to or
set off against the payment of Obligations of such Person and any and all other
liabilities, direct, or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, of such Person to such Bank. Each of the
Banks agrees with each other Bank that if such Bank shall receive from any of
the Borrowers or the Guarantors, whether by voluntary payment, exercise of the
right of setoff, or otherwise, and shall retain and apply to the payment of the
Note or Notes held by such Bank (but excluding the Swing Loan Note) any amount
in excess of its ratable portion of the payments received by all of the Banks
with respect to the Notes held by all of the Banks, such Bank will make such
disposition and arrangements with the other Banks with respect to such excess,
either by way of distribution, pro tanto assignment of claims, subrogation or
otherwise as shall result in each Bank receiving in respect of the Notes held
by it its proportionate payment as contemplated by this Agreement; provided
that if all or any part of such excess payment is thereafter recovered from
such Bank, such disposition and arrangements shall be rescinded and the amount
restored to the extent of such recovery, but without interest.
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Section 14. THE AGENT.
Section 14.1. Authorization. The Agent is authorized to take such
action on behalf of each of the Banks and to exercise all such powers as are
hereunder and under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably incident
thereto, provided that no duties or responsibilities not expressly assumed
herein or therein shall be implied to have been assumed by the Agent. The
obligations of Agent hereunder are primarily administrative in nature, and
nothing contained in this Agreement, the Escrowed Security Documents or any of
the other Loan Documents shall be construed to constitute the Agent as a
trustee for any Bank or to create an agency or fiduciary relationship. The
Borrowers and any other Person shall be entitled to conclusively rely on a
statement from the Agent that it has the authority to act for and bind the
Banks pursuant to this Agreement and the other Loan Documents.
Section 14.2. Employees and Agents. The Agent may exercise its powers
and execute its duties by or through employees or agents and shall be entitled
to take, and to rely on, advice of counsel concerning all matters pertaining to
its rights and duties under this Agreement and the other Loan Documents. The
Agent may utilize the services of such Persons as the Agent may reasonably
determine, and all reasonable fees and expenses of any such Persons shall be
paid by the Borrowers.
Section 14.3. No Liability. Neither the Agent nor any of its
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent, or employee thereof, shall be liable to any
of the Banks for any waiver, consent or approval given or any action taken, or
omitted to be taken, in good faith by it or them hereunder or under any of the
other Loan Documents, or in connection herewith or therewith, or be responsible
for the consequences of any oversight or error of judgment whatsoever, except
that the Agent or such other Person, as the case may be, may be liable for
losses due to its willful misconduct or gross negligence.
Section 14.4. No Representations. The Agent shall not be responsible
for the execution or validity or enforceability of this Agreement, the Notes,
the Escrowed Security Documents, any of the other Loan Documents or any
instrument at any time constituting, or intended to constitute, collateral
security for the Notes, or for the value of any such collateral security or for
the validity, enforceability or collectability of any such amounts owing with
respect to the Notes, or for any recitals or statements, warranties or
representations made herein, in the Escrowed Security Documents or any
agreement, instrument or certificate delivered in connection therewith or in
any of the other Loan Documents or in any certificate or instrument hereafter
furnished to it by or on behalf of the Borrowers or the Guarantors or any of
their respective Subsidiaries, or be bound to ascertain or inquire as to the
performance or observance of any of the terms, conditions, covenants or
agreements herein, in the Escrowed Security Documents or any agreement,
instrument or certificate delivered in connection therewith or in any other of
the Loan Documents. The Agent shall not be bound to ascertain whether any
notice, consent, waiver or request delivered to it by the Borrowers or the
Guarantors or any holder of any of the Notes shall have been duly authorized or
is true, accurate and complete. The Agent has not made nor does it
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now make any representations or warranties, express or implied, nor does it
assume any liability to the Banks, with respect to the creditworthiness or
financial condition of the Borrowers, their respective partners, the Guarantors
or any of their respective Subsidiaries. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
upon such information and documents as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, based upon such information and documents as it deems
appropriate at the time, continue to make its own credit analysis and decisions
in taking or not taking action under this Agreement and the other Loan
Documents.
Section 14.5. Payments.
(a) A payment by the Borrowers or the Guarantors to the
Agent hereunder or under any of the other Loan Documents for the account of any
Bank shall constitute a payment to such Bank. The Agent agrees to distribute to
each Bank not later than one Business Day after the Agent's receipt of good
funds, determined in accordance with the Agent's customary practices, such
Bank's pro rata share of payments received by the Agent for the account of the
Banks except as otherwise expressly provided herein or in any of the other Loan
Documents.
(b) If in the opinion of the Agent the distribution of
any amount received by it in such capacity hereunder, under the Notes or under
any of the other Loan Documents might involve it in liability, it may refrain
from making distribution until its right to make distribution shall have been
adjudicated by a court of competent jurisdiction. If a court of competent
jurisdiction shall adjudge that any amount received and distributed by the
Agent is to be repaid, each Person to whom any such distribution shall have
been made shall either repay to the Agent its proportionate share of the amount
so adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court.
(c) Notwithstanding anything to the contrary contained in
this Agreement or any of the other Loan Documents, any Bank that fails (i) to
make available to the Agent its pro rata share of any Loan or (ii) to comply
with the provisions of Section 13 with respect to making dispositions and
arrangements with the other Banks, where such Bank's share of any payment
received, whether by setoff or otherwise, is in excess of its pro rata share of
such payments due and payable to all of the Banks, in each case as, when and to
the full extent required by the provisions of this Agreement, shall be deemed
delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until
such time as such delinquency is satisfied. A Delinquent Bank shall be deemed
to have assigned any and all payments due to it from the Borrowers and the
Guarantors, whether on account of outstanding Loans, interest, fees or
otherwise, to the remaining nondelinquent Banks for application to, and
reduction of, their respective pro rata shares of all outstanding Loans. The
Delinquent Bank hereby authorizes the Agent to distribute such payments to the
nondelinquent Banks in proportion to their respective pro rata shares of all
outstanding Loans. A Delinquent Bank shall be deemed to have satisfied in full
a delinquency when and if, as a result of application of the assigned payments
to all outstanding Loans of the nondelinquent Banks or as a result of other
payments by the Delinquent Banks to the
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nondelinquent Banks, the Banks' respective pro rata shares of all outstanding
Loans have returned to those in effect immediately prior to such delinquency
and without giving effect to the nonpayment causing such delinquency.
Section 14.6. Holders of Notes. Subject to the terms of Article 18,
the Agent may deem and treat the payee of any Note as the absolute owner or
purchaser thereof for all purposes hereof until it shall have been furnished in
writing with a different name by such payee or by a subsequent holder, assignee
or transferee.
Section 14.7. Indemnity. The Banks ratably agree hereby to indemnify
and hold harmless the Agent from and against any and all claims, actions and
suits (whether groundless or otherwise), losses, damages, costs, expenses
(including any expenses for which the Agent has not been reimbursed by the
Borrowers as required by Section 15), and liabilities of every nature and
character arising out of or related to this Agreement, the Notes, the Escrowed
Security Documents, or any of the other Loan Documents or the transactions
contemplated or evidenced hereby or thereby, or the Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by the Agent's willful misconduct or gross negligence.
Section 14.8. Agent as Bank. In its individual capacity, BKB shall
have the same obligations and the same rights, powers and privileges in respect
to its Commitment and the Loans made by it, and as the holder of any of the
Notes as it would have were it not also the Agent.
Section 14.9. Resignation. The Agent may resign at any time by giving
60 days' prior written notice thereof to the Banks and the Borrowers. Upon any
such resignation, the Majority Banks shall have the right to appoint as a
successor Agent any Bank or any other bank whose senior debt obligations are
rated not less than "A" or its equivalent by Moody's Investors Service, Inc. or
not less than "A" or its equivalent by Standard & Poor's corporation and which
has a net worth of not less than $500,000,000. Unless a Default or Event of
Default shall have occurred and be continuing, such successor Agent shall be
reasonably acceptable to the Borrowers. If no successor Agent shall have been
so appointed by the Majority Banks and shall have accepted such appointment
within 30 days after the retiring Agent's giving of notice of resignation, then
the retiring Agent may, on behalf of the Banks, appoint a successor Agent,
which shall be any Bank or a bank whose debt obligations are rated not less
than "A" or its equivalent by Moody's Investors Service, Inc. or not less than
"A" or its equivalent by Standard & Poor's Corporation and which has a net
worth of not less than $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder as Agent. After any retiring Agent's
resignation, the provisions of this Agreement and the other Loan Documents
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent. Upon any change in the
Agent under this Agreement, the resigning Agent shall execute such assignments
of and amendments to the Loan Documents or the Escrowed Security Documents, as
applicable, as may be necessary to substitute the successor Agent for the
resigning Agent.
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Section 14.10. Duties in the Case of Enforcement. In case one or more
Events of Default have occurred and shall be continuing, and whether or not
acceleration of the Obligations shall have occurred, the Agent shall, if (a) so
requested by the Majority Banks and (b) the Banks have provided to the Agent
such additional indemnities and assurances against expenses and liabilities as
the Agent may reasonably request, proceed to exercise all or any legal and
equitable and other rights or remedies as it may have. The Majority Banks may
direct the Agent in writing as to the method and the extent of any such
exercise, the Banks hereby agreeing to indemnify and hold the Agent harmless
from all liabilities incurred in respect of all actions taken or omitted in
accordance with such directions, provided that the Agent need not comply with
any such direction to the extent that the Agent reasonably believes the Agent's
compliance with such direction to be unlawful or commercially unreasonable in
any applicable jurisdiction.
Section 15. EXPENSES.
The Borrowers agree to pay (a) the reasonable costs of producing and
reproducing this Agreement, the other Loan Documents and the other agreements
and instruments mentioned herein, (b) any taxes (including any interest and
penalties in respect thereto) payable by the Agent or any of the Banks (other
than taxes based upon the Agent's or any Bank's gross or net income except that
the Agent and the Banks shall be entitled to indemnification for any and all
amounts paid by them in respect of taxes based on income or other taxes
assessed by any State in which any property encumbered by the Escrowed Security
Documents or the Security Documents (as applicable) is located, such
indemnification to be limited to taxes due solely on account of the granting of
Collateral under the Escrowed Security Documents or the Security Documents, as
applicable, and to be net of any credit allowed to the indemnified party from
any other State on account of the payment or incurrence of such tax by such
indemnified party), including any recording, mortgage, documentary or
intangibles taxes in connection with the Escrowed Security Documents and the
other Loan Documents, or other taxes payable on or with respect to the
transactions contemplated by this Agreement, including any such taxes payable
by the Agent or any of the Banks after the Closing Date (the Borrowers hereby
agreeing to indemnify the Agent and each Bank with respect thereto), (c) all
reasonable internal charges of the Agent (determined in good faith and in
accordance with the Agent's internal policies applicable generally to its
customers) for commercial finance exams and engineering and environmental
reviews and the reasonable fees, expenses and disbursements of the counsel to
the Agent incurred in connection with the preparation, administration or
interpretation of the Loan Documents and other instruments mentioned herein
(excluding, however, the preparation of agreements evidencing participations
granted under Section 18.4), each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder, (d) the
reasonable fees, expenses and disbursements of the Agent incurred by the Agent
in connection with the preparation, administration or interpretation of the
Loan Documents and other instruments mentioned herein, and the making of each
advance hereunder, (e) in the event the Escrowed Security Documents are
recorded, all title insurance premiums and recording costs, (f) all reasonable
out-of-pocket expenses (including reasonable attorneys' fees and costs, which
attorneys may be employees of any Bank or the Agent and the fees and costs of
appraisers, engineers, investment bankers or other experts retained by any Bank
or the Agent) incurred by any Bank or the Agent in connection with (i) the
enforcement of or preservation of rights under
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any of the Loan Documents against the Borrowers, the General Partner or the
Guarantors or the administration thereof after the occurrence of a Default or
Event of Default and (ii) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to the Agent's or any of the Bank's
relationship with the Borrowers, the General Partner or the Guarantors, (g) all
reasonable fees, expenses and disbursements of any Bank or the Agent incurred
in connection with UCC searches, UCC filings, title rundowns or title searches,
and (h) all reasonable fees, costs and expenses (including reasonable
attorney's fees and costs) of BKB in connection with the syndication of
interests in the Loans. The covenants of this Section 15 shall survive payment
or satisfaction of payment of amounts owing with respect to the Notes.
Section 16. INDEMNIFICATION.
The Borrowers agree to indemnify and hold harmless the Agent and the
Banks and each director, officer, employee, agent and Person who controls the
Agent or any Bank from and against any and all claims, actions and suits,
whether groundless or otherwise, and from and against any and all liabilities,
losses, damages and expenses of every nature and character arising out of or
relating to this Agreement or any of the other Loan Documents or the
transactions contemplated hereby and thereby including, without limitation, (a)
any leasing fees and any brokerage, finders or similar fees asserted against
any Person indemnified under this Section 16 based upon any agreement,
arrangement or action made or taken, or alleged to have been made or taken, by
the Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries, (b) any condition of the Real Estate, (c) any actual or proposed
use by the Borrowers of the proceeds of any of the Loans, (d) any actual or
alleged infringement of any patent, copyright, trademark, service mark or
similar right of the Borrowers, the General Partner, the Guarantors or any of
their respective Subsidiaries, (e) the Borrowers and the Guarantors entering
into or performing this Agreement or any of the other Loan Documents, (f) any
actual or alleged violation of any law, ordinance, code, order, rule,
regulation, approval, consent, permit or license relating to the Real Estate,
or (g) with respect to the Borrowers, the General Partner, the Guarantors and
their respective Subsidiaries and their respective properties and assets, the
violation of any Environmental Law, the Release or threatened Release of any
Hazardous Substances or any action, suit, proceeding or investigation brought
or threatened with respect to any Hazardous Substances (including, but not
limited to claims with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding;
provided, however, that the Borrowers shall not be obligated under this Section
16 to indemnify any Person for liabilities arising from such Person's own gross
negligence or willful misconduct. In litigation, or the preparation therefor,
the Banks and the Agent shall be entitled to select a single law firm as their
own counsel and, in addition to the foregoing indemnity, the Borrowers agree to
pay promptly the reasonable fees and expenses of such counsel. If, and to the
extent that the obligations of the Borrowers under this Section 16 are
unenforceable for any reason, the Borrowers hereby agree to make the maximum
contribution to the payment in satisfaction of such obligations which is
permissible under applicable law. The provisions of this Section 16 shall
survive the repayment of the Loans and the termination of the obligations of
the Banks hereunder.
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Section 17. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein,
in the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrowers, the General Partner, the
Guarantors or any of their respective Subsidiaries pursuant hereto or thereto
shall be deemed to have been relied upon by the Banks and the Agent,
notwithstanding any investigation heretofore or hereafter made by any of them,
and shall survive the making by the Banks of any of the Loans, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Agreement or the Notes or any of the other Loan Documents
remains outstanding or any Bank has any obligation to make any Loans. The
indemnification obligations of the Borrowers provided herein and the other Loan
Documents shall survive the full repayment of amounts due and the termination
of the obligations of the Banks hereunder and thereunder to the extent provided
herein and therein. All statements contained in any certificate or other paper
delivered to any Bank or the Agent at any time by or on behalf of the
Borrowers, the General Partner, the Guarantors or any of their respective
Subsidiaries pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by such
Person hereunder.
Section 18. ASSIGNMENT AND PARTICIPATION.
Section 18.1. Conditions to Assignment by Banks. Except as provided
herein, each Bank may assign to one or more banks or other entities all or a
portion of its interests, rights and obligations under this Agreement
(including all or a portion of its Commitment Percentage and Commitment and the
same portion of the Loans at the time owing to it, and the Notes held by it);
provided that (a) the Agent shall have given its prior written consent to such
assignment, which consent shall not be unreasonably withheld or delayed
(provided that such consent shall not be required for any assignment to another
Bank, to a bank which is under common control with the assigning Bank or to a
wholly-owned Subsidiary of such Bank provided that such assignee shall remain a
wholly-owned Subsidiary of such Bank), (b) each such assignment shall be of a
constant, and not a varying, percentage of all the assigning Bank's rights and
obligations under this Agreement, (c) the parties to such assignment shall
execute and deliver to the Agent, for recording in the Register (as hereinafter
defined), a notice of such assignment, together with any Notes subject to such
assignment, (d) in no event shall any voting, consent or approval rights of a
Bank be assigned to any Person controlling, controlled by or under common
control with, or which is not otherwise free from influence or control by, the
Borrowers, the General Partner or the Guarantors which rights shall instead be
allocated pro rata among the other remaining Banks, (e) such assignee shall
have a net worth as of the date of such assignment of not less than
$500,000,000, and (f) such assignee shall acquire an interest in the Loans of
not less than $10,000,000. Upon such execution, delivery, acceptance and
recording, of such notice of assignment, (i) the assignee thereunder shall be a
party hereto and all other Loan Documents executed by the Banks and, to the
extent provided in such assignment, have the rights and obligations of a Bank
hereunder, (ii) the assigning Bank shall, to the extent provided in such
assignment and upon payment to the Agent of the registration fee referred to in
Section 18.2, be released from its obligations under this Agreement, and (iii)
the Agent may unilaterally amend Schedule 1 to reflect such assignment. In
connection with each assignment, the assignee shall represent and warrant to
the Agent, the
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assignor and each other Bank as to whether such assignee is controlling,
controlled by, under common control with or is not otherwise free from
influence or control by, the Borrowers, the General Partner and the Guarantors.
Section 18.2. Register. The Agent shall maintain a copy of each
assignment delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentages of, and principal amount of the Loans owing to the Banks from time
to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrowers, the Agent and the Banks may treat each
Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrowers and the Banks at any reasonable time and from time to time upon
reasonable prior notice. Upon each such recordation, the assigning Bank agrees
to pay to the Agent a registration fee in the sum of $2,000.
Section 18.3. New Notes. Upon its receipt of an assignment executed by
the parties to such assignment, together with each Note subject to such
assignment, the Agent shall (a) record the information contained therein in the
Register, and (b) give prompt notice thereof to the Borrowers and the Banks
(other than the assigning Bank). Within five Business Days after receipt of
such notice, the Borrowers, at their own expense, shall execute and deliver to
the Agent, in exchange for each surrendered Note, a new Note to the order of
such assignee in an amount equal to the amount assumed by such assignee
pursuant to such assignment and, if the assigning Bank has retained some
portion of its obligations hereunder, a new Note to the order of the assigning
Bank in an amount equal to the amount retained by it hereunder, and shall cause
the Guarantors to deliver to the Agent an acknowledgment in form and substance
satisfactory to the Agent to the effect that the Guaranty extends to and is
applicable to each new Note. Such new Notes shall provide that they are
replacements for the surrendered Notes, shall be in an aggregate principal
amount equal to the aggregate principal amount of the surrendered Notes, shall
be dated the effective date of such assignment and shall otherwise be in
substantially the form of the assigned Notes. The surrendered Notes shall be
canceled and returned to the Borrowers.
Section 18.4. Participations. Each Bank may sell participations to one
or more banks or other entities in all or a portion of such Bank's rights and
obligations under this Agreement and the other Loan Documents; provided that
(a) any such sale or participation shall not affect the rights and duties of
the selling Bank hereunder to the Borrowers, (b) such sale and participation
shall not entitle such participant to any rights or privileges under this
Agreement or the Loan Documents (including, without limitation, the right to
approve waivers, amendments or modifications), (c) such participant shall have
no direct rights against the Borrowers or the Guarantors except the rights
granted to the Banks pursuant to Section 13, (d) such sale is effected in
accordance with all applicable laws, and (e) such participant shall not be a
Person controlling, controlled by or under common control with, or which is not
otherwise free from influence or control by, the Borrowers, the General Partner
or the Guarantors. Any Bank which sells a participation shall promptly notify
the Agent of such sale and the identity of the purchaser of such interest.
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Section 18.5. Pledge by Bank. Any Bank may at any time pledge all or
any portion of its interest and rights under this Agreement (including all or
any portion of its Note) to any of the twelve Federal Reserve Banks organized
under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such
pledge or the enforcement thereof shall release the pledgor Bank from its
obligations hereunder or under any of the other Loan Documents.
Section 18.6. No Assignment by Borrowers. Neither Borrower shall
assign or transfer any of its rights or obligations under any of the Loan
Documents without the prior written consent of each of the Banks.
Section 18.7. Disclosure. The Borrowers agree that in addition to
disclosures made in accordance with standard banking practices any Bank may
disclose information obtained by such Bank pursuant to this Agreement to
assignees or participants and potential assignees or participants hereunder.
Section 19. NOTICES.
Each notice, demand, election or request provided for or permitted to
be given pursuant to this Agreement (hereinafter in this Section 19 referred to
as "Notice"), must be in writing and shall be deemed to have been properly
given or served by personal delivery or by sending same by overnight courier or
by depositing same in the United States Mail, postpaid and registered or
certified, return receipt requested, or as expressly permitted herein, by
telegraph, telecopy, telefax or telex, and addressed as follows:
If to the Agent or any Bank, at the address set forth on the signature
page for the Agent or such Bank; and
If to WDOP:
Walden/Drever Operating Partnership, L.P.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001
Attn: Mark S. Dillinger
Facsimile: 972/490-2636
With a copy to:
Robin K. Minick, Esq.
Walden/Drever Operating Partnership, L.P.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001
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If to Walden:
Walden Residential Properties, Inc.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75248
Attn: Mark S. Dillinger
Facsimile: 972/490-2636
With a copy to:
Robin K. Minick, Esq.
Walden Residential Properties, Inc.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75248
and to each other Bank which may hereafter become a party to this Agreement at
such address as may be designated by such Bank. Each Notice shall be effective
upon being personally delivered or upon being sent by overnight courier or upon
being deposited in the United States Mail as aforesaid. The time period in
which a response to such Notice must be given or any action taken with respect
thereto (if any), however, shall commence to run from the date of receipt if
personally delivered or sent by overnight courier, or if so deposited in the
United States Mail, the earlier of three (3) Business Days following such
deposit or the date of receipt as disclosed on the return receipt. Rejection or
other refusal to accept or the inability to deliver because of changed address
for which no notice was given shall be deemed to be receipt of the Notice sent.
By giving at least fifteen (15) days prior Notice thereof, a Borrower, a Bank
or Agent shall have the right from time to time and at any time during the term
of this Agreement to change their respective addresses and each shall have the
right to specify as its address any other address within the United States of
America.
Section 20. RELATIONSHIP.
The relationship between each Bank and each Borrower is solely that of
a lender and borrower, and nothing contained herein or in any of the other Loan
Documents shall in any manner be construed as making the parties hereto
partners, joint venturers or any other relationship other than lender and
borrower.
Section 21. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE.
THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS EXCEPT AS
OTHERWISE SPECIFICALLY PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH STATE (EXCLUDING THE LAWS
APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT
FOR THE ENFORCEMENT OF THIS
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AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF
THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND
CONSENT TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESS
SPECIFIED IN SECTION 19. THE BORROWERS HEREBY WAIVE ANY OBJECTION THAT EITHER
OF THEM MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH
COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
Section 22. HEADINGS.
The captions in this Agreement are for convenience of reference only
and shall not define or limit the provisions hereof.
Section 23. COUNTERPARTS.
This Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Agreement it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against whom enforcement is sought.
Section 24. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection
herewith or therewith express the entire understanding of the parties with
respect to the transactions contemplated hereby. Neither this Agreement nor any
term hereof may be changed, waived, discharged or terminated, except as
provided in Section 27.
Section 25. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS.
EACH OF THE BORROWERS, THE AGENT AND THE BANKS HEREBY WAIVES ITS RIGHT
TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE
IN CONNECTION WITH THIS AGREEMENT, ANY NOTE OR ANY OF THE OTHER LOAN DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, THE
BORROWERS HEREBY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO CLAIM OR RECOVER IN
ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWERS (A)
CERTIFY THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY BANK OR THE AGENT HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH BANK OR THE
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AGENT WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS AND (B) ACKNOWLEDGE THAT THE AGENT AND THE BANKS HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE
PARTIES BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN
THIS SECTION 25. BORROWERS ACKNOWLEDGE THAT EACH OF THEM HAS HAD AN OPPORTUNITY
TO REVIEW THIS SECTION 25 WITH ITS LEGAL COUNSEL AND THAT EACH BORROWER AGREES
TO THE FOREGOING AS ITS FREE, KNOWING AND VOLUNTARY ACT.
Section 26. DEALINGS WITH THE BORROWERS.
The Banks and their affiliates may accept deposits from, extend credit
to and generally engage in any kind of banking, trust or other business with
either Borrower, the Guarantors, their respective Subsidiaries or any of their
affiliates regardless of the capacity of the Bank hereunder.
Section 27. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Except as otherwise expressly provided in this Agreement, any consent
or approval required or permitted by this Agreement may be given, and any term
of this Agreement or of any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrowers of any terms
of this Agreement or such other instrument or the continuance of any Default or
Event of Default may be waived (either generally or in a particular instance
and either retroactively or prospectively) with, but only with, the written
consent of the Majority Banks. Notwithstanding the foregoing, none of the
following may occur without the written consent of each Bank: a change in the
rate of interest on and the term of the Notes; a change in the amount of the
Commitments of the Banks; a forgiveness, reduction or waiver of the principal
of any unpaid Loan or any interest thereon or fee payable under the Loan
Documents; a change in the amount of any fee payable to a Bank hereunder; the
postponement of any date fixed for any payment of principal of or interest on
the Loan; an extension of the Maturity Date; a change in the manner of
distribution of any payments to the Banks or the Agent; the release of a
Borrower or a Guarantor or any Collateral except as otherwise provided herein;
an amendment of the definition of Majority Banks or of any requirement for
consent by all of the Banks; any modification to require a Bank to fund a pro
rata share of a request for an advance of the Loan made by the Borrowers other
than based on its Commitment Percentage; an amendment to Section 9.1; an
amendment to this Section 27; an amendment of the definition of Majority Banks;
or an amendment of any provision of this Agreement or the Loan Documents which
requires the approval of all of the Banks or the Majority Banks to require a
lesser number of Banks to approve such action. The amount of the Agent's fee
payable for the Agent's account and the provisions of Section 14 may not be
amended without the written consent of the Agent. There shall be no amendment,
modification or waiver of any provision in the Loan Documents with respect to
Swing Loans without the consent of the Swing Loan Bank. No waiver shall extend
to or affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Agent or
any Bank in exercising any right shall
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operate as a waiver thereof or otherwise be prejudicial thereto. No notice to
or demand upon the Borrowers shall entitle the Borrowers to other or further
notice or demand in similar or other circumstances.
Section 28. SEVERABILITY.
The provisions of this Agreement are severable, and if any one clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
Section 29. TIME OF THE ESSENCE.
Time is of the essence with respect to each and every covenant,
agreement and obligation of the Borrowers under this Agreement and the other
Loan Documents.
Section 30. NO UNWRITTEN AGREEMENTS.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Section 31. REPLACEMENT OF NOTES.
Upon receipt of evidence reasonably satisfactory to the Borrowers of
the loss, theft, destruction or mutilation of any Note, and in the case of any
such loss, theft or destruction, upon delivery of an indemnity agreement
reasonably satisfactory to the Borrowers or, in the case of any such
mutilation, upon surrender and cancellation of the applicable Note, the
Borrowers will execute and deliver, in lieu thereof, a replacement Note,
identical in form and substance to the applicable Note and dated as of the date
of the applicable Note and upon such execution and delivery all references in
the Loan Documents to such Note shall be deemed to refer to such replacement
Note.
Section 32. JOINT AND SEVERAL LIABILITY.
Each of the Borrowers covenants and agrees that each and every
covenant and obligation of any Borrower hereunder and under the other Loan
Documents shall be the joint and several obligations of each Borrower.
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Section 33. ADDITIONAL AGREEMENTS CONCERNING OBLIGATIONS OF BORROWERS.
Section 33.1. Waiver of Automatic or Supplemental Stay. Each of the
Borrowers represent, warrant and covenant to the Banks and Agent that in the
event of the filing of any voluntary or involuntary petition in bankruptcy by
or against the other of the Borrowers at any time following the execution and
delivery of this Agreement, neither of the Borrowers shall seek a supplemental
stay or any other relief, whether injunctive or otherwise, pursuant to Section
105 of the Bankruptcy Code or any other provision of the Bankruptcy Code, to
stay, interdict, condition, reduce or inhibit the ability of the Banks or Agent
to enforce any rights it has by virtue of this Agreement, the Loan Documents,
or at law or in equity, or any other rights the Banks or Agent has, whether now
or hereafter acquired, against the other Borrower or against any property owned
by such other Borrower.
Section 33.2. Waiver of Defenses. Each of the Borrowers hereby waives
and agrees not to assert or take advantage of any defense based upon:
(a) any statute of limitations and any action hereunder
or for the collection of the Notes or for the payment and performance of any of
the Obligations;
(b) any incapacity, lack of authority, death or
disability of the other Borrower, any Guarantor or any other Person;
(c) any failure of the Banks or Agent to commence an
action against the other Borrower, any Guarantor or any other Person or to file
or enforce a claim against the estate (either in administration, bankruptcy, or
any other proceeding) of the other Borrower, any Guarantor or any other Person,
whether or not demand is made upon the Banks or Agent to file or enforce such
claim;
(d) any failure of the Banks or Agent to give notice of
the existence, creation or incurring of any new or additional indebtedness or
other obligation or of any action or nonaction on the part of any other Person
in connection with the Loan Documents, including the waiver of any conditions to
the making of any advance of proceeds of any Loan;
(e) any failure on the part of the Banks or Agent to
ascertain the extent or nature of any assets of any Person or any insurance or
other rights with respect thereto, or the liability of any party liable for the
Loan Documents or the obligations evidenced or secured thereby, or any failure
on the part of the Banks or Agent to disclose to the Borrowers any facts any of
them may now or hereafter know regarding the Borrowers, any Guarantors, their
respective assets, or such other parties, whether such facts materially
increase the risks to Borrowers or not;
(f) except as specifically required in the Loan
Documents, any notice of intention to accelerate any of the Obligations or any
notice of acceleration of the Obligations;
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(g) any lack of acceptance or notice of acceptance of this
Agreement by Banks or Agent;
(h) any lack of presentment, demand, protest, or notice of
dishonor, demand, protest or nonpayment with respect to any indebtedness or
obligations under any of the Loan Documents;
(i) any lack of notice of disposition or of manner of
disposition of any assets of any Person;
(j) except as specifically required in the Loan Documents,
any lack of other notices to which the Borrowers, or either of them, might
otherwise be entitled;
(k) failure to properly record any document or any other lack
of due diligence by the Banks or Agent in creating or perfecting a security
interest in or collection, protection or realization upon any assets of any
Person or in obtaining reimbursement or performance from any person or entity
now or hereafter liable for the Loan Documents or any obligation secured
thereby;
(l) any invalidity or irregularity, in whole or in part, of
any one or more of the Loan Documents;
(m) the inaccuracy of any representation or other provision
contained in any Loan Document;
(n) any sale or assignment of the Loan Documents, in whole or
in part;
(o) any sale or assignment by any of the Borrowers or any
Guarantor of any assets of such Person, or any portion thereof, whether or not
consented to by the Banks or Agent;
(p) any lack of commercial reasonableness in dealing with any
of the assets of a Person now or hereafter owned by the other of the Borrowers
or any Guarantor;
(q) the dissolution or termination of existence of either
Borrower, any Guarantor or any other Person;
(r) the voluntary or involuntary liquidation, sale or other
disposition of all or substantially all of the assets of either Borrower or any
Guarantor;
(s) the voluntary or involuntary receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
assignment, composition, or readjustment of, or any similar proceeding
affecting, any Borrower, any Guarantor or any of such Person's properties or
assets;
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(t) the damage, destruction, condemnation, foreclosure or
surrender of all or any part of the Real Estate or any of the improvements
located thereon;
(u) any failure or delay of Agent or the Banks to commence an
action against Borrowers or any Guarantor, to assert or enforce any remedies
against Borrowers or any Guarantor under the Note or the Loan Documents, or to
realize upon any security;
(v) the invalidity or unenforceability of the Note or any of
the Loan Documents;
(w) the compromise, settlement, release or termination of any
or all of the obligations of a Borrower or any Guarantor under the Note or the
Loan Documents; or
(x) to the fullest extent permitted by law, any other legal,
equitable or surety defenses whatsoever to which a Borrower might otherwise be
entitled
Section 33.3. Waiver. Each of the Borrowers waives, to the fullest
extent that each may lawfully so do, the benefit of all appraisement,
valuation, stay, extension, homestead, exemption and redemption laws which such
Person may claim or seek to take advantage of in order to prevent or hinder the
enforcement of any of the Loan Documents or the exercise by Banks or Agent of
any of their respective remedies under the Loan Documents and, to the fullest
extent that the Borrowers may lawfully so do, such Person waives any and all
right to have the assets of such Person marshaled upon any exercise of remedies
hereunder. Each of the Borrowers further agrees that the Banks and Agent shall
be entitled to exercise their respective rights and remedies under the Loan
Documents or at law or in equity in such order as they may elect. Without
limiting the foregoing, each of the Borrowers further agrees that upon the
occurrence of an Event of Default, the Banks and Agent may exercise any of such
rights and remedies without notice to either of the Borrowers except as
required by law or the Loan Documents and agrees that neither the Banks nor
Agent shall be required to proceed against the other of the Borrowers, any
Guarantor or any other Person or to proceed against or to exhaust any other
security held by the Banks or Agent at any time or to pursue any other remedy
in Bank's or Agent's power or under any of the Loan Documents before proceeding
against a Borrower or its assets under the Loan Documents.
Section 33.4. Subordination. Each of the Borrowers hereby expressly
waives any right of contribution from or indemnity against the other, whether
at law or in equity, arising from any payments made by such Person pursuant to
the terms of this Agreement or the Loan Documents, and each of the Borrowers
acknowledges that it has no right whatsoever to proceed against the other for
reimbursement of any such payments. In connection with the foregoing, each of
the Borrowers expressly waives any and all rights of subrogation to the Banks
or Agent against the other of the Borrowers, and each of the Borrowers hereby
waives any rights to enforce any remedy which the Banks or Agent may have
against the other of the Borrowers and any rights to participate in any
collateral or any other assets of the other Borrower. In addition to and
without in any way limiting the foregoing, each of the Borrowers hereby
subordinates any and all indebtedness it may now or hereafter owe to such other
Borrower to all indebtedness of the
-79-
<PAGE> 81
Borrowers to the Banks and Agent, and agrees with the Banks and Agent that
neither of the Borrowers shall claim any offset or other reduction of such
Borrower's obligations hereunder because of any such indebtedness and shall not
take any action to obtain any collateral or any other assets of the other
Borrower.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-80-
<PAGE> 82
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as a sealed instrument as of the date first set forth above.
BANKBOSTON, N.A., individually and as Agent
By:
--------------------------------------------
Jeffrey L. Warwick, Director
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attn: Real Estate Division
With a copy to:
BankBoston, N.A.
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Attn: Elizabeth A. Keady
Facsimile: 770/390-8434
-81-
<PAGE> 83
BANK OF MONTREAL, CHICAGO BRANCH
By:
---------------------------------------
Title:
Bank of Montreal, Chicago Branch
Real Estate Division
115 South LaSalle Street
Chicago, Illinois 60603
Attn: Tom Batterham
Facsimile: 312/750-4352
-82-
<PAGE> 84
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:
---------------------------------------
Title:
By:
---------------------------------------
Title:
Dresdner Bank AG New York
and Grand Cayman Branches
75 Wall Street
New York, New York 10005
Attn: Johannes Boeckmann
Facsimile: 212/429-2129
-83-
<PAGE> 85
KEYBANK NATIONAL ASSOCIATION
By:
---------------------------------------
Title:
KeyBank National Association
Commercial Real Estate Division
Sixth Floor
127 Public Square
Cleveland, Ohio 44114-1306
Attn: Dan Heberle
Facsimile: 216/689-4997
-84-
<PAGE> 86
FIRST UNION NATIONAL BANK
By:
---------------------------------------
Title:
First Union National Bank
One First Union Center, DC-6
Charlotte, North Carolina 28288-0166
Attn: John A. Schissel
Facsimile: 704/383-6205
-85-
<PAGE> 87
WALDEN/DREVER OPERATING
PARTNERSHIP, L.P., a Delaware limited
partnership, by its sole general partner
By: Walden Residential Properties, Inc., a
Maryland corporation
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
[CORPORATE SEAL]
WALDEN RESIDENTIAL PROPERTIES, INC., a
Maryland corporation
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
[CORPORATE SEAL]
-86-
<PAGE> 88
COMPASS BANK
By:
---------------------------------------
Title:
Compass Bank
8080 North Central Expressway
Dallas, Texas 75206
Attn: Christopher M. Rogers
Facsimile: 214/890-8668
-87-
<PAGE> 89
EXHIBIT A
FORM OF ASSIGNMENT OF LEASES AND RENTS
<PAGE> 90
EXHIBIT B
FORM OF ASSIGNMENT OF MANAGEMENT AGREEMENT
<PAGE> 91
EXHIBIT C
FORM OF INDEMNITY AGREEMENT
<PAGE> 92
EXHIBIT D
FORM OF PROPERTY CERTIFICATE
<PAGE> 93
EXHIBIT E
FORM OF SECURITY DEED
<PAGE> 94
EXHIBIT F
FORM OF NOTE
$______________ As of December ___ , 1998
FOR VALUE RECEIVED, the undersigned WALDEN/DREVER OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, and WALDEN RESIDENTIAL
PROPERTIES, INC., a Maryland corporation, hereby jointly and severally promise
to pay to ______________________________ or order, in accordance with the terms
of that certain First Amended and Restated Revolving Credit Agreement dated as
of December 18, 1998 (the "Credit Agreement"), as from time to time in effect,
among the undersigned, BankBoston, N.A., for itself and as Agent, and such
other Banks as may be from time to time named therein, to the extent not sooner
paid, on or before the Maturity Date the principal sum of _____________________
__________________________________ DOLLARS ($______________), or such amount as
may be advanced by the payee hereof under the Credit Agreement (but excluding
Swing Loans made pursuant to Section Section 2.4A(a) through (c) of the Credit
Agreement) with daily interest from the date hereof, computed as provided in
the Credit Agreement, on the principal amount hereof from time to time unpaid,
at a rate per annum on each portion of the principal amount which shall at all
times be equal to the rate of interest applicable to such portion in accordance
with the Credit Agreement, and with interest on overdue principal and, to the
extent permitted by applicable law, on overdue installments of interest and
late charges at the rates provided in the Credit Agreement. Interest shall be
payable on the dates specified in the Credit Agreement, except that all accrued
interest shall be paid at the stated or accelerated maturity hereof or upon the
prepayment in full hereof. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Credit Agreement.
Payments hereunder shall be made to BankBoston, N.A., as Agent for the
payee hereof, 100 Federal Street, Boston, Massachusetts 02110.
This Note is one of one or more Notes evidencing borrowings under and
is entitled to the benefits and subject to the provisions of the Credit
Agreement. The principal of this Note may be due and payable in whole or in
part prior to the maturity date stated above and is subject to mandatory
prepayment in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement.
Notwithstanding anything in this Note to the contrary, all agreements
between the Borrowers and the Banks and the Agent, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of acceleration of the maturity of any of the
Obligations or otherwise, shall the interest contracted for, charged or
received by the Banks exceed the maximum amount permissible under applicable
law. If, from any circumstance whatsoever, interest would otherwise be payable
to the Banks in excess of the maximum lawful amount, the interest payable to
the Banks shall be reduced to the maximum
<PAGE> 95
amount permitted under applicable law; and if from any circumstance the Banks
shall ever receive anything of value deemed interest by applicable law in
excess of the maximum lawful amount, an amount equal to any excessive interest
shall be applied to the reduction of the principal balance of the Obligations
and to the payment of interest or, if such excessive interest exceeds the
unpaid balance of principal of the Obligations, such excess shall be refunded
to the Borrowers. All interest paid or agreed to be paid to the Banks shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full period until payment in full of the principal of the
Obligations (including the period of any renewal or extension thereof) so that
the interest thereon for such full period shall not exceed the maximum amount
permitted by applicable law. This paragraph shall control all agreements
between the Borrowers and the Banks and the Agent.
In case an Event of Default shall occur, the entire principal amount
of this Note may become or be declared due and payable in the manner and with
the effect provided in said Credit Agreement.
This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts (without giving effect to the
conflict of laws rules of any jurisdiction).
The undersigned makers and all guarantors and endorsers, hereby waive
presentment, demand, notice, protest, notice of intention to accelerate the
indebtedness evidenced hereby, notice of acceleration of the indebtedness
evidenced hereby and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, except as
specifically otherwise provided in the Credit Agreement, and assent to
extensions of time of payment or forbearance or other indulgence without
notice.
IN WITNESS WHEREOF the undersigned have by their duly authorized
officer or partner executed this Note under seal as of the day and year first
above written.
WALDEN/DREVER OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership,
by its sole general partner
By: Walden Residential Properties, Inc.,
a Maryland corporation
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[CORPORATE SEAL]
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[CORPORATE SEAL]
-2-
<PAGE> 96
EXHIBIT G
FORM OF SWING LOAN NOTE
$______________ As of December ____, 1998
FOR VALUE RECEIVED, the undersigned WALDEN/DREVER OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, and WALDEN RESIDENTIAL
PROPERTIES, INC., a Maryland corporation, hereby jointly and severally promise
to pay to ______________________________ or order, in accordance with the terms
of that certain First Amended and Restated Revolving Credit Agreement dated as
of December 18, 1998 (the "Credit Agreement"), as from time to time in effect,
among the undersigned, BankBoston, N.A., for itself and as Agent, and such
other Banks as may be from time to time named therein, to the extent not sooner
paid, on or before the Maturity Date the principal sum of _____________________
_______________________________________________ DOLLARS (____________________),
or such amount as may be advanced by the payee hereof under the Credit
Agreement as Swing Loans with daily interest from the date hereof, computed as
provided in the Credit Agreement, on the principal amount hereof from time to
time unpaid, at a rate per annum on each portion of the principal amount which
shall at all times be equal to the rate of interest applicable to such portion
in accordance with the Credit Agreement, and with interest on overdue principal
and, to the extent permitted by applicable law, on overdue installments of
interest and late charges at the rates provided in the Credit Agreement.
Interest shall be payable on the dates specified in the Credit Agreement,
except that all accrued interest shall be paid at the stated or accelerated
maturity hereof or upon the prepayment in full hereof. Capitalized terms used
herein and not otherwise defined herein shall have the meanings set forth in
the Credit Agreement.
Payments hereunder shall be made to BankBoston, N.A., as Agent for the
payee hereof, 100 Federal Street, Boston, Massachusetts 02110.
This Note is one of one or more Notes evidencing borrowings under and
is entitled to the benefits and subject to the provisions of the Credit
Agreement. The principal of this Note may be due and payable in whole or in
part prior to the maturity date stated above and is subject to mandatory
prepayment in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement.
Notwithstanding anything in this Note to the contrary, all agreements
between the Borrowers and the Banks and the Agent, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that in no
contingency, whether by reason of acceleration of the maturity of any of the
Obligations or otherwise, shall the interest contracted for, charged or
received by the Banks exceed the maximum amount permissible under applicable
law. If, from any circumstance whatsoever, interest would otherwise be payable
to the Banks in excess of the maximum lawful amount, the interest payable to
the Banks shall be reduced to the maximum
<PAGE> 97
amount permitted under applicable law; and if from any circumstance the Banks
shall ever receive anything of value deemed interest by applicable law in
excess of the maximum lawful amount, an amount equal to any excessive interest
shall be applied to the reduction of the principal balance of the Obligations
and to the payment of interest or, if such excessive interest exceeds the
unpaid balance of principal of the Obligations, such excess shall be refunded
to the Borrowers. All interest paid or agreed to be paid to the Banks shall, to
the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full period until payment in full of the principal of the
Obligations (including the period of any renewal or extension thereof) so that
the interest thereon for such full period shall not exceed the maximum amount
permitted by applicable law. This paragraph shall control all agreements
between the Borrowers and the Banks and the Agent.
In case an Event of Default shall occur, the entire principal amount
of this Note may become or be declared due and payable in the manner and with
the effect provided in said Credit Agreement.
This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts (without giving effect to the
conflict of laws rules of any jurisdiction).
The undersigned makers and all guarantors and endorsers, hereby waive
presentment, demand, notice, protest, notice of intention to accelerate the
indebtedness evidenced hereby, notice of acceleration of the indebtedness
evidenced hereby and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, except as
specifically otherwise provided in the Credit Agreement, and assent to
extensions of time of payment or forbearance or other indulgence without
notice.
IN WITNESS WHEREOF the undersigned have by their duly authorized
officer or partner executed this Note under seal as of the day and year first
above written.
WALDEN/DREVER OPERATING
PARTNERSHIP, L.P., a Delaware limited
partnership, by its sole general partner
By: Walden Residential Properties, Inc., a
Maryland corporation
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[CORPORATE SEAL]
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[CORPORATE SEAL]
<PAGE> 98
EXHIBIT H
FORM OF REQUEST FOR LOAN
BankBoston, N.A., as Agent
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Attn: Elizabeth A. Keady
Ladies and Gentlemen:
Pursuant to the provisions of Section 2.6 of the First Amended and
Restated Revolving Credit Agreement dated as of December 18, 1998, as from time
to time in effect (the "Credit Agreement"), among Walden Residential
Properties, Inc. and Walden/Drever Operating Partnership, L.P. (the
"Borrowers"), BankBoston, N.A., for itself and as Agent and the other Banks
from time to time party thereto, the Borrowers hereby request and certify as
follows:
1. Loan. The Borrowers hereby request a [Loan under Section 2.1]
[Swing Loan under Section 2.4A] of the Credit Agreement [strike inapplicable
language]:
Principal Amount: $
LIBOR or Base Rate:
Drawdown Date: , 19
Interest Period:
by credit to the general account of the Borrowers with the Agent at the Agent's
Head Office.
[IF THE REQUESTED LOAN IS A SWING LOAN AND THE BORROWERS DESIRE FOR
SUCH LOAN TO BE A LIBOR RATE LOAN FOLLOWING ITS CONVERSION AS PROVIDED IN
SECTION 2.4A(d), SPECIFY THE INTEREST PERIOD FOLLOWING CONVERSION:____________]
2. Use of Proceeds. Such Loan shall be used for the following purposes
permitted by Section 7.11 of the Credit Agreement:
[Describe]
<PAGE> 99
3. No Default. The undersigned chief financial or chief accounting
officer of Walden, for Walden and as the sole general partner of WDOP, certify
that Borrowers are and will be in compliance with all covenants under the Loan
Documents after giving effect to the making of the Loan requested hereby.
4. Representations True. Each of the representations and warranties
made by or on behalf of the Borrowers, the General Partner, the Guarantors and
their respective Subsidiaries contained in the Credit Agreement, in the other
Loan Documents or in any document or instrument delivered pursuant to or in
connection with the Credit Agreement was true as of the date as of which it was
made and shall also be true at and as of the Drawdown Date for the Loan
requested hereby, with the same effect as if made at and as of such Drawdown
Date (except to the extent of changes resulting from transactions contemplated
or permitted by the Credit Agreement and the other Loan Documents and changes
occurring in the ordinary course of business that singly or in the aggregate
are not materially adverse, and except to the extent that such representations
and warranties relate expressly to an earlier date) and no Default or Event of
Default has occurred and is continuing.
5. Other Conditions. All other conditions to the making of the Loan
requested hereby set forth in Section 11 of the Credit Agreement have been
satisfied.
6. Drawdown Date. Except to the extent, if any, specified by notice
actually received by the Agent prior to the Drawdown Date specified above, the
foregoing representations and warranties shall be deemed to have been made by
the Borrowers on and as of such Drawdown Date.
7. Definitions. Terms defined in the Credit Agreement are used herein
with the meanings so defined.
IN WITNESS WHEREOF, we have hereunto set our hands this _____ day of
_______________, 199___.
WALDEN/DREVER OPERATING
PARTNERSHIP, L.P.,
a Delaware limited partnership,
by its sole general partner
By: Walden Residential Properties, Inc.,
a Maryland corporation
By:
-----------------------------------
Chief Financial or Chief Accounting
Officer
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By:
----------------------------------------
Chief Financial or Chief Accounting Officer
<PAGE> 100
EXHIBIT I
FORM OF
COMPLIANCE CERTIFICATE
BankBoston, N.A.,
for itself and as Agent
115 Perimeter Center Place, N.E.
Suite 500
Atlanta, Georgia 30346
Attn: Elizabeth Keady
[INSERT NAMES AND ADDRESSES
OF OTHER BANKS]
Ladies and Gentlemen:
Reference is made to the First Amended and Restated Revolving Credit
Agreement dated as of December 18, 1998 (the "Credit Agreement") by and among
Walden Residential Properties, Inc. and Walden/Drever Operating Partnership,
L.P. (the "Borrowers"), BankBoston, N.A., for itself and as Agent, and the
other Banks from time to time party thereto. Terms defined in the Credit
Agreement and not otherwise defined herein are used herein as defined in the
Credit Agreement.
Pursuant to the Credit Agreement, the Borrowers are furnishing to you
herewith (or have most recently furnished to you) the financial statements of
the Borrowers and their respective Subsidiaries for the fiscal period ended
_______________ (the "Balance Sheet Date"). Such financial statements have been
prepared in accordance with generally accepted accounting principles and
present fairly the financial position of Borrowers and the Subsidiaries covered
thereby at the date thereof and the results of their operations for the periods
covered thereby, subject in the case of interim statements only to normal
year-end audit adjustments.
This certificate is submitted in compliance with requirements of
Section 7.4(e), Section 7.5(d) and Section 10.10 of the Credit Agreement. If
this certificate is provided under a provision other than Section 7.4(e), the
calculations provided below are made using the financial statements of the
Borrowers and their respective Subsidiaries as of the Balance Sheet Date
adjusted in the best good-faith estimate of the Borrowers to give effect to the
making of a Loan, extension of the Maturity Date, acquisition or disposition of
property or other event that occasions the preparation of this certificate; and
the nature of such event and the Borrowers' estimate of its effects are set
forth in reasonable detail in an attachment hereto. The undersigned officer is
the chief financial or chief accounting officer of Walden, for Walden and the
sole general partner of WDOP.
<PAGE> 101
The undersigned officers have caused the provisions of the Credit
Agreement to be reviewed and have no knowledge of any Default or Event of
Default. (Note: If the signers do have knowledge of any Default or Event of
Default, the form of certificate should be revised to specify the Default or
Event of Default, the nature thereof and the actions taken, being taken or
proposed to be taken by the Borrowers with respect thereto.)
The Borrowers are providing the information set forth in the schedule
attached hereto to demonstrate compliance as of the date hereof with the
covenants described therein.
IN WITNESS WHEREOF, we have hereunto set our hands this ___ day of
________________, 199__.
WALDEN/DREVER OPERATING
PARTNERSHIP, L.P.,
a Delaware limited partnership,
by its sole general partner
By: Walden Residential Properties, Inc.,
a Maryland corporation
By:
---------------------------------------
Chief Financial or Chief Accounting
Officer
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By:
-------------------------------------------
Chief Financial or Chief Accounting Officer
<PAGE> 102
SCHEDULE 1
BANKS AND COMMITMENTS
<TABLE>
<CAPTION>
Name and Address Commitment Commitment Percentage
- ---------------- -------------- ---------------------
<S> <C> <C>
BankBoston, N.A. $ 32,500,000.00 21.6667%
100 Federal Street
Boston, Massachusetts 02110
Attn: Real Estate Division
LIBOR Lending Office
Same as above
Bank of Montreal, Chicago Branch $ 32,500,000.00 21.6667%
Real Estate Division
115 South LaSalle Street
Chicago, Illinois 60603
Attn: Tom Batterham
LIBOR Lending office
Same as above
Dresdner Bank AG New York $ 25,00,000.00 16.6667%
and Grand Cayman Branches
75 Wall Street
New York, New York 10005
Attn: Johannes Boeckmann
LIBOR Lending Office
Same as above
KeyBank National Association $ 25,000,000.00 16.6667%
Commercial Real Estate Division
Sixth Floor
127 Public Square
Cleveland, Ohio 44114-1306
Attn: Laird Fairchild
LIBOR Lending Office
Same as above
First Union National Bank $ 20,000,000.00 13.3333%
One First Union Center, DC-6
Charlotte, North Carolina 28288-0166
Attn: John A. Schissel
LIBOR Lending Office
Same as above
Compass Bank $ 15,000,000.00 10.0%
8080 North Central Expressway
Dallas, Texas 75206
Attn: Christopher M. Rogers
LIBOR Lending Office
Same as above ---------------
$150,000,000.00 100.00%
</TABLE>
- ------------------------
Percentages may not add up to 100% due to rounding.
<PAGE> 103
SCHEDULE 2
EXAMPLE OF CALCULATION OF DEBT SERVICE COVERAGE AMOUNT
<PAGE> 104
SCHEDULE 6.17
ENVIRONMENTAL MATTERS
NONE.
<PAGE> 105
SCHEDULE 6.18
SUBSIDIARIES OF WDOP AND WALDEN
<PAGE> 106
SCHEDULE 6.20
REAL ESTATE OWNED BY
BORROWERS AND THEIR RESPECTIVE SUBSIDIARIES
<PAGE> 107
SCHEDULE 6.22
INDEBTEDNESS OF THE BORROWERS AND THEIR SUBSIDIARIES
<PAGE> 108
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. DEFINITIONS AND RULES OF INTERPRETATION............................................................ -1-
Section 1.1. Definitions............................................................................. -1-
Section 1.2. Rules of Interpretation................................................................. -15-
Section 2. THE REVOLVING CREDIT FACILITY...................................................................... -16-
Section 2.1. Commitment to Lend...................................................................... -16-
Section 2.2. Facility Fee............................................................................ -17-
Section 2.3. Reduction and Termination of Commitment................................................. -17-
Section 2.4. Notes................................................................................... -18-
Section 2.4A Swing Loan Commitments.................................................................. -18-
Section 2.5. Interest on Loans....................................................................... -20-
Section 2.6. Requests for Loans...................................................................... -21-
Section 2.7. Funds for Loans......................................................................... -22-
Section 3. REPAYMENT OF THE LOANS............................................................................. -22-
Section 3.1. Stated Maturity......................................................................... -22-
Section 3.2. Mandatory Prepayments................................................................... -22-
Section 3.3. Optional Prepayments.................................................................... -23-
Section 3.4. Partial Prepayments..................................................................... -23-
Section 3.5. Effect of Prepayments................................................................... -23-
Section 3.6. Proceeds from Debt or Equity Offering................................................... -23-
Section 4. CERTAIN GENERAL PROVISIONS......................................................................... -23-
Section 4.1. Conversion Options...................................................................... -23-
Section 4.2. Closing Fee............................................................................. -24-
Section 4.3. Agent's Fee............................................................................. -25-
Section 4.4. Funds for Payments...................................................................... -25-
Section 4.5. Computations............................................................................ -25-
Section 4.6. Inability to Determine LIBOR Rate....................................................... -26-
Section 4.7. Illegality.............................................................................. -26-
Section 4.8. Additional Interest..................................................................... -26-
Section 4.9. Additional Costs, Etc................................................................... -26-
Section 4.10. Capital Adequacy........................................................................ -28-
Section 4.11. Indemnity of Borrowers.................................................................. -28-
Section 4.12. Interest on Overdue Amounts; Late Charge................................................ -28-
Section 4.13. Certificate............................................................................. -28-
Section 4.14. Limitation on Interest.................................................................. -29-
Section 5. SECURITY........................................................................................... -29-
Section 5.1. Security................................................................................ -29-
Section 5.2. Escrowed Security Documents............................................................. -29-
</TABLE>
<PAGE> 109
<TABLE>
<S> <C> <C>
Section 6. REPRESENTATIONS AND WARRANTIES..................................................................... -32-
Section 6.1. Corporate Authority, Etc................................................................ -32-
Section 6.2. Governmental Approvals.................................................................. -34-
Section 6.3. Title to Properties; Leases............................................................. -34-
Section 6.4. Financial Statements.................................................................... -34-
Section 6.5. No Material Changes..................................................................... -34-
Section 6.6. Franchises, Patents, Copyrights, Etc.................................................... -34-
Section 6.7. Litigation.............................................................................. -35-
Section 6.8. No Materially Adverse Contracts, Etc.................................................... -35-
Section 6.9. Compliance with Other Instruments, Laws, Etc............................................ -35-
Section 6.10. Tax Status.............................................................................. -35-
Section 6.11. No Event of Default..................................................................... -36-
Section 6.12. Holding Company and Investment Company Acts............................................. -36-
Section 6.13. Absence of UCC Financing Statements, Etc................................................ -36-
Section 6.14. Certain Transactions.................................................................... -36-
Section 6.15. Employee Benefit Plans.................................................................. -36-
Section 6.16. Regulations U and X..................................................................... -37-
Section 6.17. Environmental Compliance................................................................ -37-
Section 6.18. Subsidiaries............................................................................ -38-
Section 6.19. Loan Documents and the Guarantors....................................................... -38-
Section 6.20. Property................................................................................ -39-
Section 6.21. Brokers................................................................................. -39-
Section 6.22. Other Debt.............................................................................. -39-
Section 6.23. Solvency................................................................................ -40-
Section 6.24. Partners................................................................................ -40-
Section 6.25. No Fraudulent Intent.................................................................... -40-
Section 6.26. Transaction in best interests of Borrowers; Consideration............................... -40-
Section 6.27. Year 2000 Compliant. .................................................................. -40-
Section 7. AFFIRMATIVE COVENANTS OF THE BORROWERS............................................................. -41-
Section 7.1. Punctual Payment........................................................................ -41-
Section 7.2. Maintenance of Office................................................................... -41-
Section 7.3. Records and Accounts.................................................................... -41-
Section 7.4. Financial Statements, Certificates and Information...................................... -41-
Section 7.5. Notices................................................................................. -44-
Section 7.6. Existence; Maintenance of Properties.................................................... -45-
Section 7.7. Insurance............................................................................... -46-
Section 7.8. Taxes................................................................................... -46-
Section 7.9. Inspection of Properties and Books...................................................... -46-
Section 7.10. Compliance with Laws, Contracts, Licenses, and Permits.................................. -47-
Section 7.11. Use of Proceeds......................................................................... -47-
Section 7.12. Further Assurances...................................................................... -47-
Section 7.13. Management; Business Operations......................................................... -47-
Section 7.14. Unencumbered Operating Properties....................................................... -48-
Section 7.15. Limiting Agreements..................................................................... -48-
</TABLE>
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<TABLE>
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Section 7.16. Ownership of Real Estate............................................................... -49-
Section 7.17. Distributions of Income to the Borrowers............................................... -49-
Section 7.18. More Restrictive Agreements............................................................ -49-
Section 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS........................................................ -50-
Section 8.1. Restrictions on Indebtedness............................................................ -50-
Section 8.2. Restrictions on Liens, Etc.............................................................. -51-
Section 8.3. Restrictions on Investments............................................................. -52-
Section 8.4. Merger, Consolidation................................................................... -54-
Section 8.5. Sale and Leaseback...................................................................... -54-
Section 8.6. Compliance with Environmental Laws...................................................... -54-
Section 8.7. Distributions........................................................................... -55-
Section 8.8. Asset Sales............................................................................. -56-
Section 8.9. Development Activity.................................................................... -56-
Section 8.10. Restriction on Prepayment of Indebtedness............................................... -56-
Section 8.11. Bankruptcy Remote Subsidiaries.......................................................... -56-
Section 8.12. Restrictions on Transfer................................................................ -57-
Section 9. FINANCIAL COVENANTS OF THE BORROWERS............................................................... -57-
Section 9.1. Borrowing Base Covenant of the Borrowers................................................ -57-
Section 9.2. Covenants of Walden..................................................................... -57-
Section 10. CLOSING CONDITIONS................................................................................ -58-
Section 10.1. Loan Documents......................................................................... -58-
Section 10.2. Certified Copies of Organizational Documents........................................... -58-
Section 10.3. Bylaws; Resolutions.................................................................... -58-
Section 10.4. Incumbency Certificate; Authorized Signers............................................. -59-
Section 10.5. Opinion of Counsel..................................................................... -59-
Section 10.6. Payment of Fees........................................................................ -59-
Section 10.7. Performance; No Default................................................................ -59-
Section 10.8. Representations and Warranties......................................................... -59-
Section 10.9. Proceedings and Documents.............................................................. -59-
Section 10.10. Compliance Certificate................................................................. -59-
Section 10.11. Partner Consents....................................................................... -60-
Section 10.12. Escrowed Security Documents............................................................ -60-
Section 10.13. Other.................................................................................. -60-
Section 11. CONDITIONS TO ALL BORROWINGS....................................................................... -60-
Section 11.1. Prior Conditions Satisfied............................................................. -60-
Section 11.2. Representations True; No Default....................................................... -60-
Section 11.3. No Legal Impediment.................................................................... -60-
Section 11.4. Governmental Regulation................................................................ -60-
Section 11.5. Proceedings and Documents.............................................................. -60-
Section 11.6. Borrowing Documents.................................................................... -61-
</TABLE>
<PAGE> 111
<TABLE>
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Section 12. EVENTS OF DEFAULT; ACCELERATION; ETC.............................................................. -61-
Section 12.1. Events of Default and Acceleration..................................................... -61-
Section 12.1A. Limitation of Cure Periods............................................................. -64-
Section 12.2. Termination of Commitments............................................................. -65-
Section 12.3. Remedies............................................................................... -65-
Section 12.4. Distribution of Proceeds............................................................... -65-
Section 13. SETOFF............................................................................................ -66-
Section 14. THE AGENT.......................................................................................... -66-
Section 14.1. Authorization.......................................................................... -66-
Section 14.2. Employees and Agents................................................................... -67-
Section 14.3. No Liability........................................................................... -67-
Section 14.4. No Representations..................................................................... -67-
Section 14.5. Payments............................................................................... -68-
Section 14.6. Holders of Notes....................................................................... -69-
Section 14.7. Indemnity.............................................................................. -69-
Section 14.8. Agent as Bank.......................................................................... -69-
Section 14.9. Resignation............................................................................ -69-
Section 14.10. Duties in the Case of Enforcement...................................................... -69-
Section 15. EXPENSES.......................................................................................... -70-
Section 16. INDEMNIFICATION................................................................................... -71-
Section 17. SURVIVAL OF COVENANTS, ETC........................................................................ -72-
Section 18. ASSIGNMENT AND PARTICIPATION...................................................................... -72-
Section 18.1. Conditions to Assignment by Banks...................................................... -72-
Section 18.2. Register............................................................................... -73-
Section 18.3. New Notes.............................................................................. -73-
Section 18.4. Participations......................................................................... -73-
Section 18.5. Pledge by Bank......................................................................... -74-
Section 18.6. No Assignment by Borrowers............................................................. -74-
Section 18.7. Disclosure............................................................................. -74-
Section 19. NOTICES........................................................................................... -74-
Section 20. RELATIONSHIP...................................................................................... -75-
Section 21. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE................................................ -75-
Section 22. HEADINGS.......................................................................................... -76-
Section 23. COUNTERPARTS...................................................................................... -76-
</TABLE>
<PAGE> 112
<TABLE>
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Section 24. ENTIRE AGREEMENT, ETC............................................................................. -76-
Section 25. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS.................................................... -76-
Section 26. DEALINGS WITH THE BORROWERS....................................................................... -77-
Section 27. CONSENTS, AMENDMENTS, WAIVERS, ETC................................................................ -77-
Section 28. SEVERABILITY...................................................................................... -78-
Section 29. TIME OF THE ESSENCE............................................................................... -78-
Section 30. NO UNWRITTEN AGREEMENTS........................................................................... -78-
Section 31. REPLACEMENT OF NOTES.............................................................................. -78-
Section 32. JOINT AND SEVERAL LIABILITY....................................................................... -78-
Section 33. ADDITIONAL AGREEMENTS CONCERNING OBLIGATIONS OF BORROWERS......................................... -79-
Section 33.1. Waiver of Automatic or Supplemental Stay............................................... -79-
Section 33.2. Waiver of Defenses..................................................................... -79-
Section 33.3. Waiver................................................................................. -81-
Section 33.4. Subordination.......................................................................... -81-
</TABLE>
LIST OF EXHIBITS:
EXHIBIT A - Form of Assignment of Leases and Rents
EXHIBIT B - Form of Assignment of Management Agreement
EXHIBIT C - Form of Indemnity Agreement
EXHIBIT D - Form of Property Certificate
EXHIBIT E - Form of Security Deed
EXHIBIT F - Form of Revolving Credit Note
EXHIBIT G - Form of Swing Loan Note
EXHIBIT H - Form of Request for Loan
EXHIBIT I - Form of Compliance Certificate
LIST OF SCHEDULES:
SCHEDULE 1 - Banks and Commitments
SCHEDULE 2 - Example of Calculation of Debt Service Coverage Amount
SCHEDULE 6.17 - Environmental Matters
SCHEDULE 6.18 - Subsidiaries of the Borrower and Walden
SCHEDULE 6.20 - Real Estate Owned By Borrowers and their Respective Subsidiaries
SCHEDULE 6.22 - Indebtedness of the Borrowers and Their Subsidiaries
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT TO FIRST AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Amendment") made as of this ___day of _____________, 1999, by
and among WALDEN RESIDENTIAL PROPERTIES, INC., a Maryland corporation having its
principal place of business at 5080 Spectrum Drive, Suite 1000 East, Addison,
Texas 75001 ("Walden"), WALDEN/DREVER OPERATING PARTNERSHIP, L.P., a Delaware
limited partnership having its principal place of business at 5080 Spectrum
Drive, Suite 1000 East, Addison, Texas 75001 ("WDOP"; and Walden and WDOP are
hereinafter referred to collectively as the "Borrowers"), BANKBOSTON, N.A.
("BKB"), KEYBANK NATIONAL ASSOCIATION ("KeyBank"), BANK OF MONTREAL, CHICAGO
BRANCH ("Bank of Montreal"), DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES
("Dresdner"), FIRST UNION NATIONAL BANK ("First Union"), and COMPASS BANK
("Compass"; and BKB, KeyBank, Bank of Montreal, Dresdner, First Union and
Compass are herein referred to collectively as the "Banks"), and BANKBOSTON,
N.A., as Agent for the Banks (the "Agent").
RECITALS.
WHEREAS, Borrowers, the Agent and certain of the Banks entered into that
certain First Amended and Restated Revolving Credit Agreement dated as of
December 18, 1998, among Borrowers, Agent and the Banks (such agreement, as the
same may be amended, modified, extended, revised, or supplemented in accordance
with its terms, is hereinafter referred to as the "Loan Agreement"), whereby
BKB, the other Banks and the other lending institutions which might become
parties thereto agreed to make available to Borrowers a revolving line of credit
in the amount of $150,000,000.00 and a "swing loan" facility in the amount of
$10,000,000.00 upon the terms set forth in the Loan Agreement; and
WHEREAS, the parties hereto desire to modify and amend certain terms and
provisions of the Loan Agreement; and
WHEREAS, as a condition to such modification, the parties hereto hereby
execute this Amendment;
NOW, THEREFORE, for and in consideration of the sum of TEN and NO/100
DOLLARS ($10.00), and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto do hereby
covenant and agree as follows:
1. Definitions. All terms used herein which are not otherwise defined
herein shall have the meanings set forth in the Loan Agreement.
2. Modification of the Loan Agreement. Borrowers, the Banks, and Agent do
hereby modify and amend the Loan Agreement as follows:
<PAGE> 2
(a) By deleting the words and numbers "fifty percent (50%)" appearing
in the definition of "Borrowing Base", which definition appears on pages 3 and 4
of the Loan Agreement, and inserting in lieu thereof the words and numbers
"fifty-five percent (55%)";
(b) By deleting the words and numbers "fifty percent (50%)" appearing
in the definition of "Collateral Borrowing Base", which definition appears on
page 4 of the Loan Agreement, and inserting in lieu thereof the words and
numbers "fifty-five percent (55%)";
(c) By deleting the number "2.00" appearing in the eleventh (11th) line
of the definition of "Debt Service Coverage Amount", which definition appears on
page 6 of the Loan Agreement, and inserting in lieu thereof the number "1.82";
(d) By inserting in Section 1.1 of the Loan Agreement between the
definitions of "Net Income (or Deficit)" and "Non-Recourse Indebtedness"
appearing on page 11 of the Loan Agreement the following new defined term "Net
Operating Income (or Deficit)" and definition thereof:
"Net Operating Income (or Deficit). With respect to any Person (or any
asset of any Person) for any fiscal period, the net operating income (or
deficit) of such Person (or attributable to such asset), after deduction of
all expenses, taxes and other proper charges, determined in accordance with
generally accepted accounting principles.";
(e) By deleting the definition of "Operating Cash Flow" appearing on
pages 11 and 12 of the Loan Agreement and inserting in lieu thereof the
following new definition of "Operating Cash Flow":
"With respect to any Person (or any asset of any Person) for any period, an
amount equal to the sum of (a) the Net Operating Income of such Person (or
attributable to such asset) for such period plus (b) depreciation and
amortization and interest expense, all as determined in accordance with
generally accepted accounting principles.";
(f) By inserting after the word "year" appearing in the fifth (5th)
line of Section 7.4(a) of the Loan Agreement, which Section 7.4(a) appears on
page 41 of the Loan Agreement, the following:
"(it being acknowledged and agreed to by Agent and the Banks that WDOP
shall not be required to show comparative figures for fiscal year 1997 on
its consolidated balance sheet and related statements for fiscal year
1998)";
(g) By deleting Section 7.4(b) of the Loan Agreement appearing on page
42 thereof in its entirety and inserting in lieu thereof the following new
Section 7.4(b):
-2-
<PAGE> 3
"(b) (i) as soon as practicable, but in any event not later than 45
days after the end of each of the first three fiscal quarters of Walden,
copies of the unaudited consolidated balance sheet of Walden and its
Subsidiaries as of the end of such quarter, and the related unaudited
consolidated statements of income, changes in shareholder's equity and cash
flows for the portion of Walden's fiscal year then elapsed, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles (which may be provided by inclusion in the Form 10-Q
of Walden for such period provided pursuant to subsection (c) below),
together with a certification by the principal financial or accounting
officer of Walden that the information contained in such financial
statements fairly presents the financial position of Walden and its
Subsidiaries on the date thereof (subject to year-end adjustments);
(ii) as soon as practicable, but in any event not later than 45 days
after the end of each of the first three fiscal quarters of WDOP, copies of
the unaudited consolidated balance sheet of WDOP and its Subsidiaries as of
the end of such quarter, and the related unaudited consolidated statements
of income for the portion of WDOP's fiscal year then elapsed, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, together with a certification by the principal
financial or accounting officer of Walden, as the general partner of WDOP,
that the information contained in such financial statements fairly presents
the financial position of WDOP and its Subsidiaries on the date thereof
(subject to year-end adjustments);";
(h) By inserting after the word "filed" appearing in the third (3rd)
line of Section 7.4(c) of the Loan Agreement, which Section 7.4(c) appears on
page 42 of the Loan Agreement, the words "by Walden";
(i) By deleting the figure "$35,000,000.00" appearing in Section 8.3(k)
of the Loan Agreement, which Section 8.3(k) appears on page 54 thereof, and
inserting in lieu thereof the words "five percent (5%) of Walden's Consolidated
Total Assets";
(j) By deleting the figure "$25,000,000.00" appearing in Section 8.8 of
the Loan Agreement, which Section 8.8 appears on page 56 thereof, and inserting
in lieu thereof the figure "$50,000,000.00"; and
(k) By deleting from Section 9.2(c) of the Loan Agreement appearing on
page 58 thereof (A) the words and romanette "the sum of (i)" appearing in the
second (2nd) line of said Section 9.2(c) and (B) the clause "plus (ii) Preferred
Distributions of Walden, WDOP and their respective Subsidiaries for the Test
Period".
3. References to Loan Agreement. All references in the Loan Documents and
the Escrowed Security Documents to the Loan Agreement shall be deemed a
reference to the Loan Agreement as modified and amended herein.
-3-
<PAGE> 4
4. Representations and Warranties. Borrowers represent and warrant to the
Banks and Agent as follows:
(a) Authorization. The execution, delivery and performance of this
Amendment and the transactions contemplated hereby and thereby (i) are within
the authority of Borrowers, (ii) have been duly authorized by all necessary
proceedings on the part of such Persons, (iii) do not and will not conflict with
or result in any breach or contravention of any provision of law, statute, rule
or regulation to which any of such Persons is subject or any judgment, order,
writ, injunction, license or permit applicable to such Persons, (iv) do not and
will not conflict with or constitute a default (whether with the passage of time
or the giving of notice, or both) under any provision of the partnership
agreement or certificate, certificate of formation, operating agreement,
articles of incorporation or other charter documents or bylaws of, or any
mortgage, indenture, agreement, contract or other instrument binding upon any of
such Persons or any of its properties or to which any of such Persons is
subject, and (v) do not and will not result in or require the imposition of any
lien or other encumbrance on any of the properties, assets or rights of such
Persons.
(b) Enforceability. The execution and delivery of this Amendment are
valid and legally binding obligations of Borrowers enforceable in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors'
rights and except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
(c) Approvals. The execution, delivery, and performance of this
Amendment and the transactions contemplated hereby and thereby do not require
the approval or consent of any Person or the authorization, consent, approval of
or any license or permit issued by, or any filing or registration with, or the
giving of any notice to, any court, department, board, commission or other
governmental agency or authority other than those already obtained.
5. No Default. By execution hereof, Borrowers certify that Borrowers are
and will be in compliance with all covenants under the Loan Documents after the
execution and delivery of this Amendment, and that no Default or Event of
Default has occurred and is continuing.
6. Waiver of Claims. Borrowers acknowledge, represent, and agree that
Borrowers have no defenses, setoffs, claims, counterclaims or causes of action
of any kind or nature whatsoever with respect to the Loan Documents, the
administration or funding of the Loans or with respect to any acts or omissions
of Agent or any of the Banks, or any past or present officers, agents or
employees of Agent or any of the Banks, and each of Borrowers does hereby
expressly waive, release and relinquish any and all such defenses, setoffs,
claims, counterclaims and causes of action, if any.
7. Ratification. Except as hereinabove set forth, all terms, covenants, and
provisions of the Loan Agreement and the other Loan Documents remain unaltered
and in full force and
-4-
<PAGE> 5
effect, and the parties hereto do hereby expressly ratify and confirm the Loan
Agreement as modified and amended herein. Nothing in this Amendment shall be
deemed or construed to constitute, and there has not otherwise occurred, a
novation, cancellation, satisfaction, release, extinguishment, or substitution
of the indebtedness evidenced by the Notes or the other obligations of Borrowers
under the Loan Documents.
8. Amendment as Loan Document. This Amendment shall constitute a Loan
Document.
9. Counterparts. This Amendment may be executed in any number of
counterparts which shall together constitute but one and the same agreement.
10. Miscellaneous. This Amendment shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts. This Amendment
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective permitted successors, successors-in-title and assigns as
provided in the Loan Agreement.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have hereto set their hands and
affixed their seals as of the day and year first above written.
BANKBOSTON, N.A., individually and as Agent
By:
---------------------------------
Jeffrey L. Warwick, Director
-6-
<PAGE> 7
KEYBANK NATIONAL ASSOCIATION
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
-7-
<PAGE> 8
BANK OF MONTREAL, CHICAGO BRANCH
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
-8-
<PAGE> 9
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
-9-
<PAGE> 10
FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
-10-
<PAGE> 11
COMPASS BANK
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
-11-
<PAGE> 12
WALDEN/DREVER OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership, by its
sole general partner
By: Walden Residential Properties, Inc.,
a Maryland corporation
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
[CORPORATE SEAL]
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
[CORPORATE SEAL]
-12-
<PAGE> 13
================================================================================
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGL VENTURES, LLC
A Georgia Limited Liability Company
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE GEORGIA SECURITIES ACT OF
1973, AS AMENDED, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION SET FORTH IN
SECTION 10-5-9(13) OF SUCH ACT. IN ADDITION, THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
UPON AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN THE SECURITIES ACT OF
1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS OPERATING AGREEMENT AND IN A
TRANSACTION WHICH IS EITHER EXEMPT FROM REGISTRATION UNDER SUCH ACTS OR PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS.
================================================================================
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
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ARTICLE I.
DEFINITIONS
1.1 Definitions ........................................................... 2
1.2 Construction .......................................................... 8
ARTICLE II.
FORMATION OF THE COMPANY
2.1 Formation ............................................................. 8
2.2 Name .................................................................. 9
2.3 Principal Place of Business ........................................... 9
2.4 Registered Office and Registered Agent ................................ 9
ARTICLE III.
BUSINESS OF THE COMPANY
ARTICLE IV.
NAMES AND ADDRESSES OF MEMBERS
ARTICLE V.
MANAGEMENT
5.1 Management ............................................................ 10
5.2 Number, Tenure and Qualifications of Managers ......................... 10
5.3 Certain Powers of Managers ............................................ 10
5.4 Member Voting Rights .................................................. 11
5.5 Liability for Certain Acts ............................................ 11
5.6 Members and Managers Have No Exclusive Duty to Company ................ 11
5.7 Certain Transactions .................................................. 11
5.8 Bank Accounts ......................................................... 12
5.9 Indemnity of the Managers, Employees and Other Agents ................. 12
5.10 Resignation ........................................................... 12
5.11 Vacancies ............................................................. 12
5.12 Compensation of Manager ............................................... 12
5.13 Decisions Requiring Consent of Class B Member ......................... 12
</TABLE>
i
<PAGE> 15
<TABLE>
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5.14 Termination of Management Agreement ................................... 13
5.15 Management Agreement .................................................. 13
ARTICLE VI.
MEETINGS OF MEMBERS
6.1 Meetings .............................................................. 14
6.2 Place of Meetings ..................................................... 14
6.3 Notice of Meetings .................................................... 14
6.4 Meeting of All Members ................................................ 14
6.5 Record Date ........................................................... 14
6.6 Proxies ............................................................... 14
6.7 Action by Members Without a Meeting ................................... 14
6.8 Waiver of Notice ...................................................... 15
6.9 Meeting by Telephone .................................................. 15
6.10 Voting Rights of Class B Member ....................................... 15
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 Limitation of Liability ............................................... 15
7.2 No Liability for Company Obligations .................................. 15
7.3 List of Members ....................................................... 15
7.4 Priority and Return of Capital ........................................ 15
ARTICLE VIII.
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 Members' Initial Capital Contributions and Company Payments ........... 16
8.2 Additional Capital Contributions ...................................... 16
8.3 Maintenance of Capital Accounts ....................................... 16
8.4 Distribution of Assets ................................................ 17
8.5 Compliance with Code Section 704(b) ................................... 17
ARTICLE IX.
DISTRIBUTIONS TO MEMBERS
9.1 Distributable Cash from Operations .................................... 18
9.2 Distributable Cash from Sales or Refinancings ......................... 18
9.3 Payments of Overdue Amount ............................................ 19
9.4 Interest on and Return of Capital Contribution ........................ 19
9.5 Loans to Company ...................................................... 19
</TABLE>
ii
<PAGE> 16
<TABLE>
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ARTICLE X.
ALLOCATIONS AND TAXES
10.1 Allocations of Net Profits ........................................... 19
10.2 Allocation of Net Loss ............................................... 20
10.3 Limitation on Net Loss Allocation .................................... 21
10.4 Nonrecourse Deductions and Member Nonrecourse Deductions ............. 21
10.5 Minimum Gain and Member Nonrecourse Debt Minimum Gain Chargeback ..... 21
10.6 Qualified Income Offset .............................................. 21
10.7 Section 704(c) Allocation ............................................ 21
10.8 Distributions Allocable to Nonrecourse Liabilities ................... 21
10.9 Curative Allocations ................................................. 22
10.10 Elections ............................................................ 22
10.11 Taxes of Taxing Jurisdictions ........................................ 22
10.12 Tax Matters Partner .................................................. 22
ARTICLE XI.
BOOKS AND RECORDS
11.1 Accounting Period .................................................... 23
11.2 Records, Audits and Reports .......................................... 23
11.3 Tax Returns .......................................................... 23
11.4 Financial Statements ................................................. 23
11.5 Preparation of Returns and Audits .................................... 24
ARTICLE XII.
TRANSFERABILITY
12.1 Permitted Transfers .................................................. 24
12.2 Admission of Transferees as Member ................................... 24
12.3 Redemption Right ..................................................... 24
12.4 Effect of Certain Distributions to Class B Member .................... 24
12.5 Withdrawal Events .................................................... 25
ARTICLE XIII.
DISSOLUTION AND TERMINATION
13.1 Dissolution .......................................................... 25
</TABLE>
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<TABLE>
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13.2 Effect of Dissolution ................................................ 26
13.3 Winding Up, Liquidation and Distribution of Assets ................... 26
13.4 Certificate of Termination ........................................... 27
13.5 Return of Contribution Nonrecourse to Other Members .................. 27
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1 Books of Account and Records ......................................... 27
14.2 Application of Georgia Law ........................................... 27
14.3 Derivative Actions ................................................... 27
14.4 No Action for Partition .............................................. 28
14.5 Notices .............................................................. 28
14.6 Execution of Additional Instruments .................................. 28
14.7 Construction ......................................................... 28
14.8 Headings ............................................................. 28
14.9 Waivers .............................................................. 28
14.10 Rights and Remedies Cumulative ....................................... 28
14.11 Heirs, Successors and Assigns ........................................ 28
14.12 Creditors ............................................................ 28
14.13 Counterparts ......................................................... 28
14.14 Evidence of Membership Interests ..................................... 29
14.15 Restrictions on Assignment of Membership Interests ................... 29
14.16 Amendments ........................................................... 29
14.17 Invalidity ........................................................... 29
14.18 Arbitration .......................................................... 29
14.19 Further Assurances ................................................... 30
14.20 Time ................................................................. 30
14.21 Entity Characterization .............................................. 30
</TABLE>
iv
<PAGE> 18
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGL VENTURES, LLC
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE GEORGIA SECURITIES ACT
OF 1973, AS AMENDED, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION SET FORTH
IN SECTION 10-5-9(13) OF SUCH ACT. IN ADDITION, THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
UPON AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN THE SECURITIES ACT OF
1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS OPERATING AGREEMENT AND IN A
TRANSACTION WHICH IS EITHER EXEMPT FROM REGISTRATION UNDER SUCH ACTS OR PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS.
THIS AMENDED AND RESTATED OPERATING AGREEMENT OF GGL VENTURES, LLC (the
"Company") is made and entered into as of December __, 1998, by and among the
undersigned parties listed on Exhibit "A" attached hereto and by this reference
made a part hereof (each hereinafter referred to individually, as a "Class A
Member" and collectively, as the "Class A Members"), WGGL Corp., a Delaware
corporation (the "Class B Member"), the undersigned Managers of the Company,
(each hereinafter referred to individually as a "Manager" and collectively as
the "Managers") and the Persons who hereafter become Members or Managers of the
Company in accordance with the provisions hereof.
RECITALS
WHEREAS, Francesco Galesi entered into that certain Operating Agreement of
GGL Ventures, LLC, a Georgia limited liability company, dated as of October 1,
1998 (the "Prior Agreement");
WHEREAS, Francesco Galesi intends to amend and restate the Prior Agreement
to, among other things, admit the Class A Members and the Class B Member as
Members of the Company;
WHEREAS, the Class A Members and the Class B Member will constitute the
Members of the Company; and
WHEREAS, this amended and restated Agreement constitutes the Operating
Agreement of the Company;
<PAGE> 19
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties to this Agreement hereby amend and restate the Prior
Agreement in its entirety by executing and delivering this Agreement, and hereby
specifically agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. The following terms used in this Operating Agreement
shall have the following meanings (unless otherwise expressly provided herein):
"ADDITIONAL CAPITAL CONTRIBUTION." As of any given date, any Capital
Contribution made by a Member to the Company pursuant to Section 8.2 in excess
of a Member's Initial Capital Contribution.
"ADJUSTED CAPITAL ACCOUNT DEFICIT." The Adjusted Capital Account Deficit of
any Member means, as of any particular date, the deficit balance, if any, in
such Member's Capital Account as of such date, as determined in the manner
provided in Section 8.4 hereof and by then adjusting such Capital Account as so
determined as follows:
(a) Such Capital Account shall be increased to reflect any amounts, if any,
attributable to partnership minimum gain or partner nonrecourse debt minimum
gain which such Member is deemed to be obligated to restore pursuant to
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5).
(b) Such Capital Account shall be reduced to reflect any items described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(c) If such Adjusted Capital Account Deficit is being determined as of the
last day of a Fiscal Year for purposes of Section 10.6 hereof, then such Capital
Account shall be adjusted to reflect the tentative allocation to such Member of
all amounts that would be required to be allocated to such Member for such
Fiscal Year if Section 10.6 were not a part of this Operating Agreement.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"AFFILIATE." means as to any Member or Manager (i) any Person directly or
indirectly controlling, controlled by, or under common control with such Member
or Manager; (ii) any member of the immediate family of such Member or Manager;
(iii) any legal representative, trustee or anyone acting in a substantially
similar capacity as to such Member or Manager; (iv) any Person of which a
majority of the voting interests is owned by such Member or Manager or an
affiliate; or (v) any Person who is an officer, director, general partner,
trustee or holder of five percent (5%) or more of the voting securities or
beneficial interests of such Member or Manager.
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"ARTICLES OF ORGANIZATION." The Articles of Organization of the Company as
filed with the Secretary of State of Georgia, as the same may be amended from
time to time.
"BANKRUPTCY." Any event of dissociation described in Sections
14-11-601(a)(5) or (6) of the Georgia Act.
"CAPITAL ACCOUNT." A capital account, as defined in Section 8.3 hereof and
maintained in accordance with Section 8.3 hereof.
"CAPITAL CONTRIBUTION." Any contribution, as defined in Georgia Act Section
14-11-101(4), to the capital of the Company in cash or property by a Member
whenever made.
"CLASS A MEMBER." Each of the parties listed on Exhibit "A" who executes a
counterpart of this Operating Agreement as a Class A Member and any Person who
may hereafter become a Class A Member pursuant to this Operating Agreement.
"CLASS B MEMBER." WGGL Corp., a Delaware corporation, and any Person who
may hereafter become a Class B Member pursuant to this Operating Agreement.
"CLASS A MEMBER PREFERRED RETURN." An amount, calculated like simple
interest, at twelve percent (12%) per annum without compounding, computed with
respect to any unreimbursed portion of the Initial Capital Contributions of the
Class A Members, and any unreimbursed portion of any Additional Capital
Contributions contributed to the capital of the Company by any Class A Member.
"CLASS B MEMBER FIRST PREFERRED RETURN." An amount, calculated like simple
interest, at twelve percent (12%) per annum without compounding, computed with
respect to any Unrepaid Class B Member Capital Contributions.
"CLASS B MEMBER SECOND PREFERRED RETURN." An amount, calculated like simple
interest, at six percent (6%) per annum without compounding, computed with
respect to any Unrepaid Class B Member Capital Contributions.
"CODE." The Internal Revenue Code of 1986, as amended from time to time.
"COMPANY." GGL Ventures, LLC.
"DEPRECIATION." For each Fiscal Year, an amount equal to the depreciation,
amortization, or other cost recovery deduction allowable for federal income tax
purposes with respect to an asset with respect to such Fiscal Year, except that
if the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year, Depreciation shall be
an amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such Fiscal Year bears to such beginning adjusted tax basis.
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"DISTRIBUTABLE CASH." All cash, revenues and funds received by the Company,
less the sum of the following to the extent paid or set aside by the Company;
(i) all principal and interest payments on indebtedness of the Company and all
other sums paid to lenders; (ii) all cash expenditures incurred incident to the
normal operation of the Company's business; and (iii) such Reserves as the
Managers deem reasonably necessary to the proper operation of the Company's
business. Distributable Cash received by any Managed Entity shall be distributed
to the Company and treated as Distributable Cash of the Company for purposes of
this Operating Agreement.
"DISTRIBUTABLE CASH FROM OPERATIONS" Any Distributable Cash as herein
defined other than Distributable Cash from Sales or Refinancings.
"DISTRIBUTABLE CASH FROM SALES OR REFINANCINGS" Any Distributable Cash as
herein defined derived from a sale of any one or more projects owned by the
Company or by any Managed Entity or a refinancing of any loan secured by any one
or more projects owned by the Company or by any Managed Entity or proceeds of
any casualty insurance policy or award from any condemnation or taking of one or
more projects owned by the Company or by any Managed Entity to the extent either
such proceeds or such award is not used for the repair or redevelopment of the
project or used to discharge any loan to the Company or the Managed Entity, as
the case may be.
"ENTITY." Any general partnership, limited partnership, limited liability
company, corporation, joint venture, trust, business trust, cooperative or
association or any foreign trust or foreign business organization.
"FISCAL YEAR." The Company's fiscal year, which shall be the calendar year.
"GEORGIA ACT." The Georgia Limited Liability Company Act at O.C.G.A.
Section 14-11-100, et seq.
"GROSS ASSET VALUE." means with respect to any asset, the asset's adjusted
tax basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as
determined by agreement of the contributing Member and the other Members;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their fair market values, as determined by agreement of the Members,
as of the following times: (i) the acquisition of an additional interest in
the Company by any new or existing Member in exchange for more than a de
minimis capital contribution; (ii) the distribution by the Company to a
Member of more than a de minimis amount of Company property as
consideration for such Member's interest in the Company; and (iii) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clauses (i) and (ii) above shall be made only if the
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Managers reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members in
the Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution as determined by the agreement of the distributee Member and
the Managers;
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Sections 734(b) or 743(b), but only to the extent that
such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however,
that Gross Asset Values shall not be adjusted pursuant to this clause (d)
to the extent that the Managers determine that an adjustment pursuant to
clause (b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
clause (d); and
(e) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to clause (a), (b) or (d) hereof, such Gross Asset Value
shall hereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Income and Net Loss.
"INITIAL CAPITAL CONTRIBUTION." The initial contribution to the capital of
the Company made by a Member pursuant to this Operating Agreement.
"MAJORITY INTEREST." The Membership Interests which at the time the action
is taken have voting rights and which taken together, represent more than fifty
percent (50%) of the Membership Interests of the Members, or of a class of
Members, or a higher percentage (e.g., Seventy-five Percent Majority Interest),
as is expressly stated in the operative Section of this Operating Agreement.
"MANAGED ENTITY." An Entity which may be a partnership or limited liability
company and which owns multi-family residential real property, in which Entity
the Company owns an interest and serves as general partner or manager.
"MANAGERS." Galesi Woodlake, Inc., a New York corporation, and Rotterdam
Ventures, Inc., a New York corporation, which are designated as the initial
Managers pursuant to this Operating Agreement or any other person that succeeds
any of said Persons in the capacity as Manager.
"MEMBER." Each of the parties who executes a counterpart of this Operating
Agreement as a Class A Member or Class B Member and each of the parties who may
hereafter become Members.
"MEMBERSHIP INTEREST." The interest in the Company owned by a Member,
including the Member's rights to distributions and allocations of Net Profits
and Net Losses and the right to
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exercise the voting or approval rights of a Member. The respective Membership
Interests of each Member, expressed as a percentage, are Class A Members -
26.67% and Class B Member - 73.33%. The respective Membership Interests of the
Class A Members are set forth in Exhibit "A".
"NET PROFITS" AND "NET LOSSES." means, for each Fiscal Year, the Company's
taxable income or taxable loss for such Fiscal Year, as determined under Code
Section 703(a), and Regulations Section 1.703-1 (and for this purpose all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or taxable loss), but
with the following adjustments:
(a) Any tax-exempt income, as described in Code Section 705(a)(1)(B),
realized by the Company during such Fiscal Year shall be taken into account in
computing such taxable income or taxable loss as if it were taxable income;
(b) Any expenditures of the Company described in Code Section 705(a)(2)(B),
or treated as expenditures described in Code Section 705(a)(2)(B) pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), shall be subtracted from such taxable
income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted
hereunder, the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Net Income or
Net Loss;
(d) Gain or loss resulting from any disposition of property with respect to
which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;
(e) Depreciation, as defined herein, for such Fiscal Year shall be taken
into account in computing such taxable income or taxable loss in lieu of any
amortization, depreciation or cost recovery deduction to which the Company is
entitled for such Fiscal Year with respect to its assets;
(f) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Sections 734(b) or 743(b) is required pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than in
complete liquidation of a Member's Membership Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for purposes
of computing Net Income or Net Loss; and
(g) Notwithstanding the foregoing, any items which are specially allocated
pursuant to Sections 10.4 through 10.6 hereof shall not be taken into account in
computing Net Income or Net Loss.
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<PAGE> 24
If the Company's taxable income or taxable loss for such Fiscal Year, as
adjusted in the manner provided in Subsections(a) through (f), is a positive
amount, such amount shall be the Company's Net Profit for such Fiscal Year; and
if negative, such amount shall be the Company's Net Loss for such Fiscal Year.
"NOTICE." A notice, request, demand or other communication in writing,
delivered pursuant to this Agreement.
"OFFSETTABLE DECREASE." Any allocation that unexpectedly causes or
increases an Adjusted Capital Account Deficit of a Member as of the end of the
taxable year to which the allocation relates attributable to depletion
allowances under Regulations Section 1.704-1(b)(2)(iv)(k), allocations of loss
and deductions under Code Sections 704(e)(2) or 706(d) or under Regulations
Section 1.751-1(b)(2)(ii), or distributions that, as of the end of the year, are
reasonably expected to be made to the extent they exceed the offsetting
increases to such Member's Capital Account that reasonably are expected to occur
during (or prior to) the taxable years in which such distributions are expected
to be made (other than increases pursuant to a minimum gain chargeback under
Section 10.5 hereof).
"OPERATING AGREEMENT." This Operating Agreement as originally executed and
as amended from time to time.
"PENALTY RATE." Fifteen percent (15%) per annum.
"PROPERTY MANAGER." Any Person who may become the Property Manager as
determined by the Managers.
"PERSON." Any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such "Person"
where the context so permits.
"REGULATIONS." The Federal Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"RESERVES." With respect to any fiscal period, funds set aside or amounts
allocated during such period to reserves which shall be maintained in amounts
deemed sufficient by mutual agreement of the Class B Member and the Managers for
working capital and to pay taxes, insurance, debt service or other costs or
expenses incident to the ownership or operation of the Company's business,
including its ownership of the Properties.
"TAXING JURISDICTION." Any state, local, or foreign government that
collects tax, interest or penalties, however designated, on any Member's share
of the income or gain attributable to the Company.
"TRANSFERRING MEMBER." A Member who sells, assigns, pledges, hypothecates
or otherwise transfers for consideration or gratuitously all or any portion of
its Membership Interest.
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<PAGE> 25
"UNPAID CLASS A MEMBER PREFERRED RETURN." with respect to any Class A
Member, the cumulative Class A Member Preferred Return computed with respect to
such Class A Member from the date hereof reduced by the cumulative amount of
distributions paid to the Class A Member pursuant to Sections 9.1(b) and 9.2(c).
"UNPAID CLASS B MEMBER FIRST PREFERRED RETURN." with respect to the Class B
Member, the cumulative Class B Member First Preferred Return computed with
respect to the Class B Member from the date hereof reduced by the cumulative
amount of distributions paid to the Class B Member pursuant to Sections 9.1(a)
and 9.2(b).
"UNPAID CLASS B MEMBER SECOND PREFERRED RETURN." with respect to the Class
B Member, the cumulative Class B Member Second Preferred Return computed with
respect to the Class B Member from the date hereof reduced by the cumulative
amount of distributions paid to the Class B Member pursuant to Sections 9.1(c)
and 9.2(d).
"UNREPAID CLASS B MEMBER CAPITAL CONTRIBUTIONS." with respect to the Class
B Member, the Initial Capital Contribution and cumulative Additional Capital
Contributions made by the Class B Member to the Company from the date hereof
reduced by the cumulative amount of distributions paid to the Class B Member
pursuant to Sections 9.1(d) and 9.2(a).
1.2 CONSTRUCTION. Whenever the context requires, the gender of all words
used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections refer to articles and sections of this
Agreement, and all references to Exhibits are to Exhibits attached hereto, each
of which is made a part hereof for all purposes. The captions used herein are
intended for convenience of reference only, shall not constitute any part of the
Agreement and shall not modify or affect in any manner the meaning or
interpretation of any of the provisions of the Agreement. Every covenant, term
and provision of this Agreement shall be construed simply according to its fair
meaning and not strictly for or against any party.
ARTICLE II.
FORMATION OF THE COMPANY
2.1 FORMATION. On October 1, 1998, William M. Joseph formed the Company as
a Georgia Limited Liability Company by executing and delivering articles of
organization to the Secretary of State of Georgia in accordance with the
provisions of the Georgia Act.
2.2 NAME. The name of the Company as stated in its Articles of
Organization is GGL Ventures, LLC.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the
Company is 695 Rotterdam Industrial Park, Schenectady, NY 12306. The Company may
locate its places of business and registered office at any other place or places
as the Managers may from time to time deem advisable.
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2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's initial
registered office shall be at the office of its registered agent at 1409
Peachtree Street, N.E., Atlanta, Georgia, and the name of its initial registered
agent at such address is Paul P. Mattingly. The registered office and registered
agent may be changed from time to time by the Company filing the address of the
new registered office and/or the name of the new registered agent with the
Secretary of State of Georgia pursuant to the Georgia Act and the applicable
rules promulgated thereunder.
ARTICLE III.
BUSINESS OF THE COMPANY
The purpose of the Company is to (a) acquire, own, manage, operate, lease,
sell, and otherwise dispose of multi-family residential real property or
interests in Managed Entities, and to invest and reinvesting any funds held as
Reserves pursuant to the terms of this Operating Agreement and (b) enter into a
management agreement with Walden Residential Properties, Inc. ("Walden") or one
or more of its Affiliates (or a management agreement with an Affiliate of a
Class A Member which will assign its interest thereunder to Walden or one or
more of its Affiliates), in the form attached hereto as Exhibit "B" (the
"Management Agreement"). Except as otherwise permitted in this Operating
Agreement, the Company shall not engage in any other activity or business.
ARTICLE IV.
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Class A Members are as stated in Exhibit "A". The
names and addresses of the Class B Member is:
WGGL Corp.
c/o Walden Residential Properties, Inc.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001.
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<PAGE> 27
ARTICLE V.
MANAGEMENT
5.1 MANAGEMENT. The business and affairs of the Company shall be managed
by its Managers. Except for situations in which the approval of the Members is
expressly required by this Operating Agreement or by non-waivable provisions of
applicable law, the Managers shall have full and complete authority, power and
discretion to manage and control the business, affairs and properties of the
Company, to make all decisions regarding those matters and to perform any and
all other acts or activities customary or incident to the management of the
Company's business. At any time when there is more than one Manager, any one
Manager may take any action permitted to be taken by the Managers. At any time
that an Entity is a Manager, any Person who is so authorized on behalf of such
Entity may take any action permitted to be taken by the Managers of the Company.
No Member, other than a Manager, may take any action on behalf of the Company
unless expressly authorized to do so by the Managers
5.2 NUMBER, TENURE AND QUALIFICATIONS OF MANAGERS. The Company shall
initially have two Managers. Any Manager shall serve until the earliest of: (i)
resignation of such Manager, (ii) the death, Bankruptcy or adjudicated
incompetency of such Manager, or (iii) the transfer or other disposition by such
Manager of its Class A Member Membership Interest.
5.3 CERTAIN POWERS OF MANAGERS. Without limiting the generality of Section
5.1, the Managers shall have power and authority on behalf of the Company or any
Managed Entity:
(a) To acquire property from any Person as the Managers may determine.
The fact that any Member is directly or indirectly affiliated or connected with
any such Person shall not prohibit the Managers from dealing with that Person.
(b) To borrow money from banks, other lending institutions, the
Members, or affiliates of the Members on such terms as the Managers deem
appropriate, and in connection therewith, to hypothecate, encumber and grant
security interests in the assets of the Company or, in the case of borrowing by
a Managed Entity, assets of the Managed Entity, to secure repayment of the
borrowed sums. No debt shall be contracted or liability incurred by or on behalf
of the Company or any Managed Entity except by a Manager, or to the extent
permitted under the Georgia Act, by agents or employees of the Company expressly
authorized to contract such debt or incur such liability by a Manager.
(c) To purchase liability and other insurance to protect the Company's
and Managed Entities' properties and business.
(d) To hold and own real and/or personal properties in the name of the
Company or the Managed Entities, as the case may be.
(e) To invest any Company or Managed Entity funds temporarily in
checking accounts, time deposits, money market accounts or short-term
governmental obligations.
(f) To execute (or to authorize any Member to execute) on behalf of the
Company or a Managed Entity all instruments and documents, including, without
limitation, all documents and instruments for the Company contemplated by or in
connection with the Company's ownership of interests in Managed Entities,
checks; drafts; notes and other negotiable instruments; deeds to secure
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debt, mortgages or deeds of trust; security agreements; financing statements;
documents providing for the acquisition, mortgage or disposition of the
Company's or Managed Entities' properties, assignments; bills of sale; leases;
partnership agreements; operating agreements of other limited liability
companies; and any other instruments or documents necessary, in the opinion of
the Managers, to conduct the business of the Company or the Managed Entities.
(g) To employ accountants, legal counsel, managing agents or other
experts to perform services for the Company or any Managed Entity.
(h) To do and perform all other acts as may be necessary or appropriate
to the conduct of the Company's and Managed Entities' businesses.
5.4 MEMBER VOTING RIGHTS. Except as expressly provided in this Operating
Agreement, the Members shall not have voting rights with respect to matters
provided in Georgia Act Section 14-11-308.
5.5 LIABILITY FOR CERTAIN ACTS. The Managers have not guaranteed nor shall
have any obligation with respect to the return of a Member's Capital
Contributions or profits from the operation of the Company. No Manager shall be
liable to the Company or to any Member for any loss or damage sustained by the
Company or any Member except loss or damage resulting from intentional
misconduct or knowing violation of law or a transaction for which such Manager
received a personal benefit in violation or breach of the provisions of this
Operating Agreement. The Managers shall be entitled to rely on information,
opinions, reports or statements, including but not limited to financial
statements or other financial data, prepared or presented in accordance with the
provisions of Georgia Act Section 14-11-305.
5.6 MEMBERS AND MANAGERS HAVE NO EXCLUSIVE DUTY TO COMPANY. Neither the
Managers nor any Member shall be required to manage the Company as its sole and
exclusive function and the Managers and the Members may have other business
interests and may engage in other activities in addition to those relating to
the Company, whether the same are competitive with the Company or otherwise.
Neither the Company nor any Member shall have any right, by virtue of this
Operating Agreement, to share or participate in such other investments or
activities of the Managers or of any Member or to the income or proceeds derived
therefrom.
5.7 CERTAIN TRANSACTIONS. The Company is permitted in the normal course of
its business to enter into transactions with any Member or Manager, or with any
Affiliate of any Member or Manager, provided that (a) the proposed transaction
is disclosed to all Members prior to its consummation and (b) the price and
other terms of such transaction are fair to the Company and that the price and
other terms of such transactions are not less favorable to the Company than
those generally prevailing with respect to comparable transactions between
unrelated parties. Georgia Act Section 14-11-307 relating to conflicting
interest transactions shall not apply.
5.8 BANK ACCOUNTS. The Managers may from time to time open bank accounts
in the name of the Company, and only the Managers may determine the authorized
signatories thereon.
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5.9 INDEMNITY OF THE MANAGERS, EMPLOYEES AND OTHER AGENTS. To the fullest
extent permitted under Georgia Act Section 14-11-306, the Company shall
indemnify the Managers, their employees and agents and make advances for
expenses to the Managers with respect to such matters to the maximum extent
permitted under applicable law. The Company shall indemnify its employees and
other agents who are not a Manager to the fullest extent permitted by law.
5.10 RESIGNATION. Any Manager of the Company may resign at any time by
giving written notice to the Members of the Company. The resignation of any
Manager shall take effect upon receipt of notice thereof or at such later time
as shall be specified in such notice; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
The resignation of a Manager shall not affect the Manager's rights as a Member
and shall not constitute his withdrawal as a Member.
5.11 VACANCIES. Upon the resignation, death, Bankruptcy or adjudicated
incompetency of a Manager, or the transfer by a Manager of its Membership
Interest as a Class A Member, a replacement Manager shall be designated by the
vote of (a) Class A Members owning a Majority Interest of the Class A Members
and (b) the Class B Member (if at such time the Class B Member has voting rights
pursuant to Section 6.10 hereof).
5.12 COMPENSATION OF MANAGER. The Managers shall receive no compensation
for their services to the Company. The Managers shall be reimbursed for all
reasonable expenses paid to third parties and incurred in connection with
managing the Company. Additionally, so long as WGGL Corp. holds a Class B
Membership Interest, no fees shall be payable to the Managers, their Affiliates
or any other Class A Member.
5.13 DECISIONS REQUIRING CONSENT OF CLASS B MEMBER. The managers shall not
take or cause or permit to be taken by the Company, any of the following actions
without the consent of the Class B Member:
(a) issue any Membership Interest which ranks in parity with, or senior
to, in terms of allocation of profits and losses, distributions of cash from
operations or distribution of cash from sales or refinancings, the interest held
by the Class B Member or amend or otherwise modify the terms of Sections 9.1 and
9.2 hereof,
(b) The refinancing of any loans secured by any one or more projects
owned by the Company or by any Managed Entity,
(c) making, or committing to make, capital expenditures with respect to
one or more of the properties or projects held by the Company or any Managed
Entity, which individually or in the aggregate will require payment by the
Company in excess of $250,000; provided that the acquisition of the properties
listed on Exhibit "C" attached hereto and incorporated by reference herein shall
be deemed approved by all Members,
(d) dissolving the Company or any Managed Entity, or
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(e) merging or otherwise consolidating the Company or any Managed
Entity with or into any person other than the Class B Member.
5.14 TERMINATION OF MANAGEMENT AGREEMENT. If the Managers terminate the
Management Agreement prior to the expiration of its term, the Redemption Right
provided in Section 12.3 shall be accelerated and exercisable by the Class B
Member as of the date of such termination.
5.15 MANAGEMENT AGREEMENT. The Members agree and acknowledge that if the
Property Manager (and the Property Manager is WGGL Corp.) has been assigned the
Management Agreement from an Affiliate of a Class A Member (or the Management
Agreement is a sub-management agreement pursuant to which an Affiliate of a
Class A Member subcontracts management responsibilities to the Property
Manager), the Managers shall use their best efforts to obtain from each of the
Company's Lenders an agreement permitting the Company to enter into the
Management Agreement directly with the Property Manager. Notwithstanding
anything to the contrary contained in this Agreement, the Members recognize and
agree that the Agreement of Purchase and Sale between the Company and Double GFM
Ventures, LLC, as Buyer, and certain Lane Company affiliates, as Sellers, fully
executed on December 22, 1998 ("the Purchase and Sale Contract") provides for a
transition period pursuant to which Double GFM Ventures, LLC will subcontract
the management responsibilities for the seven (7) properties acquired in the
"Initial Closing" (as that term is defined in the Purchase and Sale Contract) to
Realty Management Corp. d/b/a The Lane Company ("RMC"). Further, the Members
recognize and agree that with respect to certain other properties there may be a
transition period during which the management of such properties may be
performed by RMC pursuant to subcontracts with an Affiliate of a Class A Member.
Finally, with respect to those properties identified on Exhibit "C" hereto as
"Summercourt," "Summercourt II," "Summeroak" and "Summerwind," the Members
recognize and agree that the foregoing properties will be managed by RMC until
such time as the "Conversion Conditions" (as such term is defined in the
Purchase and Sale Contract) with respect to the Summercourt II property have
been satisfied and the "Earnout Amount" (as such term is defined in the Purchase
and Sale Contract) with respect to the Summercourt II property has been paid.
ARTICLE VI.
MEETINGS OF MEMBERS
6.1 MEETINGS. Meetings of the Members, for any purpose or purposes, unless
proscribed by statute, may be called by any Member or Manager.
6.2 PLACE OF MEETINGS. The Members by agreement may designate any place,
either within or outside the State of Georgia, as the place of meeting for any
meeting of the Members. If no designation is made, or if a special meeting be
called, the place of meeting shall be the principal executive office of the
Company in the State of Georgia.
6.3 NOTICE OF MEETINGS. Written notice stating the place, day and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
delivered not less than three (3) nor
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more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the person calling the meeting, to each
Member entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered upon being deposited in the United States mail, addressed to the
Member at its address as it appears on the books of the Company, with postage
thereon prepaid.
6.4 MEETING OF ALL MEMBERS. If all of the Members shall meet at any time
and place, either within or outside of the State of Georgia, and consent to the
holding of a meeting at such time and place, such meeting shall be valid without
call or notice, and at such meeting any lawful action may be taken.
6.5 RECORD DATE. For the purpose of determining Members entitled to notice
of or to vote at any meeting of members or any adjournment thereof, or Members
entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
6.6 PROXIES. At all meetings of Members a Member may vote in person or by
proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with a Member attending the meeting
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
6.7 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted to
be taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more written consents describing the action taken, signed by
the necessary Members entitled to vote and required to approve such action.
Action taken under this Section is effective when the Members required to
approve such action have signed the consent, unless the consent specifies a
different effective date. The record date for determining Members entitled to
take action without a meeting shall be the date the first Member signs such
written consent. Written notice of such action effected by written consent shall
be given to the Members who have not executed such written consent within sixty
(60) days after such action has been approved by the Members as herein provided.
6.8 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.
6.9 MEETING BY TELEPHONE. Members may also meet by conference telephone
call if all Members participating can hear one another on such call and the
requisite notice is given or waived.
6.10 VOTING RIGHTS OF CLASS B MEMBER. The interests of the Class B
Member shall have no voting rights associated therewith, except as otherwise
provided in this Operating Agreement. The Class B Membership Interest shall have
all voting rights provided under this Operating Agreement and the Georgia Act
and shall be entitled to participate in and vote at all meetings of Members if:
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(a) the amount payable by the Company pursuant to Section 12.3, upon
the exercise by the Class B Member of its Redemption Right, is not paid in full
by the 180th day following the date of the Notice to the Managers that the Class
B Member is exercising its Redemption Right;
(b) the Management Agreement is terminated prior to the expiration of
its term and the Class B Member has not received the amount payable to it
pursuant to Section 5.14; or
(c) the Company has failed to make Distributions of Distributable Cash
from Operations to the Class B Member for two consecutive fiscal quarters.
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 LIMITATION OF LIABILITY. Each Member's liability shall be limited as
set forth in this Operating Agreement, the Georgia Act and other applicable law.
7.2 NO LIABILITY FOR COMPANY OBLIGATIONS. No Member will have any personal
liability for any debts or losses of the Company beyond his respective Capital
Contributions, except as provided by law.
7.3 LIST OF MEMBERS. Upon written request of any Member, the Managers shall
provide a list showing the names and addresses of all Members and the other
information required by Georgia Act Section 14-11-313 and maintained pursuant to
Section 11.2.
7.4 PRIORITY AND RETURN OF CAPITAL. Except as may be expressly provided
herein, no Member shall have priority over any other Member, either as to the
return of Capital Contributions or as to Net Profits, Net Losses or
distributions. This Section shall not apply to loans (as distinguished from
Capital Contributions) which a Member has made to the Company.
ARTICLE VIII.
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 MEMBERS INITIAL CAPITAL CONTRIBUTIONS AND COMPANY PAYMENTS. Promptly
following the request of the Company, the Class A Members shall contribute an
aggregate amount of $20,000,000.00 as their Initial Capital Contribution to be
divided among said Class A Members as set forth in Exhibit "A" and the Class B
Member shall contribute an aggregate of $55,000,000.00 as its Initial Capital
Contribution, of which the Class B Member shall contribute $13,000,000.00 on the
date hereof, with the remaining portion of its Initial Contribution to be
contributed on such dates and in such amounts as shall be mutually agreed to by
the Managers and the Class B Member. On the date hereof, the Company shall pay
Walden (as defined in Article III hereof) a one-time investment fee of
$550,000.00, to reimburse Walden for its expenses in connection with the
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transaction contemplated by this Agreement. On the date hereof, the Company
shall pay to the Class B Member a prepaid distribution for the period through
December 31, 1998 in the amount of $12,822.00.
8.2 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member shall have any obligation
to make any Capital Contribution in excess of its Initial Capital Contribution
described in Section 8.1 above. The Managers may from time to time make a
written request to the Members for such Additional Capital Contributions as are
determined by the Managers to be necessary and appropriate in connection with
the conduct of the business of the Company and ownership of its properties and
in order to pay taxes, insurance premiums, principal and interest on
indebtedness of the Company and various other costs of the operation of the
Company and ownership of the Properties, including capital expenditures. Such
Additional Capital Contributions shall be requested in proportion to the
respective Membership Interests of each of the Members and shall be payable
within ten (10) days of the written request from the Managers. If all Members do
not make such Additional Capital Contributions on a timely basis, then the
contributing Members shall have the opportunity, but not the obligation, to
contribute such amounts to the Company that the noncontributing Members failed
to contribute on a pro rata basis in accordance with their Membership Interests.
Any opportunities to make such Additional Capital Contributions that are
declined may be reoffered to the Members who have agreed to make such Additional
Capital Contributions on a pro rata basis in proportion to their Membership
Interests until the entire amount needed is contribute to the Company or said
Members have declined to contribute any remaining amount. Any remaining amount
may be loaned to the Company by Members with such interest and such other terms
as may be agreed upon between the Members making such loans and the Company. Any
such amounts which are not loaned or contributed to the Company by the Members
may be borrowed by the Company from third parties in the discretion of the
Managers.
8.3 MAINTENANCE OF CAPITAL ACCOUNTS. A Capital Account shall be established
and maintained for each Member. Each Member's Capital Account (a) shall be
increased by (i) the amount of money contributed by that Member to the Company,
(ii) the fair market value of property contributed by that Member to the Company
(net of liabilities secured by the contributed property that the Company is
considered to assume or take subject to under Code Section 752), and (iii)
allocations to that Member of Company income and gain (or items thereof),
including income and gain exempt from tax and income and gain described in
Regulations Section 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Regulations Section 1.704-1(b)(4)(i), and (b) shall be decreased by
(i) the amount of money distributed to that Member by the Company, (ii) the fair
market value of property distributed to that Member by the Company (net of
liabilities secured by the distributed property that the Member is considered to
assume or take subject to under Code Section 752), (iii) allocations to that
Member of expenditures of the Company described in Code Section 705(a)(2)(B),
and (iv) allocations of Company loss and deduction (or items thereof), including
loss and deduction described in Regulations Section 1.704-1(b)(2)(iv)(g), but
excluding items described in clause (b)(iii) above and loss or deduction
described in Regulations Sections 1.704-1(b)(4)(i) or 1.704-1(b)(4)(iii). The
Members' Capital Accounts also shall be maintained and adjusted as permitted by
the provisions of Regulations Section 1.704-1(b)(2)(iv)(f) and as required by
the other provisions of Regulations Sections 1.704-1(b)(2)(iv) and
1.704-1(b)(4), including adjustments to reflect the allocations to the Members
of depreciation, depletion, amortization, and gain or loss as computed for book
purposes rather than the allocation of the corresponding items as computed for
tax purposes, as required by Regulations Section 1.704-1(b)(2)(iv)(g). A Member
that
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has more than one Membership Interest shall have a single Capital Account that
reflects all its Membership Interests, regardless of the class of Membership
Interests owned by that Member and regardless of the time or manner in which
those Membership Interests were acquired. On the transfer of all or part of a
Membership Interest, the Capital Account of the transferor that is attributable
to the transferred Membership Interest or part thereof shall carry over to the
transferee Member in accordance with the provisions of Regulations Section
1.704-l(b)(2)(iv)(l). In any event, the Capital Accounts of the Members shall be
determined and maintained throughout the term of the Company in accordance with
the principles of Regulations Section 1.704-1(b)(2)(iv).
8.4 DISTRIBUTION OF ASSETS. If the Company at any time distributes any of
its assets in-kind to any Member, the Capital Account of each Member shall be
adjusted to account for that Member's allocable share (as determined under
Article X below) of the Net Profits or Net Losses that would have been realized
by the Company had it sold the assets that were distributed at their respective
fair market values immediately prior to their distribution.
8.5 COMPLIANCE WITH CODE SECTION 704(b). The provisions of this Article
VIII as they relate to the maintenance of Capital Accounts are intended, and
shall be construed, and, if necessary, modified to cause the allocations of
profits, losses, income, gain and credit pursuant to Article X to have
substantial economic effect under the Regulations promulgated under Code Section
704(b), in light of the distributions made pursuant to Article IX and Article
XIII. Notwithstanding anything herein to the contrary, this Operating Agreement
shall not be construed as creating a deficit restoration obligation.
ARTICLE IX.
DISTRIBUTIONS TO MEMBERS
9.1 DISTRIBUTABLE CASH FROM OPERATIONS. Distributable Cash from Operations
received by the Company shall be declared on the 15th day (or if such day is not
a business day, then on the next business day thereafter) prior to the end of
each fiscal quarter and distributed on or prior to the 30th day (or if such day
is not a business day, then on the next business day thereafter) following the
end of each fiscal quarter (the "Operations Distribution Date") by the Managers
in the following manner and order of priority:
(a) First, to the Class B Member to pay any Overdue Amount;
(b) Second, to the Class B Member to pay the Unpaid Class B Member
First Preferred Return;
(c) Third, to the Class A Members in proportion to and to the extent of
each Class A Member's Unpaid Class A Member Preferred Return;
(d) Fourth, to the Class B Member to pay the Unpaid Class B Member
Second Preferred Return;
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(e) Fifth, to the Class B Member to pay the Unrepaid Class B Member
Capital Contributions; and
(f) Sixth, to the Class A Members in proportion to each Class A
Member's Membership Interest.
9.2 DISTRIBUTABLE CASH FROM SALES OR REFINANCINGS. Distributable Cash from
Sales or Refinancings received by the Company shall be distributed by the
Managers not later than fifteen (15) business days following the Company's
receipt thereof (the "Sale Distribution Date") in the following manner and order
of priority:
(a) First, to the Class B Member to pay any Overdue Amount;
(b) Second, to the Class B Member to pay the Unrepaid Class B Member
Capital Contributions;
(c) Third, to the Class B Member to pay the Unpaid Class B Member First
Preferred Return;
(d) Fourth, to the Class B Member to pay the Unpaid Class B Member
Second Preferred Return;
(e) Fifth, to the Class A Members in proportion to and to the extent of
each Class A Member's Unpaid Class A Member Preferred Return; and
(f) Sixth, to the Class A Members in proportion to each Class A
Member's Membership Interest.
9.3 PAYMENTS OF OVERDUE AMOUNT. If for any reason the Company does not pay
on any Operations Distributions Date or any Sale Distribution Date to the Class
B Member the total amount of Distributable Cash from Operations or Distributable
Cash from Sales or Refinancings, as applicable, in respect of such holder's
Membership Interest due on such Operations Distributions Date or Sale
Distribution Date, the amount of such distribution which is not paid shall be
treated as loaned to the Company and shall accrue interest at a rate equal to
the Penalty Rate until such unpaid amount and the accrued and unpaid interest
thereon (collectively, the "Overdue Amount") is paid in full. The Company shall
pay the Overdue Amount as soon as possible, and shall not be required to wait
until a distribution date to make such payment.
9.4 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTION. No Member shall be
entitled to interest on its Capital Contribution or to return of its Capital
Contribution, except as otherwise specifically provided for herein.
9.5 LOANS TO COMPANY. Nothing in this Operating Agreement shall prevent any
Member from making secured or unsecured loans to the Company by agreement with
the Company, provided that the interest payable on such loans shall not exceed
an amount per annum equal to the prime rate published in the Wall Street Journal
on the dates such loans are made, plus 2%. The making of any loan by a Member
shall not create any additional fiduciary duty between the Member and the
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Company and shall not otherwise restrict the right to foreclose, or restrict any
other legal remedies which may be exercised by the Member as may be provided to
a third party creditor under law.
ARTICLE X.
ALLOCATIONS AND TAXES
10.1 ALLOCATIONS OF NET PROFITS. After giving effect to the allocations
described in Sections 10.4, 10.5, and 10.6 hereof, the Net Profits of the
Company for each Fiscal Year shall be allocated for both book and tax purposes
as follows:
(a) First, to the extent that Net Losses have been allocated to the
Members under Section 10.3 for any prior Fiscal Year, Net Profits shall be
allocated to the Members in proportion to and to the extent of the excess, if
any, of the aggregate Net Losses allocated to such Members under Section 10.3
over the aggregate Net Profits previously allocated to such Members under this
Section 10.1(a);
(b) Second, to the extent that Net Losses have been allocated to the
Members under Section 10.2 for any prior Fiscal Year, Net Profits shall be
allocated to the Members in the inverse order of priority to the manner in which
such Net Losses were allocated, in proportion to and to the extent of the
excess, if any, of the aggregate Net Losses allocated to such Members under
Section 10.2 over the aggregate Net Profits previously allocated to such Members
under this Section 10.1(b);
(c) Third, to the Class B Member to the extent of the excess, if any,
of the aggregate amounts of distributions made to such Class B Member pursuant
to Sections 9.1(a) and (b) and 9.2(a), (c) and (d) over the aggregate Net
Profits previously allocated to such Class B Member pursuant to this Section
10.1(c) and Sections 10.1(f);
(d) Fourth, to the Class A Members in proportion to and to the extent
of the respective excesses, if any, of the aggregate amounts of distributions
made to such Class A Members pursuant to Sections 9.1(c) and 9.2(e) over the
aggregate Net Profits previously allocated to such Class A Members pursuant to
this Section 10.1(d) and Section 10.1(g);
(e) Fifth, to the Class B Member to the extent of the excess, if any,
of the aggregate amounts of distributions made to such Class B Member pursuant
to Section 9.1(d) over the aggregate Net Profits previously allocated to such
Class B Member pursuant to this Section 10.1(e) and Section 10.1(h);
(f) Sixth, to the Class B Member to the extent of the Unpaid Class B
Member First Preferred Return;
(g) Seventh, to the Class A Members in proportion to and to the extent
of their respective Unpaid Class A Member Preferred Returns;
(h) Eighth, to the Class B Member to the extent of the Unpaid Class B
Member Second Preferred Return; and
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(i) Ninth, the remainder to the Class A Members in proportion to their
respective Membership Interests.
10.2 ALLOCATION OF NET LOSS. After giving effect to the allocations
described in Sections 10.4, 10.5, and 10.6 hereof, the Net Losses of the Company
for each Fiscal Year shall be allocated for both financial reporting and tax
purposes as follows:
(a) First, to the extent that Net Profits have been allocated to the
Members under Section 10.1 for any prior Fiscal Year, Net Losses shall be
allocated to the Members in the inverse order of priority to the manner in which
such Net Profits were allocated, in proportion to and to the extent of the
excess, if any, of the aggregate Net Losses allocated to such Members under
Section 10.2 over the aggregate Net Profits previously allocated to such Members
under this Section 10.2(a);
(b) Second, to the Class A Members in proportion to and to the extent
of their respective positive Capital Account balances, if any;
(c) Third, to the Class B Member to the extent of its positive Capital
Account balance, if any; and
(d) Fourth, the remainder to the Class A Members in proportion to their
respective Membership Interests.
10.3 LIMITATION ON NET LOSS ALLOCATION. Notwithstanding the provisions of
Section 10.2, if the amount of Net Loss for any Fiscal Year that would otherwise
be allocated to a Member under Section 10.2 would cause or increase an Adjusted
Capital Account Deficit of such Member as of the last day of such Fiscal Year,
then an amount of such Net Loss equal to such excess shall be allocated to the
other Members, in proportion to their respective Membership Interests, to the
extent allowable under this Section 10.3, and the remainder of such Net Loss, if
any, shall be allocated to that Member.
10.4 NONRECOURSE DEDUCTIONS AND MEMBER NONRECOURSE DEDUCTIONS. Nonrecourse
Deductions as defined in Regulations Section 1.704-2(c) shall be allocated
according to the Membership Interest of each Member. Notwithstanding any
provision hereof to the contrary, any item of Company loss, deduction, or
expenditure described in Code Section 705(a)(2)(B) for any Fiscal Year (or any
portion of any such item) that is required to be allocated to the Members under
Regulations Section 1.704-2(i)(1) shall be allocated to the Members for such
Fiscal Year in the manner so required by such Regulation.
10.5 MINIMUM GAIN AND MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK.
Notwithstanding any provision hereof to the contrary, any item of Company income
or gain for any Fiscal Year (or any portion of any such item) that is required
to be allocated to the Members under Regulations Sections 1.704-2(f) or
1.704-2(i)(4) shall be allocated to the Members for such Fiscal Year in the
manner so required by such Regulations.
10.6 QUALIFIED INCOME OFFSET. In the event any Member, in such capacity,
unexpectedly receives an Offsettable Decrease, such Member will be allocated
items of income and gain
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(consisting of a pro rata portion of each item of partnership income and gain
for such year) in an amount and manner sufficient to offset such Offsettable
Decrease as quickly as possible.
10.7 SECTION 704(c) ALLOCATION. Any item of income, gain, loss, and
deduction with respect to any property (other than cash) that has been
contributed by a Member to the capital of the Company, that is deemed to have
been contributed to the capital of the Company under Code Section 708 and the
Regulations promulgated thereunder, or that has been revalued in accordance with
Regulations Section 1.704-1(b)(2)(iv)(f) and which is required to be allocated
to the Members for income tax purposes under Code Section 704(c) or Regulations
Section 1.704-1(b)(2)(iv)(f) so as to take into account the variation between
the tax basis of such property and its agreed upon fair market value at the time
of its contribution or revaluation, as the case may be, shall be allocated to
the Members solely for income tax purposes as so required using any method
permitted by the Regulations as is determined by the Managers in its sole
discretion.
10.8 DISTRIBUTIONS ALLOCABLE TO NONRECOURSE LIABILITIES. The determination
of whether any distribution by the Company pursuant to Article IX hereof is
allocable to the proceeds of a nonrecourse liability of the Company shall be
made by the Managers under any reasonable method in accordance with Regulations
Section 1.704-2(h)(2) which, to the extent possible, will prevent any such
distribution from ultimately causing an allocation to one or more Members that
will result in a distortion of the manner in which the Members intend to divide
Company distributions under Articles IX and XIII hereof.
10.9 CURATIVE ALLOCATIONS. The allocations set forth in Sections 10.4, 10.5
and 10.6 hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of Regulations Sections 1.704-1(b) and 1.704-2. The Members
do hereby acknowledge and agree that the Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide Company
distributions. Accordingly, the Managers are hereby authorized and directed to
divide other allocations of Net Profits and Net Losses (or portions thereof)
among the Members in any reasonable manner so that, after such offsetting
special allocations are made, the amount of each Member's Capital Account will
be, to the extent possible, equal to the Capital Account balance such Member
would have had if the Regulatory Allocations were not a part of this Operating
Agreement and all Company items had been allocated to the Members solely
pursuant to Sections 10.1, 10.2 and 10.3 hereof.
10.10 ELECTIONS. The Managers may make any tax elections for the Company
allowed under the Code or the tax laws of any state or other jurisdiction having
taxing jurisdiction over the Company.
10.11 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of any
Taxing Jurisdiction requires, each Member requested to do so by the Managers
will submit an agreement indicating that the Member will make timely income tax
payments to the Taxing Jurisdiction and that the Member accepts personal
jurisdiction of the Taxing Jurisdiction with regard to the collection of income
taxes attributable to the Member's income, and interest, and penalties assessed
on such income. If the Member fails to provide such agreement, the Company may
withhold and pay over to such Taxing Jurisdiction income taxes with respect to
such income. Any such payments with respect to the income of a Member shall be
treated as a distribution for purposes of Article IX. The Managers may, where
permitted by the rules of any Taxing Jurisdiction, file a composite, combined or
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aggregate tax return reflecting the income of the Company and pay the tax,
interest and penalties of some or all of the Members on such income to the
Taxing Jurisdiction, in which case the Company shall inform the Members of the
amount of such tax, interest and penalties so paid. All amounts withheld by the
Company pursuant to the Code or any provisions of state or local tax law from
any payment or distribution to the Members and paid to any Taxing Jurisdiction
or any other payment by the Company to any Taxing Jurisdiction pursuant to the
Code or any provisions of state or local tax law on behalf of any Member shall
be treated as amounts distributed to the relevant Member or Members pursuant to
Sections 9.1 and 9.2.
10.12 TAX MATTERS PARTNER. Rotterdam Ventures, Inc. shall be designated as
the tax matter partner of the Company pursuant to Code Section 6231(a)(7). The
tax matters partner shall take such action as may be necessary to cause each
other Member to become a notice partner within the meaning of Code Section 6223.
ARTICLE XI.
BOOKS AND RECORDS
11.1 ACCOUNTING PERIOD. The Company's accounting period shall be the
calendar year.
11.2 RECORDS, AUDITS AND REPORTS. At the expense of the Company, the
Managers shall maintain records and accounts of all operations and expenditures
of the Company. The Company shall keep at its principal place of business the
following records:
(a) A current list of the full name and last known address of each
Member and Manager;
(b) Copies of records to enable a Member to determine the relative
voting rights, if any;
(c) A copy of the Articles of Organization of the Company and all
amendments thereto;
(d) Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the three most recent years;
(e) Copies of the Company's written Operating Agreement, together with
any amendments thereto;
(f) Copies of any financial statements of the Company for the three
most recent years.
11.3 TAX RETURNS. So long as WGGL Corp. is a Class B Member, the Managers
shall cause WGGL Corp. to prepare and timely file all tax returns required to be
filed by the Company pursuant to the Code and all other tax returns deemed
necessary and required in each jurisdiction in which the Company does business.
Schedules K-1 or estimated tax information if the Company's
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tax returns are not yet finalized shall be furnished to the Members by March
15th after the end of the Company's Fiscal Year and Schedules K-1 shall in all
events be furnished to the Members no later than one hundred eighty (180) days
following the end of the Company's Fiscal Year. Class A Member shall have the
right to approve all tax returns.
11.4 FINANCIAL STATEMENTS. So long as WGGL Corp. is a Class B Member, the
Managers shall cause WGGL Corp. to prepare an annual audit of the Company's
books and records through the use of a nationally recognized accounting firm
which audit shall be completed and distributed to each of the Members no later
than one hundred twenty (120) days following the end of each Fiscal Year. The
audited financial statements shall be distributed to each of the Members within
thirty (30) days following the receipt thereof by the Managers.
11.5 PREPARATION OF RETURNS AND AUDITS. So long as WGGL Corp. holds a Class
B Membership Interest, it shall prepare all tax returns and audits of the
Company's books and records.
ARTICLE XII.
TRANSFERABILITY
12.1 PERMITTED TRANSFERS. A Member may transfer all or part of its
Membership Interest to any Person who is not an Affiliate of such Member or who
is not a Member, only with the prior written consent of any Manager and all
other Members, which consent shall not be unreasonably withheld.
12.2 ADMISSION OF TRANSFEREES AS MEMBER. Any Person who is a transferee of
a Membership Interest pursuant to this Article XII and who is not a Member of
the Company shall possess only the economic rights attributable to the
transferred Membership Interest and shall not be a Member until:
(a) the transferee executes a counterpart to this Operating Agreement;
and
(b) the Company receives from the transferee the information and
agreements that the Managers may reasonably require, including, but not limited
to, the taxpayer identifying number and any agreement that may be required by
any Taxing Jurisdiction.
Unless and until such transferee is admitted as a Member, the voting rights of
the Membership Interest shall be suspended.
12.3 REDEMPTION RIGHT. The Class B Member shall have the right (the
"Redemption Right") at any time after the fifth anniversary of the date on which
it makes its Initial Capital Contribution (or at any time on or after such
earlier date on which the Redemption Right becomes exercisable pursuant to
Section 5.14 hereof), to require the Company to redeem its entire Membership
Interest at a redemption price equal to the sum of the Class B Member's Unrepaid
Class B Member Capital Contributions, Unpaid Class B Member First Preferred
Return plus the Unpaid Class B Member Second Preferred Return, all computed
through the date on which the redemption of the Class B Member's Membership
Interest occurs. The Redemption Right shall be exercised
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pursuant to a Notice delivered to all Managers by the Class B Member. The
redemption price shall be payable in full in cash to the Class B Member no later
than one hundred eighty (180) days following the date of the Notice to the
Managers that the Class B Member is exercising its Redemption Right.
12.4 EFFECT OF CERTAIN DISTRIBUTIONS TO CLASS B MEMBER. At such time that
the Class B Member has received distributions hereunder of the sum of the Class
B Member's Unrepaid Class B Member Capital Contributions, Unpaid Class B Member
First Preferred Return plus the Unpaid Class B Member Second Preferred Return,
all computed through the date on which the last such distribution to the Class B
Member occurs, the Membership Interest of the Class B Member shall be terminated
and the Class B Member shall have no further rights hereunder as a Member of the
Company.
12.5 WITHDRAWAL EVENTS.
(a) The Company shall not be dissolved upon the Bankruptcy,
dissolution, death, or adjudication of incompetency of a Member (any of which
events being hereinafter referred to as a "Withdrawal Event" and the Member with
respect to whom the Withdrawal Event occurred being hereinafter referred to as
the "Withdrawing Member"), and the occurrence of a Withdrawal Event shall not,
in and of itself, trigger the dissociation of the Withdrawing Member.
(b) If a Member who is an individual dies or a court of competent
jurisdiction adjudges him to be incompetent to manage his or her person or his
or her property, the Member's executor, administrator, guardian, conservator, or
other legal representative may exercise all of the Member's rights for the
purpose of settling his or her estate or administering his or her property.
(c) Upon a Withdrawal Event with respect to any Member, the Managers
shall admit the successor-in-interest of the Withdrawing Member as a Member
succeeding to all rights of the Withdrawing Member; provided, however, that if
the Withdrawing Member was a Manager, a successor Manager shall be designated
pursuant to Section 5.11. The admission of a successor-in-interest of a
Withdrawing Member as a Member, without more, shall not release the Withdrawing
Member from any liability or obligations to the Company or to the other Members
that existed prior to such admission.
(d) Section 14-11-405 of the Georgia Act which provides for the payment
of the fair market value of a Member's interest in the Company upon an event of
dissociation (other than the voluntary withdrawal of a Member or the redemption
or transfer of a Member's Membership Interest) that does not result in
dissolution shall not create any obligation of the Company to pay the fair
market value of a Withdrawing Member's Membership Interest upon the occurrence
of a Withdrawal Event.
24
<PAGE> 42
ARTICLE XIII.
DISSOLUTION AND TERMINATION
13.1 DISSOLUTION.
(a) The Company shall be dissolved upon the occurrence of any of the
following events:
(i) by the approval of the Class A Members owning a Majority Interest
of the Class A Members and the Class B Member; or
(ii) upon the sale of all or substantially all of the assets of the
Company.
(b) Except as expressly provided herein with respect to the Redemption
Right of the Class B Member, no Member shall have the right to voluntarily
withdraw from the Company under Section 14-11-601(c) of the Georgia Act or
otherwise. Damages for breach of this Section 13.1(b) shall be monetary damages
only (and no specific performance), and such damages may be offset against
distributions by the Company to which the Withdrawing Member would otherwise be
entitled.
13.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease to
carry on its business, except as permitted by Georgia Act Section 14-11-605.
Upon dissolution, the Managers shall file a statement of commencement of winding
up pursuant to Georgia Act Section 14-11-606 and publish the notice permitted by
Georgia Act Section 14-11-608.
13.3 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS.
(a) Upon dissolution, an accounting shall be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution. The Managers shall immediately proceed
to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be wound up, the
Managers shall:
(i) Sell or otherwise liquidate all of the Company's assets as
promptly as practicable (except to the extent the Managers may
determine to distribute any assets to the Members in kind),
(ii) Allocate any profit or loss resulting from such sales to
the Members in accordance with Article X hereof,
(iii) Discharge all liabilities of the Company, including
liabilities to Members who are creditors, to the extent permitted by
law, other than liabilities to Members for distributions, and establish
such Reserves as may be reasonably necessary to provide for contingent
liabilities of the Company,
(iv) The remaining assets shall be distributed to the Members
in accordance with their positive Capital Account balances, either in
cash or in kind as determined by the Managers, with any assets
distributed in kind being valued for this purpose at their fair market
value. Any distributions to the Members in respect of
25
<PAGE> 43
their Capital Accounts shall be made in accordance with the time
requirements set forth in Regulations Section 1.704-1(b)(2)(ii)(b)(2).
(c) If any assets of the Company are to be distributed in kind, the net
fair market value of such assets as of the date of dissolution shall be
determined by independent appraisal or by agreement of the Members. Such assets
shall be deemed to have been sold as of the date of dissolution for their fair
market value, and the Capital Accounts of the Members shall be adjusted pursuant
to the provisions of this Operating Agreement to reflect such deemed sale.
(d) Notwithstanding anything to the contrary in this Operating
Agreement, upon a liquidation within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), if any Member has a deficit Capital Account (after giving
effect to all contributions, distributions, allocations and other Capital
Account adjustments for all taxable years, including the year during which such
liquidation occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital Account shall
not be considered a debt owed by such Member to the Company or to any other
Person for any purpose whatsoever.
(e) Upon completion of the winding up, liquidation and distribution of
the assets, the Company shall be deemed terminated.
(f) The Managers shall comply with any applicable requirements of
applicable law pertaining to the winding up of the affairs of the Company and
the final distribution of its assets.
13.4 CERTIFICATE OF TERMINATION. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, a Certificate of Termination may be executed and filed with the
Secretary of State of Georgia in accordance with Georgia Act Section 14-11-610.
13.5 RETURN OF CONTRIBUTION NONRECOURSE TO OTHER MEMBERS. Except as
provided by law or as expressly provided in this Operating Agreement upon
dissolution, each Member shall look solely to the assets of the Company for the
return of his Capital Contribution. If the Company property remaining after the
payment or discharge of the debts and liabilities of the Company is insufficient
to return the cash contribution of one or more Members, such Member or Members
shall have no recourse against any other Member.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1 BOOKS OF ACCOUNT AND RECORDS. Proper and complete records and books of
account shall be kept or shall be caused to be kept by the Managers in which
shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. The
books and records shall be at all time be maintained at the principal executive
office of the Company and shall be open to the reasonable inspection and
examination of the Members or their duly authorized representatives during
reasonable business hours.
26
<PAGE> 44
14.2 APPLICATION OF GEORGIA LAW. This Operating Agreement, and the
application or interpretation hereof, shall be governed exclusively by its terms
and by the laws of the State of Georgia, and specifically the Georgia Act.
14.3 DERIVATIVE ACTIONS. Notwithstanding Georgia Act Section 14-11-804,
derivative actions brought on behalf of the Company may be discontinued or
settled without court approval.
14.4 NO ACTION FOR PARTITION. No Member has any right to maintain any
action for partition with respect to the property of the Company.
14.5 NOTICES. Except as may otherwise be expressly provided for in this
Operating Agreement, all Notices hereunder shall be in writing and shall be sent
by certified mail, return receipt requested, facsimile, courier, or overnight
delivery service addressed to the parties at the address set forth herein or to
such other address which any party shall have given to the other party for such
purpose. Notices made by facsimile transmission shall be confirmed by originals
sent by overnight delivery service. Any such Notice shall be deemed to be given
on the date of actual delivery if such Notice, consent or other communication is
delivered by hand or overnight courier service or the date shown on the return
receipt as the date of receipt, rejection or first attempted delivery, if such
Notice, consent or other communication is sent by registered or certified mail.
14.6 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
execute such other statements of interest and holdings, designations, powers of
attorney and other instruments necessary to comply with any laws, rules or
regulations.
14.7 CONSTRUCTION. Whenever the singular number is used in this Operating
Agreement and when required by the context, the same shall include the plural
and vice versa, and the masculine gender shall include the feminine and neuter
genders and vice versa.
14.8 HEADINGS. The headings, titles and captions in this Operating
Agreement are inserted for convenience only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Operating Agreement or any provision hereof and in no way are to be construed to
affect the meaning or construction of this Operating Agreement or any provision
hereof.
14.9 WAIVERS. The failure of any party to seek redress for violation of or
to insist upon the strict performance of any covenant or condition of this
Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
14.10 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by
this Operating Agreement are cumulative and the use of any one right or remedy
by any party shall not preclude or waive the right to use any or all other
remedies. Such rights and remedies are given in addition to any other rights the
parties may have by law, statute, ordinance or otherwise.
14.11 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the parties hereto and, to the extent permitted by this Operating
Agreement, their respective heirs, legal representatives, successors and
assigns.
27
<PAGE> 45
14.12 CREDITORS. None of the provisions of this Operating Agreement shall
be for the benefit of or enforceable by any creditors of the Company.
14.13 COUNTERPARTS. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
14.14 EVIDENCE OF MEMBERSHIP INTERESTS. The Membership Interests in the
Company shall be certificated and shall be deemed a "security" governed by
Article 8 of the Georgia Uniform Commercial Code.
14.15 RESTRICTIONS ON ASSIGNMENT OF MEMBERSHIP INTERESTS. The Membership
Interests offered hereunder are or may be considered a "security" under the
Federal Securities Act of 1933, as amended (the "Federal Securities Act") or the
Georgia Securities Act of 1973, as amended (the "Georgia Securities Act").
However, said interest HAS NOT BEEN REGISTERED under any of said acts, and no
formal prospectus will be distributed to prospective offerees or purchasers.
Instead, the Company will rely on the "private offering" exemptions from
registration which are available under the Federal Securities Act and the
Georgia Securities Act. Accordingly, the initial purchaser and any subsequent
permitted assignee or purchaser of any Membership Interest covenants and
warrants that he is acquiring the security solely for his own account for
investment and not with a view to, or for resale in connection with, any
distribution of such security within the meaning of the Federal Securities Act
and the Georgia Securities Act and that he does not at the time of acquisition
intend to resell, assign or otherwise dispose of all or any part of said
security except as otherwise provided herein. Each purchaser of a Membership
Interest must bear the economic risk of his investment for an indefinite period
of time, because said interest has not been registered and, therefore, CANNOT BE
SOLD, unless it is subsequently registered or a valid exemption from
registration is available.
14.16 AMENDMENTS. Amendments to this Operating Agreement shall be made in
writing and approved in writing by all Members. 14.17 INVALIDITY . The
invalidity or unenforceability of any particular provision of this Operating
Agreement shall not affect the other provisions hereof, and the Operating
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted. If any particular provision herein is construed to be in
conflict with the provisions of the Georgia Act, the Georgia Act shall control
and such invalid or unenforceable provisions shall not affect or invalidate the
other provisions hereof, and this Operating Agreement shall be construed in all
respects as if such conflicting provision were omitted.
14.18 ARBITRATION. Any dispute, controversy or claim arising out of or in
connection with, or relating to, this Operating Agreement or any breach or
alleged breach hereof shall, upon the request of any party involved, be
submitted to, and settled by, arbitration in the City of Atlanta, State of
Georgia, pursuant to the commercial arbitration rules then in effect of the
American Arbitration Association (or at any time or at any other place or under
any other form of arbitration mutually acceptable to the parties so involved).
Any award rendered shall be final and conclusive upon the parties and a judgment
thereon may be entered in the highest court of the forum, state or federal,
having jurisdiction. The expenses of the arbitration shall be borne equally by
the parties to the arbitration, provided that each party shall pay for and bear
the cost of his own experts, evidence and
28
<PAGE> 46
counsel's fees, except that in the discretion of the arbitrator, any award may
include the cost of a party's counsel if the arbitrator expressly determines
that the party against whom such award is entered has caused the dispute,
controversy or claim to be submitted to arbitration as a dilatory tactic.
14.19 FURTHER ASSURANCES. The Members each agree to cooperate and to
execute and deliver in a timely fashion any and all additional documents
necessary to effectuate the purposes of the Company and this Operating
Agreement.
14.20 TIME. TIME IS OF THE ESSENCE OF THIS OPERATING AGREEMENT, AND TO ANY
PAYMENTS, ALLOCATIONS AND DISTRIBUTIONS SPECIFIED UNDER THIS OPERATING
AGREEMENT.
14.21 ENTITY CHARACTERIZATION. It is the intention of the Members that the
Company be treated as a partnership for income tax purposes. Pursuant to
Regulations Section 301.7701-3(b)(iii), which became effective January 1, 1997,
the Company expects to be treated as a partnership for tax purposes. The
Managers are authorized to make a protective election to be treated as a
partnership for federal income tax purposes on IRS Form 8832, Entity
Classification Election, in the manner described in Regulations Section
301.7701-3(c). By executing this Operating Agreement, each of the Members hereby
consents to any election made by the Manages for the Company to be treated as a
partnership for federal income tax purposes.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
[SIGNATURES BEGIN ON NEXT PAGE]
29
<PAGE> 47
IN WITNESS WHEREOF, the parties have executed this Operating Agreement as
of the day and year first above written.
MEMBERS
W. ASPEN CLUB, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
GALESI WOODLAKE, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
PLACE VENTURES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
CREEK VENTURES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
30
<PAGE> 48
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING
AGREEMENT OF GGL VENTURES, LLC]
FRANCESCO GALESI
-------------------------------------
FRANCESCO GALESI IRREVOCABLE
GRANTOR TRUST
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
EASTWICK DEVELOPMENT CORP.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
EQUINOX EQUITIES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
31
<PAGE> 49
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING
AGREEMENT OF GGL VENTURES, LLC]
WASHINGTON AVENUE VENTURES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ROTTERDAM VENTURES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
32
<PAGE> 50
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING
AGREEMENT OF GGL VENTURES, LLC]
WGGL CORP.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
33
<PAGE> 51
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING
AGREEMENT OF GGL VENTURES, LLC]
MANAGERS
GALESI WOODLAKE, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ROTTERDAM VENTURES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
34
<PAGE> 52
EXHIBIT A
CLASS A MEMBERS
<TABLE>
<CAPTION>
Member Initial Capital Contribution Membership Interest
- ---------------------------- ---------------------------- -------------------
<S> <C> <C>
W. Aspen Club, Inc. $ 14,425.00 0.0192%
Galesi Woodlake, Inc. 1,282,000.00 1.7093%
Place Ventures, Inc. 34,378.00 0.0458%
Creek Ventures, Inc. 193,698.00 0.2583%
Francesco Galesi 10,557,039.00 14.0761%
Francesco Galesi Irrevocable
Grantor Trust 3,994,999.00 5.3267%
Eastwick Development Corp. 239,651.00 0.3195%
Equinox Equities, Inc. 412,832.00 0.5504%
Washington Avenue
Ventures, Inc. 175,124.00 0.2335%
Rotterdam Ventures, Inc. 3,095,854.00 4.1278%
</TABLE>
A-1
<PAGE> 53
EXHIBIT B
MANAGEMENT AGREEMENT
B-1
<PAGE> 54
EXHIBIT C
LIST OF PROPERTIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PROPERTY NAME STREET ADDRESS COUNTY STATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. The Landings at 6520 Hillandale Drive Gwinnett Georgia
Peachtree Corners
- ------------------------------------------------------------------------------------------------------
2. Pine Village East 2889 Panthersville Road DeKalb Georgia
- ------------------------------------------------------------------------------------------------------
3. Pine Village North 2400 Post Village Drive Cobb Georgia
- ------------------------------------------------------------------------------------------------------
4. Reflections 205 S.W. 75th Street Alachua Florida
- ------------------------------------------------------------------------------------------------------
5. Summer Crossing 9200 Roberts Drive Fulton Georgia
- ------------------------------------------------------------------------------------------------------
6. Summer Lake 500 Pleasant Hill Road Gwinnett Georgia
- ------------------------------------------------------------------------------------------------------
7. Summer Lakeside 6210 Peachtree Dunwoody Road Fulton Georgia
- ------------------------------------------------------------------------------------------------------
8. Summer Place 5775 Summer Place Parkway Jefferson Alabama
- ------------------------------------------------------------------------------------------------------
9. Summer Ridge 3789 Lawrenceville Highway Gwinnett Georgia
- ------------------------------------------------------------------------------------------------------
10. Summercourt 6955 Tara Boulevard Clayton Georgia
- ------------------------------------------------------------------------------------------------------
11. Summercourt II 6903 Tara Boulevard Clayton Georgia
- ------------------------------------------------------------------------------------------------------
12. Summerglenn 6425 Oakley Road Fulton Georgia
- ------------------------------------------------------------------------------------------------------
13. Summeroak 4911 South Cobb Drive Cobb Georgia
- ------------------------------------------------------------------------------------------------------
14. Summerview 1173 North Hairston Road DeKalb Georgia
- ------------------------------------------------------------------------------------------------------
15. Summerwind 6955 Tara Boulevard Clayton Georgia
- ------------------------------------------------------------------------------------------------------
16. Summerwood 680 Park Bridge Parkway Fulton Georgia
- ------------------------------------------------------------------------------------------------------
17. Turtle Lake 1 Turtle Lake Drive Shelby Alabama
- ------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.5
===============================================================================
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGL VENTURES, LLC
A Georgia Limited Liability Company
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE GEORGIA SECURITIES ACT OF
1973, AS AMENDED, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION SET FORTH IN
SECTION 10-5-9(13) OF SUCH ACT. IN ADDITION, THESE SECURITIES HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IN RELIANCE
UPON AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN THE SECURITIES ACT OF
1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS OPERATING AGREEMENT AND IN A
TRANSACTION WHICH IS EITHER EXEMPT FROM REGISTRATION UNDER SUCH ACTS OR PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS.
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I.
DEFINITIONS
1.1 Definitions...............................................................................2
1.2 Construction..............................................................................8
ARTICLE II.
FORMATION OF THE COMPANY
2.1 Formation.................................................................................8
2.2 Name......................................................................................9
2.3 Principal Place of Business...............................................................9
2.4 Registered Office and Registered Agent....................................................9
ARTICLE III.
BUSINESS OF THE COMPANY
ARTICLE IV.
NAMES AND ADDRESSES OF MEMBERS
ARTICLE V.
MANAGEMENT
5.1 Management...............................................................................10
5.2 Number, Tenure and Qualifications of Managers............................................10
5.3 Certain Powers of Managers...............................................................10
5.4 Member Voting Rights.....................................................................11
5.5 Liability for Certain Acts...............................................................11
5.6 Members and Managers Have No Exclusive Duty to Company...................................11
5.7 Certain Transactions.....................................................................11
5.8 Bank Accounts............................................................................12
5.9 Indemnity of the Managers, Employees and Other Agents....................................12
5.10 Resignation..............................................................................12
5.11 Vacancies................................................................................12
5.12 Compensation of Manager..................................................................12
5.13 Decisions Requiring Consent of Class B Member............................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.14 Termination of Management Agreement......................................................13
5.15 Management Agreement.....................................................................13
ARTICLE VI.
MEETINGS OF MEMBERS
6.1 Meetings.................................................................................14
6.2 Place of Meetings........................................................................14
6.3 Notice of Meetings.......................................................................14
6.4 Meeting of All Members...................................................................14
6.5 Record Date..............................................................................14
6.6 Proxies..................................................................................14
6.7 Action by Members Without a Meeting......................................................14
6.8 Waiver of Notice.........................................................................15
6.9 Meeting by Telephone.....................................................................15
6.10 Voting Rights of Class B Member..........................................................15
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 Limitation of Liability..................................................................15
7.2 No Liability for Company Obligations.....................................................15
7.3 List of Members..........................................................................15
7.4 Priority and Return of Capital...........................................................15
ARTICLE VIII.
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 Members' Initial Capital Contributions and Company Payments..............................16
8.2 Additional Capital Contributions.........................................................16
8.3 Maintenance of Capital Accounts..........................................................16
8.4 Distribution of Assets...................................................................17
8.5 Compliance with Code Section 704(b)......................................................17
ARTICLE IX.
DISTRIBUTIONS TO MEMBERS
9.1 Distributable Cash from Operations.......................................................18
9.2 Distributable Cash from Sales or Refinancings............................................18
9.3 Payments of Overdue Amount...............................................................19
9.4 Interest on and Return of Capital Contribution...........................................19
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9.5 Loans to Company.........................................................................19
ARTICLE X.
ALLOCATIONS AND TAXES
10.1 Allocations of Net Profits...............................................................19
10.2 Allocation of Net Loss...................................................................20
10.3 Limitation on Net Loss Allocation........................................................21
10.4 Nonrecourse Deductions and Member Nonrecourse Deductions.................................21
10.5 Minimum Gain and Member Nonrecourse Debt Minimum Gain Chargeback ........................21
10.6 Qualified Income Offset..................................................................21
10.7 Section 704(c) Allocation................................................................21
10.8 Distributions Allocable to Nonrecourse Liabilities.......................................21
10.9 Curative Allocations.....................................................................22
10.10 Elections................................................................................22
10.11 Taxes of Taxing Jurisdictions............................................................22
10.12 Tax Matters Partner......................................................................22
ARTICLE XI.
BOOKS AND RECORDS
11.1 Accounting Period........................................................................23
11.2 Records, Audits and Reports..............................................................23
11.3 Tax Returns..............................................................................23
11.4 Financial Statements.....................................................................23
11.5 Preparation of Returns and Audits........................................................24
ARTICLE XII.
TRANSFERABILITY
12.1 Permitted Transfers......................................................................24
12.2 Admission of Transferees as Member.......................................................24
12.3 Redemption Right.........................................................................24
12.4 Effect of Certain Distributions to Class B Member........................................24
12.5 Withdrawal Events........................................................................25
ARTICLE XIII.
DISSOLUTION AND TERMINATION
13.1 Dissolution..............................................................................25
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
13.2 Effect of Dissolution....................................................................26
13.3 Winding Up, Liquidation and Distribution of Assets.......................................26
13.4 Certificate of Termination...............................................................27
13.5 Return of Contribution Nonrecourse to Other Members......................................27
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1 Books of Account and Records.............................................................27
14.2 Application of Georgia Law...............................................................27
14.3 Derivative Actions.......................................................................27
14.4 No Action for Partition..................................................................28
14.5 Notices..................................................................................28
14.6 Execution of Additional Instruments......................................................28
14.7 Construction.............................................................................28
14.8 Headings.................................................................................28
14.9 Waivers..................................................................................28
14.10 Rights and Remedies Cumulative...........................................................28
14.11 Heirs, Successors and Assigns............................................................28
14.12 Creditors................................................................................28
14.13 Counterparts.............................................................................28
14.14 Evidence of Membership Interests.........................................................29
14.15 Restrictions on Assignment of Membership Interests.......................................29
14.16 Amendments...............................................................................29
14.17 Invalidity...............................................................................29
14.18 Arbitration..............................................................................29
14.19 Further Assurances.......................................................................30
14.20 Time.....................................................................................30
14.21 Entity Characterization..................................................................30
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
GGL VENTURES, LLC
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE GEORGIA SECURITIES
ACT OF 1973, AS AMENDED, IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION SET
FORTH IN SECTION 10-5-9(13) OF SUCH ACT. IN ADDITION, THESE SECURITIES HAVE NOT
BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IN
RELIANCE UPON AN EXEMPTION FROM SUCH REGISTRATION SET FORTH IN THE SECURITIES
ACT OF 1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED
EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS OPERATING AGREEMENT
AND IN A TRANSACTION WHICH IS EITHER EXEMPT FROM REGISTRATION UNDER SUCH ACTS
OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS.
THIS AMENDED AND RESTATED OPERATING AGREEMENT OF GGL VENTURES, LLC
(the "Company") is made and entered into as of December __, 1998, by and among
the undersigned parties listed on Exhibit "A" attached hereto and by this
reference made a part hereof (each hereinafter referred to individually, as a
"Class A Member" and collectively, as the "Class A Members"), WGGL Corp., a
Delaware corporation (the "Class B Member"), the undersigned Managers of the
Company, (each hereinafter referred to individually as a "Manager" and
collectively as the "Managers") and the Persons who hereafter become Members or
Managers of the Company in accordance with the provisions hereof.
RECITALS
WHEREAS, Francesco Galesi entered into that certain Operating
Agreement of GGL Ventures, LLC, a Georgia limited liability company, dated as
of October 1, 1998 (the "Prior Agreement");
WHEREAS, Francesco Galesi intends to amend and restate the Prior
Agreement to, among other things, admit the Class A Members and the Class B
Member as Members of the Company;
WHEREAS, the Class A Members and the Class B Member will constitute
the Members of the Company; and
WHEREAS, this amended and restated Agreement constitutes the Operating
Agreement of the Company;
<PAGE> 7
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties to this Agreement hereby amend and restate the Prior
Agreement in its entirety by executing and delivering this Agreement, and
hereby specifically agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. The following terms used in this Operating Agreement
shall have the following meanings (unless otherwise expressly provided herein):
"ADDITIONAL CAPITAL CONTRIBUTION." As of any given date, any Capital
Contribution made by a Member to the Company pursuant to Section 8.2 in excess
of a Member's Initial Capital Contribution.
"ADJUSTED CAPITAL ACCOUNT DEFICIT." The Adjusted Capital Account
Deficit of any Member means, as of any particular date, the deficit balance, if
any, in such Member's Capital Account as of such date, as determined in the
manner provided in Section 8.4 hereof and by then adjusting such Capital
Account as so determined as follows:
(a) Such Capital Account shall be increased to reflect any amounts, if
any, attributable to partnership minimum gain or partner nonrecourse debt
minimum gain which such Member is deemed to be obligated to restore pursuant to
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5).
(b) Such Capital Account shall be reduced to reflect any items
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
(c) If such Adjusted Capital Account Deficit is being determined as of
the last day of a Fiscal Year for purposes of Section 10.6 hereof, then such
Capital Account shall be adjusted to reflect the tentative allocation to such
Member of all amounts that would be required to be allocated to such Member for
such Fiscal Year if Section 10.6 were not a part of this Operating Agreement.
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"AFFILIATE." means as to any Member or Manager (i) any Person directly
or indirectly controlling, controlled by, or under common control with such
Member or Manager; (ii) any member of the immediate family of such Member or
Manager; (iii) any legal representative, trustee or anyone acting in a
substantially similar capacity as to such Member or Manager; (iv) any Person of
which a majority of the voting interests is owned by such Member or Manager or
an affiliate; or (v) any Person who is an officer, director, general partner,
trustee or holder of five percent (5%) or more of the voting securities or
beneficial interests of such Member or Manager.
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"ARTICLES OF ORGANIZATION." The Articles of Organization of the
Company as filed with the Secretary of State of Georgia, as the same may be
amended from time to time.
"BANKRUPTCY." Any event of dissociation described in Sections
14-11-601(a)(5) or (6) of the Georgia Act.
"CAPITAL ACCOUNT." A capital account, as defined in Section 8.3 hereof
and maintained in accordance with Section 8.3 hereof.
"CAPITAL CONTRIBUTION." Any contribution, as defined in Georgia Act
Section 14-11-101(4), to the capital of the Company in cash or property by a
Member whenever made.
"CLASS A MEMBER." Each of the parties listed on Exhibit "A" who
executes a counterpart of this Operating Agreement as a Class A Member and any
Person who may hereafter become a Class A Member pursuant to this Operating
Agreement.
"CLASS B MEMBER." WGGL Corp., a Delaware corporation, and any Person
who may hereafter become a Class B Member pursuant to this Operating Agreement.
"CLASS A MEMBER PREFERRED RETURN." An amount, calculated like simple
interest, at twelve percent (12%) per annum without compounding, computed with
respect to any unreimbursed portion of the Initial Capital Contributions of the
Class A Members, and any unreimbursed portion of any Additional Capital
Contributions contributed to the capital of the Company by any Class A Member.
"CLASS B MEMBER FIRST PREFERRED RETURN." An amount, calculated like
simple interest, at twelve percent (12%) per annum without compounding,
computed with respect to any Unrepaid Class B Member Capital Contributions.
"CLASS B MEMBER SECOND PREFERRED RETURN." An amount, calculated like
simple interest, at six percent (6%) per annum without compounding, computed
with respect to any Unrepaid Class B Member Capital Contributions.
"CODE." The Internal Revenue Code of 1986, as amended from time to
time.
"COMPANY." GGL Ventures, LLC.
"DEPRECIATION." For each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable for
federal income tax purposes with respect to an asset with respect to such
Fiscal Year, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such Fiscal
Year, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such Fiscal Year bears to
such beginning adjusted tax basis.
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"DISTRIBUTABLE CASH." All cash, revenues and funds received by the
Company, less the sum of the following to the extent paid or set aside by the
Company; (i) all principal and interest payments on indebtedness of the Company
and all other sums paid to lenders; (ii) all cash expenditures incurred
incident to the normal operation of the Company's business; and (iii) such
Reserves as the Managers deem reasonably necessary to the proper operation of
the Company's business. Distributable Cash received by any Managed Entity shall
be distributed to the Company and treated as Distributable Cash of the Company
for purposes of this Operating Agreement.
"DISTRIBUTABLE CASH FROM OPERATIONS" Any Distributable Cash as herein
defined other than Distributable Cash from Sales or Refinancings.
"DISTRIBUTABLE CASH FROM SALES OR REFINANCINGS" Any Distributable Cash
as herein defined derived from a sale of any one or more projects owned by the
Company or by any Managed Entity or a refinancing of any loan secured by any
one or more projects owned by the Company or by any Managed Entity or proceeds
of any casualty insurance policy or award from any condemnation or taking of
one or more projects owned by the Company or by any Managed Entity to the
extent either such proceeds or such award is not used for the repair or
redevelopment of the project or used to discharge any loan to the Company or
the Managed Entity, as the case may be.
"ENTITY." Any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust,
cooperative or association or any foreign trust or foreign business
organization.
"FISCAL YEAR." The Company's fiscal year, which shall be the calendar
year.
"GEORGIA ACT." The Georgia Limited Liability Company Act at O.C.G.A.
Section 14-11-100, et seq.
"GROSS ASSET VALUE." means with respect to any asset, the asset's
adjusted tax basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as
determined by agreement of the contributing Member and the other Members;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their fair market values, as determined by agreement of the Members, as
of the following times: (i) the acquisition of an additional interest in the
Company by any new or existing Member in exchange for more than a de minimis
capital contribution; (ii) the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for such Member's
interest in the Company; and (iii) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however, that
adjustments pursuant to clauses (i) and (ii) above shall be made only if the
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Managers reasonably determine that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Members in the
Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution as determined by the agreement of the distributee Member and the
Managers;
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Sections 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset
Values shall not be adjusted pursuant to this clause (d) to the extent that the
Managers determine that an adjustment pursuant to clause (b) above is necessary
or appropriate in connection with a transaction that would otherwise result in
an adjustment pursuant to this clause (d); and
(e) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to clause (a), (b) or (d) hereof, such Gross Asset Value
shall hereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Net Income and Net Loss.
"INITIAL CAPITAL CONTRIBUTION." The initial contribution to the
capital of the Company made by a Member pursuant to this Operating Agreement.
"MAJORITY INTEREST." The Membership Interests which at the time the
action is taken have voting rights and which taken together, represent more
than fifty percent (50%) of the Membership Interests of the Members, or of a
class of Members, or a higher percentage (e.g., Seventy-five Percent Majority
Interest), as is expressly stated in the operative Section of this Operating
Agreement.
"MANAGED ENTITY." An Entity which may be a partnership or limited
liability company and which owns multi-family residential real property, in
which Entity the Company owns an interest and serves as general partner or
manager.
"MANAGERS." Galesi Woodlake, Inc., a New York corporation, and
Rotterdam Ventures, Inc., a New York corporation, which are designated as the
initial Managers pursuant to this Operating Agreement or any other person that
succeeds any of said Persons in the capacity as Manager.
"MEMBER." Each of the parties who executes a counterpart of this
Operating Agreement as a Class A Member or Class B Member and each of the
parties who may hereafter become Members.
"MEMBERSHIP INTEREST." The interest in the Company owned by a Member,
including the Member's rights to distributions and allocations of Net Profits
and Net Losses and the right to
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exercise the voting or approval rights of a Member. The respective Membership
Interests of each Member, expressed as a percentage, are Class A Members -
26.67% and Class B Member - 73.33%. The respective Membership Interests of the
Class A Members are set forth in Exhibit "A".
"NET PROFITS" AND "NET LOSSES." means, for each Fiscal Year, the
Company's taxable income or taxable loss for such Fiscal Year, as determined
under Code Section 703(a), and Regulations Section 1.703-1 (and for this
purpose all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or taxable loss), but with the following adjustments:
(a) Any tax-exempt income, as described in Code Section 705(a)(1)(B),
realized by the Company during such Fiscal Year shall be taken into account in
computing such taxable income or taxable loss as if it were taxable income;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B), or treated as expenditures described in Code Section 705(a)(2)(B)
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), shall be subtracted from
such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is
adjusted hereunder, the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of computing
Net Income or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(e) Depreciation, as defined herein, for such Fiscal Year shall be
taken into account in computing such taxable income or taxable loss in lieu of
any amortization, depreciation or cost recovery deduction to which the Company
is entitled for such Fiscal Year with respect to its assets;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Sections 734(b) or 743(b) is required pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than in
complete liquidation of a Member's Membership Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and
(g) Notwithstanding the foregoing, any items which are specially
allocated pursuant to Sections 10.4 through 10.6 hereof shall not be taken into
account in computing Net Income or Net Loss.
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If the Company's taxable income or taxable loss for such Fiscal Year, as
adjusted in the manner provided in Subsections(a) through (f), is a positive
amount, such amount shall be the Company's Net Profit for such Fiscal Year; and
if negative, such amount shall be the Company's Net Loss for such Fiscal Year.
"NOTICE." A notice, request, demand or other communication in writing,
delivered pursuant to this Agreement.
"OFFSETTABLE DECREASE." Any allocation that unexpectedly causes or
increases an Adjusted Capital Account Deficit of a Member as of the end of the
taxable year to which the allocation relates attributable to depletion
allowances under Regulations Section 1.704-1(b)(2)(iv)(k), allocations of loss
and deductions under Code Sections 704(e)(2) or 706(d) or under Regulations
Section 1.751-1(b)(2)(ii), or distributions that, as of the end of the year,
are reasonably expected to be made to the extent they exceed the offsetting
increases to such Member's Capital Account that reasonably are expected to
occur during (or prior to) the taxable years in which such distributions are
expected to be made (other than increases pursuant to a minimum gain chargeback
under Section 10.5 hereof).
"OPERATING AGREEMENT." This Operating Agreement as originally executed
and as amended from time to time.
"PENALTY RATE." Fifteen percent (15%) per annum.
"PROPERTY MANAGER." Any Person who may become the Property Manager as
determined by the Managers.
"PERSON." Any individual or Entity, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such "Person"
where the context so permits.
"REGULATIONS." The Federal Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"RESERVES." With respect to any fiscal period, funds set aside or
amounts allocated during such period to reserves which shall be maintained in
amounts deemed sufficient by mutual agreement of the Class B Member and the
Managers for working capital and to pay taxes, insurance, debt service or other
costs or expenses incident to the ownership or operation of the Company's
business, including its ownership of the Properties.
"TAXING JURISDICTION." Any state, local, or foreign government that
collects tax, interest or penalties, however designated, on any Member's share
of the income or gain attributable to the Company.
"TRANSFERRING MEMBER." A Member who sells, assigns, pledges,
hypothecates or otherwise transfers for consideration or gratuitously all or
any portion of its Membership Interest.
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"UNPAID CLASS A MEMBER PREFERRED RETURN." with respect to any Class A
Member, the cumulative Class A Member Preferred Return computed with respect to
such Class A Member from the date hereof reduced by the cumulative amount of
distributions paid to the Class A Member pursuant to Sections 9.1(b) and
9.2(c).
"UNPAID CLASS B MEMBER FIRST PREFERRED RETURN." with respect to the
Class B Member, the cumulative Class B Member First Preferred Return computed
with respect to the Class B Member from the date hereof reduced by the
cumulative amount of distributions paid to the Class B Member pursuant to
Sections 9.1(a) and 9.2(b).
"UNPAID CLASS B MEMBER SECOND PREFERRED RETURN." with respect to the
Class B Member, the cumulative Class B Member Second Preferred Return computed
with respect to the Class B Member from the date hereof reduced by the
cumulative amount of distributions paid to the Class B Member pursuant to
Sections 9.1(c) and 9.2(d).
"UNREPAID CLASS B MEMBER CAPITAL CONTRIBUTIONS." with respect to the
Class B Member, the Initial Capital Contribution and cumulative Additional
Capital Contributions made by the Class B Member to the Company from the date
hereof reduced by the cumulative amount of distributions paid to the Class B
Member pursuant to Sections 9.1(d) and 9.2(a).
1.2 CONSTRUCTION. Whenever the context requires, the gender of all
words used in this Agreement includes the masculine, feminine, and neuter. All
references to Articles and Sections refer to articles and sections of this
Agreement, and all references to Exhibits are to Exhibits attached hereto, each
of which is made a part hereof for all purposes. The captions used herein are
intended for convenience of reference only, shall not constitute any part of
the Agreement and shall not modify or affect in any manner the meaning or
interpretation of any of the provisions of the Agreement. Every covenant, term
and provision of this Agreement shall be construed simply according to its fair
meaning and not strictly for or against any party.
ARTICLE II.
FORMATION OF THE COMPANY
2.1 FORMATION. On October 1, 1998, William M. Joseph formed the
Company as a Georgia Limited Liability Company by executing and delivering
articles of organization to the Secretary of State of Georgia in accordance
with the provisions of the Georgia Act.
2.2 NAME. The name of the Company as stated in its Articles of
Organization is GGL Ventures, LLC.
2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of business of
the Company is 695 Rotterdam Industrial Park, Schenectady, NY 12306. The
Company may locate its places of business and registered office at any other
place or places as the Managers may from time to time deem advisable.
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2.4 REGISTERED OFFICE AND REGISTERED AGENT. The Company's initial
registered office shall be at the office of its registered agent at 1409
Peachtree Street, N.E., Atlanta, Georgia, and the name of its initial
registered agent at such address is Paul P. Mattingly. The registered office
and registered agent may be changed from time to time by the Company filing the
address of the new registered office and/or the name of the new registered
agent with the Secretary of State of Georgia pursuant to the Georgia Act and
the applicable rules promulgated thereunder.
ARTICLE III.
BUSINESS OF THE COMPANY
The purpose of the Company is to (a) acquire, own, manage, operate,
lease, sell, and otherwise dispose of multi-family residential real property or
interests in Managed Entities, and to invest and reinvesting any funds held as
Reserves pursuant to the terms of this Operating Agreement and (b) enter into a
management agreement with Walden Residential Properties, Inc. ("Walden") or one
or more of its Affiliates (or a management agreement with an Affiliate of a
Class A Member which will assign its interest thereunder to Walden or one or
more of its Affiliates), in the form attached hereto as Exhibit "B" (the
"Management Agreement"). Except as otherwise permitted in this Operating
Agreement, the Company shall not engage in any other activity or business.
ARTICLE IV.
NAMES AND ADDRESSES OF MEMBERS
The names and addresses of the Class A Members are as stated in Exhibit "A".
The names and addresses of the Class B Member is:
WGGL Corp.
c/o Walden Residential Properties, Inc.
5080 Spectrum Drive
Suite 1000 East
Addison, Texas 75001.
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ARTICLE V.
MANAGEMENT
5.1 MANAGEMENT. The business and affairs of the Company shall be
managed by its Managers. Except for situations in which the approval of the
Members is expressly required by this Operating Agreement or by non-waivable
provisions of applicable law, the Managers shall have full and complete
authority, power and discretion to manage and control the business, affairs and
properties of the Company, to make all decisions regarding those matters and to
perform any and all other acts or activities customary or incident to the
management of the Company's business. At any time when there is more than one
Manager, any one Manager may take any action permitted to be taken by the
Managers. At any time that an Entity is a Manager, any Person who is so
authorized on behalf of such Entity may take any action permitted to be taken
by the Managers of the Company. No Member, other than a Manager, may take any
action on behalf of the Company unless expressly authorized to do so by the
Managers
5.2 NUMBER, TENURE AND QUALIFICATIONS OF MANAGERS. The Company shall
initially have two Managers. Any Manager shall serve until the earliest of: (i)
resignation of such Manager, (ii) the death, Bankruptcy or adjudicated
incompetency of such Manager, or (iii) the transfer or other disposition by
such Manager of its Class A Member Membership Interest.
5.3 CERTAIN POWERS OF MANAGERS. Without limiting the generality of
Section 5.1, the Managers shall have power and authority on behalf of the
Company or any Managed Entity:
(a) To acquire property from any Person as the Managers may
determine. The fact that any Member is directly or indirectly affiliated or
connected with any such Person shall not prohibit the Managers from dealing
with that Person.
(b) To borrow money from banks, other lending institutions, the
Members, or affiliates of the Members on such terms as the Managers deem
appropriate, and in connection therewith, to hypothecate, encumber and grant
security interests in the assets of the Company or, in the case of borrowing by
a Managed Entity, assets of the Managed Entity, to secure repayment of the
borrowed sums. No debt shall be contracted or liability incurred by or on
behalf of the Company or any Managed Entity except by a Manager, or to the
extent permitted under the Georgia Act, by agents or employees of the Company
expressly authorized to contract such debt or incur such liability by a
Manager.
(c) To purchase liability and other insurance to protect the
Company's and Managed Entities' properties and business.
(d) To hold and own real and/or personal properties in the name
of the Company or the Managed Entities, as the case may be.
(e) To invest any Company or Managed Entity funds temporarily in
checking accounts, time deposits, money market accounts or short-term
governmental obligations.
(f) To execute (or to authorize any Member to execute) on behalf
of the Company or a Managed Entity all instruments and documents, including,
without limitation, all documents and instruments for the Company contemplated
by or in connection with the Company's ownership of interests in Managed
Entities, checks; drafts; notes and other negotiable instruments; deeds to
secure
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debt, mortgages or deeds of trust; security agreements; financing statements;
documents providing for the acquisition, mortgage or disposition of the
Company's or Managed Entities' properties, assignments; bills of sale; leases;
partnership agreements; operating agreements of other limited liability
companies; and any other instruments or documents necessary, in the opinion of
the Managers, to conduct the business of the Company or the Managed Entities.
(g) To employ accountants, legal counsel, managing agents or
other experts to perform services for the Company or any Managed Entity.
(h) To do and perform all other acts as may be necessary or
appropriate to the conduct of the Company's and Managed Entities' businesses.
5.4 MEMBER VOTING RIGHTS. Except as expressly provided in this
Operating Agreement, the Members shall not have voting rights with respect to
matters provided in Georgia Act Section 14-11-308.
5.5 LIABILITY FOR CERTAIN ACTS. The Managers have not guaranteed nor
shall have any obligation with respect to the return of a Member's Capital
Contributions or profits from the operation of the Company. No Manager shall be
liable to the Company or to any Member for any loss or damage sustained by the
Company or any Member except loss or damage resulting from intentional
misconduct or knowing violation of law or a transaction for which such Manager
received a personal benefit in violation or breach of the provisions of this
Operating Agreement. The Managers shall be entitled to rely on information,
opinions, reports or statements, including but not limited to financial
statements or other financial data, prepared or presented in accordance with
the provisions of Georgia Act Section 14-11-305.
5.6 MEMBERS AND MANAGERS HAVE NO EXCLUSIVE DUTY TO COMPANY. Neither
the Managers nor any Member shall be required to manage the Company as its sole
and exclusive function and the Managers and the Members may have other business
interests and may engage in other activities in addition to those relating to
the Company, whether the same are competitive with the Company or otherwise.
Neither the Company nor any Member shall have any right, by virtue of this
Operating Agreement, to share or participate in such other investments or
activities of the Managers or of any Member or to the income or proceeds
derived therefrom.
5.7 CERTAIN TRANSACTIONS. The Company is permitted in the normal
course of its business to enter into transactions with any Member or Manager,
or with any Affiliate of any Member or Manager, provided that (a) the proposed
transaction is disclosed to all Members prior to its consummation and (b) the
price and other terms of such transaction are fair to the Company and that the
price and other terms of such transactions are not less favorable to the
Company than those generally prevailing with respect to comparable transactions
between unrelated parties. Georgia Act Section 14-11-307 relating to
conflicting interest transactions shall not apply.
5.8 BANK ACCOUNTS. The Managers may from time to time open bank
accounts in the name of the Company, and only the Managers may determine the
authorized signatories thereon.
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5.9 INDEMNITY OF THE MANAGERS, EMPLOYEES AND OTHER AGENTS. To the
fullest extent permitted under Georgia Act Section 14-11-306, the Company shall
indemnify the Managers, their employees and agents and make advances for
expenses to the Managers with respect to such matters to the maximum extent
permitted under applicable law. The Company shall indemnify its employees and
other agents who are not a Manager to the fullest extent permitted by law.
5.10 RESIGNATION. Any Manager of the Company may resign at any time by
giving written notice to the Members of the Company. The resignation of any
Manager shall take effect upon receipt of notice thereof or at such later time
as shall be specified in such notice; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
The resignation of a Manager shall not affect the Manager's rights as a Member
and shall not constitute his withdrawal as a Member.
5.11 VACANCIES. Upon the resignation, death, Bankruptcy or adjudicated
incompetency of a Manager, or the transfer by a Manager of its Membership
Interest as a Class A Member, a replacement Manager shall be designated by the
vote of (a) Class A Members owning a Majority Interest of the Class A Members
and (b) the Class B Member (if at such time the Class B Member has voting
rights pursuant to Section 6.10 hereof).
5.12 COMPENSATION OF MANAGER. The Managers shall receive no
compensation for their services to the Company. The Managers shall be
reimbursed for all reasonable expenses paid to third parties and incurred in
connection with managing the Company. Additionally, so long as WGGL Corp. holds
a Class B Membership Interest, no fees shall be payable to the Managers, their
Affiliates or any other Class A Member.
5.13 DECISIONS REQUIRING CONSENT OF CLASS B MEMBER. The Managers shall
not take or cause or permit to be taken by the Company, any of the following
actions without the consent of the Class B Member:
(a) issue any Membership Interest which ranks in parity with, or
senior to, in terms of allocation of profits and losses, distributions of cash
from operations or distribution of cash from sales or refinancings, the
interest held by the Class B Member or amend or otherwise modify the terms of
Sections 9.1 and 9.2 hereof,
(b) the refinancing of any loans secured by any one or more
projects owned by the Company or by any Managed Entity,
(c) making, or committing to make, capital expenditures with
respect to one or more of the properties or projects held by the Company or any
Managed Entity, which individually or in the aggregate will require payment by
the Company in excess of $250,000; provided that the acquisition of the
properties listed on Exhibit "C" attached hereto and incorporated by reference
herein shall be deemed approved by all Members,
(d) dissolving the Company or any Managed Entity, or
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(e) merging or otherwise consolidating the Company or any Managed
Entity with or into any Person other than the Class B Member.
5.14 TERMINATION OF MANAGEMENT AGREEMENT. If the Managers terminate
the Management Agreement prior to the expiration of its term, the Redemption
Right provided in Section 12.3 shall be accelerated and exercisable by the
Class B Member as of the date of such termination.
5.15 MANAGEMENT AGREEMENT. The Members agree and acknowledge that if
the Property Manager (and the Property Manager is WGGL Corp.) has been assigned
the Management Agreement from an Affiliate of a Class A Member (or the
Management Agreement is a sub-management agreement pursuant to which an
Affiliate of a Class A Member subcontracts management responsibilities to the
Property Manager), the Managers shall use their best efforts to obtain from
each of the Company's Lenders an agreement permitting the Company to enter into
the Management Agreement directly with the Property Manager. Notwithstanding
anything to the contrary contained in this Agreement, the Members recognize and
agree that the Agreement of Purchase and Sale between the Company and Double
GFM Ventures, LLC, as Buyer, and certain Lane Company affiliates, as Sellers,
fully executed on December 22, 1998 ("the Purchase and Sale Contract") provides
for a transition period pursuant to which Double GFM Ventures, LLC will
subcontract the management responsibilities for the seven (7) properties
acquired in the "Initial Closing" (as that term is defined in the Purchase and
Sale Contract) to Realty Management Corp. d/b/a The Lane Company ("RMC").
Further, the Members recognize and agree that with respect to certain other
properties there may be a transition period during which the management of such
properties may be performed by RMC pursuant to subcontracts with an Affiliate
of a Class A Member. Finally, with respect to those properties identified on
Exhibit "C" hereto as "Summercourt," "Summercourt II," "Summeroak" and
"Summerwind," the Members recognize and agree that the foregoing properties
will be managed by RMC until such time as the "Conversion Conditions" (as such
term is defined in the Purchase and Sale Contract) with respect to the
Summercourt II property have been satisfied and the "Earnout Amount" (as such
term is defined in the Purchase and Sale Contract) with respect to the
Summercourt II property has been paid.
ARTICLE VI.
MEETINGS OF MEMBERS
6.1 MEETINGS. Meetings of the Members, for any purpose or purposes,
unless proscribed by statute, may be called by any Member or Manager.
6.2 PLACE OF MEETINGS. The Members by agreement may designate any
place, either within or outside the State of Georgia, as the place of meeting
for any meeting of the Members. If no designation is made, or if a special
meeting be called, the place of meeting shall be the principal executive office
of the Company in the State of Georgia.
6.3 NOTICE OF MEETINGS. Written notice stating the place, day and hour
of the meeting and the purpose or purposes for which the meeting is called
shall be delivered not less than three (3) nor
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more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the person calling the meeting, to each
Member entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered upon being deposited in the United States mail, addressed to
the Member at its address as it appears on the books of the Company, with
postage thereon prepaid.
6.4 MEETING OF ALL MEMBERS. If all of the Members shall meet at any
time and place, either within or outside of the State of Georgia, and consent
to the holding of a meeting at such time and place, such meeting shall be valid
without call or notice, and at such meeting any lawful action may be taken.
6.5 RECORD DATE. For the purpose of determining Members entitled to
notice of or to vote at any meeting of members or any adjournment thereof, or
Members entitled to receive payment of any distribution, or in order to make a
determination of Members for any other purpose, the date on which notice of the
meeting is mailed or the date on which the resolution declaring such
distribution is adopted, as the case may be, shall be the record date for such
determination of Members. When a determination of Members entitled to vote at
any meeting of Members has been made as provided in this Section, such
determination shall apply to any adjournment thereof.
6.6 PROXIES. At all meetings of Members a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with a Member attending the meeting
before or at the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
6.7 ACTION BY MEMBERS WITHOUT A MEETING. Action required or permitted
to be taken at a meeting of Members may be taken without a meeting if the
action is evidenced by one or more written consents describing the action
taken, signed by the necessary Members entitled to vote and required to approve
such action. Action taken under this Section is effective when the Members
required to approve such action have signed the consent, unless the consent
specifies a different effective date. The record date for determining Members
entitled to take action without a meeting shall be the date the first Member
signs such written consent. Written notice of such action effected by written
consent shall be given to the Members who have not executed such written
consent within sixty (60) days after such action has been approved by the
Members as herein provided.
6.8 WAIVER OF NOTICE. When any notice is required to be given to any
Member, a waiver thereof in writing signed by the person entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.
6.9 MEETING BY TELEPHONE. Members may also meet by conference
telephone call if all Members participating can hear one another on such call
and the requisite notice is given or waived.
6.10 VOTING RIGHTS OF CLASS B MEMBER. The interests of the Class B
Member shall have no voting rights associated therewith, except as otherwise
provided in this Operating Agreement. The Class B Membership Interest shall
have all voting rights provided under this Operating Agreement and the Georgia
Act and shall be entitled to participate in and vote at all meetings of Members
if:
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(a) the amount payable by the Company pursuant to Section 12.3,
upon the exercise by the Class B Member of its Redemption Right, is not paid in
full by the 180th day following the date of the Notice to the Managers that the
Class B Member is exercising its Redemption Right;
(b) the Management Agreement is terminated prior to the
expiration of its term and the Class B Member has not received the amount
payable to it pursuant to Section 5.14; or
(c) the Company has failed to make Distributions of Distributable
Cash from Operations to the Class B Member for two consecutive fiscal quarters.
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 LIMITATION OF LIABILITY. Each Member's liability shall be limited
as set forth in this Operating Agreement, the Georgia Act and other applicable
law.
7.2 NO LIABILITY FOR COMPANY OBLIGATIONS. No Member will have any
personal liability for any debts or losses of the Company beyond his respective
Capital Contributions, except as provided by law.
7.3 LIST OF MEMBERS. Upon written request of any Member, the Managers
shall provide a list showing the names and addresses of all Members and the
other information required by Georgia Act Section 14-11-313 and maintained
pursuant to Section 11.2.
7.4 PRIORITY AND RETURN OF CAPITAL. Except as may be expressly
provided herein, no Member shall have priority over any other Member, either as
to the return of Capital Contributions or as to Net Profits, Net Losses or
distributions. This Section shall not apply to loans (as distinguished from
Capital Contributions) which a Member has made to the Company.
ARTICLE VIII.
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
8.1 MEMBERS' INITIAL CAPITAL CONTRIBUTIONS AND COMPANY PAYMENTS.
Promptly following the request of the Company, the Class A Members shall
contribute an aggregate amount of $20,000,000.00 as their Initial Capital
Contribution to be divided among said Class A Members as set forth in Exhibit
"A" and the Class B Member shall contribute an aggregate of $55,000,000.00 as
its Initial Capital Contribution, of which the Class B Member shall contribute
$13,000,000.00 on the date hereof, with the remaining portion of its Initial
Contribution to be contributed on such dates and in such amounts as shall be
mutually agreed to by the Managers and the Class B Member. On the date hereof,
the Company shall pay Walden (as defined in Article III hereof) a one-time
investment fee of $550,000.00, to reimburse Walden for its expenses in
connection with the
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transaction contemplated by this Agreement. On the date hereof, the Company
shall pay to the Class B Member a prepaid distribution for the period through
December 31, 1998 in the amount of $12,822.00.
8.2 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member shall have any
obligation to make any Capital Contribution in excess of its Initial Capital
Contribution described in Section 8.1 above. The Managers may from time to time
make a written request to the Members for such Additional Capital Contributions
as are determined by the Managers to be necessary and appropriate in connection
with the conduct of the business of the Company and ownership of its properties
and in order to pay taxes, insurance premiums, principal and interest on
indebtedness of the Company and various other costs of the operation of the
Company and ownership of the Properties, including capital expenditures. Such
Additional Capital Contributions shall be requested in proportion to the
respective Membership Interests of each of the Members and shall be payable
within ten (10) days of the written request from the Managers. If all Members
do not make such Additional Capital Contributions on a timely basis, then the
contributing Members shall have the opportunity, but not the obligation, to
contribute such amounts to the Company that the noncontributing Members failed
to contribute on a pro rata basis in accordance with their Membership
Interests. Any opportunities to make such Additional Capital Contributions that
are declined may be reoffered to the Members who have agreed to make such
Additional Capital Contributions on a pro rata basis in proportion to their
Membership Interests until the entire amount needed is contribute to the
Company or said Members have declined to contribute any remaining amount. Any
remaining amount may be loaned to the Company by Members with such interest and
such other terms as may be agreed upon between the Members making such loans
and the Company. Any such amounts which are not loaned or contributed to the
Company by the Members may be borrowed by the Company from third parties in the
discretion of the Managers.
8.3 MAINTENANCE OF CAPITAL ACCOUNTS. A Capital Account shall be
established and maintained for each Member. Each Member's Capital Account (a)
shall be increased by (i) the amount of money contributed by that Member to the
Company, (ii) the fair market value of property contributed by that Member to
the Company (net of liabilities secured by the contributed property that the
Company is considered to assume or take subject to under Code Section 752), and
(iii) allocations to that Member of Company income and gain (or items thereof),
including income and gain exempt from tax and income and gain described in
Regulations Section 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Regulations Section 1.704-1(b)(4)(i), and (b) shall be decreased
by (i) the amount of money distributed to that Member by the Company, (ii) the
fair market value of property distributed to that Member by the Company (net of
liabilities secured by the distributed property that the Member is considered
to assume or take subject to under Code Section 752), (iii) allocations to that
Member of expenditures of the Company described in Code Section 705(a)(2)(B),
and (iv) allocations of Company loss and deduction (or items thereof),
including loss and deduction described in Regulations Section
1.704-1(b)(2)(iv)(g), but excluding items described in clause (b)(iii) above
and loss or deduction described in Regulations Sections 1.704-1(b)(4)(i) or
1.704-1(b)(4)(iii). The Members' Capital Accounts also shall be maintained and
adjusted as permitted by the provisions of Regulations Section
1.704-1(b)(2)(iv)(f) and as required by the other provisions of Regulations
Sections 1.704-1(b)(2)(iv) and 1.704-1(b)(4), including adjustments to reflect
the allocations to the Members of depreciation, depletion, amortization, and
gain or loss as computed for book purposes rather than the allocation of the
corresponding items as computed for tax purposes, as required by Regulations
Section 1.704-1(b)(2)(iv)(g). A Member that
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has more than one Membership Interest shall have a single Capital Account that
reflects all its Membership Interests, regardless of the class of Membership
Interests owned by that Member and regardless of the time or manner in which
those Membership Interests were acquired. On the transfer of all or part of a
Membership Interest, the Capital Account of the transferor that is attributable
to the transferred Membership Interest or part thereof shall carry over to the
transferee Member in accordance with the provisions of Regulations Section
1.704-l(b)(2)(iv)(l). In any event, the Capital Accounts of the Members shall
be determined and maintained throughout the term of the Company in accordance
with the principles of Regulations Section 1.704-1(b)(2)(iv).
8.4 DISTRIBUTION OF ASSETS. If the Company at any time distributes any
of its assets in-kind to any Member, the Capital Account of each Member shall
be adjusted to account for that Member's allocable share (as determined under
Article X below) of the Net Profits or Net Losses that would have been realized
by the Company had it sold the assets that were distributed at their respective
fair market values immediately prior to their distribution.
8.5 COMPLIANCE WITH CODE SECTION 704(B). The provisions of this
Article VIII as they relate to the maintenance of Capital Accounts are
intended, and shall be construed, and, if necessary, modified to cause the
allocations of profits, losses, income, gain and credit pursuant to Article X
to have substantial economic effect under the Regulations promulgated under
Code Section 704(b), in light of the distributions made pursuant to Article IX
and Article XIII. Notwithstanding anything herein to the contrary, this
Operating Agreement shall not be construed as creating a deficit restoration
obligation.
ARTICLE IX.
DISTRIBUTIONS TO MEMBERS
9.1 DISTRIBUTABLE CASH FROM OPERATIONS. Distributable Cash from
Operations received by the Company shall be declared on the 15th day (or if
such day is not a business day, then on the next business day thereafter) prior
to the end of each fiscal quarter and distributed on or prior to the 30th day
(or if such day is not a business day, then on the next business day
thereafter) following the end of each fiscal quarter (the "Operations
Distribution Date") by the Managers in the following manner and order of
priority:
(a) First, to the Class B Member to pay any Overdue Amount;
(b) Second, to the Class B Member to pay the Unpaid Class B
Member First Preferred Return;
(c) Third, to the Class A Members in proportion to and to the
extent of each Class A Member's Unpaid Class A Member Preferred Return;
(d) Fourth, to the Class B Member to pay the Unpaid Class B
Member Second Preferred Return;
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(e) Fifth, to the Class B Member to pay the Unrepaid Class B
Member Capital Contributions; and
(f) Sixth, to the Class A Members in proportion to each Class A
Member's Membership Interest.
9.2 DISTRIBUTABLE CASH FROM SALES OR REFINANCINGS. Distributable Cash
from Sales or Refinancings received by the Company shall be distributed by the
Managers not later than fifteen (15) business days following the Company's
receipt thereof (the "Sale Distribution Date") in the following manner and
order of priority:
(a) First, to the Class B Member to pay any Overdue Amount;
(b) Second, to the Class B Member to pay the Unrepaid Class B
Member Capital Contributions;
(c) Third, to the Class B Member to pay the Unpaid Class B Member
First Preferred Return;
(d) Fourth, to the Class B Member to pay the Unpaid Class B
Member Second Preferred Return;
(e) Fifth, to the Class A Members in proportion to and to the
extent of each Class A Member's Unpaid Class A Member Preferred Return; and
(f) Sixth, to the Class A Members in proportion to each Class A
Member's Membership Interest.
9.3 PAYMENTS OF OVERDUE AMOUNT. If for any reason the Company does not
pay on any Operations Distributions Date or any Sale Distribution Date to the
Class B Member the total amount of Distributable Cash from Operations or
Distributable Cash from Sales or Refinancings, as applicable, in respect of
such holder's Membership Interest due on such Operations Distributions Date or
Sale Distribution Date, the amount of such distribution which is not paid shall
be treated as loaned to the Company and shall accrue interest at a rate equal
to the Penalty Rate until such unpaid amount and the accrued and unpaid
interest thereon (collectively, the "Overdue Amount") is paid in full. The
Company shall pay the Overdue Amount as soon as possible, and shall not be
required to wait until a distribution date to make such payment.
9.4 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTION. No Member shall be
entitled to interest on its Capital Contribution or to return of its Capital
Contribution, except as otherwise specifically provided for herein.
9.5 LOANS TO COMPANY. Nothing in this Operating Agreement shall
prevent any Member from making secured or unsecured loans to the Company by
agreement with the Company, provided that the interest payable on such loans
shall not exceed an amount per annum equal to the prime rate published in the
Wall Street Journal on the dates such loans are made, plus 2%. The making of
any loan by a Member shall not create any additional fiduciary duty between the
Member and the
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Company and shall not otherwise restrict the right to foreclose, or restrict
any other legal remedies which may be exercised by the Member as may be
provided to a third party creditor under law.
ARTICLE X.
ALLOCATIONS AND TAXES
10.1 ALLOCATIONS OF NET PROFITS. After giving effect to the
allocations described in Sections 10.4, 10.5, and 10.6 hereof, the Net Profits
of the Company for each Fiscal Year shall be allocated for both book and tax
purposes as follows:
(a) First, to the extent that Net Losses have been allocated to
the Members under Section 10.3 for any prior Fiscal Year, Net Profits shall be
allocated to the Members in proportion to and to the extent of the excess, if
any, of the aggregate Net Losses allocated to such Members under Section 10.3
over the aggregate Net Profits previously allocated to such Members under this
Section 10.1(a);
(b) Second, to the extent that Net Losses have been allocated to
the Members under Section 10.2 for any prior Fiscal Year, Net Profits shall be
allocated to the Members in the inverse order of priority to the manner in
which such Net Losses were allocated, in proportion to and to the extent of the
excess, if any, of the aggregate Net Losses allocated to such Members under
Section 10.2 over the aggregate Net Profits previously allocated to such
Members under this Section 10.1(b);
(c) Third, to the Class B Member to the extent of the excess, if
any, of the aggregate amounts of distributions made to such Class B Member
pursuant to Sections 9.1(a) and (b) and 9.2(a), (c) and (d) over the aggregate
Net Profits previously allocated to such Class B Member pursuant to this
Section 10.1(c) and Sections 10.1(f);
(d) Fourth, to the Class A Members in proportion to and to the
extent of the respective excesses, if any, of the aggregate amounts of
distributions made to such Class A Members pursuant to Sections 9.1(c) and
9.2(e) over the aggregate Net Profits previously allocated to such Class A
Members pursuant to this Section 10.1(d) and Section 10.1(g);
(e) Fifth, to the Class B Member to the extent of the excess, if
any, of the aggregate amounts of distributions made to such Class B Member
pursuant to Section 9.1(d) over the aggregate Net Profits previously allocated
to such Class B Member pursuant to this Section 10.1(e) and Section 10.1(h);
(f) Sixth, to the Class B Member to the extent of the Unpaid
Class B Member First Preferred Return;
(g) Seventh, to the Class A Members in proportion to and to the
extent of their respective Unpaid Class A Member Preferred Returns;
(h) Eighth, to the Class B Member to the extent of the Unpaid
Class B Member Second Preferred Return; and
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(i) Ninth, the remainder to the Class A Members in proportion to
their respective Membership Interests.
10.2 ALLOCATION OF NET LOSS. After giving effect to the allocations
described in Sections 10.4, 10.5, and 10.6 hereof, the Net Losses of the
Company for each Fiscal Year shall be allocated for both financial reporting
and tax purposes as follows:
(a) First, to the extent that Net Profits have been allocated to
the Members under Section 10.1 for any prior Fiscal Year, Net Losses shall be
allocated to the Members in the inverse order of priority to the manner in
which such Net Profits were allocated, in proportion to and to the extent of
the excess, if any, of the aggregate Net Losses allocated to such Members under
Section 10.2 over the aggregate Net Profits previously allocated to such
Members under this Section 10.2(a);
(b) Second, to the Class A Members in proportion to and to the
extent of their respective positive Capital Account balances, if any;
(c) Third, to the Class B Member to the extent of its positive
Capital Account balance, if any; and
(d) Fourth, the remainder to the Class A Members in proportion to
their respective Membership Interests.
10.3 LIMITATION ON NET LOSS ALLOCATION. Notwithstanding the provisions
of Section 10.2, if the amount of Net Loss for any Fiscal Year that would
otherwise be allocated to a Member under Section 10.2 would cause or increase
an Adjusted Capital Account Deficit of such Member as of the last day of such
Fiscal Year, then an amount of such Net Loss equal to such excess shall be
allocated to the other Members, in proportion to their respective Membership
Interests, to the extent allowable under this Section 10.3, and the remainder
of such Net Loss, if any, shall be allocated to that Member.
10.4 NONRECOURSE DEDUCTIONS AND MEMBER NONRECOURSE DEDUCTIONS.
Nonrecourse Deductions as defined in Regulations Section 1.704-2(c) shall be
allocated according to the Membership Interest of each Member. Notwithstanding
any provision hereof to the contrary, any item of Company loss, deduction, or
expenditure described in Code Section 705(a)(2)(B) for any Fiscal Year (or any
portion of any such item) that is required to be allocated to the Members under
Regulations Section 1.704-2(i)(1) shall be allocated to the Members for such
Fiscal Year in the manner so required by such Regulation.
10.5 MINIMUM GAIN AND MEMBER NONRECOURSE DEBT MINIMUM GAIN CHARGEBACK.
Notwithstanding any provision hereof to the contrary, any item of Company
income or gain for any Fiscal Year (or any portion of any such item) that is
required to be allocated to the Members under Regulations Sections 1.704-2(f)
or 1.704-2(i)(4) shall be allocated to the Members for such Fiscal Year in the
manner so required by such Regulations.
10.6 QUALIFIED INCOME OFFSET. In the event any Member, in such
capacity, unexpectedly receives an Offsettable Decrease, such Member will be
allocated items of income and gain
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(consisting of a pro rata portion of each item of partnership income and gain
for such year) in an amount and manner sufficient to offset such Offsettable
Decrease as quickly as possible.
10.7 SECTION 704(c) ALLOCATION. Any item of income, gain, loss, and
deduction with respect to any property (other than cash) that has been
contributed by a Member to the capital of the Company, that is deemed to have
been contributed to the capital of the Company under Code Section 708 and the
Regulations promulgated thereunder, or that has been revalued in accordance
with Regulations Section 1.704-1(b)(2)(iv)(f) and which is required to be
allocated to the Members for income tax purposes under Code Section 704(c) or
Regulations Section 1.704-1(b)(2)(iv)(f) so as to take into account the
variation between the tax basis of such property and its agreed upon fair
market value at the time of its contribution or revaluation, as the case may
be, shall be allocated to the Members solely for income tax purposes as so
required using any method permitted by the Regulations as is determined by the
Managers in its sole discretion.
10.8 DISTRIBUTIONS ALLOCABLE TO NONRECOURSE LIABILITIES. The
determination of whether any distribution by the Company pursuant to Article IX
hereof is allocable to the proceeds of a nonrecourse liability of the Company
shall be made by the Managers under any reasonable method in accordance with
Regulations Section 1.704-2(h)(2) which, to the extent possible, will prevent
any such distribution from ultimately causing an allocation to one or more
Members that will result in a distortion of the manner in which the Members
intend to divide Company distributions under Articles IX and XIII hereof.
10.9 CURATIVE ALLOCATIONS. The allocations set forth in Sections 10.4,
10.5 and 10.6 hereof (the "Regulatory Allocations") are intended to comply with
certain requirements of Regulations Sections 1.704-1(b) and 1.704-2. The
Members do hereby acknowledge and agree that the Regulatory Allocations may not
be consistent with the manner in which the Members intend to divide Company
distributions. Accordingly, the Managers are hereby authorized and directed to
divide other allocations of Net Profits and Net Losses (or portions thereof)
among the Members in any reasonable manner so that, after such offsetting
special allocations are made, the amount of each Member's Capital Account will
be, to the extent possible, equal to the Capital Account balance such Member
would have had if the Regulatory Allocations were not a part of this Operating
Agreement and all Company items had been allocated to the Members solely
pursuant to Sections 10.1, 10.2 and 10.3 hereof.
10.10 ELECTIONS. The Managers may make any tax elections for the
Company allowed under the Code or the tax laws of any state or other
jurisdiction having taxing jurisdiction over the Company.
10.11 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of
any Taxing Jurisdiction requires, each Member requested to do so by the
Managers will submit an agreement indicating that the Member will make timely
income tax payments to the Taxing Jurisdiction and that the Member accepts
personal jurisdiction of the Taxing Jurisdiction with regard to the collection
of income taxes attributable to the Member's income, and interest, and
penalties assessed on such income. If the Member fails to provide such
agreement, the Company may withhold and pay over to such Taxing Jurisdiction
income taxes with respect to such income. Any such payments with respect to the
income of a Member shall be treated as a distribution for purposes of Article
IX. The Managers may, where permitted by the rules of any Taxing Jurisdiction,
file a composite, combined or
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aggregate tax return reflecting the income of the Company and pay the tax,
interest and penalties of some or all of the Members on such income to the
Taxing Jurisdiction, in which case the Company shall inform the Members of the
amount of such tax, interest and penalties so paid. All amounts withheld by the
Company pursuant to the Code or any provisions of state or local tax law from
any payment or distribution to the Members and paid to any Taxing Jurisdiction
or any other payment by the Company to any Taxing Jurisdiction pursuant to the
Code or any provisions of state or local tax law on behalf of any Member shall
be treated as amounts distributed to the relevant Member or Members pursuant to
Sections 9.1 and 9.2.
10.12 TAX MATTERS PARTNER. Rotterdam Ventures, Inc. shall be
designated as the tax matter partner of the Company pursuant to Code Section
6231(a)(7). The tax matters partner shall take such action as may be necessary
to cause each other Member to become a notice partner within the meaning of
Code Section 6223.
ARTICLE XI.
BOOKS AND RECORDS
11.1 ACCOUNTING PERIOD. The Company's accounting period shall be the
calendar year.
11.2 RECORDS, AUDITS AND REPORTS. At the expense of the Company, the
Managers shall maintain records and accounts of all operations and expenditures
of the Company. The Company shall keep at its principal place of business the
following records:
(a) A current list of the full name and last known address of
each Member and Manager;
(b) Copies of records to enable a Member to determine the
relative voting rights, if any;
(c) A copy of the Articles of Organization of the Company and all
amendments thereto;
(d) Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the three most recent years;
(e) Copies of the Company's written Operating Agreement, together
with any amendments thereto;
(f) Copies of any financial statements of the Company for the
three most recent years.
11.3 TAX RETURNS. So long as WGGL Corp. is a Class B Member, the
Managers shall cause WGGL Corp. to prepare and timely file all tax returns
required to be filed by the Company pursuant to the Code and all other tax
returns deemed necessary and required in each jurisdiction in which the Company
does business. Schedules K-1 or estimated tax information if the Company's
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tax returns are not yet finalized shall be furnished to the Members by March
15th after the end of the Company's Fiscal Year and Schedules K-1 shall in all
events be furnished to the Members no later than one hundred eighty (180) days
following the end of the Company's Fiscal Year. Class A Member shall have the
right to approve all tax returns.
11.4 FINANCIAL STATEMENTS. So long as WGGL Corp. is a Class B Member,
the Managers shall cause WGGL Corp. to prepare an annual audit of the Company's
books and records through the use of a nationally recognized accounting firm
which audit shall be completed and distributed to each of the Members no later
than one hundred twenty (120) days following the end of each Fiscal Year. The
audited financial statements shall be distributed to each of the Members within
thirty (30) days following the receipt thereof by the Managers.
11.5 PREPARATION OF RETURNS AND AUDITS. So long as WGGL Corp. holds a
Class B Membership Interest, it shall prepare all tax returns and audits of the
Company's books and records.
ARTICLE XII.
TRANSFERABILITY
12.1 PERMITTED TRANSFERS. A Member may transfer all or part of its
Membership Interest to any Person who is not an Affiliate of such Member or who
is not a Member, only with the prior written consent of any Manager and all
other Members, which consent shall not be unreasonably withheld.
12.2 ADMISSION OF TRANSFEREES AS MEMBER. Any Person who is a
transferee of a Membership Interest pursuant to this Article XII and who is not
a Member of the Company shall possess only the economic rights attributable to
the transferred Membership Interest and shall not be a Member until:
(a) the transferee executes a counterpart to this Operating
Agreement; and
(b) the Company receives from the transferee the information and
agreements that the Managers may reasonably require, including, but not limited
to, the taxpayer identifying number and any agreement that may be required by
any Taxing Jurisdiction.
Unless and until such transferee is admitted as a Member, the voting rights of
the Membership Interest shall be suspended.
12.3 REDEMPTION RIGHT. The Class B Member shall have the right (the
"Redemption Right") at any time after the fifth anniversary of the date on
which it makes its Initial Capital Contribution (or at any time on or after
such earlier date on which the Redemption Right becomes exercisable pursuant to
Section 5.14 hereof), to require the Company to redeem its entire Membership
Interest at a redemption price equal to the sum of the Class B Member's
Unrepaid Class B Member Capital Contributions, Unpaid Class B Member First
Preferred Return plus the Unpaid Class B Member Second Preferred Return, all
computed through the date on which the redemption of the Class B Member's
Membership Interest occurs. The Redemption Right shall be exercised
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pursuant to a Notice delivered to all Managers by the Class B Member. The
redemption price shall be payable in full in cash to the Class B Member no
later than one hundred eighty (180) days following the date of the Notice to
the Managers that the Class B Member is exercising its Redemption Right.
12.4 EFFECT OF CERTAIN DISTRIBUTIONS TO CLASS B MEMBER. At such time
that the Class B Member has received distributions hereunder of the sum of the
Class B Member's Unrepaid Class B Member Capital Contributions, Unpaid Class B
Member First Preferred Return plus the Unpaid Class B Member Second Preferred
Return, all computed through the date on which the last such distribution to
the Class B Member occurs, the Membership Interest of the Class B Member shall
be terminated and the Class B Member shall have no further rights hereunder as
a Member of the Company.
12.5 WITHDRAWAL EVENTS.
(a) The Company shall not be dissolved upon the Bankruptcy,
dissolution, death, or adjudication of incompetency of a Member (any of which
events being hereinafter referred to as a "Withdrawal Event" and the Member
with respect to whom the Withdrawal Event occurred being hereinafter referred
to as the "Withdrawing Member"), and the occurrence of a Withdrawal Event shall
not, in and of itself, trigger the dissociation of the Withdrawing Member.
(b) If a Member who is an individual dies or a court of competent
jurisdiction adjudges him to be incompetent to manage his or her person or his
or her property, the Member's executor, administrator, guardian, conservator,
or other legal representative may exercise all of the Member's rights for the
purpose of settling his or her estate or administering his or her property.
(c) Upon a Withdrawal Event with respect to any Member, the
Managers shall admit the successor-in-interest of the Withdrawing Member as a
Member succeeding to all rights of the Withdrawing Member; provided, however,
that if the Withdrawing Member was a Manager, a successor Manager shall be
designated pursuant to Section 5.11. The admission of a successor-in-interest
of a Withdrawing Member as a Member, without more, shall not release the
Withdrawing Member from any liability or obligations to the Company or to the
other Members that existed prior to such admission.
(d) Section 14-11-405 of the Georgia Act which provides for the
payment of the fair market value of a Member's interest in the Company upon an
event of dissociation (other than the voluntary withdrawal of a Member or the
redemption or transfer of a Member's Membership Interest) that does not result
in dissolution shall not create any obligation of the Company to pay the fair
market value of a Withdrawing Member's Membership Interest upon the occurrence
of a Withdrawal Event.
24
<PAGE> 30
ARTICLE XIII.
DISSOLUTION AND TERMINATION
13.1 DISSOLUTION.
(a) The Company shall be dissolved upon the occurrence of any of
the following events:
(i) by the approval of the Class A Members owning a Majority
Interest of the Class A Members and the Class B Member;
or
(ii) upon the sale of all or substantially all of the assets
of the Company.
(b) Except as expressly provided herein with respect to the
Redemption Right of the Class B Member, no Member shall have the right to
voluntarily withdraw from the Company under Section 14-11-601(c) of the Georgia
Act or otherwise. Damages for breach of this Section 13.1(b) shall be monetary
damages only (and no specific performance), and such damages may be offset
against distributions by the Company to which the Withdrawing Member would
otherwise be entitled.
13.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease
to carry on its business, except as permitted by Georgia Act Section 14-11-605.
Upon dissolution, the Managers shall file a statement of commencement of
winding up pursuant to Georgia Act Section 14-11-606 and publish the notice
permitted by Georgia Act Section 14-11-608.
13.3 WINDING UP, LIQUIDATION AND DISTRIBUTION OF ASSETS.
(a) Upon dissolution, an accounting shall be made by the
Company's independent accountants of the accounts of the Company and of the
Company's assets, liabilities and operations, from the date of the last
previous accounting until the date of dissolution. The Managers shall
immediately proceed to wind up the affairs of the Company.
(b) If the Company is dissolved and its affairs are to be wound
up, the Managers shall:
(i) Sell or otherwise liquidate all of the Company's assets
as promptly as practicable (except to the extent the
Managers may determine to distribute any assets to the
Members in kind),
(ii) Allocate any profit or loss resulting from such sales to
the Members in accordance with Article X hereof,
(iii) Discharge all liabilities of the Company, including
liabilities to Members who are creditors, to the extent
permitted by law, other than liabilities to Members for
distributions, and establish such Reserves as may be
reasonably necessary to provide for contingent
liabilities of the Company,
(iv) The remaining assets shall be distributed to the Members
in accordance with their positive Capital Account
balances, either in cash or in kind as determined by the
Managers, with any assets distributed in kind being
valued for this purpose at their fair market value. Any
distributions to the Members in respect of
25
<PAGE> 31
their Capital Accounts shall be made in accordance with
the time requirements set forth in Regulations Section
1.704-1(b)(2)(ii)(b)(2).
(c) If any assets of the Company are to be distributed in kind,
the net fair market value of such assets as of the date of dissolution shall be
determined by independent appraisal or by agreement of the Members. Such assets
shall be deemed to have been sold as of the date of dissolution for their fair
market value, and the Capital Accounts of the Members shall be adjusted
pursuant to the provisions of this Operating Agreement to reflect such deemed
sale.
(d) Notwithstanding anything to the contrary in this Operating
Agreement, upon a liquidation within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), if any Member has a deficit Capital Account (after giving
effect to all contributions, distributions, allocations and other Capital
Account adjustments for all taxable years, including the year during which such
liquidation occurs), such Member shall have no obligation to make any Capital
Contribution, and the negative balance of such Member's Capital Account shall
not be considered a debt owed by such Member to the Company or to any other
Person for any purpose whatsoever.
(e) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
(f) The Managers shall comply with any applicable requirements of
applicable law pertaining to the winding up of the affairs of the Company and
the final distribution of its assets.
13.4 CERTIFICATE OF TERMINATION. When all debts, liabilities and
obligations have been paid and discharged or adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, a Certificate of Termination may be executed and filed with the
Secretary of State of Georgia in accordance with Georgia Act Section 14-11-610.
13.5 RETURN OF CONTRIBUTION NONRECOURSE TO OTHER MEMBERS. Except as
provided by law or as expressly provided in this Operating Agreement upon
dissolution, each Member shall look solely to the assets of the Company for the
return of his Capital Contribution. If the Company property remaining after the
payment or discharge of the debts and liabilities of the Company is
insufficient to return the cash contribution of one or more Members, such
Member or Members shall have no recourse against any other Member.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1 BOOKS OF ACCOUNT AND RECORDS. Proper and complete records and
books of account shall be kept or shall be caused to be kept by the Managers in
which shall be entered fully and accurately all transactions and other matters
relating to the Company's business in such detail and completeness as is
customary and usual for businesses of the type engaged in by the Company. The
books and records shall be at all time be maintained at the principal executive
office of the Company and shall be open to the reasonable inspection and
examination of the Members or their duly authorized representatives during
reasonable business hours.
26
<PAGE> 32
14.2 APPLICATION OF GEORGIA LAW. This Operating Agreement, and the
application or interpretation hereof, shall be governed exclusively by its
terms and by the laws of the State of Georgia, and specifically the Georgia
Act.
14.3 DERIVATIVE ACTIONS. Notwithstanding Georgia Act Section
14-11-804, derivative actions brought on behalf of the Company may be
discontinued or settled without court approval.
14.4 NO ACTION FOR PARTITION. No Member has any right to maintain any
action for partition with respect to the property of the Company.
14.5 NOTICES. Except as may otherwise be expressly provided for in
this Operating Agreement, all Notices hereunder shall be in writing and shall
be sent by certified mail, return receipt requested, facsimile, courier, or
overnight delivery service addressed to the parties at the address set forth
herein or to such other address which any party shall have given to the other
party for such purpose. Notices made by facsimile transmission shall be
confirmed by originals sent by overnight delivery service. Any such Notice
shall be deemed to be given on the date of actual delivery if such Notice,
consent or other communication is delivered by hand or overnight courier
service or the date shown on the return receipt as the date of receipt,
rejection or first attempted delivery, if such Notice, consent or other
communication is sent by registered or certified mail.
14.6 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
execute such other statements of interest and holdings, designations, powers of
attorney and other instruments necessary to comply with any laws, rules or
regulations.
14.7 CONSTRUCTION. Whenever the singular number is used in this
Operating Agreement and when required by the context, the same shall include
the plural and vice versa, and the masculine gender shall include the feminine
and neuter genders and vice versa.
14.8 HEADINGS. The headings, titles and captions in this Operating
Agreement are inserted for convenience only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Operating Agreement or any provision hereof and in no way are to be construed
to affect the meaning or construction of this Operating Agreement or any
provision hereof.
14.9 WAIVERS. The failure of any party to seek redress for violation
of or to insist upon the strict performance of any covenant or condition of
this Operating Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
14.10 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided
by this Operating Agreement are cumulative and the use of any one right or
remedy by any party shall not preclude or waive the right to use any or all
other remedies. Such rights and remedies are given in addition to any other
rights the parties may have by law, statute, ordinance or otherwise.
14.11 HEIRS, SUCCESSORS AND ASSIGNS. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, successors
and assigns.
27
<PAGE> 33
14.12 CREDITORS. None of the provisions of this Operating Agreement
shall be for the benefit of or enforceable by any creditors of the Company.
14.13 COUNTERPARTS. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
14.14 EVIDENCE OF MEMBERSHIP INTERESTS. The Membership Interests in
the Company shall be certificated and shall be deemed a "security" governed by
Article 8 of the Georgia Uniform Commercial Code.
14.15 RESTRICTIONS ON ASSIGNMENT OF MEMBERSHIP INTERESTS. The
Membership Interests offered hereunder are or may be considered a "security"
under the Federal Securities Act of 1933, as amended (the "Federal Securities
Act") or the Georgia Securities Act of 1973, as amended (the "Georgia
Securities Act"). However, said interest HAS NOT BEEN REGISTERED under any of
said acts, and no formal prospectus will be distributed to prospective offerees
or purchasers. Instead, the Company will rely on the "private offering"
exemptions from registration which are available under the Federal Securities
Act and the Georgia Securities Act. Accordingly, the initial purchaser and any
subsequent permitted assignee or purchaser of any Membership Interest covenants
and warrants that he is acquiring the security solely for his own account for
investment and not with a view to, or for resale in connection with, any
distribution of such security within the meaning of the Federal Securities Act
and the Georgia Securities Act and that he does not at the time of acquisition
intend to resell, assign or otherwise dispose of all or any part of said
security except as otherwise provided herein. Each purchaser of a Membership
Interest must bear the economic risk of his investment for an indefinite period
of time, because said interest has not been registered and, therefore, CANNOT
BE SOLD, unless it is subsequently registered or a valid exemption from
registration is available.
14.16 AMENDMENTS. Amendments to this Operating Agreement shall be made
in writing and approved in writing by all Members.
14.17 INVALIDITY. The invalidity or unenforceability of any particular
provision of this Operating Agreement shall not affect the other provisions
hereof, and the Operating Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted. If any particular
provision herein is construed to be in conflict with the provisions of the
Georgia Act, the Georgia Act shall control and such invalid or unenforceable
provisions shall not affect or invalidate the other provisions hereof, and this
Operating Agreement shall be construed in all respects as if such conflicting
provision were omitted.
14.18 ARBITRATION. Any dispute, controversy or claim arising out of or
in connection with, or relating to, this Operating Agreement or any breach or
alleged breach hereof shall, upon the request of any party involved, be
submitted to, and settled by, arbitration in the City of Atlanta, State of
Georgia, pursuant to the commercial arbitration rules then in effect of the
American Arbitration Association (or at any time or at any other place or under
any other form of arbitration mutually acceptable to the parties so involved).
Any award rendered shall be final and conclusive upon the parties and a
judgment thereon may be entered in the highest court of the forum, state or
federal, having jurisdiction. The expenses of the arbitration shall be borne
equally by the parties to the arbitration, provided that each party shall pay
for and bear the cost of his own experts, evidence and
28
<PAGE> 34
counsel's fees, except that in the discretion of the arbitrator, any award may
include the cost of a party's counsel if the arbitrator expressly determines
that the party against whom such award is entered has caused the dispute,
controversy or claim to be submitted to arbitration as a dilatory tactic.
14.19 FURTHER ASSURANCES. The Members each agree to cooperate and to
execute and deliver in a timely fashion any and all additional documents
necessary to effectuate the purposes of the Company and this Operating
Agreement.
14.20 TIME. TIME IS OF THE ESSENCE OF THIS OPERATING AGREEMENT, AND TO
ANY PAYMENTS, ALLOCATIONS AND DISTRIBUTIONS SPECIFIED UNDER THIS OPERATING
AGREEMENT.
14.21 ENTITY CHARACTERIZATION. It is the intention of the Members that
the Company be treated as a partnership for income tax purposes. Pursuant to
Regulations Section 301.7701-3(b)(iii), which became effective January 1, 1997,
the Company expects to be treated as a partnership for tax purposes. The
Managers are authorized to make a protective election to be treated as a
partnership for federal income tax purposes on IRS Form 8832, Entity
Classification Election, in the manner described in Regulations Section
301.7701-3(c). By executing this Operating Agreement, each of the Members
hereby consents to any election made by the Manages for the Company to be
treated as a partnership for federal income tax purposes.
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[SIGNATURES BEGIN ON NEXT PAGE]
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<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Operating Agreement
as of the day and year first above written.
MEMBERS
W. ASPEN CLUB, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
GALESI WOODLAKE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
PLACE VENTURES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
CREEK VENTURES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
30
<PAGE> 36
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING AGREEMENT OF
GGL VENTURES, LLC]
FRANCESCO GALESI
---------------------------------------
FRANCESCO GALESI IRREVOCABLE
GRANTOR TRUST
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
EASTWICK DEVELOPMENT CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
EQUINOX EQUITIES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
31
<PAGE> 37
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING AGREEMENT OF
GGL VENTURES, LLC]
WASHINGTON AVENUE VENTURES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ROTTERDAM VENTURES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
32
<PAGE> 38
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING AGREEMENT OF
GGL VENTURES, LLC]
WGGL CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
33
<PAGE> 39
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
[SIGNATURE PAGE TO AMENDED AND RESTATED OPERATING AGREEMENT OF
GGL VENTURES, LLC]
MANAGERS
GALESI WOODLAKE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ROTTERDAM VENTURES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
34
<PAGE> 40
EXHIBIT A
CLASS A MEMBERS
<TABLE>
<CAPTION>
Member Initial Capital Contribution Membership Interest
- ------ ---------------------------- -------------------
<S> <C> <C>
W. Aspen Club, Inc. $ 14,425.00 0.0192%
Galesi Woodlake, Inc. 1,282,000.00 1.7093%
Place Ventures, Inc. 34,378.00 0.0458%
Creek Ventures, Inc. 193,698.00 0.2583%
Francesco Galesi 10,557,039.00 14.0761%
Francesco Galesi Irrevocable
Grantor Trust 3,994,999.00 5.3267%
Eastwick Development Corp. 239,651.00 0.3195%
Equinox Equities, Inc. 412,832.00 0.5504%
Washington Avenue
Ventures, Inc. 175,124.00 0.2335%
Rotterdam Ventures, Inc. 3,095,854.00 4.1278%
</TABLE>
A-1
<PAGE> 41
EXHIBIT B
MANAGEMENT AGREEMENT
B-1
<PAGE> 42
EXHIBIT C
LIST OF PROPERTIES
<TABLE>
<CAPTION>
PROPERTY STREET ADDRESS COUNTY STATE
NAME
-------- -------------- ------ -----
<S> <C> <C> <C> <C>
1. The Landings at 6520 Hillandale Drive Gwinnett Georgia
Peachtree Corners
2. Pine Village East 2889 Panthersville Road DeKalb Georgia
3. Pine Village North 2400 Post Village Drive Cobb Georgia
4. Reflections 205 S.W. 75th Street Alachua Florida
5. Summer Crossing 9200 Roberts Drive Fulton Georgia
6. Summer Lake 500 Pleasant Hill Road Gwinnett Georgia
7. Summer Lakeside 6210 Peachtree Dunwoody Fulton Georgia
Road
8. Summer Place 5775 Summer Place Jefferson Alabama
Parkway
9. Summer Ridge 3789 Lawrenceville Gwinnett Georgia
Highway
10. Summercourt 6955 Tara Boulevard Clayton Georgia
11. Summercourt II 6903 Tara Boulevard Clayton Georgia
12. Summerglenn 6425 Oakley Road Fulton Georgia
13. Summeroak 4911 South Cobb Drive Cobb Georgia
14. Summerview 1173 North Hairston Road DeKalb Georgia
15. Summerwind 6955 Tara Boulevard Clayton Georgia
16. Summerwood 680 Park Bridge Parkway Fulton Georgia
17. Turtle Lake 1 Turtle Lake Drive Shelby Alabama
</TABLE>
C-1
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement"), dated as of July 1, 1998, by
and between WALDEN RESIDENTIAL PROPERTIES, INC., a Maryland corporation
("Company") and ROBIN K. MINICK ("RKM").
RECITALS:
A. Company desires to employ RKM and RKM desires to accept employment
by the Company in the capacity as "In-House Counsel" to the Company.
B. RKM is willing to render services as In-House Counsel to the Company
on the terms and subject to the conditions set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements set forth herein, the Company and RKM hereby agree as follows:
1. Employment. The Company agrees to and does hereby employ RKM to
perform the duties of Senior Vice President and In-House Counsel, and RKM
accepts such employment, upon the terms and conditions set forth below. RKM also
shall be elected as the duly authorized Senior Vice President of the Company,
with full signatory authority as a duly elected officer of the Company.
2. Term. The term of this Agreement shall be the period commencing as
of the date hereof and continuing thereafter for a period of three (3) years (as
extended as hereinafter provided, the "Term"); provided, however, that at the
end of the such three (3) year period and each anniversary date thereafter, the
Term automatically will be extended for an additional one (1) year unless, not
later than sixty (60) days prior to the end of such three (3) year period or any
such anniversary date, as the case may be, the Company or RKM shall have given
notice that Company or RKM, as the case may be, does not wish to have the Term
extended.
3. Duties and Services.
a. RKM agrees to serve the Company as the In-House Counsel and
Senior Vice President and to devote her full time, attention and energies to the
business of the Company and will not, without the prior written consent of the
Board of the Directors of the Company ("Board"), be engaged (whether or not
during normal business hours) in any other business or professional activity,
whether or not such activities are pursued for gain, profit or pecuniary
advantage. Notwithstanding the foregoing, RKM will not be prevented from (i)
engaging in any civic or charitable activity for which RKM receives no
compensation or other pecuniary advantage; (ii) investing her personal assets in
businesses which do not directly compete with the Company provided that such
investment
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 1
<PAGE> 2
will not require any services on the part of RKM in the operation of the affairs
of the businesses in which investments are made and provided further that RKM's
participation in such businesses is solely that of an investor; (iii) purchasing
securities in any corporation whose securities are regularly traded, provided
that such purchases will not result in RKM owning beneficially at any time five
percent (5%) or more of the equity securities of any corporation engaged in a
business directly competitive with that of the Company; or (iv) participation in
any other activity approved in advance in writing by the Board. RKM also agrees
to perform from time to time such other executive services as the Company shall
reasonably request, provided that such services shall be consistent with her
position and status as In-House Counsel and Senior Vice President of the
Company. In attending to the business and affairs of the Company, RKM agrees to
serve the Company faithfully, diligently and to the best of her ability.
b. The duties and responsibilities of RKM shall be
commensurate with those of the in-house counsel and senior vice president of any
large, publicly-held corporation similar to the Company that is a multi-family
real estate investment trust traded on the New York Stock Exchange.
4. Compensation.
a. As consideration for the services to be rendered hereunder
by RKM, the Company agrees to pay to RKM, and RKM agrees to accept, payable in
accordance with the Company's standard payroll practices for officers, but
payable in not less than monthly installments, compensation of One Hundred
Thirty Thousand Dollars ($130,000) per annum or such greater amount as may be
determined from time to time by the Board pursuant to performance reviews to be
conducted on an annual basis or such shorter time period as the Board shall deem
appropriate (the "Salary").
b. Company further agrees to pay to RKM, as additional
compensation, on or before January 1st of each year during the Term, a minimum
amount of Seventy Thousand Dollars ($70,000) ("Additional Compensation"),
payable in such combinations of cash, options and securities as Company and RKM
shall agree. Notwithstanding the foregoing, the minimum Additional Compensation
due for the initial year of the Term shall be Sixty Thousand Dollars ($60,000).
Such Additional Compensation shall be in addition to any amounts provided in
subparagraph c. below and may be increased as may be determined from time to
time by the Board pursuant to performance reviews to be conducted on an annual
basis or such shorter time period as the Board shall deem appropriate. (Salary
and Additional Compensation hereinafter are collectively referred to as the
"Compensation".)
c. Company further agrees to deliver to RKM, no later than the
time of the next meeting following the effective date of this Agreement of the
Compensation Committee of the Board, 40,000 stock options under the Company's
Amended and Restated 1994 Stock Option Plan.
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 2
<PAGE> 3
d. RKM shall be eligible to participate in the Corporate
Associates Bonus Program of the Company and any such bonuses shall be calculated
based on RKM's Compensation.
5. Termination for Cause.
a. In the event that RKM shall be discharged for "Cause" as
provided in Section 5(b) hereof, all compensation payable to RKM pursuant to
Section 4 in respect of periods after such discharge shall terminate immediately
upon such discharge, and the Company shall have no obligations with respect
thereto, nor shall the Company be obligated to pay RKM severance compensation
under Section 7 hereof.
b. For the purposes of this Agreement, "Cause" shall mean
that, prior to any termination pursuant to Section 5(a) hereof, RKM shall have
committed:
(i) an intentional act or acts of fraud, embezzlement
or theft constituting a felony and resulting or
intended to result directly or indirectly in gain or
personal enrichment for RKM at the expense of the
Company, all as determined by a court of competent
jurisdiction in a final order that is non-appealable;
or
(ii) the continued, repeated, intentional and willful
refusal to perform the duties associated with RKM's
position with the Company, which is not cured within
fifteen (15) days following written notice received
by RKM.
For purposes of this Agreement, no act or failure to act on the part of RKM
shall be deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted to be done
by RKM not in good faith and without reasonable belief that her action or
omission was in the best interest of the Company.
RKM shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to RKM a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the Board
then in office at a meeting of the Board called and held for such purpose, after
reasonable notice to RKM and an opportunity for RKM, together with her counsel
(if RKM chooses to have counsel present at such meeting), to be heard before the
Board, finding that, in the good faith opinion of the Board, RKM had committed
an act constituting "Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of RKM or her
beneficiaries to contest the validity or propriety of any such determination.
6. Termination Without Cause. Either the Company or RKM may terminate
her employment without Cause, but only upon delivery to the other party of a
written notice of termination specifying a termination date at least thirty (30)
days, but not more than sixty
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 3
<PAGE> 4
(60) days, after the date of delivery of such notice. RKM may elect to terminate
her employment under this Section 6 at any time prior to receiving the Board
resolution described in Section 5(b) hereof notwithstanding that the Company
claims a right to terminate RKM under Section 5(a) hereof and such election by
RKM shall be binding on both parties.
7. Termination Compensation.
a. If, during the Term, RKM's employment is terminated (i) for
any reason other than (A) pursuant to Section 5(a) hereof, (B) by reason of
death, (C) by reason of Disability (hereinafter defined) or (D) by notice by RKM
pursuant to Section 6 hereof or (ii) by RKM due to Constructive Discharge
(hereinafter defined), then RKM shall receive termination pay in an amount equal
to the highest annualized rate of RKM's total compensation prior to the date of
termination, payable in cash within five (5) business days of the date of
termination.
b. For the purposes of this Agreement, "Constructive
Discharge" shall mean:
(i) any reduction in Salary;
(ii) a material reduction in RKM's job function, authority,
duties or responsibilities, or a similar change in RKM's
reporting relationships;
(iii) a required relocation of RKM of more than 25 miles from
RKM's current job location;
(iv) any breach of any of the terms of this Agreement by the
Company which is not cured within fifteen (15) days following
written notice thereof by RKM to the Company; or
(v) in the event of a "Change of Control" (as hereinafter
defined) RKM has reasonably determined that, as a result of a
change in circumstances following the Change of Control of the
Company, that significantly affect her employment, she is
unable to exercise the authority, proven duties and
responsibilities contemplated by Section 3 hereof;
provided, however, that the term "Constructive Discharge" shall not include a
specific event described in the preceding clause (i), (ii), (iii), (iv) or (v)
unless RKM actually terminates her employment with the Company within sixty (60)
days after the occurrence of such event.
c. The amount of compensation payable pursuant to this Section
7 is not subject to any deduction (except for withholding taxes), reduction,
offset or counterclaim, and the Company may not give advance notice of
termination in lieu of the payment provided for in this Section 7.
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 4
<PAGE> 5
8. Termination in the Event of Death. This Agreement shall terminate
automatically upon the death of RKM. In such event, the Company shall pay to
RKM's legal representative only the base salary due to RKM up to the date of
termination as well as incentive bonuses, which have accrued through the date of
termination, and benefits payable pursuant to this Agreement.
9. Termination in the Event of Disability. If during the Term, RKM
becomes physically or mentally disabled so as to become unable, for a period of
more than six (6) consecutive months, to perform her duties hereunder on
substantially a full time basis ("Disability"), the Company may at its option
terminate RKM's employment hereunder upon not less than thirty (30) days=
written notice. In the event of such termination, RKM shall be entitled to
continue to receive her base salary and benefits, excluding any incentive
bonuses (except those that have accrued prior to the date of such Disability
which shall be specifically included), for a period equal to the lesser of (a)
twenty-four (24) months from the date of termination and (b) the remainder of
the Term, and then shall receive such benefits as are available to senior
officers of the Company under any applicable disability plan.
10. Change in Control of the Company.
a. If a Change in Control (hereinafter defined) of the Company
occurs upon or prior to the scheduled expiration of the Term and within three
(3) years after the Change in Control of the Company (i) RKM is terminated by
the Company for reasons other than (A) death, (B) Disability or (C) Cause or
(ii) RKM terminates her employment as a result of Constructive Discharge, the
Company, within thirty (30) days of RKM's termination of employment, will pay to
RKM, in lieu of any severance obligation under Section 7 hereof, an amount equal
to two (2) times RKM's total compensation, which, for purposes of this Section
10, shall mean an amount equal to the highest annualized rate of RKM's total
compensation prior to the date of termination.
b. For purposes of this Agreement, a "Change in Control" shall
have occurred if at any time during the Term any of the following events occurs:
(i) The Company is merged, consolidated or
reorganized into or with another corporation or other
legal person and as a result of such merger,
consolidation or reorganization less than a majority
of the combined voting power of the then-outstanding
securities of such corporation or person immediately
after such transaction are held in the aggregate by
the holders of Voting Stock (hereinafter defined) of
the Company immediately prior to such transaction;
(ii) The Company sells all or substantially all of
its assets to any other corporation or other legal
person, less than a majority of the combined voting
power of the then-outstanding voting securities
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 5
<PAGE> 6
of which are held in the aggregate by the holders of
Voting Stock of the Company immediately prior to such
sale;
(iii) There is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or
report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the
"Exchange Act"), disclosing that any person (as the
term "person" is used in Section 13(d)(3) or 14(d)(2)
of the Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined under Rule
13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of securities representing
twenty-five percent (25%) or more of the combined
voting power of the then-outstanding securities of
the Company entitled to vote generally in the
election of directors of the Company ("Voting
Stock");
(iv) The Company files a report or proxy statement
with the Securities and Exchange Commission ("SEC")
pursuant to the Exchange Act disclosing in response
to Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) that a
change in control of the Company has or may have
occurred or will or may occur in the future pursuant
to any then-existing contract or transaction; or
(v) If during any period of two (2) consecutive
years, individuals who at the beginning of any such
period constitute the directors of the Company cease
for any reason to constitute at least a majority
thereof unless the election, or the nomination for
election by the Company's stockholders, of each
director of the Company first elected during such
period was approved by a vote of at least two-thirds
(2/3) of the directors of the Company then still in
office who were directors of the Company at the
beginning of any such period.
Notwithstanding the foregoing provisions of Sections 10(b)(iii) or
10(b)(iv) hereof, a "Change in Control" shall not be deemed to have occurred for
purposes of this Agreement solely because the Company, an entity in which the
Company directly or indirectly beneficially owns fifty percent (50%) or more of
the voting securities of such entity, any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company either files or
becomes obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D- 1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act, disclosing
beneficial ownership by it of shares of voting securities of the Company,
whether in excess of twenty-five percent (25%) or otherwise, or because the
Company, reports that a change in control of the Company has or may have
occurred or will or may occur in the future by reason of such beneficial
ownership.
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 6
<PAGE> 7
11. Certain Additional Payments by the Company.
a. Anything in the Agreement to the contrary notwithstanding,
in the event that it shall be determined (as hereinafter provided) that any
payment or distribution by the Company to or for the benefit of RKM, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement (a "Payment"), would be subject to the excise tax
imposed by Section 4999 (or any successor provision thereto) of the Internal
Revenue Code of 1986, as amended (the "Code"), or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereafter collectively referred to as the "Excise Tax"), then RKM
shall be entitled to receive an additional payment or payments (" a Gross-Up
Payment") in an amount such that, after payment by RKM of all taxes (including
any interest or penalties imposed with respect to such taxes), including any
Excise Tax imposed upon the Gross-Up Payment, RKM retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
b. All determinations required to be made under this Section
11, including whether an Excise Tax is payable by RKM and the amount of such
Excise Tax and whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by a nationally recognized firm of certified
public accountants (the "Accounting Firm") selected by RKM in her sole
discretion. RKM shall direct the Accounting Firm to submit its determination and
detailed supporting calculations to both the Company and RKM within fifteen (15)
calendar days after the termination date, if applicable, or such earlier time or
times as may be requested by the Company or RKM. If the Accounting Firm
determines that any Excise Tax is payable by RKM, the Company shall pay the
required Gross-Up Payment to RKM within five (5) business days after receipt of
such determinations and calculations. If the Accounting Firm determines that no
Excise Tax is payable by RKM, it shall, at the same time as it makes such
determination, furnish RKM with an opinion that she has substantial authority
not to report any Excise Tax on her federal income tax return. Any determination
by the Accounting Firm as to the amount of the Gross-Up Payment shall be binding
upon the Company and RKM. As a result of the uncertainty in the application of
Section 4999 of the Code (or any successor provision thereto) at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made (an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that RKM is required to make a payment of any Excise
Tax, RKM shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and RKM as promptly as possible. Any
such Underpayment shall be promptly paid by the Company to, or for the benefit
of, RKM within five (5) business days after receipt of such determination and
calculations.
c. The Company and RKM shall each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 7
<PAGE> 8
Company or RKM, as the case may be, reasonably requested by the Accounting Firm,
and otherwise cooperate with the Accounting Firm in connection with the
preparation and issuance of the determination contemplated by Section 11(b)
hereof.
d. The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 11(b) hereof shall be borne by the Company. If such fees and expenses
are initially paid by RKM, the Company shall reimburse RKM the full amount of
such fees and expenses within five (5) business days after receipt from RKM of a
statement therefor and reasonable evidence of her payment thereof.
12. Life Insurance. The Company shall, at its sole expense, obtain and
maintain in full force and effect life insurance on RKM's life in an amount
equal to once RKM's total compensation, payable to a beneficiary of RKM's
choice.
13. Other Benefits.
a. Except as expressly provided herein, this Agreement shall
not:
(i) be deemed to limit or affect the right of RKM to
receive other forms of additional compensation or to
participate in any insurance, retirement, disability,
profit-sharing, stock purchase, stock option, stock
appreciation rights, cash or stock bonus or other
plan or arrangement or in any other benefits now or
hereafter provided by the Company or any of the
Company's affiliated companies for its officers; or
(ii) be deemed to be a waiver by RKM of any vested
rights which RKM may have or may hereafter acquire
under any employee benefit plan or arrangement of the
Company or any of the Company's affiliated companies.
b. Company shall provide the same benefits to RKM, including
health insurance as are provided to any other officer of the Company.
c. It is contemplated that, in connection with her employment
hereunder, RKM may be required to incur reasonable business, entertainment and
travel expenses. The Company agrees to reimburse RKM in full for all reasonable
and necessary business, entertainment and other related expenses, including
travel expenses, incurred or expended by her incident to the performance of her
duties hereunder, upon submission by RKM to the Company of such vouchers or
expense statements satisfactorily evidencing such expenses as may be reasonably
requested by the Company.
d. It is understood and agreed by the Company that during the
Term, RKM shall be entitled to annual paid vacations (taken consecutively or in
segments), and
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 8
<PAGE> 9
paid personal days, the length and number of which shall be consistent with the
effective discharge of RKM's duties and the general customs and practices of the
Company applicable to its officers.
e. It is understood and agreed by the Company that, in
connection with RKM's position as In-House Counsel to the Company, RKM will be
required to maintain certain licenses, association affiliations and professional
liability insurance to effectively and legally discharge her duties to the
Company. Company agrees to pay all dues and membership fees relative to the
maintenance of such licenses and memberships and all premiums related to any
such insurance.
14. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible (a) for RKM to find reasonably
comparable employment following the date of termination, and (b) to measure the
amount of damages which RKM may suffer as a result of termination of employment
hereunder. Accordingly, the payment of the termination compensation by the
Company to RKM in accordance with the terms of this Agreement is hereby
acknowledged by the Company to be reasonable and will be liquidated damages, and
RKM will not be required to mitigate the amount of any payment provided for in
this Agreement by seeking other employment or otherwise, nor will any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on the part of RKM
hereunder or otherwise.
15. Confidentiality.
a. Recognizing that the knowledge and information about the
business methods, systems, plans and policies of the Company and of its
affiliated companies which RKM has heretofore and shall hereafter receive,
obtain or establish as an employee of the Company or its affiliated companies
are valuable and unique assets of the Company and its affiliated companies, RKM
agrees that she shall not (otherwise than pursuant to her duties hereunder)
disclose, without the written consent of the Company, any confidential knowledge
or information pertaining to the Company or its affiliated companies, or their
business, personnel or plans, to any person, firm, corporation or other entity,
which would result in any material harm or damage to the company, its business
or prospects, for any reason or purpose whatsoever, unless required by law or
legal process. In the event RKM is required by law or legal process to provide
documents or disclose information, she shall, at Company's expense, take all
reasonable steps to maintain confidentiality of documents and information
including notifying the Company and giving it an opportunity to seek a
protective order, at its sole cost and expense. Company agrees to indemnify RKM
with respect to any costs and expenses (including reasonable attorneys' fees)
incurred by RKM in connection with any such required provision or disclosure.
b. The provisions of this Section 15 shall survive the
expiration or termination of this Agreement, without regard to the reason
therefor, for a period of two (2) years from the earlier of (i) expiration of
the Term or (ii) termination of RKM's employment with the Company.
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 9
<PAGE> 10
16. Legal Fees and Expenses. It is the intent of the Company that RKM
not be required to incur legal fees and related expenses associated with the
interpretation, enforcement or defense of RKM's rights under this Agreement by
litigation or otherwise because the cost and expense thereof would substantially
detract from the benefits intended to be extended to RKM hereunder. Accordingly,
if it should appear to RKM that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes or threatens to take any action to declare this Agreement void or
unenforceable or in any way reduce the possibility of collecting the amounts due
hereunder, or institutes any litigation or other action or proceeding designed
to deny, or to recover from, RKM any payments or benefits provided hereunder,
the Company irrevocably authorizes RKM from time to time to retain counsel of
RKM's choice, at the expense of the Company as hereafter provided, to advise and
represent RKM in connection with any such interpretation, enforcement or
defense, including, without limitation, the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. The Company will pay and be solely financially responsible for
any and all attorneys= and related fees and expenses incurred by RKM in
connection with any of the foregoing, except only in the event of litigation
where the Company prevails on all causes of action by virtue of a final and
non-appealable order from a court of competent jurisdiction.
17. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.
18. Successors and Binding Agreement.
a. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to RKM, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent the Company
would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including, without limitation, any persons acquiring
directly or indirectly all or substantially all of the business or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes of
this Agreement), but will not otherwise be assignable, transferable or delegable
by the Company.
b. This Agreement will inure to the benefit of and be
enforceable by RKM's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 10
<PAGE> 11
c. This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 18(a) and 18(b) hereof and with respect to the
Company's obligation to pay legal fees and expenses under right to receive
payments hereunder will not be assignable, transferable or delegable, whether by
pledge, creation of a security interest or otherwise, other than by a transfer
by RKM's will or by the laws of descent and distribution and, in the event of
any attempted assignment or transfer contrary to this Section 18(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated, except with respect to legal fees and expenses, as and
to the extent provided in Section 16 hereof. Any transfer or attempted transfer
contrary to this Section 18 shall be void ab initio.
19. Notices. For all purposes of this Agreement, all communications,
including, without limitation, notices, consents, requests or approvals,
required or permitted to be given hereunder will be in writing and will be
deemed to have been duly given when hand delivered or dispatched by electronic
facsimile transmission (with receipt thereof orally confirmed), or five (5)
business days after having been mailed by United States registered or certified
mail, return receipt requested, postage prepaid, or three (3) business days
after having been sent by a nationally recognized overnight courier services
such as Federal Express, UPS or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at the address set forth on the
signature pages of this Agreement and to RKM at the address set forth on the
signature pages of this Agreement, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
20. Governing Law. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Texas, without giving effect to the
principles of conflict of laws of such State. Venue with respect to this
Agreement shall be held in Dallas County, Texas.
21. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
22. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by RKM and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 11
<PAGE> 12
hereof have been made by either party which are not set forth expressly in this
Agreement. Except as otherwise identified, references to Sections are references
to Sections of this Agreement.
23. Survival of Certain Provisions. Notwithstanding anything herein to
the contrary, the obligations of the Company under Sections 7, 9, 10, 11, 13 and
16 hereof, to the extent applicable, shall remain operative and in full force
and effect regardless of the expiration, for any reason, of the Term.
24. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
25. Warranty. RKM warrants and represents that she is not a party to
any agreement, contract or understanding, whether or employment or otherwise,
which would in any way restrict or prohibit her from undertaking or performing
employment in accordance with the terms and conditions of this Agreement.
26. Board Approval. By executing this Agreement, the Company
acknowledges that this Agreement has been reviewed and approved by the
Compensation Committee of the Board.
27. Support Personnel. RKM shall have the right to hire, with the
consent and approval of the Chief Financial Officer, such personnel as RKM may
reasonably require to perform her duties as In-House Counsel to the Company. The
Company initially shall employ Cathleen S. Cox as a paralegal with such duties
and responsibilities as RKM shall reasonably determine.
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
WALDEN RESIDENTIAL PROPERTIES, INC.,
a Maryland corporation
By:
---------------------------------
Marshall B. Edwards
Chief Executive Officer
Address:
5080 Spectrum Centre
Suite 1000 East
Dallas, Texas 75248
------------------------------------
ROBIN K. MINICK
Address:
3371 Darbyshire
Dallas, Texas 75229
EMPLOYMENT AGREEMENT---ROBIN K. MINICK PAGE 13
<PAGE> 1
EXHIBIT 10.7
PURCHASE AND SALE AGREEMENT
LAKEVIEW AT OCOTILLO APARTMENTS
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is entered into as of
the 31st day of July, 1998, executed by and between Walden Residential
Properties, Inc., a Maryland corporation ("Purchaser") and Lakeview Ocotillo,
L.L.C., an Arizona limited liability company ("Seller").
RECITALS:
A. Seller is or will be the owner of the Land (hereinafter defined)
and intends to develop the Land and construct the Improvements
(hereinafter defined) on the Land.
B. Purchaser has agreed to purchase the Property (hereinafter
defined) on the terms and conditions set forth in this Agreement
at a predetermined Purchase Price (hereinafter defined).
C. Generally, the transactions contemplated by this Agreement shall
be structured as a presale transaction whereby the Seller will
construct the Improvements and own the Property until the Final
Closing (hereinafter defined). Seller will sell the Property to
Purchaser at the Final Closing.
D. The Initial Closing (hereinafter defined) will include the
purchase of the Land by Seller and the execution of certain
documents, including, but not limited to, this Agreement, the
Construction Loan Agreement (hereinafter defined), the Purchaser
Note (hereinafter defined), the Deed of Trust (hereinafter
defined), the Guaranty (hereinafter defined) and the Management
Agreement (hereinafter defined).
E. Purchaser will arrange (or provide) one hundred percent (100%) of
the Construction Loan (hereinafter defined) wherein the Seller
will be the "Borrower". Purchaser shall have the right to be the
lender for all or any part of the Construction Loan, and will be
the lender at least for the Initial Closing. The Construction Loan
shall be on terms and conditions reasonably acceptable to Seller
and Purchaser, which shall include a loan fee not to exceed three
quarters of one (.75) point and an interest rate not to exceed
Libor plus 1.50%. Guarantors (hereinafter defined) will guarantee
the construction contract at $13,264,182 and construction
completion. Seller and Guarantors shall execute such documents as
may be required by the Construction Lender to obtain the
Construction Loan, subject to each party's reasonable approval.
PURCHASE AND SALE AGREEMENT PAGE 1
<PAGE> 2
F. Purchaser and Seller shall enter into the Management Agreement,
pursuant to which Purchaser will perform lease-up and management
of the Property. The Management Agreement shall provide that the
Purchaser, as manager, can be terminated and the Final Closing
triggered at an earlier date ("Management Termination Date") if
Purchaser has failed to meet projections on the number of occupied
units obtained per month on a cumulative basis; provided, however,
Purchaser will not be held responsible for rent levels per unit.
Notwithstanding the foregoing, Purchaser cannot be terminated if
any pro forma variance is due to delayed construction. Purchaser
further cannot be given notice of termination and triggering of
the Management Termination Date ("Management Termination Notice")
earlier than five (5) months following Substantial Completion
(hereinafter defined). The Seller will be responsible for all
operating deficits arising out of the operation of the Property
and the Seller will deposit any Positive Cash Flow (hereinafter
defined) after debt service in an account ("PCF Account") for use
in final sale prorations. After Final Closing prorations, any
Positive Cash Flow remaining in the PCF Account will be delivered
to Seller.
G. Purchaser will advance funds to the Seller ("Interest Rate
Coverage Funding") if the interest reserve in the Construction
Loan is depleted prior to Final Closing due to an increase in
interest rates over the interest rate used to compute the interest
reserve in the projected development cost ("Proforma Interest
Rate"). Notwithstanding the foregoing, in the event that
Substantial Completion is delayed beyond September 30, 1999,
Purchaser shall not be obligated to provide the Interest Rate
Coverage Funding for any period following September 30, 1999 and
the actual date of Substantial Completion. The formula to be used
for determining the necessity of Purchaser's funding(s) for
Interest Rate Coverage Funding will be as follows and apply only
if the interest reserve is depleted and the actual interest rate
on the construction financing ("Actual Interest Rate") is higher
than the Proforma Interest Rate: Actual Interest Rate less
Proforma Interest Rate equals interest rate differential for each
month the Actual Interest Rate exceeds the Pro forma Interest
Rate, commencing with the Initial Closing and ending on the Final
Closing, but in no event for months occurring after September 30,
1999 and the actual date of Substantial Completion.
H. The total projected development budget is $21,285,000. A
construction completion schedule is attached hereto as Exhibit
"F". Substantial Completion is anticipated to occur September 30,
1999. Occupancy of the first units in the Improvements is
anticipated to occur in March, 1999.
I. Seller and Developer will enter into the Construction Contract
(hereinafter defined), which will guarantee a construction cost
not to exceed $13,264,182. Such Construction Contract will contain
a contingency of at least 1.50% and a contractor's fee
("Contractor's Fee") not to exceed 5.00% of hard costs. Any excess
funds after construction contracts are "bid" will be put into the
contingency category.
PURCHASE AND SALE AGREEMENT PAGE 2
<PAGE> 3
J. In addition to the Contractor's Fee, the Approved Development
Budget will provide for a developer fee ("Developer Fee") in the
maximum amount of 3.00% of the total development cost. The
Contractor Fee will be paid pro rata during the course of
construction less a retainage of ten percent (10.00%). Such
retainage will be held and paid at Substantial Completion. The
Developer's Fee up to three percent (3.00%) will be paid at
Substantial Completion. At start of construction the Developer Fee
will be less than 3.00%. After Substantial Completion, any
construction cost savings will first be change-ordered into the
Developer Fee up to the 3.00% amount and released to Developer.
Any additional construction savings will then be released to the
General Contractor (hereinafter defined).
K. The retainage portion of the Contractor Fee and the Developer Fee
will be held back to guarantee construction completion. If the
construction contingency line item is depleted in the Construction
Loan, funds from the Developer Fee will be used first up to a
maximum of $150,000 of the total Developer Fee, then the remaining
Contractor Fee, if necessary to achieve Substantial Completion.
Guarantors will add additional funds to achieve Substantial
Completion, if necessary, if contingency, Contractor Fee, and up
to $150,000 of the Developer Fee are depleted prior to Substantial
Completion. The Developer Fee in excess of $150,000 will never be
used for construction cost overruns but shall remain unfunded in
the Construction Loan until Substantial Completion to serve as
collateral to Purchaser and to Construction Lender for the
Guaranty (and any renewals, extensions or replacements thereof).
THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT RECITALS SET FORTH ABOVE ARE
INTENDED TO BE NOT ONLY A CLARIFICATION OF CERTAIN MATTERS CONTAINED IN THIS
AGREEMENT, BUT ALSO ARE INTENDED TO OPERATIVE TERMS OF THIS AGREEMENT TO THE
EXTENT SUCH MATTERS ARE NOT EXPRESSLY ADDRESSED ELSEWHERE IN THIS AGREEMENT.
AGREEMENT:
1. Parties. The parties to this Agreement are as follows:
Walden Residential Properties, Inc., a Maryland corporation,
maintaining its principal office at 5080 Spectrum Drive, Suite 1000 East,
Dallas, Texas 75248.
Lakeview Ocotillo, L.L.C., an Arizona limited liability company, c/o
The Greystone Group, Inc., maintaining its office at 5251 DTC Parkway, Suite
425, Englewood, Colorado 80111.
PURCHASE AND SALE AGREEMENT PAGE 3
<PAGE> 4
2. Definitions. As used in this Agreement, the following terms shall
have the meanings hereinafter set forth in this Paragraph:
(a) Agencies: All governmental agencies having jurisdiction over
the construction, zoning and operation of the Property.
(b) Applicable Environmental Laws: Any and all applicable laws
pertaining to health or the environment, including, without limitation, the
Superfund Reauthorization and Amendments Act of 1986 ("SARA"), the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as well as any and all
other laws, ordinances, rules and/or regulations created or imposed by any
governmental authority having jurisdiction with respect to the Property, whether
local, state or federal, pertaining to environmental regulation, contamination,
clean-up or disclosure, as now existing and/or as hereafter amended.
(c) Approved Development Budget: The detailed line by line budget
for the construction and development of the Improvements and its subsequent
operation showing all direct and indirect costs of such Improvements, which
budget shall include all hard and soft costs and a detailed projected
disbursement schedule. The preliminary Approved Development Budget which has
been approved by Purchaser is attached hereto and made a part hereof as Exhibit
E.
(d) Appurtenant Interests: All of the Seller's interest in and to
the appurtenances to the Land and in and to all streets, alleys and other public
ways adjacent thereto.
(e) Closing Feasibility: The period commencing with the delivery to
Purchaser of the updated Title Commitment and updated Survey (as provided in
Paragraph 6(a) and (b) hereof) and ending on the fifteenth (15th) day
thereafter.
(f) Construction Contract: The contract to be executed by and
between the Seller, the Developer and the General Contractor pursuant to which
the Developer and the General Contractor agree to construct the Improvements in
accordance with the Plans and Specifications.
(g) Construction Lender: The lender providing the Construction
Loan.
(h) Construction Loan: The loan provided by Construction Lender or
Purchaser in the amount of the total development cost for the construction of
the Improvements.
(i) Deed of Trust: That certain Construction Deed of Trust,
Assignment of Rents, Security Agreement and Fixture Filing dated as of the
Initial Closing.
PURCHASE AND SALE AGREEMENT PAGE 4
<PAGE> 5
(j) Developer: The Greystone Group, Inc., a Colorado corporation.
(k) Intentionally Deleted.
(l) Effective Date: The date upon which this Agreement, executed by
both Purchaser and Seller, shall have been delivered to Title Insurer.
(m) Final Closing: The consummation of the transfer of title to the
Property as contemplated hereunder and payment of the consideration thereof in
the manner provided at Paragraph 8 hereof.
(n) Force Majeure: Delays due to strikes, lockouts, labor troubles,
inability to procure labor or materials or reasonable substitutes therefor,
failure of power, governmental requirements, restrictions of laws, war or civil
disorder, or other causes beyond the reasonable control of the party delayed;
provided, Force Majeure shall not include delays resulting from changes in
economic or market conditions, or financial or internal problems of the parties
or problems that can be satisfied by the payment of money. As a condition to
Seller's right to claim Force Majeure, Seller shall notify Purchaser within
twenty (20) days after the delay occurs and on at least a weekly basis
thereafter describing in reasonable detail the nature and the status of Seller's
diligent efforts to end the delay.
(o) General Contractor: Greystone Multifamily Builders, Inc.
(p) Guarantors: The Greystone Group, Inc. and Walter B. Eeds,
jointly and severally.
(q) Guaranty: That certain Guaranty Agreement executed by
Guarantors for the benefit of Purchaser dated as of the Initial Closing.
(r) Hazardous Materials: Any toxic materials, hazardous waste or
hazardous substance (as these terms are defined in the Applicable Environmental
Laws) and including, without limitation, any asbestos or asbestos-related
products or materials and any oils, petroleum-derived compounds or pesticides.
(s) Improvements: All of the buildings, fixtures and improvements
located on the Land, together with all mechanical systems, fixtures and
equipment, electrical systems, fixtures and equipment, plumbing fixtures,
systems and equipment, heating fixtures, systems and equipment and air
conditioning fixtures, systems and equipment installed in, belonging to or
constructed as components of the Improvements. Purchaser acknowledges that
Seller has recently commenced the construction of the Improvements.
(t) Included Personal Property: All tangible personal property
owned by Seller and used in connection with the Property, together with, for
each apartment unit comprising the Improvements, whether or not thus listed, all
carpeting, window coverings,
PURCHASE AND SALE AGREEMENT PAGE 5
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ranges, ovens, dishwashers, ceiling fan(s), bookshelves, range hoods,
refrigerators, heating units, air conditioning units, sinks and garbage
disposals, and washers and dryers, in each case, if owned by Seller, the same to
be in good working order at Final Closing, all other furniture, fixtures,
equipment, machinery, supplies and other tangible personal property owned by
Seller and all leases of tangible personal property located on the Land and
Improvements and belonging to the Property and/or used in the normal operation
and maintenance of the Land and Improvements, to include tangible personal
property installed in accordance with the Plans and Specifications.
(u) Initial Closing: July 31, 1998.
(v) Initial Feasibility Period: The period commencing with the
receipt by Purchaser of (a) the Title Commitment, (b) good and legible copies of
all documents of record affecting the Property, or any portion thereof, (c) all
of those items listed in Schedule I attached hereto and incorporated herein by
reference, and (d) all other leases, agreements, other documents, reports,
studies, data and information relating to the Property, or any portion thereof,
and ending on the thirtieth (30th) day thereafter.
(x) Land: The land more particularly described at Exhibit A and
shown on the existing boundary survey more particularly described at Exhibit B
hereto.
(y) Management Agreement. That certain Management Agreement
executed by and between Seller and Manager covering the Property and attached
hereto as Exhibit E.
(z) Management Termination Date. The date upon which the Management
Agreement is terminated for failure by Purchaser to meet projected number of
occupied units obtained per month on a cumulative basis thirty (30) days
following the receipt of the Management Termination Notice.
(aa) Management Termination Notice. The written notice from Seller
to Purchaser of the termination of the Management Agreement and the triggering
of the Management Termination Date.
(bb) Manager. Walden Residential Properties, Inc., a Maryland
corporation.
(cc) Material Damage: Damage to the Property of a nature such that
the cost of restoring the Improvements to its condition prior to the fire or
other casualty, as mutually agreed by Seller and Purchaser, (but in full
compliance with all then applicable building, health, zoning, and similar laws,
ordinances, and regulations) will exceed $100,000, whether or not such damage is
covered by insurance.
(dd) Owner Policy: An ALTA Owner Policy of Title Insurance issued
by the Title Insurer in the standard form promulgated by Arizona law.
PURCHASE AND SALE AGREEMENT PAGE 6
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(ee) Permitted Title Exceptions: Any other items to which Purchaser
does not object within the time period provided in Paragraph 6(c) hereof.
(ff) Plans and Specifications: The final plans and specifications,
including the final site plan, pursuant to which the Improvements were
constructed.
(gg) Positive Cash Flow: All rental income and other income
generated by the Property minus industry standard operating expenses, including
a $3,000 per month accrual for property taxes, for apartments less industry
standard operating reserves.
(hh) Property: The property to be purchased and sold pursuant to
this Agreement and comprised of the Land, Improvements, Included Personal
Property, Appurtenant Interests, Tenant Leases and all other property described
in Paragraph 4 hereof.
(ii) Proration Date: Collectively, 12:01 a.m., Central Daylight
Time, on the date of Final Closing or such other date as shall be specified in
Paragraph 9 hereof.
(jj) Punch List Items: Touch-up, clean-up, minor finish, and other
items necessary to comply with the Plans and Specifications, all of which do not
interfere with the use, occupancy or enjoyment of the Property by Purchaser or
any other occupants of the Units and which shall be corrected by Seller, at its
sole cost and expense, within thirty (30) days after delivery to Seller of a
list of Punch List Items, subject to Force Majeure.
(kk) Purchase Price: The total consideration to be paid by
Purchaser for the Property as set forth in Paragraph 5 hereof.
(ll) Purchaser: Walden Residential Properties, Inc., a Maryland
corporation, together with any assignee thereof described in Paragraph 21
hereof.
(mm) Purchaser Note: That certain promissory note dated effective
as of the Initial Closing Date, in the original principal amount of $5,000,000,
executed by Seller and made payable to the order of Purchaser.
(nn) Rent Roll: The rent roll for the Property setting forth the
Tenant Leases dated not earlier than five (5) days prior to Final Closing.
(oo) Requested Documents: A certificate from Seller and the general
contractor constructing the Improvements regarding construction of the
Improvements in accordance with the Plans and Specifications, an architect's
certificate of substantial completion from Seller's architect, appropriate lien
waivers from the general contractor and all subcontractors and an architect's
certificate from Purchaser's inspecting architect; and
PURCHASE AND SALE AGREEMENT PAGE 7
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(pp) Seller: Lakeview Ocotillo, L.L.C., an Arizona limited
liability company.
(qq) Service Contracts: All assignable service or maintenance
contracts relating to the Property.
(rr) Substantial Completion: (i) Subject to completion of Punch
List Items, completion of construction of the Improvements, including, without
limitation, all landscaping, installation of cable wiring, separate meters,
clubhouse and model furnishing, graphics and signage, the payment of all
municipal fees and taxes, and installation of all fixtures and appliances, in a
lien-free and workmanlike manner and substantially in accordance with the Plans
and Specifications and the Approved Development Budget, as reflected in a report
of the inspecting architect/engineer employed by Purchaser; (ii) issuance of
unconditional certificates of occupancy for all of the Improvements by the
appropriate governmental authority(ies); (iii) issuance of a certificate of
substantial completion for the Improvements, in A.I.A. Form G-704, by the design
architect for the Improvements; (iv) issuance of a down-date endorsement from
the Title Insurer dated subsequent to the date of the report of the inspecting
architect/engineer showing no mechanic's or materialman's liens affecting the
Property, together with such final lien waivers and releases as Purchaser
reasonably may require to evidence the lien-free completion of the Improvements;
provided, however, that in the event Seller is contesting any mechanic's or
materialman's liens affecting the Property, Seller may cause to be recorded a
Bond to Indemnify Against Lien satisfying the requirements of Arizona law
without being in default hereunder; and (v) the issuance of all necessary
governmental permits and approvals for the use, occupancy and operation of all
areas within the Improvements and the actual provision of utility services by
public utilities.
(ss) Survey: An update of the on-the-ground survey of the Land
prepared by _________________, dated ___________, a copy of which has been
furnished to the Purchaser. The updated survey will be certified in accordance
with the Surveyor's Certificate attached hereto as Exhibit C.
(tt) Tenant Leases: The lease agreements relating to the Land and
Improvements and existing at Final Closing.
(uu) Title Commitment: An ALTA Commitment for Title Insurance
issued by the Title Insurer in the standard form promulgated by Arizona law.
PURCHASE AND SALE AGREEMENT PAGE 8
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(vv) Title Insurer: Transnation Title Insurance Company, 2850 E.
Camelback Road, Suite 310, Phoenix, Arizona 85016, Attn: Beth Mahoney, Ph.:
(602) 956-5568, Fax: (602) 957-2261.
(ww) Tri-Party Agreement: The agreement by and among Seller,
Purchaser and Construction Lender (if other than Purchaser) requiring Purchaser
to acquire the Property in the event that all conditions precedent contained in
this Agreement with respect to Purchaser are satisfied by Seller in the manner
required under this Agreement.
3. Agreement of Purchase and Sale.
Subject to the terms and conditions thereof and for the consideration
of One Hundred and No/100 Dollars ($100.00) paid to Seller by Purchaser on the
Effective Date, the receipt and sufficiency of which hereby is acknowledged and
which sum is non-refundable to Purchaser and in no event shall be applied
against the Purchase Price and for the Purchase Price set forth at Paragraph 5,
Purchaser hereby agrees to purchase, and Seller hereby agrees to sell, the
Property, such Property being located in Chandler, Arizona, and constituting,
generally, an apartment project commonly known as "Lakeview at Ocotillo
Apartments", all as more particularly described at Paragraph 4.
4. Property to be Sold.
The Property to be purchased hereunder by Purchaser shall be comprised
of (i) the Land, (ii) the Improvements, (iii) all Included Personal Property,
but not the Excluded Personal Property, (vi) the Appurtenant Interests, (v) the
Tenant Leases, and (vi) all of Seller's right, title and interest in and to (A)
warranties covering the Included Personal Property and the Improvements, (B) the
trademark or trade name "Lakeview at Ocotillo Apartments" and any other
trademark or trade name used by Seller in connection with the Property; (C) the
Service Contracts and (D) all licenses, permits, approvals and other intangible
property rights relating to the Property.
5. Purchase Price.
The Purchase Price shall be $21,285,000, plus any amounts funded by
Purchaser in connection with Interest Rate Coverage Funding. In the event of an
accelerated Final Closing resulting from the delivery by Seller of a Management
Termination Notice, the Purchase Price shall be credited by an amount equal to
the interest remaining unfunded in the Construction Loan. The Purchase Price
shall be payable either all in cash or by virtue of the assumption of all or
part (as the case may be) of the then outstanding balance of the Construction
Loan. In no event shall the credit for interest savings exceed the amount
remaining in the interest reserve for the Construction Loan.
PURCHASE AND SALE AGREEMENT PAGE 9
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6. Evidence of Title.
(a) Title Commitment. Seller, at Seller's sole expense, shall order
a current Title Commitment from the Title Insurer in the amount of the Purchase
Price covering the Land and Improvements. The Title Commitment shall be issued
as of or subsequent to the Effective Date and shall include good, legible copies
of all documents constituting exceptions to Seller's title as reflected in the
Title Commitment. The Title Commitment shall reflect good, indefeasible and
marketable fee simple title vested in Seller. Seller also agrees to furnish to
Purchaser, at Seller's cost and expense on or before thirty (30) days prior to
the Final Closing Date, an updated Title Commitment, which updated Title
Commitment shall be dated not more than thirty (30) days prior to the Final
Closing Date
(b) Survey. On the Effective Date, Seller shall deliver to
Purchaser a copy of the most recent survey of the Property in Seller's
possession. The Survey delivered by Seller shall be sufficient to permit the
Title Insurer to modify the standard printed exception in the Owner Policy
pertaining to discrepancies, conflicts, shortages in area or boundary lines,
encroachments, overlapping of improvements or similar matters. Seller also
agrees to furnish to Purchaser, at Seller's cost and expense, on or before
thirty (30) days prior to the Final Closing Date, an updated Survey of the Land
and the Improvements as constructed, which updated Survey shall be dated not
more than thirty (30) days prior to the Final Closing Date, certified in
accordance with the language contained in Exhibit C attached hereto and made a
part hereof.
(c) Seller also agrees to furnish to Purchaser, at Seller's cost
and expense, on or before the Final Closing Date, UCC, state and federal tax
liens and judgment searches from the County in which the Property is located and
the State of Arizona showing Seller's interest in the Personal Property to be
free and clear of all liens, security interests and adverse claims, other than
those to be released at the Final Closing. Such searches shall be dated no more
than ten (10) days prior to the Final Closing Date.
(e) Review. Purchaser shall have through and including the
expiration of the Initial Feasibility Period in which to review such items
(other than the updated Survey) and to deliver to Seller in writing such
objections as Purchaser may have to anything contained or set forth therein.
Purchaser shall have through and including the expiration of the Closing
Feasibility Period in which to review the updated Survey and updated Title
Commitment and to deliver to Seller in writing such objections as Purchaser may
have to anything contained or set forth therein. Any items to which Purchaser
does not object to prior to the expiration of the Initial Feasibility Period or
Closing Feasibility (as applicable) shall be Permitted Title Exceptions. Seller
shall use best efforts to cure any such objections.
(d) Owner Policy. At Final Closing, the deed to the Land and
Improvements referred to in Subparagraph 8(b)(i) hereof shall be recorded, and
Seller, at Seller's expense (except as otherwise provided herein), shall furnish
or cause to be
PURCHASE AND SALE AGREEMENT PAGE 10
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furnished to Purchaser, the Owner Policy, together with such endorsements as
Purchaser may require at Seller's sole expense, insuring good, indefeasible and
marketable fee simple title to be vested in Purchaser and insuring Purchaser's
title in an amount equal to the Purchase Price, subject only to the Permitted
Title Exceptions and the standard printed exceptions, except that:
(i) the exception relating to restrictions against the
Property shall be endorsed by Title Insurer to read "None of record" except for
such restrictions as may be included in the Permitted Title Exceptions;
(ii) the exception relating to discrepancies, conflicts,
shortages in area, boundaries, encroachments, or overlaps shall be modified, at
Purchaser's sole cost and expense, by deleting such exception or by insuring
against forced removal of encroachments, save any shortages in area; and
(iii) the exception relating to ad valorem taxes shall except
only to taxes owing for the current year of Final Closing and subsequent years
and subsequent assessments for prior years due to change in land usage or
ownership, not yet due and payable.
(e) Uniform Commercial Code Search. Seller also shall deliver at
Final Closing, at Seller's cost and expense, Uniform Commercial Code financing
statement searches covering Seller and any general partner of the Seller for the
state constituting the situs of the Property and the county in which the
Property is located showing that all of the Included Personal Property is free
and clear of all liens and encumbrances other than the Permitted Title
Exceptions and also shall deliver copies of receipts showing payment of all 1998
taxes levied and payable on the Property.
7. Representations, Warranties and Covenants of Seller.
7.1 Representations and Warranties. As an inducement to Purchaser to
enter into and perform this Agreement, Seller represents and warrants to
Purchaser, as of the date of this Agreement and thereafter in accordance with
Paragraph 7.1(u), as follows:
(a) Legal and Beneficial Title. Seller is, and at Final Closing
will be, the sole person holding good, indefeasible and marketable fee simple
title to the Property, free and clear of all liens and encumbrances except the
Permitted Title Exceptions and liens which shall be released or bonded around as
provided above at Final Closing.
(b) Due Authorization and Execution and Validity, Binding Effect
and Enforceability. This Agreement has been duly authorized and executed by
Seller and is a valid and binding obligation of, and is enforceable, in
accordance with its terms, against Seller. The documents delivered to Purchaser
at Final Closing will be duly authorized and executed by Seller and will be a
valid and binding obligation of, and will be enforceable in accordance with
their terms against, Seller.
PURCHASE AND SALE AGREEMENT PAGE 11
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(c) The Rent Roll. Not earlier than five (5) days prior to Final
Closing, Seller shall deliver the Rent Roll to Purchaser, certified by Agent (or
Seller if Agent has earlier been terminated) in writing as true and correct. The
Rent Roll and related documents shall set forth the following:
(i) the name of each tenant;
(ii) the lease commencement and expiration dates; the nature
of any renewal options;
(iii) the amount of any security deposits;
(iv) a list of vacant space;
(v) the size and type of each vacant area; and
(vi) the amount and description of any concessions and any
rights of first refusal.
(d) Representations as to Rent Roll. Except as expressly set forth
in a Rent Roll:
(i) All of the information contained on the Rent Roll is, and
will be, true, correct and complete as of its date.
(ii) No rent under any Tenant Lease has been, or prior to
Final Closing will be, prepaid for a period in excess of one (1) month.
(iii) No tenant has any right of first refusal or option with
respect to the leasing of any portion of the Property.
(iv) To the best of Seller's knowledge, there are no oral
agreements with anyone, including tenants, with respect to the Property or any
portion thereof.
(v) All of the present Tenant Leases for rental space in the
Improvements are in writing, on a standard form and, to the best of Seller's
knowledge, duly executed by all parties thereto, and, to the best of Seller's
knowledge, are (A) in full force and effect and (B) valid and binding agreements
of, and fully enforceable in accordance with their terms against, the tenants.
(vi) The Tenant Leases will not be amended in any way after
the date hereof, other than in the ordinary course of business, without the
prior, written consent of Purchaser, which consent shall not be unreasonably
withheld, conditioned and delayed.
PURCHASE AND SALE AGREEMENT PAGE 12
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Purchaser, unless it otherwise shall advise Seller in writing within ten (10)
days following Seller's request for such consent, shall be deemed to have
consented to any such amendment.
(vii) To the best of Seller's knowledge and except as stated
in a Rent Roll, there are no uncured defaults on the part of any party to any of
the Tenant Leases, and Seller is in full compliance with all of lessor's
obligations thereunder.
(viii) None of the rentals due or to become due under such
leases will be assigned, encumbered, or subject to any liens at the Final
Closing other than the Permitted Title Exceptions, and the liens to be released
at Final Closing.
(ix) At the time of Final Closing, all tenants will be paying
charges for electricity consumed in their space, including heating and air
conditioning, water and sewer, on an individually metered basis.
(e) Intentionally Deleted.
(f) Compliance with Applicable Regulations.
(i) The Property and the operation thereof (including the
handling of tenant security and other deposits) currently is or will be, when
applicable, in substantial compliance with the requirements of all Agencies. The
deed restrictions encumbering the Land permit the operation of Improvements
thereon as a use by right. Seller knows of no commitments or agreements with any
of the Agencies affecting the Property which have not been fully disclosed to
Purchaser in writing.
(ii) Seller has received no notices and is unaware of any
facts or conditions which, with notice or lapse of time, might constitute
uncured violations at the Property of any applicable statute, ordinance or
regulation, relating to the Property, its construction, or any occupancy
thereof, nor, to the best of Seller's knowledge, are there presently pending or
threatened against Seller or against the Property or, to Seller's knowledge,
against anyone, any judgments, judicial proceedings or administrative actions
relating to any of the above matters of a material nature.
(iii) To the best of Seller's knowledge, no Hazardous
Materials are located on or about the Property. To the best of Seller's
knowledge, the Property does not contain any underground tanks for the storage
or disposal of Hazardous Materials. Further, to the best of Seller's knowledge,
(A) the Property previously has not been used for the storage, manufacture or
disposal of Hazardous Material, (B) no complaint, order, citation or notice with
regard to air emissions, water discharges, noise emissions and Hazardous
Materials, if any, or any other Applicable Environmental Laws from any person,
government or entity has been issued to Seller, and (C) to the best of Seller's
knowledge, Seller has complied with all Applicable Environmental Laws.
PURCHASE AND SALE AGREEMENT PAGE 13
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(g) Liens on Property. No action has been taken with respect to
work performed or delivery of material which would give rise to a lien on the
Property. At Final Closing, there will be no claim in favor of any person or
entity which is or could become a lien on the Land, the Improvements, or the
Included Personal Property, arising out of the furnishing of labor or materials
to the Property other than claims or liens arising from acts of Purchaser; there
will be no unpaid assessments against the Property, except for Property taxes
assessed but not due and payable at the time of Final Closing; and there will be
no claim in favor of any person or entity (including the present management) for
any unpaid commissions or fees for leasing of the Property, other than locator
fees or commissions payable with respect to Tenants that have signed leases for
occupancy subsequent to the Final Closing Date.
(h) Insurance. The insurance policies listed and described at
Exhibit G are presently in force, and all such policies or their equivalent will
be maintained in force until Final Closing. Seller will not renew, amend, or
reduce the coverage under, or cancel, any existing policy or procure any new
policy other than in the ordinary course of business without Purchaser's prior,
written consent, which shall not be unreasonably withheld, conditioned or
delayed. Purchaser, at Final Closing, shall obtain its own insurance coverage.
Seller has received no notices from any insurer of the Property or any part
thereof requesting any improvements, alterations, additions, correction or other
work in, on or about the Improvements, whether related to the Property or to the
operation of any occupant thereof, which have not been cured or satisfied.
(i) Pending or Threatened Litigation. There are no lawsuits or
proceedings pending or, to the best of Seller's knowledge, threatened, or any
present state of facts which reasonably could give rise to any lawsuits or
proceedings, regarding ownership, construction, use or possession of the
Property or any portion thereof, except as disclosed in Exhibit H.
(j) Inspection of Plans and Specifications, Reports and Books and
Records. The Property and the Plans and Specifications, all reports (including
but not limited to soil tests and construction inspection reports), the books
and records and all Tenant Leases and other documents related thereto regarding
the construction, ownership, management and operation of the Property shall be
open to inspection by Purchaser or Purchaser's agents during regular business
hours from and after the Effective Date, and Seller shall cooperate with
Purchaser or its agents with respect to the inspection of the Plans and
Specifications, all reports, the books and records, the Tenant Leases, the
Property or the construction, management and operation thereof, including
delivery of the Audit Letter.
(k) Maintenance of Property Until Final Closing.
(i) Upon Substantial Completion and completion of the Punch
List Items, Seller, at its expense, except as otherwise provided in the
Management Agreement, will maintain the Property in its current condition until
Final Closing excepting only ordinary wear and tear and damage or loss thereto
covered by insurance.
PURCHASE AND SALE AGREEMENT PAGE 14
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(ii) Upon Substantial Completion and occupancy of the
Property, Seller, subject to the terms of the Management Agreement, shall
continue the operation of the Property in the normal and usual manner, will not
remove any fixtures, furnishings, equipment or personalty subject to this
Agreement, except for repair or replacement, and the Property, subject to the
terms of the Management Agreement, will be managed, operated, maintained,
repaired and redecorated in the ordinary course of business and in such manner
as to maintain the Property completed in all material respects as of the date
hereof in no less satisfactory condition than the same exists as of such date.
(l) Service Contracts.
(i) At Final Closing, no contract of any kind, including
contracts for servicing, operating or managing the Property, will be effective
and binding upon the Property or Purchaser, except to the extent approved by the
Seller and the Manager. Except for contracts relating to the construction of the
Improvements, Seller will not enter into any other service, operating or
management contracts relative to the Property that cannot be canceled on thirty
(30) days' notice without the prior, written consent of Purchaser, nor will
Seller make, or agree to, prior to Final Closing, any change or modification to
the contracts, other than in the ordinary course of business, without the prior,
written consent of Purchaser. Specifically, but without limitation, Seller will
not enter into any cable, phone service or laundry contracts without the prior
written consent of Purchaser, which consent may be withheld in Purchaser's sole
discretion. If an agreement concerning the management of the Property currently
is in effect and is not delivered to Purchaser prior to Final Closing, it shall
be terminated effective on the date of Final Closing.
(ii) Except as otherwise provided in the Management Agreement,
Seller agrees that benefits or compensation accrued prior to Final Closing, and
due or claimed to be due either before or after Final Closing, to employees or
former employees of Seller shall constitute obligations of Seller only, and
Seller agrees to indemnify and hold Purchaser harmless from all such obligations
and claims.
(m) Restrictions on Additional Indebtedness. Seller will not borrow
any money or do, or fail to do, any other act or thing which would cause the
Land, the Improvements or any Included Personal Property to become pledged or
otherwise utilized as collateral or in any way stand as security for any
indebtedness or obligation, except for the construction financing required to
construct the Improvements.
(n) Closing Not Constituting Breach. The consummation of the
transaction contemplated herein will not result in the breach of any provision
in any lease or other agreement affecting the Property.
PURCHASE AND SALE AGREEMENT PAGE 15
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(o) Access to Property. Seller has received no notices of the
existence of any fact or condition which would result in the termination or
restriction of the current access from the Property to any presently existing
highways and roadways adjoining, situated on or otherwise serving the Property
or to any sewer or other utility adjoining, situated or otherwise serving the
Property.
(p) Seller's Non-foreign Status. Seller is not a "foreign person"
within the meaning of Sections 1445 and 7701 of the Internal Revenue Code of
1954, as amended; that is, Seller is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, or foreign estate (as those
terms are defined in the Internal Revenue Code of 1986, as now existing or
hereafter amended).
(q) Taxes and Assessments. All ad valorem taxes and personal
property taxes, together with all assessments or other charges for utilities,
roads or the widening of such roads, or any other fees imposed by any
governmental authority with respect to the Property, for the year of Final
Closing and all prior years, have been paid in full.
(r) Exhibits. All exhibits attached hereto are true and correct in
all material respects.
(s) Governmental Approvals. The Property has access to dedicated
streets and is or will prior to the Final Closing be improved with the
Improvements, that Seller has received no written notice that the Improvements
have not been approved by applicable governmental authorities; the Improvements
(i) have been or will be constructed pursuant to validly issued building permits
and substantially in accordance with the Plans and Specifications previously
delivered to Purchaser and (ii) upon completion, will fully comply with all
applicable deed restrictions, plat, subdivision, building, fire, health, safety,
handicapped persons, environmental, pollution, and use laws, codes and
ordinances, including, without limitation, any and all requirements imposed by
the City of Chandler, County of Maricopa or State of Arizona, or any division,
agency or instrumentality thereof or in connection with the zoning or rezoning
of the Land (including, without limitation, requirements, if any, with respect
to on-site storm water detention or retention); certificates of occupancy have
been or will be prior to the Final Closing issued for each building or structure
constituting a portion of the Improvements and for all leased or leasable areas
of the Improvements; Seller has received no written notice that it has failed to
obtain all licenses, permits, authorizations and approvals required from all
governmental agencies for the construction and operation of the Property that
Seller has not acted on and thereafter, if applicable, obtained the same; there
are no agreements with governmental authorities, agencies, utilities or
quasi-governmental entities or other third parties with respect to the Property
which would bind the Property following the Final Closing except those
agreements which are identified in the Title Commitment and disclosed by the
Survey, and any instruments entered into with the prior written approval of
Seller and Purchaser; and the Property does not violate any law or regulation
governing the protection of wetlands or other laws or regulations governing the
protection or preservation of the environment.
PURCHASE AND SALE AGREEMENT PAGE 16
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(t) Structural and Access.
(i) Upon Substantial Completion, there will be no actual
settlement, earth movement, termite infestation, or damage affecting the
structural portion of the Improvements.
(ii) Upon Substantial Completion, to the best of Seller's
knowledge, there shall not be any defects in the mechanical, structural,
electrical, plumbing, sewer, heating, air conditioning and sprinkler systems,
and components in the Improvements, including, but not limited to, roof leakage
and leakage or seepage in any basement, foundation, or walls which would keep
the respective system from being used for its intended purpose.
(iii) Subject to losses from casualty or condemnation, on the
Final Closing Date the Property will be in good first class condition and (where
applicable) in good working order.
(iv) The water, sewer, gas, electric and telephone facilities,
storm and sanitary sewers and other utility systems on or to be installed on or
utilized or to be utilized by the Land and Improvements are or will be operating
properly and are adequate to serve the utility needs of the Property as it is
presently contemplated to be operated.
(v) All utilities and storm and sanitary sewers required for
the operation of the Property enter the Land through adjoining public streets or
through adjoining private land in accordance with recorded easements that will
inure to the benefit of the Purchaser.
(u) Seller's Affidavit at Closing. The representations, warranties
and covenants of the Seller contained in this Agreement or in any document
delivered to Purchaser pursuant to the terms of this Agreement (whether in this
Paragraph 7.1 or elsewhere) (i) shall be true and correct in all material
respects and not in default at the time of Final Closing, and Seller shall
deliver to Purchaser, at Final Closing, an Affidavit to that effect, and (ii) in
the event of a breach of such representations, warranties or covenants prior to
or at Final Closing, Purchaser shall have the right to make a claim hereunder
against Seller.
7.2 Covenants of Seller. As an inducement to Purchaser to enter into
and perform this Agreement, Seller covenants with Purchaser, as of the date of
this Agreement and thereafter in accordance with Paragraph 7.1(u), Seller shall:
(a) refrain from transferring any of the Property or creating on
the Property any easements (other than those easements required for the
development of the Property pursuant to the Plans and Specifications and site
plans for the Property approved by Purchaser during the Initial Feasibility
Period), liens (other than the construction financing and any modifications or
amendments thereof), mortgages, encumbrances, or
PURCHASE AND SALE AGREEMENT PAGE 17
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other interests or permitting any changes to the applicable deed restrictions
other than the Permitted Exceptions;
(b) except for the Permitted Exceptions and leasing activity
permitted pursuant to this Agreement, refrain from entering into or amending any
contracts, or other agreements regarding the Property (other than contracts in
the ordinary and usual course of business and which are cancelable by the owner
of the Property without penalty within thirty (30) days after giving notice
thereof, including, without limitation, the construction financing and
construction contracts);
(c) continue to meet their contractual obligations and keep in full
force and effect the insurance for the Property identified in Exhibit G;
(d) promptly furnish Purchaser copies of all notices of violation
by Seller or the Property of federal, state, city, or municipal laws,
ordinances, regulations, orders, or requirements of departments of housing,
buildings, fire, labor, health, or other federal, state, city, or municipal
departments or other governmental authorities having jurisdiction against or
affecting the Property or the use or operation thereof and comply with the same
as directed by Purchaser;
(e) construct, operate and continue to operate, maintain, repair
and replace the Property in a first-class manner; provided, however, that any
acts or omissions of the Manager will not cause Seller to be in violation of
this covenant;
(f) fully comply with the terms of the Leases, and refrain from (i)
other than in the course of the prudent conduct of its business, amending or
modifying any Leases of any portion of the Property (ii) canceling any of such
Leases other than in the course of the prudent conduct of its business, or (iii)
applying any security deposits under the Leases to past due accounts other than
as permitted pursuant to the terms of the applicable Lease;
(g) refrain from entering into any new Tenant Lease of the Property
without Purchaser's prior written approval or otherwise without the review and
consent of the Manager;
PURCHASE AND SALE AGREEMENT PAGE 18
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(h) except for immaterial field changes, refrain from modifying or
changing the Plans and Specifications in any material manner without Purchaser's
prior written approval, provided that Purchaser shall approve or disapprove of
any such modification or change within three (3) business days by written notice
thereof to Seller after being furnished with all documentation reasonably
necessary to make such determination (failure of Purchaser to respond within
said three (3) business days shall be deemed approval by Purchaser of such
changes). For the purpose of this Paragraph 7.2(h), an immaterial field change
shall mean such field changes which (i) do not adversely affect the structural
integrity, quality, character, architectural appearance and standard of
workmanship contemplated in the Plans and Specifications, (ii) will not result
in any default in any obligation to any person or violation of any governmental
requirements, and (iii) cost of or reduction resulting from any single field
change or extra does not exceed $5,000 and the aggregate amount of all such
changes and extras does not exceed $15,000. If, within seven (7) business days
after Purchaser's disapproval of any modification or change, which notice of
disapproval shall be accompanied by a reasonably itemized explanation for
Purchaser's disapproval, Seller and Purchaser have not reached an agreement with
respect to the proposed change, then Seller shall have the option of either (i)
continuing discussions with Purchaser to attempt to resolve such differences or
(ii) terminating this Agreement by written notice thereof to Purchaser. In the
event that Seller elects to terminate this Agreement, this Agreement shall
terminate and the Purchaser's Note shall immediately become due and payable and
both parties shall be released from any further obligation or liability under
the Agreement, except for any obligations which survive the termination of this
Agreement, unless Purchaser, within three (3) business days thereafter, notifies
Seller in writing of Purchaser's approval of the proposed change as to which
Purchaser originally objected.
(i) refrain from offering the Property for sale or marketing the
same;
(j) refrain from seeking financing for the Property other than
Seller's existing construction financing and any amendments or modifications
thereof and any other financing approved by Purchaser in writing and Seller
shall fully comply with the terms of any such financing;
(k) promptly furnish Purchaser with copies of any notices Seller
receives or furnishes pursuant to the terms any financing for the Property;
(l) refrain from terminating, amending or modifying any agreements
with the general contractor engaged to complete the Improvements where such
termination, amendment or modification of any such agreement may have a material
adverse affect on the Property without Purchaser's prior written consent (which
consent shall not be unreasonably withheld, delayed or conditioned) and, in any
event, promptly furnish Purchaser with a copy of the same;
PURCHASE AND SALE AGREEMENT PAGE 19
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(m) complete all Punch List Items within thirty (30) days after the
Final Closing;
(n) continue the construction of the Improvements, subject to Force
Majeure;
(o) complete construction of the Improvements, subject to Force
Majeure, on or before September 30, 1999;
(p) comply with all of the terms, conditions and requirements of
any and all recorded and unrecorded documents affecting the Property; and
(q) furnish the mailroom, laundry facilities, pool area and any
other common areas on the Property, if any.
8. Closing and Conditions to Closing.
(a) The Closing Generally. The Final Closing shall occur at 10:00
a.m. on or before the earlier to occur of (i) the Management Termination Date,
(ii) three (3) months following achievement of a minimum of ninety percent (90%)
physical occupancy or (iii) the later to occur of (A) July 1, 2000 or (B) nine
(9) months following Substantial Completion. The Final Closing shall occur at
the offices of the Title Insurer, or at such other time and place as to which
the parties hereafter may agree upon in writing. At Final Closing, the Purchase
Price shall be delivered to Seller in the manner provided at Paragraph 5, and
possession of, and title to, the Property shall be delivered and conveyed to
Purchaser in the manner provided herein, together with all other documents to be
delivered by Seller to Purchaser hereunder.
(b) Documents Delivered By Seller at Final Closing. At the Final
Closing, Seller shall deliver, or shall cause to be delivered, to Purchaser the
conveyance, assignment and other documents described below:
(i) Deed. A deed, duly executed and acknowledged, conveying to
Purchaser good, indefeasible and marketable fee simple title to the Land and
Improvements free and clear of all liens and encumbrances, except the Permitted
Title Exceptions, in the form attached at Exhibit I.
(ii) Bill of Sale and Assignment. A bill of sale, duly
executed and acknowledged, subject only to the Permitted Title Exceptions,
conveying to Purchaser (A) the Included Personal Property, (B) Seller's interest
in and to all assignable Service Contracts, together with copies of the
originals of each of said contracts, (C) all existing warranties on the
Improvements, including, but not limited to, roofs, foundations, plumbing,
heating, air conditioning, and electrical, if any, (D) Seller's right, title and
interest, if any, in and to the name "Lakeview at Ocotillo Apartments" and other
applicable trade names or trademarks used by Seller in connection with the
Property, and (E) Seller's right, title and
PURCHASE AND SALE AGREEMENT PAGE 20
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interest in any and all licenses, permits, approvals and other intangible
property or rights relating to the Property, together with appropriate
endorsements or such other instruments as may be necessary to transfer title to
Seller's interest in the Included Personal Property in the form attached at
Exhibit I. The bill of sale shall include a mutual indemnification provision
pursuant to which Seller indemnifies, defends and holds Purchaser harmless from
any claims or liabilities with respect to the Service Contracts and any other
Included Personal Property which accrue prior to the Final Closing Date, and
Purchaser indemnifies, defends and holds Seller harmless from any claims or
liabilities with respect to the Service Contracts and any other Included
Personal Property which accrue from and after the Final Closing Date.
(iii) Assignment of Tenant Leases. A transfer and assignment
of the Tenant Leases, together with all rents, other income and deposits paid or
payable thereunder, subject to the Permitted Title Exceptions in the form
attached as Exhibit I, together with delivery of all Tenant Leases and
information pertinent thereto. The Assignment of Tenant Leases shall include a
mutual indemnification provision pursuant to which Seller indemnifies, defends
and holds Purchaser harmless from any claims or liabilities with respect to the
Tenant Leases which accrue prior to the Final Closing Date, and Purchaser
indemnifies, defends and holds Seller harmless from any claims or liabilities
with respect to the Tenant Leases which accrue from and after the Final Closing
Date.
(iv) Affidavit of Seller. An affidavit of Seller in the form
attached as Exhibit I, pursuant to Subparagraph 7.1(u) to the effect that the
representations and warranties of Seller pursuant to this Agreement continue to
be true and correct in all material respects and that all of Seller's covenants
(not otherwise waived by Purchaser) have been performed as of the date of Final
Closing.
(v) Owner Policy. Seller, at Seller's sole cost and expense
(except as otherwise provided herein) also shall deliver or cause to be
delivered the Owner Policy promptly following the Final Closing in accordance
with local custom.
(c) Documents Delivered By Purchaser at Final Closing. At the Final
Closing, Purchaser shall deliver, or shall cause to be delivered, to Seller the
items and documents described below:
(i) the Purchase Price;
(ii) such other documents as may be required by Title Insurer;
(iii) the Bill of Sale and Assignment; and
(iv) the Assignment of Tenant Leases.
(d) Conditions Precedent to Purchaser's Obligations. Purchaser
shall not be obligated to consummate the transfer of title to the Property
hereunder unless and until:
PURCHASE AND SALE AGREEMENT PAGE 21
<PAGE> 22
(i) Inspections. Prior to the expiration of the Initial
Feasibility Period, Purchaser shall have received various reports, satisfactory
to Purchaser in its sole discretion, of inspections of the Property (including
without limitation structural, mechanical, environmental and financial). Not
later than three (3) days following the Effective Date, Purchaser shall have
received the items listed in Schedule I attached hereto. Seller shall make the
Property and all reports, books and records and agreements relating to the
construction, ownership, management and operation of the Property available to
the Purchaser and its agents throughout the Initial Feasibility Period. If the
results of the inspections are unsatisfactory to Purchaser, or for any reason
whatsoever, in its sole and absolute discretion, Purchaser, at its election, may
terminate this Agreement by giving written notice to Seller at any time prior to
5:00 P.M., C.D.T., on or before the last day of the Initial Feasibility Period,
whereupon this Agreement automatically shall terminate, and neither party shall
have any further obligation to the other. In the absence of such notice by such
date, the inspections shall be deemed to have been approved by Purchaser. In
connection with any physical inspection made by Purchaser of the Property,
Purchaser shall repair any damage to the Property caused by any entry upon
Property by Purchaser and its agents, and Purchaser shall indemnify, defend and
hold Seller harmless from any claims from Tenants or third parties, and claims
for damage, personal injury or death caused by Purchaser's activities on the
Property.
(ii) Engineering and Architectural Reports. On or before ten
(10) days prior to the Final Closing Date, Purchaser shall have obtained, at its
sole cost and expense, any engineering and architectural reports in form and
substance and prepared by a third party consultant all as deemed necessary by
Purchaser and all as acceptable to Purchaser.
(iii) No Default. On the Final Closing Date, Seller shall not
be in default in the performance of any covenant or agreement to be performed by
Seller under this Agreement, except to the extent waived in writing by
Purchaser.
(iv) Representations and Warranties. All representations and
warranties made by Seller in this Agreement shall be true and correct as of the
date hereof and shall be true and correct in all material respects as of the
Final Closing Date.
(v) Environmental. On or before fifteen (15) days prior to the
Final Closing Date, Purchaser shall have obtained, at its sole cost, an update
to the environmental report furnished to Purchaser by Seller prior to the
execution of this Agreement in form and substance and prepared by environmental
specialists all as acceptable to Purchaser.
(vi) Deliveries of Construction Items. Purchaser, and its
architects, engineers and consultants shall have been furnished with true and
complete copies of the following for their review and approval, which approval
shall not be unreasonably withheld,
PURCHASE AND SALE AGREEMENT PAGE 22
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conditioned or delayed, (A) within ten (10) days after any material changes are
made to any of the following after the date of this Agreement, and (B) on the
earlier to occur of (1) ten (10) days after delivery of such items to Seller,
(2) thirty (30) days prior to the Final Closing Date, or (3) monthly or
periodically, as applicable:
(A) The Approved Development Budget.
(B) The Plans and Specifications.
(C) The monthly reports furnished to Construction Lender by
Seller's or Construction Lender's inspecting architects
and engineers since the beginning of construction of the
Improvements.
(D) All material change orders entered into in connection
with the construction of the Improvements, as provided in
Paragraph 7.2(h) of this Agreement.
(E) All permits, permit applications and licenses (including,
without limitation, special use permits) obtained in
connection with the construction, use, operation, or
maintenance of the Property.
(F) The most current payment applications and sworn
statement, executed in connection with the construction
of the Improvements.
(G) All inspection reports relating to the following:
(I) concrete forms and reinforcing steel;
(II) structural steel;
(III) mechanical;
(IV) electrical; and
(V) curtain walls.
(H) The following shop drawings:
(I) structural steel;
(II) curtain wall;
(III) electrical switch gear; and
(IV) all HVAC shop drawings.
If Purchaser fails to notify Seller of any objection to any such
document within ten (10) business days after the date of receipt of change in
any such document previously delivered to Purchaser or any such document that is
delivered to Purchaser for the first time, as applicable, Purchaser shall be
deemed to have approved said document. Once
PURCHASE AND SALE AGREEMENT PAGE 23
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Purchaser has approved any edition of the above described documents, Purchaser
may not thereafter disapprove any unchanged portion of a later edition of such
document which is subject to Purchaser's approval with respect to any change in
such document.
(vii) Waiver by Purchaser. Purchaser, at any time at or prior
to Final Closing, may waive any one or more of the preceding requirements by
written notice to Seller to that effect.
(viii) Closing Costs. The premiums for the Owner Policy
(except as otherwise provided herein), the cost of the Survey, the recording
costs for the special warranty deed described in Subparagraph 8(b)(i) hereof and
the recording costs for any other of the Final Closing documents necessary to
convey good, indefeasible and marketable fee simple title to the Property to
Purchaser in accordance with this Agreement, shall be borne by Seller. Seller
and Purchaser each shall pay one-half (2) of the escrow fees (if any). Purchaser
shall pay the cost of any endorsements required by Purchaser to the Owner Policy
and the cost of modifying the survey exception. Purchaser and Seller each shall
pay their respective attorneys' fees and expenses. All other costs and expenses
in connection with the transaction contemplated by this Agreement, unless
otherwise expressly set forth herein to the contrary, shall be borne by Seller
and Purchaser in the manner in which such costs and expenses customarily are
allocated between the parties at closings of real property similar to the
Property located in Chandler, Arizona.
9. Prorations and Adjustments.
(a) Items Prorated. All prorations and adjustments shall be made
and determined as of the Proration Date as follows:
(i) Rents. Collected rents shall be prorated. Seller shall not
receive any proration credit for rents accrued and delinquent for months prior
to the Proration Date, until such rent is collected and any other rent due is
paid. All rentals received after the Proration Date shall be applied, first, to
current and, then, delinquent obligations, the latter of which shall be paid to
Seller; provided, however, nothing herein shall operate to require Purchaser to
institute a lawsuit to recover such amounts but Purchaser shall use reasonable
efforts to collect delinquent amounts. Seller shall not be charged for
uncollected rent for the month within which the Proration Date shall occur, it
being the intent of the parties to prorate only the rents that have been
collected at such date. Any delinquent rents for periods prior to the Proration
Date and a prorated portion of rents for the month uncollected as of the
Proration Date which are collected by Purchaser and which are not necessary to
bring a tenant current as described above shall be forwarded to Seller. Seller
shall have the right to inspect and make copies of Purchaser's records relating
to the collection of rent in order to verify that Purchaser has remitted
Seller's share of any delinquent rent.
(ii) Prepaid Rents and Security and Other Deposits. Prepaid
rents and security and other tenant deposits (including but not limited to pet
deposits and
PURCHASE AND SALE AGREEMENT PAGE 24
<PAGE> 25
key deposits), if any, under assigned leases shall be paid to Purchaser by
Seller at Final Closing. Purchaser shall assume full liability therefor and
indemnify, defend and hold Seller harmless with respect to all such deposits.
(iii) Service Contracts. Prepaid or unpaid amounts under the
Service Contracts, which shall be assigned to and assumed by Purchaser at Final
Closing shall be prorated, including, but not limited to, all amounts prepaid to
Seller under long-term Service Contracts (e.g., laundry contracts), which shall
be prorated over the entire term of such long-term contracts.
(iv) Property Taxes. Taxes assessed upon the Property for the
year of Final Closing shall be prorated based on the total Purchase Price
without regard to the current property assessment using the current tax rate
amounts. Seller will be responsible for this proration only to the extent there
are remaining unspent proceeds of the Construction Loan or funds in the
Developer PCF Account to pay such amounts.
(v) Utilities. Utility charges shall not be prorated but,
rather, instructions shall be given to the utility companies by Seller (with a
duplicate copy of such instruction being provided concurrently to Purchaser) to
read the meters on the date of Final Closing and to issue separate statements
thereafter. If applicable, utility deposits will be credited to Seller and
assigned to Purchaser at Final Closing. In the event that any provider of
utilities shall refuse to issue separate statements in the manner aforesaid,
applicable utility charges shall be adjusted in the manner of rents.
(vi) Other Adjustments. Such other items as are adjusted
pursuant to custom in the state constituting the situs of the Property and on
similar real estate transactions.
(vii) Delivery by Seller of Documents and Supplies. Seller, at
Final Closing, shall assign and deliver to Purchaser all original leases (to the
extent in Seller's possession), deposits, supplies, contracts, and other items
as to which proration is to be made. Seller also shall deliver to Purchaser all
Plans and Specifications (including cost breakdowns) (to the extent in Seller's
possession) relating to the Property and all such other documents, lease files,
tenant records (but not canceled checks and Seller's accounting records), and
keys which relate to the operation, maintenance or management of the Property.
Seller also shall deliver to Purchaser its current supply of printed leasing
brochures, floor plans and other advertising literature with respect to the
Property.
10. Material Damage.
(a) Procedure. If, prior to Final Closing, the Property shall be
destroyed or sustain Material Damage as a result of fire or other casualty,
then, at Purchaser's option exercised in the manner provided hereunder, the
following shall occur:
PURCHASE AND SALE AGREEMENT PAGE 25
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(i) This Agreement shall become null and void and the
Purchaser Note shall be deemed to be payable in full and the original of the
Purchaser Note returned to Seller upon payment, provided that Purchaser gives
notice of such election at or prior to Final Closing, but in any event within
ten (10) days following receipt by Purchaser of notice of the occurrence of any
such event; or
(ii) If all other conditions precedent to Purchaser's
obligation to close have been satisfied, the purchase and sale transaction shall
close with a reduction in the cash portion of the purchase price equal to the
amount of the applicable insurance deductible, and concurrently with such
closing, Seller and any other named insured shall assign to Purchaser, in form
satisfactory to Purchaser, all claims arising under any policy of insurance
covering such casualty, and Seller shall have no further liability to Purchaser
with respect to such damage.
If the parties shall fail to agree on the amount of the cost of such
restoration, then either party may request, by written notice to the other
party, that the determination of the cost of such restoration be settled by
arbitration by the American Arbitration Association under its Arbitration Rules
for the Real Estate Industry and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Seller and
Purchaser further agree that the controversy shall be submitted to one
arbitrator. The arbitrator shall award the cost and fees (reasonable attorneys'
fees, administrative fees and arbitrator's fees) to the prevailing party in such
arbitration.
(b) Damage Other Than Material Damage. In the event of any damage
to the Property other than Material Damage, the purchase and sale transaction
shall close in accordance with and subject to the conditions of Subparagraph
10(a)(ii). If the cost to restore the Property to its condition before the
casualty, as mutually agreed by Seller and Purchaser is not more than $100,000
and is uninsured, the cash portion of the purchase price shall be reduced by the
cost to restore thus determined.
11. Condemnation. If, prior to Final Closing, any governmental or
similar authority shall institute eminent domain or similar proceeding or take
any steps preliminary thereto (including the giving of any direct or indirect
notice of intent to institute any such proceeding) with respect to a material
portion of the Property, Purchaser shall be entitled to terminate this Agreement
upon written notice to Seller within ten (10) days following receipt by
Purchaser of written notice of such taking, whereupon the Purchaser Note shall
be deemed immediately due and payable in full to Purchaser.
12. Brokerage and Consultants.
(a) Representation of Seller. Seller represents and warrants that
it has neither employed, retained nor consulted any broker, consultant, agent or
finder in carrying on the negotiations relative to this Agreement or the
purchase and sale referred to herein other than Walden Residential Properties,
Inc. ("Broker"), and Seller shall indemnify and hold Purchaser harmless from and
against any and all claims, demands, causes of action, debts, liabilities,
judgments and damages (including costs and reasonable attorney's fees)
PURCHASE AND SALE AGREEMENT PAGE 26
<PAGE> 27
which may be asserted or recovered against it on account of any brokerage fee,
consulting fee, commission or other compensation arising by reason of the breach
of this representation and warranty. Seller further represents and warrants
that, except for the twenty five basis points (25bps) commission payable solely
by Seller to Broker, if and only if this transaction closes, pursuant to
separate agreement(s) between Seller and Broker, no amount shall be paid by
Seller to any party as a fee or a commission, or any amount of a similar nature,
whatever designated, as a result of the purchase and sale referred to herein.
Seller hereby represents, warrants and covenants that it solely shall be
responsible for, and shall pay, the aforementioned fee payable by it to Broker.
(b) Representation of Purchaser. Purchaser represents and warrants
that, except for Broker, it has neither employed, retained, nor consulted any
broker, consultant, agent or finder in carrying on the negotiations relative to
this Agreement or the purchase and sale referred to herein, and Purchaser shall
indemnify and hold Seller harmless from and against any and all claims, demands,
actions, causes of action, debts, liabilities, judgments and damages (including
costs and reasonable attorney's fees) which may be asserted or recovered against
it on account of any brokerage fee, consulting fee, commission or other
compensation arising by reason of the breach of this representation and
warranty.
(c) Advice as to Title. Purchaser acknowledges that, at the time of
execution of this Agreement, Broker advised Purchaser by this writing that
Purchaser should have the abstract covering the Property examined by an attorney
of Purchaser's own selection or that Purchaser should be furnished with or
should obtain a policy of title insurance.
13. Indemnification.
(a) Indemnification of Purchaser. Seller hereby agrees to
indemnify, defend and hold harmless the Purchaser and any other holder of record
title to the Property pursuant to Paragraph 21, their officers, directors,
general partners, agents and employees and their respective heirs, executors,
administrators, successors and assigns, from and against any and all
indebtedness or other liability arising out of ownership or operation of the
Property which accrue prior to Final Closing, including, but not limited to, any
and all claims, liabilities, damages, penalties and losses, costs or expenses
(including court costs and reasonable attorney's fees) incurred, resulting from
or in any way arising out of any act or omission of Seller, its agents and
employees, in respect of the construction or operation of the Property
(including Punch list Items and construction costs) and any injury to persons or
damage to property happening or occurring in, on or about the Property prior to
Final Closing. Seller further agrees, upon notice and request from Purchaser, to
contest any such demand, claim, suit or action against which Seller has
hereinabove agreed to indemnify, defend and hold Purchaser harmless, and to
defend any action that may be brought in connection with any such demand, claim,
suit or action or with respect to which Seller has hereinabove agreed to
indemnify and hold Purchaser harmless and to bear all costs and expenses of such
contest and defense, provided,
PURCHASE AND SALE AGREEMENT PAGE 27
<PAGE> 28
however, that Seller shall have no obligation hereunder to indemnify or hold
Purchaser harmless from and against any claim, liability, damage, penalty or
loss, cost or expense incurred by Purchaser incident to, resulting from or in
any way arising out of any act or omission of Purchaser, its agent or employees,
it being understood and agreed, however, that the employees engaged in the
operation of the Property prior to Final Closing are and shall be construed to
be, for purposes of this provision, the employees of Seller and the acts and
omissions of said employees occurring prior to Final Closing shall in no way be
attributable to Purchaser for the purposes of this provision.
(b) Indemnification of Seller. Subject to Subparagraph 13(a),
Purchaser agrees to indemnify, defend and hold Seller harmless from and against
any claim, liability, damage, penalty, loss, cost or expense (including court
costs and reasonable attorney's fees) incurred by Seller incident to, resulting
from or in any way arising out of any act or omission of Purchaser, its agents
or employees, or arising out of, or in any way connected with, the operation of
the Property from and after Final Closing; and Purchaser further agrees, upon
notice, and request from Seller, to contest any such demand, claim, suit, or
action against which Purchaser has hereinabove agreed to indemnify, defend and
hold Seller harmless, and to defend any action that may be brought in connection
with any such demand, claim, suit or action or with respect to which Purchaser
has hereinabove agreed to indemnify and hold Seller harmless and to bear all
costs and expenses of such contest and defense.
(c) Indemnification Procedure. To the extent of any claims against
Seller or Purchaser predicated upon facts which could reasonably be interpreted
as giving rise to potential liability of Seller or Purchaser under this
Paragraph 13, the party against whom such claim is asserted shall promptly give
notice thereof to the other party hereto. Thereupon, such other party shall have
the option of retaining counsel of its choice to defend both it and the
remaining party in respect of such claim and to control, in a manner reasonable
in light of applicable circumstances, the course and ultimate disposition of
such claim. In the event that a party to this Agreement shall elect to exercise
the option provided in the preceding sentence, the party electing such option,
by reason thereof, shall be deemed to have agreed to pay all reasonable costs
and expenses of defending against such claim and any liability of the party
against whom such claim was asserted on account thereof. Without regard to
whether any party hereto shall exercise such option, Seller and Purchaser and
their counsel shall consult with one another concerning such claim and with due
regard to both the mutual and the independent interests of Seller and Purchaser
therein.
14. Notice to Tenants. On the date of Final Closing or at any time
thereafter, upon request by Purchaser, Seller agrees to give notice, said notice
to be in compliance with local law and inform approved by Purchaser, to each of
the tenants of space located on the Property that Seller has sold and conveyed
the Property to Purchaser and that all future rental payments due under the
terms of the Tenant Leases are to be paid as directed by Purchaser. Upon request
of Seller, Purchaser agrees to give notice to all tenants that their security
deposit (if any) has been paid over to the Purchaser, and Purchaser shall assume
the liability therefor.
PURCHASE AND SALE AGREEMENT PAGE 28
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15. Payments. All payments to be made under this Agreement shall be
made by the wire transfer of immediately available funds.
16. Default and Remedies.
(a) Remedies of Seller. In the event that all conditions to
Purchaser's obligation to close have been satisfied and Purchaser fails to close
its purchase of the Property hereunder, Seller shall have the right to sue
Purchaser for damages.
(b) Remedies of Purchaser. In the event that all conditions to
Seller's obligation to close have been satisfied and Seller fails to close its
sale of the Property hereunder, Purchaser, at its sole discretion, and as
Purchaser's sole remedies, either may (i) specifically enforce this Agreement
and the sale and purchase provided for herein according to its terms, or (ii)
sue Seller for damages.
(c) Rightful Termination by Purchaser. In the event that the
conditions precedent to Purchaser's obligation to close are not satisfied and
Purchaser terminates this Agreement pursuant to the terms hereof, the parties
shall have no further liability to one another, except as otherwise expressly
provided for herein.
(d) Expense of Default. In the event either party hereto is
required to employ an attorney because of the default of the other party, then
the defaulting party shall pay to the nondefaulting party court costs and a
reasonable attorney's fee incurred in the enforcement of this Agreement.
(e) Waiver of Trial by Jury. To the maximum extent permitted by
applicable law, Purchaser and Seller each waive the right to trial by jury in
connection with this Agreement and the enforcement of any rights hereunder.
17. Notices. All notices and other communications hereunder shall be
effective as to any party only if, concurrent with notice to such party, notice
shall be given to such party's counsel. All notices shall be in writing and
shall be deemed to have been duly given the date deposited with a commercial air
courier service or the United States Postal Service, the latter being registered
or certified mail, return receipt requested, first class, postage prepaid, as
follows: Notice as to Seller:
The Greystone Group, Inc.
5251 DTC Parkway, Suite 425
Englewood, Colorado 80111
Attn: Walter Eeds
Phone:
----------------------
Fax:
------------------------
PURCHASE AND SALE AGREEMENT PAGE 29
<PAGE> 30
Notice to Seller's Counsel:
Gammage & Burnham, LLC
Two North Central Avenue
Eighteenth Floor
Phoenix, Arizona 85004
Attn: Thomas J. McDonald
Ph: (602) 256-4431
Fax: (602) 256-4475
Notice as to Purchaser:
c/o Walden Residential Properties, Inc.
5080 Spectrum Drive, Suite 1000 East
Dallas, Texas 75248
Attention: Charlie Geiss
Phone: (972) 788-0510
Fax: (972) 788-1550
w/copy to:
Walden Residential Properties, Inc.
5080 Spectrum Drive, Suite 1000 East
Dallas, Texas 75248
Attention: Robin K. Minick
General Counsel
Phone: (972) 788-0510
Fax: (972) 490-2781
18. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, ENFORCED AND
GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE CONSTITUTING THE SITUS OF THE
PROPERTY. THE INITIAL DRAFT OF THIS AGREEMENT WAS PREPARED BY PURCHASER ONLY AS
A MATTER OF CONVENIENCE AND SHALL NOT BE CONSTRUED FOR OR AGAINST EITHER PARTY
ON THAT ACCOUNT.
PURCHASE AND SALE AGREEMENT PAGE 30
<PAGE> 31
19. Binding Effect. This Agreement and the exhibits attached hereto
shall be binding upon, and shall inure to the benefit of, the parties hereto,
their successors and assigns.
20. Entire Agreement. This Agreement and the exhibits attached hereto
shall constitute the entire contract between the parties and supersedes all
prior and contemporaneous agreements, representations and undertakings of the
parties regarding the subject matter of this Agreement. This Agreement may not
be modified except by a writing, one or more counterparts of which is signed by
all parties to this Agreement.
21. Vesting of Title To Property. Seller and Purchaser agree that title
to the Property will be vested at Final Closing in such other entity as
Purchaser may direct by written notice to Seller given not later than ten (10)
business days prior to Final Closing. For purposes of this Agreement,
"Purchaser" shall mean Purchaser and its successors and assigns.
22. Waiver. No inspection by Purchaser of the Property or of any item
delivered by Seller to Purchaser as provided in this Agreement shall constitute
a waiver of any representation, warranty or covenant made by Seller hereunder.
The waiver by a party hereto of any term, covenant, agreement or condition
herein contained shall not be deemed to be a waiver of any subsequent breach or
failure of condition as to the same or any other term, covenant, agreement or
condition herein contained, nor shall any custom or practice which may arise
between the parties in the administration of the terms hereof be construed as a
waiver of or in such a manner as to lessen the rights of any party to insist
upon the performance by the other parties in strict accordance with such terms.
23. Time of the Essence. The time for performance of the obligations of
the parties hereunder is of the essence in this Agreement.
24. Survival of Agreement. The obligation of any parties to this
Agreement, including any performance specified or anticipated to occur following
the Final Closing, to that extent shall survive the Final Closing.
25. Headings. The subject headings of paragraphs and subparagraphs of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
26. Counterparts. This Agreement may be executed in one or more
counterparts, including by telecopy with immediate federal express delivery of
the original signature of such party to the other party, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
PURCHASE AND SALE AGREEMENT PAGE 31
<PAGE> 32
27. General.
(a) Right of Purchaser to Cure Breaches and Defaults. Purchaser
reserves the right to cure any breach of a representation, warranty or covenant
by Seller or any other default by Seller under this Agreement upon the lapse of
any applicable notice or grace period provided in this Agreement or any exhibit
hereto. In the event Purchaser elects to cure any such breach or default, it
shall offset the expense incurred in making such cure against any amount owed to
Seller under the terms hereof. If no amounts are owed to Seller, Seller shall
reimburse Purchaser for any amounts expended by Purchaser to cure Seller's
default within ten (10) days of receipt by Seller of a notice to that effect
from Purchaser.
(b) Confidentiality. The parties hereto hereby agree that they will
maintain the confidentiality of the terms of the transaction contemplated
hereby, the contents of this Agreement and related documents, if any, except
that (i) Purchaser may disclose material terms which are required to be
disclosed by applicable securities laws or as required by any national
securities exchange on which Purchaser's common stock may be listed and
Purchaser may include a copy of this Agreement in its filings with the
Securities and Exchange Commission, and (ii) Seller and Purchaser may each
disclose terms of this Agreement and the transactions evidenced hereby to their
respective brokers and professional advisors and as otherwise may be required by
applicable law.
(c) Capacity. This Agreement and all documents, agreements,
understandings, and arrangements relating to this transaction have been executed
by the undersigned in his/her capacity as an officer or director of Purchaser
which has been formed as a Maryland corporation pursuant to the Articles of
Incorporation of Purchaser, and not individually, and neither the directors,
officers or stockholders of Purchaser shall be bound or have any personal
liability hereunder or thereunder. Seller shall look solely to the assets of
Purchaser for satisfaction of any liability of the Purchaser in respect of this
Agreement and all documents, agreements, understandings and arrangements
relating to the transaction contemplated by this Agreement and will not seek
recourse or commence any action against any of the directors, officers or
stockholders of Purchaser or any of their personal assets for the performance or
payment of any obligation hereunder or thereunder. The foregoing shall also
apply to any future documents, agreements, understandings, arrangements and
transactions between the parties hereto.
28. Management Agreement. Simultaneously with the execution of this
Agreement, Seller and Manager shall execute and deliver to each other the
Management Agreement pursuant to which Manager shall manage the Property on the
terms set forth in the Management Agreement.
PURCHASE AND SALE AGREEMENT PAGE 32
<PAGE> 33
29. Approved Development Budget. Simultaneously with the execution of
this Agreement, Seller and Purchaser shall agree upon the preliminary Approved
Development Budget and attach a copy of same, initialed by both parties, as
Exhibit "E" to this Agreement. Seller shall submit and Purchaser shall approve
the final Approved Development Budget as provided elsewhere in this Agreement.
30. Construction Loan. Borrower and Guarantor hereby agree to execute
such documentation as may be required by the Construction Lender, including but
not limited to additional guaranties of payment and completion and the Tri-Party
Agreement, to obtain the Construction Loan.
31. Final Plan Approval. Purchaser has given to Seller approval of the
preliminary plans and specifications for the Property, including approval of
marketing and conceptual items such as site plan, elevation, floor plans,
clubhouse and the preliminary Approved Development Budget. Approval by Purchaser
of the final Plans and Specifications will be subject to a third-party
engineering report focusing on construction quality, detail, execution and cost,
and the procurement of all necessary approvals to build the Improvements on the
Land according to the Plans and Specifications, including zoning/rezoning,
entitlements and the right to "pull permits" and contingent upon Purchaser's
approval of the final Approved Development Budget. No additional fundings shall
be made beyond those provided by the Purchaser Note until final approval of the
Plans and Specifications shall have been given by Purchaser. Final approval of
Plans and Specifications also will include approval of the Projected Development
Cost, focusing primarily on the hard cost line items contained within the
Construction Contract.
PURCHASE AND SALE AGREEMENT PAGE 33
<PAGE> 34
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and in the year entered below, effective as above written.
PURCHASER:
Walden Residential Properties, Inc.,
a Maryland corporation
By:
-----------------------------------------
Charlie Geiss
Senior Vice President and
Chief Acquisitions Officer
Date Executed by Purchaser:
-----------------
SELLER:
THE GREYSTONE GROUP, INC.,
a ________________ corporation
By:
-----------------------------------------
Name:
-----------------------------
Title:
----------------------------
Date Executed by Seller:
--------------------
PURCHASE AND SALE AGREEMENT PAGE 34
<PAGE> 35
The undersigned, constituting the Title Insurer, hereby agrees to
accept in escrow the moneys provided for in the above Agreement to be paid into
escrow, to hold and apply the same as provided in said Agreement and to comply
in all respects with this Agreement as escrow instructions to Title Insurer.
,
--------------------------------------------
in its separate capacity and
as agent for
---------------------------------
By:
------------------------------------------
Authorized Agent
Date executed by Title Insurer:
--------------
PURCHASE AND SALE AGREEMENT PAGE 35
<PAGE> 36
LIST OF EXHIBITS
Schedule I - Delivery Items
Exhibit A - Legal Description
Exhibit B - Survey
Exhibit C - Surveyor's Certificate
Exhibit D - Approved Development Budget
Exhibit E - Management Agreement
Exhibit F - Construction Completion Schedule
Exhibit G - Schedule of Insurance
Exhibit H - Pending Litigation
Exhibit I - Closing Documents
<PAGE> 37
SCHEDULE I
ITEMS TO BE DELIVERED
1. Seller's most current owner's title insurance policy and a copy of all title
reports and documents in Seller's possession.
2. A copy of all ad valorem and other property tax statements (including
personal property tax statements) relating to the Property for the current tax
year and the immediately preceding tax year, including copies of any assessments
or statements for the current or forthcoming year, including a summary of any
contested tax assessments relating to the Property for the preceding year, and
the results thereof.
3. A copy of all site plans, surveys, soil and substrata reports and studies,
engineering plans and studies, environmental reports or studies, architectural
renderings, plans and specifications, construction contracts (with all
applicable change orders), floor plans, landscape plans, utility schemes and
other similar plans, diagrams of studies, if any, relating to the Property.
4. A copy of all swimming pool permits, boiler permits and other licenses and
permits for the Property in the possession of Seller and issued by any
governmental authority having jurisdiction over the Property or Seller, all as
available pursuant to Seller's current record keeping system.
<PAGE> 38
EXHIBIT A
The LAKEVIEW AT OCOTILLO Apartments
Chandler, Arizona
272 Units
260,082 Net Rentable Square Feet to be constructed
LEGAL DESCRIPTION:
<PAGE> 39
EXHIBIT B
SURVEY
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
Survey dated June 16, 1998 by EEC/MKE, 3501 N. 16th Street, Phoenix, Arizona
85016. Survey performed by registered land surveyor, Michael D. Skroch,
Certificate No. 27753.
<PAGE> 40
EXHIBIT C
SURVEYOR'S CERTIFICATE
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
<PAGE> 41
EXHIBIT D
APPROVED DEVELOPMENT BUDGET
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
Attached.
<PAGE> 42
EXHIBIT E
MANAGEMENT AGREEMENT
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
Attached.
<PAGE> 43
EXHIBIT F
CONSTRUCTION COMPLETION SCHEDULE
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
Attached.
<PAGE> 44
EXHIBIT G
SCHEDULE OF INSURANCE
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
Attached.
<PAGE> 45
EXHIBIT H
PENDING LITIGATION
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
None.
<PAGE> 46
EXHIBIT I
CLOSING DOCUMENTS
LAKEVIEW AT OCOTILLO APARTMENTS
CHANDLER, ARIZONA
<PAGE> 1
EXHIBIT 12.1
<PAGE> 2
EXHIBIT 12.1
WALDEN RESIDENTIAL PROPERTIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Period
February 9, 1994
Year Ended (Commencement
December 31, of Operations) to
------------------------------------- December 31,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item and
income allocated to minority interests........... $36,213 $27,113 $19,122 $10,685 $ 5,356
Add:
Interest on indebtedness......................... 54,409 28,447 20,573 17,111 6,288
Amortization of deferred financing costs......... 1,048 827 916 900 371
------- ------- ------- ------- -------
Earnings.................................. $91,670 $56,387 $40,611 $28,696 $12,015
======= ======= ======= ======= =======
Fixed charges and preferred stock dividends:
Interest on indebtedness......................... $54,409 $28,447 $20,573 $17,111 $ 6,288
Amortization of deferred financing costs......... 1,048 827 916 900 371
------- ------- ------- ------- -------
Fixed charges.................................... 55,457 29,274 21,489 18,011 6,659
Add:
Preferred stock dividends (1).................... 19,181 15,889 4,092 922 --
------- ------- ------- ------- -------
Combined fixed charges and
preferred stock dividends............... $74,638 $45,163 $25,581 $18,933 $ 6,659
======= ======= ======= ======= =======
Ratio of earnings to fixed charges................. 1.65x 1.93x 1.89x 1.59x 1.80x
Ratio of earnings to fixed charges and
preferred stock dividends........................ 1.23x 1.25x 1.59x 1.52x 1.80x
</TABLE>
(1) Includes dividends on preferred stock and preferred distributions to
minority interest holders.
<PAGE> 1
Exhibit 21.1
Page 1 of 3
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE OF SUBSIDIARIES OF THE COMPANY
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
EQUITY
SUBSIDIARIES OWNERSHIP
- ------------ ---------
<S> <C>
AOF, Inc.............................................................................................100%
(California)
Apartment Opportunity Fund, L.P......................................................................100%
(California)
Concierge Management Corporation.....................................................................100%
(Texas)
Concierge Realty and Finance Corporation.............................................................100%
(Texas)
Cornerstone Associates...............................................................................100%
(California)
Crossing & Meadows Corporation.......................................................................100%
(Texas)
Crossing & Meadows Partnership, Ltd...................................................................78%
(Texas)
DMH 90...............................................................................................100%
(California)
Drever Construction Corporation......................................................................100%
(California)
Drever/Monticello Investors, L.P.....................................................................100%
(California)
Drever Partners, Inc.................................................................................100%
(California)
Fullerton Portfolio Joint Venture....................................................................100%
(California)
</TABLE>
<PAGE> 2
Exhibit 21.1
Page 2 of 3
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE OF SUBSIDIARIES OF THE COMPANY - CONTINUED
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
EQUITY
SUBSIDIARIES OWNERSHIP
- ------------ ---------
<S> <C>
Houston Portfolio Joint Venture II..................................................................100%
(California)
Hunter's Ridge Partnership, Ltd.....................................................................100%
(Texas)
Newport Partnership, Ltd............................................................................100%
(Texas)
Peppertree Associates, Ltd............................................................................1%
(Texas)
Resident Profiles, Inc..............................................................................100%
(Texas)
Walden AZ Corporation...............................................................................100%
(Delaware)
Walden Bond G.P., Inc...............................................................................100%
(Delaware)
Walden Development LLC..............................................................................100%
(Delaware)
Walden/Drever Operating Partnership, L.P.............................................................66%
(Delaware)
Walden Glen Corporation.............................................................................100%
(Delaware)
Walden/Grupe Elk Grove, L.P...........................................................................1%
(Delaware)
</TABLE>
<PAGE> 3
Exhibit 21.1
Page 3 of 3
WALDEN RESIDENTIAL PROPERTIES, INC.
SCHEDULE OF SUBSIDIARIES OF THE COMPANY - CONTINUED
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
EQUITY
SUBSIDIARIES OWNERSHIP
- ------------ ---------
<S> <C>
Walden/Grupe Roseville, L.P...........................................................................1%
(Delaware)
Walden Operating, Inc...............................................................................100%
(Delaware)
Walden Residential Operating Partnership, L.P........................................................78%
(Georgia)
Walden Residential Operating Partnership, L.P.......................................................100%
(Delaware)
Walden Special Corp.................................................................................100%
(Texas)
Walden Special Partners, Ltd........................................................................100%
(Texas)
Walden "Utah" Properties, Ltd.......................................................................100%
(Texas)
WDN Properties, Inc................................................................................100%
(New York)
WDN Properties, Ltd.................................................................................100%
(Texas)
WGGL Corp...........................................................................................100%
(Delaware)
WRBD, L.P............................................................................................78%
(Delaware)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
on Form S-3 (Registrations Nos. 333-92328, 333-13809 and 333-34507) and on Form
S-8 (Registration Nos. 333-22547, 333-24247 and 333-49101) of Walden
Residential Properties, Inc. of our report dated March 18, 1999, (which report
expresses an unqualified opinion and includes an explanatory paragraph relating
to the change in the method of accounting for the cost of replacement carpets
effective July 1, 1996), appearing in this Annual Report on Form 10-K of Walden
Residential Properties, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 9,292 9,757 29,720
<SECURITIES> 0 0 0
<RECEIVABLES> 6,765 1,613 1,324
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 1,531,163 1,506,030 683,515
<DEPRECIATION> 128,765 74,584 41,707
<TOTAL-ASSETS> 1,552,273 1,469,472 689,714
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
70 57 58
<COMMON> 236 180 169
<OTHER-SE> 532,897 394,978 396,308
<TOTAL-LIABILITY-AND-EQUITY> 1,552,273 1,469,472 689,714
<SALES> 0 0 0
<TOTAL-REVENUES> 278,817 169,537 109,475
<CGS> 0 0 0
<TOTAL-COSTS> 120,202 73,288 47,560
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 54,409 28,447 20,573
<INCOME-PRETAX> 29,754 25,058 17,188
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 29,754 25,058 17,188
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (423) (422) (1,848)
<CHANGES> 0 0 0
<NET-INCOME> 10,736 9,396 13,182
<EPS-PRIMARY> .58 .53 .90
<EPS-DILUTED> .58 .53 .89
</TABLE>
