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, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______________ to
______________
Commission File Number 1-13220
PARAGON GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 75-2540957
(State of Incorporation) (I.R.S. employer
identification no.)
7557 Rambler Road, Suite 1200
Dallas, Texas 75231
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (214) 891-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, New York Stock Exchange
$0.01 Par Value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No .
Indicate by a 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. [ ]
As of March 14, 1997, the aggregate market value of the 13,520,985 shares
of Common Stock held by non-affiliates of the registrant was approximately
$240.0 million, based upon the closing price of $17.75 on the New York Stock
Exchange composite tape on such date.
Number of shares of Common Stock outstanding as of March 14, 1997: 14,791,165
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
Item 1. BUSINESS
General
Paragon Group, Inc. (together with its subsidiaries, the "Company") is a
fully integrated, diversified real estate investment trust headquartered in
Dallas, Texas focused on the operation, development and acquisition of
multifamily residential communities in its key markets in the Southwest,
Midwest, Carolina and Florida markets. The Company is a self-administered and
self-managed real estate investment trust ("REIT") that as of December 31, 1996,
owned (either directly or through interests in other entities) interests in 64
properties -- 57 multifamily residential communities containing 15,954 apartment
units (the "Residential Properties") and three office buildings containing
724,470 rentable square feet (the "Commercial Properties") located in six
states, with three additional multifamily residential communities under
construction for which 856 units are planned, and a 12.6 acre tract of land for
which 320 multifamily residential units are planned which the Company acquired
in December 1996 for future development (collectively, the "Properties"). In
addition, the Company, through an affiliate, managed 77 multifamily residential
communities (including the Residential Properties) as of December 31, 1996
located across the United States, totaling approximately 21,696 apartment units.
The Company sold its economic interest in its commercial property services
business as of June 30, 1996. See "Recent Developments" below.
The Company and its affiliates succeeded in July 1994 to substantially all
of the interests of Paragon Group, Inc., a Texas corporation ("Paragon"), and
certain others in the Properties and to Paragon's property services businesses
and consummated an initial public offering (the "Initial Offering"). Paragon
began its business activities in 1967 (through a predecessor entity) as a
developer and manager of multifamily residential communities in the midwest and
southwest regions of the United States. It expanded its geographic focus to
include ownership and management of properties in the southeast and mid-atlantic
regions in 1972 and added west coast operations in 1981. Over the last 26 years,
Paragon expanded its residential and commercial property holdings primarily
through development, and also through acquisitions of individual or
multi-product, multi-market portfolios of properties owned and/or developed by
others, and evolved into one of the largest developers, owners and managers of
multifamily residential and commercial real estate in the United States.
The Company's principal executive offices are located at 7557 Rambler Road,
Suite 1200, Dallas, Texas 75231, and its telephone number is (214) 891-2000. The
Company is a Maryland corporation that was incorporated on March 23, 1994. The
Company and its affiliates employed over 700 persons as of December 31, 1996.
Organizational Structure
The Company conducts substantially all of its business through Paragon
Group L.P. (the "Operating Partnership"), which the Company controls through its
wholly owned subsidiaries, Paragon Group GP Holdings, Inc. ("Paragon GP
Holdings"), the sole general partner of and the holder of a 1.0% general partner
interest in the Operating Partnership, and Paragon Group LP Holdings, Inc.
("Paragon LP Holdings"), the holder of 79.1% of the units of limited partnership
interest ("Units") in the Operating Partnership as of December 31, 1996. The
other limited partners of the Operating Partnership include entities controlled
by the Company's executive officers and other prior owners of interests in the
Properties and other assets owned by the Operating Partnership. As sole general
partner, Paragon GP Holdings has the exclusive power to manage and conduct the
business of the Operating Partnership. The Company's interests in the Operating
Partnership (through Paragon GP Holdings and Paragon LP Holdings) entitle it to
share in cash distributions from, and in the profits and losses of, the
Operating Partnership in proportion to its percentage interest therein.
<PAGE>
The Company's residential property services business is conducted by
Paragon Residential Services, Inc. ("PRSI"), an affiliate in which the Operating
Partnership owns a 95% economic interest by virtue of owning 1,880 shares of
nonvoting common stock and one share of voting common stock. The remaining 99
shares of voting common stock, which represent a 5% economic interest, are owned
by a partnership controlled by certain current and former executive officers of
the Company. As discussed below under "Recent Developments," as of June 30,
1996, PRSI succeeded to the residential property services business of Paragon
Group Property Services, Inc. ("PGPSI").
Business Objectives and Strategy
The Company's business objectives are to generate stable and increasing
cash flow and asset value through (i) continued improvements in the operating
margins of its existing portfolio of properties through rental rate increases
and improved operating efficiencies, (ii) active pursuit of attractive apartment
development and acquisition opportunities, (iii) continued focus on delivering
profitable property service operating results from existing and new management
and other property service assignments, (iv) strategic existing asset
disposition and capital redeployment, and (v) continued utilization of joint
venture opportunities to broaden the Company's investment capability in its key
markets and to enhance yield generated on the Company's invested capital.
The Company believes that its current portfolio of properties and new
acquisition and development properties should provide the Company with stable
and increasing cash flow and asset value. In addition, the Company will pursue
new property service assignments that it believes will be profitable, although
it recognizes that the property service business continues to be increasingly
competitive. The knowledge and experience that Paragon has gained and the
relationships that it has cultivated through the development, acquisition,
ownership and management of multifamily residential communities over the past 29
years, coupled with its presence in numerous real estate markets across the
country through management and/or ownership of properties, provides the Company
with a solid foundation from which to achieve long-term growth. The Company will
seek to realize this growth by continuing to improve the performance of the
existing portfolio of properties and by expanding its asset portfolio through
development or acquisition of additional multifamily residential properties in
its key markets in the Southwest, Midwest, Carolina and Florida.
Business Segments
The Company's two primary business segments are property operations and
property service operations. Results of operations and information related to
the Properties and the property services businesses conducted by an affiliate of
the Company and its predecessor for 1996, 1995 and 1994 are shown in Note 13
"Segment Operations" in the Consolidated and Combined Financial Statements and
Notes thereto included elsewhere herein in order to provide a basis for
analyzing and comparing operating performance.
PROPERTY OPERATIONS. The Company's property operations generate the
majority of the Company's revenue and substantially all of the Company's net
income. In 1997, the Company will continue its practice of seeking opportunities
to improve operating margins at the Properties and to implement more effective
and consistent marketing of its apartment communities to potential residents. In
addition, the Company expects to identify certain residential properties in the
portfolio that may present opportunities for enhanced revenue growth through
product repositioning. The Company believes select properties in the portfolio
that possess certain market, submarket and locational qualities can achieve
improved occupancies and/or greater than market rental rate increases through a
product repositioning program.
PROPERTY SERVICES BUSINESS. PRSI performs a variety of property service
tasks for the Company, affiliate property owners and third-party owners. The
Company believes that the property services business continues to be
increasingly competitive and, as a result, operating results from PRSI's
operations could be adversely impacted. In 1997, PRSI will continue to explore
ways to improve operating results by focusing new business efforts toward
longer-term property owners. The Company and PRSI intend to analyze additional
methods of achieving improved returns from the Company's investment in this
business segment.
3
<PAGE>
Recent Developments and Activities
PROPOSED MERGER. On December 16, 1996 the Company executed an Agreement and
Plan of Merger (the "Agreement") with Camden Property Trust ("Camden") which
provides for, among other things, the merger of the Company into a wholly-owned
subsidiary of Camden through a tax-free exchange of each share of the Company's
common stock for .64 common shares of beneficial interest of Camden, whereby
stockholders of the Company will become shareholders of Camden.
The Company has the option to terminate the Agreement in the event the
average closing price of Camden common shares ("Average Closing Price") falls
below $25.67 during a specified pricing period prior to a special meeting of the
stockholders of the Company. In the event the Company elects to terminate the
Agreement, Camden has the option of adjusting the exchange ratio of .64 to equal
a number obtained by dividing $16.43 by the Average Closing Price.
An affirmative vote of holders of two-thirds of the outstanding shares of
the Company's common stock is required to approve the Agreement. A special
meeting of the Company's stockholders is scheduled for April 15, 1997 to vote on
the Agreement.
SALE OF COMMERCIAL PROPERTY SERVICES BUSINESS. As of June 30, 1996, the
Company sold its economic interest in the commercial property services business
which previously had been conducted by PGPSI ("Paragon Commercial") to Insignia
Financial Group Inc. for initial cash consideration of approximately $18.2
million. The acquisition price may be adjusted upward or downward depending on
the future revenue performance of Paragon Commercial. This transaction does not
include the sale of any residential or commercial real estate assets owned by
the Company. PRSI will continue the Company's residential property services
business and will provide all residential property service functions previously
provided by PGPSI, including property management, leasing, development,
acquisition and disposition of its owned residential communities as well as for
affiliated and third party residential owners.
PARADIM JOINT VENTURE. On April 1, 1996, the Company entered into a joint
venture ("Paradim") with Careit Investments Limited Partnership ("Careit"), an
affiliate of Caisse de depot et placement du Quebec, to acquire, develop and
operate selected multifamily residential properties in markets in which the
Company operates. The Company and Careit each have committed to invest up to
$22.5 million, primarily through a newly formed Maryland corporation, Paradim,
Inc., which intends to qualify as a REIT for Federal income tax purposes. Each
investment by Paradim, Inc. is to be made through separate limited liability
companies or limited partnerships in which Paradim, Inc. will own an 89%
interest as the managing member or general partner, the Company will own a 1%
interest and a number of private investors will own the remaining interests. In
connection with Paradim, Inc.'s initial capitalization, the Company effectively
contributed its interest in three properties (Overlook, formerly known as The
Phoenix, a 220-unit multifamily residential complex in Charlotte, North
Carolina; Highpoint, a 708-unit multifamily residential complex in Dallas,
Texas; and Brassfield Park, a 336-unit multifamily residential complex in
Greensboro, North Carolina which was under development in 1996 and recently
completed in March 1997) and Careit contributed $7.93 million in cash. At
formation, the Company also received a distribution of approximately $6.62
million, which was used to repay existing indebtedness under the line of credit.
The Company recorded the initial contribution of these properties at their net
carrying value on April 1, 1996, which was approximately $14.73 million (net
book value of $41.84 million subject to existing indebtedness of $27.11
million). The Company's investment, which includes a direct 1% interest in two
limited liability companies and one limited partnership and an approximate 43%
indirect interest in such entities through its ownership in Paradim, Inc.
(collectively, approximately 44%), is being accounted for under the equity
method. As of December 31, 1996, the Company's aggregate investment in Paradim
was approximately $7.95 million.
4
<PAGE>
PROPERTY DEVELOPMENT. During 1996, the Company completed construction of
three multifamily residential properties containing a total of 824 apartment
units. At December 31, 1996, an additional 856 apartment units were under
construction which are scheduled for completion in the first and second quarters
of 1997, including 336 units owned by Paradim which were completed in March
1997. In addition, during 1996, the Company, through PGPSI and PRSI, developed
and sold an office/warehouse development located in suburban Dallas, Texas.
As of December 31, 1996, the Company owns a 12.6 acre tract of land located
in Orlando, Florida held for future development and is a party to a long term
ground lease on 27.47 acres in Louisville, Kentucky which may be used to develop
additional apartment units in the future.
PROPERTY ACQUISITIONS. In addition to the development activity noted above,
the Company acquired two multifamily residential operating properties in 1996.
On November 8, 1996, the Company purchased two North Carolina multifamily
residential communities (the 240 unit Habersham Pointe apartments in Charlotte,
North Carolina and the 216 unit River Oaks apartments in Greensboro, North
Carolina) from a single seller for a total purchase price of $20.9 million,
including the assumption of mortgage indebtedness in the amount of $6.36 million
collateralized by the River Oaks apartments. Both properties are well leased and
in good physical condition. On a combined basis, the properties are projected to
generate an unleveraged yield for 1997 in excess of 9.5%.
PROPERTY DISPOSITIONS. As a result of the sale of its commercial property
services business in June 1996, the Company sold its three wholly-owned
commercial properties in the fourth quarter of 1996.
In addition, in an effort to maximize the long term growth potential of the
portfolio through redeployment of capital, the Company sold two multifamily
residential properties during the fourth quarter of 1996 and three of the
Residential Properties during January 1997. Management intends to regularly
evaluate additional dispositions which will create geographic efficiencies or
improve operating results.
FINANCING ACTIVITY. During the year the Company increased its total debt
from $293.8 million at December 31, 1995 to $297.3 million at December 31, 1996.
The Company borrowed additional fixed-rate term debt of $7.4 million in November
1996 collateralized by the 278 unit Schooner Bay apartments in Tampa, Florida.
This borrowing was used to fund a portion of the purchase of the Habersham
Pointe and River Oaks apartments in November 1996. In connection with the
purchase of the River Oaks apartments, the Company also assumed $6.36 million of
mortgage indebtedness collateralized by the property. In July 1996, the Company
renewed its line of credit facility. Under the terms of the new agreement, the
Company may borrow up to $85 million including up to $50 million related to
development activities. The line of credit matures in 1998, but may be extended
through July 1999 at the Company's option. At December 31, 1996, $42.7 million
of debt is represented by advances under the Company's line of credit. These
advances are in two contracts at fixed rates.
5
<PAGE>
Item 2. PROPERTIES
Residential Properties
At December 31, 1996, fifty-seven of the Properties are Residential
Properties, 55 of which the Company considers to have reached stabilized
occupancy. A residential property is considered by the Company to have achieved
stabilized occupancy on the earlier to occur of (i) attainment of 93% physical
occupancy on the first day of any month or (ii) one year after the completion of
construction. The Residential Properties, which represented 96.7% of the total
Property revenue for the year ended December 31, 1996, contain a total of 15,954
apartment units. Twenty-one of the Residential Properties, containing a total of
6,007 apartment units, are located in Florida, 13 (3,450 apartment units) are
located in Missouri, eight (2,167 apartment units) in North Carolina, nine
(2,836 apartment units) in Texas, five (1,142 apartment units) in Kentucky and
one (352 apartment units) in South Carolina. The Residential Properties range in
size from 112 to 708 apartment units. Forty-two of the Residential Properties
were developed by Paragon and are now managed by the Company while 14 were
acquired from third parties and one from an affiliate and have been managed by
the Company or Paragon for an average of 9 years. The weighted average age of
the Residential Properties is approximately 12 years and the average apartment
unit size is approximately 787 square feet. For the year ended December 31,
1996, the weighted average occupancy of the stabilized Residential Properties
was 92.6% and the weighted average monthly rental rate per apartment unit was
approximately $535.
Three additional residential properties were under construction at December
31, 1996 with completion estimated for the first and second quarters of 1997.
This includes the 336 unit Brassfield Park apartments owned by Paradim located
in Greensboro, North Carolina which was completed in March 1997. The other two
properties are located in North Carolina and Missouri and will contain, when
completed, 232 and 288 units, respectively. The Company also owns a 12.6 acre
tract of land located in Florida for which 320 multifamily residential units are
planned which it acquired in December 1996 for future development. In addition,
the Company has also entered into a non-recourse ground lease, which commenced
on October 24, 1996, related to approximately 27.47 acres in Louisville,
Kentucky for potential development of an additional multifamily residential
community in 1997. "See Item 1: BUSINESS--Recent Development and
Activities--Property Development."
6
<PAGE>
The following table sets forth certain information about each of the
residential Properties that were owned by the Company as of December 31, 1996:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1996
Average Average Monthly
Year Unit 1996 Rental Revenue
Percent Number Placed Net Rental Size Average --------------
Property and Location Owned of Units in Service Area (Sq Ft) (Sq Ft) Occupancy (1) Per Unit Per Sq Ft
--------------------- ----- -------- ---------- ------------ ------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stabilized Residential Properties
FLORIDA
Orlando
Grove 100% 232 1973 157,116 677 96.2% $ 434 $ 0.64
Landtree 75% (4) 220 1983 164,484 748 96.0% 477 0.64
The Reserve 100% 146 1991 130,368 893 98.0% 599 0.67
Summerplace I & II 90% (4) 344 1984 260,520 757 92.1% 451 0.60
Summerplace III 75% (4) 208 1986 152,022 731 89.2% 456 0.62
Vineyard 100% 380 1990 303,148 798 96.0% 542 0.68
St. Petersburg
4th Street Station I 75% (4) 384 1982 278,118 724 85.9% 466 0.64
4th Street Station II 75% (4) 304 1983 222,702 733 85.2% 469 0.64
Tampa
Broadmoor 100% 384 1986 250,032 651 89.9% 425 0.65
Chasewood 100% 247 1985 173,889 704 92.8% 458 0.65
Coco West I 75% (4) 208 1983 149,838 720 89.2% 434 0.60
Coco West II 75% (4) 276 1985 199,668 723 89.4% 432 0.60
Dolphin Pointe 100% 416 1989 315,406 758 93.4% 512 0.68
Greenhouse 90% (4) 324 1982 224,958 694 93.2% 415 0.60
Heron Pointe (3) 100% 276 1996 259,872 942 92.8% 666 0.71
Lookout Pointe 100% 416 1987 306,528 737 93.2% 496 0.67
Parsons Run 75% (4) 228 1986 166,056 728 94.6% 478 0.66
Schooner Bay 100% 278 1986 202,304 728 94.4% 535 0.74
Summerset Bend 75% (4) 272 1984 197,982 728 93.9% 465 0.64
Winterhaven
Citrus Lakes I 100% 192 1976 139,698 728 90.2% 390 0.54
KENTUCKY
Louisville
Copper Creek 100% 224 1987 164,024 732 93.7% 576 0.79
Deerfield 100% 400 1987/90 298,336 746 92.3% 563 0.75
Glenridge 100% 138 1990 126,340 916 93.5% 695 0.76
Post Oak 100% 126 1981 106,780 847 92.4% 526 0.62
Sundance 100% 254 1975 173,130 682 95.4% 468 0.69
MISSOURI
Kansas City
Camden Passage 100% 308 1989 238,324 774 93.8% 645 0.83
St. Charles
San Miguel (6) 100% 251 1970 214,430 854 87.2% 494 0.58
St. Louis
Knollwood I 100% 308 1981 222,648 723 93.6% 470 0.65
Knollwood II 100% 300 1985 216,036 720 95.6% 485 0.67
Pear Tree 100% 134 1967 96,892 723 95.6% 459 0.64
Spanish Trace 100% 372 1972 430,628 1,158 94.2% 611 0.53
Sunswept 100% 334 1971 268,842 805 93.3% 463 0.58
Tempo 100% 304 1975 205,381 676 92.9% 454 0.67
The Cove 100% 276 1990 228,480 828 96.3% 829 1.00
The Knolls 100% 112 1973 167,270 1,493 96.7% 736 0.49
Westchase Park 100% 160 1986 151,124 945 93.3% 788 0.83
Westgate I 100% 189 1973 220,967 1,169 85.9% 746 0.64
Westgate II 100% 402 1980 338,659 842 85.8% 606 0.72
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ended
December 31, 1996
Average Average Monthly
Year Unit 1996 Rental Revenue
Percent Number Placed Net Rental Size Average --------------
Property and Location Owned of Units in Service Area (Sq Ft) (Sq Ft) Occupancy (1) Per Unit Per Sq Ft
--------------------- ----- -------- ---------- ------------ ------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NORTH CAROLINA
Charlotte
Copper Creek 100% 208 1989 146,248 703 92.8% 531 0.75
Eastchase 70% (4) 220 1986 153,560 698 95.1% 514 0.74
Falls 100% 352 1984 248,391 706 95.4% 556 0.79
Habersham (2) 100% 240 1986 185,440 773 94.6% 641 0.83
Pinehurst 100% 407 1967 466,865 1,147 92.5% 653 0.57
The Overlook (5) 44% 220 1985 165,790 754 96.7% 571 0.76
Greensboro
Glen 100% 304 1980 201,112 662 94.0% 499 0.75
River Oaks (2) 100% 216 1985 171,680 795 86.6% 658 0.83
SOUTH CAROLINA
Charleston
Westchase (6) 75% (4) 352 1986 248,391 706 96.7% 469 0.66
TEXAS
Dallas
Brookfield (6) 100% 232 1986 165,544 714 95.3% 448 0.63
Chesapeake 100% 128 1982 116,708 912 91.4% 639 0.70
Highpoint (5) 44% 708 1985 591,428 835 89.9% 553 0.66
Nob Hill 100% 486 1986 311,940 642 91.1% 449 0.70
Stone Creek 100% 240 1995 199,521 831 89.1% 720 0.87
Irving
Fairlane 75% (4) 320 1980 213,200 666 97.0% 434 0.65
Los Rios 100% 286 1992 220,660 772 93.1% 739 0.96
Plano
Highland Trace 100% 160 1985 130,531 816 95.2% 587 0.72
--- ----------- --- ----- --------- --------
TOTAL/WEIGHTED
AVERAGE 15,406 12,060,009 783 92.6% $ 535 $ 0.68
Development Properties (10)
FLORIDA
Orlando
Renaissance Pointe (7) 100% 272 1996 255,604 940
MISSOURI
Kansas City
Camden Passage II 100% 288 257,736 895
NORTH CAROLINA
Charlotte
The Park 100% 232 199,388 859
Greensboro
Brassfield Park (5) (9) 44% 336 1997 298,604 889
TEXAS
Dallas
Stone Gate (8) 100% 276 1996 240,312 871
--- ----------- ---
TOTAL/WEIGHTED
AVERAGE 1,404 1,251,644 891
</TABLE>
8
<PAGE>
------------------
(1) Weighted Average Occupancy is calculated by taking the actual
apartment units occupied at the end of each month the Property was in
operation during the year, divided by the total number of apartment
units in operation at the end of such month, and averaging those
amounts.
(2) The Company acquired these Properties in the fourth quarter of 1996.
Therefore, the weighted average occupancy and weighted average rental
rate per apartment unit are based on information from the date of
acquisition only.
(3) The Company completed this property in the first quarter of 1996.
Therefore, the weighted average occupancy and weighted average rental
rate per apartment unit are based on information from the date of
completion only.
(4) The Company (through the Operating Partnership) is the controlling
partner of the partnership that owns this Property and generally has
the right to receive a preferred return on its interest that is
expected to provide the Company with substantially all of the cash
flow distributed with respect to the Property for the foreseeable
future. The percentage disclosed generally represents the Company's
interest in cash flow and sales and refinancing proceeds in addition
to and payable after the Company's preference and certain partner
preferences.
(5) These properties are owned by Paradim.
(6) These properties were sold in January 1997.
(7) Property achieved stabilization on January 1, 1997 at an occupancy of
93.0%.
(8) Property is in the initial lease-up phase. Construction was completed
in August 1996.
(9) Construction of this property was completed in March 1997.
(10) The development properties listed do not include a 12.6 acre tract of
land in Orlando, Florida which the Company acquired in December 1996
for future development. A 320 unit multifamily residential community
is planned for the site which, when completed, will be the second
phase of the completed 272 unit Renaissance Pointe apartments.
The following table sets forth the total number of apartment units,
weighted average occupancy and weighted average rental rate per apartment unit
for each of the last five years for the Residential Properties as a whole:
<TABLE>
<CAPTION>
Number of Weighted Weighted Average
Year Ended Number Apartment Average Rental Rate
December 31, of Properties (1) Units Occupancy Per Apartment Unit
------------ ----------------- ----- --------- ------------------
<S> <C> <C> <C> <C>
1996 55 15,406 92.6% $535
1995 53 14,818 93.6% 512
1994 49 13,240 93.6% 488
1993 48 12,833 93.8% 474
1992 47 12,547 92.4% 461
</TABLE>
- ---------------------------
(1) Represents the number of Residential Properties stabilized as of January 1
of the applicable year. A Residential Property is considered by the Company
to have achieved stabilized occupancy on the earlier to occur of (i)
attainment of 93% physical occupancy on the first day of any month or (ii)
one year after the completion of construction. Information for the year
ended December 31, 1996 reflects the acquisition of River Oaks and
Habersham Pointe, the stabilization of Stone Creek and Heron Pointe and the
sale of Turtle Creek I and Turtle Creek II. Information for the year ended
December 31, 1995 includes the acquisition of Schooner Bay, Spanish Trace,
The Overlook and Highpoint. Information for the year ended December 31,
1994 includes the acquisition of Pinehurst. Information for a year in which
properties are acquired or become stabilized is included from the date of
acquisition or stabilization through year end. Information for a year in
which properties are sold is excluded. Information for the years ended
December 31, 1993 and 1992 do not include information for the properties
listed in this footnote which were acquired or became stabilized in a
subsequent year.
9
<PAGE>
Commercial Properties
Three of the Properties are Commercial Properties. The Commercial
Properties consist of three office buildings (one in which the Company owns a
20% interest and two in which the Company owns a 10% interest containing a total
of approximately 724,470 square feet of office space). One office building is
located in St. Louis, Missouri and two in suburban Washington, D.C. One of the
three Commercial Properties was developed by Paragon and the Company acquired an
ownership interest in the remaining two properties in April, 1995. All of these
properties were managed by PGPSI until the sale of the Company's commercial
property services operations as of June 30, 1996. See "Item 1: BUSINESS - Recent
Developments" above. The weighted average age of the Commercial Properties
(adjusted to reflect the Company's ownership interests) is approximately 11.4
years. As of December 31, 1996, the Commercial Properties were 96.1% leased
(adjusted to reflect the Company's ownership interests).
As a result of the sale of its commercial property services business, the
Company disposed of its three wholly-owned commercial properties in the fourth
quarter of 1996. The properties sold included one office building (The Paragon
in St. Louis, Missouri containing 102,486 square feet) and two shopping centers
(Westgate Centre in St. Louis, Missouri containing 58,935 square feet and
Southwood Mall in Bradenton, Florida containing 113,949 square feet).
10
<PAGE>
The following table sets forth certain information about each of the
Commercial Properties that was owned by the Company as of December 31, 1996:
<TABLE>
<CAPTION>
As of December 31, 1996
-------------------------------------------
Average
Net Rentable Base
Area/Gross Rent Per Net
Ownership Year Leasable Area Percent Annual Leased Effective
Property Location Interest Completed (Square Feet) Leased (1) Base Rent (2) Sq. Ft. (3) Rent(4)
-------- -------- -------- --------- ------------ ---------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Properties:
Gateway (5) St. Louis, MO 20% 1985 401,625 95.9% $1,311,833 $17.03 $9.48
Fair Oaks (5) Fairfax, VA 10% 1986 135,808 100.0% 217,929 16.05 6.90
Shady Grove (5) Rockville, MD 10% 1988 187,037 93.8% 331,733 18.92 9.93
------- ----- ---------- ------- ----
Office (3 Properties) (6) 724,470 96.1% $1,861,495 $17.23 $9.24
======= ===== ========== ======= =====
</TABLE>
- -------------------------------
(1) Percent leased represents square footage leased at the end of the year.
(2) Annual base rent is calculated using base rents (which are the gross rents
payable by tenants, before taking into account any tenant improvements,
leasing concessions and expense stops) at December 31, 1996.
(3) Average base rent per leased square foot is equal to the annual base rent
divided by the total leased square feet.
(4) For presentation of net effective rent for leases entered into for the
three years ended December 31, 1996, see the table on page 13.
(5) The Company owns a 20% interest in Gateway, a 10% interest in Fair Oaks and
a 10% interest in Shady Grove. Information for these properties with
respect to the net rentable area, percent leased, average base rent per
leased square foot and net effective rent is presented for the entire
property and information with respect to annual base rent reflects the
partial ownership interests.
(6) Weighted average, taking into account the Company's partial ownership in
Gateway, Fair Oaks and Shady Grove.
11
<PAGE>
The following table sets forth the net rentable area or gross leasable
area, as applicable, percent leased and average base rent per leased square foot
as of the end of each of the last five years for the Commercial Properties
(including three wholly-owned commercial properties sold by the Company in the
fourth quarter of 1996):
<TABLE>
<CAPTION>
Average
Net Rentable Base Rent Per
Area/Gross Percent Leased (2) Leased Square Foot (4)
Year Ended Leasable Area --------------------- ----------------------
December 31, (Square Feet)(1) Office (3) Retail Office Retail
------------ ---------------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
1996 724,470 96.1% N/A $17.23 N/A
1995 999,840 96.3% 90.8% 16.32 $9.17
1994 677,026 95.5% 88.3% 15.47 9.38
1993 677,026 95.5% 91.9% 15.47 9.86
1992 677,026 90.9% 93.6% 16.96 8.97
</TABLE>
- -----------------
(1) As space is re-leased to new tenants, certain immaterial adjustments to net
rentable area or gross leasable area may occur as a result of build-out
adjustments for tenants. The total shown is used by the Company for
consistency.
(2) Percent leased represents square footage leased at the end of the year.
(3) Weighted average percent leased, considering the Company's partial
ownership interests in Gateway, Fair Oaks and Shady Grove.
(4) Average base rent per leased square foot is calculated using year-end base
rent figures for the respective periods.
The following table sets forth a schedule of the lease expirations for
leases in place as of December 31, 1996 for the Commercial Properties:
<TABLE>
<CAPTION>
Net Rentable Percent of Total
Year of Number of Area/Gross Annualized Base Annualized Base
Lease Tenants with Leasing Area Rent of Rent of
Expiration Expiring Leases (Square Feet) (1) Expiring Leases (1)(2) Expiring Leases
---------- --------------- ----------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
1997 12 43,994 68,917 6.3%
1998 9 123,648 263,170 17.8%
1999 16 85,705 206,650 12.3%
2000 20 159,385 390,905 22.9%
2001 12 139,049 542,360 20.0%
2002 7 104,976 272,025 15.1%
2003 3 26,790 83,556 3.8%
2004 2 3,836 7,224 .5%
2005 1 4,160 8,320 .6%
2006 1 4,834 18,368 .7%
2007+ 0 - - -
--- --------- --------- -----
83 696,377 1,861,495 100.0%
=== ======= ========= =====
</TABLE>
- -------------------------------
(1) Excludes 28,093 square feet of space not leased as of December 31, 1996.
Net rentable area of expiring leases includes 100% of leases at Gateway,
Fair Oaks and Shady Grove in which the Company owns a 20%, 10% and 10%
interest, respectively. Annualized base rent includes 20%, 10% and 10% of
rent attributable to leases at Gateway, Fair Oaks and Shady Grove,
respectively, to reflect the Company's partial ownership interest.
(2) Annualized base rent is calculated using base rents as of December 31,
1996.
12
<PAGE>
The following table sets forth certain additional leasing information with
respect to all new leases for permanent space entered into at the Commercial
Properties owned by the company at December 31, 1996, for the last three years:
<TABLE>
<CAPTION>
Office Properties
Year Ended December 31,
---------------------------------------------
1996 1995 (2) 1994 (2)
---- -------- --------
<S> <C> <C> <C>
New Leasing Activity (per square foot):
Square Feet Leased $82,355 $ 118,527 $ 28,941
Number of Leases 19 21 7
Weighted Average Term of Lease (years) 4.4 4.5 4.9
Base Rent $ 16.33 $ 18.22 $ 13.44
Expense Stop (6.29) (6.13) (4.35)
------ --------- --------
Net Rent $ 10.04 $ 12.09 $ 9.09
Tenant Improvements/Commissions (1) (3.22) (2.08) (2.14)
------- --------- --------
Net Effective Rent $ 6.82 $ 10.01 $ 6.95
======= ========= ========
</TABLE>
- ------------------------
(1) Tenant Improvements/Commissions calculated as total cost of tenant
improvements and leasing commissions, divided by square feet leased,
divided by weighted average lease term.
(2) 1995 and 1994 only include properties owned as of December 31, 1996.
13
<PAGE>
Property Services
Prior to the sale as of June 30, 1996 of the Company's commercial property
services operations referred to in "Item 1: BUSINESS - Recent Developments"
above, PGPSI provided a wide array of property services to the Properties,
affiliates of PGPSI and the Company, and third-party clients, including property
management, marketing, leasing, asset management, construction management and
disposition services. As of December 31, 1995, PGPSI managed a total of 274
income-producing properties (including 61 properties owned by the Company)
located in 20 states, consisting of 195 commercial properties and 79 multifamily
residential communities. This management portfolio, which totaled approximately
26.4 million square feet of commercial space and 22,000 apartment units as of
December 31, 1995, includes (i) 61 properties owned by the Company, (ii) 64
additional properties owned by affiliates of the Company and its executive
officers and (iii) 149 properties owned by unaffiliated third-party owners.
PRSI has continued the residential property services operations of PGPSI,
including its focus on maximizing the performance of each property under its
management through proactive management that focuses on maintaining tenant
satisfaction to reduce tenant rollover, aggressive reletting of apartment units
and utilization of operating efficiencies as a result of the size of PRSI's
management operations. In addition to providing the Company with an additional
source of cash flow, providing property services to clients through PRSI enables
the Company to achieve economies of scale in its management operations and to
obtain in-depth knowledge about existing and new markets and submarkets, which
provides the Company with greater information about future development and
acquisition opportunities. As of December 31, 1996, PRSI managed 77 multifamily
residential communities (including the Residential Properties) located across
the United States containing approximately 21,696 apartment units.
Operating Information
For information relating to the Company's net income and other aspects of
its results of operations, see the Consolidated and Combined Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere herein.
14
<PAGE>
Mortgage Financing
The Properties are subject to existing mortgage indebtedness in an
aggregate principal amount as of December 31, 1996 of $297.3 million, carrying a
weighted average interest rate of 7.7% and a weighted average maturity of 5.8
years (assuming loans callable before maturity are called as early as possible).
The existing mortgage indebtedness on the Properties is set forth in the table
below:
<TABLE>
<CAPTION>
Estimated
Principal Annual Balance
Interest Balance (15) Debt Maturity Due at
Property Rate (as of 12/31/96) Service Date (1) Maturity
-------- ---- ---------------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Pool A Properties (2) 8.36% $61,710,000 $5,158,956 July 15, 2001 $61,700,000
Landtree 8.52% 3,780,000 322,056 July 15, 1999 3,780,000
Summerplace I & II 8.52% 6,330,000 539,316 July 15, 1999 6,330,000
Summerplace III 8.52% 3,720,000 316,944 July 15, 1999 3,720,000
The Vineyard 7.30% 10,500,000 766,500 Jan. 15, 1999 10,500,000
4th Street Station I 8.52% 5,120,000 436,224 July 15, 1999 5,120,000
4th Street Station II 8.52% 5,070,000 431,964 July 15, 1999 5,070,000
CocoWest I 8.52% 2,670,000 227,484 July 15, 1999 2,670,000
CocoWest II 8.52% 3,780,000 322,056 July 15, 1999 3,780,000
Greenhouse 8.52% 3,580,000 305,016 July 15, 1999 3,580,000
Parsons Run 8.52% 3,840,000 327,168 July 15, 1999 3,840,000
Summerset Bend 8.52% 4,500,000 383,400 July 15, 1999 4,500,000
Deerfield 5.75% 8,200,000 471,500 June 1, 2003 (3) 8,200,000
Deerfield 7.00% 1,685,833 224,150 (4) June 1, 2003 (5) 820,000(6)
Copper Creek (KY) 5.88% 8,900,000 523,320 June 1, 2003 (7) 8,900,000
Copper Creek (KY) 6.00% 230,000 125,342 (4) Dec. 1, 1998 (8) 0
Glenridge 7.50% 2,984,231 223,817 Nov. 15, 1998 2,984,231
Glenridge 7.50% 710,530 53,290 Nov. 15, 1998 710,530
Camden Passage 7.50% (9) 7,350,373 551,278 October 1, 2003 6,572,145
Eastchase 7.50% 2,948,521 221,139 June 7, 1998 (10) 2,948,521
Glen 7.50% (11) 6,571,571 546,904 Jan. 1, 2000 6,371,817
Westchase 8.52% 4,440,000 378,288 July 15, 1999 4,440,000
Fairlane 8.50% 3,461,542 359,856 August 1, 1999 3,272,709
Nationwide-North Carolina
Property (12) 7.29% 14,000,000 1,020,600 Dec. 10, 2005 12,225,503
Nationwide-Texas
Properties (12) 7.29% 22,073,000 1,609,122 Dec. 10, 2005 19,275,252
Nationwide-Missouri
Properties (12) 7.29% 32,927,000 2,400,378 Dec. 10, 2005 28,753,509
River Oaks 8.44% 6,350,443 611,749 (13) Oct. 15, 1999 6,116,824
Spanish Trace 7.35% 9,763,629 795,275 Sept. 1, 2028 0
Schooner Bay 7.70% 7,391,832 667,820 (13) Nov. 10, 2003 6,508,363
PGPSI Equipment Loans 9.50% 3,151 2,515 April 1, 1998 0
-------------- ------------ ------------
Subtotal: $254,591,656 $20,323,427 $232,689,404
Line of Credit (14) Various 42,700,000 3,265,210 July 27, 1998 42,700,000
-------------- -------------- -------------
Total: $297,291,656 $23,588,637 $275,389,404
============ =========== ============
</TABLE>
15
<PAGE>
- ---------------------------
(1) All of the mortgages can be prepaid at any time, in whole or in part,
subject to prepayment penalties typically calculated on a yield maintenance
basis, except for the mortgages encumbering Copper Creek (KY), Deerfield,
Glen and Fairlane, which are closed to prepayment for varying lengths of
time.
(2) The "Pool A Properties" are Grove, The Reserve, Broadmoor, Chasewood,
Dolphin Pointe, Lookout Pointe, Post Oak, Sundance, Westchase Park,
Westgate I, Westgate II, Copper Creek (NC), Falls and Chesapeake. The loan
is secured by the Pool A Properties on a cross-collateralized basis.
(3) Information presented relates to the Series A bonds. The maturity date
noted represents the date on which credit enhancement on the Series A bonds
expires. The stated maturity date for the Series A bonds is June 1, 2023.
(4) Information presented relates to the Series B bonds which amortize over the
life of the loan.
(5) Information presented relates to the Series B bonds. The maturity date
noted represents the date on which credit enhancement on the Series B bonds
expires. The stated maturity date for the Series B bonds is June 1, 2008.
(6) Information presented relates to the Series B bonds which amortize over the
life of the loan. The balance reflects the principal balance which will be
due at the date on which the credit enhancement on the bonds expires.
(7) Information presented relates to the Series A bonds. The maturity date
noted represents the date on which credit enhancement on the Series A bonds
expires. The stated maturity date for the Series A bonds is June 1, 2023.
(8) Information presented relates to the Series B bonds. The Series B bonds
self-liquidate, with the final payment of principal due on December 1,
1998.
(9) Represents the rate in effect pursuant to an interest rate buy down
agreement in effect through July 1999, after which time the rate will
increase to 8.07%.
(10) The lender of the loan secured by this Property has a right to call the
loan, and the Company will have the right to prepay the loan, on June 7,
1998. The stated maturity date for the note is June 1, 2003.
(11) In connection with the Initial Offering, the Company entered into an
interest swap agreement. The agreement, which expires on January 27, 2000,
effectively reduces the fixed interest rate on this note from 9.5% to 7.5%.
(12) The Nationwide debt is structured with three separate loan agreements.
"Nationwide-North Carolina" is secured by Pinehurst. "Nationwide-Texas" is
secured by Los Rios, Nob Hill and Brookfield. "Nationwide-Missouri" is
secured by Tempo, Knollwood I, Knollwood II and The Cove at Westgate.
(13) The amount noted represents the annual debt service projected for 1997.
(14) Advances under the line of credit are secured by Properties that do not
secure other mortgage loans. The principal balance shown represents the
amount advanced and outstanding as of December 31, 1996. Annual debt
service represents the amount projected for 1997, assuming no change in the
interest rates in effect as of December 31, 1996.
(15) The mortgage indebtedness for properties owned by Paradim is not included
in the table. The two completed properties are subject to mortgage
indebtedness in the outstanding amount of $23,731,658 as of December 31,
1996. One property under construction is collateral for a construction loan
from the Company in the outstanding amount of $9,723,075 at December 31,
1996. Under the terms of the loan agreement effective April 1, 1996,
Paradim may borrow up to $11,500,000 from the Company for the property's
construction.
Line of Credit
Concurrent with the Initial Offering, the Company obtained a line of credit
facility in the amount of $75 million. The commitment was subsequently increased
to $115 million and in December 1995 was reduced by the Company to $90 million
and under certain conditions could be increased to $150 million. On July 27,
1996, the Company executed a renewal and modification of the line of credit
facility. Under the terms of the new agreement, the Company may borrow up to $85
million including up to $50 million related to development activities. The line
of credit matures in July 1998, but may be extended through July 1999 at the
Company's option. Borrowings under the line of credit are collateralized by
specified operating properties and properties under development. The interest
rate on the amounts outstanding under the line are based on, at the Company's
election, either (i) the greater of the prime rate or the
16
<PAGE>
Federal Funds rate plus .50% or, (ii) the London Interbank Offer Rate ("LIBOR")
plus 2.0% - 2.25%, depending on certain financial ratios concerning leverage and
debt service coverage. The line of credit reprices, at the Company's discretion,
in defined intervals ranging from 1 to 360 days. As the line of credit is drawn
or reprices, the Company enters into a contract and selects the term and the
interest rate option it desires. If the Company selects a contract based upon
LIBOR plus 2.0% - 2.25%, then the interest rate becomes fixed for the term
selected. Otherwise, the contract rate varies based upon the appropriate index.
At March 25, 1997, $42.7 million was outstanding under the line of credit
in two separate contracts. One contract in the amount of $30.7 million is priced
at 7.50% and the second contract in the amount of $12.0 million is priced at
7.69%. Both contracts reprice on April 16, 1997.
The Company anticipates that the line of credit will continue to be used
primarily to fund development or acquisition of additional properties and for
general working capital purposes.
Under the terms of the modified line of credit agreement, the Company is
subject to the following financial covenants: 1) maintenance of a defined
minimum tangible net worth, 2) limitation on the percentage of total liabilities
to a calculated gross asset value, 3) coverage ratio requirement against
interest expense, 4) coverage ratio requirement against debt service and defined
capital expenditures, 5) limitations, which vary with each respective quarterly
period, on partner distributions in excess of a defined percentage of funds from
operations (as defined herein) buy the Operating Partnership, and 6) limitations
on the percentage of certain investments to the calculated gross asset value.
Item 3. LEGAL PROCEEDINGS
Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or the Properties, other than routine litigation
and administrative proceedings arising in the ordinary course of business, most
of which are expected to be covered by liability insurance and none of which are
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of 1996.
17
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Common Stock of Paragon Group, Inc. are listed on the New
York Stock Exchange under the symbol "PAO".CUSIP:699116 10 9.
On March 14, 1997 the last reported sale price of the Common Stock on the
NYSE was $17.75 per share.
As of March 14, 1997, Paragon Group, Inc. had approximately 298
stockholders of record and 14,791,165 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
Quarterly Stock Price Information
- -------------------------------------------------------------------------------------------------------------
Dividend
Per
Partial Period or Quarter Ended High Low Share
- -------------------------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
January 1, 1995 through March 31, 1995..................... 19 1/2 15 3/4 $0.465
April 1, 1995 through June 30, 1995........................ 18 7/8 16 1/2 $0.465
July 1, 1995 through September 30, 1995.................... 19 16 3/8 $0.465
October 1, 1995 through December 31, 1995.................. 17 5/8 15 1/4 $0.465
January 1, 1996 through March 31, 1996..................... 19 17 1/8 $0.465
April 1, 1996 through June 30, 1996........................ 18 1/4 15 $0.465
July 1, 1996 through September 30, 1996.................... 17 15 $0.465
October 1, 1996 through December 31, 1996.................. 17 3/4 15 1/2 $0.465
</TABLE>
18
<PAGE>
Item 6. SELECTED FINANCIAL DATA
PARAGON GROUP, INC. AND PREDECESSORS
SELECTED FINANCIAL DATA
(In thousands, except per share data and property data)
<TABLE>
<CAPTION>
Company Predecessors
--------------------------------------- --------------------------------------
For the Period For the Period
Years Ended December 31, July 27 to January 1 Years Ended December 31,
------------------------- December 31, to ------------------------
1994, as July 26,
1996 1995 Restated (1) 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data
Rental $ 91,037 $ 80,437 $ 32,099 39,018 66,848 60,984
Property management and leasing services 8,851 22,296 9,821 13,875 24,900 24,541
Other income 4,841 4,835 2,792 4,049 5,104 4,435
--------- ----------- ---------- ----------- ----------- -----------
Total revenues 104,729 107,568 44,712 56,942 96,852 89,960
Operating expenses (before depreciation
and amortization) 58,709 60,075 24,798 33,375 52,560 51,300
Depreciation and amortization 19,552 18,561 7,019 6,499 11,321 10,747
Interest expense 22,066 17,011 6,448 14,858 26,713 27,793
Reorganization costs (2) - - 7,796 - - -
Gain (loss) on sale of properties 9,209 (21) - - 136 3
Gain on sale of commercial property
services business 11,930 - - - - -
Income (loss) before extraordinary items 21,215 10,063 (825) 2,639 6,871 277
Net extraordinary items (3) - - 1,636 1,776 9,092 965
Net income $ 21,215 10,063 811 4,415 15,963 1,242
Per share data:
Income (loss) before extraordinary
items $ 1.43 0.68 (0.06)
Net income $ 1.43 0.68 0.06
Dividends declared per common share
outstanding (4) $ 1.86 1.86 0.795
Weighted average common shares
outstanding $ 14,791 14,698 14,514
Balance Sheet Data
Real estate, net of accumulated
depreciation $ 489,906 505,034 411,777 245,523 252,660
Total assets 536,867 539,611 442,548 262,953 266,242
Mortgages and notes payable 297,292 293,780 182,056 267,650 274,174
Stockholders' equity (deficit) 174,506 178,466 193,434 (40,031) (42,726)
Other Data
Cash flows provided by (used in):
Operating activities $ 28,936 36,522 11,098 11,995 18,630 12,269
Investing activities (14,434) (103,366) (192,477) (3,140) (3,585) (20,731)
Financing activities (13,998) 67,514 179,509 (5,927) (14,285) 7,342
Funds from operations (5) 27,285 32,553 15,020 9,739 19,228 11,918
Property Data (6)
Total Residential Properties (end of year) 55 53 49 48 47
Total Apartment Units (end of year) 15,406 14,818 13,240 12,833 12,547
Total Commercial Properties (end of year) 3 6 4 4 4
Weighted Average Monthly Residential Rate
per Apartment Unit for Residential
Properties $ 535 512 488 474 461
Weighted Average Occupancy for
Residential Properties 92.6% 93.6% 93.6% 93.8% 92.4%
</TABLE>
(1) In 1995, the Company changed its method of accounting for its investment in
its property services subsidiary from the cost method to consolidation. The
financial statements for the period from July 27 to December 31, 1994 have
been restated to reflect this accounting change. See Note 2 to the December
31, 1996 consolidated financial statements included elsewhere herein.
(2) Reorganization costs represents non-recurring costs, principally legal,
accounting and other costs, incurred in connection with the formation of
the Company.
(3) Net extraordinary items represents extraordinary gain from forgiveness of
debt, net of minority interests, less extraordinary loss from early
extinguishment of debt, net of minority interest.
19
<PAGE>
(4) The dividend paid by the Company for the partial quarter ended September
30, 1994 was $.33 per share. During 1995, the Company paid quarterly
dividends, with respect to the fourth quarter of 1994 through the third
quarter of 1995, of $.465 per share. During 1996, the Company paid
quarterly dividends, with respect to the fourth quarter of 1995 through the
third quarter of 1996, of $.465 per share. On January 2, 1997, the Company
declared a dividend with respect to the fourth quarter of 1996, of $.465
per share which was paid on January 23, 1997.
(5) Funds from Operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") to mean net income, computed in
accordance with generally accepted accounting principles ("GAAP"),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. In addition, extraordinary
or unusual items, along with significant non-recurring events that
materially distort the comparative measure of FFO, should be disregarded in
its calculation. Prior to March 1995, the NAREIT definition of FFO allowed
the add back of non-real estate depreciation and amortization, such as
deferred loan cost amortization. The Company has reported FFO according to
the definitions prescribed by NAREIT for each of the periods presented.
Management generally considers FFO to be a useful measure of the operating
performance of an equity REIT because, together with net income and cash
flows, FFO provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. FFO does not represent cash flows from
operating activities as defined by GAAP, should not be considered as an
alternative to net income as an indicator of the Company's operating
performance and is not indicative of cash available to fund all cash flow
needs, including principal amortization, capital improvements and
distributions to stockholders. Further, FFO as disclosed by other REITs may
not be comparable to the Company's calculation of FFO. The following table
represents the Company's calculation of FFO (dollars in thousands):
<TABLE>
<CAPTION>
Company Predecessors
--------------------------------------- --------------------------------------
For the Period
Years Ended December 31, July 27 to For the Period Years Ended December 31,
------------------------- December 31, January 1 to -------------------------
1994, as July 26,
1996 1995 Restated (1) 1994 1993 1992
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 21,215 $ 10,063 $ 811 $ 4,415 $ 15,963 $ 1,242
Adjustments to net income:
Minority interests in income 5,338 2,612 (207) - - -
Minority interests in cash flow (219) (287) (147) - - -
Reorganization costs incurred in connection
with the formation of the Company - - 7,796 - - -
Gain on sale of properties * (8,590) - - - (136) (3)
Gain on sale of commercial property
services business (11,930) - - - - -
Post-Measurement Date FFO from commercial
property services business 674 - - - - -
Extraordinary items, net of minority
interests - - (1,636) (1,776) (9,092) (965)
Real Estate depreciation/amortization 17,783 15,377 6,357 6,200 10,771 10,201
Non-real estate depreciation/amortization - - 180 299 550 546
Real Estate depreciation/amortization from
unconsolidated ventures 891 542 180 110 - -
Deferred loan cost amortization included in
interest expense - - 602 472 1,219 800
Amortization of management and
leasing contracts 598 2,231 482 - - -
Grants/amortization of employee
restricted stock 1,525 1,462 577 - - -
Other cash reorganization expenses - 553 - - - -
Adjustment for straight-lining of
rents - - 25 19 (47) 97
---------- -------- --------- --------- ---------- ----------
Funds from Operations $ 27,285 $ 32,553 $ 15,020 $ 9,739 $ 19,228 $ 11,918
========== ======== ========= ========= ========== ==========
Supplemental Information:
Adjustment for straight-lining of
rents $ (47) $ (128) $ - $ - $ - $ -
========== ======== ========== ========= ========== ==========
* Excludes $619 of gain on the sale of the Post and Paddock office/warehouse
development which the Company's property services subsidiary developed for
sale.
</TABLE>
(6) Includes statistical information for all stabilized residential properties
and all commercial properties for the periods presented as if controlled by
the Company or the Predecessors. A residential property is considered by
the Company to have achieved stabilized occupancy on the earlier to occur
of (i) attainment of 93% physical occupancy on the first day of any month
or (ii) one year after completion of construction.
20
<PAGE>
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based primarily on, and should be read in
conjunction with, the Consolidated and Combined Financial Statements of Paragon
Group, Inc. and Predecessors and notes thereto appearing elsewhere in this
report.
Overview
Paragon Group, Inc. (together with its subsidiaries, the "Company") is a
fully integrated, diversified real estate investment trust headquartered in
Dallas, Texas focused on the operation, development and acquisition of
multifamily residential communities in its key markets in the Southwest,
Midwest, Carolina and Florida markets. The Company is a self-administered and
self-managed real estate investment trust ("REIT") that as of December 31, 1996,
owned (either directly or through interests in other entities) interests in 64
properties -- 57 multifamily residential communities containing 15,954 apartment
units and 3 commercial properties located in six states, with three additional
multifamily residential communities under construction for which 856 units are
planned, and a 12.6 acre tract of land for which 320 multifamily residential
units are planned which the Company acquired in December 1996 for future
development. At December 31, 1996, two of the multifamily residential
communities containing 548 units are in the initial lease-up phase. The
commercial properties include three office buildings containing 724,470 rentable
square feet. The Company has also entered into a non-recourse ground lease,
which commenced on October 24, 1996, related to approximately 27.47 acres in
Louisville, Kentucky for potential development of an additional multifamily
residential community in 1997.
In addition, the Company, through an affiliate, Paragon Residential
Services, Inc. ("PRSI"), provides residential property services, including
property management, leasing, construction, development, acquisition, and
disposition services, for its owned residential communities as well as for
affiliated and third party residential owners. As of December 31, 1996, PRSI
managed 77 multifamily residential communities located across the United States
containing approximately 21,696 apartment units (of which 57 communities and
15,954 units were owned by the Company, either directly or through interests in
other entities). The Company sold its economic interest in its commercial
property services business as of June 30, 1996. See "Company Activities" below.
Prior to June 30, 1996, the Company's residential and commercial property
services business was conducted through Paragon Group Property Services, Inc.
("PGPSI").
Company Activities
Proposed Merger
On December 16, 1996 the Company executed an Agreement and Plan of Merger
(the "Agreement") with Camden Property Trust ("Camden") which provides for,
among other things, the merger of the Company into a wholly-owned subsidiary of
Camden through a tax-free exchange of each share of the Company's common stock
for .64 common shares of beneficial interest of Camden, whereby stockholders of
the Company will become shareholders of Camden.
The Company has the option to terminate the Agreement in the event the
average closing price of Camden common shares ("Average Closing Price") falls
below $25.67 during a specified pricing period prior to a special meeting of the
stockholders of the Company. In the event the Company elects to terminate the
Agreement, Camden has the option of adjusting the exchange ratio of .64 to equal
a number obtained by dividing $16.43 by the Average Closing Price.
An affirmative vote of holders of two-thirds of the outstanding shares of
the Company's common stock is required to approve the Agreement. A special
meeting of the Company's stockholders is scheduled for April 15, 1997 to vote on
the Agreement.
21
<PAGE>
Sale of Commercial Property Services Business
In May 1996, the Company executed an agreement to sell its commercial
property services business to an affiliate of Insignia Financial Group, Inc.
("Insignia"). In order to accomplish the sale, PGPSI's residential property
services business was transferred to PRSI. Immediately following the transfer,
as of June 30, 1996, Insignia acquired all of the outstanding stock of PGPSI and
a $12.4 million note receivable from PGPSI held by the Company. The acquisition
price included initial cash consideration of $18.2 million and two potential
earn-out payments totaling up to $4.0 million which are contingent upon PGPSI
revenue meeting certain specified targets over the next three years. The
earn-out payments may be reduced by as much as $2.9 million in the event certain
management contracts are terminated within a two year period after closing. In
addition, the initial acquisition price may be reduced by up to $1.1 million in
the event that the employment of certain employees of PGPSI is terminated within
one year after closing or certain existing management contracts are terminated
within a five-year period after closing.
In connection with the sale, the Company received warrants to purchase up
to 50,000 shares of Insignia Financial Group, Inc. stock at a price of $28.96
per share and Insignia received warrants to purchase 50,000 shares of the
Company's stock at $18.25 per share and may receive warrants to purchase an
additional 238,000 shares at $18.25 per share, depending on the termination of
certain management contracts during the two-year period after closing.
As a result of the sale, the Company recognized a gain of $11.9 million
which does not consider potential earn-out payments, the value of warrants
issued or received, or $1.1 million of the acquisition price which is contingent
on future events. The contingent portion of the initial acquisition price and
the earn-out payments, if any, will be recognized when earned. The gain on sale
was determined in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations", whereby the commercial property services
net loss of $.8 million from the date (May 7, 1996) management committed to the
disposal of the commercial property services business (the "Measurement Date")
through the date of sale (June 30, 1996) was treated as a reduction of the gain
on sale.
The closing of the sale occurred on July 2, 1996, at which time the Company
received net proceeds from the sale of $18.1 million (net of prorations of $.1
million). Proceeds from the sale were used to reduce borrowings outstanding
under the Company's line of credit.
The Company believes that the property services business has become
increasingly competitive, and is likely to remain so for the foreseeable future,
which could adversely impact future operating results. As a result of the sale
of the commercial property services business, the Company has substantially
reduced its dependence on such service oriented revenues. The Company intends to
continue providing its full range of residential property services to existing
clients and select potential clients where relational, operational or
geographical efficiencies exist and will actively pursue opportunities which
complement its current operations.
Development
On January 29, 1996, the Company, through PGPSI, acquired a 5.15 acre tract
of land in suburban Dallas, Texas and commenced construction on the 108,600
square feet Post and Paddock office/warehouse development. Construction was
completed in November 1996 and the property was sold on December 4, 1996 for
$3.7 million.
22
<PAGE>
The Company entered into a non-recourse ground lease, which commenced on
October 24, 1996, related to approximately 27.47 acres in Louisville, Kentucky
for potential development in 1997. The ground lease allows the Company to
develop, at its' discretion, a one or two phase multifamily residential
community on the leased acreage. The lease has a term of 40 years and under
certain conditions, the Company has the option to acquire the land. Monthly
lease payments which are estimated to range from $7 to $14 have been deferred
until July 1, 1997.
On December 13, 1996, the Company acquired a 12.6 acre tract of land in
Orlando, Florida for $2.0 million. A 320 unit multifamily residential community
is planned for the site which, when developed, will be the second phase of the
completed 272 unit Renaissance Pointe apartments.
During 1996, the Company completed construction of three multifamily
residential communities containing a total of 824 apartment units. At December
31, 1996, an additional 856 apartment units were under construction which are
scheduled for completion in the first and second quarters of 1997, including 336
units owned by Paradim. The three multifamily residential properties completed
in 1996 include the 276 unit Heron Pointe apartments in Tampa, Florida completed
in February 1996, the 272 unit Renaissance Pointe apartments in Orlando, Florida
completed in July 1996 and the 276 unit Stone Gate apartments completed in
August 1996. At December 31, 1996, the Renaissance Pointe apartments and the
Stone Gate apartments were in the initial lease-up phase.
In March 1997, the Company completed construction of the 336 unit
Brassfield Park apartments in Greensboro, North Carolina which is owned by
Paradim.
On July 1, 1996, the Heron Pointe apartments achieved stabilization at an
occupancy of 94.9%. On October 1, 1996, the 240 unit Stone Creek apartments in
suburban north Dallas, Texas, completed in November 1995, achieved stabilization
at an occupancy of 94.6%. On January 1, 1997, the Renaissance Pointe apartments
achieved stabilization at an occupancy of 93.0%. A residential property is
considered by the Company to have achieved stabilized occupancy on the earlier
to occur of (i) attainment of 93% physical occupancy on the first day of any
month or (ii) one year after completion of construction.
The Company anticipates that development properties which were recently
completed will not generate their full net income potential for the year ended
December 1997. Additionally, those properties currently under development are
expected to experience operating losses during their stabilization period from
completion to lease-up. The Company believes, however, that the positive impact
of these development projects, once stabilized occupancy levels are achieved,
will significantly contribute to the net income from operations of the Company.
Acquisitions
On November 8, 1996, the Company purchased two North Carolina multifamily
residential communities (the 240 unit Habersham Pointe apartments in Charlotte,
North Carolina and the 216 unit River Oaks apartments in Greensboro, North
Carolina) from a single seller for a total purchase price of $20.9 million,
including the assumption of mortgage indebtedness in the amount of $6.36 million
collateralized by the River Oaks apartments. Both properties are well leased and
in good physical condition. On a combined basis, the properties are projected to
generate an unleveraged yield for 1997 in excess of 9.5%.
Dispositions
As a result of the sale of its commercial property services business, the
Company disposed of its three wholly-owned operating commercial properties in
the fourth quarter of 1996. The Company also sold the Turtle Creek I and the
Turtle Creek II apartments in Asheville, North Carolina in the fourth quarter of
1996.
23
<PAGE>
The 1996 property sales are summarized in the following table (dollars in
thousands):
<TABLE>
<CAPTION>
SF/
Date Sold Property Location # of Units Sales Price
--------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial Properties
October 1, 1996 Southwood Mall Bradenton, FL 113,949 $ 3,170
October 31, 1996 Westgate Centre St. Louis, MO 58,935 7,130
December 19, 1996 The Paragon St. Louis, MO 102,486 10,000
Multifamily Properties
December 12, 1996 Turtle Creek I Asheville, NC 208 7,075
December 12, 1996 Turtle Creek II Asheville, NC 176 6,725
-----
Total $34,100
=======
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets", properties held for sale
are to be carried at the lower of the carrying amount or estimated fair value
less selling costs. Accordingly, at June 30, 1996, the Company recognized an
impairment adjustment of $1.1 million, all of which related to Southwood Mall,
which is included in gain (loss) on sale of properties in the accompanying
statements of operations.
In January 1997, the Company sold the 232 unit Brookfield apartments in
Dallas, Texas for $5.46 million, the 352 unit Westchase apartments in
Charleston, South Carolina for $11.13 million and the 251 unit San Miguel
apartments in St. Louis, Missouri for $6.88 million. Net proceeds from the sale
of these properties were used to repay borrowings under the Company's line of
credit, fund multifamily development expenditures and for general working
capital purposes.
In addition, in an effort to maximize the long term growth potential of the
portfolio, management intends to regularly evaluate the possible disposition of
targeted multifamily residential assets where a redeployment of capital can
increase geographic efficiencies or improve operating results.
Joint Venture
On April 1, 1996, the Company entered into a joint venture (Paradim) with
Careit Investments Limited Partnership ("Careit"), an affiliate of Caisse de
depot et placement du Quebec, to acquire, develop and operate selected
multifamily residential properties in markets in which the Company operates. The
Company and Careit each have committed to invest up to $22.5 million, primarily
through a newly formed Maryland corporation, Paradim, Inc., which intends to
qualify as a REIT for Federal income tax purposes. Each investment by Paradim,
Inc. is to be made through separate limited liability companies or limited
partnerships in which Paradim, Inc. will own an 89% interest as the managing
member or general partner, the Company will own a 1% interest and a number of
private investors will own the remaining interests. In connection with Paradim,
Inc.'s initial capitalization, the Company effectively contributed its interest
in three properties (Overlook, formerly known as The Phoenix, a 220-unit
multifamily residential complex in Charlotte, North Carolina; Highpoint, a
708-unit multifamily residential complex in Dallas, Texas; and Brassfield Park,
a 336-unit multifamily residential complex in Greensboro, North Carolina which
was under development in 1996 and recently completed in March 1997) and Careit
contributed $7.93 million in cash. At formation, the Company also received a
distribution of approximately $6.62 million, which was used to repay existing
indebtedness under the line of credit. The Company recorded the initial
contribution of these properties at their net carrying value on April 1, 1996,
which was approximately $14.73 million (net book value of $41.84 million subject
24
<PAGE>
to existing indebtedness of $27.11 million). The Company's investment, which
includes a direct 1% interest in two limited liability companies and one limited
partnership and an approximate 43% indirect interest in such entities through
its ownership in Paradim, Inc. (collectively, approximately 44%), is being
accounted for under the equity method. As of December 31, 1996, the Company's
aggregate investment in Paradim was approximately $7.95 million.
Dividends and Capital
On January 3, 1996, the Company, through the Operating Partnership, issued
4,694 Units to an affiliate in partial settlement of debt assumed in connection
with the purchase of the Overlook Apartments.
On February 27, 1996, the Company paid a dividend, with respect to the
fourth quarter of 1995, of $.465 per share of common stock. Concurrent with the
dividend payments, the Operating Partnership distributed $.465 per Unit.
On May 17, 1996, the Company paid a dividend, with respect to the first
quarter of 1996, of $.465 per share of common stock. Concurrent with the
dividend payment, the Operating Partnership distributed $.465 per Unit.
On August 27, 1996, the Company paid a dividend, with respect to the second
quarter of 1996, of $.465 per share of common stock. Concurrent with the
dividend payment, the Operating Partnership distributed $.465 per Unit.
On November 26, 1996, the Company paid a dividend, with respect to the
third quarter of 1996, of $.465 per share of common stock. Concurrent with the
dividend payment, the Operating Partnership distributed $.465 per Unit.
On January 2, 1997, the Company declared a dividend, with respect to the
fourth quarter of 1996, of $.465 per share of common stock which was paid on
January 23, 1997 to holders of record on January 13, 1997. Concurrent with the
dividend announcement, the Operating Partnership authorized a distribution of
$.465 per Unit which was paid on January 23, 1997 to holders of record on
January 13, 1997.
On March 18, 1997, the Company declared a dividend, with respect to the
first quarter of 1997, of $.3136 per share of common stock, payable April 15,
1997 to holders of record on March 31, 1997. Concurrent with the dividend
announcement, the Operating Partnership authorized a distribution of $.3136 per
Unit, payable April 15, 1997 to holders of record on March 31, 1997.
Results of Operations - Comparison of the year ended December 31, 1996 to the
year ended December 31, 1995
Net income for the year ended December 31, 1996 increased $11.1 million
compared to the year ended December 31, 1995 principally as a result of the gain
on sale of the commercial property services business of $11.9 million and the
gain on sale of properties of $9.2 million. Net income was also affected by a
decrease in total revenue of $2.8 million, an increase in total expenses of $4.7
million, an increase in equity in income of ventures of $.2 million, and an
increase in minority interests in income of $2.7 million.
Rental income increased $10.6 million, or 13.2%, for the year due primarily
to increases in the rental income on the Company's multifamily residential same
community portfolio and the addition of income generated from the acquisition
and development of additional apartment units. The acquisition of apartment
25
<PAGE>
units in the fourth quarter of 1995 and 1996 contributed $5.3 million, the
completion of apartment units developed by the Company contributed $4.6 million
and rental income on the Company's multifamily residential same community
portfolio increased $1.4 million. The increases in rental income were offset by
a decrease in rental income of $.4 million attributable to the disposition of
two residential properties in December 1996 and to four residential properties
excluded from the same community portfolio whose 1996 operations were adversely
impacted by the Company's revenue enhancing capital expenditure program and a
decrease in rental income of $.3 million attributable to the disposition of the
Company's wholly-owned commercial properties in the fourth quarter of 1996.
Property management income decreased $6.3 million, or 56.0%, and leasing
and other property services income decreased $7.1 million, or 64.7%. The
decreases were due primarily to the sale of the commercial property services
business as well as terminated management contracts that were not replaced,
reduced rates charged for management services on third-party contracts and to
reduced transaction volume on which management, leasing and other property
services' fees are earned.
Property operating and maintenance expense increased $5.2 million, or
15.2%, due primarily to the acquisition and development of additional apartment
units and to expense increases in the Company's multifamily residential same
community portfolio. Expenses related to the apartment units acquired in the
fourth quarter of 1995 and 1996 increased $2.33 million, the completion of
apartment units developed by the Company accounted for $2.17 million of the
increase and expenses on the Company's multifamily residential same community
portfolio increased $.79 million, or 2.8%. Expenses on the two residential
properties disposed of in December 1996 and on the four residential properties
excluded from the same community portfolio whose 1996 operations were adversely
impacted by the Company's revenue enhancing capital expenditure program were
constant. The increase in property operating and maintenance expense of $5.2
million also included a decrease in expenses of $.09 million attributable to the
disposition of the Company's wholly-owned commercial properties in the fourth
quarter of 1996.
Depreciation and amortization expense increased $1.0 million or 5.3%, due
principally to the acquisition and development of additional apartment units,
off-set by decreases in depreciation and amortization resulting from the sale of
the commercial property services business.
Property management expenses decreased $5.8 million, or 32.0%, due
primarily to the sale of the commercial property services business.
Interest expense increased $5.1 million, or 29.7%, due to an increase in
operating debt principally associated with the acquisition and development of
additional apartment units.
General and administrative - property services decreased $.70 million, or
12.2%. The decrease resulted primarily from the sale of the commercial property
services business, off-set by additional consulting and implementation expenses
associated with the Company's new financial reporting and information system.
Equity in income of ventures increased $.24 million, or 30.6%, due to an
increase in income from the Company's commercial ventures and an increase
resulting from the Company's investment in Paradim on April 1, 1996.
During the year ended December 31, 1996, the Company recognized a net gain
of $9.2 million from the sale of properties and a gain of $11.9 million from the
sale of its commercial property services business.
26
<PAGE>
Results of Operations - Multifamily Residential Communities
Total Portfolio
The results of operations of the Company's total consolidated portfolio of
58 multifamily residential communities (as of December 31, 1996) for the years
ended December 31, 1996 and 1995 is summarized in the following table (dollars
in thousands). For the period after April 1, 1996, the consolidated results of
operations do not include the operations of the three properties contributed to
Paradim, which are now accounted for under the equity method. The operations of
these properties for the period after April 1, 1996 are included in equity in
income of ventures.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
% of
1996 1995 Change
---- ---- ------
<S> <C> <C> <C>
Rental and other revenue
Same Community.................................... $ 69,561 $ 68,103 1.8%
Development and Lease-Up.......................... 5,535 821 5.9%
Acquisitions...................................... 6,377 919 6.8%
Dispositions and Other............................ 9,886 10,180 -0.3%
------------- ------------- ------
91,359 80,023 14.2%
------------- ------------- ------
Expenses
Same Community.................................... 28,799 28,004 2.4%
Development and Lease-Up.......................... 2,663 497 6.6%
Acquisitions...................................... 2,659 332 7.0%
Dispositions and Other............................ 4,117 4,120 0.0%
------------- ------------- ------
38,238 32,953 16.0%
------------- ------------- ------
Net operating income............................ $ 53,121 $ 47,070 12.9%
============= ============= ======
</TABLE>
Same Community
The results of operations of the Company's multifamily residential "same
community" portfolio for the years ended December 31, 1996 and 1995 is
summarized in the following table (dollars in thousands, except for average
monthly rental revenue per unit). The Company defines same community portfolio
as those communities that achieved stabilized occupancy on or before January 1,
1995 that were owned by the Company throughout the years ended December 31, 1996
and 1995. The same community portfolio consists of 43 communities containing
11,577 apartment units. The Company has excluded from the same community
portfolio four properties containing a total of 1,279 units whose 1996
operations were adversely impacted by the Company's revenue enhancing capital
expenditure program. The Company implemented a revenue enhancing capital
expenditure program in late 1995 to upgrade selected same community properties
which it believed would generate the best long-term yields as a result of
incremental capital investment. Investment at four of the 39 properties included
in the program represent in excess of 50% of the overall budget. The substantial
"repositioning" work undertaken at these properties disrupted normalized
occupancy and rental efforts. Accordingly, the results of operations of these
four properties have been excluded from the results of operations of the same
community portfolio.
27
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
%
1996 1995 Change
---- ---- ------
<S> <C> <C> <C>
Rental and other revenue
Rental............................................... $ 67,241 $ 65,876 2.1%
Interest and other income............................ 2,320 2,227 4.2%
----------- -----------
69,561 68,103 2.1%
----------- ----------
Expenses
Property operating and maintenance expense........... 21,646 20,702 4.6%
Real estate taxes and insurance...................... 7,153 7,302 -2.0%
---------- -----------
28,799 28,004 2.8%
---------- -----------
Net operating income............................... $ 40,762 $ 40,099 1.7%
=========== ===========
Average occupancy....................................... 93.5% 94.1% -0.6%
=========== ===========
Average monthly rental revenue per unit................. $ 518 $ 503 2.9%
=========== ===========
</TABLE>
Rental income increased $1.4 million, or 2.1%, for the year ended December
31, 1996. For the year, average monthly base revenue per leased apartment unit
increased $15, or 2.9%, from $503 to $518 and average occupancy decreased from
94.1% to 93.5%. The Company believes that the increases in the average monthly
base revenue per leased apartment unit were achieved primarily as a result of
the implementation of select rental increases allowed by improved economic
conditions in certain of the Company's markets.
Development and Lease-Up Properties
The results of operations of the Company's multifamily residential
development and lease-up properties including completed development properties
not stabilized at January 1, 1995 for the years ended December 31, 1996 and 1995
is summarized in the following table (dollars in thousands). The development and
lease-up properties consist of the six consolidated properties developed by the
Company which, when completed, will contain a total of 1,584 units. As of
December 31, 1996, two of these properties (the 276 unit Heron Pointe and the
240 unit Stone Creek) have achieved stabilized occupancy and two of the
properties containing 548 units are in the initial lease-up phase. The
consolidated development and lease-up properties do not include the 336 unit
Brassfield Park property which was under development during 1996 which the
Company contributed to Paradim.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
<S> <C> <C>
1996 1995
---- ----
Rental and other revenue
Rental............................................... $ 5,375 $ 802
Interest and other income............................ 160 19
----------- -----------
5,535 821
----------- -----------
Expenses
Property operating and maintenance expense........... 2,059 471
Real estate taxes and insurance...................... 604 26
------------- -----------
2,663 497
------------- -----------
Net operating income............................... $ 2,872 $ 324
============= =============
</TABLE>
28
<PAGE>
Acquisitions
The consolidated results of operations of the six multifamily residential
communities containing 2,034 apartment units acquired by the Company in 1995 and
1996 for the years ended December 31, 1996 and 1995 is summarized in the
following table (dollars in thousands). The 1995 and 1996 acquisition properties
include the four multifamily residential communities containing 1,578 apartment
units acquired by the Company in the fourth quarter of 1995 and the two North
Carolina multifamily residential communities containing 456 apartment units
acquired by the Company in November 1996. The consolidated results of operations
for the period after April 1, 1996 do not include the operations of the two
multifamily residential properties acquired in the fourth quarter of 1995
(Overlook and Highpoint containing 928 units) which were contributed to Paradim
and are now accounted for under the equity method. The operations of these
properties for the period after April 1, 1996 are included in equity in income
of ventures.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995
---- ----
<S> <C> <C>
Rental and other revenue
Rental............................................... $ 6,144 $ 870
Interest and other income............................ 233 49
----------- -----------
6,377 919
----------- -----------
Expenses
Property operating and maintenance expense........... 1,902 243
Real estate taxes and insurance...................... 757 89
------------- -----------
2,659 332
------------- -----------
Net operating income............................... $ 3,718 $ 587
============= =============
</TABLE>
Dispositions and Other
The results of operations for the years ended December 31, 1996 and 1995
for the two multifamily residential properties containing 384 apartment units
disposed of by the Company in December 1996 and the four multifamily residential
properties excluded from the same community portfolio whose 1996 operations were
adversely impacted by the Company's revenue enhancing capital expenditure
program is summarized in the following table (dollars in thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995
---- ----
<S> <C> <C>
Rental and other revenue
Rental............................................... $ 9,530 $ 9,863
Interest and other income............................ 356 317
----------- -----------
9,886 10,180
----------- -----------
Expenses
Property operating and maintenance expense........... 3,076 3,042
Real estate taxes and insurance...................... 1,041 1,078
------------- -----------
4,117 4,120
------------- -----------
Net operating income............................... $ 5,769 $ 6,060
============= =============
</TABLE>
29
<PAGE>
Results of Operations - Comparison of the year ended December 31, 1995 to the
year ended December 31, 1994
Presentation
The Company, subsequent to the Initial Offering on July 27, 1994 and
through the third quarter of 1995, accounted for its investment in PGPSI under
the cost method consistent with prior regulatory direction. However, in
September 1995, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("EITF") reached a consensus in EITF 95-6 "Accounting by a Real
Estate Investment Trust for an investment in a Service Corporation" that the
cost method of accounting for such investments was not appropriate and, based
upon the specific facts and circumstances, either the equity method or
consolidation accounting should be used. While the Company only held 1% of the
voting stock of PGPSI, due to its 99% economic interest and other factors the
Company believes that the consolidation method should be used and provides for
the most meaningful financial statement presentation. Accordingly, in the fourth
quarter of 1995, the Company changed its method of accounting for PGPSI from the
cost method to consolidation of the financial position and results of operations
of PGPSI in the Company's consolidated financial statements. Furthermore, as
required by EITF 95-6, the 1994 financial statements (specifically, the period
from July 27, 1994 through December 31, 1994) have been restated to consolidate
PGPSI.
Results of Operations
Net income for the year ended December 31, 1995 increased $4.8 million
compared to the year ended December 31, 1994 while income before extraordinary
items increased $8.2 million. Total revenue increased $5.9 million and total
expenses decreased $5.1 million while minority interests increased $2.8 million,
extraordinary gain from forgiveness of debt, net of minority interests decreased
$8.6 million and extraordinary loss from early extinguishment of debt, net of
minority interests decreased $5.2 million.
Rental income increased $9.3 million, or 13.1%, principally due to an
increase in rental revenue on the 48 projects owned by the Predecessors, revenue
generated from three apartment projects, totaling 697 units, acquired upon
formation of the Company and the acquisition of a fourth project with 407 units
in December of 1994. In the fourth quarter of 1995, the Company acquired an
additional four apartment projects totaling 1,578 units. The increase in rental
revenue on the 48 projects owned by the Predecessors contributed $2.8 million to
the rental income increase while the addition of apartment units accounted for
$6.5 million. Average monthly base revenue per leased apartment unit increased
$20, or 4.1%, from $485 to $505 from December 31, 1994 to December 31, 1995,
respectively, for those units owned in both periods. The Company believes that
the increase in rental income per occupied apartment unit was achieved primarily
as a result of the implementation of select rental increases allowed by improved
economic conditions in certain of the Company's markets. Average occupancy for
those residential properties increased nominally from 93.6% to 93.7% for the
years ended December 31, 1994 and December 31, 1995, respectively.
Property management income decreased $1.5 million, or 12.0%, while leasing
and other services income remained flat. The reduction in property management
income is due to terminated management contracts that were not replaced or
reduced rates charged for management services on third party contracts.
Interest income decreased $.1 million as a result of reduced investment
interest earned on excess cash balances.
30
<PAGE>
Other income - properties decreased $.4 million, or 12.3%, due principally
to a $.4 million real estate tax refund recorded in the first quarter of 1994.
Other income - property services decreased $1.5 million, or 54.4%, due
principally to decreased transaction activity on which such revenue is based.
Property operating and maintenance expense increased $2.2 million, or 7.0%,
for the year ended December 31, 1995 as compared to the comparable period in
1994. Of this increase, $2.7 million is principally attributable to the addition
of apartment units offset by a reduction of $.5 million on properties owned in
both periods principally attributable to reduced real estate tax and other
operating expenses on certain of those properties.
Property management expenses decreased $3.2 million, or 14.8%, due
principally to the realignment within PGPSI during 1995 and the effect of the
cost sharing agreements between PGI and PGPSI. That sharing was in place for a
full year in 1995 and only from August through December in 1994.
Interest expense decreased $4.3 million, or 20.2%, due to a reduction of
the Company's outstanding debt concurrent with the formation of the Company.
Additional debt added in December 1995 caused a nominal increase as most was
added late in the fourth quarter of 1995.
General and administrative expenses - property services increased $1.6
million in 1995 over 1994 principally due to expenses associated with the
realignment of PGPSI mentioned above. Severance and other realignment expenses
totaled $.7 million in 1995, while other expenses including travel and temporary
services increased by $.9 million due to the implementation of the realignment
and a computer conversion.
General and administrative expenses - corporate increased $1.2 million or
149% due principally to the effect of the cost sharing agreements between PGI
and PGPSI. In addition, the public company costs existed for only four months in
1994 and for the entire year in 1995.
Reorganization costs decreased $7.8 million and represent costs associated
with the formation of the company, including accounting, legal, and other
formation costs.
31
<PAGE>
Liquidity and Capital Resources
During the year the Company increased its total debt from $293.8 million at
December 31, 1995 to $297.3 million at December 31, 1996. The Company borrowed
additional fixed-rate term debt of $7.4 million in November 1996 collateralized
by the 278 unit Schooner Bay apartments in Tampa, Florida. This borrowing was
used to fund a portion of the purchase of the Habersham Pointe and River Oaks
apartments in November 1996. In connection with the purchase of the River Oaks
apartments, the Company also assumed $6.36 million of mortgage indebtedness
collateralized by the property. In July 1996, the Company renewed its line of
credit facility. Under the terms of the new agreement, the Company may borrow up
to $85 million including up to $50 million related to development activities. At
December 31, 1996, $42.7 million of debt is represented by advances under the
Company's line of credit. These advances are in two contracts at fixed rates.
One contract in the amount of $30.7 million is priced at 7.63% and the second
contract in the amount of $12.0 million is priced at 7.69%. During 1996, $73.7
million of new borrowings were drawn under the line of credit and $45.5 million
was repaid.
Mortgage Debt
Mortgages payable consist of 30 loans ($254.6 million principal amount) at
December 31, 1996, each of which is collateralized by properties included in
real estate assets. At December 31, 1996, 22 of the loans ($219.1 million
principal amount) carry a fixed interest rate and provide for the monthly
payment of interest only, and 8 loans ($35.5 million principal amount) provide
for monthly payments of principal and interest at a fixed rate. Interest rates
on the fixed rate mortgages range from 5.75% to 8.52% at December 31, 1996 with
a weighted average interest rate of 7.75%. During 1996, $12.8 million of
principal was repaid on mortgage loans.
Line of Credit
Concurrent with the Initial Offering, the Company obtained a line of credit
facility in the amount of $75 million. The commitment was subsequently increased
to $115 million and in December 1995 was reduced by the Company to $90 million
and under certain conditions could be increased to $150 million. On July 27,
1996, the Company executed a renewal and modification of the line of credit
facility. Under the terms of the new agreement, the Company may borrow up to $85
million including up to $50 million related to development activities. The line
of credit matures in July 1998, but may be extended through July 1999 at the
Company's option. Borrowings under the line of credit are collateralized by
specified operating properties and properties under development. The interest
rate on the amounts outstanding under the line are based on, at the Company's
election, either (i) the greater of the prime rate or the Federal Funds rate
plus .50% or, (ii) the London Interbank Offer Rate ("LIBOR") plus 2.0% - 2.25%,
depending on certain financial ratios concerning leverage and debt service
coverage. The line of credit reprices, at the Company's discretion, in defined
intervals ranging from 1 to 360 days. As the line of credit is drawn or
reprices, the Company enters into a contract and selects the term and the
interest rate option it desires. If the Company selects a contract based upon
LIBOR plus 2.0% - 2.25%, then the interest rate becomes fixed for the term
selected. Otherwise, the contract rate varies based upon the appropriate index.
At March 25, 1997, $42.7 million was outstanding under the line of credit
in two separate contracts. One contract in the amount of $30.7 million is priced
at 7.50% and the second contract in the amount of $12.0 million is priced at
7.69%. Both contracts reprice on April 16, 1997.
The Company anticipates that the line of credit will continue to be used
primarily to fund development or acquisition of additional properties and for
general working capital purposes.
32
<PAGE>
The scheduled principal payments related to all debt outstanding as of
December 31, 1996 are as follows (dollars in thousands):
Year Amount
--------------------------------
1997 .......... $ 623
1998 .......... 47,081
1999 .......... 68,380
2000 .......... 8,068
2001 .......... 63,540
Thereafter......... 109,600
----------
Total .......... $ 297,292
============
The maturities reflected above for 1998 include $42.7 million of amounts
outstanding under the line of credit. The schedule above assumes (i) a balloon
payment may be required on tax exempt bonds that were issued to finance two of
the properties upon the expiration, in 2003, of the credit enhancement currently
securing these bonds and (ii) the exercise of the put/call option on a loan
securing one of the properties in 1998. Since the Company anticipates that very
little of the principal of its mortgage indebtedness will be amortized prior to
maturity and the Company will not have sufficient funds to repay such
indebtedness at maturity, it will be necessary for the Company to refinance such
debt either through additional debt financing secured by individual properties
or groups of properties, through unsecured private or public debt offerings or
through additional equity offerings.
The Company expects to meet its short-term liquidity requirements generally
through its initial working capital, net cash provided by operations and
borrowings under the line of credit. The Company believes that net cash provided
by operations will be sufficient to allow the Company to make any distributions
as required for the Company to continue to qualify as a REIT. The Company also
believes that the foregoing sources of liquidity will be sufficient to fund its
short-term liquidity needs for the foreseeable future.
The Company expects to meet certain long-term liquidity requirements
relating to developments, property acquisitions, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
equity securities. The Company also expects to use funds available under the
line of credit to fund acquisitions, development activities and capital
improvements on an interim basis. Borrowings under the line are subject to
periodic fluctuations in interest rates and, as such, may have a negative impact
on the amount of interest incurred should rates rise during future operating
periods.
Capital Expenditures
Under the Company's policy regarding repairs, maintenance and capital
expenditures, ordinary repairs and maintenance are expensed as incurred. Major
replacements and betterments are capitalized and depreciated on a straight-line
basis over the estimated useful lives of the properties (buildings and related
land improvements--10 to 40 years; furniture, fixtures and equipment--3 to 10
years; and tenant improvements--over the life of the related tenant lease). With
respect to the apartment properties, the Company capitalizes floor and window
coverings and depreciates such items over 5 years; appliances and heating,
ventilating and air conditioning equipment are capitalized and depreciated over
10 years.
33
<PAGE>
During 1994, the Company incurred an average of $226 per apartment unit for
capital expenditures prior to, and $162 per apartment unit subsequent to, the
Initial Offering. During 1995 and 1996, the Company incurred a per unit average
of $392 and $939, respectively, for normalized and revenue enhancing capital
expenditures. Included in the per unit average for 1996 is $477 representing
revenue enhancing capital expenditures on 39 of the Company's multifamily
properties. The Company implemented a program in late 1995 to upgrade selected
properties which it believed would generate the best long term yields as a
result of incremental capital investment. Properties were generally selected due
to locational and submarket outlook and the property's competitive position in
the submarket. This "repositioning" plan is expected to be completed in the
first quarter of 1997.
Also included in the 1996 per unit average is $1.07 million of deferred
maintenance and acquisition enhancement expenditures on four properties
purchased in December 1995. These costs represent a portion of $2.6 million
originally contemplated to be spent on these properties when they were
underwritten for purchase by the Company.
After taking into consideration these factors, the "normalized" capital
expenditures on the properties during 1995 and 1996 averaged $392 and $387 per
unit, respectively. Capital expenditures in the future are expected to be funded
from Company operations, existing cash balances, and borrowings under the
Company's line of credit.
Inflation
Substantially all of the residential property leases are for a term of one
year or less, which may enable the Company to seek increased rents upon renewal
of existing leases or commencement of new leases. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation,
although as a general rule, these leases permit residents to leave at the end of
the lease term without penalty. Commercial property leases range in length from
1 to 25 years and most have expense pass-through provisions.
34
<PAGE>
Funds from Operations
Funds from Operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") to mean net income, computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. In addition, extraordinary or unusual items,
along with significant non-recurring events that materially distort the
comparative measure of FFO, should be disregarded in its calculation. Management
generally considers FFO to be a useful measure of the operating performance of
an equity REIT because, together with net income and cash flows, FFO provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. FFO
does not represent cash flows from operating activities as defined by GAAP,
should not be considered as an alternative to net income as an indicator of the
Company's operating performance and is not indicative of cash available to fund
all cash flow needs, including principal amortization, capital improvements and
distributions to stockholders. Further, FFO as disclosed by other REITs may not
be comparable to the Company's calculation of FFO.
Consistent with the interpretive guidance by NAREIT, in 1996, the Company
changed its method of calculating FFO. The change primarily results in the
Company no longer adding back to net income certain non-cash and non-real estate
depreciation and amortization charges, such as deferred loan cost amortization,
in determining FFO. For purposes of comparison, the calculation of FFO for 1995
has been prepared under the new definition. The impact of the change was a
reduction in FFO of approximately $2.7 million and $2.4 million, respectively,
for the years ended December 31, 1996 and December 31, 1995. The following table
represents the Company's calculation of FFO for the years ended December 31,
1996 and December 31, 1995, (dollars in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Net income..................................................................... $ 21,215 $ 10,063
Adjustments to net income:
Minority interests in income................................................. 5,338 2,612
Minority interests in cash flow.............................................. (219) (287)
Gain on sale of properties (1)............................................... (8,590) -
Gain on sale of commercial property services business........................ (11,930) -
Post-Measurement Date FFO from commercial property
services business........................................................ 674 -
Real estate depreciation/amortization........................................ 17,783 15,377
Real estate depreciation/amortization from unconsolidated ventures........... 891 542
Amortization of management and leasing contracts............................. 598 2,231
Grants/amortization of employee restricted stock............................. 1,525 1,462
Other cash reorganization expenses........................................... - 553
------------ -----------
Funds from Operations.................................................... $ 27,285 $ 32,553
============ ===========
Supplemental information:
Adjustment for straight-lining of rents...................................... $ (47) $ (128)
============= ============
</TABLE>
(1) Excludes $619 of gain on the sale of the Post and Paddock office/warehouse
development which the Company's property services subsidiary developed for
sale.
35
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are listed under Item 14(a) and are
filed as part of this report on the pages indicated. The supplementary data is
included in Note 16 in the Consolidated and Combined Financial Statements and
Notes thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
36
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Company
RICHARD J. HAAYEN. Mr. Haayen, 72, has been a director of the Company and
Paragon GP Holdings since the Initial Offering. He is a retired chairman and
chief executive officer of The Allstate Insurance Company and a retired director
of Sears, Roebuck and Company. Mr. Haayen joined Allstate in 1951 and held a
number of management positions with the company, culminating his service by
serving as chairman and chief executive officer from October 1986 until his
retirement in June 1989. Mr. Haayen is Executive-in-Residence and a professor at
Southern Methodist University. He is a member of the board of directors of
Guaranty Federal Bank of Dallas, RLI Insurance Company, and the Dallas Opera
(and the associate board of the Edwin L. Cox School of Business at Southern
Methodist University). Mr. Haayen earned a B.S. degree from Ohio State
University. Mr. Haayen is a member of the Executive Compensation Committee of
the Board of Directors.
THOMAS R. DELATOUR, JR. Mr. Delatour, 43, has been a director of the
Company and Paragon GP Holdings since the Initial Offering. He has over 18 years
of experience providing financial advice to participants in the real estate
industry. Mr. Delatour joined RMB Realty, Inc., a real estate investment
company, in 1988 and presently serves as an officer and a director. He also
serves as president and a director of FW Genpar, Inc., the general partner of
FWP, L.P., a Texas limited partnership and a substantial equityholder in the
Company. Mr. Delatour served as the Vice President - Finance, Southeast Region
for Lincoln Property Company from 1981 to 1987. He is a director of Carr Realty
Corporation, a publicly traded real estate investment trust headquartered in
Washington, D.C. ( and is Chairman - Urban Development/Mixed Use Council for The
Urban Land Institute). Mr. Delatour earned a B.B.A. degree from the University
of Texas. Mr. Delatour is a member of the Executive Committee of the Board of
Directors.
JOHN H. MASSEY. Mr. Massey, 57, has been a director of the Company since
the Initial Offering. Mr. Massey has most recently served as Chairman of the
Board of Directors and Chief Executive Officer of Life Partners Group, Inc. an
insurance and financial holding corporation listed on the New York Stock
Exchange, whose principal operating subsidiaries are the Philadelphia Life
Insurance Company and Massachusetts General Life Insurance Company. Mr. Massey
served as Chairman and Chief Executive Officer of First Southwest Asset
Management, Inc., an asset management services company, from 1992 to 1994. From
1986 to 1992, Mr. Massey served as President and a director of Gulf-California
Broadcast Company, a Dallas-based privately-owned investment and operating
holding company, and prior to that as President of Gulf United Corporation, a
diversified holding company with interests in broadcasting, insurance, data
processing and real estate, and Gulf Broadcasting Company, a national network of
television and radio stations. He currently serves as a director of Chancellor
Broadcasting, Inc., The Sunrise Television Group, Inc., Columbine/JDS Systems,
Inc., The Bank of The Southwest, and the Brazos Mutual Fund Group, Inc. In 1982,
Mr. Massey was honored with a Distinguished Alumnus Award from the Johnson
School of Management at Cornell University, and in 1993, he received the Most
Distinguished Alumnus Award from the Edwin L. Cox School of Business at Southern
Methodist University. He earned a B.B.A. degree from Southern Methodist
University, an M.B.A. degree from Cornell University and a J.D. degree from the
University of Texas School of Law. Mr. Massey is a member of the Executive
Committee of the Board of Directors.
DON M. SHINE. Mr. Shine, 59, has been a director of the Company and Paragon
GP Holdings since the Initial Offering. He was the President and Chief Operating
Officer of the Company and Paragon GP Holdings from February 1995 until February
1996 and a Managing Director of the Company's Southwest Region from the Initial
Offering until February 1995. Mr. Shine also was the President and Chief
Operating Officer of PGPSI from December 1994 until January 1996, and was a
Managing Director of PGPSI from the Initial Offering until December 1994. Prior
to the Initial Offering, Mr. Shine was with Paragon or its predecessor for 26
years, serving as a general partner from 1969 until 1994 and as the Managing
Director of the Southwest Region from 1980 until 1994. As Managing Director of
the Southwest Region for Paragon. Mr. Shine was responsible for supervising all
aspects of Paragon's multifamily residential operations in Texas and Utah. He is
an advisory director of Texas Commerce Bank N.A., and past board member of the
University of Texas at Dallas Business School, the Texas Heart Association and
the Dallas Alliance of Mental Illness. Mr. Shine also is a past president of the
Dallas Apartment Association and the Texas Apartment Association. Mr. Shine
earned a B.B.A. degree and an M.B.A. degree from the University of Texas.
37
<PAGE>
JOSEPH R. MUSOLINO. Mr. Musolino, 60, has been a director of the Company
since the Initial Offering. Mr. Musolino has been a vice-chairman of NationsBank
of Texas, N.A. since August 1988 and a director of the bank since 1990. He has
also been a director of Justin Industries, Inc., a manufacturing company, since
1986 and a director of Pool Energy Services, Co. since July 1994. Mr. Musolino
is a former president of the Dallas Bankers Association, and a former director
of the Texas Bankers Association and the University of Oklahoma College of
Business Administration. Mr. Musolino earned a B.S. degree and an M.B.A. degree
from the University of Oklahoma. Mr. Musolino is a member of the Audit Committee
of the Board of Directors.
DOUGLAS D. HAWTHORNE. Mr. Hawthorne, 49, has been a director of the Company
and Paragon GP Holdings since the Initial Offering. Mr. Hawthorne currently
serves as the President and Chief Executive Officer of Presbyterian Healthcare
System and of the Presbyterian Hospital of Dallas, two positions he has held
since 1983. He has served this organization in a variety of capacities since
1970. Mr. Hawthorne is also currently a member of the board of trustees for
Presbyterian Healthcare System and Hospital Receivables, Inc. and a member of
the board of directors of Helicopter Ambulance Services, Inc. He is a former
chairman of the Facilities & Standards Policy Panel for the American Hospital
Associate and former chairman of the Committee on Ethics for the American
College of Healthcare Executives. He is a member of the Board for American
Hospital Association. Mr. Hawthorne earned a B.S. degree and an M.S. degree from
Trinity University. Mr. Hawthorne is a member of the Audit Committee of the
Board of Directors.
WILLIAM S. JANES. Mr. Janes, 44, has been a director of the Company since
the Initial Offering. He has over 20 years of experience providing advice to
participants in the real estate industry. Mr. Janes is an officer and a director
of RMB Realty, Inc., a real estate investment company, as well as a director of
CapStar Hotel Company, a publicly traded C-Corporation. Prior to joining RMB
Realty, Inc., Mr. Janes was with Lincoln Property Company from 1984 to 1989,
serving as Regional General Partner and overseeing development operations in the
mid-Atlantic region. Mr. Janes maintains professional affiliations as a member
of NAREIT, SIOR, and the Urban Land Institute and the Washington Board of
Realtors. He also is on the Advance Gifts Committee of the Washington National
Cathedral. Mr. Janes earned a B.A. degree from Bowdoin College. Mr. Janes is a
member of the Executive Compensation Committee of the Board of Directors.
Executive Officers of the Company
The following is a biographical summary of the experience of the executive
officers of the Company as of March 31, 1997:
WILLIAM R. COOPER. Mr. Cooper, 60, has been Chairman of the Board of
Directors and Chief Executive Officer of the Company and Paragon GP Holdings
since the Initial Offering in July 1994. In addition, Mr. Cooper was the
President of the Company and Paragon GP Holdings from the Initial Offering until
February 1995. He also has been Chairman of the Board of Directors and Chief
Executive Officer of PGPSI from the Initial Offering to June of 1996 and was the
President of PGPSI from the Initial Offering until December 1994. Mr. Cooper has
also been Chairman of the Board of Directors and Chief Executive Officer of PRSI
since its inception in June of 1996. Prior to the Initial Offering, Mr. Cooper
had been with Paragon or its predecessor for 27 years, serving as a general
partner or principal executive officer from 1967 to 1994 and its President and
Chief Executive Officer from 1979 to 1994. In such capacities, he has been
actively engaged in the acquisition, development, management, leasing and sale
of multifamily, office, retail and industrial properties. Mr. Cooper is or was a
member of the board of directors of the Edwin Cox School of Business at Southern
Methodist University, the Advisory Board of the Society of Industrial and Office
Realtors, the Dallas County Advisory Board of the Salvation Army and the
Presbyterian Healthcare System. He also is a member of the Urban Land Institute
and the board of directors of the National Realty Committee. Mr. Cooper earned a
B.A. degree from Southern Methodist University.
38
<PAGE>
LEWIS A. LEVEY. Mr. Levey, 54, has been the Vice Chairman of the Board of
Directors of the Company and Paragon GP Holdings since February 1995 and a
director of the Company and Paragon GP Holdings since the Initial Offering in
July 1994. He was a Managing Director of the Company's Midwest Region from the
Initial Offering until February 1995. Mr. Levey also has been the Vice Chairman
of the Board of Directors of PGPSI since December 1994 to June 1996 and was a
Managing Director of PGPSI from the Initial Offering until December 1994. Mr.
Levey has also been Vice-Chairman of the Board of Directors of PRSI since
September of 1996. Prior to the Initial Offering, Mr. Levey was with Paragon or
its predecessor for 23 years, serving as a general partner from 1971 to 1994 and
as the Managing Director of the Midwest Region from 1980 to 1994. As Managing
Director of the Midwest Region for Paragon, Mr. Levey was responsible for
supervising all aspects of Paragon's real estate operations in Illinois,
Indiana, Kansas, Kentucky and Missouri. He is currently a member of the board of
directors of the National Multi-Housing Council, and a Council member of the
Urban Land Institute. Mr. Levey earned a B.S. degree from the University of
Wisconsin and an M.B.A. degree from Washington University (St. Louis).
ROBERT H. GIDEL. Mr. Gidel, 45, has been the President, Chief Operating
Officer of the Company and Paragon GP Holdings since January 1996. He has served
as a director of the Company and Paragon GP Holdings since February 1996. As
President and Chief Operating Officer, Mr. Gidel is responsible for the
management of the day-to-day affairs of the Company. Mr. Gidel also has been the
President and Chief Operating Officer of PGPSI from January 1996 to June 1996,
and a director of PGPSI from March 1996 to June 1996. In addition, Mr. Gidel has
been President of PRSI since its formation in June of 1996 and a director since
September of 1996. Mr. Gidel has been the President, Chief Operating Officer and
a director (and a member of the compensation committee) of the general partner
of Brazos Partners, L.P., a partnership that was formed to acquire and liquidate
a $3 billion portfolio of real estate assets previously owned by failed banks,
since July 1993. The portfolio of assets has been substantially liquidated, and
Mr. Gidel does not have any significant managerial responsibilities remaining
with respect to this partnership. He also was Chief Operating Officer and a
director of Brazos Fund, L.P., a real estate investment fund, from March 1994 to
January 1996, and currently remains as a director of that fund. Mr. Gidel was
Managing Director and a director of Alex Brown Kleinwort Benson Realty Advisors
("ABKB"), a real estate investment management firm based in Baltimore, Maryland,
from 1986 to 1993. Mr. Gidel was Chairman of ABKB's Investment Committee and had
responsibility for portfolio management and strategy for over $3.2 billion of
direct equity ownership, participating debt, joint venture equity, and real
estate securities owned by ABKB's domestic and foreign institutional clients.
Mr. Gidel earned a B.S.B.A. degree in real estate from the University of
Florida. Mr. Gidel is a member of the Executive Committee of the Board of
Directors.
JERRY J. BONNER. Mr. Bonner, 57, has been Secretary and Treasurer of the
Company and Paragon GP Holdings since the Initial Offering and a Senior Vice
President of the Company and Paragon GP Holdings since February 1995. Mr. Bonner
also has been Secretary, Treasurer and a director of PGPSI since the Initial
Offering and a Senior Vice President of PGPSI from March 1995 to June 1996. Mr.
Bonner has also been the Treasurer and Secretary and a director or PRSI since
its formation in June of 1996. Prior to the Initial Offering, Mr. Bonner was
with Paragon or its predecessor for 24 years, serving as Secretary and Treasurer
from 1979 to 1994. As Treasurer, Mr. Bonner is responsible for supervising all
treasury, controllership and management information systems of the Company. He
had similar responsibilities while serving as Treasurer of Paragon. He is a CPA
and a member of the Real Estate Council. Mr. Bonner earned a B.B.A. degree from
Louisiana Tech University and an M.B.A. degree from Southern Methodist
University.
39
<PAGE>
LYNN T. CALDWELL. Ms. Caldwell, 37, has been a Senior Vice President and
Chief Investment Officer of the Company and Paragon GP Holdings since February
1995 and was a Vice President of the Company and Paragon GP Holdings from the
Initial Offering in July 1994 to February 1995. She has also been a Senior Vice
President and Chief Investment Officer of PGPSI from March 1995 to June 1996,
was Vice President and Chief Investment Officer of PGPSI from December 1994 to
March 1995 and was Vice President of PGPSI from the Initial Offering until
December 1994. Ms. Caldwell has been a director of PRSI since its formation in
June of 1996. She also served as Vice President from June 1996 to September 1996
and Senior Vice President since September 1996. Prior to the Initial Offering,
Mr. Caldwell was with Paragon for five years, serving as Vice President --
Finance. Ms. Caldwell is a licensed Texas real estate broker and earned B.B.A.
and B.A. degrees from Southern Methodist University.
THOMAS D. FERGUSON. Mr. Ferguson, 43, has been a Senior Vice President and
Chief Financial Officer of the Company and Paragon GP Holdings since February
1995, and was a Vice President of the Company and Paragon GP Holdings from the
Initial Offering in July 1994 to February 1995. He also has been a Senior Vice
President and Chief Financial Officer of PGPSI from March 1995 to June 1996, was
Vice President and Chief Financial Officer of PGPSI from December 1994 to March
1995 and was a Vice President of PGPSI from the Initial Offering until December
1994. Mr. Ferguson served as Vice President of PRSI from June 1996 to September
1996 and Senior Vice President and Chief Financial Officer since September 1996.
He has been a director of PRSI since September 1996. Prior to the Initial
Offering, Mr. Ferguson was with Paragon for 10 years, serving as Vice President
- -- Finance. Mr. Ferguson earned a B.A. degree from the University of Arkansas.
BRIAN F. LAVIN. Mr. Lavin, 43, has been President of Paragon Residential
and a Senior Vice President of Paragon GP Holdings since February 1995. He also
has been President of Paragon Residential and a director of PGPSI from December
1994 to June 1996, and was a Vice President of PGPSI from the Initial Offering
until December 1994. Mr. Lavin has been a director of PRSI since September 1996.
Prior to the Initial Offering, Mr. Lavin was Vice President of Paragon's Midwest
Region, where he directed the development, marketing, leasing, management and
maintenance operations for Paragon's Kentucky and Indiana portfolio. Mr. Lavin
is a frequent participant and instructor in various property management
seminars. He has served as guest lecturer at the University of Louisville School
of Business and is a past Director of the Louisville Apartment Association Old
Kentucky Home Council of the Boy Scouts of America, Louisville Ballet and the
Louisville Science Center. Mr. Lavin is CPM certified, a Council Member of the
Urban Land Institute (ULI), holds a Board of Directors position on the Greater
Louisville Economic Development Partnership and the Board of Overseers for the
University of Louisville. Mr. Lavin earned a B.S. of B.A. degree from the
University of Missouri.
40
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation (1) Awards
----------------------------------------------------------------------------
Restricted
Salary Other Annual Stock Options All Other
Name and Principal Position Year ($)(2) Bonus ($) Compensation ($) Granted ($) Granted (#) Compensation ($)
--------------------------- ---- ------ --------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
William R. Cooper............. 1996 $ 45,673 $ 0 $ 0 $ 0 $ 0 $ 750 (5)
Chairman of the Board and 1995 200,000 0 0 0 10,000 750 (5)
Chief Executive Officer (3) 1994 79,231 0 0 0 10,000 525 (5)
Robert H. Gidel............... 1996 180,769 0 0 0 0 781,000 (5)
President and 1995 N/A N/A N/A N/A N/A N/A
Chief Operating Officer (3) 1994 N/A N/A N/A N/A N/A N/A
Brian F. Lavin................ 1996 173,269 50,000 0 0 0 111,688 (5)
President - Residential 1995 170,000 44,666 0 0 15,000 0
Group (3) 1994 19,808 63,832 0 425,000 (4) 0 0
Thomas D. Ferguson............ 1996 139,423 20,000 0 0 0 231,500 (5)
Chief Financial Officer 1995 125,000 0 0 0 10,000 750 (5)
Senior Vice President (3) 1994 35,654 0 0 425,000 (4) 0 0
Lynn T. Caldwell.............. 1996 132,212 18,705 0 0 0 144,969 (5)
Chief Investment Officer 1995 N/A N/A N/A N/A N/A N/A
Senior Vice President (3) 1994 N/A N/A N/A N/A N/A N/A
</TABLE>
1. Pursuant to an Executive Services Sharing Agreement entered into as of July
27, 1994 by and among the Company, Paragon GP Holdings and PGPSI, the total
compensation costs incurred in connection with the employment of the
Company's executive officers are allocated among the various entities
pursuant to an agreed-upon formula. Douglas A. Knaus formerly served as
President of the Company's commercial division up until his resignation in
connection with the sale of the Company's commercial property services
subsidiary in June of 1996. During the first six months of 1996, Mr. Knaus
was paid a salary of $91,538 and a bonus of $135,000 in connection with his
activities at the Company.
2. The Company commenced operations on July 27, 1994. The amounts set forth as
"Salary" for 1994 represent actual salary paid to such officers for the
period from July 27, 1994 to December 31, 1994. The salaries of Messrs.
Cooper, Lavin and Ferguson for 1994 on an annualized basis at year-end were
$200,000, $170,000 and $125,000, respectively. The amounts set forth as
"Salary" for 1996 represent the actual salary paid to such officers for
1996. Mr. Gidel joined the Company on January 29, 1996 and Mr. Ferguson and
Ms. Caldwell received salary adjustments during the year. The salaries for
Messrs. Gidel, Ferguson and Ms. Caldwell for 1996 on an annualized basis
were $200,000, $150,000 and $135,000, respectively.
3. Each of Messrs. Cooper, Gidel, Ferguson and Ms. Caldwell are officers of
the Company, Paragon GP Holdings and PRSI. Mr. Lavin is an officer of PRSI
and Paragon GP Holdings.
4. Restricted Stock Granted to each of Mr. Lavin and Mr. Ferguson represents
20,000 shares granted to each as of August 23, 1994 with a value of $21.25
per share on such date. No consideration was paid for any of such shares.
None of Mr. Lavin's or Mr. Ferguson's shares of restricted stock vest prior
to the third anniversary of the grant date. Beginning on the third
anniversary of the grant date, the shares vest over a three-year period (33
1/3% on each of the third, fourth, and fifth anniversaries of the grant
date), with vesting conditioned upon the continued employment of Mr. Lavin
or Mr. Ferguson as applicable, on the vesting date. Vesting of these shares
will accelerate if the merger is completed. Dividends are paid on the
restricted stock granted to each of Mr. Lavin or Mr. Ferguson. As of
December 31, 1996, each of Mr. Lavin and Mr. Ferguson held 20,000 shares of
unvested restricted stock with a value of $355,000 or $17.75 per share.
5. Pursuant to the Paragon Senior Management Amended and Restated Incentive
Compensation Plan, each of Mr. Gidel, Mr. Lavin, Mr. Ferguson and Ms.
Caldwell received a restricted stock right pursuant to which each has the
right to receive shares of Company Common Stock upon the occurrence of
certain triggering events including the merger, consolidation or
reorganization of the Company. The merger will constitute a triggering
event. Messrs. Gidel, Lavin, Ferguson and Ms. Caldwell have the right to
receive 44,000 shares, 6,250 shares, 13,000 shares and 8,125 shares,
respectively. The values are based on a closing price of $17.75 as of
December 31, 1996. All Other Compensation for Messrs. Cooper, Lavin and
Ferguson also consists of a $750 employer contribution to each of their
401K Plans for both 1995 and 1996 and a $525 contribution to Mr. Cooper's
401K Plan in 1994. All Other Compensation for Ms. Caldwell also includes a
$750 employer contribution to her 401K Plan for 1996.
41
<PAGE>
Aggregated Option Exercises in Last Fiscal year
and FY-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised In-the-Money
Acquired Value Options at FY-End Options at FY-End
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable (1)
---- ----------- -------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
William R. Cooper..... 0 0 10,000 10,000 0 $ 5,000
Robert H. Gidel....... 0 0 0 0 0 $ 0
Brian F. Lavin........ 0 0 0 15,000 0 $ 7,500
Thomas D. Ferguson.... 0 0 0 10,000 0 $ 5,000
Lynn T. Caldwell...... 0 0 0 7,000 0 $ 3,500
</TABLE>
Based on a closing price of $17.75 per share of Common Stock on December 31,
1996.
42
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Voting Securities and Principal Holders
The following table sets forth the beneficial ownership of shares of Common
Stock as of February 24, 1997 (the record date for the Special Meeting) for (1)
each person known by the Company to be the beneficial owner of more than five
percent of the Company's outstanding shares of Common Stock, (2) each director
of the Company and each Named Executive Officer, and (3) the directors and
executive officers of the Company as a group. Unless otherwise indicted in the
footnotes, all of such interests are owned directly, and the indicated person or
entity has sole voting and investment power. The number of shares reported as
beneficially owned by a person represents the number of shares of Common Stock
the person holds plus the number of shares into which Units held by the person
are redeemable (if the Company elects to issue shares rather than pay cash upon
such redemption). The extent to which a person holds shares of Common Stock or
Units is set forth in the footnotes.
<TABLE>
<CAPTION>
Number of Percent of
Name and Address Shares and Units Percent of All Shares
of Beneficial Owner (1) Beneficially Owned All Shares (2) and Units (3)
----------------------- ------------------ -------------- -------------
<S> <C> <C> <C>
William R. Cooper (4)................. 3,113,099 17.8% 16.9%
PGI Associates, L.P. (5).............. 2,207,838 13.0% 12.0%
Thomas R. Delatour, Jr.(6)............ 1,499,622 9.6% 8.1%
FWP, L.P. (7)......................... 1,487,622 9.5% 8.1%
Public Employees Retirement System
of Ohio (8)........................ 960,000 6.5% 5.2%
Lewis A. Levey (9).................... 495,835 3.3% 2.7%
Don M. Shine (10)..................... 86,741 * *
Thomas D. Ferguson (11)............... 21,000 * *
Brian F. Lavin (12)................... 20,080 * *
John H. Massey (13)................... 13,207 * *
Lynn T. Caldwell (14)................. 12,039 * *
Richard J. Haayen (15)................ 12,000 * *
William S. Janes (16)................. 11,000 * *
Joseph R. Musolino (17)............... 10,500 * *
Douglas D. Hawthorne (18)............. 10,000 * *
Robert H. Gidel (19).................. 4,000 * *
All directors and executive officers
as a group (14 persons) (20)....... 4,967,941 26.9% 26.8%
</TABLE>
* Less than 1%
1. The address for FWP, L.P. and Messrs. Delatour and Janes is c/o RMB Realty,
Inc., 2501 Main Street, Fort Worth, Texas 76102. The address for PGI
Associates, L.P. and Messrs. Cooper, Levey, Gidel, Ferguson, Shine, Massey,
Haayen, Musolino, Hawthorne and Ms. Caldwell is c/o Paragon Group, Inc.,
7557 Rambler Road, Suite 1200, Dallas, Texas 75231. The address for the
Public Employees Retirement System of Ohio is 277 East Town Street,
Columbus, Ohio 43215.
2. For purposes of this calculation, the number of shares of Common Stock
deemed outstanding includes 14,791,165 shares of Common Stock currently
outstanding and the number of shares of Common Stock issuable to the named
person upon redemption of Units held by such person or upon the exercise of
options exercisable within 60 days held by such person. All of the
outstanding Units (other than those held by Paragon GP Holdings or Paragon
LP Holdings) are redeemable, at the option of the holder, for cash equal to
the value of an equal number of shares of Common Stock or, at the election
of the Company, for an equal number of shares of Common Stock. This
calculation assumes that all Units held by the named person are redeemed
for shares of Common Stock and all options exercisable within 60 days held
by such person are exercised.
3. For purposes of this calculation, the number of shares of Common Stock and
Units deemed outstanding includes 14,791,165 shares of Common Stock
currently outstanding, 3,675,258 Units currently outstanding (excluding
Units held by the Company), and the number of shares of Common Stock
issuable to the named person upon the exercise of options exercisable
within 60 days held by such person. This calculation assumes that all Units
held by the named person are redeemed for shares of Common Stock and all
options exercisable within 60 days held by such person are exercised.
4. Includes 448,555 shares of Common Stock owned by Mr. Cooper directly and
2,207,838 Units which are held by PGI Associates, L.P., the general partner
of which is a company controlled by Mr. Cooper. Also includes 376,471 Units
held by a partnership in which Mr. Cooper serves as a general partner of
the general partner. Also includes 70,235 Units owned by Mr. Cooper
directly or through a wholly-owned subsidiary, as well as 10,000 shares of
Common Stock that Mr. Cooper has an exercisable option to acquire and that
are deemed outstanding pursuant to Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934 ("Rule 13d-3(d)(1)").
43
<PAGE>
5. PGI Associates, L.P. is a Texas limited partnership, the general partner of
which is a company controlled by Mr. Cooper and the limited partners of
which consist of Messrs. Cooper, Levey, Shine, Bonner and Lavin, entities
wholly owned by them and five other officers or former officers of the
Company or its affiliates. PGI Associates, L.P. owns 2,207,838 Units.
6. Includes 595,000 shares of Common Stock and 892,622 Units, all of which are
held by FWP, L.P., the general partner of which is a company controlled by
Mr. Delatour. Also includes 2,000 shares of Common Stock owned indirectly
by Mr. Delatour through trusts for his children (of which he disclaims
beneficial ownership), as well as 10,000 shares of Common Stock that Mr.
Delatour has an exercisable option to acquire and that are deemed
outstanding pursuant to Rule 13d-3(d)(1).
7. Includes 595,000 shares of Common Stock and 892,622 Units, all of which are
owned directly by FWP, L.P., the general partner of which is a company
controlled by Mr. Delatour.
8. Represents 960,000 shares of Common Stock reported as owned directly by the
Public Employees Retirement System of Ohio pursuant to a Schedule 13G filed
on January 25, 1996 .
9. Includes 96,658 shares of Common Stock and 12,706 Units owned directly by
Mr. Levey, as well as 376,471 Units held by a partnership in which Mr.
Levey serves as a general partner of the general partner. Also includes
10,000 shares of Common Stock that Mr. Levey has an exercisable option to
acquire and that are deemed outstanding pursuant to Rule 13d-3(d)(1).
10. Includes 40,847 shares of Common Stock and 35,894 Units owned directly by
Mr. Shine as well as 10,000 shares of Common Stock that Mr. Shine has an
exercisable option to acquire and that are deemed outstanding pursuant to
Rule 13d-3(d)(1).
11. Includes 1,000 shares of Common Stock owned directly by Mr. Ferguson as
well as 20,000 restricted shares of Common Stock granted to Mr. Ferguson
pursuant to the Company's Employee Restricted Stock Plan, which shares are
subject to forfeiture in the event Mr. Ferguson's employment is terminated
within a specified period.
12. Includes 80 shares of Common Stock owned indirectly by Mr. Lavin through
his children, as well as 20,000 restricted shares of Common Stock granted
to Mr. Lavin pursuant to the Company's Employee Restricted Stock Plan,
which shares are subject to forfeiture in the event Mr. Lavin's employment
is terminated within a specified period.
13. Includes 707 shares of Common Stock owned directly by Mr. Massey, as well
as 2,500 shares of Common Stock owned indirectly by Mr. Massey through his
wife, as well as 10,000 shares of Common Stock that Mr. Massey has an
exercisable option to acquire and that are deemed outstanding pursuant to
Rule 13d-3(d)(1).
14. Includes 2,039 shares of Common Stock owned directly by Ms. Caldwell as
well as 10,000 restricted shares of Common Stock granted to Ms. Caldwell
pursuant to the Company's Employee Restricted Stock Plan, which shares are
subject to forfeiture in the event Ms. Caldwell's employment is terminated
within a specified period.
15. Includes 2,000 shares of Common Stock that Mr. Haayen owns directly, as
well as 10,000 shares of Common Stock that Mr. Haayen has an exercisable
option to acquire and that are deemed outstanding pursuant to Rule
13d-3(d)(1).
16. Includes 1,000 shares of Common Stock owned indirectly by Mr. Janes through
trusts for his children, as well as 10,000 shares of Common Stock that Mr.
Janes has an exercisable option to acquire and that are deemed outstanding
pursuant to Rule 13d-3(d)(1).
17. Includes 500 shares of Common Stock owned directly by Mr. Musolino, as well
as 10,000 shares of Common Stock that Mr. Musolino has an exercisable
option to acquire and that are deemed outstanding pursuant to Rule
13d-(d)(1).
18. Represents shares of Common Stock that Mr. Hawthorne has an exercisable
option to acquire and that are deemed outstanding pursuant to Rule
13d-3(d)(1).
19. Includes 4,000 shares of Common Stock owned directly by Mr. Gidel.
20. Includes 1,270,180 shares of Common Stock, 3,597,761 Units and 100,000
shares of Common Stock subject to options exercisable within 60 days and
that are deemed outstanding pursuant to Rule 13d-3(d)(1). Shares and/or
Units beneficially owned by more than one individual have been counted only
once for this purpose.
Section 16(a) Beneficial Ownership Reporting Compliance
Mr. Massey was late in filing two Forms 4 reporting two separate purchases
of common stock in February and July of 1996, respectively. Each of Messrs.
Delatour, Ferguson, Gidel, Haayen Hawthorne, Janes, Lavin, Massey and Musolino
and Ms. Caldwell were late in filing a Form 5 Annual Statement of Changes in
Beneficial Ownership for the year ended December 31, 1996.
44
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Paragon Group Property Services, Inc. (PGPSI) and
Paragon Residential Services, Inc. (PRSI)
In May 1996, the Company executed an agreement to sell its commercial
property services business to an affiliate of Insignia Financial Group
("Insignia"). In order to accomplish the sale, PGPSI's residential property
services business was transferred to PRSI immediately prior to the sale, which
was effective as of June 30, 1996. Prior to the sale of PGPSI, the Company,
through the Operating Partnership, owned a 99% economic interest in PGPSI. Since
June 1996, the Company, through the Operating Partnership, owns a 95% economic
interest in PRSI. The Company did not control the voting stock of PGPSI and does
not control the voting stock of PRSI. The following transactions were entered
into with PGPSI or PRSI in 1996.
* Prior to June 1996, PGPSI provided property management, leasing and
other property services with respect to each of the properties. Since
June, PRSI has provided property management and other property
services with respect to each of the residential properties. In the
first six months of 1996, the Company paid PGPSI $1,423,290 and
$130,250 in management fees and leasing and other fees, respectively.
Since June, the Company has paid PRSI $1,385,050 and $74,874 in
management and leasing and other fees, respectively.
* Through June 1996, PGPSI provided development, construction management
and acquisition services to the Company. PRSI has provided those
services since June. Both PGPSI and PRSI were reimbursed by the
Company for the cost of providing such services. During 1996, the
costs allocated to the Company by PGPSI for development, construction
management and acquisition services were $474,554, $3,761 and 0,
respectively. In the last six months of 1996, the costs allocated to
the Company by PRSI for development, construction management, and
acquisition services were $316,277, 0 and $100,000, respectively.
* In connection with the sale of PGPSI, Insignia paid $18,200,000 and
acquired all of the outstanding stock of PGPSI and a $12,432,000 note
receivable from PGPSI held by the Company. Certain related parties and
predecessors that owned the 1% economic interest in PGPSI that was not
owned by the Company received $57,000 in exchange for the sale of
their stock to Insignia.
* In connection with the Formation Transactions, the Operating
Partnership acquired a note payable from PGPSI in the amount of
$17,000,000. The note, with a stated maturity date of July 31, 2004
bears interest at 12% per annum and requires monthly payments of
principal and interest of $174,864, based upon a 30 year amortization
schedule. Payments in the amount of $1,049,184 were made during the
first six months of 1996.
* In connection with the transfer of PGPSI's residential property
services business to PRSI, PGPSI also transferred $4,444,759 of debt
associated with the original $17,000,000 PGPSI Formation Transaction
note. The terms are consistent with those of the original note and
payments in the amount of $322,294 were made in the last six months of
1996.
* Effective July 1, 1996, PGPSI transferred to PRSI the outstanding
balance borrowed under the Line of Credit agreement between the
Operating Partnership and PGPSI. All borrowings bear interest at 12%
per annum and are payable upon demand. Borrowings at December 1996
totaled $4,614,234. Interest payments in the amount of $239,097 and
$217,022 were made by PGPSI in the first six months of 1996 and by
PRSI in the last six months, respectively.
* Effective June 1, 1996, the Operating Partnership entered into an
installment loan for the purpose of financing the PGPSI accounting and
management information system. The outstanding balance of $3,482,914
was transferred to PRSI effective July 1, 1996. The note matures June
1, 2001, bears interest at 10% per annum and requires monthly payments
of principal and interest of $46,253 based upon a 30 year amortization
schedule. Payments in the amount of $46,253 were made by PGPSI in the
first six months of 1996 and in the amount of $231,265 by PRSI in the
last six months of 1996.
45
<PAGE>
* Effective July 27, 1994, the Company and the Operating Partnership
entered into two separate cost-sharing arrangements with PGPSI.
Immediately prior to the sale of PGPSI, these agreements were
transferred to PRSI. Pursuant to an Administrative Services Agreement,
PRSI (and previously PGPSI) provides the Company with certain
administrative and office services and makes available certain
facilities and equipment. Pursuant to an Executive Services Sharing
Agreement, the time devoted by certain senior officers of PRSI (and
previously PGPSI) who also are officers of the Company is allocated
among the entities pursuant to an agreed-upon formula. Both agreements
call for the Company to reimburse PRSI (and previously PGPSI) for
amounts which management believes approximate the cost it would
otherwise incur if it contracted similar services from an unrelated
third party. PGPSI and PRSI each charged the Company $460,420 during
1996 under these agreements.
* The Company, through PRSI (and previously PGPSI), uses a centralized
disbursement and receipt system whereby, for certain of the Properties
and for other properties owned by affiliates of the Company, all
project deposits are transferred to a central operating account and
all expenses and other disbursements are paid from that account. In
other cases, certain properties maintain a separate cash account for
recording project receipts and disbursements, but certain common
operating expenses are paid through the centralized account and are
subsequently reimbursed by the appropriate properties. Pursuant to
these arrangements, PRSI had advanced funds totaling $1,521,338 to the
Operating Partnership at December 31, 1996.
Other Transactions
In December 1995, the Company purchased the Overlook Apartments (formerly
the Phoenix Apartments) from a partnership in which William R. Cooper is a
partner of such partnership's general partner. The total consideration paid in
connection with the purchase was $8.1 million, including approximately $5.8
million paid directly to the lender to pay down debt on the property. In
addition, the Company assumed approximately $300,000 in debt of the partnership
payable to its general partner. Affiliates of the Company did not receive any of
the cash portion of the purchase price. In January 1996, the Company repaid the
affiliated debt it had assumed, paying cash to unaffiliated parties and paying
4,694 Units to Mr. Cooper. The purchase price of the apartment project was based
on a multiple of net operating income and was approved by the Board of Directors
of the Company, with Mr. Cooper recusing himself from consideration of this
transaction.
46
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) Financial Statements and Schedules
and (2)
Index to Financial Statements and Schedules
The following Consolidated and Combined Financial Statements and Schedule
of Paragon Group, Inc. and Predecessors and the Independent Auditors' Report
thereon are filed as part of this report on the pages indicated.
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Independent Auditors' Report 52
Consolidated Balance Sheets as of December 31, 1996 and 1995 53
Consolidated and Combined Statements of Operations for the years ended
December 31, 1996 and 1995, the period July 27 to December 31, 1994,
as restated, and the period January 1 to July 26, 1994 54
Consolidated and Combined Statements of Stockholders' Equity (Partners' and
Owners' Deficit) for the years ended December 31, 1996 and 1995, the period
ended December 31, 1994, as restated, and the period
ended July 26, 1994 55
Consolidated and Combined Statements of Cash Flows for the years ended
December 31, 1996 and 1995, the period July 27 to December 31, 1994,
as restated, and the period January 1 to July 26, 1994 56
Notes to Consolidated and Combined Financial Statements 57
Schedules:
Schedule III: Real Estate and Accumulated Depreciation as
of December 31, 1996 82
</TABLE>
All other schedules have been omitted because the required information of
such other schedules is not present in amounts sufficient to require submission
of the schedule or because the required information is included in the
Consolidated and Combined Financial Statements.
47
<PAGE>
14(a)(3) Exhibits
2.1 Agreement and Plan of Merger dated as of December 16, 1996,
between Camden Property Trust, Camden Subsidiary, Inc. and
Paragon Group, Inc. Incorporated by reference to Exhibit 99.2 to
the Company's Form 8-K dated December 16, 1996 (File No.
1-13220).
3.1* Articles of Amendment and Restatement of Articles of
Incorporation of Paragon Group, Inc.
3.2 Amended and Restated Bylaws of Paragon Group, Inc. Incorporated
by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the three months ended March 31, 1995.
10.1* Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership.
10.2* Articles of Incorporation and Bylaws of Paragon GP Holdings.
10.3* Articles of Incorporation and Bylaws of Paragon LP Holdings.
10.4* Articles of Incorporation and Bylaws of PGPSI.
10.5* Employment Agreement among William R. Cooper, the Company,
Paragon GP Holdings, the Operating Partnership and PGPSI.
10.6* Employment Agreement among Lewis A. Levey, the Company, Paragon
GP Holdings, the Operating Partnership and PGPSI.
10.7* Registration Rights and Lock-up Agreement between the Company
and the persons named therein.
10.8* First Amended and Restated Employee Restricted Stock Plan.
10.9 Third Amended and Restated 1994 Employee Stock Option, Unit
Option, Restricted Stock, Restricted Unit and Restricted Stock
Right Plan.
10.10* Non-Employee Director Stock Option Plan.
10.11* Supplemental Representations and Warranties Agreement among the
Company, the Operating Partnership, PGPSI, FWP, L.P. and certain
other parties named therein.
10.12* Paragon Group, Inc. First Amended and Restated Employee Stock
Purchase Plan.
10.13* Paragon Group Property Services, Inc. First Amended and
Restated Employee Stock Purchase Plan.
10.14 Fifth Amended and Restated Credit Agreement among Paragon Group
L.P. and various lenders.
10.15* Mortgage and Security Agreement relating to the Pool A Loan by
Paragon-Ott Apartments II, Ltd., Lookout Pointe II Associates,
Ltd., Lookout Pointe Associates, Ltd., Lake George II Associates,
Ltd. and Paragon Group L.P. to the Prudential Insurance Company
of America.
10.16+ Letter Agreement, dated January 23, 1996, between Robert H.
Gidel and the Company.
10.17+ Mortgage Note (Texas) dated December 5, 1995 from Paragon Group
L.P. to Nationwide Life Insurance Company.
10.18+ Deed of Trust, Mortgage and Security Agreement (Texas) made by
Paragon Group L.P. to secure Nationwide Life Insurance Company.
10.19+ Mortgage Note (Missouri) dated December 5, 1995 from Paragon
Group L.P. to Nationwide Life Insurance Company.
10.20+ Deed of Trust and Security Agreement (Missouri) made by Paragon
Group L.P. to secure Nationwide Life Insurance Company.
10.21+ Mortgage Note (North Carolina) dated December 5, 1995 from
Paragon Group L.P. to Nationwide Life Insurance Company.
10.22+ Deed of Trust and Security Agreement (North Carolina) made by
Paragon Group L.P. to secure Nationwide Life Insurance Company.
10.23# Stock and Note Purchase Agreement dated as of May 31, 1996, as
modified by an Addendum thereto dated as of June 26, 1996, among
Insignia Commercial Group, Inc., PGPSI, Paragon Group L.P. and
Texas Paragon Management Partners L.P.
48
<PAGE>
10.24# Warrant Agreement dated as of June 30, 1996 between Paragon
Group, Inc. and Insignia Commercial Group, Inc.
10.25 Form of Third Amended and Restated Agreement of Limited
Partnership of the Operating Partnership. Incorporated by
reference to Exhibit 10.1 to the Camden Property Trust
Registration Statement on Form S-4 filed February 26, 1997 (File
No. 333-22411)
10.26 Voting Agreement, dated December 16, 1996, between Camden
Property Trust, Paragon Group, Inc. and certain major
securityholders of Camden Property Trust. Incorporated by
reference to Exhibit 10.7 to the Camden Property Trust
Registration Statement on Form S-4 filed February 26, 1997 (File
No. 333-22411).
10.27 Voting Agreement, dated December 16, 1996, between Camden
Property Trust, Paragon Group, Inc. and certain major
securityholders of Paragon Group, Inc. Incorporated by reference
to Exhibit 10.8 to the Camden Property Trust Registration
Statement on Form S-4 filed February 26, 1997 (File No.
333-22411).
21.1 List of Subsidiaries of Paragon Group, Inc.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney.
------------------
* Incorporated by reference to the same titled and numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
+ Incorporated by reference to the same titled and numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
# Incorporated by reference to the same titled and numbered exhibit
to the Company's Annual Report on Form 10-K/A (Amendment No. 1)
for the fiscal year ended December 31, 1995.
14(b) Reports on Form 8-K
The Company filed a Form 8-K dated December 16, 1996 which (i)
reported under Item 5, the execution of the Agreement and Plan of
Merger with Camden Property Trust, and (ii) included as exhibits
under Item 7, the press release relating to the merger and the
Agreement and Plan of Merger.
14(c) Exhibits
The list of exhibits filed with this report is set forth in
response to Item 14(a)(3). The required exhibit index has been
filed with the exhibits.
14(d) Financial Statements
None.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
State of Texas on March 31, 1997.
PARAGON GROUP, INC.,
a Maryland corporation
By: /s/William R. Cooper
--------------------
William R. Cooper
Chief Executive Officer and
Chairman of the Board of
Directors
50
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on March 31, 1997.
Signature Title
/s/ William R. Cooper Chief Executive Officer and Chairman
- ----------------------- of the Board of Directors
William R. Cooper
* Vice Chairman of the Board of Directors
- -----------------------
Lewis A. Levey
/s/ Robert H. Gidel President and Chief Operating Officer
- ----------------------- and Director
Robert H. Gidel
/s/ Thomas D. Ferguson Chief Financial Officer and Senior
- ---------------------- Vice President
Thomas D. Ferguson
/s/ J.C. Lowenberg, III Sr. Vice President (chief accounting
- ----------------------- officer)
J.C. Lowenberg, III
* Director
- -----------------------
Thomas R. Delatour, Jr.
* Director
- -----------------------
Richard J. Haayen
* Director
- -----------------------
Douglas D. Hawthorne
Director
- -----------------------
William S. Janes
Director
- -----------------------
John H. Massey
Director
- -----------------------
Joseph R. Musolino
* Director
- -----------------------
Don M. Shine
* By: /s/Thomas D. Ferguson
Thomas D. Ferguson
Attorney-in-Fact
(See Exhibit 24.1)
51
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and
Stockholders of Paragon Group, Inc.
We have audited the accompanying consolidated balance sheets of Paragon
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated and combined statements of operations, stockholders' equity
(partners' and owners' deficit), and cash flows of Paragon Group, Inc. and
Predecessors for the years ended December 31, 1996 and 1995, the period from
July 27, 1994 through December 31, 1994, as restated, and the period from
January 1, 1994 through July 26, 1994. Our audits also included the financial
statement schedule listed in the index at Item 14(a)1 and 2. These consolidated
and combined financial statements and schedule are the responsibility of the
management of Paragon Group, Inc. and Predecessors. Our responsibility is to
express an opinion on these consolidated and combined financial statements and
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 and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
Paragon Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of Paragon Group, Inc. and Predecessors' operations and cash flows for
the years ended December 31, 1996 and 1995, the period from July 27, 1994
through December 31, 1994, as restated, and the period from January 1, 1994
through July 26, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2, the Company, since its initial public offering on
July 27, 1994, accounted for the investment in its property services subsidiary,
Paragon Group Property Services, Inc. ("PGPSI"), under the cost method
consistent with prior regulatory direction. However, in September 1995, the
Emerging Issues Task Force of the Financial Accounting Standards Board (EITF)
reached a consensus in EITF 95-6 that the cost method of accounting for such
investments was not appropriate. Accordingly, in 1995, the Company changed its
method of accounting for PGPSI from the cost method to consolidation of the
financial position and results of operations of PGPSI with the Company.
Furthermore, as required by EITF 95-6, the 1994 financial statements
(specifically, the period from July 27, 1994 through December 31, 1994) have
been restated to consolidate PGPSI. The effect of the restatement was to
decrease stockholders' equity at December 31, 1994 by approximately $20,456,000
and to decrease net income for the period from July 27 through December 31, 1994
by approximately $120,000. The effect on earnings per share was nominal.
Ernst & Young LLP
Dallas, Texas
March 21, 1997
52
<PAGE>
PARAGON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate assets:
Land $ 81,214 $ 86,602
Buildings and improvements 441,921 459,129
Furniture, fixtures and equipment 60,657 57,796
------------ ------------
583,792 603,527
Less: Accumulated depreciation (127,829) (126,437)
------------ ------------
Operating real estate assets 455,963 477,090
Construction in process 13,339 27,944
Real estate held for sale 20,604 -
------------ ------------
Net real estate assets 489,906 505,034
Cash and cash equivalents 7,087 6,583
Restricted cash 4,241 3,909
Accounts receivable, including amounts due from affiliates of
$212 and $1,424, respectively in 1996 and 1995 1,437 4,716
Advances to affiliates 1,532 186
Investment in ventures 15,164 7,401
Notes receivable from venture 9,839 -
Deferred charges, net 5,774 9,254
Deferred rent receivable - 260
Deferred tax asset 93 863
Other assets 1,794 1,405
------------ -------------
Total assets $ 536,867 $ 539,611
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 297,292 $ 293,780
Accrued interest payable 1,363 1,106
Accrued real estate taxes payable 1,741 2,030
Accounts payable and accrued liabilities, including amounts due to
affiliates of $10 in 1996 10,019 10,883
Tenant security deposits 2,205 2,273
Deferred tax liability 93 863
Deferred gain on sale of commercial property services business 1,100 -
------------ -------------
Total liabilities 313,813 310,935
------------ -------------
Minority interests 48,548 50,210
------------ -------------
Commitments and contingencies
Stockholders' equity:
Common stock $.01 par value, authorized 100,000,000 shares,
issued 14,791,165 shares 148 148
Additional paid-in capital 204,617 204,537
Unamortized employee restricted stock compensation (1,053) (4,085)
Accumulated deficit (27,411) (21,236)
------------ -------------
176,301 179,364
Less: Cost of 84,486 treasury shares (42,266 in 1995) (1,795) (898)
------------ -------------
Total stockholders' equity 174,506 178,466
------------ -------------
Total liabilities and stockholders' equity $ 536,867 $ 539,611
============ =============
</TABLE>
See accompanying notes.
53
<PAGE>
PARAGON GROUP, INC. AND PREDECESSORS
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Company Predecessors
--------------------------------------------------- --------------
For the Year For the Year For the Period For the Period
Ended Ended July 27 to January 1 to
December 31, December 31, December 31, July 26,
1996 1995 1994, as Restated 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Rental $ 91,037 $ 80,437 $ 32,099 $ 39,018
Property management services - third party 2,406 6,859 3,729 4,693
Property management services - affiliates 2,573 4,454 1,688 2,751
Leasing and other property services - third party 2,646 8,847 3,437 4,445
Leasing and other property services - affiliates 1,226 2,136 967 1,986
Interest - third party 559 537 445 156
Interest - affiliates 161 - - -
Other - properties 3,285 3,023 1,222 2,225
Other - property services 836 1,275 1,125 1,668
---------- ---------- ---------- ----------
Total revenue 104,729 107,568 44,712 56,942
---------- ---------- ---------- ----------
Expenses
Property operating and maintenance:
Personnel 10,685 9,385 3,767 4,748
Advertising and promotion 1,924 1,621 625 860
Utilities 5,694 4,911 1,927 2,649
Building repair and maintenance 7,648 6,463 2,259 3,510
Real estate taxes and insurance 9,951 8,932 3,759 4,923
Other operating expenses 3,555 2,950 909 2,092
---------- ---------- ---------- ----------
39,457 34,262 13,246 18,782
Depreciation and amortization 19,552 18,561 7,019 6,499
Property management, net of amounts reimbursed by
affiliates of $92, $114, $235 and $316 for 1996,
1995, the period July 27 to December 31, 1994,
and the period January 1 to July 26, 1994,
respectively 12,336 18,141 8,705 12,587
Interest - third party 22,066 17,011 6,448 14,057
Interest - affiliates - - - 801
General and administrative - property services, net of
amounts reimbursed by affiliates of $179, $216, $182
and $945 for 1996, 1995, the period July 27 to
December 31, 1994, and the period January 1 to
July 26, 1994, respectively 4,997 5,693 2,052 2,006
General and administrative - corporate 1,919 1,979 795 -
Reorganization costs - - 7,796 -
---------- ---------- ---------- ----------
Total expenses 100,327 95,647 46,061 54,732
---------- ---------- ---------- ----------
Income (loss) before equity in income of ventures,
gain (loss) on sale of properties, income taxes,
minority interests and extraordinary items 4,402 11,921 (1,349) 2,210
Equity in income of ventures 1,012 775 317 429
Gain (loss) on sale of properties 9,209 (21) - -
Gain on sale of commercial property services business 11,930 - - -
---------- ---------- ---------- ----------
Income (loss) before income taxes,
minority interests and extraordinary items 26,553 12,675 (1,032) 2,639
Income taxes - - - -
---------- ---------- ---------- ----------
Income (loss) before minority interests and extraordinary 26,553 12,675 (1,032) 2,639
items
Minority interests (5,338) (2,612) 207 -
---------- ---------- ---------- ----------
Income (loss) before extraordinary items 21,215 10,063 (825) 2,639
Extraordinary gain from forgiveness of debt,
net of minority interests - - 6,832 1,776
Extraordinary loss from early extinguishment of debt,
net of minority interests - - (5,196) -
---------- ---------- ---------- ----------
Net income $ 21,215 $ 10,063 $ 811 $ 4,415
========== ========== ========== ==========
Per share data:
Income (loss) before extraordinary items $ 1.43 $ 0.68 $ (0.06)
========== ========== ==========
Net income $ 1.43 $ 0.68 $ 0.06
========== ========== ==========
</TABLE>
See accompanying notes.
54
<PAGE>
PARAGON GROUP, INC. AND PREDECESSORS
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(PARTNERS' AND OWNERS' DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, THE PERIOD
ENDED DECEMBER 31, 1994, AS RESTATED, AND THE PERIOD ENDED JULY 26, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Unamortized
Employee Less:
Additional Restricted Cost of
Common Paid-in Stock Accumulated Treasury
Stock Capital Compensation Deficit Shares Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PARTNERS' AND OWNERS' DEFICIT AT DECEMBER 31, 1993 $ - $ - $ - $ (40,031) $ - $ (40,031)
Contributions - - - 3,202 - 3,202
Distributions - - - (7,912) - (7,912)
Net Income - - - 4,415 - 4,415
-------- -------- -------- ---------- ------- ----------
PARTNERS' AND OWNERS' DEFICIT AT JULY 26, 1994 - - - (40,326) - (40,326)
Paragon Group, Inc. formation transactions - - - 13,391 - 13,391
Reclassification of accumulated deficit at
date of initial offering - (26,935) - 26,935 - -
Proceeds of initial offering, net of
underwriting discount and offering costs
of $24,813 137 266,069 - - - 266,206
Shares issued in exchange for note
receivable from property services
corporation 7 14,393 - - - 14,400
Shares issued pursuant to employee
restricted stock plan 3 6,890 (6,136) - (757) -
Adjustment for minority interests at date
of initial offering - (56,786) - - - (56,786)
Net income - - - 811 - 811
Amortization of employee restricted stock
compensation - - 577 - - 577
Dividends paid - - - (4,839) - (4,839)
-------- -------- -------- ---------- ------- ----------
STOCKHOLDERS' EQUITY AT DECEMBER 31, 1994,
AS RESTATED 147 203,631 (5,559) (4,028) (757) 193,434
Acquisition of land for Units - 1,251 - - - 1,251
Acquisition of partnership interest for
Units - (1,559) - - - (1,559)
Conversion of Units to common stock 1 1,214 - - - 1,215
Net income - - - 10,063 - 10,063
Amortization of employee restricted
stock compensation - - 1,333 - - 1,333
Redemption of employee restricted stock,
net of additional grants - - 141 - (141) -
Dividends paid - - - (27,271) - (27,271)
-------- -------- -------- ---------- ------- ----------
STOCKHOLDERS' EQUITY AT DECEMBER 31, 1995 148 204,537 (4,085) (21,236) (898) 178,466
Partial repayment of note payable to
affiliates with Units - 80 - - - 80
Net income - - - 21,215 - 21,215
Amortization of employee restricted
stock compensation - - 2,135 - - 2,135
Redemption of employee restricted stock,
net of additional grants - - 897 - (897) -
Dividends paid - - - (27,390) - (27,390)
-------- -------- -------- ---------- ------- ----------
STOCKHOLDERS' EQUITY AT DECEMBER 31, 1996 $ 148 $204,617 $ (1,053) $ (27,411) $(1,795) $ 174,506
======== ======== ======== ========== ======= ==========
</TABLE>
See accompanying notes.
55
<PAGE>
PARAGON GROUP, INC. AND PREDECESSORS
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Company Predecessors
----------------------------------------------------- --------------
For the Year For the Year For the Period For the Period
Ended Ended July 27 to January 1 to
December 31, December 31, December 31, July 26,
1996 1995 1994, as Restated 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,215 $ 10,063 $ 811 $ 4,415
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 18,859 16,182 6,471 6,455
Amortization 693 2,379 548 44
Amortization of deferred financing costs 1,473 1,559 602 472
Amortization of employee restricted stock 1,368 1,333 577 -
compensation
Equity in income of ventures - - (122) (171)
Loss (gain) on sale of properties (9,209) 21 - -
Gain on sale of commercial property services (11,930) - - -
business
Post-Measurement Date cash flow of commercial
property services business 167 - - -
Minority interests in income (loss) 5,338 2,612 (207) -
Gain on forgiveness of debt, net of minority - - (6,832) (1,776)
interests
Loss on early extinguishment of debt, net of - - 5,196 -
minority interests
Changes in assets and liabilities:
Decrease (increase) in restricted cash (383) 367 3,019 (695)
Decrease (increase) in accounts receivable 3,261 (1,860) (2,415) 345
Decrease (increase) in deferred rent receivable 7 (18) 25 19
Increase in prepaid leasing costs (62) (136) (55) -
Decrease (increase) in other assets (523) (1,614) (472) 63
Increase (decrease) in accrued interest payable 386 463 (619) 898
Increase (decrease) in accrued real estate taxes (90) 861 (930) 2,572
Increase (decrease) in accounts payable and (1,707) 4,052 4,089 (678)
accrued liabilities
Increase in tenant security deposits 73 258 1,412 32
----------- ------------ --------- -----------
Net cash provided by operating activities 28,936 36,522 11,098 11,995
----------- ------------ --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to operating real estate assets (29,018) (56,082) (183,554) (3,229)
Additions to construction in process, net of (36,740) (43,560) (3,217) -
payables
Additions to investment in ventures (95) (3,624) (60) -
Purchase of working capital assets, net - (553) - -
Purchase of management and leasing contracts - - (5,600) -
Payments of organization costs - (22) (82) -
Distributions received from ventures 6,835 462 36 89
Increase in note receivable from venture (9,723) - - -
Proceeds from sale of properties, net of selling 37,018 13 - -
costs of $782 in 1996
Proceeds from sale of commercial property services
business, net of selling costs paid of $947 17,289 - - -
----------- ------------ --------- -----------
Net cash used in investing activities (14,434) (103,366) (192,477) (3,140)
----------- ------------ --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock - - 266,206 -
Dividends (27,390) (27,271) (4,839) -
Contributions from minority interests - - 100 -
Distributions to minority interests (7,020) (7,063) (1,235) -
Capital contributions - - - 3,202
Capital distributions - - - (7,912)
Deemed distributions at formation - - (11,442) -
Payments of deferred financing costs (777) (1,139) (4,336) (115)
Proceeds from notes payable 81,100 174,080 129,248 8,300
Payments on notes payable (58,162) (72,512) (182,902) (9,507)
Payment of participation fees and prepayment - - (5,778) -
penalties
Distributions to repay off-balance sheet debt - - (2,600) -
Decrease (increase) in advances to affiliates (1,749) 1,419 (1,450) -
Proceeds from partner loans - - - 283
Payments on partner loans - - (1,463) (178)
----------- ------------ --------- -----------
Net cash provided by (used in) financing (13,998) 67,514 179,509 (5,927)
activities ----------- ------------ --------- -----------
Net increase (decrease) in cash and cash equivalents 504 670 (1,870) 2,928
Cash and cash equivalents, beginning of period 6,583 5,913 7,783 4,855
----------- ------------ --------- -----------
Cash and cash equivalents, end of period $ 7,087 $ 6,583 $ 5,913 $ 7,783
=========== ============ ========= ===========
Cash paid for interest $ 22,023 $ 16,556 $ 6,475 $ 13,305
=========== ============ ========= ===========
</TABLE>
See supplemental non-cash disclosures at Note 15.
See accompanying notes.
56
<PAGE>
PARAGON GROUP, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1996
(Dollars in thousands, except per share or share/unit data)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Paragon Group, Inc. (together with its subsidiaries, the "Company"),
qualifies as a real estate investment trust ("REIT") for Federal income tax
purposes and was incorporated in the state of Maryland on March 23, 1994 to
continue the operations of certain entities involved in management, leasing,
construction, development and ownership of real estate assets (collectively the
"Predecessors"). On July 27, 1994, the Company completed an initial public
offering (the "Initial Offering") of 13,000,000 shares of common stock
(including 1,000,000 shares issued upon exercise of the underwriters'
over-allotment option), a sale of 695,000 shares of common stock to the sponsors
(the "Private Placement") and a business combination with the Predecessors. The
offering price of all shares sold was $21.25 per share, resulting in net
proceeds (less the underwriters' discount and offering costs) of approximately
$266,206. Additionally, in August 1994, the Company issued 324,400 shares of
common stock for use in the Employee Restricted Stock Plan.
Upon completion of the Initial Offering, the Company, through its
wholly-owned subsidiary, Paragon Group LP Holdings, Inc., acquired a 79.1%
limited partner interest in Paragon Group L.P. (the "Operating Partnership").
The Operating Partnership succeeded to substantially all of the interests of the
Predecessors and certain others in certain properties. The Company, through its
wholly-owned subsidiary, Paragon Group GP Holdings, Inc., is the sole general
partner and the holder of a 1% interest in the Operating Partnership. In
consideration for the sale of certain properties and partnership interests,
certain owners of the Predecessors, including affiliates of the Company, elected
to receive limited partnership units ("Units") in the Operating Partnership. The
3,648,546 Units received by such owners at formation represented an approximate
19.9% equity interest in the Operating Partnership.
Proceeds from the Initial Offering, the Private Placement and new
borrowings totaled $408.5 million. The Company and the Operating Partnership
used these proceeds to (i) purchase certain properties and interests in certain
other properties, (ii) retire existing debt associated with certain properties,
(iii) pay expenses of the offering including underwriting discounts, accounting,
legal, and other formation costs, (iv) pay prepayment penalties, purchase lender
participation interests, buy down interest rates on certain mortgage loans and
pay loan costs on new indebtedness, (v) make distributions to certain owners of
the Predecessors to repay off-balance sheet debt associated with one of the
properties, (vi) purchase the property services businesses from affiliates,
(vii) pay real estate taxes and fund interest and tax escrows, and (viii)
establish working capital reserves.
During 1995, the Operating Partnership issued 116,136 Units to acquire
additional property and partnership interests from affiliates of the Company and
94,118 Units were redeemed for shares of common stock in the Company (with the
Company acquiring such Units in exchange for a like number of shares). On
January 3, 1996, the Operating Partnership issued 4,694 Units in partial
settlement of debt assumed on the purchase of the Overlook Apartments. At
December 31, 1996, the Company's ownership interest in the Operating Partnership
was 80.1%.
Subsequent to the business combination and prior to June 30, 1996, the
Company's management, leasing, construction and development businesses were
conducted through Paragon Group Property Services, Inc. ("PGPSI"). The Company,
through the Operating Partnership, owned 100% of the non-voting stock and 1% of
the voting stock of PGPSI (collectively representing 99% of the total equity).
As discussed in Note 4, effective June 30, 1996, the Company sold its interest
in PGPSI (after spin-off of the residential property services business) and
formed Paragon Residential Services, Inc. ("PRSI") to continue the Company's
residential property services business previously conducted through PGPSI. The
Company has a 95% economic interest in PRSI through ownership of 100% of the
nonvoting common stock and 1% of the voting stock. The remaining 99% of the
voting stock, which represents a 5% economic interest, is owned by a partnership
controlled by certain current and former executive officers of the Company.
57
<PAGE>
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation for Periods after the Initial Offering
For the periods after the Initial Offering, the accompanying consolidated
financial statements include the accounts of the Company, Paragon Group GP
Holdings, Inc., Paragon Group LP Holdings, Inc., Paragon Group L.P., PGPSI
(through the date of sale), Paragon Residential Services, Inc., 8 wholly-owned
partnerships and one limited liability company, and partnerships owning 13
properties where the Company, through the Operating Partnership, has a
controlling interest. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company, subsequent to the Initial Offering on July 27, 1994 and
through the third quarter of 1995, accounted for its investment in PGPSI under
the cost method consistent with prior regulatory direction. However, in
September 1995, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("EITF") reached a consensus in EITF 95-6 "Accounting by a Real
Estate Investment Trust for an investment in a Service Corporation" that the
cost method of accounting for such investments was not appropriate and, based
upon the specific facts and circumstances, either the equity method or
consolidation accounting should be used. While the Company only held 1% of the
voting stock of PGPSI, due to its 99% economic interest and other factors the
Company believes that the consolidation method should be used and provides for
the most meaningful financial statement presentation. Accordingly, in the fourth
quarter of 1995, the Company changed its method of accounting for PGPSI from the
cost method to consolidation of the financial position and results of operations
of PGPSI in the Company's consolidated financial statements. Furthermore, as
required by EITF 95-6, the 1994 financial statements (specifically, the period
from July 27, 1994 through December 31, 1994) have been restated to consolidate
PGPSI. The effect of the restatement was to decrease stockholders' equity at
December 31, 1994 by $20,456 and to decrease income before extraordinary items
and net income by $120. The effect on net income per share was nominal.
The business combination was structured to allow the partners and owners of
the entities in the Predecessors to receive either cash or Units in the
Operating Partnership. (Units can be exchanged, with certain restrictions, for
cash or common stock in the Company, at the Company's election, on a one-for-one
basis.) Purchase accounting was applied to the acquisition of all non-controlled
interests from persons who received either cash or Units in the Operating
Partnership as consideration as well as controlled interests from persons who
received cash. The acquisition of all other interests was accounted for as a
reorganization of entities under common control and, accordingly, was reflected
at historical cost in a manner similar to that of pooling of interests
accounting. Acquisitions subsequent to the Initial Offering have been accounted
for in a similar manner.
Basis of Presentation for Periods prior to the Initial Offering
For periods prior to the Initial Offering, the accompanying combined
financial statements of the Predecessors include the accounts of 45 partnerships
owning multifamily apartment communities, two partnerships owning retail
properties, one partnership owning an office property and various entities
engaged in property management, leasing, construction and development on a
contractual basis. Additionally included are the accounts of a partnership which
owns a 20% interest in an office property and is therefore accounted for using
the equity method. The Predecessors is not a legal entity but rather a
combination for financial reporting purposes. The accompanying combined
financial statements are presented on a combined basis because of common
ownership and management. All significant inter-entity accounts and transactions
have been eliminated in combination. The accompanying combined financial
statements prior to the business combination exclude or carve out certain assets
and liabilities that were not contributed to the Operating Partnership or
transferred to PGPSI.
58
<PAGE>
Real Estate Assets and Depreciation
Real estate assets are stated at cost. Ordinary repairs and maintenance are
expensed as incurred; major replacements and betterments are capitalized and
depreciated on a straight-line basis over the estimated useful lives of the
properties (buildings and related land improvements - 10 to 40 years; furniture,
fixtures, and equipment - 3 to 10 years; and tenant improvements - over the life
of the related tenant lease). With respect to the operating apartment
properties, the Company capitalizes floor and window coverings and depreciates
such items over 5 years; appliances and heating, ventilating and air
conditioning equipment are capitalized and depreciated over 10 years. With
respect to construction in process, the Company capitalizes all costs associated
with development activities, including interest and taxes, until each project is
complete. Capitalized interest for the years ended December 31, 1996, 1995 and
1994 aggregated to $1,687, $1,608 and $47, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long
Lived Assets" ("FAS 121"). FAS 121 establishes accounting standards for the
impairment of long lived assets and is effective for fiscal years beginning
after December 15, 1995, with early adoption encouraged. The Company adopted FAS
121 in 1995. Accordingly, the Company records impairment losses on long lived
assets used in operations when events and circumstances indicate that the assets
may be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those assets. No such
impairment losses with respect to real estate assets used in operations have
been recognized to date. Real estate assets to be disposed of are carried at the
lower of the carrying amount or estimated fair value less selling costs and are
classified as real estate held for sale in the accompanying consolidated balance
sheets.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash equivalents.
Restricted Cash
Restricted cash is comprised of tenant security deposits, real estate tax
and insurance escrows, required reserves for property replacements, and other
cash restricted pursuant to loan or other agreements.
Investment in Ventures
The Company's 20% interest in Gateway One Office Venture ("Gateway"), its
10% interest in Fair Grove Properties, L.L.C. ("Fair Grove") and its approximate
44% interest in Paradim, Inc. and it's subsidiaries (collectively, "Paradim")
are accounted for using the equity method of accounting.
Deferred Charges
Deferred charges include costs incurred in connection with the formation of
each entity which are generally amortized on a straight-line basis over five
years; deferred financing costs which are amortized on a straight-line basis
over the life of the related loan; prepaid leasing costs on the office and
retail properties which are amortized on a straight-line basis over the life of
the related tenant lease; and management and leasing contracts purchased at
formation which are amortized on a straight-line basis over five years.
59
<PAGE>
Revenue Recognition
Rental income attributable to residential leases is recognized when earned.
Minimum rental income related to retail and office leases is recognized on a
straight-line basis over the terms of the leases. Certain of the leases include
scheduled rent increases and provisions whereby the tenant is not responsible
for rental payments during specified initial occupancy periods. Rental income
recognized in excess of payments due is reflected as a deferred rent receivable
in the accompanying balance sheets. The retail and office leases also provide
for reimbursement of actual operating expenses in excess of base amounts.
Management fees are based on a percentage of the rental receipts of
properties managed and are recognized when earned. Leasing fees are based on the
gross value of leases signed and are recognized as earned under the terms of the
various contracts. Construction and development fees are generally based on a
fixed percentage of costs and are recognized as the project costs are incurred.
Stock Compensation
In October 1995, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("FAS 123") which establishes financial accounting and disclosure
standards for stock based employee compensation plans and is effective for
fiscal years beginning after December 15, 1995. FAS 123 provides an alternative
of adopting the new accounting standards of the statement or remaining under the
existing requirements of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"). The Company has decided to continue
accounting for its stock compensation arrangements under the provisions of APB
25.
Per Share Data and Dividends
Earnings per share with respect to the Company for the periods following
the Initial Offering are computed based upon the weighted average number of
shares outstanding during the respective period. Historical per share data with
respect to the periods prior to the Initial Offering is not relevant since the
Predecessors' financial statements are a presentation of the combined operations
of partnerships and S corporations.
For the years ended December 31, 1996 and 1995 and the period from July 27,
1994 through December 31, 1994, the Company paid dividends of $27,390, $27,271
and $4,839, respectively. For income tax purposes, dividends paid to
stockholders consist of ordinary income, short-term capital gains, long-term
capital gains or return of capital. The following is a summary of the income tax
treatment of the dividends paid by the Company:
<TABLE>
<CAPTION>
Period
Year Ended December 31, July 27 to
---------------------------------------- December 31,
1996 1995 1994
-------------------- ------------------- ------------------
<S> <C> <C> <C>
Ordinary income....................... 53.24% 47.41% -
Short-term capital gain............... 0.89% - -
Long-term capital gain................ 16.51% - -
Return of capital..................... 29.36% 52.59% 100.00%
------ ------ -------
Total 100.00% 100.00% 100.00%
======= ======= =======
</TABLE>
60
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations
At December 31, 1996 and 1995, there were cash and restricted cash balances
with banks in excess of the FDIC insured limits by $5,188, and $3,376,
respectively. The Company has not experienced any losses in its cash accounts,
and believes it is not exposed to any significant credit risk on cash and cash
equivalents.
As of December 31, 1996, certain apartment units are leased to tenants that
have common employers and may be dependent on one related source of income.
Management believes that any possible loss resulting from the above-mentioned
concentrations would not be material as the apartment units could be re-leased
if the current tenants fail to perform under their obligations.
3. REAL ESTATE INVESTMENTS
Real Estate
As of December 31, 1996, the Company, through the Operating Partnership,
controls, either through direct ownership or in some instances through an
investment in a partnership or a limited liability company, 58 multifamily
residential properties in Florida, Kentucky, Missouri, North Carolina, South
Carolina and Texas. The Company, through the Operating Partnership, also owns an
interest in Paradim which owns 3 multifamily residential properties that were
previously wholly-owned by the Company, and has a minority interest in Gateway
and Fair Grove which own three office properties; one in Missouri and two in
suburban Washington, D.C. In addition, the Company has entered into a
non-recourse ground lease, which commenced on October 24, 1996, related to
approximately 27.47 acres in Louisville, Kentucky for potential development of a
multifamily residential community in 1997.
At December 31, 1996, the 58 multifamily residential properties controlled
by the Company include 55 operating properties containing 15,026 apartment
units, two properties under development for which 520 units are planned and a
12.6 acre tract of land for which 320 units are planned which the Company
acquired in December 1996 for future development. Two of the operating
properties containing 548 units are in the initial lease-up phase. The three
multifamily residential properties owned by Paradim include two operating
properties containing 928 apartment units and one property under development for
which 336 units are planned.
61
<PAGE>
The following is a summary of the Company's real estate investments at December
31, 1996:
<TABLE>
<CAPTION>
Number of Properties Number of Apartment Units
---------------------------------- ----------------------------------
Under Under
Location Operating Development Total Operating Development Total
- -------- --------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Multifamily Properties
Florida
Tampa/St. Petersburg............. 13 - 13 4,013 - 4,013
Orlando (1)...................... 7 1 8 1,802 320 2,122
Winterhaven...................... 1 - 1 192 - 192
--- --- --- ------ -------- ------
21 1 22 6,007 320 6,327
-- -- -- ----- ----- -----
Kentucky
Louisville....................... 5 - 5 1,142 - 1,142
--- --- --- ----- -------- -----
Missouri
St. Louis........................ 12 - 12 3,142 - 3,142
Kansas City...................... 1 1 2 308 288 596
-- --- --- ------ ------ ------
13 1 14 3,450 288 3,738
-- --- -- ----- ------ -----
North Carolina
Charlotte (2).................... 6 1 7 1,647 232 1,879
Greensboro (3)................... 2 1 3 520 336 856
--- --- --- ------ ------ ------
8 2 10 2,167 568 2,735
--- --- -- ----- ------ -----
South Carolina
Charleston....................... 1 - 1 352 - 352
--- --- --- ------ -------- ------
Texas
Dallas (4)....................... 9 - 9 2,836 - 2,836
--- --- --- ------- ------ -------
Total Residential............ 57 4 61 15,954 1,176 17,130
== === == ====== ===== ======
Number of Properties Number of Square Feet
---------------------------------- ----------------------------------
Under Under
Operating Development Total Operating Development Total
--------- ----------- ----- --------- ----------- -----
Office Properties
Missouri
St. Louis (5).................... 1 - 1 401,625 - 401,625
Washington, D.C. (6)............. 2 - 2 322,845 - 322,845
--- --- --- ------- -------- -------
Total Office................. 3 - 3 724,470 - 724,470
=== === === ======= ======== =======
</TABLE>
(1) Operating information includes a 272 unit project that is in the initial
lease-up phase. Development information includes 320 units related to land
purchased in December 1996 for future development.
(2) Operating information includes a 220 unit project owned by Paradim in which
the Company holds an approximate 44% interest.
(3) Development information includes a 336 unit project owned by Paradim in
which the Company holds an approximate 44% interest.
(4) Operating information includes a 276 unit project that is in the initial
lease-up phase and a 708 unit project owned by Paradim in which the Company
holds an approximate 44% interest.
(5) Represents an office building owned by Gateway in which the Company holds a
20% interest.
(6) Represents two office buildings owned by Fair Grove in which the Company
holds a 10% interest.
62
<PAGE>
Development
On January 29, 1996, the Company, through PGPSI, acquired a 5.15 acre tract
of land in suburban Dallas, Texas and commenced construction on the 108,600
square feet Post and Paddock office/warehouse development. Construction was
completed in November 1996 and the property was sold on December 4, 1996 for
$3,700.
The Company has entered into a non-recourse ground lease, which commenced
on October 24, 1996, related to approximately 27.47 acres in Louisville,
Kentucky for potential development in 1997. The ground lease allows the Company
to develop, at its' discretion, a one or two phase multifamily residential
community on the leased acreage. The lease has a term of 40 years and under
certain conditions, the Company has the option to acquire the land. Monthly
lease payments which are estimated to range from $7 to $14 have been deferred
until July 1, 1997.
On December 13, 1996, the Company acquired a 12.6 acre tract of land in
Orlando, Florida for $2,007. A 320 unit multifamily residential community is
planned for the site which, when developed, will be the second phase of the
completed 272 unit Renaissance Pointe apartments.
During 1996, the Company completed construction of three multifamily
residential properties containing a total of 824 apartment units. At December
31, 1996, an additional 856 apartment units were under construction which are
scheduled for completion in the first and second quarters of 1997, including 336
units owned by Paradim. The three multifamily residential properties completed
in 1996 include the 276 unit Heron Pointe apartments in Tampa, Florida completed
in February 1996, the 272 unit Renaissance Pointe apartments in Orlando, Florida
completed in July 1996 and the 276 unit Stone Gate apartments completed in
August 1996. At December 31, 1996, the Renaissance Pointe apartments and the
Stone Gate apartments were in the initial lease-up phase.
Acquisitions
On November 8, 1996, the Company purchased two North Carolina multifamily
residential communities (the 240 unit Habersham Pointe apartments in Charlotte,
North Carolina and the 216 unit River Oaks apartments in Greensboro, North
Carolina) from a single seller for a total purchase price of $20,900, including
the assumption of mortgage indebtedness in the amount of $6,357 collateralized
by the River Oaks apartments.
Dispositions
As a result of the sale of its commercial property services business
discussed in Note 4, the Company disposed of its three wholly-owned operating
commercial properties in the fourth quarter of 1996. The Company also sold the
Turtle Creek I and the Turtle Creek II apartments in Asheville, North Carolina
in the fourth quarter of 1996. The 1996 property sales are summarized in the
following table:
63
<PAGE>
<TABLE>
<CAPTION>
SF/
Date Sold Property Location # of Units Sales Price
--------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial Properties
October 1, 1996 Southwood Mall Bradenton, FL 113,949 $ 3,170
October 31, 1996 Westgate Centre St. Louis, MO 58,935 7,130
December 19, 1996 The Paragon St. Louis, MO 102,486 10,000
Multifamily Properties
December 12, 1996 Turtle Creek I Asheville, NC 208 7,075
December 12, 1996 Turtle Creek II Asheville, NC 176 6,725
--------
Total $ 34,100
========
</TABLE>
In accordance with FAS 121, properties held for sale are to be carried at
the lower of the carrying amount or estimated fair value less selling costs.
Accordingly, at June 30, 1996, the Company recognized an impairment adjustment
of $1,143, all of which related to Southwood Mall, which is included in gain
(loss) on sale of properties in the accompanying statements of operations.
In addition, in an effort to maximize the long term growth potential of the
portfolio, management intends to regularly evaluate the possible disposition of
targeted multifamily residential assets where a redeployment of capital can
increase geographic efficiencies or improve operating results. At December 31,
1996, three multifamily properties (the 232 unit Brookfield apartments in
Dallas, Texas; the 352 unit Westchase Apartments in Charleston, South Carolina;
and the 251 unit San Miguel Apartments in St. Louis, Missouri) are classified as
held for sale. The Company expects to sell these properties at prices in excess
of carrying amounts.
Joint Venture
On April 1, 1996, the Company entered into a joint venture (Paradim) with
Careit Investments Limited Partnership ("Careit"), an affiliate of Caisse de
depot et placement du Quebec, to acquire, develop and operate selected
multifamily residential properties in markets in which the Company operates. The
Company and Careit each have committed to invest up to $22,500, primarily
through a newly formed Maryland corporation, Paradim, Inc., which intends to
qualify as a REIT for Federal income tax purposes. Each investment by Paradim,
Inc. is to be made through separate limited liability companies or limited
partnerships in which Paradim, Inc. will own an 89% interest as the managing
member or general partner, the Company will own a 1% interest and a number of
private investors will own the remaining interests. In connection with Paradim,
Inc.'s initial capitalization, the Company effectively contributed its interest
in three properties (Overlook, formerly known as The Phoenix, a 220-unit
multifamily residential complex in Charlotte, North Carolina; Highpoint, a
708-unit multifamily residential complex in Dallas, Texas; and Brassfield Park,
a 336-unit multifamily residential complex under development in Greensboro,
North Carolina) and Careit contributed $7,926 in cash. At formation, the Company
also received a distribution of approximately $6,618, which was used to repay
existing indebtedness under the line of credit. The Company recorded the initial
contribution of these properties at their net carrying value on April 1, 1996,
which was approximately $14,726 (net book value of $41,842 subject to existing
indebtedness of $27,116). The Company's investment, which includes a direct 1%
interest in two limited liability companies and one limited partnership and an
approximate 43% indirect interest in such entities through its ownership in
Paradim, Inc. (collectively, approximately 44%), is being accounted for under
the equity method. As of December 31, 1996, the Company's aggregate investment
in Paradim was approximately $7,954.
64
<PAGE>
4. PROPERTY SERVICES
Subsequent to the business combination on July 27, 1994 and through June
30, 1996, the Company's management, leasing, construction and development
businesses were conducted through PGPSI. PGPSI provided residential and
commercial property services to the Company, affiliates of the Company and
unrelated third parties. PGPSI was originally capitalized with $3,000 of cash
and the issuance of a $17,000 note.
During 1995, PGPSI was realigned from a regional multi-product organization
to two national product groups - one for residential operations and one for
commercial operations. As a result of the realignment, PGPSI incurred
non-recurring charges totaling $748 related to employee severance and other
costs, including $195 of non-cash charges associated with the accelerated
vesting of outstanding restricted stock made available to certain employees (See
Note 9). At December 31, 1995, PGPSI managed over 26.4 million square feet of
commercial space and 22,085 apartment units.
In May 1996, the Company executed an agreement to sell its commercial
property services business to an affiliate of Insignia Financial Group, Inc.
("Insignia"). In order to accomplish the sale, PGPSI's residential property
services business was transferred to PRSI. Immediately following the transfer,
as of June 30, 1996, Insignia acquired all of the outstanding stock of PGPSI and
a $12,432 note receivable from PGPSI held by the Company. The acquisition price
included initial cash consideration of $18,200 and two potential earn-out
payments totaling up to $4,000 which are contingent upon PGPSI revenue meeting
certain specified targets over the next three years. The earn-out payments may
be reduced by as much as $2,900 in the event certain management contracts are
terminated within a two-year period after closing. In addition, the initial
acquisition price may be reduced by up to $1,100 in the event the employment of
certain employees of PGPSI is terminated within one year after closing or
certain existing management contracts are terminated within a five-year period
after closing.
In connection with the sale, the Company received warrants to purchase up
to 50,000 shares of Insignia Financial Group, Inc. stock at a price of $28.96
per share and Insignia received warrants to purchase 50,000 shares of the
Company's stock at $18.25 per share and may receive warrants to purchase an
additional 238,000 shares at $18.25 per share, depending on the termination of
certain management contracts during the two-year period after closing.
As a result of the sale, the Company recognized a gain of $11,930 which
does not consider potential earn-out payments, the value of warrants issued or
received, or $1,100 of the initial acquisition price which is contingent on
future events. The contingent portion of the initial acquisition price and the
earn-out payments, if any, will be recognized when earned. The gain on sale was
determined in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations", whereby the commercial property service
business net loss of $843 from the date (May 7, 1996) management committed to
the disposal of the commercial property services business (the "Measurement
Date") through the date of sale (June 30, 1996) was treated as a reduction of
the gain on sale. The post-Measurement Date net loss is summarized as follows:
65
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Revenue
Property management services - third party..................... $ 724
Property management services -affiliates....................... 471
Leasing and other property services - third party.............. 1,318
Leasing and other property services - affiliates............... 376
Other.......................................................... 430
---------
3,319
---------
Expenses
Property management............................................ 3,348
General and administrative..................................... 570
Interest....................................................... 1
Depreciation and amortization.................................. 243
---------
4,162
---------
Net Loss............................................................ $ (843)
==========
</TABLE>
Included in property management expenses is $767 of amortization primarily
related to the June 30, 1996 accelerated vesting of employee restricted stock
granted to certain employees of the commercial property services business.
The closing of the sale occurred on July 2, 1996, at which time the Company
received net proceeds from the sale of $18,072 (net of prorations of $165).
Proceeds from the sale were used to reduce borrowings outstanding under the line
of credit.
PRSI will continue the Company's residential property services business and
will provide all residential property service functions previously provided by
PGPSI, including property management, leasing, development, acquisition and
disposition for its owned residential communities as well as for affiliated and
third party residential owners. As of December 31, 1996, the Company, through
PRSI, managed 77 multifamily residential communities located across the United
States, totaling approximately 21,696 apartment units (of which 57 communities
and 15,954 apartment units were for the Company, including two communities and
928 apartment units for Paradim).
5. DEFERRED CHARGES
Deferred charges consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Deferred financing costs.................... $ 7,229 $ 8,378
Organization costs.......................... 249 249
Prepaid leasing costs....................... - 421
Management and leasing contracts............ 1,356 4,044
--------- ------------
8,834 13,092
Less: Accumulated amortization.............. (3,060) (3,838)
--------- ------------
$ 5,774 $ 9,254
========= ============
</TABLE>
Amortization of organization costs and prepaid leasing costs was $94, $148
and $110 for the years ended December 31, 1996, 1995 and 1994, respectively.
Amortization of deferred financing costs, which is included in interest
expense in the accompanying statements of operations, was $1,473, $1,559 and
$1,074 for the years ended December 31, 1996, 1995 and 1994, respectively.
During 1996, an additional $204 of construction period amortization of deferred
financing costs related to multifamily residential developments under
construction was capitalized.
66
<PAGE>
Amortization of management and leasing contracts purchased at formation was
$797, $2,231 and $482 for the years ended December 31, 1996 and 1995 and the
period from July 27, 1994 through December 31, 1994, respectively. Management
has estimated the useful life of the contracts initially acquired to be five
years, based upon historical experience with other contracts with similar terms.
During 1996 and 1995, certain of the contracts were terminated, and as a result,
the Company recognized impairment adjustments of $258 and $1,111, respectively,
which are included in amortization expense in the accompanying statements of
operations. The impairment adjustments, determined on a prorata basis, were
based upon the percentage of contracts terminated during 1996 and 1995. The
contracts terminated in 1996 and 1995 were allocated gross values of $359 and
$1,556 and related accumulated amortization of $101 and $445, respectively.
Management intends to periodically evaluate the carrying amount of the
management and leasing contracts in the future and, if necessary, record
additional impairment adjustments.
In 1996, the Company wrote-off $2,329 of management and leasing contracts
(and $941 of related accumulated amortization) which related to the commercial
property services business sold in 1996 which is included in gain on sale of
commercial property services business in the accompanying statements of
operations. In addition, $462 of prepaid leasing costs (and $185 of related
accumulated amortization) which related to the commercial properties sold in
1996 was written-off in 1996 and is included in the gain (loss) on sale of
properties in the accompanying statements of operations. In 1996 and 1995, the
Company also wrote-off certain fully amortized deferred charges including $1,841
of deferred financing costs in 1996 and $206 of organization costs, $86 of
prepaid leasing costs and $730 of deferred financing costs in 1995. As a result
of loan repayments in 1994, $970 of deferred financing costs were written-off
and are reflected as an extraordinary loss in the accompanying statements of
operations.
6. INCOME TAXES
Periods after the Initial Offering
The Company has elected to be taxed as a real estate investment trust under
the Internal Revenue Code of 1986, as amended, commencing with its taxable year
ended December 31, 1994. As a result, the Company will generally not be subject
to Federal income tax on its taxable income to the extent it distributes
annually at least 95% of its taxable income to its shareholders and complies
with certain other requirements. Accordingly, no provision for Federal income
taxes has been made for the Company and certain of its subsidiaries in the
accompanying consolidated financial statements. State, local and other taxes are
not significant for the Company or its subsidiaries.
As of December 31, 1996 and 1995, the net assets reported in the
consolidated financial statements for the Company exceed the tax basis in net
assets by approximately $39,000 and $44,000, respectively.
PGPSI and PRSI file separate tax returns and are subject to income tax.
Accordingly, the provision for income taxes for PGPSI through the date of sale
on June 30, 1996 and for PRSI for the period from July 1, 1996 through December
31, 1996 has been calculated in accordance with the Statement of Financial
Accounting Standards 109, "Accounting for Income Taxes" ("FAS 109"). Under the
provisions of FAS 109, deferred tax assets and liabilities are provided for
certain temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for tax
purposes, computed based on provisions of the enacted tax law. Significant
components of deferred tax assets and liabilities for PGPSI as of December 31,
1995 and PRSI as of December 31, 1996 are as follows:
67
<PAGE>
<TABLE>
<CAPTION>
PRSI PGPSI
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Intangible assets................................... $ 1,266 $ 4,189
Net operating loss.................................. 819 1,284
Employee restricted stock compensation.............. 388 561
Other ............................................ 225 133
----------- ------------
2,698 6,167
Valuation allowance................................. (2,605) (5,304)
----------- ------------
$ 93 $ 863
=========== ============
Deferred tax liabilities:
Depreciable assets.................................. $ 87 $ 858
Other ............................................ 6 5
----------- ------------
$ 93 $ 863
=========== ============
</TABLE>
Deferred tax assets relate primarily to (i) the difference in the carrying
amount of intangible assets recognized at formation of each entity for financial
reporting purposes and the amount recognized for tax purposes; (ii) the
amortization of employee restricted stock compensation for financial reporting
purposes; and (iii) tax net operating losses, which for PRSI expires in 2011.
Deferred tax liabilities relate primarily to the difference in the carrying
amount of certain depreciable assets for financial reporting purposes which are
deducted for tax purposes. A valuation allowance has been recognized to offset
the net deferred tax assets, due to the uncertainty of the ultimate realization
of those deferred tax assets in future years.
Periods prior to the Initial Offering
The entities included in the combined financial statements of the
Predecessors were either limited partnerships or S corporations and were not
subject to Federal and state income taxes. Accordingly, no recognition has been
given to income taxes in the combined financial statements of the Predecessors
since the income or loss of the entities are to be included in the tax returns
of the individual owners.
7. NOTES PAYABLE
Debt Restructuring
During 1994, net proceeds from the Initial Offering, the Private Placement
and new borrowings were utilized to retire 28 loans (26 of which were retired
prior to maturity) with outstanding balances of $174,449, including seven loans
which were repaid at a discount. In order to retire certain loans, the Company
was required to pay lender participation interests of $2,577 and prepayment
penalties of $3,201.
In connection with the Initial Offering, the Company paid $680 and entered
into an interest rate swap agreement in the notional amount of $6,760. The
agreement, which expires on January 27, 2000, effectively reduces the fixed
interest rate on one mortgage note from 9.5% to 7.5%. Additionally, the Company
reduced the outstanding principal balances of seven loans by $4,229 and utilized
$755 to reduce the interest rates on four loans.
During 1994, debt restructuring resulted in an extraordinary gain from the
forgiveness of debt (before minority interests) of $10,675 and an extraordinary
loss from early extinguishment of debt (before minority interests) of $6,748.
68
<PAGE>
Mortgages Payable
Concurrent with the Initial Offering, the Company obtained new debt in the
amount of $108,540 which is collateralized by certain properties. The new debt
is structured in two pools; Pool A, in the amount of $61,710, requires monthly
payments of interest only at 8.36% per annum and matures in July 2001; and Pool
B, in the amount of $46,830, requires monthly payments of interest only at 8.52%
per annum and matures in July 1999.
Effective October 1, 1995, the Company assumed debt in the amount of $9,856
associated with the acquisition of partnership interests related to the 372 unit
Spanish Trace apartments in St. Louis, Missouri. The loan requires monthly
payments of principal and interest, bears interest at 7.35% per annum, matures
in September 2028 and is insured by the United States Department of Housing and
Urban Development ("HUD"). There are no restrictions on the use or operation of
this property.
In December 1995, the Company obtained new debt in the amount of $69,000
collateralized by various properties. The new debt requires monthly interest
only payments at 7.29% per annum for three years and monthly principal and
interest payments for years four through ten based on a 25 year amortization
schedule and matures December 2005. Net proceeds of the new debt were used to
repay existing borrowings under the Company's line of credit.
Additionally, in December 1995, in conjunction with the purchase of the 220
unit Overlook apartments in Charlotte, North Carolina, the Company obtained new
debt in the amount of $5,400 which is collateralized by the property. The loan
requires monthly payments and bears interest at 7.5% fixed throughout the term
with interest only payments for the first two years and principal and interest
payments for the last 5 years based on a 25 year amortization schedule. The note
matures in January 2003. On April 1, 1996, the loan was assumed by Paradim.
Also in December 1995, concurrent with the acquisition of two properties,
the Company borrowed $20,250 and $7,930. The notes required monthly payments of
interest only at interest rates of 7.66% and 7.63% respectively. The notes were
collateralized by various properties and had maturity dates of June and March
1996, respectively. The $7,930 loan was repaid at maturity on March 28, 1996 and
on April 1, 1996, the $20,250 loan was assumed by Paradim.
On November 6, 1996, the Company obtained new debt in the amount of $7,400
collateralized by the 278 unit Schooner Bay apartments in Tampa, Florida. The
new debt requires monthly payments of principal and interest at 7.7% per annum
for seven years and matures in November 2003. Net proceeds of the new debt were
used to fund a portion of the purchase of the 240 unit Habersham Pointe
apartments in Charlotte, North Carolina and the 216 unit River Oaks apartments
in Greensboro, North Carolina on November 8, 1996.
On November 8, 1996, in conjunction with the purchase of the 216 unit River
Oaks apartments in Greensboro, North Carolina, the Company assumed mortgage
indebtedness in the amount of $6,357 collateralized by the property. The loan
requires monthly payments of principal and interest at 8.44% per annum and
matures on October 15, 1999.
Mortgages payable consist of 30 loans ($254,592 principal amount) at
December 31, 1996 and 33 loans ($279,280 principal amount) at December 31, 1995,
each of which is collateralized by properties included in real estate assets. At
December 31, 1996, 22 of the loans ($219,134 principal amount) carry a fixed
interest rate and provide for the monthly payment of interest only, and 8 loans
($35,458 principal amount) provide for monthly payments of principal and
interest at a fixed rate. Interest rates on the fixed rate mortgages range from
5.75% to 8.52% at December 31, 1996 with a weighted average interest rate of
7.75%. At December 31, 1995, 27 of the loans carry a fixed interest rate and
provide for the monthly payment of interest only, and 6 loans provide for
monthly payments of principal and interest at a fixed rate. Interest rates on
the fixed rate mortgages range from 5.75% to 10% at December 31, 1995 with a
weighted average interest rate of 7.71%. During 1996, $12,762 of principal was
repaid on mortgage loans.
69
<PAGE>
At December 31, 1996 and 1995, two of the mortgage loans collateralize tax
exempt housing revenue bonds and two related mortgage loans collateralize
taxable housing revenue bonds. The Predecessors obtained these mortgages during
1993. As additional security for these loans, the Predecessors entered into
reimbursement agreements, paid premiums of $1,587, and agreed to pay an annual
servicing fee of .1% of the original loan balances. The underlying collateral
for the bonds is subject to land use restrictions which provide, among other
things, that at least 20% of the multifamily housing units be leased to low or
moderate income families as established by HUD. On July 27, 1994, the Operating
Partnership assumed the aforementioned mortgage loans and succeeded to the
agreements and restrictions thereto.
At December 31, 1996, the Company owned one other multifamily property
which was previously financed with the proceeds of multifamily revenue bonds and
remains subject to similar HUD restrictions which expire under certain
conditions in 1997.
Line of Credit
Concurrent with the Initial Offering, the Company obtained a line of credit
facility in the amount of $75,000. The commitment was subsequently increased to
$115,000 and in December 1995 was reduced by the Company to $90,000 and under
certain conditions could be increased to $150,000. On July 27, 1996, the Company
executed a renewal and modification of the line of credit facility. Under the
terms of the new agreement, the Company may borrow up to $85,000 including up to
$50,000 related to development activities. The line of credit matures in July
1998, but may be extended through July 1999 at the Company's option. Borrowings
under the line of credit are collateralized by specified operating properties
and properties under development. The interest rate on the amounts outstanding
under the line are based on, at the Company's election, either (i) the greater
of the prime rate or the Federal Funds rate plus .50% or, (ii) the London
Interbank Offer Rate ("LIBOR") plus 2.0% - 2.25%, depending on certain financial
ratios concerning leverage and debt service coverage. The line of credit
reprices, at the Company's discretion, in defined intervals ranging from 1 to
360 days. As the line of credit is drawn or reprices, the Company enters into a
contract and selects the term and the interest rate option it desires. If the
Company selects a contract based upon LIBOR plus 2.0% - 2.25%, then the interest
rate becomes fixed for the term selected. Otherwise, the contract rate varies
based upon the appropriate index.
At December 31, 1996, $42,700 is outstanding under the line of credit in
two separate contracts. One contract in the amount of $30,700 is priced at 7.63%
and the second contract in the amount of $12,000 is priced at 7.69%. At December
31, 1996 the prime rate, Federal Funds rate and three month LIBOR were 8.25%,
5.02%, and 5.56%, respectively. During 1996, $73,700 of new borrowings were
drawn under the line of credit and $45,500 of principal was repaid.
The scheduled principal payments related to all debt outstanding as of
December 31, 1996 are as follows:
Year Amount
-----------------------------
1997 .......... $ 623
1998 .......... 47,081
1999 .......... 68,380
2000 .......... 8,068
2001 .......... 63,540
Thereafter......... 109,600
----------
Total .......... $ 297,292
============
70
<PAGE>
The maturities reflected above for 1998 include $42,700 of amounts outstanding
under the line of credit which reprice in 1997.
Pledged Assets
The aggregate net book value at December 31, 1996 and 1995 of property
pledged as collateral for indebtedness amounted to approximately $470,126 and
$441,564, respectively.
8. MINORITY INTERESTS
In connection with the formation of the Company and the Operating
Partnership, certain persons received either common stock of the Company or
Units in the Operating Partnership. A Unit in the Operating Partnership and a
share of common stock of the Company have the same economic characteristics in
as much as they effectively share equally in the net income or loss of the
Operating Partnership and any distributions from the Operating Partnership.
Beginning one year after the closing of the Initial Offering, which occurred on
July 27, 1994, each Unit may be redeemed by holders of the Units for either one
share of common stock or, at the option of the Company, cash equal to the fair
market value of a share at the time of the redemption. When a unitholder redeems
a Unit for a share, minority interests will be reduced and the Company's
investment in the Operating Partnership will be increased. During 1995, 94,118
Units were exchanged for shares of common stock of the Company. The number of
Units held by minority interest unitholders were 3,675,258 and 3,670,564 at
December 31, 1996 and 1995, respectively. At December 31, 1996, the unitholders'
minority interest ownership percentage in the Operating Partnership was 19.9%.
Minority interests in the accompanying consolidated financial statements
relate to holders of Units in the Operating Partnership, the minority interest
in PRSI and the ownership of certain partnership interests in various properties
where the Operating Partnership holds a controlling interest. The Operating
Partnership acquired its controlling partnership interests by contributing cash
for, in most instances, an agreed upon cumulative preferred return in the
existing property partnerships.
9. STOCKHOLDERS' EQUITY
Capital Stock
The Company is authorized to issue up to 100,000,000 shares of $.01 par
value common stock. On July 27, 1994, the Company completed the Initial Offering
of 13,000,000 shares of common stock and the Private Placement of 695,000 shares
of common stock at the offering price for all shares of $21.25. In addition, on
July 27, 1994, the Company issued 677,047 shares of common stock and paid $2,600
in cash in exchange for the $17,000 note receivable from PGPSI which was issued
as part of the initial capitalization of PGPSI.
Effective July 27, 1994, the Company also issued 324,400 shares of common
stock pursuant to the Employee Restricted Stock Plan discussed below. The value
of the employee restricted stock ($6,893, representing 324,400 shares valued at
the Initial Offering price of $21.25 per share) is being amortized and
recognized as compensation expense ratably over a three to five year vesting
period. Amortization of employee restricted stock compensation for 1996, 1995
and 1994 was $2,135, $1,333 and $577, respectively, and is included in property
management expense in the accompanying consolidated statements of operations,
except for $767 in 1996 of post-Measurement Date amortization primarily related
to the June 30, 1996 accelerated vesting of employee restricted stock granted to
certain employees of the commercial property services business which is included
in gain on sale of commercial property services business. The unamortized
portion of the employee restricted stock has been classified for financial
reporting purposes as a reduction to stockholders' equity. At December 31, 1996
and 1995, 84,486 and 42,266 shares, respectively, of employee restricted stock
were held by the Company and had not been granted to employees. Accordingly,
such shares are classified as treasury shares for financial reporting purposes
in the accompanying consolidated balance sheets.
71
<PAGE>
During 1996 and 1995, the Company paid quarterly dividends, with respect to
the fourth quarter of 1994 through the third quarter of 1996, of $.465 per share
of common stock. Concurrent with the quarterly dividend payments, the Operating
Partnership distributed $.465 per Unit.
Stock Plans
In connection with the Initial Offering, the Company adopted an Employee
Restricted Stock Plan (the "Initial Plan") which was designed to retain and
motivate officers and other employees. In August 1994, a total of 324,400 shares
of the Company's common stock were issued for use in the Initial Plan.
Initially, 288,800 shares of restricted stock issued under the Initial Plan were
granted to 81 employees at no cost to the employees. The restricted shares
pursuant to the Initial Plan were treated as outstanding shares in connection
with the Initial Offering. As such, the issuance of the restricted stock had no
dilutive effect on the Company's stockholders. Generally, the Initial Plan calls
for vesting in three annual installments beginning on the third anniversary date
and ending on the fifth anniversary date. During the vesting period the
restricted shares are non-transferable but entitle the participants to all other
rights of a stockholder, including the right to vote and receive dividends.
During 1995, 10,000 shares originally issued under the Initial Plan were granted
to certain employees. Additionally, management redeemed 16,666 shares and
eliminated the vesting requirements for 10,134 shares granted to employees
terminated in connection with the realignment of PGPSI. In 1996, 9,525
additional shares were granted to employees and 51,745 shares were redeemed. The
vesting was accelerated and eliminated on 129,380 shares in 1996 including
90,643 shares on which the vesting was accelerated in connection with the sale
of the commercial property services business on June 30, 1996. The related
amortization of compensation expense in 1996 and 1995 was adjusted accordingly.
At December 31, 1996, 100,400 shares of restricted stock issued to 18 employees
under the Initial Plan were outstanding.
The Company has established the 1994 Employee Stock Option, Unit Option,
Restricted Stock, Restricted Unit and Restricted Stock Right Plan, as amended
and restated, (the "Employee Plan") for the purpose of attracting, retaining,
and motivating officers and other employees. The Employee Plan authorizes the
issuance of up to 1,460,000 shares of common stock and/or Units pursuant to
options or restricted shares or Units granted or issued under the plan. The
Employee Plan limits the number of shares of restricted stock, stock rights
and/or Units, which are eligible for grant at no cost, to 485,000 shares/Units.
Options granted under the Employee Plan have a ten year term and will have such
pricing, vesting and other terms as the committee approving the grant will
determine. Effective August 23, 1994, options to purchase 80,000 shares of
common stock were granted to eight officers under the Employee Plan. These
options are at a price of $21.25 per share and are fully vested. Effective April
4, 1995, options to purchase an additional 283,000 shares were granted to 64
officers and employees under the Employee plan. These options are at a price of
$17.25 and vest over periods ranging from three to five years. Effective August
22, 1995, options to purchase an additional 4,000 shares were granted to four
officers and employees under the Employee Plan at a price of $17.50 under the
same vesting provisions. During 1996, no additional options were granted. On
September 11, 1996, restricted stock rights to receive 79,500 shares of
restricted stock upon the occurrence of certain triggering events including the
merger, consolidation or reorganization of the Company were issued to five
officers of the Company. The proposed merger with Camden Property Trust
discussed in Note 17 will constitute a triggering event. At December 31, 1996,
no shares of restricted stock and/or Units had been granted under the Employee
Plan.
72
<PAGE>
The Company has adopted a Non-Employee Director Stock Option Plan (the
"Director Plan"). Under the Director Plan, each non-employee director, in
connection with the Initial Offering, was granted options to purchase 5,000
shares of common stock. The Director Plan also provides for automatic annual
grants of 2,500 shares of common stock following the annual election of
directors. The exercise price of all options granted under the Director Plan is
the fair market value of the common stock on the date of grant. Each option
granted has a term of ten years and vests six months after the date of grant. At
December 31, 1996, options to purchase 60,000 shares of common stock had been
granted under the Director Plan.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 6.22% and 5.39%; a dividend
yield of approximately 10.5%; volatility factor of the expected market price of
the Company's common stock of .171; and a weighted-average expected life of the
options of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income for 1996 and 1995 was $21,201 and $10,034, respectively,
with no impact on reported earnings per share. Because FAS 123 is applicable
only to options granted subsequent to December 31, 1994, its pro forma effect
will not be fully reflected until 1997.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- ------------------------
Options Weighted-Average Options Weighted-Average Options Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
----- -------------- ----- -------------- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year.. 396 $ 18.38 110 $ 21.25 - $ -
Granted........................ 15 17.75 302 17.27 110 21.25
Exercised...................... - - - - - -
Forfeited...................... (134) 17.26 (16) 17.25 - -
------- -------- ------- ------- ------ ------
Outstanding-end of year........ 277 $ 18.89 396 $ 18.38 110 $21.25
======= ======== ======= ======= ====== ======
Exercisable at end of year..... 140 $ 20.49 125 $ 20.82 110 $21.25
Weighted-average fair value of
options granted during the year $ .67 $ .51
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$17.25 to $21.25. The weighted-average remaining contractual life of those
options is 8.06 years.
73
<PAGE>
10. EARNINGS PER SHARE
Per share amounts are computed based on the weighted average number of
shares outstanding during the period (14,791,165 in 1996, 14,698,336 in 1995 and
14,513,503 in 1994). Earnings per share will be unaffected by partners who elect
to convert Units in the Operating Partnership to shares of common stock in the
Company as unitholders and stockholders effectively share equally in the net
income of the Operating Partnership. The assumed exercise of outstanding stock
options, using the treasury stock method, is not dilutive and therefore, is not
considered in determining shares outstanding.
For the years ended December 31, 1996 and 1995, the Company had earnings of
$1.43 and $.68 per share, respectively.
For the period July 27, 1994 through December 31, 1994, the Company
incurred a loss before extraordinary items of $(.06) per share. The effect of
the extraordinary gain from the forgiveness of debt, net of minority interests,
increased earnings per share by $.47, while the extraordinary loss from the
early extinguishment of debt, net of minority interests, decreased earnings per
share by $(.36), resulting in net income per share of $.06. During the period,
the Company incurred $7,796 in non-recurring reorganization costs, principally
legal, accounting, and other costs incurred in connection with the formation of
the Company. The effect of these costs, net of minority interests of $1,668, was
to reduce the income (loss) before the extraordinary items by $(.42) per share.
11. RELATED PARTY TRANSACTIONS
On August 8, 1994, the Company exercised an option to purchase a 19.05 acre
tract of partially developed land from a corporation whose sole shareholders
were three executive officers (including two who are also directors) of the
Company. The option agreement required consideration of $128 in cash, and Units
with a value of $1,568, as well as reimbursement of all pre-development costs
totaling $367. The Unit portion of the purchase price was paid one year from the
date of purchase, based on the value of Units at the election date of the option
(August 8, 1994) and totaled 73,783 Units.
Effective October 1, 1995, the Company issued 42,353 Units with a value of
$900 (based on the price of the Company's stock at the Initial Offering date) to
an entity whose sole shareholders were two executive officers and directors of
the Company. The Units represented partial consideration for the purchase of
partnership interests.
In December 1995, the Company purchased the Overlook Apartments, formerly
known as The Phoenix, from a partnership which was owned by affiliates of the
Company and outside investors. As consideration for the purchase, the Company
paid cash of $8,500 and assumed $300 of debt payable to affiliates. Affiliates
of the Company did not receive any of the cash portion of the purchase price.
However, on January 3, 1996, the $300 of affiliated debt was repaid by the
Company with cash of $200 and the issuance of 4,694 Units.
The Company, through PRSI (and previously PGPSI), uses a centralized
disbursement and receipt system whereby, for certain properties owned by the
Company and other affiliated properties, all project deposits are transferred to
a central operating account and all expenses and other disbursements are paid
therefrom. In other cases, certain properties maintain a separate cash account
for recording project receipts and disbursements; however, certain common
operating expenses are paid through the centralized account and are subsequently
reimbursed by the appropriate properties. Additionally, cash of PRSI (and
previously PGPSI) is periodically transferred to the Operating Partnership for
short term investment purposes.
74
<PAGE>
PRSI (and previously PGPSI) provides services to affiliated partnerships on
a contractual basis. The related party fees and expenses for such services are
reflected in the accompanying consolidated financial statements.
At December 31, 1996, the Company has three notes receivable from Paradim
in the total outstanding amount of $9,839. One note, in the outstanding amount
of $9,723 at December 31, 1996, represents amounts advanced to Paradim to fund
construction of Brassfield Park, a planned 336-unit multifamily residential
complex under development in Greensboro, North Carolina. Under the terms of the
loan agreement effective April 1, 1996, Paradim may borrow up to $11,500 from
the Company. The loan bears interest at a variable rate based on the non-default
rate of interest charged to the Company under its line of credit. For the period
April 1 through December 31, 1996, the interest rate averaged approximately
7.41% per annum. Monthly payments of interest only are due until maturity on
September 30, 1997 at which time the outstanding principal and accrued interest
will be due and payable. The loan is collateralized by Brassfield Park. The
other two notes, in the total amount of $116, were executed in connection with
the formation of Paradim and relate to the redemption of certain of the
Company's interests in the properties contributed to Paradim. These two notes
bear interest at 8% per annum and mature on June 30, 1997.
12. COMMITMENTS AND CONTINGENCIES
Commitments
PRSI is a party to office and equipment leases with varying terms which
expire over the next eight years. Future minimum lease payments for
noncancelable office and equipment leases for the next five years and
thereafter, as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Year Capital Operating
---- ------- ---------
<S> <C> <C>
1997 ....................................... $ 35 $ 793
1998 ....................................... 10 459
1999 ....................................... 5 458
2000 ....................................... - 473
2001 ....................................... - 391
Thereafter...................................... - 1,135
--------- --------
Total minimum lease payments.................... 50 $ 3,709
========
Amounts representing interest................... (3)
---------
Present value of net minimum lease payments..... $ 47
=========
</TABLE>
In addition, the Company has entered into a non-recourse ground lease,
which commenced on October 24, 1996, related to approximately 27.47 acres in
Louisville, Kentucky for potential development in 1997. The ground lease allows
the Company to develop, at its' discretion, a one or two phase multifamily
residential community on the leased acreage. The lease has a term of 40 years
and under certain conditions, the Company has the option to purchase the land.
Monthly lease payments are required based upon the number of apartment units
developed and include certain scheduled payment increases, some of which are
tied to the Consumer Price Index ("CPI"). The Company believes that the monthly
lease payments will range between $7 and $14 over the lease term, subject to CPI
adjustments. The monthly lease payments have been deferred until July 1, 1997.
The eligible employees of PRSI (and previously PGPSI) and the Predecessors
participate in a contributory employee savings plan. Under the plan, PRSI may
make matching contributions with respect to contributions made by eligible
employees. Expenses under the plan for the years ended December 31, 1996, 1995
and 1994 were not material.
75
<PAGE>
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 or results of
operations of the Company.
In connection with the Initial Offering, environmental consultants were
engaged to perform environmental assessments on each of the properties. The
environmental assessments identified certain properties with underground or
above ground storage tanks, pipelines, asbestos containing materials or radon
levels in excess of the Environmental Protection Agency standards and noted that
one property is located within one-half mile of a site included on the National
Priorities List issued pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, as amended. The environmental assessments
revealed only one property, Knollwood I, that had contamination in significant
amounts requiring remediation. Remediation was successfully completed in 1994 at
a cost of $70. Management intends to monitor all properties for possible
environmental impact. As of December 31, 1996 no remedial actions are currently
considered necessary.
13. SEGMENT OPERATIONS
The Operating Partnership is engaged in the ownership and rental of
residential apartment communities, office buildings and retail properties and
PRSI (and previously PGPSI) provides property management, construction,
development and other services to both related and unrelated parties. As
discussed in Note 3, the Company sold its wholly-owned office building and
retail properties in the fourth quarter of 1996. Revenue from property
management and other services provided to affiliated partnerships, which
collectively represent a major customer of PRSI (and previously PGPSI), was
approximately 39%, 28%, 24% and 30% of total property services revenue for the
years ended December 31, 1996 and 1995, the period July 27 to December 31, 1994
and the period January 1 to July 26, 1994, respectively. Revenue from property
management and other services provided to the consolidated group are recognized
in the period in which the services are provided and are eliminated in
consolidation. The following table presents operating and other information
divided among the two primary lines of the Company's and Predecessors' business.
<TABLE>
<CAPTION>
Property
Management
and Other
Rental Services Combined
Operations Operations Elimination Total
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Revenue - third party......................... $ 94,792 $ 5,977 $ - $ 100,769
Revenue - affiliates.......................... 161 3,799 - 3,960
Intersegment revenue.......................... 2,074 3,150 (5,224) -
------------- ----------- --------- -----------
Total revenue............................. 97,027 12,926 (5,224) 104,729
Operating expenses............................ (44,430) (17,183) 2,904 (58,709)
------------- ----------- --------- -----------
Operating profit.......................... $ 52,597 $ (4,257) $ (2,320) $ 46,020
============= =========== ========= ===========
Depreciation and amortization................. $ 17,826 $ 1,726 $ - $ 19,552
============= =========== ========= ===========
Identifiable assets at December 31, 1996...... $ 561,473 $ 9,866 $ (34,472) $ 536,867
============= =========== ========= ===========
Capital expenditures and investments.......... $ 70,039 $ 3,664 $ - $ 73,703
============= =========== ========= ===========
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Property
Management
and Other
Rental Services Combined
Operations Operations Elimination Total
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Revenue - third party......................... $ 83,902 $ 17,076 $ - $ 100,978
Revenue - affiliates.......................... - 6,590 - 6,590
Intersegment revenue.......................... 2,342 2,840 (5,182) -
------------- ----------- --------- -----------
Total revenue............................. 86,244 26,506 (5,182) 107,568
Operating expenses............................ (39,092) (23,684) 2,701 (60,075)
------------- ----------- --------- -----------
Operating profit.......................... $ 47,152 $ 2,822 $ (2,481) $ 47,493
============= =========== ========= ===========
Depreciation and amortization................. $ 15,447 $ 3,114 $ - $ 18,561
============= =========== ========= ===========
Identifiable assets at December 31, 1995...... $ 552,186 $ 20,422 $ (32,997) $ 539,611
============= =========== ========= ===========
Capital expenditures and investments.......... $ 115,495 $ 2,258 $ - $ 117,753
============= =========== ========= ===========
PERIOD JULY 27 TO DECEMBER 31, 1994:
Revenue - third party......................... $ 33,731 $ 8,326 $ - $ 42,057
Revenue - affiliates.......................... - 2,655 - 2,655
Intersegment revenue.......................... 877 1,057 (1,934) -
------------- ----------- --------- -----------
Total revenue............................. 34,608 12,038 (1,934) 44,712
Operating expenses............................ (15,146) (10,671) 1,019 (24,798)
------------- ----------- --------- -----------
Operating profit ......................... $ 19,462 $ 1,367 $ (915) $ 19,914
============= =========== ========= ===========
Depreciation and amortization................. $ 6,393 $ 626 $ - $ 7,019
============= =========== ========= ===========
Identifiable assets at December 31, 1994...... $ 455,461 $ 21,437 $ (34,350) $ 442,548
============= =========== ========= ===========
Capital expenditures and investments.......... $ 197,577 $ 3,505 $ - $ 201,082
============= =========== ========= ===========
PERIOD JANUARY 1 TO JULY 26, 1994:
Revenue - third party......................... $ 41,359 $ 10,846 $ - $ 52,205
Revenue - affiliates.......................... - 4,737 - 4,737
Intersegment revenue.......................... - 2,185 (2,185) -
------------- ----------- --------- -----------
Total revenue............................ 41,359 17,768 (2,185) 56,942
Operating expenses............................ (20,811) (14,593) 2,029 (33,375)
------------- ----------- --------- -----------
Operating profit ........................ $ 20,548 $ 3,175 $ (156) $ 23,567
============= =========== ========= ===========
Depreciation and amortization................. $ 6,448 $ 258 $ (207) $ 6,499
============= =========== ========= ===========
Identifiable assets at July 26, 1994.......... $ 264,538 $ 3,717 $ (5,579) $ 262,676
============= =========== ========= ===========
Capital expenditures and investments.......... $ 3,029 $ 314 $ (114) $ 3,229
============= =========== ========= ===========
</TABLE>
77
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires disclosure
about fair value for all financial instruments, whether or not recognized, for
financial statement purposes. Disclosure about fair value of financial
instruments is based on pertinent information available to management as of
December 31, 1996 and December 31, 1995. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize on 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.
Management estimates that the fair value of (i) cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate carrying
value due to the relatively short maturity of these instruments; (ii) the
interest rate swap agreement approximates carrying value based upon the terms of
the agreement relative to current interest rates; and (iii) notes payable
approximate carrying value based upon the Company's effective borrowing rate for
issuance of debt with similar terms and remaining maturities.
15. SUPPLEMENTAL CASH FLOW INFORMATION
In connection with the business combination on July 27, 1994, certain
non-cash transactions were recorded by the Company, including: (i) basis
adjustments for the purchase of partnership interests for cash or Units, or
assumption of debt, (ii) elimination of historical basis of certain assets
purchased for cash, (iii) adjustments resulting from the transfer of the
property management, leasing, construction and development businesses of the
Predecessors to PGPSI, (iv) elimination of net working capital due to/from prior
owners at closing, (v) issuance of stock in exchange for note receivable from
PGPSI, (vi) issuance of stock pursuant to the Employee Restricted Stock Plan,
(vii) recognition of mortgage principal and accrued interest concessions by
lenders, (viii) write-off of deferred financing costs associated with debt
repaid at closing, (ix) write-off of fully amortized deferred charges, (x)
elimination of partner loans, and (xi) allocation of capital to minority
interests. These transactions, with respect to the elimination of historical
basis on assets purchased for cash, the adjustments resulting from transfer of
the property management, leasing, construction and development businesses to
PGPSI and the net working capital adjustments, also include certain cash
components. These cash adjustments are presented as deemed distributions at
formation in the accompanying consolidated statements of cash flows.
Certain non-cash transactions were also recorded effective October 1, 1995
in connection with the acquisition of partnership interests related to Spanish
Trace for a combination of cash and Units and on April 1, 1996 in connection
with the formation of Paradim and the Company's corresponding contribution of
certain properties that were previously wholly-owned. The aggregate effect of
the non-cash transactions recorded in connection with the business combination
in 1994, the acquisition of partnership interest related to Spanish Trace in
1995 and the formation of Paradim in 1996 are summarized as follows:
78
<PAGE>
<TABLE>
<CAPTION>
Period
July 27 to
Year Ended December 31, December 31,
1996 1995 1994, as Restated
--------------- ----------------- -------------------
<S> <C> <C> <C>
Operating real estate assets....................... $ (35,461) $ 15,968 $ (39,575)
Accumulated depreciation........................... - (8,280) 26,973
Construction in process............................ (6,293) - -
Accounts receivable................................ (18) - (171)
Advances to affiliates............................. (403) - 155
Investment in ventures............................. 14,452 - 7,289
Notes receivables from venture..................... 116 - -
Deferred charges, net.............................. (85) 222 (1,342)
Other assets....................................... (36) - (749)
------------ ------------ ------------
$ (27,728) $ 7,910 $ (7,420)
============ ============ ============
Notes payable...................................... $ (25,650) $ 9,856 $ (28,956)
Accrued interest payable........................... (166) - (10,822)
Accrued real estate taxes.......................... (205) - (2,875)
Accounts payable and accrued liabilities........... (1,566) 13 (2,647)
Partners loans..................................... - - (10,650)
Tenant security deposits........................... (141) - (1,231)
Minority interests................................. - - 56,886
Stockholders' equity............................... - (1,959) (7,125)
------------ ------------ ------------
$ (27,728) $ 7,910 $ (7,420)
============ ============ ============
</TABLE>
Other non-cash investing and financing activities during 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
Company Predecessor
---------------------------------- ------------
Period
July 27 to Period
December January 1
Year Ended December 31, 31, 1994, to
----------------------- as July 26,
1996 1995 Restated 1994
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Construction in process payables........................................ $ 3,537 $ 2,053 $ 214 $ -
Additions to operating real estate assets
transferred from construction........................................ 43,656 22,546 - -
Accrual of distributions from unconsolidated ventures................... - - 242 -
Accrual of liability associated with the acquisitions
of land for Units.................................................... - (1,568) 1,568 -
Mortgage principal concessions recognized prior to
the business combination............................................. - - - 1,776
Debt assumed in connection with the acquisition of property............. 6,357 300 - -
Conversion of Units to common stock..................................... - 1,215 - -
Partial repayment of note payable to affiliates with Units.............. 100 - - -
Accrued net selling costs related to sale of commercial
property services business........................................... 1,216 - - -
Deferred gain on sale of commercial property
services business.................................................... 1,100 - - -
</TABLE>
79
<PAGE>
16. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following is a summary of quarterly results of operations for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
First Second Third
Quarter, Quarter, Quarter,
as Restated as Restated as Restated Fourth
for 1995 for 1995 for 1995 Quarter Total
-------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Revenues .......................................... $ 28,538 $ 26,145 $ 25,202 $ 24,844 $ 104,729
Net income ........................................ 1,378 9,203 1,137 9,497 21,215
Per share data:
Net income ...................................... 0.09 0.62 0.08 0.64 1.43
Year Ended December 31, 1995:
Revenues .......................................... $ 25,303 $ 26,266 $ 26,897 $ 29,102 $ 107,568
Net income ........................................ 2,054 2,677 3,091 2,241 10,063
Per share data:
Net income ...................................... 0.14 0.18 0.21 0.15 0.68
</TABLE>
As described in Note 2, the Company, in the fourth quarter of 1995, changed
its method of accounting for its investment in PGPSI from the cost method to
consolidation. Accordingly, all previously reported periods have been restated
to reflect this change in accounting method. The effect of this change on the
reported results of operations for the first quarter, second quarter and third
quarter of 1995 was an increase in revenue of $5,056, $5,089, and $5,069, a
decrease in net income of $(889), $(229), and $(163), and a corresponding
decrease in net income per share of $(.06), $(.02), and $(.01), respectively.
17. PROPOSED MERGER
On December 16, 1996 the Company executed an Agreement and Plan of Merger
(the "Agreement") with Camden Property Trust ("Camden") which provides for,
among other things, the merger of the Company into a wholly-owned subsidiary of
Camden through a tax-free exchange of each share of the Company's common stock
for .64 common shares of beneficial interest of Camden, whereby stockholders of
the Company will become shareholders of Camden.
The Company has the option to terminate the Agreement in the event the
average closing price of Camden common shares ("Average Closing Price") falls
below $25.67 during a specified pricing period prior to a special meeting of the
stockholders of the Company. In the event the Company elects to terminate the
Agreement, Camden has the option of adjusting the exchange ratio of .64 to equal
a number obtained by dividing $16.43 by the Average Closing Price.
An affirmative vote of holders of two-thirds of the outstanding shares of
the Company's common stock is required to approve the Agreement. A special
meeting of the Company's stockholders is scheduled for April 15, 1997 to vote on
the Agreement.
80
<PAGE>
18. SUBSEQUENT EVENTS (Unaudited)
On January 2, 1997, the Company declared a dividend, with respect to the
fourth quarter of 1996, of $.465 per share of common stock which was paid on
January 23, 1997 to holders of record on January 13, 1997. Concurrent with the
dividend announcement, the Operating Partnership authorized a distribution of
$.465 per Unit which was paid on January 23, 1997 to holders of record on
January 13, 1997.
In January 1997, the Company sold the 232 unit Brookfield apartments in
Dallas, Texas for $5,459, the 352 unit Westchase apartments in Charleston, South
Carolina for $11,130 and the 251 unit San Miguel apartments in St. Louis,
Missouri for $6,875. Net proceeds from the sale of these properties were used to
repay borrowings under the Company's line of credit, fund multifamily
development expenditures and for general working capital purposes.
On March 18, 1997, the Company declared a dividend, with respect to the
first quarter of 1997, of $.3136 per share of common stock, payable April 15,
1997 to holders of record on March 31, 1997. Concurrent with the dividend
announcement, the Operating Partnership authorized a distribution of $.3136 per
Unit, payable April 15, 1997 to holders of record on March 31, 1997.
81
<PAGE>
Schedule III
PARAGON GROUP, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Gross Amount at which
Initial Costs Carried at December 31, 1996
-------------------- Costs --------------------------------------------------
Buildings Capitalized Buildings
Notes and Subsequent to and Construction
Property Name Payable Land Improvements Acquisition Land Improvements in Process Total
- ------------------- --------- ------- ------------ ----------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Florida
4th St. Station I $ 5,120 (3) $ 800 $ - $ 12,989 $ 1,499 $ 12,290 $ - $ 13,789
4th St. Station II 5,070 (3) 656 - 11,706 1,643 10,719 - 12,362
Broadmoor 4,660 (2) 1,536 5,265 4,118 2,080 8,839 - 10,919
Chasewood 2,850 (2) 992 4,534 1,739 1,182 6,083 - 7,265
Citrus Lakes I - 208 2,942 276 208 3,218 - 3,426
Coco West I 2,670 (3) 68 - 8,450 630 7,888 - 8,518
Coco West II 3,780 (3) 111 - 11,766 589 11,288 - 11,877
Dolphin Pointe 7,250 (2) 1,456 25 15,416 1,919 14,978 - 16,897
Greenhouse 3,580 (3) 808 - 9,797 1,146 9,459 - 10,605
Grove 2,700 (2) 1,431 4,269 355 1,431 4,624 - 6,055
Heron Pointe - (11) 990 - 12,412 990 12,412 - 13,402
Landtree 3,780 (3) 624 - 8,261 1,277 7,608 - 8,885
Lookout Pointe 6,700 (2) 1,563 - 13,906 1,823 13,646 - 15,469
Parsons Run 3,840 (3) 902 - 9,325 1,424 8,803 - 10,227
Renaissance Pointe - (11) 1,564 - 13,209 1,564 13,209 - 14,773
Renaissance Pointe II - 2,067 - 8 - - 2,075 2,075
The Reserve 3,100 (2) 1,060 - 6,374 1,093 6,341 - 7,434
Schooner Bay 7,392 (7) 1,518 8,966 393 1,518 9,359 - 10,877
Summerplace I & II 6,330 (3) 1,016 - 13,140 1,729 12,427 - 14,156
Summerplace III 3,720 (3) 753 - 7,489 1,117 7,125 - 8,242
Summerset Bend 4,500 (3) 779 - 9,499 1,141 9,137 - 10,278
The Vineyard 10,500 (9) 2,602 - 15,211 3,118 14,695 - 17,813
Kentucky
Copper Creek 9,130 (8) 649 - 6,760 649 6,760 - 7,409
Deerfield 9,886 (8) 1,610 - 18,981 2,421 18,170 - 20,591
Glenridge 3,695 (9) 970 - 6,634 1,119 6,485 - 7,604
Post Oak 2,450 (2) - - 3,806 339 3,467 - 3,806
Sundance 2,800 (2) 447 - 6,027 738 5,736 - 6,474
Missouri
Camden Passage 7,350 (9) 1,345 9,455 2,658 1,817 11,641 - 13,458
Camden Passage II - (11) 1,169 - 10,748 1,169 6,817 3,931 11,917
The Cove 12,480 (5) 2,308 10,418 6,564 3,505 15,785 - 19,290
Knolls - (11) 978 3,778 363 980 4,139 - 5,119
Knollwood I 7,215 (5) 1,764 7,928 407 1,764 8,335 - 10,099
Knollwood II 7,027 (5) 1,272 9,328 148 1,272 9,476 - 10,748
Pear Tree - (11) 366 2,684 212 366 2,896 - 3,262
Spanish Trace 9,764 (4) 2,445 15,508 785 2,445 16,293 - 18,738
Sunswept - (11) 1,813 5,496 375 1,813 5,871 - 7,684
Tempo 6,205 (5) 2,168 5,982 814 2,168 6,796 - 8,964
Westchase Park 4,900 (2) - - 11,763 1,024 10,739 - 11,763
Westgate I 4,500 (2) 380 3,165 3,561 615 6,491 - 7,106
Westgate II 8,200 (2) 790 - 17,115 2,131 15,774 - 17,905
</TABLE>
Schedule III
<TABLE>
<CAPTION>
Net Date of
Accumulated Real Estate Construction/ Depreciable
Property Name Depreciation Assets Acquisition Lives-Years
- ------------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Florida
4th St. Station I 4,896 8,893 1982 5-40 Years
4th St. Station II 3,555 8,807 1983 5-40 Years
Broadmoor 2,650 8,269 1986/1987 5-40 Years
Chasewood 2,052 5,213 1985/1987 5-40 Years
Citrus Lakes I 234 3,192 1976 5-40 Years
Coco West I 2,615 5,903 1983 5-40 Years
Coco West II 4,108 7,769 1985 5-40 Years
Dolphin Pointe 3,956 12,941 1989 5-40 Years
Greenhouse 4,180 6,425 1982 5-40 Years
Grove 354 5,701 1973 5-40 Years
Heron Pointe 999 12,403 1996 5-40 Years
Landtree 2,948 5,937 1983 5-40 Years
Lookout Pointe 5,770 9,699 1987 5-40 Years
Parsons Run 3,175 7,052 1986 5-40 Years
Renaissance Pointe 278 14,495 1996(1) 5-40 Years
Renaissance Pointe II - 2,075 (1) -
The Reserve 1,528 5,906 1991 5-40 Years
Schooner Bay 274 10,603 1995 5-40 Years
Summerplace I & II 4,992 9,164 1984 5-40 Years
Summerplace III 2,714 5,528 1986 5-40 Years
Summerset Bend 3,756 6,522 1984 5-40 Years
The Vineyard 3,655 14,158 1990 5-40 Years
Kentucky
Copper Creek 3,126 4,283 1987 5-40 Years
Deerfield 4,901 15,690 1987 5-40 Years
Glenridge 1,786 5,818 1990 5-40 Years
Post Oak 1,940 1,866 1981 5-30 Years
Sundance 2,671 3,803 1975 5-40 Years
Missouri
Camden Passage 2,251 11,207 1989 5-40 Years
Camden Passage II 32 11,885 (1) 5-40 Years
The Cove 2,950 16,340 1990 5-40 Years
Knolls 329 4,790 1973/1974 5-40 Years
Knollwood I 586 9,513 1981 5-40 Years
Knollwood II 673 10,075 1985 5-40 Years
Pear Tree 221 3,041 1967 5-40 Years
Spanish Trace 9,175 9,563 1972/1995 5-40 Years
Sunswept 469 7,215 1971/1994 5-40 Years
Tempo 592 8,372 1975 5-40 Years
Westchase Park 3,288 8,475 1986 5-40 Years
Westgate I 2,675 4,431 1973 5-40 Years
Westgate II 6,561 11,344 1980 5-40 Years
</TABLE>
82
<PAGE>
PARAGON GROUP, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Gross Amount at which
Initial Costs Costs Carried at December 31, 1996
----------------------- Capitalized ----------------------------------------------
Notes Buildings and Subsequent to Buildings and Construction
Property Name Payable Land Improvements Acquisition Land Improvements in Process Total
- ------------------------ ----------- ------- ------------- ------------- -------- ------------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North Carolina
Copper Creek $ 2,600 (2) $ 930 $ - $ 6,628 $ 928 $ 6,630 $ - $ 7,558
Eastchase 2,949 (9) 1,265 - 6,116 1,352 6,029 - 7,381
Falls 5,700 (2) 1,010 - 11,308 1,475 10,843 - 12,318
Glen 6,572 (9) 1,713 6,808 196 1,713 7,004 - 8,717
Habersham Pointe - 1,124 10,273 3 1,124 10,276 - 11,400
Pinehurst 14,000 (5) 3,591 15,213 356 3,591 15,569 - 19,160
The Park - (11) 906 - 8,568 1,110 1,031 7,333 9,474
River Oaks 6,350 (6) 1,056 8,635 5 1,056 8,640 - 9,696
Texas
Chesapeake 3,300 (2) 1,061 4,939 3,633 1,471 8,162 - 9,633
Fairlane 3,461 (9) 710 - 9,149 1,449 8,410 - 9,859
Highland Trace - (11) 1,450 2,871 835 1,539 3,617 - 5,156
Los Rios 9,000 (5) 1,494 - 9,572 1,517 9,549 - 11,066
Nob Hill 9,050 (5) 2,944 5,714 6,787 3,462 11,983 - 15,445
Stone Creek - (11) 1,696 367 10,182 1,696 10,549 - 12,245
Stone Gate - (11) 2,275 - 13,521 2,275 13,521 - 15,796
Miscellaneous Assets 3 (10) - - 4,946 - 4,946 - 4,946
------- ------ ------- ------- ------- ------ ------- ------
246,129 67,203 154,563 375,365 81,214 502,578 13,339 597,131
------- ------ ------- ------- ------- ------ ------- ------
Real estate held for sale:
San Miguel (Missouri) - (11) 1,321 5,487 390 1,321 5,877 - 7,198
Westchase (South Carolina) 4,440 (3) 1,496 - 11,631 1,895 11,232 - 13,127
Brookfield (Texas) 4,023 (5) 1,481 2,643 1,904 1,578 4,450 - 6,028
----- ----- ----- ----- ----- ----- ------ -----
8,463 4,298 8,130 13,925 4,794 21,559 - 26,353
--------- ------- -------- -------- ------- -------- ------- --------
Total $ 254,592 $71,501 $162,693 $389,290 $86,008 $524,137 $13,339 $623,484
========= ======= ======== ======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Net Date of
Accumulated Real Estate Construction/ Depreciable
Property Name Depreciation Assets Acquisition Lives-Years
- --------------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
North Carolina
Copper Creek $ 1,637 5,921 1989 5-40 Years
Eastchase 2,675 4,706 1986 5-40 Years
Falls 4,338 7,980 1984 5-40 Years
Glen 488 8,229 1980 5-40 Years
Habersham Pointe 146 11,254 1986 5-40 Years
Pinehurst 843 18,317 1967/1994 5-40 Years
The Park 3 9,471 (1) 5-40 Years
River Oaks 43 9,653 1985 5-40 Years
Texas
Chesapeake 2,925 6,708 1982 5-40 Years
Fairlane 3,847 6,012 1980 5-40 Years
Highland Trace 1,142 4,014 1985/1987 5-40 Years
Los Rios 1,744 9,322 1992 5-40 Years
Nob Hill 2,676 12,769 1986/1987 5-40 Years
Stone Creek 484 11,761 1995 5-40 Years
Stone Gate 241 15,555 1996(1) 5-40 Years
Miscellaneous Assets 1,682 3,264 1994/1995 5 Years
------- -------
127,829 469,302
------- -------
Real estate held for sale: 433 6,765 1970/1994 5-40 Years
San Miguel (Missouri) 4,162 8,965 1986 5-40 Years
Westchase (South Carolina) 1,154 4,874 1986/1987 5-40 Years
Brookfield (Texas) ------- ------
5,749 20,604
------- ------
Total $133,578 489,906
======== =======
</TABLE>
(1) Construction still in process and/or property still in initial
lease-up phase at December 31, 1996.
(2) These properties serve as collateral for the "Pool A" mortgage note
payable obtained concurrent with the Initial Offering in the amount of
$61,710.
(3) These properties serve as collateral for the "Pool B" mortgage notes
payable obtained concurrent with the Initial Offering in the amount of
$46,830.
(4) This property serves as collateral for the mortgage note payable
insured by HUD assumed effective October 1, 1995 in the outstanding
amount of $9,764 at December 31, 1996.
(5) These properties serve as collateral for mortgage notes payable
obtained in December 1995 in the amount of $69,000.
(6) This property serves as collateral for the mortgage note payable
assumed effective November 8, 1996 in the outstanding amount of $6,350
at December 31, 1996.
(7) This property serves as collateral for mortgage notes payable obtained
in November 6, 1996 in the outstanding amount of $7,392 at December
31, 1996.
(8) These properties serve as collateral for housing revenue bonds assumed
at the Initial Offering in the outstanding amount of $19,016 at
December 31, 1996.
(9) These properties serve as collateral for mortgage notes payable
assumed at the Initial Offering in the outstanding amount of $34,527
at December 31, 1996.
(10) A portion of these assets with a net book value at December 31, 1996
of $5 serve as collateral for a vehicle loan in the outstanding amount
of $3 at December 31, 1996.
(11) These properties serve as collateral for the line of credit facility
in the outstanding amount of $42,700 at December 31, 1996.
83
<PAGE>
PARAGON GROUP INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
December 31, 1996
(Dollars in thousands)
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1994,
1996 1995 as Restated
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate:
Balance at beginning of year................ $ 631,471 $ 513,761 $ 361,554
Additions and basis adjustments............. 73,703 117,753 204,311
Dispositions and other...................... (81,690)(3) (43) (52,104) (1)
------------ ------------ -------------
Balance at end of year...................... $ 623,484 $ 631,471 $ 513,761
============ ============ =============
Accumulated Depreciation:
Balance at beginning of year................ $ 126,437 $ 101,984 $ 116,031
Depreciation and basis adjustments.......... 18,904 (24,462 (12,926
Dispositions and other...................... (11,763) (9) (26,973) (1)
------------ ------------- -------------
Balance at end of year...................... $ 133,578 $ 126,437 $ 101,984
============ ============= =============
</TABLE>
(1) Represents the non-cash effect of the elimination of the historical basis
of certain assets purchased for cash and adjustments resulting from the
transfer of the property management, leasing, construction and development
businesses of the Predecessors to PGPSI pursuant to the formation of the
Company on July 27, 1994.
(2) Includes an $8,280 adjustment to accumulated depreciation related to the
acquisition of a partnership interest (Spanish Trace) for Units.
(3) Includes a $41,754 adjustment related to the contribution of property to
Paradim.
(4) Includes $45 of Post-Measurement Date depreciation related to the
commercial property services business.
Depreciation and amortization in buildings and improvements reflected in
the statements of operations are calculated on a straight-line basis over the
estimated useful lives of the properties (buildings and related land
improvements - 10 to 40 years; furniture, fixtures and equipment - three to 10
years; and tenant improvements - over the life of the related tenant lease).
With respect to the apartment properties, the Company capitalizes floor and
window coverings and depreciates such items over five years; appliances and
heating, ventilating and air conditioning equipment are capitalized and
depreciated over ten years.
As of December 31, 1996, 1995 and 1994, the aggregate cost for federal
income tax purposes was approximately $525,000, $532,000 and $414,000,
respectively.
84
PARAGON GROUP, INC.
THIRD AMENDED AND RESTATED
1994 EMPLOYEE STOCK OPTION, UNIT OPTION,
RESTRICTED STOCK, RESTRICTED UNIT AND
RESTRICTED STOCK RIGHT PLAN
This Paragon Group, Inc. Third Amended and Restated 1994
Employee Stock Option, Unit Option, Restricted Stock, Restricted Unit and
Restricted Stock Right Plan (the "Plan") amends and restates in its entirety the
Paragon Group, Inc. Second Amended and Restated 1994 Employee Stock Option, Unit
Option, Restricted Stock and Restricted Unit Plan. Set forth herein are all of
the terms of the three plans comprising the Plan, one for the benefit of the
employees of the Company (the "Company Plan"), one for the benefit of employees
of Paragon Residential Services, Inc. (the "Management Company") or its general
partner (the "Operating Partnership Plan") and one for the benefit of employees
of Paragon Residential Services, Inc. (the"Management Company") and any
Subsidiary of the Management Company (the "Management Company Plan").
1. PURPOSE
The Plan is intended to advance the interests of the Company, the
Operating Partnership and the Management Company by providing eligible
individuals (as designated pursuant to Section 5 below) with an opportunity
to acquire or increase a proprietary interest in the Company by granting
them options, restricted units, restricted stock and restricted stock
rights in accordance with the terms stated herein, which thereby will
create a stronger incentive to expend maximum effort for the growth and
success of the Company, the Operating Partnership and the Management
Company, and encourage such eligible individuals to continue to serve the
Company, the Operating Partnership or the Management Company. Each stock
option granted under the Plan is intended to be an "incentive stock option"
except (i) to the extent that any such Option would exceed the limitations
set forth in Section 9 below, (ii) for Options granted to an employee other
than an employee of the Company or any Subsidiary of the Company and (iii)
for Options specifically designated at the time of grant as not being
"incentive stock options".
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Stock Option Agreements, Unit Option Agreements, Restricted Stock
Agreements, Restricted Unit Agreements and Restricted Stock Right
Agreements), the following definitions shall apply:
1
<PAGE>
2.1 "Affiliate" means with respect to an entity, any company or other
trade or business that is controlled by or under common control with
such entity (determined in accordance with the principles of Section
414(b) and 414(c) of the Code and the regulations thereunder) or is an
affiliate of such entity within the meaning of Rule 405 of Regulation
C under the 1933 Act.
2.2 "Agreement" means a written agreement that sets out the terms and
conditions of the grant of an Incentive Award.
2.3 "Applicable Committee" means, with respect to the Company Plan and the
Operating Partnership Plan, the Company Committee, and, with respect
to the Management Company Plan, the Management Company Committee.
2.4 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.5 "Company" means Paragon Group, Inc.
2.6 "Company Committee" means the Executive Compensation Committee of the
Board of Directors of the Company, which must consist of no fewer than
two members of such board and shall be appointed by such board, or
such other committee as the Board of Directors of the Company shall
designate.
2.7 "Company Plan" means the Plan as administered pursuant to Section 3.1
hereof for the benefit of employees of the Company.
2.8 "Effective Date" means July 11, 1994, with respect to the Company
Plan, and July 26, 1994 with respect to the Operating Partnership Plan
and the Management Company Plan.
2.9 "Employer" means the Company, Paragon Group L.P. or its general
partner, Paragon Residential Services, Inc., or any Subsidiary of the
Management Company, in their capacity as Employers of persons eligible
to be designated recipients of Incentive Awards.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.11 "Exercise Price" means the Option Price multiplied by the number of
shares of Stock or Units purchased pursuant to the exercise of an
Option.
2.12 "Expiration Date" means the tenth (10th) anniversary of the Grant
Date, or, if earlier, the termination of the Option pursuant to
Section 18.3 hereof.
2
<PAGE>
2.13 "Fair Market Value" means the value of each share of Stock subject to
the Plan determined as follows: if on the Grant Date or other
determination date the shares of Stock are listed on an established
national or regional stock exchange, are admitted to quotation on the
National Association of Securities Dealers Automated Quotation System,
or are publicly traded on an established securities market, the Fair
Market Value of the shares of Stock shall be the closing price of the
shares of Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on
the trading day immediately preceding the Grant Date or such other
determination date (or if there is no such reported closing price, the
Fair Market Value shall be the mean between the highest bid and lowest
asked prices or between the high and low sale prices on such trading
day) or, if no sale of the shares of Stock is reported for such
trading day, on the next preceding day on which any sale shall have
been reported. If the shares of Stock are not listed on such an
exchange, quoted on such System or traded on such a market, Fair
Market Value shall be determined by the Board of Directors of the
Company in good faith. Fair Market Value of a Unit is deemed equal to
the Fair Market Value of a share of Stock.
2.14 "Grant Date" means the later of (i) the date as of which the
Applicable Committee approves the grant, (ii) the date as of which the
Holder and the Employer enter into the relationship resulting in the
Holder being eligible for grants, and (iii) such other date as the
Applicable Committee shall determine.
2.15 "Granting Employer" means the Company, the Operating Partnership or
the Management Company, each with respect to Restricted Stock Awards,
Restricted Unit Awards and Restricted Stock Right Awards made pursuant
to the Company Plan, the Operating Partnership Plan and the Management
Company Plan, respectively, unless the Applicable Committee as to any
grant designates another Employer as the Granting Employer.
2.16 "Holder" means a person who holds Stock or Units, including Restricted
Stock, Restricted Units or Restricted Stock Rights under the Plan.
2.17 "Incentive Award" means an award of an Option, Restricted Stock,
Restricted Units or Restricted Stock Rights under the Plan.
2.18 "Incentive Stock Option" means an "incentive stock option" within the
meaning of section 422 of the Code.
2.19 "Limited Partnership Agreement" means the Second Amended and Restated
Agreement of Limited Partnership of Paragon Group L.P., as now in
effect or as hereafter amended.
2.20 "Management Company" means Paragon Residential Property Services, Inc.
3
<PAGE>
2.21 "Management Company Committee" means the Board of Directors of the
Management Company or any committee thereof appointed by such board to
administer the Management Company Plan.
2.22 "Management Company Plan" means the Plan as administered pursuant to
Section 3.3 hereof for the benefit of the employees of the Management
Company or its Subsidiaries.
2.23 "Operating Partnership" means Paragon Group L.P.
2.24 "Operating Partnership Plan" means the Plan as administered pursuant
to Section 3.2 hereof for the benefit of the employees of the
Operating Partnership or its general partner.
2.25 "Option" means an option to purchase one or more shares of Stock or
Units pursuant to the Plan.
2.26 "Option Agreement" means the written agreement evidencing the grant of
an Option hereunder.
2.27 "Optionee" means a person who holds an Option under the Plan.
2.28 "Option Period" means the period during which Options may be exercised
as defined in Section 12.
2.29 "Option Price" means the purchase price for each share of Stock or
Unit subject to an Option.
2.30 "Plan" means this Third Amended and Restated 1994 Employee Stock
Option, Unit Option, Restricted Stock, Restricted Unit and Restricted
Stock Right Plan (which encompasses the Company Plan, the Operating
Partnership Plan and the Management Company Plan), as the same may be
hereafter amended from time to time.
2.31 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.32 "Restricted Stock" means Stock which is subject to a risk of
forfeiture pursuant to the Plan.
2.33 "Restricted Stock Agreement" means the written agreement evidencing
the grant of Restricted Stock hereunder.
2.34 "Restricted Stock Award" means an award of Restricted Stock granted
under the Plan.
4
<PAGE>
2.35 "Restricted Stock Right" means a conditional right, awarded to a
Holder pursuant to Section 14 hereof, to receive a share of Stock in
the future, which is subject to restrictions and to a risk of
forfeiture.
2.36 "Restricted Stock Right Agreement" means the written agreement
evidencing the grant of Restricted Stock Rights hereunder.
2.37 "Restricted Stock Right Award" means an award of Restricted Stock
Rights granted under the Plan.
2.38 "Restricted Unit" means a Unit which is subject to a risk of
forfeiture pursuant to the Plan.
2.39 "Restricted Unit Agreement" means the written agreement evidencing the
grant of Restricted Units hereunder.
2.40 "Restricted Unit Award" means an award of Restricted Units granted
under the Plan.
2.41 "1933 Act" means the Securities Act of 1933, as now in effect or as
hereafter amended.
2.42 "Stock" means the shares of common stock, par value $.01 per share, of
the Company.
2.43 "Stock Option Agreement" means the written agreement evidencing the
grant of an Option to acquire shares of Stock hereunder.
2.44 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code.
2.45 "Unit" means a "Partnership Unit" as that term is defined in the
Limited Partnership Agreement. All Units that are the subject of
Restricted Unit Agreements to be granted under this Plan are "Limited
Partner Interests" as that term is defined in the Limited Partnership
Agreement.
2.46 "Unit Option Agreement" means the written agreement evidencing the
grant of an Option to acquire Units hereunder.
3. ADMINISTRATION
3.1 Company Plan. The Company Plan shall be administered by the Company
Committee. Each member of the Company Committee must qualify in all
respects as a "disinterested person" as defined in Rule 16b-3 under
the Exchange Act. The Company Committee shall have such powers and
authorities related to the administration of the Company Plan as are
consistent with the
5
<PAGE>
Company's articles of incorporation and by-laws and with applicable
law. The Company Committee shall have the full power and authority
(subject to any restrictions imposed by the Board of Directors of the
Company, the Company's articles of incorporation or by-laws or
applicable law) to take all actions and to make all determinations
required or provided for under the Company Plan, any Incentive Award
granted by the Company Committee under the Company Plan and any
Agreement entered into in connection therewith and shall have the full
power and authority to take all such other actions and determinations
not inconsistent with the specific terms and provisions of the Company
Plan that the Company Committee deems to be necessary or appropriate
to the administration of the Company Plan, any Incentive Award granted
by the Company Committee under the Company Plan and any Agreement
entered into in connection therewith. The interpretation and
construction by the Company Committee of any provision of the Company
Plan, any Incentive Award granted by the Company Committee under the
Company Plan and any Agreement entered into in connection therewith
shall be final and conclusive with respect to the Holder.
3.2 Operating Partnership Plan. The Operating Partnership Plan shall be
administered by the Company Committee. Each member of the Company
Committee must qualify in all respects as a "disinterested person" as
defined in Rule 16b-3 under the Exchange Act. The Company Committee
shall have the full power and authority (subject to any restrictions
imposed on such Committee by Section 3.1 hereof) to take all actions
and to make all determinations required or provided for under the
Operating Partnership Plan, any Incentive Award granted by the Company
Committee under the Operating Partnership Plan and any Agreement
entered into in connection therewith and shall have the full power and
authority to take all such other actions and determinations not
inconsistent with the specific terms and provisions of the Operating
Partnership Plan that the Company Committee deems to be necessary or
appropriate to the administration of the Operating Partnership Plan,
any Incentive Award granted by the Company Committee under the
Operating Partnership Plan and any Agreement entered into in
connection therewith. The interpretation and construction by the
Company Committee of any provision of the Operating Partnership Plan,
any Incentive Award granted by the Company Committee under the
Operating Partnership Plan and any Agreement entered into in
connection therewith shall be final and conclusive with respect to the
Holder.
3.3 Management Company Plan. The Management Company Plan shall be
administered by the Management Company Committee. The Management
Company Committee shall have such powers and authorities related to
the administration of the Management Company Plan as are consistent
with the Management Company's certificate of incorporation and by-laws
and with applicable law. The Management Company Committee shall have
the full power and authority (subject to any restrictions imposed by
the Board of Directors of the Management Company, the Management
Company's certificate of incorporation or
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by-laws or applicable law) to take all actions and to make all
determinations required or provided for under the Management Company
Plan, any Incentive Award granted by the Management Company Committee
under the Management Company Plan and any Agreement entered into in
connection therewith and shall have the full power and authority to
take all such other actions and determinations not inconsistent with
the specific terms and provisions of the Management Company Plan that
the Management Company Committee deems to be necessary or appropriate
to the administration of the Management Company Plan, any Incentive
Award granted by the Management Company Committee under the Management
Company Plan and any Agreement entered into in connection therewith.
The interpretation and construction by the Management Company
Committee of any provision of the Management Company Plan, any
Incentive Award granted by the Management Company Committee under the
Management Company Plan and any Agreement entered into in connection
therewith shall be final and conclusive with respect to the Holder.
3.4 No Liability. No member of the Company Committee or the Management
Company Committee shall be liable to any Holder or to the Company, the
Operating Partnership, or the Management Company or any of their
Affiliates, employees, stockholders or partners for any action or
determination made in good faith with respect to the Plan or any
Incentive Award granted or Agreement entered into hereunder.
3.5 Applicability of Rule 16b-3. Those provisions of the Plan that make
express reference to Rule 16b-3 shall apply only with respect to
Incentive Awards to Reporting Persons.
4. STOCK AND UNITS
The shares of Stock and Units that are the subject of an Incentive
Award may be (i) issued and outstanding shares or Units owned or acquired
by the Granting Employer, (ii) treasury shares or Units (to the extent
permitted by applicable law) or (iii) authorized but unissued shares or
Units. The aggregate total number of shares of Stock and Units that may be
granted pursuant to Incentive Awards under the Plan shall not exceed a
combined total of 1,460,000 shares of Stock and Units, provided that no
more than 485,000 shares of Stock and Units may be issued pursuant to
Restricted Stock Awards, Restricted Unit Awards and Restricted Stock Right
Awards. If any Incentive Award expires, terminates, or is terminated or
canceled for any reason prior to exercise or vesting in full, the shares of
Stock or Units that were subject to the unexercised, forfeited, or
terminated portion of such Incentive Award shall be available immediately
for future grants by the Granting Employer with respect thereto (subject to
Section 13.1(c) hereof) of Incentive Awards under the Plan.
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5. ELIGIBILITY
5.1 Designated Recipients. Incentive Awards may be granted under the Plan
to (i) any full-time employee of the Company, the Operating
Partnership or its general partner or the Management Company or any
Subsidiary of the Management Company (including any such individual
who is an officer or director of the Company, the Operating
Partnership or its general partner or the Management Company or any
Subsidiary of the Management Company) as the Applicable Committee
shall determine and designate from time to time or (ii) any other
individual whose participation in the Plan is determined by the
Company Committee to be in the best interests of the Company and is so
designated by the Company Committee.
5.2 Successive Grants. An individual may hold more than one Incentive
Award, subject to such restrictions as are provided herein.
6. EFFECTIVE DATE AND TERM OF THE PLAN
6.1 Effective Date. The Plan is effective as of the Effective Date.
6.2 Term. The Plan has no termination date; provided, however, that no
Incentive Stock Option may be granted on or after the tenth
anniversary of the Effective Date.
7. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into
by the Optionee or Holder with any Employer that is not an agreement,
contract, or understanding entered into after the Effective Date that
expressly modifies or excludes application of this paragraph (an "Other
Agreement"), and notwithstanding any formal or informal plan or other
arrangement for the direct or indirect provision of compensation by the
Employers to the Optionee or Holder (including groups or classes of
participants or beneficiaries of which the Optionee or Holder is a member),
whether or not such compensation is deferred, is in cash, or is in the form
of a benefit to or for the Optionee or Holder (a "Benefit Arrangement"), if
the Optionee or Holder is a "disqualified individual," as defined in
Section 280G(c) of the Code, any Option held by that Optionee and any right
to receive any payment or other benefit under this Plan shall not become
exercisable or vested (i) to the extent that such right to exercise,
vesting, payment, or benefit, taking into account all other rights,
payments, or benefits to or for the Optionee or Holder under this Plan, all
Other Agreements, and all Benefit Arrangements, would cause any payment or
benefit to the Optionee or Holder under this Plan to be considered a
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"parachute payment" within the meaning of Section 280G(b)(2) of the
Internal Revenue Code as then in effect (a "Parachute Payment") and (ii)
if, as a result of receiving a Parachute Payment, the aggregate after-tax
amounts received by the Optionee or Holder from all Employers under this
Plan, all Other Agreements, and all Benefit Arrangements would be less than
the maximum after-tax amount that could be received by the Optionee or
Holder without causing any such payment or benefit to be considered a
Parachute Payment. In the event that the receipt of any such right to
exercise, vesting, payment, or benefit under this Plan, in conjunction with
all other rights, payments, or benefits to or for the Optionee or Holder
under any Other Agreement or any Benefit Arrangement, would cause the
Optionee or Holder to be considered to have received a Parachute Payment
under this Plan that would have the effect of decreasing the after-tax
amount received by the Optionee or Holder as described in clause (ii) of
the preceding sentence, then the Optionee or Holder shall have the right,
in the Optionee's or Holder's sole discretion, to designate those rights,
payments, or benefits under this Plan, any Other Agreements, and any
Benefit Arrangements that should be reduced or eliminated so as to avoid
having the payment or benefit to the Optionee or Holder under this Plan be
deemed to be a Parachute Payment.
8. GRANT OF OPTIONS
8.1 General. Subject to the terms and conditions of the Plan, the Company
Committee and the Management Company Committee may from time to time
grant to such eligible individuals as the Applicable Committee may
determine, Options to purchase such number of shares of Stock or Units
on such terms and conditions as the Applicable Committee may
determine, including any terms or conditions which may be necessary to
qualify such Options as Incentive Stock Options. Such authority
specifically includes the authority, in order to effectuate the
purposes of the Plan but without amending the Plan, to modify grants
to eligible individuals who are foreign nationals or are individuals
who are employed outside the United States to recognize differences in
local law, tax policy, or custom.
8.2 Limitation on Grants of Options to Executives. The maximum number of
shares of Stock and Units subject to Options that can be awarded under
the Plan to any executive officer of the Company, the Operating
Partnership or its general partner or the Management Company, or to
any other person eligible for a grant of an Incentive Award under
Section 5.1 hereof, is 600,000 during the first ten years after the
effective date of the Plan and 60,000 per year thereafter.
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9. LIMITATION OF INCENTIVE STOCK OPTIONS
An Option (other than an Option described in exceptions (ii) or
(iii) of Section 1) shall constitute an Incentive Stock Option to the
extent that the aggregate fair market value (determined at the time
the option is granted) of the shares of Stock with respect to which
Incentive Stock Options are exercisable for the first time by any
Optionee during any calendar year (under the Plan and all other plans
of the Optionee's employer and its parent and Subsidiary) does not
exceed $100,000. This limitation shall be applied by taking Options
into account in the order in which they were granted.
10. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by
Option Agreements, to be executed by the Granting Employer and by the
Optionee, in such form or forms as the Applicable Committee shall from
time to time determine. Option Agreements covering Options granted
from time to time or at the same time need not contain similar
provisions; provided, however, that all such Option Agreements shall
comply with all terms of the Plan.
11. OPTION PRICE
The Option Price shall be fixed by the Applicable Committee and
stated in each Option Agreement. The Option Price shall not be less
than the Fair Market Value of the shares of Stock or Units on the
Grant Date of the Option; provided, however, that in the event the
Optionee would otherwise be ineligible to receive an Incentive Stock
Option by reason of the provisions of Sections 422(b)(6) and 424(d) of
the Code (relating to stock ownership of more than ten percent), the
Option Price of an Option that is intended to be an Incentive Stock
Option shall be not less than the greater of par value or 110 percent
of the Fair Market Value of a share of Stock at the time such Option
is granted.
. 12. TERM AND EXERCISE OF OPTIONS
12.1 Term. Each Option granted under the Plan shall terminate and all
rights to purchase shares of Stock or Units thereunder shall cease
upon the expiration of ten years from the date such Option is granted,
or on such date prior thereto as may be fixed by the Applicable
Committee and stated in the Option Agreement relating to such Option;
provided, however, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to
stock ownership of more than ten percent), an Option granted to such
Optionee that is intended to be an Incentive Stock Option shall in no
event be exercisable after the expiration of five years from the date
it is granted.
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12.2 Option Period and Limitations on Exercise. Each Option granted under
the Plan shall be exercisable, in whole or in part, at any time and
from time to time over a period commencing on or after the Grant Date
and ending upon the expiration or termination of the Option, as the
Applicable Committee shall determine and set forth in the Option
Agreement relating to such Option. Without limiting the foregoing, the
Applicable Committee, subject to the terms and conditions of the Plan,
may in its sole discretion provide that an Option may not be exercised
in whole or in part for a stated period or periods of time during
which such Option is outstanding; provided, however, that any such
limitation on the exercise of an Option contained in any Option
Agreement may be rescinded, modified or waived by the Applicable
Committee, in its sole discretion, at any time and from time to time
after the Grant Date of such Option, so as to accelerate the time at
which the Option may be exercised.
12.3 Termination of Employment. Upon the termination of the employment of
an Optionee with the Granting Employer, other than by reason of the
death or "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code), any Option granted to an Optionee
pursuant to the Plan shall terminate, and such Optionee shall have no
further right to purchase shares of Stock or Units pursuant to such
Option; provided further, that the Applicable Committee may provide,
by inclusion of appropriate language in any Option Agreement, that an
Optionee may (subject to the general limitations on exercise set forth
in Section 12.2 above), in the event of termination of employment of
the Optionee with the Granting Employer, exercise an Option, in whole
or in part, at any time subsequent to such termination of employment
and prior to termination of the Option pursuant to Section 12.2 above,
either subject to or without regard to any installment limitation on
exercise imposed pursuant to Section 12.2 above, as the Applicable
Committee, in its sole and absolute discretion, shall determine and
set forth in the Option Agreement. Whether a leave of absence or leave
on military or government service shall constitute a termination of
employment for purposes of the Plan, shall be determined by the
Applicable Committee, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment with
the Granting Employer shall not be deemed to occur if the Optionee is
immediately thereafter employed with any other Employer.
12.4 Rights in the Event of Death. If an Optionee dies while employed by
the Granting Employer, the executors or administrators or legatees or
distributees of such Optionee's estate shall have the right (subject
to the general limitations on exercise set forth in Section 12.2
above), at any time within one year after the date of such Optionee's
death and prior to termination of the Option pursuant to Section 12.1
above, to exercise any Option held by such Optionee at the date of
such Optionee's death, whether or not such Option was exercisable
immediately prior to such Optionee's death; provided, however, that
the Applicable
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Committee may provide by inclusion of appropriate language in any
Option Agreement that, in the event of the death of an Optionee, the
executors or administrators or legatees or distributees of such
Optionee's estate may exercise an Option (subject to the general
limitations on exercise set forth in Section 12.2 above), in whole or
in part, at any time subsequent to such Optionee's death and prior to
termination of the Option pursuant to Section 12.1 above, either
subject to or without regard to any installment limitation on exercise
imposed pursuant to Section 12.2 above, as the Applicable Committee,
in its sole and absolute discretion, shall determine and set forth in
the Option Agreement.
12.5 Rights in the Event of Disability. If an Optionee terminates
employment with the Granting Employer by reason of the "permanent and
total disability" (within the meaning of Section 22(e)(3) of the Code)
of such Optionee, then such Optionee shall have the right (subject to
the general limitations on exercise set forth in Section 12.2 above),
at any time within one year after such termination of employment and
prior to termination of the Option pursuant to Section 12.1 above, to
exercise, in whole or in part, any Option held by such Optionee at the
date of such termination of employment, whether or not such Option was
exercisable immediately prior to such termination of employment;
provided, however, that the Applicable Committee may provide, by
inclusion of appropriate language in any Option Agreement, that an
Optionee may (subject to the general limitations on exercise set forth
in Section 12.2 above), in the event of the termination of employment
of the Optionee with the Granting Employer by reason of the "permanent
and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Optionee, exercise an Option, in whole or in part, at
any time subsequent to such termination of employment and prior to
termination of the Option pursuant to Section 12.1 above, either
subject to or without regard to any installment limitation on exercise
imposed pursuant to Section 12.2 above, as the Applicable Committee,
in its sole and absolute discretion, shall determine and set forth in
the Option Agreement. Whether a termination of employment is to be
considered by reason of "permanent and total disability" for purposes
of this Plan shall be determined by the Applicable Committee, which
determination shall be final and conclusive.
12.6 Limitations on Exercise of Option. Notwithstanding the foregoing
Sections, in no event may the Option be exercised, in whole or in
part, after ten years following the date upon which the Option is
granted, as set forth in Section 1 above, or after the occurrence of
an event referred to in Section 18.3 below which results in
termination of the Option. In no event may the Option be exercised for
a fractional share or Unit.
12.7 Method of Exercise. An Option that is exercisable hereunder may be
exercised by the Optionee's delivery to the Granting Employer of
written notice of the exercise and the number of shares of Stock or
Units for which the Option is being exercised. Such delivery shall
occur on any business day, at the
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Granting Employer's principal office, addressed to the attention of
the Applicable Committee. Such notice shall specify the number of
shares of Stock or Units with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option
Price of the shares or Units for which the Option is being exercised.
The minimum number of shares of Stock or Units with respect to which
an Option may be exercised, in whole or in part, at any time shall be
the lesser of (i) 100 shares or Units or such lesser number set forth
in the applicable Option Agreement and (ii) the maximum number of
shares or Units available for purchase under the Option at the time of
exercise. Payment of the Option Price for the shares or Units
purchased pursuant to the exercise of an Option shall be made (i) in
cash or in cash equivalents; (ii) through the tender to the Granting
Employer of shares of Stock or Units, which shares or Units shall be
valued, for purposes of determining the extent to which the Option
Price has been paid thereby, at their Fair Market Value on the date of
exercise; or (iii) by a combination of the methods described in (i)
and (ii). The Applicable Committee may provide, by inclusion of
appropriate language in an Option Agreement, that payment in full of
the Option Price need not accompany the written notice of exercise
provided the notice of exercise directs that the Stock or Unit
certificate or certificates for the shares of Stock or Units for which
the Option is exercised be delivered to a licensed broker acceptable
to the Granting Employer as the agent for the individual exercising
the Option and, at the time such certificate or certificates are
delivered, the broker tenders to the Granting Employer cash (or cash
equivalents acceptable to the Granting Employer) equal to the Option
Price for the shares of Stock or Units purchased pursuant to the
exercise of the Option plus the amount (if any) of federal and/or
other taxes which the Granting Employer may in its judgment, be
required to withhold with respect to the exercise of the Option. An
attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect. Unless
otherwise stated in the applicable Option Agreement, an individual
holding or exercising an Option shall have none of the rights of a
shareholder or limited partner (for example, the right to receive
cash, dividend payments or distributions attributable to the subject
shares of Stock or Units or to direct the voting of the subject shares
of Stock ) until the shares of Stock or Units covered thereby are
fully paid and issued to him or her. Except as provided in Section 18
below, no adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date of such
issuance.
12.8 Transfer of Stock to Employee. Promptly after the exercise of a Stock
Option by an employee of the Company and the payment in full of the
Option Price of the shares of Stock covered thereby, the individual
exercising the Option shall be entitled to the issuance of a Stock
certificate or Stock certificates evidencing his or her ownership of
such shares of Stock.
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12.9 Transfer of Stock to Other Employees
(a) Promptly after the exercise of a Stock Option by an employee of
an Employer that is not the Company and the payment in full of
the Option Price of the shares of Stock covered thereby:
(i) The Company shall sell to the Employer employing the
Optionee the number of shares of Stock as to which the Option was
exercised for a price equal to the Fair Market Value of such
shares.
(ii) The Employer shall deliver to the individual exercising
the Option a Stock certificate or Stock certificates evidencing
his or her ownership of such shares of Stock.
12.10 Transfer of Units to an Operating Partnership Employee. Promptly
after the exercise of a Unit Option by an employee of the Operating
Partnership or its general partner and the payment in full of the
Option Price of the Units covered thereby, the individual exercising
the Option shall be entitled to the issuance of a Unit certificate or
Unit certificates (if certificates with respect to Units are issued)
evidencing his or her ownership of such Units.
12.11 Transfer of Units to Other Employees
(a) Promptly after the exercise of a Unit Option by an employee of an
Employer that is not the Operating Partnership or its general
partner and the payment in full of the Option Price of the Units
covered thereby:
(i) The Operating Partnership shall sell to the
Employer employing the Optionee the number of Units as to
which the Option was exercised for a price equal to the Fair
Market Value of such Units.
(ii) The Employer shall deliver to the individual
exercising the Option a Unit certificate or Unit
certificates (if certificates with respect to Units are
issued) evidencing his or her ownership of such Units.
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13. GRANT OF RESTRICTED STOCK AND RESTRICTED UNITS
13.1 Restricted Stock Awards; Restricted Unit Awards.
(a) The Company Committee and the Management Company Committee may
from time to time, and subject to the provisions of the Plan and
such other terms and conditions as the Applicable Committee may
determine, grant Restricted Stock Awards under the Plan. Each
Restricted Stock Award shall be evidenced by a written instrument
which shall state the number of shares of Stock covered by the
award and the terms and conditions which the Applicable Committee
shall have determined with respect to such award. Upon the grant
of each Restricted Stock Award, subject to Sections 13.1(e) and
13.3 hereof, the Company shall cause a certificate representing
the Stock covered by the award to be registered in the name of
the Holder and delivered to the Holder without payment on his
part (unless such shares are newly issued shares of Stock granted
under the Company Plan, in which case the Company may require a
payment equal to the par value of each share for each share
issued). The Holder shall generally have the rights and
privileges of a stockholder of the Company with respect to such
Stock, including the right to vote and to receive dividends,
subject to the restrictions specified in Sections 13.1(c) and
13.1(d) hereof.
(b) The Company Committee and the Management Company Committee may
from time to time, and subject to the provisions of the Plan and
such other terms and conditions as the Applicable Committee may
determine, grant Restricted Unit Awards under the Plan. Each
Restricted Unit Award shall be evidenced by a written instrument
which shall state the number of Units covered by the award and
the terms and conditions which the Applicable Committee shall
have determined with respect to such award. Upon the grant of
each Restricted Unit Award, subject to Sections 13.1(f) and 13.3
hereof, if certificates are issued with respect to Units, the
Operating Partnership shall cause a certificate representing the
Units covered by the award to be registered in the name of the
Holder and delivered to the Holder without payment on his part.
If the Unit is newly issued or, with respect to a previously
issued Unit, the general partner admits the Holder as a
substituted limited partner, the Holder shall generally have the
rights and privileges of a limited partner in the Operating
Partnership with respect to such Unit, including the right to
receive distributions, subject to the restrictions specified in
Sections 13.1(c) and 13.1(d) hereof.
(c) The Applicable Committee shall determine a period of time
("Limitation Period") during which restrictions shall apply to
the Stock and Units transferred to a Holder with respect to each
Restricted Stock Award and
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Restricted Unit Award. Except as otherwise determined by the
Applicable Committee, the Holder may not sell, transfer, assign,
pledge or otherwise encumber or dispose of the shares of Stock or
Units covered by each Restricted Stock Award or Restricted Unit
Award during the Limitation Period applicable with respect to
such Restricted Stock Award and Restricted Unit Award. The
Applicable Committee in its discretion may prescribe conditions
for the incremental lapse of the preceding restrictions during
the Limitation Period, and for the lapse or termination of such
restrictions upon the occurrence of certain events before the
expiration of the Limitation Period. The Applicable Committee in
its discretion also may shorten or terminate the Limitation
Period or waive any conditions for the lapse or termination of
the restrictions with respect to all or any portion of the shares
of Stock or Units covered by the Restricted Stock Award or
Restricted Unit Award. The restrictions applicable to a
Restricted Stock Award or a Restricted Unit Award shall lapse
upon the earliest of the following: (1) the expiration of the
Limitation Period applicable to the Restricted Stock Award or
Restricted Unit Award; (2) the occurrence of an event prescribed
by the Applicable Committee which results in the lapse of the
restrictions; or (3) such other time as the Applicable Committee
may determine.
(d) The shares of Stock or Units covered by a Restricted Stock Award
or Restricted Unit Award shall be forfeited by the Holder upon
termination of the Holder's employment with the Granting Employer
for any reason before the occurrence of any of the events
described in the last sentence of Section 13.1(c) hereof. The
Holder shall thereupon immediately transfer the shares or Units
to his or her Employer without payment by the Granting Employer.
If the Granting Employer is not the Company or the Operating
Partnership, the Company and the Operating Partnership shall have
the right to purchase any such forfeited shares or Units from
such Granting Employer at a price equal to Fair Market Value at
any time subsequent to such forfeiture.
(e) Promptly after the grant of a Restricted Stock Award by the
Operating Partnership or its general partner, the Management
Company or a Subsidiary of the Management Company, such company
shall notify the Company of the grant and of the recipient's
name, address and social security number, and shall either (i)
pay or cause to be paid to the Company an amount equal to the
Fair Market Value of the shares which are subject to the
Restricted Stock Award or (ii) deliver free and clear of any
liens or encumbrances certificates representing outstanding
shares of Stock in an amount equivalent to the number of shares
granted.
(f) Promptly after the grant of a Restricted Unit Award by the
Management Company or a Subsidiary of the Management Company,
such company shall notify the Operating Partnership of the grant
and of the recipient's name, address and social security number,
and shall either (i) pay or cause to be paid to the Operating
Partnership an amount equal to the Fair Market Value of the Units
which are subject to the Restricted Unit Award or (ii) deliver
free
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and clear of any liens or encumbrances certificates representing
outstanding Units in an amount equivalent to the number of Units
granted.
13.2 Restricted Stock Agreement; Restricted Unit Agreement. All Restricted
Stock Awards and all Restricted Unit Awards granted pursuant to the
Plan shall be evidenced by Restricted Stock Agreements or Restricted
Unit Agreements, as applicable, to be executed by the Granting
Employer and by the Holder, in such form or forms as the Applicable
Committee shall from time to time determine. Restricted Stock
Agreements and Restricted Unit Agreements covering Restricted Stock
and Restricted Units granted from time to time or at the same time
need not contain similar provisions; provided, however, that all such
Restricted Stock Agreements and Restricted Unit Agreements shall
comply with all terms of the Plan.
13.3 Certificates for Restricted Stock and Restricted Units. The Applicable
Committee may require that the certificates evidencing the grant of a
Restricted Stock Award or Restricted Unit Award (if Unit certificates
are issued) hereunder be held in escrow until such restrictions have
expired. The Company shall also cause a legend to be placed on such
certificates that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions to
which the shares of Stock or Units are subject. Upon attainment of the
specified objectives and requirements (or, to the extent specified in
the grant, the portion of such shares or Units earned by partial
attainment of the objectives and requirements, as applicable), a
certificate for the number of shares of Stock or Units (if Unit
certificates are issued) with respect to which restrictions have
lapsed shall be delivered to the Holder free of restrictions upon
submission of the certificate originally issued with respect to such
shares or Units.
14. GRANT OF RESTRICTED STOCK RIGHTS
14.1 Restricted Stock Right Awards.
(a) The Company Committee and the Management Company Committee may
from time to time, and subject to the provisions of the Plan and
such other terms and conditions as the Applicable Committee may
determine, grant Restricted Stock Right Awards under the Plan.
Unless otherwise provided in a Restricted Stock Right Award
Agreement, holders of Restricted Stock Rights shall have no
rights as stockholders of the Company. The Applicable Committee
may provide in an Restricted Stock Right Award Agreement
evidencing a grant of Restricted Stock Rights that the holder of
such Restricted Stock Rights shall be entitled to receive, upon
the Company's payment of a cash dividend on its outstanding
Stock, a cash payment for each share of Restricted Stock held
equal to the per-share dividend paid on the Stock. Such
Restricted Stock Rights Award Agreement may also provide that
such cash payment will be deemed reinvested in additional shares
of
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Restricted Stock Rights at a price per unit equal to the Fair
Market Value of a share of Stock on the date that such dividend
is paid.
(b) The Applicable Committee shall determine establish a period of
time (the "Restricted Period") or shall prescribe certain events
that must occur (each a "Triggering Event") that must lapse in
order for the restrictions that apply to the Stock subject to a
Restricted Stock Right Award to terminate. Each grant of
Restricted Stock Rights may be subject to a different Restricted
Period or Triggering Event, as applicable. The Applicable
Committee may, in its sole discretion, at the time a grant of
Restricted Stock Rights is made, prescribe restrictions in
addition to or other than the expiration of the Restricted Period
or the occurrence of a Triggering Event, including the
satisfaction of corporate or individual performance objectives,
which may be applicable to all or any portion of the Restricted
Stock Rights. The Applicable Committee also may, in its sole
discretion, shorten or terminate the Restricted Period, waive the
required occurrence of a Triggering Event, or waive any other
restrictions applicable to all or a portion of the Restricted
Stock Rights. The Restricted Stock Rights may not be sold,
transferred, assigned, pledged or otherwise encumbered or
disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the
Applicable Committee with respect to such Restricted Stock
Rights.
(c) The rights to shares of Stock covered by a Restricted Stock Right
Award shall be forfeited upon the termination of the employment
of a Holder with the Granting Employer for any reason, unless the
Applicable Committee, in its discretion, determines otherwise.
Upon forfeiture of Restricted Stock Rights, the Holder shall have
no further rights with respect to such grant.
(d) Promptly after the grant of a Restricted Stock Right Award by the
Operating Partnership or its general partner, the Management
Company or a Subsidiary of the Management Company, such company
shall notify the Company of the grant and of the recipient's
name, address and social security number. Upon the expiration or
termination of the Restricted Period or occurrence of the
Triggering Event, as applicable, and the satisfaction of any
other conditions prescribed by the Applicable Committee, the
company that granted the Restricted Stock Right Award shall
either (i) pay or cause to be paid to the Company an amount equal
to the Fair Market Value of the shares that are subject to the
Restricted Stock Right Award or (ii) deliver free and clear of
any liens or encumbrances certificates representing outstanding
shares of Stock in an amount equivalent to the number of shares
granted.
14.2 Restricted Stock Right Agreement. All Restricted Stock Rights Awards
granted pursuant to the Plan shall be evidenced by Restricted Stock
Rights Agreements to be executed by the Granting Employer and by the
Holder, in such form or forms as the Applicable Committee shall from
time to time determine. Restricted Stock Right Agreements covering
Restricted Stock Rights granted from
18
<PAGE>
time to time or at the same time need not contain similar provisions;
provided, however, that all such Restricted Stock Right Agreements
shall comply with all terms of the Plan.
14.3 Delivery of Stock and Payment Therefor. Upon the expiration or
termination of the Restricted Period or occurrence of the Triggering
Event, as applicable, and the satisfaction of any other conditions
prescribed by the Applicable Committee, the restrictions applicable to
shares of Restricted Stock Rights shall lapse, and, upon payment by
the Holder to the Company, in cash or by check, of the aggregate par
value of the shares of Stock represented by such Restricted Stock
Rights, a stock certificate for such shares shall be delivered, free
of all such restrictions, to the Holder or the Holder's beneficiary or
estate, as the case may be.
15. TRANSFERABILITY OF STOCK, UNITS AND OPTIONS
During the lifetime of an Optionee, only such Optionee or grantee
(or, in the event of legal incapacity or incompetency, the guardian or
legal representative of the Optionee or grantee) may exercise the
Option. No share of Restricted Stock or Restricted Unit shall be
assignable or transferable, other than by will or the laws of descent
and distribution, before the satisfaction of applicable performance
and service requirements with respect to such shares, as set forth in
the applicable Restricted Stock Agreement or Restricted Unit
Agreement.
16. USE OF PROCEEDS
The proceeds received by the Company or the Operating Partnership
from the sale of shares of Stock or Units pursuant to Incentive Awards
granted under the Plan shall constitute general funds of the Company
or the Operating Partnership, respectively. As soon as practicable
after receipt by the Company of the amount described in Sections
12.9(a)(i) and 13.1(e) above, the Company shall contribute an amount
of cash equal to such payment to the wholly owned subsidiaries that
own its interests in the Operating Partnership, which in turn will
contribute such cash to the Operating Partnership, and the Operating
Partnership shall issue additional partnership interests to such
subsidiaries with a value equal to the amount of such contribution.
17. REQUIREMENTS OF LAW
17.1 General. The Company and the Operating Partnership shall not be
required to sell or issue any shares of Stock or Units under any
Incentive Award if the sale or issuance of such shares or Units would
constitute a violation by the Optionee, the individual exercising the
Option, or the Company or the Operating Partnership of any provisions
of any law or regulation of any
19
<PAGE>
governmental authority, including without limitation any federal or
state securities laws or regulations. If at any time the Company shall
determine, in its discretion, that the listing, registration or
qualification of any shares or Units subject to the Option upon any
securities exchange or under any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the
issuance or purchase of shares or Units hereunder, the Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company or the
Operating Partnership, as applicable, and any delay caused thereby
shall in no way affect the date of termination of the Option.
Specifically in connection with the 1933 Act, at the time of grant of
Restricted Stock, Restricted Units or shares of Stock underlying
Restricted Stock Rights, or when such shares or Units become vested or
upon the exercise of any Option, unless a registration statement under
such act is in effect with respect to the shares of Stock or Units
covered by the Option or Restricted Stock Right, the Company or the
Operating Partnership, as applicable, shall not be required to sell or
issue such shares or Units unless the Company Committee has received
evidence satisfactory to it that the Optionee or Holder may acquire
such shares or Units pursuant to an exemption from registration under
such act. Any determination in this connection by the Company
Committee shall be final, binding, and conclusive. The Company or the
Operating Partnership may, but shall in no event be obligated to,
register any securities covered hereby pursuant to the 1933 Act.
Neither the Company nor the Operating Partnership shall be obligated
to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock or Units pursuant thereto or
pursuant to a grant of Restricted Stock, Restricted Units or
Restricted Stock Rights to comply with any law or regulation of any
governmental authority. As to any jurisdiction that expressly imposes
the requirement that an Option shall not be exercisable or that shares
of Stock or Units may not be issued pursuant to a Restricted Stock
Award, Restricted Unit Award or Restricted Stock Rights Award unless
and until the shares of Stock or Units covered by such Option or grant
are registered or are exempt from registration, the exercise of such
Option or the issuance of shares of Stock or Units pursuant to such
grant (under circumstances in which the laws of such jurisdiction
apply) shall be deemed conditioned upon the effectiveness of such
registration or the availability of such an exemption.
17.2 Rule 16b-3. The intent of this Plan is to qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. To the extent any
provision of the Plan or action by the Plan administrators does not
comply with the requirements of Rule 16b-3, it shall be deemed
inoperative, to the extent permitted by law and deemed advisable by
the Plan administrators, and shall not affect the validity of the
Plan. In the event Rule 16b-3 is revised or replaced, the Board of
Directors of the Company may exercise discretion to modify this Plan
in any respect necessary to satisfy the requirements of the revised
exemption or its replacement.
20
<PAGE>
17.3 REIT Qualification. The Company shall not be required to sell or issue
any shares of Stock under any Incentive Award if the sale or issuance
of such shares would cause the Company to fail to qualify as a real
estate investment trust for Federal income tax purposes or would
result in the Optionee's or Holder's ownership of Stock in violation
of the restrictions on ownership and transfer of Stock set forth in
the Company's articles of incorporation.
18. AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors of the Company may, at any time and from time
to time, amend, suspend, or terminate the Plan as to any shares of Stock or
Units as to which Incentive Awards have not been granted; provided,
however, no amendment that materially affects the terms of Incentive Awards
under the Operating Partnership Plan shall be effective with respect to the
Operating Partnership Plan without the approval of the Board of Directors
of the general partner of the Operating Partnership, and no amendment that
materially affects the terms of Incentive Awards under the Management
Company Plan shall be effective with respect to the Management Company Plan
without the approval of the Board of Directors of the Management Company;
and provided further, that any amendment which requires stockholder
approval under Rule 163-b (or any successor rule) as a condition to the
Plan's continued compliance with such rule, or which would cause the Plan
not to comply with the Code, shall not be effective without approval by the
affirmative vote of stockholders who hold at least a majority of the
outstanding shares of Stock of the Company entitled to vote thereon and who
vote in person or by proxy at a duly constituted stockholders' meeting. The
Employer may retain the right in an Agreement to cause a forfeiture of the
shares of Stock or gain realized by a Holder of an Incentive Award on
account of the Holder taking actions prohibited by the applicable
Agreement. Except as permitted under this Section 11 or Section 12 hereof,
no amendment, suspension, or termination of the Plan shall, without the
consent of the Holder of the Incentive Award, alter or impair rights or
obligations under any Incentive Award theretofore granted under the Plan.
19. EFFECT OF CHANGES IN CAPITALIZATION
19.1 Changes in Stock or Units. If the number of outstanding shares of
Stock or Units is increased or decreased or the shares of Stock or
Units are changed into or exchanged for a different number or kind of
shares or Units or other securities of the Company or the Operating
Partnership on account of any recapitalization, reclassification,
stock or Unit split, reverse split, combination of shares or Units,
exchange of shares or Units, stock dividend or other distribution
payable in capital stock or Units, or other increase or decrease in
such shares or Units effected without receipt of consideration by the
Company or the Operating Partnership, occurring after the Effective
Date of the Plan, the number and kinds of
21
<PAGE>
shares of Stock or Units for the issuance of which Restricted Stock
Awards, Restricted Unit Awards, and Restrictive Stock Right Awards may
be granted and shares for the acquisition of which Options may be
granted under the Plan shall be adjusted proportionately and
accordingly by the Company. In addition, the number and kind of shares
for which Restricted Stock Awards, Restricted Unit Awards, Restricted
Stock Right Awards or Options are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of
the Holder of the Restricted Stock Awards, Restricted Units Awards,
Restricted Stock Right Awards or Optionee immediately following such
event shall, to the extent practicable, be the same as immediately
before such event. Any such adjustment in outstanding Options shall
not change the aggregate Option Price payable with respect to shares
or Units that are subject to the unexercised portion of the Option
outstanding but shall include a corresponding proportionate adjustment
in the Option Price per share or Unit.
19.2 Reorganization in Which the Company or Operating Partnership Is the
Surviving Entity. Subject to Section 19.3 hereof, if the Company or
the Operating Partnership shall be the surviving entity in any
reorganization, merger, or consolidation of the Company or the
Operating Partnership with one or more other entities, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to
the securities to which a holder of the number of shares of Stock or
Units subject to such Option would have been entitled immediately
following such reorganization, merger, or consolidation, with a
corresponding proportionate adjustment of the Option Price per share
or Unit so that the aggregate Option Price thereafter shall be the
same as the aggregate Option Price of the shares or Units remaining
subject to the Option immediately prior to such reorganization,
merger, or consolidation. Subject to any contrary language in the
applicable Restricted Stock Agreement, Restricted Unit Agreement or
Restricted Stock Right Agreement, any restrictions that were
applicable to any previously granted Restricted Stock Award,
Restricted Unit Award or Restricted Stock Right Award shall apply as
well to any replacement shares received by the Holder as a result of
such reorganization, merger, or consolidation.
19.3 Reorganization in Which the Company or Operating Partnership Is Not
the Surviving Entity or Sale of Assets or Stock or Units. Upon the
dissolution or liquidation of the Company or the Operating
Partnership, or upon a merger, consolidation, or reorganization of the
Company or the Operating Partnership with one or more other entities
in which the Company or the Operating Partnership is not the surviving
entity, or upon a sale of substantially all of the assets of the
Company or the Operating Partnership to another entity, or upon any
transaction (including, without limitation, a merger or reorganization
in which the Company or Operating Partnership is the surviving entity)
approved by the Board of Directors of the Company or the general
partner of the Operating Partnership, as applicable, that results in
any person or entity (or person or entities acting as a group or
otherwise in concert) owning 80 percent or more of the combined voting
22
<PAGE>
power of all classes of securities of, or interests in, the Company or
the Operating Partnership (other than the Company or wholly owned
subsidiaries of the Company), the Plan and all Options outstanding
hereunder shall terminate, except to the extent provision is made in
writing in connection with such transaction for the continuation of
the Plan or the assumption of such Options theretofore granted, or for
the substitution for such Options of new options covering the stock or
partnership units of a successor Company, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of
shares or units and exercise prices, in which event the Plan and
Options theretofore granted shall continue in the manner and under the
terms so provided. In the event of any such termination of the Plan,
each individual holding an Option shall have the right (subject to the
general limitations on exercise set forth in Section 12.2 above),
immediately before the occurrence of such termination and during such
period occurring before such termination as the Company Committee in
its sole discretion shall determine and designate, to exercise such
Option in whole or in part, whether or not such Option was otherwise
exercisable at the time such termination occurs. The Company Committee
shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the
time at which the Company gives notice thereof to its shareholders.
Unvested Restricted Stock Awards, Restricted Unit Awards and
Restricted Stock Right Awards shall be vested in the case of an event
described in this Section 19.3.
19.4 Adjustments Adjustments under this Section 19 related to shares of
Stock or securities of the Company or Units of the Operating
Partnership shall be made by the Company Committee, whose
determination in that respect shall be final, binding, and conclusive.
No fractional shares or units of other securities shall be issued
pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share or unit.
19.5 No Limitations on Company or Operating Partnership. The grant of
Incentive Awards pursuant to the Plan shall not affect or limit in any
way the right or power of the Company or the Operating Partnership to
make adjustments, reclassifications, reorganizations, or changes of
its capital or business structure or to merge, consolidate, dissolve,
or liquidate, or to sell or transfer all or any part of its business
or assets.
20. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Incentive Award granted or
Agreement entered into pursuant to the Plan shall be construed to
confer upon any individual the right to remain in the employ or
service of any Employer, or to interfere in any way with any
contractual or other right or authority of any Employer either to
increase or decrease the compensation or other payments to any
individual at any time, or to terminate any employment or other
relationship
23
<PAGE>
between any individual and such Employer. In addition, notwithstanding
anything contained in the Plan to the contrary, unless otherwise
stated in the applicable Agreement, no Incentive Award granted under
the Plan shall be affected by any change of duties or position of the
Optionee or Holder (including a transfer to or from any Employer), so
long as such Optionee or Holder continues to be a director, officer,
consultant, employee, or independent contractor (as the case may be)
of any Employer (the "Successor Granting Employer"). The Plan shall in
no way be interpreted to require any Employer to transfer any Stock or
Units to a third party trustee or otherwise hold any Stock or Units in
trust or escrow for any participant or beneficiary under the terms of
the Plan.
21. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan
to the stockholders of the Company for approval shall be construed as
creating any limitations upon the right and authority of the Company,
the Operating Partnership or its general partner or the Management
Company or any Subsidiary thereof to adopt such other incentive
compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) such entities in
their discretion determine desirable.
22. CAPTIONS
The use of captions in this Plan or any Agreement is for the
convenience of reference only and shall not affect the meaning of any
provision of the Plan or such Agreement.
23. WITHHOLDING TAXES
23.1 Withholding. The Granting Employer shall have the right to deduct from
payments of any kind otherwise due to an Optionee or Holder any
Federal, state, or local taxes of any kind required by law to be
withheld with respect to any shares of Stock or Units issued upon the
exercise of an Option under the Plan, with respect to the termination
of the Limitation Period with respect to Restricted Stock Awards or
Restricted Unit Awards under the Plan or with respect to the
termination of the Restricted Period in conjunction with the
Restricted Stock Right Awards. At the time of termination of the
Limitation Period or Restricted Period, as applicable, the Optionee or
Holder shall pay to the Granting Employer any amount that the Granting
Employer may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Granting
Employer, which may be withheld by the Granting Employer (and/or the
Successor Granting Employer) in its sole discretion, the Optionee or
Holder may elect to satisfy such obligations, in whole or in part, (i)
by causing such Granting Employer
24
<PAGE>
to withhold shares of Stock or Units otherwise issuable pursuant to
the exercise of an Option or (ii) by delivering to such Granting
Employer shares of Stock or Units already owned by the Optionee or
Holder. The shares of Stock or Units so delivered or withheld shall
have a fair market value equal to such withholding obligations. The
fair market value of the shares of Stock or Units used to satisfy such
withholding obligation shall be determined by the Granting Employer
(and/or the Successor Granting Employer) as of the date that the
amount of tax to be withheld is to be determined. An Optionee or
Holder who has made an election pursuant to this Section 23.1 may only
satisfy his or her withholding obligation with shares of Stock or
Units that are not subject to any repurchase, forfeiture, unfulfilled
vesting, or other similar requirements.
23.2 Limitations for Reporting Person. Notwithstanding the foregoing, in
the case of a Reporting Person, no election to use Stock or Units for
the payment of withholding taxes shall be effective unless made in
compliance with any applicable requirements under Rule 16b-3(e) or any
successor rule under the Exchange Act.
24. OTHER PROVISIONS
Each Incentive Award granted under the Plan may contain such other
terms and conditions not inconsistent with the Plan as may be determined by
the Applicable Committee, in its sole discretion.
25. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine
gender, etc., as the context requires.
26. SEVERABILITY
If any provision of the Plan or any Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable
in accordance with their terms, and all provisions shall remain enforceable
in any other jurisdiction.
27. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Incentive Awards granted hereunder shall be governed by the
laws of the State of Texas.
* * *
25
<PAGE>
The Paragon Group, Inc. Third Amended and Restated 1994 Employee Stock
Option, Unit Option, Restricted Stock and Restricted Unit Plan was duly adopted
and approved by the Board of Directors of Paragon Group, Inc. on the 11 day of
September, 1996.
--------------------------
Jerry J. Bonner
Secretary of Paragon Group, Inc.
The Paragon Group, Inc. Third Amended and Restated 1994 Employee Stock
Option, Unit Option, Restricted Stock and Restricted Unit Plan was duly approved
by the Board of Directors of Paragon Group GP Holdings, Inc., as general partner
of Paragon Group L.P., on the 11 day of September, 1996.
--------------------------
Jerry J. Bonner
Secretary of Paragon Group GP
Holdings, Inc.
The Paragon Group, Inc. Third Amended and Restated 1994 Employee Stock
Option, Unit Option, Restricted Stock and Restricted Unit Plan was duly approved
by the Board of Directors of Paragon Group Property Services, Inc. on the 12 day
of September, 1996.
--------------------------
Jerry J. Bonner
Secretary of Paragon Group
Property Services, Inc.
FIFTH AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
PARAGON GROUP L.P.
A DELAWARE LIMITED PARTNERSHIP,
AS BORROWER
WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED,
NATIONSBANK OF TEXAS, N.A.,
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
TOGETHER WITH THOSE BANKS BECOMING PARTIES
HERETO PURSUANT TO SECTION 11.13,
AS LENDERS
AND
WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED,
AS AGENT FOR LENDERS
DATED AS OF JULY 27,1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Defined Terms........................................1
Section 1.2 Computation of Time Periods.................................24
Section 1.3 Terms.......................................................24
ARTICLE 2
LOANS
Section 2.1 Loan Advances and Repayment.................................24
Section 2.3 Lenders' Accounting.........................................27
Section 2.4 Interest on the Loans.......................................28
Section 2.5 Fees........................................................33
Section 2.6 Payments....................................................34
Section 2.7 Increased Capital...........................................35
Section 2.8 Notice of Increased Costs...................................35
ARTICLE 3
BORROWING BASE PROPERTIES
Section 3.1 Acceptance of Borrowing Base Properties.....................35
Section 3.2 Release of Borrowing Base Properties........................37
Section 3.3 Borrowing Base Determinations...............................38
Section 3.4 Covenants Relating to Borrowing Base Properties.............40
Section 3.5 Grant of Security Interest..................................41
ARTICLE 4
CONDITIONS TO LOANS
Section 4.1 Conditions to Initial Loans.................................42
Section 4.2 Conditions Precedent to Subsequent Loans....................46
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties as to Borrower...............48
Section 5.2 Representations and Warranties as to the REIT...............53
Section 5.3 Representations and Warranties as to Paragon GP Holdings....56
Section 5.4 Representations and Warranties as to Paragon LP Holdings....59
ARTICLE 6
REPORTING COVENANTS
Section 6.1 Financial Statements and Other Financial and Operating
Information........................................62
Section 6.2 Environmental Notices.......................................67
ARTICLE 7
AFFIRMATIVE COVENANTS
Section 7.1 Borrower's Affirmative Covenants............................68
Section 7.2 With respect to the REIT....................................70
Section 7.3 With respect to Paragon GP Holdings.........................72
i
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Section 7.4 With respect to Paragon LP Holdings.........................74
ARTICLE 8
NEGATIVE COVENANTS
Section 8.1 With respect to Borrower....................................76
Section 8.2 With respect to the REIT....................................79
Section 8.3 With respect to Paragon GP Holdings.........................80
Section 8.4 With respect to Paragon LP Holdings.........................81
ARTICLE 9
FINANCIAL COVENANTS
ARTICLE 10
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section 10.1 Events of Default...........................................83
Section 10.2 Rights and Remedies.........................................87
ARTICLE 11
AGENCY PROVISIONS
Section 11.1 Appointment.................................................89
Section 11.2 Nature of Duties............................................89
Section 11.3 Loan Disbursements..........................................90
Section 11.4 Distribution and Apportionment of Payments..................91
Section 11.5 Rights, Exculpation, Etc....................................92
Section 11.6 Reliance....................................................93
Section 11.7 Indemnification.............................................93
Section 11.8 Agent and Lenders Individually..............................93
Section 11.9 Successor Agent; Resignation of Agent, Removal of Agent. ...93
Section 11.10 Consent and Approvals.......................................94
Section 11.11 Agency Provisions Relating to Collateral....................97
Section 11.12 Lender Actions Against Collateral...........................99
Section 11.13 Assignments and Participations..............................99
Section 11.14 Ratable Sharing............................................102
Section 11.15 Delivery of Documents......................................102
Section 11.16 Notice of Events of Default................................103
ARTICLE 12
MISCELLANEOUS
Section 12.1 Expenses...................................................103
Section 12.2 Indemnity..................................................104
Section 12.3 Change in Accounting Principles............................104
Section 12.4 Setoff.....................................................105
Section 12.5 Amendments and Waivers.....................................105
Section 12.6 Independence of Covenants..................................106
Section 12.7 Notices and Delivery.......................................107
Section 12.8 Survival of Warranties, Indemnities and Agreements.........107
Section 12.9 Failure or Indulgence Not Waiver; Remedies Cumulative......107
Section 12.10 Marshalling; Recourse to Security; Payments Set Aside......107
Section 12.11 Severability...............................................108
Section 12.12 Headings...................................................108
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Section 12.13 Governing Law..............................................108
Section 12.14 LIMITATION OF LIABILITY....................................109
Section 12.15 Successors and Assigns.....................................109
Section 12.16 Consent to Jurisdiction and Service of Process; Waiver of Jury
Trial.............................................109
Section 12.17 Counterparts; Effectiveness; Inconsistencies...............110
Section 12.18 Performance of Obligations.................................111
Section 12.19 Construction...............................................111
Section 12.20 Entire Agreement...........................................111
Section 12.21 Confidentiality............................................111
Section 12.22 Estoppel Certificates......................................111
Section 12.23 Limitation of Liability....................................112
iii
<PAGE>
LIST OF DEFINED TERMS
Page No.
$..............................................................................8
Accommodation Obligation.......................................................1
Accountants....................................................................2
Affiliate......................................................................2
Agent ......................................................................2
Agreement......................................................................1
Appraisal......................................................................2
Appraised Value................................................................2
Assignment and Assumption......................................................2
Assignment of Leases and Rents.................................................3
Base Rate......................................................................3
Base Rate Loan.................................................................3
Benefit Plan...................................................................3
Borrower ......................................................................3
Borrower's Affidavit...........................................................3
Borrower's Share...............................................................3
Borrowing......................................................................3
Borrowing Base.................................................................3
Borrowing Base Certificate.....................................................3
Borrowing Base Development Properties..........................................4
Borrowing Base Properties......................................................4
Borrowing Base Stabilized Properties...........................................4
Borrowing Base Stabilized Property Statements.................................63
Breakeven......................................................................4
Business Day...................................................................4
Capital Expenditures................................................Addendum - 1
Capital Lease..................................................................5
Cash Equivalents...............................................................5
Closing Checklist..............................................................5
Closing Date...................................................................5
Co-Agent ......................................................................5
Collateral.....................................................................6
Commission.....................................................................6
Commitment.....................................................................6
Completion Cost................................................................6
Compliance Certificate.........................................................6
Confidential Information.......................................................6
Construction Budget............................................................6
Construction Contracts.........................................................6
Construction Project..........................................................41
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Construction Schedule..........................................................6
Contaminant....................................................................7
Contractual Obligation,........................................................7
Conversion Date................................................................7
Conversion Date Certificate....................................................7
Convertible Securities.........................................................7
Court Order....................................................................7
Debt Service........................................................Addendum - 1
Default Interest...............................................................7
Defaulting Lender..............................................................8
Development Loan Fee..........................................................33
Development Plans..............................................................8
Development Property...........................................................8
Development Property Status Report.............................................8
DOL ......................................................................8
Dollars ......................................................................8
EBITDA ...........................................................Addendum - 1
Eligible Maximum Loan Amount...................................................8
Environmental Laws.............................................................8
Environmental Lien.............................................................8
ERISA ......................................................................9
ERISA Affiliate................................................................9
Event of Default...............................................................9
Facility ......................................................................9
FDIC ......................................................................9
Federal Funds Rate.............................................................9
Federal Reserve Board.........................................................10
Financial Statements..........................................................63
FIRREA .....................................................................10
Fiscal Quarter................................................................10
Fiscal Year...................................................................10
Fixed Charges.................................................................10
Funding Date..................................................................10
Funding Lender................................................................90
Funds From Operations...............................................Addendum - 1
Funds Transfer Agreement......................................................10
GAAP .....................................................................10
General Partner...............................................................10
Governmental Authority........................................................10
Gross Asset Value...................................................Addendum - 1
Improvements..................................................................10
Indebtedness.......................... .......................................11
Indemnified Matters..........................................................104
Indemnitees..................................................................104
Independent Inspecting Architect..............................................11
v
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Interest Expense....................................................Addendum - 2
Interest Period...............................................................11
Interim Period................................................................12
Internal Revenue Code.........................................................12
Investment....................................................................12
Investment Affiliate..........................................................12
Investment Mortgage...........................................................12
IRS .....................................................................12
Land .....................................................................12
Lease-Up Projections..........................................................12
Lender .....................................................................12
Lender Taxes..................................................................30
Liabilities and Costs.........................................................13
LIBOR .....................................................................13
LIBOR Loan....................................................................13
LIBOR Office..................................................................13
LIBOR Reserve Percentage......................................................13
Lien .....................................................................14
Loan .....................................................................14
Loan Availability.............................................................14
Loan Availability Certificate.................................................14
Loan Documents................................................................14
Loan Note.....................................................................14
Major Agreement...............................................................14
Management Company............................................................15
March 31, 1996 Financials.....................................................49
Material Adverse Effect.......................................................15
Maturity Date.................................................................15
Maximum Loan Amount...........................................................15
Maximum Rate.................................................................108
Mortgage .....................................................................15
Mortgage Document.............................................................15
Multiemployer Plan............................................................16
Net Income....................................................................16
Net Operating Income..........................................................16
Non Pro Rata Loan.............................................................16
Non-Funding Lender............................................................90
Nonrecourse Indebtedness......................................................16
Notice of Borrowing...........................................................16
Obligations...................................................................16
Officer's Certificate.........................................................17
operatives...................................................................112
Other Indebtedness............................................................17
Owner's Policy................................................................35
Paragon GP Holdings...........................................................17
vi
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Paragon GP Holdings Affidavit.................................................17
Paragon LP Holdings...........................................................17
Paragon LP Holdings Affidavit.................................................17
Partnerships..................................................................17
PBGC .....................................................................17
Permanent Loan Estimate.......................................................17
Permit .....................................................................18
Permitted Investment..........................................................18
Permitted Lien................................................................18
Person .....................................................................19
Plan .....................................................................19
Pro Rata Share................................................................20
Proceedings...................................................................20
Project Budget................................................................20
Property .....................................................................20
Property Release..............................................................38
Protective Advance............................................................20
Regulation G..................................................................20
Regulation T..................................................................20
Regulation U..................................................................21
Regulation X..................................................................21
REIT .....................................................................21
REIT Affidavit................................................................21
Release .....................................................................21
Remedial Action...............................................................21
Reportable Event..............................................................21
Requirements of Law...........................................................21
Requisite Lenders.............................................................21
Restatement Date..............................................................22
Securities....................................................................22
Securities Act................................................................22
Securities Exchange Act.......................................................22
Senior Loans..................................................................91
Short Term Income.............................................................22
Solvent .....................................................................22
Stabilized Property/Development Property Borrowing Base Ratio.................22
Subsidiary....................................................................22
substantial employer..........................................................23
Supermajority Lenders.........................................................22
Taxes .....................................................................23
Termination Event.............................................................23
to the best of a Person's knowledge...........................................24
Total Liabilities...................................................Addendum - 2
Uniform Commercial Code.......................................................23
Units .....................................................................23
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Unmatured Event of Default....................................................23
Unused Amount.................................................................33
Unused Facility Fee...........................................................33
Wells Fargo....................................................................1
WFB .....................................................................24
Work in Process.....................................................Addendum - 2
work-out ....................................................................104
viii
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FIFTH AMENDED AND
RESTATED CREDIT AGREEMENT
This Fifth Amended and Restated Credit Agreement (as amended,
supplemented or modified from time to time, the "Agreement") dated as of July
27, 1996, is made by and among PARAGON GROUP L.P., a Delaware limited
partnership ("Borrower"), the Lenders, as hereinafter defined, and WELLS FARGO
REALTY ADVISORS FUNDING, INCORPORATED, a Colorado corporation ("Wells Fargo"),
as Agent, and supersedes and takes the place of the Fourth Amended and Restated
Credit Agreement, dated as of February 29, 1996, made by and among the same
parties.
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Defined Terms. The following terms shall have the
following meanings in this Agreement (such meanings to be applicable, except to
the extent otherwise indicated in a definition of a particular term, both to the
singular and the plural forms of the terms defined):
"Accommodation Obligation" as applied to any Person, means any contractual
obligation, contingent or otherwise, of that Person in respect of which
that person is liable for any Indebtedness or other obligation or liability
of another Person, including, without limitation, any such Indebtedness,
obligation or liability directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of
business), co-made or discounted or sold with recourse by that Person, or
in respect of which that Person is otherwise directly or indirectly liable,
including, except as provided below, the recourse and nonrecourse
obligations of partnerships in which that Person has an ownership interest,
Contractual Obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or to provide funds for
the payment or discharge thereof (whether in the form of loans, advances,
stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, a level of income, or other financial condition, or to
make payment other than for value received. With respect to nonrecourse
obligations of partnerships in which a Person has an ownership interest, if
the financial results of a partnership in which a Person has an ownership
interest are not consolidated under GAAP with the financial results of that
Person on the consolidated financial statements of that Person, then only
an amount equal to the product of (a) the nonrecourse obligations of such
partnership, and (b) that Person's ownership interest in such partnership
expressed as a percentage of one, shall constitute an Accommodation
Obligation of that Person. With respect to recourse obligations of such
partnerships, 100% of such obligations shall constitute Accommodation
Obligations of a Person that has an ownership interest in such partnership.
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"Accountants" means Ernst & Young Kenneth Leventhal Real Estate Group,
or any other firm of certified public accountants of national standing
selected by Borrower and reasonably acceptable to Agent.
"Affiliate" as applied to any Person, means 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 25% or more of the Securities
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; (b) the ownership of a general partnership interest;
(c) a limited partnership interest representing 25% or more of the
outstanding partnership interests of a Person.
"Agent" means Wells Fargo in its capacity as Agent for the Lenders
under this Agreement, and shall include any successor to Wells Fargo in
such capacity appointed pursuant hereto and shall be deemed to refer to
Wells Fargo in its individual capacity as a Lender where the context so
requires.
"Agreement" means this Credit Agreement as amended, supplemented or
modified from time to time.
"Appraisal" means a written appraisal prepared (a) by an independent
MAI appraiser acceptable to Agent in its reasonable business discretion;
(b) in accordance with Agent's customary independent appraisal
requirements; and (c) in compliance with all applicable regulatory
requirements, including FIRREA.
"Appraised Value" means (a) as to any Borrowing Base Stabilized
Property or Land, as the case may be, the "as is" market value of such
Borrowing Base Stabilized Property or Land, as the case may be, as
reflected in the most recent Appraisal of such Borrowing Base Stabilized
Property or Land, as the case may be, as the same may have been adjusted by
Agent based upon its internal review of such Appraisal, which review shall
be conducted prior to acceptance of such Appraisal by Agent and in any
event within 21 days after receipt by Agent of such Appraisal; and (b) as
to any Borrowing Base Development Property, the "as though stabilized"
market value of such Borrowing Base Development Property, as reflected in
the most recent Appraisal of such Borrowing Base Development Property, as
the same may be adjusted by Agent based upon its internal review of such
Appraisal, which review shall be conducted prior to acceptance of such
Appraisal by Agent and in any event within 21 days after receipt by Agent
of such Appraisal.
"Assignment and Assumption" means an Assignment and Assumption in the
form of Exhibit A hereto (with blanks appropriately filled in) delivered to
Agent
2
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in connection with each assignment of a Lender's interest under this
Agreement pursuant to Section 11.13.
"Assignment of Leases and Rents" means an Assignment of Leases and
Rents, in form acceptable to Agent, delivered to Agent in connection with a
Borrowing Base Property and securing the Obligations.
"Base Rate" means, on any day, the higher of (a) the Prime Rate in
effect on such day, and (b) the Federal Funds Rate in effect on such day,
plus 1/2% per annum.
"Base Rate Loan" means a Loan bearing interest at the Base Rate.
"Benefit Plan" means any employee pension benefit plan as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) in respect of which
a Person or an ERISA Affiliate is, or within the immediately preceding five
years was, an "employer" as defined in Section 3(5) of ERISA.
"Borrower" means Paragon Group L.P., a Delaware limited partnership.
"Borrower's Affidavit" means an affidavit subscribed and sworn to by
an authorized representative of the General Partner of Borrower as to the
matters set forth therein. Such representative need not be an officer of
the General Partner.
"Borrower's Equity Investment" means, with respect to any Borrowing
Base Development Property, the total project costs to be funded by Borrower
prior to any Loan relating to such Property. Such funded costs shall
aggregate not less than the greater of (a) the difference between (1) the
sum of (A) the total original Project Budget for such Property and (B) 100%
of any increases in the amount of the total Project Budget for such
Property after the initial Loan relating to the Property is disbursed, and
(2) the Maximum Loan Amount and (b) 30% of the amount described in (a)(1)
of this definition.
"Borrower's Share" means Borrower's share of the liabilities of an
Investment Affiliate based upon Borrower's percentage ownership of such
Investment Affiliate.
"Borrowing" means a borrowing under the Facility.
"Borrowing Base" means the sum from time to time of (a) the Borrowing
Base Values of the Borrowing Base Stabilized Properties and (b) the lesser
of (1) $50,000,000 or (2) the Borrowing Base Values of the Properties
accepted by Agent as Borrowing Base Development Properties pursuant to
Section 3.1 on or before September 30, 1996.
"Borrowing Base Certificate" means a report in the form of Exhibit B.
3
<PAGE>
"Borrowing Base Development Properties" means the apartment Properties
which are under development and listed on Schedule 2, as such Schedule 2
may be amended from time to time to reflect the addition and deletion of
apartment Properties under development pursuant to Article 3 hereof.
"Borrowing Base Properties" means the Borrowing Base Development
Properties and the Borrowing Base Stabilized Properties.
"Borrowing Base Property Statements" has the meaning ascribed to such
term in Section 6.1(a).
"Borrowing Base Stabilized Properties" means the apartment Properties
listed on Schedule 1, as such Schedule 1 may be amended form time to time
to reflect the addition and deletion of apartment Properties pursuant to
Article 3 hereof.
"Borrowing Base Value" means, (a) as to any Borrowing Base Stabilized
Property at any time, the lower of:
(1) 70% of the Appraised Value of such Borrowing Base Stabilized
Property; and
(2) the Permanent Loan Estimate of such Borrowing Base Stabilized
Property; and
(b) as to any Borrowing Base Development Property at any time, its
Eligible Maximum Loan Amount.
"Breakeven" means, with respect to any Borrowing Base Development
Property, as calculated from time to time, when such Property generates Net
Operating Income (on an annualized basis) equal to or greater than the sum
of all payments of interest that would be required to annually service the
accrued interest only on a loan in the Maximum Loan Amount for such
Property with an interest rate equal to the sum of three month LIBOR on the
date Breakeven is calculated plus 3.00%.
"Business Day" means (a) with respect to any Borrowing, payment or
rate determination for a LIBOR Loan, a day, other than a Saturday or
Sunday, on which Agent is open for business in Dallas and San Francisco, on
which Co-Agent is open for business in Dallas and on which dealings in
Dollars are carried on in the London interbank market; and (b) for all
other purposes, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the States of California and Texas or is a
day on which banking institutions located in California and Texas are
required or authorized by law or other governmental action to close.
4
<PAGE>
"Capital Expenditures" has the meaning ascribed to such term in
Addendum I to this Agreement.
"Capital Lease" as applied to any Person, means any lease of any
Property (whether real, personal or mixed) by that Person, as lessee,
which, in conformity with GAAP, is or should be accounted for as a capital
lease on the balance sheet of that Person.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by an
agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year after the date of acquisition
thereof; (b) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or
any public instrumentality thereof, maturing within 90 days after the date
of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from any two of Standard & Poor's
Corporation, Moody's Investors Services, Inc., Duff and Phelps, or Fitch
Investors (or, if at any time no two of the foregoing shall be rating such
obligations, then from such other nationally recognized rating services
acceptable to Agent) and not listed for possible down-grade in Credit Watch
published by Standard & Poor's Corporation; (c) commercial paper, other
than commercial paper issued by Borrower or any of its Affiliates, maturing
no more than 90 days after the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 or P-1 from either Standard &
Poor's Corporation or Moody's Investor's Service, Inc. (or, if at any time
neither Standard & Poor's Corporation nor Moody's Investor's Service, Inc.
shall be rating such obligations, then the highest rating from such other
nationally recognized rating services acceptable to Agent); and (d)
domestic and Eurodollar certificates of deposit, time deposits and bankers'
acceptances which mature within 90 days after the date of acquisition
thereof; and (e) overnight securities repurchase agreements, or reverse
repurchase agreements secured by any of the foregoing types of Securities
or debt instruments issued, in each case, by (1) any commercial bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia or Canada having combined capital and
surplus of not less than $250,000,000 or (2) any Lender.
"Closing Checklist" means the Closing Checklist attached hereto as
Exhibit C, as the same may be amended by the parties.
"Closing Date" means the date upon which the initial public offering
of the REIT Securities was closed and funded, such date being July 27,
1994.
"Co-Agent" means NationsBank of Texas, N.A. in its capacity as
co-Agent for the Lenders under this Agreement, and shall be deemed to refer
to NationsBank of Texas, N.A. in its individual capacity as a Lender where
the context so requires.
5
<PAGE>
"Collateral" means all Property and interests in Property now owned or
hereafter acquired by Borrower or the REIT, in or upon which a security
interest, pledge, Lien or Mortgage is granted or of which a collateral
assignment is made under this Agreement, the Mortgage Documents, or any
other Loan Documents.
"Commission" means the Securities and Exchange Commission.
"Commitment" means, with respect to any Lender, such Lender's Pro Rata
Share of the Facility, which amount shall not exceed the principal amount
set out under such Lender's name under the heading "Loan Commitment" on the
counterpart signature pages attached to this Agreement or as set forth on
an Agreement and Assumption executed by such Lender, as assignee, as such
amount may be adjusted pursuant to the terms of this Agreement.
"Completion Cost"means, with respect to any Borrowing Base Development
Property, the remaining cost of completing the Improvements and achieving
Breakeven, as determined monthly by Agent, in its sole discretion, with
consideration given to reports prepared by the Independent Inspecting
Architect.
"Compliance Certificate" means a certificate in the form of Exhibit D
hereto delivered to Agent by Borrower pursuant to Section 6.1(d) and
covering Borrower's compliance with the covenants contained in Articles 6,
7, 8 and 9 of this Agreement.
"Confidential Information" means all nonpublic information obtained by
Agent or any Lender.
"Construction Budget" means, with respect to any Development Property
that is not a Borrowing Base Development Property, the budget for the
construction and development of such Property.
"Construction Contracts" means, with respect to any Borrowing Base
Development Property, any and all material contracts and agreements,
written or oral between the Borrower and any original contractor, including
the architect for such Property, between any of the foregoing and any
subcontractor and between any of the foregoing and any other Person
relating in any way to the construction of the Improvements that are a part
of such Property including the performance of labor or the furnishing of
standards or specially fabricated materials.
"Construction Project" has the meaning ascribed to such term in
Section 3.4(d).
"Construction Schedule" means, with respect to any Borrowing Base
Development Property, the schedule established for completion of the
various stages of development of the Property.
6
<PAGE>
"Contaminant" means any pollutant (as that term is defined in 42
U.S.C. 9601(33) or toxic pollutant (as that term is defined in 33 U.S.C.
1362(13)), hazardous substance (as that term is defined in 42 U.S.C.
9601(14)), hazardous chemical (as that term is defined by 29 CFR Section
1910.1200(c)), toxic substance, hazardous waste (as that term is defined in
42 U.S.C. 6903(5)), radioactive material, special waste, petroleum
(including crude oil or any petroleum-derived substance, waste, or
breakdown or decomposition product thereof, or any constituent of any such
substance or waste, including, but no limited to polychlorinated biphenyls
and asbestos).
"Contractual Obligation," as applied to any Person, means any
provision of any Securities issued by that Person or any indenture,
mortgage, deed of trust, lease, contract, undertaking, document or
instrument to which that Person is a party or by which it or any of its
Properties is bound, or to which it or any of its Properties is subject
(including, without limitation, any restrictive covenant affecting such
Person or any of its Properties).
"Conversion Date means, as to any Borrowing Base Development Property,
the earlier of (a) the date that is 30 months after construction commences;
or (b) the date on which Borrower delivers a Conversion Date Certificate to
Agent pursuant to Section 6.1(y). Each Borrowing Base Development Property
that achieves (1) 90% occupancy for the average of three consecutive months
and (2) 90% for each of three consecutive months of appraised stabilized
gross revenue (on an annualized basis) prior to the Conversion Date, may
become a Borrowing Base Stabilized Property on or subsequent to the
Conversion Date upon written notice from Borrower to Agent.
"Conversion Date Certificate" means a report in the form of Exhibit I.
"Convertible Securities" means evidences of indebtedness, shares of
stock, limited or general partnership interests or other ownership
interests, warrants, options, or other rights or securities which are
convertible into or exchangeable for, with or without payment of additional
consideration, Units of the Borrower, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Court Order" means any judgment, writ, injunction, decree, rule or
regulation of any court or Governmental Authority binding upon or
applicable to the Person in question.
"Debt Service" has the meaning ascribed to such term in Addendum I to
this Agreement.
"Default Interest" has the meaning ascribed to such term in Section 2.4(d).
7
<PAGE>
"Defaulting Lender" means any Lender that fails to perform its
obligations under this Agreement within the time period specified for
performance of such obligations, upon written notice of such failure from
Agent of such failure; provided, however, that any Lender that fails to
fund its Pro Rata Share of any Borrowing by 10:00 A.M. California Time on
the Funding Date for such Borrowing, shall, without written notice of such
failure from Agent, be deemed to be a Defaulting Lender; and any Lender
that fails to perform its obligations under this Agreement (if no time
period is specified for the performance of such obligation), which failure
continues for a period of two Business Days after written notice from Agent
of such failure to such Lender.
"Development Plans" means, with respect to any Borrowing Base
Development Property, the material plans, specifications, shop drawings and
other technical descriptions prepared for construction of the Improvements
on the Property.
"Development Property" means an income producing real estate project
for which both of the following statements are true: (a) at least 30 months
has not passed since construction was commenced and (b) (1) 90% occupancy
for the average of three consecutive months and (2) 90% of stabilized gross
revenues (on an annualized basis) for each of three consecutive months has
not been achieved.
"Development Property Status Report" means, with respect to any
Borrowing Base Development Property, the report delivered to Lender by
Borrower pursuant to Section 6.1(x) of this Agreement.
"DOL" means the United States Department of Labor and any successor
department of agency.
"Dollars" and "$" each mean the lawful money of the United States of
America.
"EBITDA" has the meaning ascribed to such term in Addendum I to this
Agreement.
"Eligible Maximum Loan Amount" means, with respect to any Borrowing
Base Development Property, an amount equal to (a) zero if Borrower's Equity
Investment has not been fully funded; and otherwise, (b) the Maximum Loan
Amount.
"Environmental Laws" means all environment, health and safety
Requirements of Law.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (a) any liability under Environmental Laws or regulations, or
8
<PAGE>
(b) damages arising from, or costs incurred by such Governmental
Authority in response to, a Release or threatened Release of a Contaminant
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" means any (a) corporation which is, becomes, or is
deemed to be a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Internal Revenue Code) as a Person;
(b) partnership, trade or business (whether or not incorporated) which is,
becomes, or is deemed to be under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) with a Person; (c) a Person
which is, becomes, or is deemed to be a member of the same "affiliated
service group" (as defined in Section 414(m) of the Internal Revenue Code)
as a Person; or (d) any other organization or arrangement described in
Section 414(o) of the Internal Revenue Code which is, becomes, or is deemed
to be required to be aggregated pursuant to regulations issued under
Section 414(o) of the Internal Revenue Code with a Person pursuant to
Section 414(o) of the Internal Revenue Code.
"Event of Default" means any of the occurrences set forth in Article
10 after the expiration of any applicable grace period expressly provided
therein.
"Expended Project Costs" means, with respect to any Borrowing Base
Development Property, all sums expended to date for the development of the
Property, consistent with the Project Budget for such Property.
"Facility" means the loan facility of up to $150,000,000.00 described
in Section 2.1(a), which shall consist of (a) $85,000,000.00 of Commitments
from Lenders on the Restatement Date and (b) $65,000,000.00 of additional
Commitments, provided that (1) Borrower requests such additional
Commitments, which requests shall be in increments of not less than
$15,000,000.00, and (2) Agent receives additional Commitments from Lenders
equal to at least the sum of all such requested additional Commitments, not
to exceed $65,000,000.00.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor thereof.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members
of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
Agent from three Federal Funds brokers of recognized standing selected by
Agent.
9
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"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any governmental authority succeeding to its functions.
"Financial Statements" has the meaning ascribed to such term in
Section 6.1(b).
"FIRREA" means the Financial Institutions Recovery, Reform and
Enforcement Act of 1989, as amended from time to time.
"Fiscal Quarter" means a fiscal quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of Borrower which shall be the 12
month period ending on the last day of December in each calendar year.
"Fixed Charges" means the sum of Debt Service and Capital Expenditures.
"Funding Date" means, with respect to any Loan made after the Closing
Date, the date of the funding of such Loan.
"Funds From Operations" has the meaning ascribed to such term in
Addendum I to this Agreement.
"Funds Transfer Agreement" means the Agent's funds transfer agreement
in the form of Exhibit E hereto.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board, the
American Institute of Certified Public Accountants, and the Financial
Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"General Partner" means Paragon GP Holdings.
"Governmental Authority" means any nation or government, any federal,
state, local, municipal or other political subdivision thereof or any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Gross Asset Value" has the meaning ascribed to such term in Addendum
I to this Agreement.
"Improvements" means the improvements described in the Development
Plans for any Borrowing Base Development Property.
10
<PAGE>
"Indebtedness" as applied to any Person (and without duplication),
means, in accordance with GAAP, (a) all indebtedness, obligations or other
liabilities of such Person for borrowed money; (b) all indebtedness,
obligations or other liabilities of such Person evidenced by Securities or
other similar instruments; (c) all reimbursement obligations and other
liabilities of such Person with respect to letters of credit or banker's
acceptances issued for such Person's account; (d) all obligations of such
Person to pay the deferred purchase price of Property or services; (e) all
obligations in respect of Capital Leases of such Person, (f) all
Accommodation Obligations of such Person; (g) all indebtedness, obligations
or other liabilities of such Person or others secured by a Lien on any
asset of such Person, whether or not such indebtedness, obligations or
liabilities are assumed by, or are a personal liability of, such Person,
all as of such time; (h) all indebtedness, obligations or other liabilities
(other than interest expense liability) in respect of interest rate
contracts and foreign currency exchange agreements; and (i) ERISA
obligations currently due and payable. Indebtedness shall not include
operating leases, and any liability specifically offset by cash or Cash
Equivalents held for the sole purpose of liquidating such liability.
"Independent Inspecting Architect" means, with respect to any
Borrowing Base Development Property, the Person selected and retained by
Agent, at Borrower's expense, to review construction of and inspect the
Improvements on behalf of the Lenders.
"Interest Expense" has the meaning ascribed to such term in Addendum I
to this Agreement.
"Interest Period" means, relative to any LIBOR Loans comprising part
of the same Borrowing, the period beginning on (and including) the date on
which such LIBOR Loans are made as, or converted into, LIBOR Loans, and
shall end on (but exclude) the day which numerically corresponds to such
date one, two, three or six months thereafter (or, if such month has no
numerically corresponding day, on the last Business Day of such month), in
either case as Borrower may select in its relevant Notice of Borrowing
pursuant to Section 2.1(b); provided, however, that:
(a) if such Interest Period would otherwise end on a day which is not
a Business Day, such Interest Period shall end on the next
following Business Day (unless such next following Business Day
is the first Business Day of a calendar month, in which case such
Interest Period shall end on the Business Day next preceding such
numerically corresponding day);
(b) no Interest Period may end later than the Termination Date; and
11
<PAGE>
(c) pursuant to Section 11.10(d), any Interest Period of 12 months
shall require the consent of all Lenders.
"Interim Period" means the period commencing on March 31, 1996, and
ending on the Closing Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute.
"Investment" means, as applied to any Person, (a) any direct or
indirect purchase or other acquisition by that Person of Securities, or of
a beneficial interest in Securities of any other Person, and (b) any direct
or indirect loan, advance (other than deposits with financial institutions
available for withdrawal on demand, prepaid expenses, advances to employees
and similar items made or incurred in the ordinary course of business and
extensions of credit in the ordinary course of business), or capital
contribution by such Person to any other Person which is not a current
asset or did not arise from a sale of goods or services to that Person in
the ordinary course of business. The amount of any Investment shall be
determined in conformity with GAAP.
"Investment Affiliate" means any Person in which Borrower has an
ownership interest, whose financial results are not consolidated under GAAP
with the financial results of Borrower on the consolidated financial
statements of the Borrower.
"Investment Mortgage" means any mortgage directly or indirectly owned
by Borrower which secures Indebtedness including certificates of interest
in real estate mortgage investment conduits.
"IRS" means the Internal Revenue Service and any Person succeeding to
the functions thereof.
"Land" means unimproved real estate purchased or to be purchased and
owned in fee by Borrower for the purpose of future development of
improvements.
"Lease-Up Projections" means, with respect to any Borrowing Base
Development Property, the projections prepared by Borrower for leasing
absorption, tenant occupancy, projected rental rates, construction period
discounts and any other rental concessions.
"Lender Taxes" has the meaning ascribed to such term in Section
2.4(g)(2)(A).
"Lender" means Wells Fargo or any other bank, finance company,
insurance or other financial institution which is or becomes a party to
this Agreement by
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execution of a counterpart signature page hereto or an Assignment and
Assumption, as assignee. At all times that there are no Lenders other
than Wells Fargo, the terms "Lender" and "Lenders" mean Wells Fargo in
its individual capacity. With respect to matters requiring the consent
or approval of Requisite Lenders, or all Lenders, any Defaulting
Lender will be disregarded and excluded, and, for voting purposes
only, "all Lenders" shall be deemed to mean "all Lenders other than
Defaulting Lenders."
"Liabilities and Costs" means all claims, judgments, liabilities,
obligations, responsibilities, losses, damages (including lost
profits), punitive or treble damages, costs, disbursements and
expenses (including, without limitation, reasonable attorneys',
experts' and consultants' fees, and costs of investigation and
feasibility studies), fines, penalties and monetary sanctions, and
interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future.
"LIBOR" means, relative to any Interest Period for any LIBOR Loan
included in any Borrowing, the rate of interest determined by Agent
(whose determination shall be conclusive absent manifest error, which
shall not include any lower determination by any other banks) equal to
the rates (rounded upwards, if necessary, to the nearest 1/16 of 1%)
per annum reported by WFB at which Dollar deposits in immediately
available funds are offered by WFB to leading banks in the Eurodollar
interbank market at or about 10:00 A.M. London time two Business Days
prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period for a period approximately equal to
such Interest Period and in an amount equal or comparable to the LIBOR
Loan to which such Interest Period relates.
"LIBOR Loan" means a Loan bearing interest, at all times during
the Interest Period applicable to such Loan, at a fixed rate of
interest determined by reference to LIBOR.
"LIBOR Office" means, relative to any Lender, the office of such
Lender designated as such on the counterpart signature pages hereto or
such other office of a Lender as designated from time to time by
notice from such Lender to Agent, whether or not outside the United
States, which shall be making or maintaining LIBOR Loans of such
Lender.
"LIBOR Reserve Percentage" means, relative to any Interest Period
for LIBOR Loans made by any Lender, the reserve percentage (expressed
as a decimal) equal to the actual aggregate reserve requirements
(including all basic, emergency, supplemental, marginal and other
reserves and taking into account any transactional adjustments or
other scheduled changes in reserve requirements) applicable to such
Lender specified under regulations issued from time to time by the
Federal Reserve Board and then applicable to assets or liabilities
consisting of and including "Eurocurrency Liabilities" as currently
defined in Regulation D of the Federal Reserve Board.
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"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance
(including, but not limited to, easements, rights-of-way, zoning
restrictions and the like), lien (statutory or other), preference,
priority or other security agreement or preferential arrangement of
any kind or nature whatsoever, including without limitation, any
conditional sale or other title retention agreement, the interest of a
lessor under a Capital Lease, any financing lease having substantially
the same economic effect as any of the foregoing, and the filing of
any financing statement (other than a financing statement filed by a
"true" lessor pursuant to 9-408 of the Uniform Commercial Code) naming
the owner of the asset to which such Lien relates as debtor, under the
Uniform Commercial Code or other comparable law of any jurisdiction.
"Loan" means a loan made pursuant to the Facility.
"Loan Account" has the meaning ascribed to such term in Section 2.3.
"Loan Availability" means, as calculated monthly, an amount equal
to (a) the Borrowing Base less (b) the sum of (1) the aggregate
outstanding principal balance under the Loan Notes and (2) the
aggregate Completion Costs relating to the Borrowing Base Development
Properties.
"Loan Availability Certificate"means a report in the form of Exhibit K.
"Loan Availability Deficiency" has the meaning ascribed to such term in
Section 2.1(a)(2).
"Loan Documents" means this Agreement, the Mortgage Documents,
and all other agreements, instruments and documents (together with
amendments and supplements thereto and replacements thereof) now or
hereafter executed by the Borrower, or any other Person which either
(a) evidence, guaranty or secure the Obligations; or (b) relate
directly or indirectly to this Agreement.
"Loan Note" means a promissory note evidencing Loans executed by
Borrower in favor of Lenders, substantially in the form of Exhibit F.
"Major Agreement" means, at any time, any (a) material operating,
cross-easement, restrictions or similar agreement (excluding
Construction Contracts, residential leases, service contracts,
maintenance agreements, agreements with vendors providing goods and
services to a Borrowing Base Property and other similar agreements)
encumbering or affecting a Borrowing Base Property; (b)
management/leasing agreements or leasing agreements with respect to a
Borrowing Base Property; and (c) nonresidential leases which grant a
possessory interest in, or the right to use, any part of a Borrowing
Base Property.
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"Management Company" means Paragon Residential Services, Inc., a
Delaware corporation, and the subsidiary of the Borrower through which
the Borrower will conduct its development, management, leasing, asset
management, and other property services businesses.
"March 31, 1996 Financials" has the meaning ascribed to such term
in Section 5.1(g).
"Material Adverse Effect" means, with respect to a Person, a
material adverse effect upon the condition (financial or otherwise),
operations, performance or properties of such Person. The phrase "has
a Material Adverse Effect" or "will result in a Material Adverse
Effect" or words substantially similar thereto shall, in all cases, be
intended to mean "has or will or could reasonably be anticipated to
result in a Material Adverse Effect," and the phrase "has no (or does
not have a) Material Adverse Effect" or "will not result in a Material
Adverse Effect," or words substantially similar thereto, shall, in all
cases, be intended to mean "does not or will not or could not
reasonably be anticipated to result in a Material Adverse Effect."
"Maturity Date" means July 27, 1998, unless the Maturity Date is
extended pursuant to Section 2.1(d), in which case the Maturity Date
shall be the date to which this Agreement is so extended.
"Maximum Loan Amount" means, with respect to any Borrowing Base
Development Property, an amount equal to the least of:
(a) 65% of the Appraised Value;
(b) 70% of the total amount of the Project Budget; or
(c) the Permanent Loan Estimate;
on the date such Property is accepted as a Borrowing Base Development
Property pursuant to Section 3.1.
"Mortgage Document" means any Mortgage, Assignment of Leases and
Rents, indemnity agreement, security agreement or other document
executed by Borrower, evidencing or creating Agent's Liens against a
Borrowing Base Property as security for the Obligations, as each of
the foregoing may be amended, supplemented or modified from time to
time.
"Mortgage" means the fee or leasehold mortgage, deed of trust or
trust deed relating to a Borrowing Base Property and securing the
Obligations.
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"Multiemployer Plan" means an employee benefit plan defined in
Section 4001(a)(3) of ERISA which is, or within the immediately
preceding six years was, contributed to by a Person or an ERISA
Affiliate.
"Net Income" means, for any period, the net earnings (or loss) of
the Borrower, the REIT, and their respective Subsidiaries after (a)
Taxes and (b) adjustment for net earnings (or loss) attributable to
minority interests in Subsidiaries, for such period on a consolidated
basis, calculated in conformity with GAAP.
"Net Operating Income" means, with respect to a Borrowing Base
Property, the net operating income of such Borrowing Base Property
determined in accordance with sound accounting principles consistently
applied. For purposes of determining Net Operating Income, (a) income
shall not include security or other deposits, late fees, lease
termination or other similar charges, delinquent rent recoveries,
unless previously reflected in reserves, or any other items of a
non-recurring nature, except that, Net Operating Income may include
collected lease termination charges (amortized monthly over the
remaining term of the lease) and delinquent rent recoveries so long as
(1) any such charge or recovery does not relate to a date earlier than
12 months prior to the end of the period for which Net Operating
Income is determined, and (2) no such recovery shall be made for any
month during or after which the space to which such charge or recovery
relates has been released to another Person and such person has an
obligation to pay rent for such month(s); and (b) expenses shall
include reasonable allocations or adjustments for taxes and insurance
and maintenance and repairs made in the ordinary course, which are
acceptable to Agent, and (c) reasonable adjustments, which are
acceptable to Agent, shall be made for any casualty at such Borrowing
Base Property that is not fully covered by insurance, the condemnation
of any part of such Borrowing Base Property, and loss of tenants by
reason of any such casualty or condemnation.
"Net Worth" has the meaning ascribed to such term in Addendum I
to this Agreement.
"Non Pro Rata Loan" means a Loan with respect to which fewer than
all Lenders have funded their respective Pro Rata Shares of such Loan.
"Nonrecourse Indebtedness" means Indebtedness with respect to
which recourse for payment is limited to specific Property encumbered
by a Lien securing such Indebtedness.
"Notice of Borrowing" means a notice substantially in the form of
Exhibit G.
"Obligations" means, from time to time, all Indebtedness of
Borrower owing to Agent, any Lender, or any Person entitled to
indemnification pursuant to Section 12.2, or any of their respective
successors, transferees or assigns, of every
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type and description, whether or not evidenced by any note, guaranty
or other instrument, arising under or in connection with this
Agreement or any other Loan Document, whether or not for the payment
of money, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now
existing or hereafter arising, and however acquired. The term
includes, without limitation, all Liabilities and Costs, interest,
charges, expenses, fees, reasonable attorneys' fees and disbursements
and any other sum now or hereinafter chargeable to Borrower under, or
in connection with, this Agreement or any other Loan Document.
"Officer's Certificate" means a certificate signed by a specified
representative, officer or general partner of a Person certifying as
to the matters set forth therein.
"Other Indebtedness" means all Indebtedness other than the Obligations.
"Paragon GP Holdings" means Paragon Group GP Holdings, Inc., a
Delaware corporation, wholly owned by the REIT, the sole general
partner of the Borrower, and which holds approximately 1% of the Units
of the Borrower.
"Paragon GP Holdings Affidavit" means the affidavit subscribed
and sworn to by an authorized representative of Paragon GP Holdings as
to the matters set forth therein.
"Paragon LP Holdings" means Paragon Group LP Holdings, Inc., a
Delaware corporation and wholly owned subsidiary of the REIT, which
holds approximately 72.9% of the Units of the Borrower.
"Paragon LP Holdings Affidavit" means the affidavit subscribed
and sworn to by an authorized representative of Paragon LP Holdings as
to the matters set forth therein.
"Partnerships" means partnerships or joint ventures engaged in
real estate development, ownership, management or investment
subpartnerships.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Person succeeding to the functions thereof.
"Permanent Loan Estimate" means, (a) as to any Borrowing Base
Stabilized Property, an amount equal to 80% of the Net Operating
Income of such Property for the annualized six month period
immediately preceding the date of determination, divided by the
constant annual percentage which would be applicable to a loan payable
in equal annual payments of principal and interest over 25 years
bearing interest at a fixed rate equal to the greater of (1) 2.25% in
excess of the yield on the date such Permanent Loan Estimate is
calculated for seven year United States
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Treasury Notes, and (2) 8.00%; and (b) as to any Borrowing Base
Development Property, an amount equal to 80% of the Net Operating
Income of the Property, calculated using the first year of stabilized
Net Operating Income as projected in the Appraisal of such Property
(or as otherwise determined by the Supermajority Lenders), divided by
the constant annual percentage which would be applicable to a loan
payable in equal annual payments of principal and interest over 25
years at a fixed rate equal to the greater of (1) 2.25% in excess of
the yield on the date such Permanent Loan Estimate is calculated for
seven year United States Treasury Notes, and (2) 8.00%. Upon the
earlier of (A) 24 months after construction commences at a Borrowing
Base Development Property or (B) the Borrowing Base Development
Property attains a 50% level of occupancy, if the Property has not
achieved 90% of the stabilized gross revenues (before application of a
vacancy factor) projected for the first year in the Appraisal
(calculated on an annualized basis adjusted for a 50% level of
occupancy and excluding any construction period discounts disclosed in
the Lease-Up Projections), then the projected stabilized gross
revenues (before application of a vacancy factor) used to calculate
the Permanent Loan Estimate for the Property shall be adjusted
downward, by an amount determined by Agent; provided, however, that
the Maximum Loan Amount shall not be increased by application of this
provision.
"Permit" means any permit, approval, authorization, license,
variance or permission required from a Governmental Authority under an
applicable Requirement of Law.
"Permitted Delays" shall mean strikes, lockouts, labor trouble,
failure of power, riots, insurrection, war, acts of God, restrictive
laws or regulations that did not exist when construction commenced, or
other events beyond the control of Borrower which delay, hinder or
prevent construction of the Improvements. Any extension of time for a
Permitted Delay shall be conditioned upon Borrower delivering written
notice of the Permitted Delay to Agent within fifteen (15) days after
the event causing the Permitted Delay, and the period of time for
completion of construction of the Improvements shall be extended by
the period of time equivalent to the delay caused by the Permitted
Delay.
"Permitted Investment" means each of Land, Securities,
Partnerships and Investment Mortgages, to the extent permitted in
paragraph 7 of Addendum-I of this Agreement.
"Permitted Lien" means:
(a) a Lien (other than Environmental Liens and any Lien imposed under
ERISA) for taxes, assessments or charges of any Governmental
Authority or a claim which either is (1) not yet due or (b) being
contested in good faith by appropriate proceedings and with
respect to which adequate reserves are being maintained in
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accordance with GAAP or other appropriate provisions approved by Agent
have been taken.
(b) a Lien (other than any Lien imposed under ERISA) incurred or a
deposit made in the ordinary course of business (including,
without limitation, any surety bond or appeal bond) in connection
with workers' compensation, unemployment insurance and other
types of social security benefits, or to secure the performance
of tenders, bids, leases, contracts (other than for the repayment
of Indebtedness), statutory obligations and other similar
obligations, or arising as a result of progress payments under
government contracts;
(c) an easement (including, without limitation, a reciprocal easement
agreement or a utility agreement), right-of-way, covenant,
consent, reservation, operating agreement, encroachment,
variation or other restriction, charge or encumbrance (whether or
not recorded) affecting the use of real property, which does not
materially and adversely affect the value of such Property or
impair the use thereof;
(d) any law, ordinance, Lien, easement, right-of-way, restriction,
exemption, reservation, condition, limitation, covenant, adverse
right or interest described as an exception on Schedule B of any
title insurance policy which is delivered to and accepted by
Agent in satisfaction of Section 4.1(e)(1)(E); and
(e) a Lien imposed by law, such as a carriers', warehousemen's or
mechanics' lien or other similar Lien arising in the ordinary
course of business, which secures payment of obligations not more
than 30 days past due, or which is being contested in good faith
by appropriate proceedings, diligently pursued, and for which
adequate reserves shall have been established in accordance with
GAAP.
"Person" means any natural person, employee, corporation, limited
partnership, general partnership, joint stock company, limited
liability company, joint venture, association, company, trust, bank,
trust company, land trust, business trust, Governmental Authority, or
other organization, whether or not a legal entity.
"Plan" means an employee benefit plan defined in Section 3(3) of
ERISA (other than a Multiemployer Plan) in respect of which Borrower
or an ERISA Affiliate, as applicable, is an "employer" as defined in
Section 3(5) of ERISA.
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"Post-Foreclosure Plan" has the meaning ascribed to such term in
Section 11.11(e).
"Prime Rate" means the base rate of interest per annum
established from time to time by WFB, and designated as its prime
rate.
"Pro Rata Share" means, with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the
amount of such Lender's Commitment and the denominator of which shall
be the aggregate amount of all of the Lenders' Commitments, as
adjusted from time to time in accordance with the provisions of this
Agreement.
"Proceedings" means, collectively, all actions, suits and
proceedings before, and investigations commenced or threatened by or
before, any court or Governmental Authority with respect to a Person.
"Project Budget" means, with respect to any Borrowing Base
Development Property, the budget for the development of the Property
approved by the Requisite Lenders which shall include a project budget
overview, a detailed AIA package, and a breakout of any retainage
required by applicable law or contract and be substantially in the
form of Exhibit J to this Agreement, as amended from time to time.
"Property" means any real or personal property, building,
facility, structure, equipment or unit, or other asset owned and
operated by Borrower.
"Property Release" has the meaning ascribed to such term in
Section 3.2.
"Protective Advance" means all sums expended as determined by
Agent to be necessary or appropriate to: (a) protect the priority,
validity and enforceability of the Liens on, and security interests
in, any Collateral and the instruments evidencing the Obligations; or
(b) (1) prevent the value of any Collateral from being materially
diminished (assuming the lack of such a payment within the necessary
time frame could potentially cause such Collateral to lose value), or
(2) protect any of the Collateral from being materially damaged,
impaired, mismanaged or taken, including, without limitation, any
amounts expended in accordance with Section 12.1.
"Regulation G" means Regulation G of the Federal Reserve Board as
in effect from time to time.
"Regulation T" means Regulation T of the Federal Reserve Board as
in effect from time to time.
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"Regulation U" means Regulation U of the Federal Reserve Board as
in effect from time to time.
"Regulation X" means Regulation X of the Federal Reserve Board as
in effect from time to time.
"REIT" means Paragon Group, Inc., a Maryland corporation.
"REIT Affidavit" means an affidavit subscribed and sworn to by an
authorized representative of the REIT as to the matters set forth
therein.
"Release" means the release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment or into or out of any
real Property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real Property.
"Remedial Action" means any action required by applicable
Environmental Laws to (a) clean up, remove, treat or in any other way
address Contaminants in the indoor or outdoor environment; (b) prevent
the Release, threat of Release, or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to
endanger public health or welfare or the indoor or outdoor
environment; or (c) perform pre-remedial studies and investigations
and post-remedial monitoring and care.
"Reportable Event" means any of the events described in Section
4043(b) of ERISA, other than an event for which the 30 day notice
requirement is waived by regulations.
"Requirements of Law" means, as to any Person, the charter and
by-laws, partnership agreements or other organizational or governing
documents of such Person, and any law, rule or regulation, Permit, or
determination of an arbitrator, court, or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its Property or to which such Person or any of its Property is
subject, including without limitation, the Securities Act, the
Securities Exchange Act, Regulations G, T, U and X, FIRREA and any
certification of occupancy, zoning ordinance, building, environmental
or land use requirement or Permit or occupational safety or health
law, rule or regulation.
"Requisite Lenders" means, collectively, Lenders whose Pro Rata
Shares, in the aggregate, are at least sixty-six and two-third percent
(66 2/3%); provided, that in determining such percentage at any given
time, all then existing Defaulting Lenders will be disregarded and
excluded and the Pro Rata Shares of Lenders shall be redetermined, for
voting purposes only, to exclude the Pro Rata Shares of such
Defaulting Lenders.
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"Restatement Date" means the date of this Agreement.
"Securities" means any stock, shares, voting trust certificates,
bonds, debentures, notes or other evidences of Indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general
any instruments commonly known as "securities," or any certificates of
interest, shares, or participations in temporary or interim
certificates for the purchase or acquisition of, or any right to
subscribe to, purchase or acquire any of the foregoing, but shall not
include any evidence of the Obligations.
"Securities Act" means the Securities Act of 1933, as amended to
the date hereof and from time to time hereafter, and any successor
statute.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended to the date hereof and from time to time hereafter,
and any successor statute.
"Senior Loans" has the meaning ascribed to such term in Section 11.4(b).
"Short Term Income" means income received by Borrower from Cash
Equivalents.
"Solvent" means as to any Person, at the time of determination,
that such Person (a) owns property the value of which (both at fair
valuation and at present fair saleable value) is greater than the
amount required to pay all of such Person's liabilities (including
contingent liabilities and debts); (b) is able to pay all of its debts
as such debts mature; and (c) has capital sufficient to carry on its
business and transactions and all business and transactions in which
it is about to engage.
"Stabilized Property/Development Property Borrowing Base Ratio"
means the ratio of the amount of the Borrowing Base derived from
Borrowing Base Stabilized Properties to the amount of the Borrowing
Base derived from Borrowing Base Development Properties.
"Subsidiary" of a Person means any corporation, partnership
(limited or general), trust or other entity of which a majority of the
stock (or equivalent ownership or controlling interest) having voting
power to elect a majority of the board of directors (if a corporation)
or to select the trustee or equivalent controlling interest, shall, at
the time such reference becomes operative, be directly or indirectly
owned or controlled by such Person or one or more of the other
subsidiaries of such Person or any combination thereof, and whose
financial statements are prepared on a consolidated basis with such
Person.
"Supermajority Lenders" means, collectively, Lenders whose Pro
Rata Shares, in the aggregate, are at least ninety percent (90%) of
the existing
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Commitments, which total $85,000,000 on the Restatement Date;
provided, that, in determining such percentage at any given time, all
then existing Defaulting Lenders will be disregarded and excluded and
the Pro Rata Share of each Lender will be redetermined, for voting
purposes only, to exclude the Pro Rata Shares of the Defaulting
Lenders.
"Taxes" means all federal, state, local and foreign income and
gross receipts taxes.
"Termination Date" means the earlier to occur of (a) the Maturity
Date; and (b) the date on which the Loans are accelerated pursuant to
Section 10.2(a).
"Termination Event" means (a) any Reportable Event; (b) the
withdrawal of a Person, or an ERISA Affiliate from a Benefit Plan
during a plan year in which it was a "substantial employer" as defined
in Section 4001(a)(2) of ERISA; (c) the occurrence of an obligation of
a Person or an ERISA Affiliate arising under Section 4041 of ERISA to
provide affected parties with a written notice of an intent to
terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (d) the institution by the PBGC of
proceedings to terminate any Benefit Plan under Section 4042 of ERISA;
(e) any event or condition which constitutes grounds under Section
4042 of ERISA for the appointment of a trustee to administer a Benefit
Plan; (f) the partial or complete withdrawal of a Person or any ERISA
Affiliate from a Multiemployer Plan; or (g) the adoption of an
amendment by any Person or any ERISA Affiliate to terminate any
Benefit Plan.
"Total Liabilities" has the meaning ascribed to such term in
Addendum I to this Agreement.
"Uniform Commercial Code" means the Uniform Commercial Code as in
effect on the date hereof in the State of Texas; provided; that, if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of any security interest in any
Collateral or the availability of any remedy hereunder is governed by
the Uniform Commercial Code as in effect on or after the date hereof
in any other jurisdiction, "Uniform Commercial Code" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such perfection, or effect of
perfection or non-perfection, or availability of such remedy.
"Units" means units of partnership interest in the Borrower.
"Unmatured Event of Default" means an event which, with the
giving of notice or the lapse of time, or both, would constitute an
Event of Default.
"Unused Amount" has the meaning ascribed to such term in Section 2.5(a).
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"Unused Facility Fee" has the meaning ascribed to such term in
Section 2.5(a).
"WFB" means Wells Fargo Bank, N.A.
"Work in Process" has the meaning ascribed to such term in
Addendum I to this Agreement.
Section 1.2 Computation of Time Periods. In this Agreement,
in the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"
and the words "to" and "until" each mean "to and including"
(except with respect to the calculation of Interest, where the
word "to" shall not mean "including"). Periods of days referred
to in this Agreement shall be counted in calendar days unless
Business Days are expressly prescribed.
Section 1.3 Terms.
(a) Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily
given them in accordance with GAAP, provided that references
to the financial results of the "Borrower on a consolidated
basis" shall be deemed to mean, unless otherwise
specifically indicated, the consolidated financial results
of the REIT, Paragon GP Holdings, Paragon LP Holdings, the
Borrower, and the Management Company.
(b) Any time the phrase "to the best of a Person's knowledge" or
a phrase similar thereto is used herein, it means to the
actual knowledge of the executive officers or general
partners of that Person, after reasonable inquiry of any
Agents, employees or contractors of that Person, who could
reasonably be anticipated to have knowledge with respect to
the subject matter or circumstances in question and to be
able to review any documents or instruments which could
reasonably be anticipated to be relevant to the subject
matter or circumstances in question.
(c) In each case where the consent or approval of any of the
Agent, all Lenders or the Requisite Lenders is required, or
their non-obligatory action is requested by Borrower, such
consent, approval or action shall be in the sole and
absolute discretion of Agent and, as applicable, each
Lender, unless otherwise specifically indicated.
ARTICLE 2
LOANS
Section 2.1 Loan Advances and Repayment.
(a) Loan Availability.
(1) Subject to the terms and conditions set forth in this Agreement,
Lenders agree to make Loans to Borrower from time to time during the
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period from the Closing Date to the Business Day next preceding the
Termination Date, in an aggregate amount which shall not exceed Loan
Availability. All Loans under this Agreement shall be made by Lenders
simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for
any failure by any other Lender to perform its obligation to make a
Loan hereunder and that the Commitment of any Lender shall not be
increased or decreased as a result of the failure by any other Lender
to perform its obligation to make a Loan.
(2) Loans may be voluntarily prepaid pursuant to
Section 2.6(a) and, subject to the provisions of this Agreement, any
amounts so prepaid may be reborrowed, up to the amount available under
Section 2.1(a)(1) at the time of such Borrowing, until the Business Day
next preceding the Termination Date. The principal balance of the Loans
shall be payable in full on the Termination Date. If during the term of
this Agreement the aggregate outstanding principal balance of the Loans
ever exceeds Loan Availability (a "Loan Availability Deficiency"), then
Borrower shall have 30 days after the earlier of (A) demand by Agent;
and (B) the date Borrower knew or with reasonable diligence should have
known of such deficiency; to submit a plan to either (i) reduce the
aggregate outstanding principal balance of the Loans to an amount that
is less than, or equal to, Loan Availability; or (ii) increase Loan
Availability by mortgaging additional Properties approved by the
Requisite Lenders pursuant to Section 3.1 so as to increase the
Borrowing Base. Borrower shall then have an additional 60 days
following expiration of such 30-day period in which to correct the Loan
Availability Deficiency, failing which, an Event of Default shall have
occurred without further notice or action on the part of Agent or the
Lenders. The existence of a Loan Availability Deficiency constitutes an
Unmatured Event of Default. Accordingly, no Loans shall be made under
this Agreement while a Loan Availability Deficiency exists.
(b) Notice of Borrowing. Whenever Borrower desires to borrow
under this Section 2.1, but in no event more than three times during
any one calendar month or more than 36 times in the aggregate during
any Fiscal Year, Borrower shall give Agent, at Wells Fargo Real Estate
Group Disbursement Center, 2120 East Park Place, Suite 100, El
Segundo, California 90245, with a copy to: Wells Fargo Real Estate
Group, Inc., 12377 Merit Drive, Suite 300, Dallas, Texas 75251,
Attention: Account Officer, or such other addresses as Agent shall
designate, an original or facsimile Notice of Borrowing no later than
10:00 A.M. (California time), not fewer than three nor more than five
Business Days prior to the proposed Funding Date of each Loan. Each
Notice of Borrowing shall specify (1) the proposed Funding Date (which
shall be a Business Day) for the Loan; (2) the amount of the proposed
Loan; provided, that, the aggregate amount of such proposed Loan shall
equal $1,000,000 or integral multiples of $100,000 in excess thereof;
(3) whether the Loan will be a Base Rate Loan or a LIBOR Loan and, if
a LIBOR Loan, the Interest Period; (4) to which account of Borrower
the funds are to be directed; and (5) that the use of the proceeds of
such Loan will be consistent with Section 7.1(h) of this Agreement.
Any Notice of Borrowing pursuant to this Section 2.1(b) shall be
irrevocable. Each such Notice of Borrowing shall be accompanied by all
reports or documents required to be delivered by Borrower to Agent
under this Agreement.
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<PAGE>
Borrower may elect (A) to convert Base Rate Loans, or any portion
thereof, into a LIBOR Loan; (B) to convert LIBOR Loans, or any portion
thereof, into a Base Rate Loan; or (C) to continue any LIBOR Loan, or
any portion thereof, for an additional Interest Period, provided,
however, that the aggregate amount of the LIBOR Loans being converted
shall, in the aggregate, equal $1,000,000, or an integral multiple of
$100,000 in excess thereof. The applicable Interest Period for the
continuation of any LIBOR Loan shall commence on the day on which the
next preceding Interest Period expires. Each such election shall be
made by giving Agent written notice thereof by 10:00 A.M. (California
time) on the date of a conversion to a Base Rate Loan, or by 10:00
A.M. (California time), not fewer than three nor more than five
Business Days prior to the date of a conversion to or continuation of
a LIBOR Loan, specifying, in each case (i) whether a conversion or
continuation is to occur; (ii) the amount of the conversion or
continuation; (iii) the Interest Period therefor, in the case of a
conversion to or continuation of a LIBOR Loan; and (iv) the date of
the conversion or continuation (which date shall be a Business Day).
Agent shall notify each Lender of each such Notice of Borrowing and
its contents within one (1) Business Day after Agent's receipt
thereof. Notwithstanding anything to the contrary contained herein and
subject to the Default Interest provisions contained in Section
2.4(d), if an Event of Default occurs and as a result thereof the
Commitments are terminated, all LIBOR Loans will convert to Base Rate
Loans upon the expiration of the applicable Interest Periods therefor
or the date all Loans become due, whichever occurs first. Except as
provided above, the conversion of a LIBOR Loan to a Base Rate Loan
shall occur only on the last Business Day of the Interest Period
relating to such LIBOR Loan.
(c) Making of Loans. Subject to Section 11.3, Agent shall make
the proceeds of Loans available to Borrower in El Segundo, California
on such Funding Date and shall disburse such funds in Dollars and in
immediately available funds not later than 12:00 P.M., California
Time, to Borrower's commercial demand account, which shall be
specified in the Notice of Borrowing.
(d) Terms; Principal Payment. The outstanding balance of the
Loans shall be payable in full on the Termination Date; provided,
however, that Borrower shall have the right to extend the Maturity
Date for one one year period, provided:
(1) (A) Borrower gives Agent notice of Borrower's
election to extend the Maturity Date (which election may be
made only for one extension period at a time) not later than
90 days prior to the then effective Maturity Date; and
(B) prior to the commencement of such extension period,
Agent receives current Appraisals with respect to each
Borrowing Base Property other than Borrowing Base Properties
for which Agent has received an Appraisal within twelve
months of the then effective Maturity Date; and
(2) each of the following conditions is satisfied when such extension
period commences:
(A) Borrower has paid to Agent an extension fee (for the
benefit of all Lenders) equal to .25% of the Facility;
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<PAGE>
(B) no Unmatured Event of Default or Event of Default
has occurred and is continuing;
(C) the aggregate principal outstanding balance of the
Loans does not exceed Loan Availability;
(D) the ratio of Total Liabilities to Gross Asset Value
is no greater than .525:1;
(E) the ratio of EBITDA to Interest Expense is no less
than 2.25:1;
(F) the ratio of EBITDA to Fixed Charges is no less
than 2:1; and
(G) distributions on account of Units shall constitute
no more than 95% of Funds from Operations.
Each of the performance measures described at (D) thru (G) above
shall be calculated from the Borrower's Financial Statements for the
Fiscal Quarter ending March 31, 1998.
Section 2.2 Authorization to Obtain Loans. Borrower shall provide
Agent with documentation satisfactory to Agent indicating the names of
those representatives of its General Partner that are authorized by
its General Partner to sign Borrowing Base Certificates and Notices of
Borrowing. Agent and Lenders shall be entitled to rely on such
documentation until notified in writing by Borrower of any change(s)
of the persons so authorized. Agent shall be entitled to act on the
instructions of anyone identifying himself as one of the Persons
authorized to request Loans, and Borrower shall be bound thereby in
the same manner as if such Person were actually so authorized.
Borrower agrees to indemnify, defend and hold Agent and Lender
harmless from and against any and all Liabilities and Costs which may
arise or be created by the acceptance of Notices of Borrowing, unless
caused by the gross negligence of the Person to be indemnified.
Section 2.3 Lenders' Accounting. Agent shall maintain a loan
account for the Borrower and each Lender on its books ("Loan
Account"). The Loan Account maintained for each Lender shall disclose
(a) such Lender's name, address and Commitment, and the principal
amounts of any Loans owing to such Lender from time to time, and (b)
all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees incurred and
disbursements made by Agent on behalf of such Lender. The Loan Account
maintained for the Borrower shall disclose (1) the principal amount
owing on any Loans; (2) all other appropriate debits and credits as
provided in this Agreement, including, without limitation, all
interest, fees (including reasonable attorneys' fees and
disbursements), expenses, charges and other Obligations; and (3) all
payments of Obligations made by Borrower or for Borrower's own
account. All entries in a Loan Account shall be made in accordance
with Agent's customary accounting practices as in effect from time to
time. From time to time as is customary with Agent's practice, or as
may be reasonably requested by Borrower or any Lender, Agent will
render a statement of a Loan Account to Borrower, or such Lender, as
the case may be. Upon reasonable request, Agent also shall furnish (i)
to Borrower a copy of the Loan Account of each Lender; and (ii) to any
Lender a copy of the Loan Account for
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<PAGE>
Borrower. Each Loan Account for Borrower shall be deemed final,
binding and conclusive upon Borrower in all respects as to all matters
reflected therein (absent manifest error), unless Borrower delivers to
Agent written notice of any objections which Borrower may have to any
such statement, within 30 days after the date such statement is
rendered, or within ten days after discovery by Borrower of an error
with respect to which Borrower had no knowledge and which could not
have been determined after reasonable inquiry during said 30 day
period. In that event, only those items expressly objected to in such
notice shall be deemed to be disputed by Borrower. In the event that
any such objection cannot be settled by Agent and Borrower within 30
Business Days after Agent receives notice thereof from Borrower, Agent
shall notify all Lenders of such objection. Notwithstanding the
foregoing, Agent's entries in the Loan Account evidencing Loans and
other financial accommodations made from time to time shall be final,
binding and conclusive upon Borrower (absent manifest error) as to the
existence and amount of the Obligations recorded in its Loan Account.
Section 2.4 Interest on the Loans.
(a) Base Rate Loans. Subject to Section 2.4(d), all Base Rate Loans
shall bear interest on the unpaid principal amount thereof from
the date made until paid in full at a fluctuating rate per annum
equal to the Base Rate.
(b) LIBOR Loans. Subject to Sections 2.4(d) and 2.4(i), all LIBOR
Loans shall bear interest on the unpaid principal amount thereof
during the Interest Period applicable thereto as set forth below:
(1) If the ratio of Total Liabilities to Gross Asset Value
is less than or equal to 0.55:1, then, irrespective of
the ratio of EBITDA to Fixed Charges, the interest rate
for LIBOR Loans shall be LIBOR plus 2.00%;
(2) If the ratio of Total Liabilities to Gross Asset Value
is greater than 0.55:1 and the ratio of EBITDA to Fixed
Charges is equal to or greater than 1.85:1, then the
interest rate for LIBOR Loans shall be LIBOR plus
2.125%; and
(3) If the ratio of Total Liabilities to Gross Asset Value
is greater than 0.55:1 and the ratio of EBITDA to Fixed
Charges is less than 1.85:1, then the interest rate for
LIBOR Loans shall be LIBOR plus 2.25%.
<TABLE>
<CAPTION>
<S> <C> <C>
Total Liabilities/
Gross Asset Value EBITDA/Fixed Charges Pricing
Less than or equal .55:1 -- LIBOR + 2.00%
Greater than or equal .55:1 Greater than or equal 1.85:1 LIBOR + 2.125%
Greater than .55:1 Less than 1.85:1 LIBOR + 2.25%
</TABLE>
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<PAGE>
Total Liabilities, Gross Asset Value, EBITDA and Fixed Charges
shall be calculated using information included in the most recent
Financial Statements delivered to Agent by Borrower pursuant to
Sections 6.1(b) and 6.1(c), if such Financial Statements were
delivered to Agent more than five Business Days prior to the date such
determination is made; otherwise, information from the Financial
Statements for the Fiscal Quarter immediately preceding the Fiscal
Quarter covered by the most recently delivered Financial Statements
may be used by Agent to make such calculations.
Upon receipt of a Notice of Borrowing requesting LIBOR Loans,
Agent shall determine LIBOR applicable to the Interest Period for such
LIBOR Loans, and shall give notice thereof to Borrower and Lenders;
provided, however, that failure to give such notice shall not affect
the validity of such rate. Subject to Section 2.4(i), each
determination by Agent of LIBOR shall be conclusive and binding upon
the parties hereto in the absence of demonstrable error. LIBOR Loans
shall be in tranches of $1,000,000 or $100,000 increments in excess
thereof. No more than six LIBOR Loan tranches shall be outstanding at
any one time.
(c) Interest Payments. Subject to Section 2.4(d), interest
accrued on all Loans shall be payable by Borrower in arrears on the
first Business Day of the first calendar month following the Closing
Date, and the first Business Day of each succeeding calendar month
thereafter, and on the Termination Date.
(d) Default Interest. Notwithstanding the rates of interest
specified in Sections 2.4(a) and 2.4(b) and the payment dates
specified in Section 2.4(c), effective immediately upon the occurrence
and during the continuance of any Event of Default, the principal
balances of all Loans then outstanding and, to the extent permitted by
applicable law, any interest payments on the Loans not paid when due
shall bear interest payable upon demand at a rate which is 4% per
annum in excess of the rate of interest otherwise payable under this
Agreement. All other amounts due Agent or Lenders (whether directly or
for reimbursement) under this Agreement or any of the other Loan
Documents, if not paid when due, or if no time period is expressed, if
not paid within 15 days after demand, shall bear interest from and
after demand at the rate set forth in this Section 2.4(d).
(e) Late Fee. Borrower acknowledges that late payment to Agent
will cause Lenders to incur costs not contemplated by this Agreement.
Such costs include, without limitation, processing and accounting
charges. Therefore, if Borrower fails timely to pay any sum due and
payable hereunder through the Termination Date, unless waived by the
Agent or the Requisite Lenders pursuant to Section 11.10(a)(9), a late
charge of $.04 for each dollar of any principal payment, interest or
other charge due and which is not paid within 10 days after such
payment is due, shall be paid by Borrower (for the benefit of Lenders)
for the purpose of defraying the expense incident to handling such
delinquent payment. Borrower and Agent agree that this late charge
represents a reasonable sum considering all of the circumstances
existing on the date hereof and represents a fair and reasonable
estimate of the costs that Lenders will incur by reason of late
payment. Borrower and Agent further agree that proof of actual damages
would be costly and inconvenient. Acceptance of any late charge shall
not constitute a waiver of the default with respect to the overdue
installment, and shall not prevent Agent from exercising any of the
other rights
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<PAGE>
available hereunder or under any other Loan Document. Such late
charge shall be paid without prejudice to any other rights of the
Lenders.
(f) Computation of Interest and Limitation on Rate. Interest and
fees shall be computed on the basis of the actual number of days
elapsed in the period during which interest or fees accrue and a year
of 360 days. In computing interest on any Loan, the date of the making
of the Loan shall be included and the date of payment shall be
excluded; provided, however, that if a Loan is repaid on the same day
on which it is made, one day's interest shall be paid on that Loan.
Notwithstanding subsections (a), (b), (d), (e), and (i) of this
Section 2.4, interest in respect of any Loan shall not exceed the
maximum rate permitted by applicable law.
(g) Changes; Legal Restrictions. In the event that after the
Closing Date (1) the adoption of or any change in any law, treaty,
rule, regulation, guideline or determination of a court or
Governmental Authority, or any change in the interpretation or
application thereof by a court or Governmental Authority; or (2)
compliance by Agent or any Lender with any request or directive made
or issued after the Closing Date (whether or not having the force of
law and whether or not the failure to comply therewith would be
unlawful) from any central bank or other Governmental Authority or
quasi-governmental authority:
(A) subjects Agent or any Lender to any tax, duty or other
charge of any kind with respect to the Facility, this Agreement
or any of the other Loan Documents, including the Mortgages, or
the Loans or changes the basis of taxation of payments to Agent
or such Lender of principal, fees, interest or any other amount
payable hereunder, except for net income, gross receipts, gross
profits, franchise or other similar taxes imposed by any
jurisdiction and not specifically based upon loan transactions
(all such non-excepted taxes, duties and other charges being
hereinafter referred to as "Lender Taxes");
(B) imposes, modifies or holds applicable, in the
determination of Agent or any Lender, any reserve, special
deposit, compulsory loan, FDIC insurance, capital allocation or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by,
Agent or any Lender or any applicable lending office (except to
the extent that the reserve and FDIC insurance requirements are
reflected in the "Base Rate" or separately dealt with in Section
2.4(i)); or
(C) imposes on Agent or any Lender any other condition
materially more burdensome in nature, extent or consequence than
those in existence as of the Closing Date;
and the result of any of the foregoing is to materially increase
the cost to Agent or any Lender of making, renewing, maintaining
or participating in the Loans or to reduce any amount receivable
thereunder; then, in any such case, Borrower shall promptly pay
to Agent or the affected Lenders, as applicable, upon demand,
such amount or amounts (based upon a reasonable allocation
thereof by Agent or such Lenders to the financing transactions
contemplated by this Agreement and affected
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<PAGE>
by this Section 2.4(g) as may be necessary to compensate Agent or
such Lenders for any such additional material cost incurred or
reduced amounts received); provided, however, that if the payment
of such compensation may not be legally made whether by
modification of the applicable interest rate or otherwise, then
Lenders shall have no further obligation to make Loans that cause
Agent or any Lender to incur such increased cost, and all
affected Loans shall become due and payable by Borrower 90 days
after Borrower's receipt of written notice thereof from Agent.
Agent or such Lender shall deliver to Borrower and in the case of
a delivery by Lender, such Lender shall also deliver to Agent, a
written statement of the claimed additional costs incurred or
reduced amounts received and the basis therefor as soon as
reasonably practicable after such Lender obtains knowledge
thereof. If Agent or any Lender subsequently recovers any amount
of Lender Taxes previously paid by Borrower pursuant to this
Section 2.4(g), whether before or after termination of this
Agreement, then, upon receipt of good funds with respect to such
recovery, Agent or such Lender will refund such amount to
Borrower if no Event of Default or monetary Unmatured Event of
Default then exists or, if an Event of Default or monetary
Unmatured Event of Default then exists, such amount will be
credited to the Obligations in the manner determined by Agent or
such Lender.
(h) Certain Provisions Regarding LIBOR Loans.
(1) LIBOR Loans Unlawful. If any Lender shall
determine (which determination shall, upon notice thereof to Borrower
and Agent, be conclusive and binding on the parties hereto) that the
introduction of or any change in, or in the interpretation of, any law
makes it unlawful, or any central bank or other Governmental Authority
asserts that it is unlawful, for such Lender to make or maintain any
Loan as a LIBOR Loan, (A) the obligations of such Lenders to make or
maintain any Loans as LIBOR Loans shall, upon the determination,
forthwith be suspended until such Lender shall notify Agent that the
circumstances causing such suspension no longer exist; and (B) if
required by such law or assertion, the LIBOR Loans of such Lender shall
convert automatically into Base Rate Loans.
(2) Deposits Unavailable. If Agent shall have
determined in good faith that adequate means do not exist for
ascertaining the interest rate applicable hereunder to LIBOR Loans,
then, upon notice from Agent to Borrower, the obligations of all
Lenders to make or maintain Loans as LIBOR Loans shall forthwith be
suspended until Agent shall notify Borrower that the circumstances
causing such suspension no longer exist. Agent will give such notice
when it determines, in good faith, that such circumstances no longer
exist; provided, however, that Agent shall not have any liability to
any Person with respect to any delay in giving such notice.
(3) Funding Losses. In the event any Lender shall
incur any loss or expense (including any loss or expense incurred by
reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to make or maintain any portion of any Loan as
a LIBOR Loan) as a result of:
(A) any continuance, conversion, repayment or prepayment of
the principal amount of any LIBOR Loans for any reason whatsoever
on
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<PAGE>
a date other than the scheduled last day of the Interest
Period applicable thereto; or
(B) any Loans not being made as LIBOR Loans
in accordance with the Notices of Borrowing therefor, other
than as a result of such Lender's breach of its obligation to
fund such Loans in accordance with the terms hereof;
then, upon the written notice of such Lender to Borrower with a
copy to Agent, Borrower shall reimburse such Lender for such loss or
expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of demonstrable error, be
conclusive and binding on the parties hereto.
(i) Additional Interest on LIBOR Loans. Borrower shall pay to
each Lender, so long as and to the extent such Lender shall be
required under regulations of the Board of Governors of the Federal
Reserve System to maintain reserves with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities (as defined
in the definition of LIBOR Reserve Percentage) and such Lender's
performance under this Agreement shall have given rise to additional
reserve requirements for such Lender thereunder, additional interest
on the unpaid principal amount of each Loan constituting a LIBOR Loan
of such Lender made to Borrower, from the date of such Loan until such
principal amount is paid in full, at an interest rate per annum equal
at all times to the remainder obtained by subtracting (1) LIBOR for
the applicable Interest Period for such Loan, from (2) the rate
obtained by dividing LIBOR by a percentage equal to 100%, minus the
LIBOR Reserve Percentage as in effect from time to time during such
Interest Period, payable on each date on which interest is payable on
such LIBOR Loan. Such Lender shall, as soon as practicable, but not
later than the last day of the applicable Interest Period, provide
notice to Agent and Borrower of any such additional interest arising
in connection with such LIBOR Loan and the certification of such
Lender that the additional amount is due and that the additional
reserve requirement is applicable to such LIBOR Loans. Such additional
interest shall be payable directly to such Lender on the dates
specified for payment of interest for such LIBOR Loan in Section
2.4(c).
(j) Withholding Tax Exemption. At least five Business Days prior
to the first day on which interest or fees are payable hereunder for
the account of any Lender, each Lender that is not incorporated under
the laws of the United States of America, or a state thereof, agrees
that it will deliver to Agent and Borrower two duly completed copies
of United States Internal Revenue Service Form 1001 or Form 4224,
certifying in either case that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any
United States federal income taxes. Each Lender which so delivers a
Form 1001 or Form 4224 further undertakes to deliver to Agent and
Borrower two additional copies of such form (or any applicable
successor form) on or before the date that such form expires
(currently, three successive calendar years for Form 1001 and one
calendar year for Form 4224) or becomes obsolete or after the
occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by Agent or Borrower, in each
case certifying that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States
federal income taxes, unless an event (including, without
32
<PAGE>
limitation, any change in treaty, law or regulation) has occurred
prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form
with respect to it and such Lender advises Agent that it is not
capable of receiving payments without any deduction or withholding of
United States federal income taxes. If any Lender not incorporated
under the laws of the United States of America or a state thereof
cannot deliver such form, then Borrower may withhold from such
payments such amounts as are required by the Internal Revenue Code.
Section 2.5 Fees.
(a) Unused Facility Fee. Until the Obligations are paid in full
and this Agreement is terminated or, if sooner, the date the
Commitments terminate, Borrower shall pay to Agent, for the account of
each Lender, an "Unused Facility Fee", accruing at the rate set forth
below from and after the Closing Date, upon the amount during each
calendar quarter of (1) the average daily aggregate Commitments,
regardless of Loan Availability at such time, minus (2) the average
daily aggregate principal balance of all Loans then outstanding (the
"Unused Amount"). The Unused Facility Fee will be calculated and
accrue using the rates opposite the applicable Unused Amount set forth
below:
For any quarter commencing no fewer than six months
after the Closing Date, (i) .125% on a per annum basis of the average
daily Unused Amount during the applicable quarter, provided, that, the
average daily funded amount of the Facility during such quarter is at
least 50% of the Facility; and (ii) .25% on a per annum basis of the
average daily Unused Amount if the average daily funded amount of the
Facility during such quarter is less than 50% of the Facility. Subject
to Section 11.4(b), each Lender shall be entitled to receive a portion
of such Unused Facility Fee equal to the applicable rate set forth
above applied to the amount during each calendar quarter of the excess
of such Lender's Commitment over such Lender's Pro Rata Share of the
average daily amount of all Loans then outstanding. All such Unused
Facility Fees payable under this Section 2.5(a) shall be payable in
arrears on the first Business Day in each calendar quarter beginning
with the first calendar quarter after the Closing Date.
(b) Agency Fees. Borrower shall pay Agent such fees as are provided
for in the separate fee agreement between Borrower and Agent, dated July
27, 1996, as amended, supplemented or modified from time to time.
(c) Upfront Fee. Borrower shall pay to Agent an upfront fee of
$340,000, of which $170,000 shall be due and payable contemporaneously with
the execution of this Agreement and $170,000 shall be due and payable on
July 27, 1997. Subject to Section 11.4(b), each Lender shall be entitled to
receive its pro rata share of each payment of the upfront fee.
(d) Development Loan Fees. With respect to each Borrowing Base
Development Property, Borrower shall pay to Agent a "Development Loan Fee"
equal to .25% of
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<PAGE>
the Maximum Loan Amount for the Property on the date such Property is
accepted as a Borrowing Base Property.
(e) Payment of Fees. The fees described in Section 2.1(d) and this
Section 2.5 represent compensation for services rendered and to be
rendered separate and apart from the lending of money or the provision
of credit and do not constitute compensation for the use, detention or
forbearance of money, and the obligation of Borrower to pay the fees
described herein shall be in addition to, and not in lieu of, the
obligation of Borrower to pay interest, other fees and expenses
otherwise described in this Agreement. All fees shall be payable when
due in California in immediately available funds and shall be
non-refundable when paid. If Borrower fails to pay any fees or
expenses specified or referred to in this Agreement that become due to
Agent or Lenders, including, without limitation, those referred to in
this Section 2.5, in Section 12.1, or otherwise under this Agreement
or any separate fee agreement between Borrower and Agent or any Lender
relating to this Agreement, the amount due shall bear interest until
paid at the Base Rate and, after ten days, at the rate specified in
Section 2.4(d) (but not to exceed the maximum rate permitted by
applicable law), and shall constitute part of the Obligations, secured
by all of the Collateral. All fees described in this Section 2.5 which
are expressed as a per annum charge shall be calculated on the basis
of the actual number of days elapsed in a 360 day year.
Section 2.6 Payments.
(a) Voluntary Prepayments. Borrower may, upon not fewer than
three Business Days prior written notice, at any time and from time to
time, prepay any Loans in whole or in part. Any notice of prepayment
given to Agent under this Section 2.6(a) shall specify the date of
prepayment and the aggregate principal amount of the prepayment.
(b) Facility Reductions. Borrower may, by not fewer than two
Business Days prior notice to Agent, permanently reduce the amount of
the Facility, and by a percentage corresponding to the percentage
reduction of the Facility, each Commitment. In no event shall the
Facility or the Commitment be reduced below the outstanding amount of
the Loans, after giving effect to any voluntary prepayments.
(c) Manner and Time of Payment. All payments of principal,
interest and fees hereunder payable to Agent or the Lenders shall be
made without condition or reservation of right and free of set-off or
counterclaim, in Dollars and by wire transfer (pursuant to Agent's
written wire transfer instructions) of immediately available funds,
delivered to Agent not later than 11:00 A.M. (California time) on the
date due; and funds received by Agent after that time shall be deemed
to have been paid on the next succeeding Business Day.
(d) Payments on Non-Business Days. Whenever any payment to be
made by Borrower hereunder shall be stated to be due on a day which is
not a Business Day, payments shall be made on the next succeeding
Business Day and such extension of time shall be included in the
computation (1) of the payment of interest hereunder, and (2) of any
of the fees specified in Section 2.5, as the case may be.
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<PAGE>
Section 2.7 Increased Capital. If either (a) the introduction of or
any change in or in the interpretation of any law or regulation; or (b)
compliance by Agent or any Lender with any guideline or request from any
central bank or other Governmental Authority (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) made or issued after the Closing Date affects or would affect the
amount of capital required or expected to be maintained by Agent or such
Lender or any corporation controlling Agent or such Lender, and Agent or
such Lender determines that the amount of such capital is increased by or
based upon the existence of Agent's obligations hereunder or such Lender's
Commitment, then, upon demand by Agent or such Lender; Borrower shall
immediately pay to Agent or such Lender, from time to time as specified by
Agent or such Lender, additional amounts sufficient to compensate Agent or
such Lender in light of such circumstances, to the extent that Agent or
such Lender determines such increase in capital to be allocable to the
existence of Agent's obligations hereunder or such Lender's Commitment. A
certificate as to such amounts submitted to Borrower by Agent or such
Lender shall, in the absence of indisputable and demonstrable error, be
conclusive and binding for all purposes.
Section 2.8 Notice of Increased Costs. Each Lender agrees that, as
promptly as reasonably practicable after it becomes aware of the occurrence
of an event or the existence of a condition which would cause it to be
affected by any of the events or conditions described in Sections 2.4(g),
2.4(h), 2.4(i) or 2.7, it will notify Borrower, and provide a copy of such
notice to Agent, of such event and the possible effects thereof, provided;
that the failure to provide such notice shall not affect the Lender's right
to reimbursement as provided for herein.
ARTICLE 3
BORROWING BASE PROPERTIES
Section 3.1 Acceptance of Borrowing Base Properties. (a) Subject to
compliance with the terms and conditions of Section 4.1, Agent has accepted
the Properties listed on Schedule 1 as Borrowing Base Stabilized Properties
and the Properties listed on Schedule 2 as Borrowing Base Development
Properties. Hereafter, if Borrower desires that Lenders accept a Property
as a Borrowing Base Property, Borrower shall so notify Agent in writing and
Agent shall deliver a copy of such notice to each Lender. No Property will
be evaluated by Lenders as a potential Borrowing Base Property unless
Borrower delivers to Agent the following in form and substance acceptable
to Agent:
(1) With respect to each proposed Borrowing Base Property:
(A) A copy of the most recent ALTA Owner's Policy of
Title Insurance (or equivalent) ("Owner's Policy") and a
commitment (not more than 90 days old) to issue an American
Land Title Association extended coverage Lender's policy of
title insurance (or equivalent) covering such Property and
disclosing the identity of the fee titleholder thereto, and
all matters of record;
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(B) Copies of all documents of record reflected in
Schedule B of the Owner's Policy and a copy of the most
recent real estate tax bill and notice of assessment;
(C) A current or currently certified survey of such
Property certified by a surveyor licensed in the applicable
jurisdiction to have been prepared in accordance with the
then effective Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys (or equivalent);
(D) A "Phase I" environmental assessment of such
Property not more than 12 months old;
(E) A certificate from a licensed engineer or other
professional satisfactory to Agent that such Property is not
located in a Special Flood Hazard Area, as defined by the
Federal Insurance Administration; and
(F) Such other documents with respect to such Property
as Agent shall reasonably require.
(2) With respect to each proposed Borrowing Base Stabilized
Property:
(A) An operating statement for such Property audited or
certified by a representative of Borrower as being true and
correct in all material respects and prepared in accordance with
sound accounting principles for the previous two Fiscal Years,
provided, that, with respect to any period such Property was not
owned by Borrower, such information shall only be required to be
delivered to the extent reasonably available to Borrower and such
certification may be based upon the best of Borrower's knowledge;
(B) An engineering report for such Property not more than 12
months old;
(C) Copies of (i) the form or forms of tenant leases used at
such Property, and (ii) all Major Agreements affecting such
Property; and
(D) A current rent roll for such Property, certified by a
representative of Borrower as being true and correct in all
material respects and a three-year operating and occupancy
history of such Property in form satisfactory to Agent, and
certified by a representative of Borrower to be true and correct,
provided, that, with respect to any period such Property was not
owned by Borrower, such information shall only be required to be
delivered to the extent reasonably available to Borrower and such
certification may be based upon the best of Borrower's knowledge;
(3) With respect to each Borrowing Base Development
Property:
(A) the Lease-Up Projections;
(B) the Construction Contracts;
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(C) the Construction Schedule;
(D) the Project Budget;
(E) Pro forma income and expense projections for the first
12 months of stabilized occupancy;
(F) Area, market and comparable property information;
(G) the Development Plans;
(H) background information about the architect; and
(I) background and financial information on the general
contractor.
(b) If, after receipt and review of the foregoing documents and
information, Agent is prepared to proceed with acceptance of such
Property as a Borrowing Base Property, Agent will so notify Borrower
and each Lender within 5 Business Days after receipt of all of the
information provided above, and Agent will obtain an Appraisal of such
Property in order to determine the Appraised Value thereof. After
obtaining such Appraisal, Agent will promptly submit the foregoing
documents and information, including the Appraisal, and the Appraised
Value to the Lenders, for approval by (1) the Supermajority Lenders if
such Property, upon acceptance, would be a Borrowing Base Stabilized
Property and (2) all Lenders if such Property, upon acceptance, would
be a Borrowing Base Development Property, within 15 Business Days
thereafter. Such Property shall become a Borrowing Base Property upon
approval of the Supermajority Lenders or all Lenders, as the case may
be, and upon execution and delivery to Agent of the documents and
items described in Section 4.1(a) and 4.1(e), and such other items or
documents as may be appropriate under the circumstances, including
updates of the documents described in Sections 3.1(a)(1)(D),
3.1(a)(2)(A), 3.1(a)(2)(D), 3.1(a)(2)(B) (if then more than 12 months
old), and 3.1(a)(2)(C), and satisfaction of all other closing
requirements imposed by Agent.
(c) No more than $50,000,000 of the Borrowing Base shall be
provided by the Borrowing Base Development Properties. The minimum
Stabilized Property/Development Property Borrowing Base Ratio shall be
as set forth below:
Subsequent to December 31, 1996: 0.70:1.0
Subsequent to March 31, 1997: 1.0:1.0
Subsequent to June 30, 1997: 1.25:1.0
No Development Properties will be accepted as Collateral after
September 30, 1996, unless all Lenders otherwise consent, which
consent shall be in their sole and absolute discretion.
Section 3.2 Release of Borrowing Base Properties. Upon repayment and
satisfaction in full of all Obligations and the termination of all
Commitments and this Agreement, Agent will release the Mortgage
Documents with respect to each of the Borrowing Base Properties.
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From time to time Borrower may request, upon not less than 30 days
prior written notice, that a Borrowing Base Property or portion
thereof be released from the Liens created by the Mortgage Documents
applicable thereto, which release (the "Property Release") shall be
delivered by Agent if all of the following conditions are satisfied as
of the date of such Property Release:
(a) no Unmatured Event of Default or Event of Default has occurred
and is then continuing or will occur after giving effect to such
Property Release;
(b) the Termination Date has not occurred;
(c) Borrower shall have delivered to Agent a Borrowing Base
Certificate reflecting the Borrowing Base after giving effect to such
Property Release;
(d) Agent shall have determined that the outstanding principal balance
of the Loans will not exceed the Borrowing Base after giving effect to
such Property Release and any prepayment to be made and/or the
acceptance of any Property pursuant to Section 3.1 which is to be
given concurrently with such Property Release as additional or
replacement Borrowing Base Property;
(e) unless the Supermajority Lenders otherwise consent (which consent
shall not be withheld unreasonably), there will be at least three
remaining Borrowing Base Stabilized Properties which contribute not
less than $8,000,000 in value to the Borrowing Base; and
(f) the average year of completion of the remaining Borrowing Base
Properties shall not be prior to 1985 unless the Supermajority Lenders
otherwise consent (which consent shall not be withheld unreasonably).
If both (1) after giving effect to such Property Release the ratio of
the aggregate Borrowing Base Value of the Borrowing Base Development
Properties to the aggregate Borrowing Base Value of the Borrowing Base
Stabilized Properties exceeds 1.00:1.00, and (2) Agent determines, in
its sole and absolute discretion, that a material adverse change has
occurred in the status of any Borrowing Base Development Property,
then Agent may require that (A) such Property be reappraised, (B) the
Maximum Loan Amount for such Property be recalculated based on the new
Appraised Value, and (C) if the Maximum Loan Amount has decreased,
that the Borrowing Base be recalculated. If such recalculation
discloses that a Loan Availability Deficiency exists, then Borrower
shall have 30 days from the date on which the Borrowing Base is
recalculated, to reduce the outstanding aggregate principal balance of
the Loans to an amount equal to or less than the Loan Availability.
Section 3.3 Borrowing Base Determinations.
(a) Appraisals. The Appraised Value of a Borrowing Base
Property or Properties shall be determined or redetermined, as
applicable, under each of the following circumstances:
(1) Upon initial acceptance of a Property as a Borrowing
Base Property the Agent will determine the Appraised Value
thereof;
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(2) The Appraised Value of all Borrowing Base Properties (based
upon preparation of current Appraisals) will be redetermined when and
if required under Section 2.1(d)(1)(B);
(3) From time to time a Borrowing Base Property may be
reappraised, at Borrower's request, upon notice by Borrower to Agent
to reappraise a Borrowing Base Property, in which event Agent shall
cause an Appraisal thereof to be made; and
(4) At any time and from time to time upon five Business Days'
prior written notice to Borrower, Agent may (and shall at the
direction of Requisite Lenders) redetermine the Appraised Value of a
Borrowing Base Property in any of the following circumstances:
(A) if a material adverse change occurs with
respect to a Borrowing Base Property, including, without
limitation, a material deterioration in the Net Operating
Income of such Borrowing Base Property, a major casualty at
such Borrowing Base Property that is not fully covered by
insurance, or a material condemnation of any part of such
Borrowing Base Property or a material change in the market
conditions affecting such Borrowing Base Property; or
(B) if necessary in order to comply with
Requirements of Law applicable to any Lender.
(b) Borrowing Base Adjustments. The Borrowing Base will be
adjusted downward as of the end of a Fiscal Quarter if (1) there has
been any reduction in the Borrowing Base Value of a Borrowing Base
Property during such Fiscal Quarter or (2) the Stabilized
Property/Development Property Borrowing Base Ratio is below the
minimum ratio set forth in Section 3.1(c). In the event there is any
increase in the Borrowing Base Value of any Borrowing Base Property
during a Fiscal Quarter for any reason other than the occurrence of
the Conversion Date, then such increase shall become effective as of
the first Business Day of the next succeeding Fiscal Quarter, provided
that prior to such date (A) either (i) the Requisite Lenders approve
the increase, if such increase is the result of an increase in the
Appraised Value of such Borrowing Base Property, or (ii) if such
increase is the result of an increase in the Permanent Loan Estimate
for such Borrowing Base Property, Borrower delivers a Borrowing Base
Certificate to Agent pursuant to Section 6.1(e) which substantiates
such increase, and (B) Borrower delivers to Agent an endorsement, if
available, to Agent's title insurance policy increasing the amount
thereof as related to such Borrowing Base Property to not less than
one hundred percent (100%) of the adjusted Borrowing Base Value for
such Borrowing Base Property. An increase in the Borrowing Base Value
of a Borrowing Base Property that results from the occurrence of the
Conversion Date shall become effective on the Conversion Date. If, by
the Conversion Date, a Borrowing Base Development Property does not
achieve 90% of the stabilized gross revenues (on an annualized basis)
projected for the first year in the Appraisal for each of three
consecutive months, then the Property shall be
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removed from the Borrowing Base unless such Property is
reappraised and the Supermajority Lenders consent to the conversion of
such Property into a Borrowing Base Stabilized Property, in which case
the Maximum Loan Amount for such Property shall be reduced to the
lower of (A) 50% of its Appraised Value or (B) its Permanent Loan
Estimate, both calculated based on the new Appraisal.
Section 3.4 Covenants Relating to Borrowing Base Properties.
(a) Insurance, Casualty. Borrower shall maintain or cause to be
maintained insurance covering each Borrowing Base Property in such
amounts and covering such risks as are set forth in the Mortgages.
(b) Major Agreements. Unless otherwise consented to by Agent in
writing (which consent will not be unreasonably withheld), all Major
Agreements covering any portion of a Borrowing Base Property entered
into after the date of this Agreement shall (1) be with third parties
under market terms, (2) contain the provisions regarding insurance,
waiver of claims, damage and destruction, condemnation, notice to
mortgagee and subordination and attornment and other matters in form
approved by Agent, and (3) not include self-help remedies or provide
for Agent's or any subsequent mortgagee's non-disturbance of any
tenant's occupancy unless the tenant and Agent have each executed a
non-disturbance agreement in form satisfactory to Agent. Any
termination (other than by reason of material default) or modification
of any Major Agreement which does not comply with the requirements
described in the preceding sentence will be subject to Agent's
approval. Copies of all Major Agreements to be executed which are
inconsistent with the matters addressed in clauses (1) through (3)
above shall be furnished to Agent for approval no fewer than ten
Business Days before the proposed execution thereof by Borrower. Any
Major Agreement that has provisions which are inconsistent with clause
(1) above must be approved by the Agent and Requisite Lenders. Agent
and each of the Lenders will use reasonable efforts to respond within
a reasonable time (but no more than ten Business Days) to a request by
Borrower for approval of a Major Agreement that has provisions
inconsistent with clause (1) above and Agent will use its reasonable
efforts to respond within a reasonable time (but no more than ten
Business Days) to a request by Borrower for approval of a Major
Agreement that has provisions inconsistent with clauses (2) and (3)
above. The failure by either the Agent or the Requisite Lenders to
respond within said ten-day period shall be deemed to be Agent's
consent and/or the Requisite Lenders' consent, as the case may be, to
such modified provision.
(c) Management Agreements. Borrower shall not amend, modify in
any material manner, or terminate its management agreement with the
Management Company with respect to any Borrowing Base Property, if
such proposed amendment or modification limits or extinguishes
Borrower's absolute right to terminate the management agreement
without penalty upon 30 days notice, or might have a Material Adverse
Effect upon Borrower or its ability to perform its obligations under
the Loan Documents. Borrower shall not enter into a management
agreement with a manager other than the Management Company subsequent
to the Closing Date with respect to any Borrowing Base Property,
without the prior written consent of Requisite Lenders (which consent
shall not be unreasonably withheld).
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(d) Major Construction. If Borrower intends to engage in any
construction, remodeling or demolition project or series of related
projects, with respect to a Borrowing Base Stabilized Property (each,
a "Construction Project"), other than in accordance with the casualty
and condemnation provisions specified in the Loan Documents, the
aggregate cost of which will exceed 20% of the "as is" market value of
such Borrowing Base Property, then Borrower shall first notify and
obtain approval, which approval shall not be unreasonably withheld,
from Requisite Lenders, of such Construction Project.
Section 3.5 Grant of Security Interest. As security for the
payment of all Loans now or hereafter made by Lenders to Borrower
hereunder, and as security for the payment or other satisfaction of
all other Obligations, Borrower hereby grants to Agent (for the
benefit of all Lenders) a security interest in and to the following
property of Borrower, whether now owned or existing, or hereafter
acquired or coming into existence, wherever now or hereafter located:
(a) All Accounts (as such term is defined in the Uniform
Commercial Code) solely relating to any Borrowing Base Property;
(b) All Equipment (as such term is defined in the Uniform
Commercial Code) solely relating to or used in connection with any
Borrowing Base Property;
(c) All Inventory (as such term is defined in the Uniform
Commercial Code) solely relating to or used in connection with any
Borrowing Base Property;
(d) All General Intangibles (as such term is defined in the
Uniform Commercial Code) solely relating to or used in connection with
any Borrowing Base Property, except that General Intangibles shall not
include the name "Paragon" and all derivatives, trademarks, trade
names, service marks and logos associated with such name;
(e) All plant fixtures, trade fixtures, business fixtures and
other fixtures, wherever located, relating to or solely used by or
used in connection with any Borrowing Base Property; and all additions
and accessions thereto and replacements therefor;
(f) All Documents (as defined in the Uniform Commercial Code)
solely relating to any Borrowing Base Property;
(g) All instruments, chattel paper, letters of credit and
certificated and uncertificated securities (as such terms are defined
in the Uniform Commercial Code) solely relating to any Borrowing Base
Property;
(h) All books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software
that at any time evidence or contain information solely relating to
any of the Property described in subsections (a) through (g) above or
are otherwise necessary or helpful in the collection thereof or
realization thereon; and
(i) Proceeds of any of the property described in subsections (a)
through (h) above.
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ARTICLE 4
CONDITIONS TO LOANS
Section 4.1 Conditions to Initial Loans. The obligation of
Lenders to make the initial Loans shall be subject to satisfaction of
each of the following conditions precedent on or before the
Restatement Date:
(a) Borrower Loan Documents. Borrower shall have executed and/or
delivered to Agent each of the following, in form and substance
acceptable to Agent:
(1) this Agreement;
(2) the Loan Notes;
(3) the Borrower's Affidavit;
(4) a signature authorization form;
(5) opinions of counsel for Borrower satisfactory to Agent;
(6) Agent's form of Funds Transfer Agreement; and
(7) any other documents and information as Agent may reasonably
require.
(b) REIT Documents. The REIT shall have executed and/or delivered
to Agent each of the following, in form and substance acceptable to
Agent:
(1) the REIT Affidavit;
(2) opinions of counsel for the REIT satisfactory to Agent; and
(3) any other documents and information as Agent may reasonably
require.
(c) Paragon GP Holdings Documents. Paragon GP Holdings shall have
executed and/or delivered each of the following, in form and substance
acceptable to Agent:
(1) the Paragon GP Holdings Affidavit;
(2) opinions of counsel for Paragon GP Holdings satisfactory to
Agent; and
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(3) any other documents and information as Agent may reasonably
require.
(d) Paragon LP Holdings Documents. Paragon LP Holdings shall have
executed and/or delivered each of the following, in form and substance
acceptable to Agent:
(1) the Paragon LP Holdings Affidavit;
(2) opinions of counsel for Paragon LP Holdings satisfactory to
Agent; and
(3) any other documents and information as Agent may
reasonably require.
(e) Borrowing Base Property Documents. Agent shall have received
the following documents in form and substance acceptable to Agent:
(1) with respect to each Borrowing Base Property:
(A) a Mortgage;
(B) an Assignment of Leases and Rents;
(C) Uniform Commercial Code Financing Statements;
(D) an Appraisal;
(E) an American Land Title Association extended coverage
Lender's policy of title insurance or a commitment to
issue such policy (or equivalent), from a title company
acceptable to Agent in the amount of the Borrowing Base
Value of such Borrowing Base Property, insuring the
Mortgage against such Borrowing Base Property as a
first mortgage subject only to Permitted Liens, with
all endorsements specified by Agent;
(F) a "Phase I" environmental assessment not more than 12
months old;
(G) evidence satisfactory to Agent that the Borrowing Base
Property is not located within the 100 year flood plain
or identified as a special flood hazard area as defined
by the Federal Insurance Administration;
(H) a survey in the form described in Section 3.1(a)(1)(C),
certified to Agent;
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(I) such opinions of local counsel pertaining to such
Borrowing Base Property as Agent shall require;
(J) upon request by Agent, an ad valorem delinquency tax
service contract acceptable to Agent;
(K) a copy of the form of tenant lease to be used in
connection with the Leases;
(L) letters from local Governmental Authorities evidencing
compliance with applicable zoning, land use, and other
laws;
(M) the policies of insurance required by the Mortgage
Documents; and
(N) such other documents with respect to such Borrowing
Base Property as Agent shall reasonably require.
(2) With respect to each Borrowing Base Stabilized Property:
(A) a certified rent roll;
(B) an operating budget for the current Fiscal Year;
(C) upon request by Agent, a schedule of all personal
property, including intangible personal property owned
by Borrower, and used in connection with the
maintenance or operation of such Borrowing Base
Property; and
(D) an engineering report for the Borrowing Base Property
not more than 12 months old;
(3) With respect to each Borrowing Base Development Property:
(A) evidence satisfactory to Agent that Borrower has funded
project costs reflected on the Project Budget of not less than
the difference between the aggregate Project Budget and the
Maximum Loan Amount; and
(B) a third party analysis of the Development Plans.
(f) Corporate and Partnership Documents. Agent shall have received
the following corporate and partnership documents, together with
all amendments and modifications thereto:
(1) with respect to Borrower: a certified copy of
Borrower's limited partnership agreement, a certified
copy of Borrower's Certificate of Limited
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Partnership; and good standing certificates for Borrower from the
State of Delaware and each state where it is qualified to do business;
(2) with respect to the REIT: certified copies of the REIT's
articles or certificate of incorporation and by-laws; and
good standing certificates from the State of Maryland and
each state where it is qualified to do business;.
(3) with respect to Paragon GP Holdings: certified copies of
Paragon GP Holdings' articles or certificate of
incorporation and by-laws; and good standing certificates
from the State of Delaware and each state where it is
qualified to do business; and
(4) with respect to Paragon LP Holdings: certified copies of
Paragon LP Holdings' articles or certificate of
incorporation and by-laws; and good standing certificates
from the State of Delaware and each state where it is
qualified to do business.
(g) Borrowing Base Certificate. Borrower shall have delivered to
Agent a Borrowing Base Certificate evidencing sufficient Loan
Availability to support the Loans being requested.
(h) Notice of Borrowing and Disbursement Authorization. Borrower
shall have delivered to Agent a Notice of Borrowing in compliance with
Section 2.1(b).
(i) Performance. Borrower, the REIT, Paragon GP Holdings and
Paragon LP Holdings shall have performed in all material respects all
agreements and covenants required by Agent to be performed by them as
a condition to funding the Loans.
(j) Solvency. Each of the Borrower, the REIT, Paragon GP Holdings
and Paragon LP Holdings shall be Solvent.
(k) Material Adverse Changes. No change, as determined by Agent
shall have occurred during the Interim Period, which (1) has had or
may have a Material Adverse Effect on the Borrower, the REIT, or any
Borrowing Base Property, and (2) will materially and adversely affect
the ability of Borrower or any other party to any of the Loan
Documents to perform its obligations thereunder.
(l) Litigation Proceedings. There shall not have been instituted
or threatened, during the Interim Period, any litigation in any court
or proceeding before any Governmental Authority (1) which has had or
may have a Material Adverse Effect on the Borrower, the REIT, or any
Borrowing Base Property, and (2) will materially and adversely affect
the ability of Borrower or any other party to any of the Loan
Documents to perform its obligations thereunder, as reasonably
determined by Agent.
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(m) Perfection of Liens. All Mortgages and Financing Statements
shall have been recorded or filed, as applicable, and Agent shall have
a valid, perfected first priority lien on each Borrowing Base Property
and any other Collateral.
(n) Indefeasible Title. Borrower shall have good, indefeasible
and merchantable title to the Collateral, free and clear of all Liens
other than Permitted Liens.
(o) No Event of Default; Satisfaction of Financial Covenants. On
the Closing Date and after giving effect to the initial disbursements
of the Loans, no Event of Default or Unmatured Event of Default shall
exist and all of the covenants contained in Articles 6, 7, 8 and 9
shall be satisfied.
(p) No Material Non-Ordinary Transaction. Borrower shall not have
entered into any material commitment or material transaction during
the Interim Period which is not in the ordinary course of Borrower's
business, other than the sale of Paragon Group Property Services, Inc.
stock to Insignia Commercial Group, Inc. and related transactions.
(q) Consents and Approvals. All material licenses, permits,
consents, regulatory approvals and corporate action necessary to enter
into the financing transactions contemplated by this Agreement shall
have been obtained by Borrower, the REIT, Paragon GP Holdings and
Paragon LP Holdings.
(r) Due Diligence. Agent shall have completed such due diligence
investigations as Agent deems necessary, and such review and
investigations shall provide Agent with results and information which,
in Agent's determination, are satisfactory to permit Agent and the
Lenders to enter into this Agreement and fund the Loans.
(s) Representations and Warranties. All representations and
warranties contained in this Agreement and the other Loan Documents
shall be true and correct in all material respects.
(t) Fees. Agent shall have received all fees then due, and
Borrower shall have performed all of its other Obligations as set
forth in the Loan Documents to make payments to Agent on or before the
Closing Date and all expenses of Agent incurred prior to such Closing
Date (including without limitation all reasonable attorneys' and
appraisers' fees), shall have been paid by Borrower.
Section 4.2 Conditions Precedent to Subsequent Loans. The obligation
of each Lender to make any Loan requested to be made by it after the
Restatement Date is subject to Agent's receipt of the following
documents:
(a) with respect to each Borrowing Base Property, the
documents described in Section 4.1(e), to the extent not
previously delivered to Agent prior to the Funding Date;
(b) an original and duly executed Notice of Borrowing;
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(c) no later than the date of delivery of the Notice of
Borrowing, a current Borrowing Base Certificate and if any
Loans have been made previously during the month such
Borrowing Base Certificate is delivered, then a current Loan
Availability Certificate, as well; and
(d) a Compliance Certificate confirming:
(1) All of the representations and warranties contained in
this Agreement and in any other Loan Documents shall be true
and correct in all material respects, as though made on and
as of such Funding Date;
(2) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing or would result from the making
of the requested Loan and all of the covenants contained in
Articles 6, 7, 8 and 9 shall be satisfied; and
(3) No event has occurred that has had or may have (i) a
Material Adverse Effect on the Borrower, the REIT, or any
Borrowing Base Property, and (ii) will materially and adversely
affect the ability of Borrower or any other party to any of the
Loan Documents to perform its obligations thereunder.
(4) With respect to each Borrowing Base Development
Property, all of the covenants contained in the Mortgage relating
to such Property have been satisfied and Agent shall have
received (A) an endorsement (if permitted or required by virtue
of the form thereof) to the loan title policy relating to such
Property increasing the coverage thereof to the full amount of
the sum advanced and notwithstanding section (e) of the
definition of Permitted Lien, reflecting no changes in the status
of title or the title insurance since the previous Loan related
to such Property, or, if such endorsement cannot be obtained, an
abstractor's certificate or other evidence satisfactory to Agent
from the title company reflecting that there have been no such
changes in the status of title or the title insurance, (B)
certification from the architect and, if Agent elects, the
Independent Supervising Architect that, in their opinion, the
construction of the Improvements theretofore performed has been
in substantial accordance with the Development Plans, (C) the
survey called for in Section 3.1(a)(1)(c) hereinabove and as may
be required by the title company to issue the endorsement, (D) at
the request of Agent, lien waivers or releases (in recordable
form) from all contractors, subcontractors, laborers and
materialmen employed or furnishing materials in connection with
the construction of the Improvements, and (E) such other
certifications or evidence of cost and completion as Agent may
request.
Each submission by Borrower to Agent of a Notice of Borrowing with
respect to a Loan and the acceptance by Borrower of the proceeds of
each such Loan made hereunder shall constitute a representation and
warranty by Borrower as of the Funding Date in respect of such Loans
that all the conditions contained in this Section 4.2 have been
satisfied.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties as to Borrower. In order to
induce Lenders to make the Loans, Borrower hereby represents and
warrants to Lenders as follows:
(a) Organization; Partnership Powers. Borrower (1) is a limited
partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its formation; (2) is duly
qualified to do business as a foreign limited partnership and in good
standing under the laws of each jurisdiction in which it owns or
leases real property, or in which the nature of its business requires
it to be so qualified, except for those jurisdictions where failure to
so quality and be in good standing would not have a Material Adverse
Effect on Borrower; and (3) has all requisite partnership power and
authority to own, operate and encumber its assets and to conduct its
business as presently conducted and as proposed to be conducted in
connection with, and following the consummation of, the Loans
contemplated by the Loan Documents.
(b) Authority. Borrower has the requisite partnership power and
authority to execute, deliver and perform each of the Loan Documents
to which it is or will be a party. The execution, delivery and
performance thereof, and the consummation of the transactions
contemplated thereby, have been duly approved by the General Partner
of Borrower, and no other partnership proceedings or authorizations on
the part of Borrower or its general or limited partners are necessary
to consummate such transactions. Each of the Loan Documents to which
Borrower is a party has been duly executed and delivered by Borrower
and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights generally.
(c) Ownership of Borrower. Except as set forth or referred to in
the limited partnership agreement of Borrower, no partnership interest
(or any Securities, instruments, warrants, option or purchase rights,
conversion or exchange rights, calls, commitments or claims of any
character convertible into or exercisable for partnership interests)
of Borrower is subject to issuance under any Security, instrument,
warrant, option or purchase rights, conversion or exchange rights,
call, commitment or claim of any right, title or interest therein or
thereto. All of the partnership interests in Borrower have been issued
in compliance with all applicable Requirements of Law.
(d) No Conflict. The execution, delivery and performance by
Borrower of the Loan Documents to which it is or will be a party, and
each of the transactions contemplated thereby, do not and will not (1)
conflict with or violate Borrower's limited partnership agreement or
Certificate of Limited Partnership, or any other organization
documents, as the case may be; or (2) conflict with, result in a
breach of, or constitute (with or without notice or lapse of time or
both) a default under, any Requirement of Law, Contractual Obligation
or Court Order that is binding upon Borrower, or require termination
of any Contractual Obligation, the consequences of which conflict,
breach, default or termination would have a Material Adverse Effect on
Borrower or the REIT, or otherwise result in or require the creation
or imposition of any Lien (other than Permitted Liens) whatsoever upon
any of the assets of Borrower that are subject to Agent's Liens.
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(e) Consents and Authorizations. Borrower has obtained all
consents and authorizations required pursuant to its Contractual
Obligations with any other Person, the failure of which to obtain
would have a Material Adverse Effect on Borrower or the REIT, and
shall have obtained all consents and authorizations of, and effected
all notices to and filings with, any Governmental Authority, as may be
necessary to allow Borrower to lawfully execute, deliver and perform
its obligations under the Loan Documents to which Borrower is a party.
(f) Governmental Regulation. Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act, the Investment Company
Act of 1940 or any other federal or state statute or regulation, such
that its ability to incur indebtedness is limited, or its ability to
consummate the transactions contemplated by the Loan Documents is
materially impaired.
(g) Prior Financials. The financial statements dated March 31,
1996 for the Borrower (the "March 31, 1996 Financials"), which it
delivered to Agent prior to the date hereof, were prepared in
accordance with GAAP and fairly present the assets, liabilities and
financial condition of the Borrower, on a consolidated basis, at such
date and the results of its operations and its cash flow, on a
consolidated basis, for the period then ended.
(h) Financial Statements; Projections and Forecasts. Each of the
Financial Statements to be delivered to Agent pursuant to Sections
6.1(a) and 6.1(b) (1) has been, or will be, as applicable, prepared in
accordance with the books and records of Borrower on a consolidated
basis; and (2) either fairly presents, or will fairly present, as
applicable, the financial condition of Borrower on a consolidated
basis, at the dates thereof (and, if applicable, subject to normal
year-end adjustments) and the results of its operations and cash
flows, on a consolidated basis, for the period then ended.
(i) No Material Adverse Change; Litigation and Other Events.
(1) There is no action, suit, proceeding,
governmental investigation or arbitration, at law or in equity, or
before or by any Governmental Authority pending or, to the best of
Borrower's knowledge, threatened against Borrower, the REIT, or any
Borrowing Base Property, which (A) will result in a Material Adverse
Effect on Borrower, the REIT, or any Borrowing Base Property, and (B)
will materially and adversely affect the ability of Borrower or any
other party to any of the Loan Documents to perform its obligations
thereunder; and
(2) Borrower is not (A) in violation of any
applicable law, which violation has had or may have a Material Adverse
Effect on Borrower, the REIT, or any Borrowing Base Property and which
will materially and adversely affect the ability of Borrower or any
other party to any of the Loan Documents to perform its obligations
thereunder; or (B) subject to, or in default with respect to, any Court
Order, which Court Order or a default thereunder has had or may have a
Material Adverse Effect on Borrower, the REIT, or any Borrowing Base
Property and which will materially and adversely affect the ability of
Borrower or any other party to any
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of the Loan Documents to perform its obligations thereunder. There are
no material Proceedings pending or, to the best of Borrower's
knowledge, threatened against Borrower, the REIT, or any Borrowing Base
Property, which if adversely decided, would have a Material Adverse
Effect on Borrower, the REIT, or any Borrowing Base Property, which
will materially and adversely affect the ability of Borrower or any
other party to any of the Loan Documents to perform its obligations
thereunder; and
(3) Since March 31, 1996 to the best of Borrower's
knowledge, no event has occurred which has had or may have a Material
Adverse Effect on Borrower, the REIT, or any Borrowing Base Property,
and no material adverse change has occurred in Borrower's or the REIT's
ability to perform its Obligations under the Loan Documents or the
transactions contemplated thereby.
(j) Payment of Taxes. All tax returns and reports to be filed by
Borrower will be timely filed, and all taxes, assessments, fees and
other governmental charges shown on such returns will be paid prior to
delinquency and the assessment of any penalties or interest, except
such taxes, if any, as are reserved against, in accordance with GAAP,
such taxes as are being contested in good faith by appropriate
proceedings or such taxes, the failure to make payment of which when
due and payable will not have, in the aggregate, a Material Adverse
Effect on Borrower or the REIT. Borrower has no knowledge of any
proposed tax assessment against Borrower that will have a Material
Adverse Effect on Borrower or the REIT, which is not being actively
contested in good faith by Borrower.
(k) Material Adverse Agreements. No Contractual Obligation
contained in Borrower's limited partnership agreement, or similar
governing documents has had or may have a Material Adverse Effect on
Borrower or the REIT.
(l) Performance. Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations which
default may have or has had a Material Adverse Effect on Borrower on
the REIT or the Borrower, and no condition exists which, with the
giving of notice or the lapse of time, would constitute a default
under any of its Contractual Obligations and have a Material Adverse
Effect on Borrower or the REIT.
(m) Federal Reserve Regulations. No part of the proceeds of the
Loans hereunder will be used to purchase or carry any "margin
security" as defined in Regulation G or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry any margin security or for any other purpose which might cause
this transaction to be a "purchase credit" within the meaning of
Regulation G. Borrower is not engaged primarily in the business of
extending credit for the purpose of purchasing or carrying any "margin
stock", as defined in Regulation U. No part of the proceeds of the
Loans hereunder will be used for any purpose that violates, or which
is inconsistent with, the provisions of Regulation X or any other
regulation of the Federal Reserve Board.
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(n) Disclosure. The representations and warranties of Borrower
contained in the Loan Documents and all certificates, financial
statements and other documents delivered to Agent in connection
therewith, do not contain any untrue statement of a material fact or
omit to state a material fact required to make the statements
contained herein or therein, in light of the circumstances under which
they were made, not misleading. Borrower has not intentionally
withheld any material fact from Agent in regard to any matter raised
in the Loan Documents. Notwithstanding the foregoing, with respect to
projections of Borrower's future performance such representations and
warranties are made in good faith and Borrower's best judgment.
(o) Requirements of Law. Borrower is in compliance with all
Requirements of Law (including without limitation the Securities Act
and the Securities Exchange Act, and the applicable rules and
regulations thereunder, state securities law and "Blue Sky" laws)
applicable to it and its respective businesses, in each case, where
the failure to so comply would have a Material Adverse Effect on
Borrower.
(p) Patents, Trademarks, Permits, Etc. Borrower owns, is licensed
or otherwise has the lawful right to use, or have all permits and
other governmental approvals, patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary
for the conduct of Borrower's business as currently conducted, the
absence of which would have a Material Adverse Effect upon Borrower or
the REIT. The use of such permits and other governmental approvals,
patents, trademarks, trade names, copyrights, technology, know-how and
processes by Borrower does not infringe on the rights of any Person in
any way that has given or may give rise to any liability on the part
of Borrower which could have a Material Adverse Effect on Borrower or
the REIT.
(q) Environmental Matters. Except as set forth on Schedule
5.1(q), to the best of Borrower's knowledge, (1) the operations of
Borrower comply in all material respects with all applicable
Environmental Laws; (2) none of Borrower's present Property or
operations are subject to any Remedial Action or other Liabilities and
Costs arising from the Release or threatened Release of a Contaminant
into the environment in violation of any Environmental Laws, which
Remedial Action or other Liabilities and Costs could have a Material
Adverse Effect on Borrower or the REIT; (3) Borrower has not filed any
notice under applicable Environmental Laws reporting a Release of a
Contaminant into the environment in violation of any Environmental
Laws, except as the same may have been heretofore remedied; (4) there
is not now on or in any Property of Borrower (except in compliance in
all material respects with all applicable Environmental Laws): (A) any
underground storage tanks; (B) any asbestos-containing material; or
(C) any polychlorinated biphenyls used in hydraulic oils, electrical
transformers or other equipment owned or operated by Borrower; and (5)
Borrower has not received any notice or claim to the effect that it is
or may be liable to any Person as a result of the Release or
threatened Release of a Contaminant into the environment, which
Release could have a Material Adverse Effect on Borrower or the REIT.
(r) ERISA. Neither Borrower nor any ERISA Affiliate thereof has
in the past five years maintained or contributed to or currently
maintains or contributes to any Benefit Plan, other than the Internal
Revenue Code ss. 401(k) plan maintained by Paragon Residential
Services, Inc., a Delaware corporation, and to be continued by the
Borrower (the "401(k) Plan"). No
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Investment Affiliate has or is likely to incur any liability with
respect to any Benefit Plan maintained or contributed to by such
Investment Affiliate or its ERISA Affiliates, which would have a
Material Adverse Effect on Borrower. Neither Borrower nor any ERISA
Affiliate thereof has in the past five years maintained or contributed
to or currently maintains or contributes to, any employee welfare
benefit plan within the meaning of Section 3(1) of ERISA which
provides benefits to retirees. Neither Borrower nor any ERISA
Affiliate thereof is now contributing nor has it ever contributed to
or been obligated to contribute to any Multiemployer Plan, no
employees or former employees of Borrower nor any ERISA Affiliate
thereof have been covered by any Multiemployer Plan in respect of
their employment by Borrower or any such ERISA Affiliate, and no ERISA
Affiliate of Borrower or Investment Affiliate has, or is likely to
incur, any withdrawal liability with respect to any Multiemployer Plan
which would have a Material Adverse Effect on Borrower or the REIT.
(s) Solvency. Borrower is and will be Solvent after giving effect
to the disbursements of the Loans and the payment and accrual of all
fees directly or indirectly then payable under any of the Loan
Documents.
(t) Title to Assets; No Liens. To the best of Borrower's
knowledge, Borrower has good, indefeasible and merchantable title to
the Collateral owned by it, including without limitation, each
Borrowing Base Property, and all of the Collateral is free and clear
of Liens, except Permitted Liens.
(u) Use of Proceeds. Borrower's uses of the proceeds of the Loans
are, and will continue to be, legal and proper uses (and to the extent
necessary, duly authorized by Borrower's General Partner) and such
uses are consistent with all Requirements of Law and Section 7.1(h).
(v) Operating Agreements; Management Agreements; Leases. With
respect to each Borrowing Base Property, Agent has received true,
complete and correct copies of each Major Agreement. Each Major
Agreement is in full force and effect and has not been and will not be
modified or terminated (except for modifications which comply with the
requirements of clauses (1) through (3) of Section 3.3(a) and
terminations by reason of a material default by another Person other
than Borrower), and no default or event of default (or event or
occurrence which, with the passage of time or the giving of notice, or
both, will constitute a default or event of default) exists or will
exist under such Major Agreement as a result of the consummation of
the transactions contemplated by the Loan Documents. Agent has
received the form Lease used for each Borrowing Base Property, and
such Leases, taken as a whole, do not and will not vary materially
from the requirements of Sections 3.4(b)(1) through 3.4(b)(3). Except
as reflected on the most current rent rolls delivered to Agent, all of
the Leases are in full force and effect and no default or event of
default (or event or occurrence which upon with the passage of time or
the giving of notice, or both, will constitute a default or event of
default) exists or will exist thereunder as a result of the
consummation of the transactions contemplated by the Loan Documents.
Except as set forth on Schedule 5.2(v)-2, there are no material
Contractual Obligations (other than Construction Contracts relating to
Borrowing Base Development Properties) relating to the maintenance,
occupancy, use or operation of any of the Borrowing Base Properties
which are not terminable by Borrower or a mortgagee-in-possession upon
30 days or fewer days notice.
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Section 5.2 Representations and Warranties as to the REIT. In order to
induce Lenders to make the Loans, the REIT hereby represents and
warrants to Lenders as follows:
(a) Organization; Corporate Powers. The REIT (1) is a corporation
duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation; (2) is duly qualified to do
business as a foreign corporation and in good standing under the laws
of each jurisdiction in which it owns or leases real property, or in
which the nature of its business requires it to be so qualified,
except for those jurisdictions where failure to so qualify and be in
good standing will not have a Material Adverse Effect on the REIT or
the Borrower; and (3) has all requisite corporate power and authority
to own, operate and encumber its assets and to conduct its business as
presently conducted and as proposed to be conducted in connection
with, and following the consummation of the transactions contemplated
by the Loan Documents.
(b) Authority. The REIT has the requisite corporate power and
authority to execute, deliver and perform each of the Loan Documents
to which it is or will be a party. The execution, delivery and
performance thereof, and the consummation of the transactions
contemplated thereby, have been duly approved by the board of
directors of the REIT, and no other corporate proceedings on the part
of the REIT are necessary to consummate such transactions. Each of the
Loan Documents to which the REIT is a party has been duly executed and
delivered by the REIT and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency and other laws affecting creditors'
rights generally.
(c) No Conflict. The execution, delivery and performance by the
REIT of the Loan Documents to which it is party, and each of the
transactions contemplated thereby, do not and will not (1) conflict
with or violate its Articles or Certificate of Incorporation, by-laws,
or other organizational documents, as the case may be; (2) conflict
with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law,
Contractual Obligation or Court Order that is binding upon the REIT,
or require termination of any Contractual Obligation, the consequences
of which conflict, breach, default or termination would have a
Material Adverse Effect on the REIT or the Borrower, result in or
require the creation or imposition of any Lien whatsoever upon any of
the assets of the REIT (other than Liens in favor of Agent arising
pursuant to the Loan Documents or Permitted Liens); or (3) require any
approval of the stockholders of the REIT.
(d) Consents and Authorizations. The REIT has obtained all
consents and authorizations required pursuant to its Contractual
Obligations with any other Person, the failure of which to obtain
would have a Material Adverse Effect on the REIT or the Borrower, and
shall have obtained all consents and authorizations of, and effected
all notices to and filings with, any Governmental Authority, as may be
necessary to allow the REIT to lawfully execute, deliver and perform
its Obligations under the Loan Documents to which the REIT is a party.
(e) Governmental Regulation. The REIT is not subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act, the Investment Company
Act of 1940 or any other federal or state statute or regulation such
that its
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ability to incur indebtedness is limited, or its ability to consummate
the transactions contemplated by the Loan Documents is materially
impaired.
(f) Capitalization. All of the outstanding capital stock of the
REIT has been issued in compliance with all applicable
Requirements of Law.
(g) No Material Adverse Change; Litigation and Other Events.
(1) There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, or before or by any
Governmental Authority pending, or to best of the REIT's knowledge,
threatened against the REIT or the Borrower, which will (A) result in
a Material Adverse Effect on the REIT or the Borrower; or (B)
materially and adversely affect the ability of the REIT or any other
party to any of the Loan Documents to perform its obligations
thereunder;
(2) The REIT is not (A) in violation of any applicable law, which
violation has had or may have a Material Adverse Effect on the REIT or
the Borrower, or (B) subject to or in default with respect to any
Court Order which Court Order or a Default thereunder has had or may
have a Material Adverse Effect on the REIT or the Borrower. There are
no material Proceedings pending or, to the best of the REIT's
knowledge, threatened against the REIT or the Borrower, which, if
adversely decided, would have a Material Adverse Effect on the REIT or
the Borrower; and
(3) Since March 31, 1996, to the best of the REIT's knowledge, no
event has occurred which has had or may have a Material Adverse Effect
on the REIT or the Borrower, and no material adverse change has
occurred in the REIT's or the Borrower's ability to perform its
obligations under the Loan Documents or the transactions contemplated
thereby.
(h) Payment of Taxes. All tax returns and reports to be filed by
the REIT have been timely filed, and all taxes, assessments, fees and
other governmental charges shown on such returns will be paid prior to
delinquency and the assessment of any penalties or interest, except
such taxes, if any, as are reserved against, in accordance with GAAP,
such taxes as are being contested in good faith by appropriate
proceedings or such taxes, the failure to make payment of which when
due and payable will not have, in the aggregate, a Material Adverse
Effect on the REIT or the Borrower. The REIT has no knowledge of any
proposed tax assessment against the REIT that would have a Material
Adverse Effect on the REIT or the Borrower, which is not being
actively contested in good faith by the REIT.
(i) Material Adverse Agreements. No Contractual Obligation
contained in the REIT's charter, by-laws, or similar governing
documents has had or may have a Material Adverse Effect on the REIT or
the Borrower.
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(j) Performance. The REIT is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations which
default may have or has had a Material Adverse Effect on the REIT or
the Borrower, and no condition exists which, with the giving of notice
or the lapse of time, would constitute a default under any of its
Contractual Obligations and have a Material Adverse Effect on the REIT
or the Borrower.
(k) Securities Activities. The REIT is not engaged principally in
the business of extending credit for the purpose of purchasing or
carrying any "margin stock", as defined in Regulation U.
(l) Disclosure. The representations and warranties of the REIT
contained in the Loan Documents, and all certificates, financial
statements and other documents delivered to Agent in connection
therewith, do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances
under which they were made, not misleading. The REIT has not
intentionally withheld any material fact from Agent in regard to any
matter raised in the Loan Documents. Notwithstanding the foregoing,
with respect to projections of the REIT's future performance such
representations and warranties are made in good faith and the REIT's
best judgment.
(m) Requirements of Law. The REIT is in compliance with all
Requirements of Law (including without limitation the Securities Act
and the Securities Exchange Act, and the applicable rules and
regulations thereunder, state securities law and "Blue Sky" laws)
applicable to it and its respective businesses, in each case, where
the failure to so comply would have a Material Adverse Effect on the
REIT or the Borrower. The REIT has made all filings with and obtained
all consents of the Commission required under the Securities Act and
the Securities Exchange Act in connection with the execution, delivery
and performance by the REIT of the Loan Documents to which it is a
party.
(n) ERISA. Neither the REIT nor any ERISA Affiliate thereof has
in the past five years maintained or contributed to or currently
maintains or contributes to any Benefit Plan, other than the 401(k)
Plan. Neither the REIT nor any ERISA Affiliate thereof has during the
past five years maintained or contributed to, or currently maintains
or contributes to, any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA which provides benefits to retirees.
Neither the REIT nor any ERISA Affiliate thereof is now contributing
nor has it ever contributed to or been obligated to contribute to any
Multiemployer Plan, no employees or former employees of the REIT, or
any ERISA Affiliate thereof have been covered by any Multiemployer
Plan in respect of their employment by the REIT or any such ERISA
Affiliation and no ERISA Affiliate of the REIT has, or is likely to
incur, any withdrawal liability with respect to any Multiemployer Plan
which would have a Material Adverse Effect on the REIT or the
Borrower.
(o) Solvency. The REIT is and will be Solvent, after giving
effect to the disbursement of the Loans and the payment of all fees
directly or indirectly payable under any of the Loan Documents.
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<PAGE>
(p) Status as a REIT. The REIT (1) will make an election on its
1994 tax return to be taxed as a real estate investment trust as
defined in Section 856 of the Internal Revenue Code (or any successor
provision thereto); (2) will not revoke its election to be a real
estate investment trust; (3) has not engaged in any "prohibited
transactions" as defined in Section 856(b)(6)(iii) of the Internal
revenue Code (or any successor provision thereto); and (4) for its
current "tax year" (as defined in the Internal Revenue Code) is, and
for all prior tax years subsequent to its election to be a real estate
investment trust has been, entitled to a dividends paid deduction
which meets the requirements of Section 857 of the Internal Revenue
Code.
(q) Ownership. The sole assets of the REIT are (1) all of the
Securities of Paragon GP Holdings, and (2) all of the Securities of
Paragon LP Holdings.
(r) NYSE Listing. The common stock of the REIT is and will
continue to be listed for trading and traded on either the New York
Stock Exchange, the American Stock Exchange, or NASDAQ.
Section 5.3 Representations and Warranties as to Paragon GP Holdings.
In order to induce Lenders to make the Loans, Paragon GP Holdings
hereby represents and warrants to Lenders as follows:
(a) Organization; Corporate Powers. Paragon GP Holdings (1) is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (2) is duly qualified to do
business as a foreign corporation and in good standing under the laws
of each jurisdiction in which it owns or leases Property, or in which
the nature of its business requires it to be so qualified, except for
those jurisdictions where failure to so qualify and be in good
standing will not have a Material Adverse Effect on Borrower or the
REIT; and (3) has all requisite corporate power and authority to own,
operate and encumber its assets and to conduct its business as
presently conducted and as proposed to be conducted in connection
with, and following the consummation of, the transactions contemplated
by the Loan Documents.
(b) Authority. Paragon GP Holdings has the requisite corporate
power and authority to execute, deliver and perform each of the Loan
Documents to which it is or will be a party. The execution, delivery
and performance thereof, and the consummation of the transactions
contemplated thereby, have been duly approved by the board of
directors of Paragon GP Holdings, and no other corporate proceedings
on the part of Paragon GP Holdings are necessary to consummate such
transactions. Each of the Loan Documents to which Paragon GP Holdings
is a party has been duly executed and delivered by Paragon GP Holdings
and constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights generally.
(c) No Conflict. The execution, delivery and performance by
Paragon GP Holdings of the Loan Documents to which it is party, and
each of the transactions contemplated thereby, do not and will not (1)
conflict with or violate its Articles or Certificate of Incorporation,
by-laws, or any other organizational documents, as the case may be;
(2) conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any
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<PAGE>
Requirement of Law, Contractual Obligation or Court Order that is
binding upon Paragon GP Holdings, or require termination of any
Contractual Obligation, the consequences of which conflict, breach,
default or termination would have a Material Adverse Effect on
Borrower or the REIT, result in or require the creation or imposition
of any Lien whatsoever upon any of the assets of Paragon GP Holdings
(other than Liens in favor of Agent arising pursuant to the Loan
Documents or Permitted Liens); or (3) require any approval of the
stockholders of Paragon GP Holdings.
(d) Consents and Authorizations. Paragon GP Holdings has obtained
all consents and authorizations required pursuant to its Contractual
Obligations with any other Person, the failure of which to obtain
would have a Material Adverse Effect on Borrower or the REIT, and
shall have obtained all consents and authorizations of, and effected
all notices to and filings with, any Governmental Authority, as may be
necessary to allow Paragon GP Holdings to lawfully execute, deliver
and perform its obligations under the Loan Documents to which Paragon
GP Holdings is a party.
(e) Governmental Regulation. Paragon GP Holdings is not subject
to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act, the Investment
Company Act of 1940 or any other federal or state statute or
regulation such that its ability to incur indebtedness is limited, or
its ability to consummate the transactions contemplated by the Loan
Documents is materially impaired.
(f) Capitalization. All of the outstanding capital stock of
Paragon GP Holdings has been issued in compliance with all applicable
Requirements of Law.
(g) No Material Adverse Change; Litigation and Other Events.
(1) There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, or before or by any
Governmental Authority pending, or to best of Paragon GP Holdings'
knowledge, threatened against Paragon GP Holdings, which will (A)
result in a Material Adverse Effect on either the Borrower or the
REIT; or (B) materially and adversely affect the ability of Paragon GP
Holdings, or any other party to any of the Loan Documents to perform
its obligations thereunder;
(2) Paragon GP Holdings is not (A) in violation of any applicable
law, which violation has had or may have a Material Adverse Effect on
either the Borrower or the REIT; or (B) subject to or in default with
respect to any Court Order which Court Order or a Default thereunder
has had or may have a Material Adverse Effect on the Borrower or the
REIT. There are no material Proceedings pending or, to the best of
Paragon GP Holdings' knowledge, threatened against the Paragon GP
Holdings, which, if adversely decided, would have a Material Adverse
Effect on the Borrower or the REIT; and
(3) Since March 31, 1996, to the best of Paragon GP Holding's
knowledge, no event has occurred which has had or may have a Material
Adverse
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Effect on the Borrower or the REIT, and no material adverse change has
occurred in the Borrower's or the REIT's ability to perform its
obligations under the Loan Documents or the transactions contemplated
thereby.
(h) Payment of Taxes. All tax returns and reports to be filed by
Paragon GP Holdings have been timely filed, and all taxes,
assessments, fees and other governmental charges shown on such returns
will be paid prior to delinquency and the assessment of any penalties
or interest, except such taxes, if any, as are reserved against, in
accordance with GAAP, such taxes as are being contested in good faith
by appropriate proceedings or such taxes, the failure to make payment
of which when due and payable will not have, in the aggregate, a
Material Adverse Effect on Borrower or the REIT. Paragon GP Holdings
has no knowledge of any proposed tax assessment against Paragon GP
Holdings that would have a Material Adverse Effect on Borrower or the
REIT, which is not being actively contested in good faith by Paragon
GP Holdings.
(i) Material Adverse Agreements. No Contractual Obligation
contained in Paragon GP Holdings' charter, by-laws, or similar
governing documents has had or may have a Material Adverse Effect on
Borrower or the REIT.
(j) Performance. Paragon GP Holdings is not in default in the
performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual Obligation
which may have or has had a Material Adverse Effect on the Borrower or
the REIT, and no condition exists which, with the giving of notice or
the lapse of time, would constitute a default under any of its
Contractual Obligations and have a Material Adverse Effect on Borrower
or the REIT.
(k) Securities Activities. Paragon GP Holdings is not engaged
principally in the business of extending credit for the purpose of
purchasing or carrying any "margin stock", as defined in Regulation U.
(l) Disclosure. The representations and warranties of Paragon GP
Holdings contained in the Loan Documents, and all certificates,
financial statements and other documents delivered to Agent in
connection therewith, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Paragon GP
Holdings has not intentionally withheld any material fact from Agent
in regard to any matter raised in the Loan Documents. Notwithstanding
the foregoing, with respect to projections of Paragon GP Holdings'
future performance such representations and warranties are made in
good faith and Paragon GP Holdings' best judgment.
(m) Requirements of Law. Paragon GP Holdings is in compliance
with all Requirements of Law (including without limitation the
Securities Act and the Securities Exchange Act, and the applicable
rules and regulations thereunder, state securities law and "Blue Sky"
laws) applicable to it and its respective businesses, in each case,
where the failure to so comply would have a Material Adverse Effect on
Borrower or the REIT. Paragon GP Holdings has made all filings with
and obtained all consents of the Commission required under the
Securities Act and the Securities
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Exchange Act in connection with the execution, delivery and
performance by Paragon GP Holdings of the Loan Documents to which it
is a party.
(n) ERISA. Neither Paragon GP Holdings nor any ERISA
Affiliate thereof has in the past five years maintained or
contributed to or currently maintains or contributes to any
Benefit Plan, other than the 401(k) Plan. Neither Paragon GP
Holdings nor any ERISA Affiliate thereof has during the past five
years maintained or contributed to, or currently maintains or
contributes to, any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA which provides benefits to
retirees. Neither Paragon GP Holdings nor any ERISA Affiliate
thereof is now contributing nor has it ever contributed to or
been obligated to contribute to any Multiemployer Plan, no
employees or former employees of Paragon GP Holdings, or any
ERISA Affiliate thereof have been covered by any Multiemployer
Plan in respect of their employment by Paragon GP Holdings or any
such ERISA Affiliation and no ERISA Affiliate of Paragon GP
Holdings has, or is likely to incur, any withdrawal liability
with respect to any Multiemployer Plan which would have a
Material Adverse Effect on Borrower or the REIT.
(o) Solvency. Paragon GP Holdings is and will be Solvent,
after giving effect to the disbursement of the Loans and the
payment of all fees directly or indirectly payable under any of
the Loan Documents.
(p) Ownership. The sole material assets of Paragon GP
Holdings are (1) Units of Borrower, and (2) a one percent
partnership interest in certain Subsidiaries of the Borrower. The
current list of such interests is reflected on Schedule 5.3(p).
Section 5.4 Representations and Warranties as to Paragon LP Holdings.
In order to induce Lenders to make the Loans, Paragon LP Holdings
hereby represents and warrants to Lenders as follows:
(a) Organization; Corporate Powers. Paragon LP Holdings (1) is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware; (2) is duly qualified to do
business as a foreign corporation and in good standing under the laws
of each jurisdiction in which it owns or leases real property, or in
which the nature of its business requires it to be so qualified,
except for those jurisdictions where failure to so qualify and be in
good standing will not have a Material Adverse Effect on Paragon GP
Holdings; and (3) has all requisite corporate power and authority to
own, operate and encumber its assets and to conduct its business as
presently conducted and as proposed to be conducted in connection
with, and following the consummation of, the transactions contemplated
by the Loan Documents.
(b) Authority. Paragon LP Holdings has the requisite corporate
power and authority to execute, deliver and perform each of the Loan
Documents to which it is or will be a party. The execution, delivery
and performance thereof, and the consummation of the transactions
contemplated thereby, have been duly approved by the board of
directors of Paragon LP Holdings, and no other corporate proceedings
on the part of Paragon LP Holdings are necessary to consummate such
transactions. Each of the Loan Documents to which Paragon LP Holdings
is a party has been duly executed and delivered by Paragon LP Holdings
and constitutes its legal, valid and binding
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obligation, enforceable against it in accordance with its terms,
subject to bankruptcy, insolvency and other laws affecting creditors'
rights generally.
(c) No Conflict. The execution, delivery and performance by
Paragon LP Holdings of the Loan Documents to which it is party, and
each of the transactions contemplated thereby, do not and will not (1)
conflict with or violate its Articles or Certificate of Incorporation,
by-laws, or any other organizational documents, as the case may be;
(2) conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under any
Requirement of Law, Contractual Obligation or Court Order that is
binding upon Paragon LP Holdings, or require termination of any
Contractual Obligation, the consequences of which conflict, breach,
default or termination would have a Material Adverse Effect on
Borrower or the REIT, result in or require the creation or imposition
of any Lien whatsoever upon any of the assets of Paragon LP Holdings
(other than Liens in favor of Agent arising pursuant to the Loan
Documents or Permitted Liens); or (3) require any approval of the
stockholders of Paragon LP Holdings.
(d) Consents and Authorizations. Paragon LP Holdings has obtained
all consents and authorizations required pursuant to its Contractual
Obligations with any other Person, the failure of which to obtain
would have a Material Adverse Effect on Borrower or the REIT, and
shall have obtained all consents and authorizations of, and effected
all notices to and filings with, any Governmental Authority, as may be
necessary to allow Paragon LP Holdings to lawfully execute, deliver
and perform its Obligations under the Loan Documents to which Paragon
LP Holdings is a party.
(e) Governmental Regulation. Paragon LP Holdings is not subject
to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Interstate Commerce Act, the Investment
Company Act of 1940 or any other federal or state statute or
regulation such that its ability to incur indebtedness is limited, or
its ability to consummate the transactions contemplated by the Loan
Documents is materially impaired.
(f) Capitalization. All of the outstanding capital stock of
Paragon LP Holdings has been issued in compliance with all applicable
Requirements of Law.
(g) No Material Adverse Change; Litigation and Other Events.
(1) There is no action, suit, proceeding, governmental
investigation or arbitration, at law or in equity, or before or by any
Governmental Authority pending, or to best of Paragon LP Holdings'
knowledge, threatened against Borrower or the REIT, which will (A)
result in a Material Adverse Effect on Borrower or the REIT; or (B)
materially and adversely affect the ability of Borrower or the REIT,
or any other party to any of the Loan Documents to perform its
obligations thereunder;
(2) Paragon LP Holdings is not (A) in violation of any applicable
law, which violation has had or may have a Material Adverse Effect on
Borrower or the REIT; or (B) subject to or in default with respect to
any Court Order which Court
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Order or a Default thereunder has had or may have a Material Adverse
Effect on Borrower or the REIT. There are no material Proceedings
pending or, to the best of Paragon LP Holdings' knowledge, threatened
against Borrower or the REIT, which, if adversely decided, would have a
Material Adverse Effect on Borrower or the REIT; and
(3) Since March 31, 1996, to the best of Paragon LP
Holdings' knowledge, no event has occurred which has had or may have a
Material Adverse Effect on Borrower or the REIT, and no material
adverse change has occurred in the Borrower's or the REIT's ability to
perform its obligations under the Loan Documents or the transactions
contemplated thereby.
(h) Payment of Taxes. All tax returns and reports to be filed by
Paragon LP Holdings have been timely filed, and all taxes,
assessments, fees and other governmental charges shown on such returns
will be paid prior to delinquency and the assessment of penalties or
interest, except such taxes, if any, as are reserved against, in
accordance with GAAP, such taxes as are being contested in good faith
by appropriate proceedings or such taxes, the failure to make payment
of which when due and payable will not have, in the aggregate, a
Material Adverse Effect on Borrower or the REIT. Paragon LP Holdings
has no knowledge of any proposed tax assessment against Paragon LP
Holdings that would have a Material Adverse Effect on Borrower or the
REIT, which is not being actively contested in good faith by Paragon
LP Holdings.
(i) Material Adverse Agreements. No Contractual Obligation
contained in Paragon LP Holdings' charter, by-laws, or similar
governing documents has had or may have a Material Adverse Effect on
Borrower or the REIT.
(j) Performance. Paragon LP Holdings is not in default in the
performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual
Obligations which default may have or has had a Material Adverse
Effect on the Borrower or the REIT, and no condition exists which,
with the giving of notice or the lapse of time, would constitute a
default under any of its Contractual Obligations and have a Material
Adverse Effect on Borrower or the REIT.
(k) Securities Activities. Paragon LP Holdings is not engaged
principally in the business of extending credit for the purpose of
purchasing or carrying any "margin stock", as defined in Regulation U.
(l) Disclosure. The representations and warranties of Paragon LP
Holdings contained in the Loan Documents, and all certificates,
financial statements and other documents delivered to Agent in
connection therewith, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Paragon LP
Holdings has not intentionally withheld any material fact from Agent
in regard to any matter raised in the Loan Documents. Notwithstanding
the foregoing, with respect to projections of Paragon LP Holdings'
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future performance such representations and warranties are made in
good faith and Paragon LP Holdings' best judgment.
(m) Requirements of Law. Paragon LP Holdings is in compliance
with all Requirements of Law (including without limitation the
Securities Act and the Securities Exchange Act, and the applicable
rules and regulations thereunder, state securities law and "Blue Sky"
laws) applicable to it and its respective businesses, in each case,
where the failure to so comply would have a Material Adverse Effect on
Borrower or the REIT. Paragon LP Holdings has made all filings with
and obtained all consents of the Commission required under the
Securities Act and the Securities Exchange Act in connection with the
execution, delivery and performance by Paragon LP Holdings of the Loan
Documents to which it is a party.
(n) ERISA. Neither Paragon LP Holdings nor any ERISA Affiliate
thereof has in the past five years maintained or contributed to or
currently maintains or contributes to any Benefit Plan, other than the
401(k) Plan. Neither Paragon LP Holdings nor any ERISA Affiliate
thereof has during the past five years maintained or contributed to,
or currently maintains or contributes to, any employee welfare benefit
plan within the meaning of Section 3(1) of ERISA which provides
benefits to retirees. Neither Paragon LP Holdings nor any ERISA
Affiliate thereof is now contributing nor has it ever contributed to
or been obligated to contribute to any Multiemployer Plan, no
employees or former employees of Paragon LP Holdings, or any ERISA
Affiliate thereof have been covered by any Multiemployer Plan in
respect of their employment by Paragon LP Holdings or any such ERISA
Affiliation and no ERISA Affiliate of Paragon LP Holdings has, or is
likely to incur, any withdrawal liability with respect to any
Multiemployer Plan which would have a Material Adverse Effect on
Borrower or the REIT.
(o) Solvency. Paragon LP Holdings is and will be Solvent, after
giving effect to the disbursement of the Loans and the payment of all
fees directly or indirectly payable under any of the Loan Documents.
(p) Ownership. The sole asset of Paragon LP Holdings is Units of
Borrower.
ARTICLE 6
REPORTING COVENANTS
Borrower covenants and agree that, on and after the date hereof,
until payment in full of all of the Obligations, the expiration of the
Commitments and termination of this Agreement:
Section 6.1 Financial Statements and Other Financial and
Operating Information. Borrower shall maintain or cause to be
maintained a system of accounting established and administered in
accordance with sound business practices to permit preparation of
quarterly and annual financial statements in conformity with GAAP on a
consolidated basis for the Borrower, the REIT, Paragon GP Holdings,
Paragon LP Holdings, and their respective Subsidiaries. Borrower shall
deliver or cause to be delivered to Agent:
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(a) Quarterly Borrowing Base Stabilized Property Statements and
Operating Results. As soon as practicable, and in any event within 45
days after the end of each Fiscal Quarter hereafter, operating
statements, and rent roll summaries (each in the form customarily
generated by Borrower or the managing Agent of the Borrowing Base
Stabilized Properties) for each Borrowing Base Stabilized Property,
dated as of the last day of such Fiscal Quarter (the "Borrowing Base
Stabilized Property Statements"), in form and substance satisfactory
to Agent, and certified by an authorized representative of the
Borrower's General Partner.
(b) Quarterly Financial Statements. As soon as practicable, and
in any event within 45 days after the end of each Fiscal Quarter,
(except the last Fiscal Quarter of a Fiscal Year, or as is consistent
with the reporting requirements of the Commission) consolidated
balance sheets, and statements of income and retained earnings
("Financial Statements") for the Borrower, in the form provided to the
Commission on the REIT's Form 10Q and certified by an authorized
officer of the Borrower's General Partner.
(c) Annual Financial Statements. Within 120 days after the close
of each Fiscal Year, annual Financial Statements of the Borrower, on a
consolidated basis (in the form provided to the Commission on the
REIT's Form 10K), audited and certified without qualifications by the
Accountants, or if qualified, in scope and substance satisfactory to
Requisite Lenders, and accompanied by a statement that, in the course
of its audit (conducted in accordance with generally accepted auditing
standards), the Accountants obtained no knowledge that an Event of
Default or Unmatured Event of Default had occurred. It is contemplated
that the Form 10K filed with the Commission will contain a
consolidated balance sheet, statement of operations, statement of cash
flows and footnotes thereto for the Borrower, the REIT, Paragon GP
Holdings, Paragon LP Holdings, and the Management Company. To the
extent details or supporting information which Agent desires with
respect to any of Borrower, the REIT, Paragon GP Holdings, Paragon LP
Holdings, and the Management Company are not contained in the REIT's
Form 10K, Borrower shall provide Agent with such details or supporting
information as Agent requests which are reasonably available to
Borrower.
(d) General Partner's Certificate of Borrower. (1) Together with
each delivery of any Borrowing Base Property Statement or Financial
Statement pursuant to Sections 6.1(b) and 6.1(c), a General Partner's
Certificate stating that the representative of the General Partner who
is the signatory thereto, (i) is authorized to execute such General
Partner's Certificate; (ii) has reviewed, or caused under his
supervision to be reviewed, the terms of this Agreement and the other
principal Loan Documents; (iii) has made, or caused to be made under
his supervision, a review in reasonable detail of the transactions and
condition of Borrower and the REIT during the accounting period
covered by such Borrowing Base Property Statement or Financial
Statement, and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signer does not
have knowledge of the existence as of the date of the General
Partner's Certificate, of any condition or event which constitutes an
Event of Default or an Unmatured Event of Default, or if, any such
condition or event existed or exists, specifying the nature and period
of existence thereof and what action has been taken, is being taken
and is proposed to be taken with respect thereto; and (2) together
with each delivery pursuant to Sections 6.1(b) and 6.1(c), a
Compliance Certificate demonstrating in reasonable detail (which
detail shall include actual
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calculations) compliance during and at the end of such accounting
periods with the financial covenants contained in Article 9.
(e) Borrowing Base Certificates. As soon as practicable, and in
any event within 15 days after the end of each Fiscal Quarter (and
more often if required by Section 4.2(c) or so requested by Agent), a
Borrowing Base Certificate, certified as being true and correct by an
authorized representative of the General Partner of the Borrower;
provided that, unless an Event of Default has occurred and is then
continuing, Agent shall not request that a Borrowing Base Certificate
be furnished more often than monthly and with each Borrowing. Each
Borrowing Base Certificate shall set forth Borrowing Base calculations
since the date of the last prior Borrowing Base Certificate, and shall
reflect any material adverse changes in the Net Operating Income or
other condition of a Borrowing Base Property of which such officer has
knowledge and which is not reflected in the most recent Borrowing Base
Property Statement.
(f) Loan Availability Certificates. Not later than the last
Business Day of each calendar month, a Loan Availability Certificate,
certified as being true and correct by an authorized representative of
the General Partner of the Borrower.
(g) Budgets for Borrowing Base Properties. Not later than 15 days
prior to the beginning of each Fiscal Year, annual operating budgets
for each Borrowing Base Stabilized Property and each Borrowing Base
Development Property for which the final certificate of occupancy has
been issued for the immediately following Fiscal Year, prepared on an
annual basis, together with all supporting details reasonably
requested by Agent, and reported by an authorized representative of
the General Partner of the Borrower as being based upon information
available at the time and on the Borrower's reasonable good faith
estimates, upon information and assumptions at the time.
(h) Knowledge of Event of Default. Promptly upon Borrower
obtaining knowledge (1) of any condition or event which constitutes an
Event of Default or Unmatured Event of Default, or becoming aware that
any Lender has given notice or taken any other action with respect to
a claimed Event of Default or Unmatured Event of Default or (2) of any
condition or event which has a Material Adverse Effect on Borrower,
the REIT, or any Borrowing Base Property, a General Partner's
Certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by
such Lender and the nature of such claimed Event of Default, Unmatured
Event of Default, event or condition, and what action Borrower has
taken, is taking and proposes to take with respect thereto.
(i) Litigation, Arbitration or Government Investigation. Promptly
upon Borrower obtaining knowledge of (1) the institution of, or threat
of, any material action, suit, proceeding, governmental investigation
or arbitration against or affecting, Borrower, the REIT, or any
Borrowing Base Property, as the case may be, or any of their Property
not previously disclosed in writing to Agent pursuant to this Section
6.1(i), including any eminent domain or other condemnation proceedings
affecting any Borrowing Base Property, or (2) any material development
in any action, suit, proceeding, governmental investigation or
arbitration already disclosed, which, had or may have a Material
Adverse Effect on Borrower, the REIT, or any Borrowing Base Property,
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a notice thereof to Agent and such other information as may be
reasonably available to Borrower to enable Agent, Lenders and their
counsel to evaluate such matters.
(j) ERISA Termination Event. As soon as possible, and in any
event within 30 days after Borrower or the REIT, or any ERISA
Affiliate of either of them knows or has reason to know that a
Termination Event has occurred, a written statement of an authorized
financial officer of the General Partner of the Borrower describing
such Termination Event and the action, if any, which Borrower, the
REIT, or any ERISA Affiliate of either of them, has taken, is taking
or proposes to take, with respect thereto, and, when known, any action
taken or threatened by the IRS, the DOL or the PBGC with respect
thereto.
(k) Prohibited ERISA Transaction. As soon as possible, and in any
event within 30 days, after Borrower, the REIT, or any ERISA Affiliate
of either of them, knows or has reason to know that a prohibited
transaction (defined in Section 406 of ERISA and Section 4975 of the
Internal Revenue Code) has occurred, a statement of the chief
executive officer or chief financial officer of the Borrower
describing such transaction.
(l) Benefit Plan Annual Report. Within ten days after the filing
thereof with the DOL, the IRS or the PGBC, copies of each annual
report, including Schedule B thereto, filed with respect to any
Benefit Plan of Borrower, the REIT, or any ERISA Affiliate of either
of them.
(m) Benefit Plan Funding Waiver Request. Within 30 days after the
filing thereof with the IRS, a copy of each funding waiver request
filed with respect to any Benefit Plan of Borrower, the REIT or any
ERISA Affiliate of either of them and all communications received by
Borrower, the REIT, or any ERISA Affiliate of either of them, with
respect to such request.
(n) Establishment of Benefit Plan and Increase in Contributions
to the Benefit Plan. Not fewer than ten days prior to the effective
date thereof, a notice to Agent of the establishment of a Benefit Plan
by Borrower, the REIT, or any ERISA Affiliate of either of them.
Within 30 days after the first to occur of (1) an amendment of any
existing Benefit Plan of Borrower, the REIT, or any ERISA Affiliate of
either of them, which will result in an increase in the benefits under
such Benefit Plan; (2) a notification of any such increase; (3) the
establishment of any new Benefit Plan by Borrower, the REIT, or any
ERISA Affiliate of either of them; or (4) the commencement of
contributions to any Benefit Plan to which Borrower, the REIT, or any
ERISA Affiliate of either of them was not previously contributing; a
copy of said amendment, notification or Benefit Plan.
(o) Special Reporting With Respect to ESOPs. As soon as possible,
and in any event within 30 days, after Borrower, the REIT, or either
ERISA Affiliate of any of them, knows or has reason to know of a
termination or partial termination of any employee stock ownership
plan, or of any transaction or circumstance which would cause an
employee stock ownership plan to cease to be a tax-qualified employee
stock ownership plan within the meaning of Section 4975(e)(7) of the
Internal Revenue Code.
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(p) Qualification of ERISA Plan. Promptly upon, and in any event
within 30 days after, receipt by Borrower, the REIT, or any ERISA
Affiliate of either of them, of an unfavorable determination letter
from the IRS regarding the qualification of a Plan under Section
402(a) of the Internal Revenue Code, a copy of said determination
letter, if such disqualification would have a Material Adverse Effect
on Borrower or the REIT.
(q) Multiemployer Plan Withdrawal Liability. Promptly upon, and
in any event within 30 days after receipt by Borrower, the REIT, or
any ERISA Affiliate of either of them, of a notice from a
Multiemployer Plan regarding the imposition of withdrawal liability, a
copy of said notice.
(r) Failure to Make Section 412 Payment. Promptly upon, and in
any event within 30 days after, Borrower, the REIT, or any ERISA
Affiliate of either of them, fails to make a required installment
under subsection (m) of Section 412 of the Internal Revenue Code or
any other payment required under Section 412 of the Internal Revenue
Code on or before the due date for such installment or payment, a
notification of such failure, if such failure could result in either
the imposition of a Lien under Section 412 of the Internal Revenue
Code or otherwise have, or could reasonably by anticipated to have, a
Material Adverse Effect on Borrower or the REIT.
(s) Failure of the REIT to Qualify as Real Estate Investment
Trust. Promptly after Borrower first has actual knowledge of (1) the
REIT failing to qualify as a real estate investment trust, as defined
in Section 856 of the Internal Revenue Code (or any successor
provision thereof); (2) any act by the REIT causing its election to be
taxed as a real estate investment trust to be terminated; (3) any act
causing the REIT to be subject to the taxes imposed by Section
857(b)(6) of the Internal Revenue Code (or any successor provision
thereto); or (4) the REIT failing to be entitled to a dividends paid
deduction which meets the requirements of Section 857 of the Internal
Revenue Code; a notice of any such occurrence or circumstance.
(t) Revocation of the REIT Status. At least 30 days prior to the
taking of any act by the REIT to revoke its election to be taxed as a
real estate investment trust, a notice of such intended action.
(u) Other Information. Such other information, reports,
contracts, schedules, lists, documents, agreements and instruments in
the possession of the Borrower with respect to (1) the Collateral; or
(2) Borrower's or the REIT's business, condition (financial or
otherwise), operations, performance, properties or prospects, as Agent
may, from time to time, reasonably request, including, without
limitation, any annual information with respect to cash flow
projections, budgets, operating statements (current year and
immediately preceding year), rent rolls, lease expiration reports,
note payable summaries, bullet note summaries, equity funding
requirements, contingent liability summaries, line of credit
summaries, line of credit collateral summaries, wrap note or note
receivable summaries, schedules of outstanding letters of credit,
summaries of cash and Cash Equivalents, projections of management and
leasing fees, and overhead budgets. Upon the occurrence and during the
continuance of an Unmatured Event of Default or Event of Default, if
Borrower fails to provide Agent with any such other information
reasonably requested from Borrower within the time periods provided
for herein, or if no time periods are provided for, within
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five Business Days after Agent requests such information, and provided
that Agent gives Borrower reasonable prior notice and an opportunity
to participate, Borrower hereby authorizes Agent to communicate with
the Accountants and authorizes the Accountants to disclose to Agent
any and all financial statements and other information of any kind,
including copies of any management letter or the substance of any oral
information, that the Accountants may have with respect to the
Collateral or Borrower's, the REIT's, Paragon GP Holdings', Paragon LP
Holdings', or the Management Company's condition (financial or
otherwise), operations, properties, performance and prospects.
Concurrently therewith, Agent will notify Borrower of any such
communication. At Agent's request, Borrower shall deliver a letter
addressed to the Accountants instructing them to disclose such
information in compliance with this Section 6.1(u).
(v) Press Releases; SEC Filings and Financial Statements. The
REIT and Borrower shall deliver to Agent, all reports and notices,
proxy statements, registration statements and prospectuses within ten
days after such materials are filed with the Commission. All materials
sent or made available generally by the REIT to the holders of its
publicly-held Securities, the Borrower to the holders of its Units, or
to a trustee under any indenture or filed with the Commission,
including all periodic reports required to be filed with the
Commission, shall be delivered to Agent within 10 days of when they
become available.
(w) Management Reports. Upon request of Agent, copies of any
management reports prepared by the Accountants.
(x) Development Property Status Reports. With respect to each
Borrowing Base Development Property, Borrower shall deliver to Agent a
Development Property Status Report, as soon as practicable, and in any
event within 15 days after the end of each calendar month. Each
Development Property Status Report shall include an updated Project
Budget, AIA Form No. , set forth the status of construction of the
Improvements, current information about occupancy and leasing
activities, and disclose any material deviations from the Development
Plans, the Construction Schedule, the terms of the Construction
Contracts, and the Project Budget.
(y) Conversion Date Certificates. With respect to each Borrowing
Base Development Property, Borrower shall deliver to Agent a
Conversion Date Certificate when the Property has achieved 90% average
occupancy and 90% of appraised stabilized gross revenue (on an
annualized basis) for each of three consecutive months.
Section 6.2 Environmental Notices. Borrower shall notify Agent, in
writing, as soon as practicable, and in any event within ten days
after Borrower learns of any: (a) with respect to any Borrowing Base
Property, (1) written notice or claim to the effect that Borrower is
or may be liable to any Person as a result of the Release or
threatened Release of any Contaminant into the environment; (2)
written notice that Borrower is subject to investigation by any
Governmental Authority evaluating whether any Remedial Action is
needed to respond to the Release or threatened Release of any
Contaminant into the environment; (3) written notice that such
Borrowing Base Property is subject to an Environmental Lien; or (4)
written notice of violation to Borrower or awareness of a condition
which might reasonably result in a notice of violation of any
Environmental Laws by Borrower, which would have a Material Adverse
Effect on Borrower or the REIT; and
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(b) (1) commencement or written threat of any judicial or
administrative proceeding alleging a violation of any Environmental
Laws which will be subject to disclosure in the REIT's Form 10Q or
Form 10K; (2) written notice from a Governmental Authority of any
changes to any existing Environmental Laws that will have a Material
Adverse Effect on the operations of Borrower; or (3) any proposed
action by Borrower that, to the best of Borrower's knowledge, could
subject Borrower to environmental, health or safety Liabilities and
Costs that could have a Material Adverse Effect on Borrower or the
REIT.
ARTICLE 7
AFFIRMATIVE COVENANTS
On and after the date hereof, until payment in full of all of the
Obligations, the expiration of the Commitments and termination of this
Agreement:
Section 7.1 Borrower's Affirmative Covenants. Borrower covenants and
agrees that:
(a) Existence. Borrower shall at all times maintain its existence
as a limited partnership.
(b) Qualification Name. Borrower shall qualify and remain
qualified to do business in each jurisdiction in which the nature of
its business requires it to be so qualified except for those
jurisdictions where failure to so qualify will not have a Material
Adverse Effect on Borrower. Except as set forth on Schedule 7.1(b),
Borrower will transact business solely in its own name or the name of
its Subsidiaries.
(c) Compliance with Laws, Etc. Borrower shall (1) comply with all
Requirements of Law, and all restrictive covenants in its Contractual
Obligations affecting its Properties, performance, prospects,
obligations, assets or operations, and (2) obtain, as needed, all
Permits necessary for its operations and maintain such in good
standing, except in each of the foregoing cases where the failure to
do will not have a Material Adverse Effect on Borrower.
(d) Payment of Taxes and Claims. Borrower shall pay (1) all
taxes, assessments and other governmental charges imposed upon it or
on any of its Properties or assets or in respect of any of its
business, income or Property before any penalty or interest accrues
thereon, the failure to make payment of which will have a Material
Adverse Effect on Borrower, and (2) all claims (including, without
limitation, claims for labor, services, materials and supplies) for
sums, material in the aggregate to Borrower, as the case may be, which
have become due and payable and which by law have or may become a Lien
other than a judgment Lien upon any of Borrower's Properties, prior to
the time when any penalty or fine shall be incurred with respect
thereto; provided, however, that no such taxes, assessments, and
governmental charges referred to in clause 1 above or claims referred
to in clause 2 above need to be paid if same are being contested in
good faith by appropriate proceedings promptly instituted and
diligently conducted, and if adequate reserves shall have been set
aside therefor in accordance with GAAP. Borrower also shall pay
promptly all taxes,
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assessments and other governmental charges for which the Lenders are
or become liable, including, without limitation, documentary and
intangibles taxes levied by any Governmental Authority in connection
with the Loans, and shall provide Agent with a receipt of payment from
the appropriate Governmental Authority prior to the date on which such
tax, assessment or charge will become past due.
(e) Inspection of Property; Books and Records; Discussion.
Borrower shall permit any authorized representative(s) designated by
Agent upon reasonable notice to Borrower (1) to visit and inspect any
of its Properties (provided that Borrower shall not reimburse Agent
for expenses incurred in connection with inspecting Properties that
are not, or proposed as Borrowing Base Properties), and (2) with
respect to Borrowing Base Properties, to inspect financial and
accounting records and leases, and to make copies and take extracts
therefrom, all at such times during normal business hours and as often
as Agent may reasonably request. In connection therewith, Borrower
shall pay all expenses of the types described in Section 12.1.
Borrower will keep proper books of record and account in which entries
in conformity with GAAP, as modified and as otherwise required by this
Agreement and applicable Requirements of Law, shall be made of all
dealings and transactions in relation to its businesses and activities
and as otherwise required under Section 6.1.
(f) Maintenance of Licenses, Permits, Etc. Borrower shall (1)
maintain in full force and effect all licenses, permits, governmental
approvals, franchises, patents, trademarks, trade names, copyrights,
authorizations or other rights necessary for the operation of its
business, except where the failure to maintain any of the foregoing
would not have a Material Adverse Effect on Borrower, and (2) shall
notify Agent in writing, promptly after learning thereof, of the
suspension, cancellation, revocation or discontinuance of and of any
pending or threatened action or proceedings seeking to suspend,
cancel, revoke or discontinue any material licenses, permit, patent,
trademark, trade name, copyright, governmental approval, franchise
authorization or right.
(g) Conduct of Business. Except for Permitted Investments and
Investments in cash and Cash Equivalents, Borrower shall engage only
in the business of developing, owning, operating and managing
apartment, retail and commercial properties, asset management and any
business activities incidental thereto.
(h) Use of Proceeds. Borrower shall use the proceeds of the Loans
only for predevelopment costs, development costs, acquisitions,
capital expenditures, working capital, equity Investments, repayment
of Indebtedness or scheduled amortization payments thereon.
(i) Project Budget Revisions. Borrower shall obtain the approval
of Agent of any increase in any line item in the Project Budget (1)
that involves more than the greater of (A) $50,000 or (B) 10% of such
line item, or (2) which increase, when added to all increases in line
items in the Project Budget shall cause the aggregate increase in the
Project Budget to exceed $250,000. Borrower shall not (i) reallocate
any part of any interest reserve or operating deficit that is a line
item in the Project Budget; or (ii) increase any fees payable to
Borrower or an Affiliate of Borrower.
(j) Borrowing Base Development Properties.
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The construction of the Improvements will be prosecuted by Borrower
with diligence and continuity to completion and will be completed by
Borrower in a good and workmanlike manner in substantial accordance
with the Development Plans and the other provisions of this Agreement,
on or before the completion date disclosed in the Construction
Schedule (subject to Permitted Delays) and free and clear from all
liens, or claims for liens, other than Permitted Liens. No changes of
a material nature will be made to the Development Plans by, or be
permitted to be made to them by Borrower without the prior written
approval therefor of all requisite Governmental Authorities, prior
compliance with all requisite Requirements of Law and prior acceptance
(if the Agent so elects) by the Agent and in instances where Agent
does accept any changes to the Development Plans, such acceptance
shall be deemed to be strictly limited to an acknowledgment of Agent's
consent to the Improvements being constructed in accordance therewith
and shall not, in any way, be deemed to imply any warranty,
representation or approval by Agent or the Lenders that such
Improvements, if so constructed, will be structurally sound, will
comply with all Requirements of Law, will be fit for any particular
purpose or will have a market value of any particular magnitude. At
all times during construction of the Improvements, Borrower will (1)
permit Agent, the Independent Supervising Architect and their
representatives, to enter upon the Land and into the Improvements, to
inspect the same and all materials to be used in the construction of
the Improvements and to examine the Development Plans, (2) comply
strictly with any and all Requirements of Law required to be complied
with incidental to such construction, (3) deliver to Agent, or its
representatives, immediately upon demand, counterparts and/or
conditional assignments of any and all Construction Contracts, bills
of sale, statements, conveyances, receipted vouchers or agreements of
any nature under which Borrower claims title to any materials or
supplies used or to be used in the construction of the Improvements,
(4) either cause each Construction Contract to contain a provision
specifically subordinating any lien right against such Borrowing Base
Development Property to the liens and security interests created by
the Loan Documents or cause the other party thereto to execute any and
all instruments, acceptable in form and substance to Agent, to
accomplish the same, (5) if requested by Agent, furnish to Agent,
immediately after the pouring of each concrete slab, street and
curbstone within the Land, the completion of each foundation of a
structure forming part of the Improvements and the completion of the
Improvements, a survey certified to by a licensed engineer acceptable
to Agent showing all of same and that the location thereof is entirely
within the property lines of the Land and does not encroach upon,
breach or violate any building line, easement or similar restriction,
(6) obtain and maintain, in full force and effect, an owner's and
contractor's liability insurance policy or policies (including
worker's compensation insurance) and a hazard insurance policy or
policies in builder's all risk form with loss payable endorsements
acceptable to Agent insuring the Improvements and all materials and
supplies purchased with advances hereunder against all risks and
losses, all such insurance policies to be issued by companies, in
amounts and on terms approved by Agent, (7) if Agent shall request,
furnish Agent with a current list of material original contractors,
subcontractors, materialmen, vendors, artisans and laborers performing
work on the Improvements and (8) upon demand of Agent or the
Independent Supervising Architect, correct any structural defect in
the Improvements or any material departure from the Development Plans
not accepted by Agent, it being understood and agreed that the advance
of any loan proceeds shall not constitute a waiver of Agent's right to
require compliance with this Section 7.1(j) with respect to any such
defects or departures.
Section 7.2 With respect to the REIT.
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(a) Corporate Existence. The REIT shall at all times
maintain its corporate existence.
(b) Qualification, Name. The REIT shall qualify and remain
qualified to do business in each jurisdiction in which the nature
of its business requires it to be so qualified except for those
jurisdictions where failure to so qualify will not have a
Material Adverse Effect on the REIT. The REIT will transact
business solely in its own name.
(c) Securities Law Compliance. The REIT shall comply in all
material respects with all rules and regulations of the
Commission and file all reports required by the Commission
relating to the REIT's publicly-held Securities.
(d) Continued Status as a REIT; Prohibited Transactions. The
REIT shall (1) make an election on its 1994 tax return to be
taxed as, and shall thereafter, continue to be, a real estate
investment trust as defined in Section 856 of the Internal
Revenue Code (or any successor provision thereof), (2) not revoke
its election to be a real estate investment trust, (3) not engage
in any "prohibited transactions" as defined in Section
856(b)(6)(iii) of the Internal Revenue Code (or any successor
provision thereto), and (4) continue to be entitled to a dividend
paid deduction meeting the requirements of Section 857 of the
Internal Revenue Code.
(e) NYSE Listed Company. The common stock of the REIT shall
at all times be listed for trading and be traded on the New York
Stock Exchange, the American Stock Exchange, or NASDAQ.
(f) Compliance with Laws, Etc. The REIT shall (1) comply
with all Requirements of Law, and all restrictive covenants
affecting the REIT and (2) obtain, as needed, all Permits
necessary for its operations and maintain such in good standing,
except in each of the foregoing cases where the failure to do so
will not have a Material Adverse Effect on the REIT.
(g) Payment of Taxes and Claims. The REIT shall pay (1) all
taxes, assessments and other governmental charges imposed upon it
or on any of its assets or in respect of any of its businesses
or, income before any penalty or interest accrues thereon, the
failure to make payment of which will have a Material Adverse
Effect on the REIT, and (2) all claims (including, without
limitation, claims for labor, services, materials and supplies)
for sums, material in the aggregate to the REIT, as the case may
be, which have become due and payable and which by law have or
may become a Lien, other than a judgment Lien, upon any of the
REIT's assets, prior to the time when any penalty or fine shall
be incurred with respect thereto; provided, however, that no such
taxes, assessments, and governmental charges referred to in
clause 1 above or claims referred to in clause 2 above need be
paid if same are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if
adequate reserves shall have been set aside therefor in
accordance with GAAP.
(h) Conduct of Business. The REIT's sole business purpose
shall be to own 100% of each of Paragon GP Holdings and Paragon
LP Holdings. The REIT shall use all net proceeds it receives from
the sale of its Securities solely to purchase Securities of
Paragon GP
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Holdings and Paragon LP Holdings and shall consummate such purchases
within five Business Days of the date on which it receives such net
proceeds.
(i) Subordination. The REIT subordinates all present and
future Indebtedness owing by Borrower to the REIT (other than the
reimbursement and indemnification obligations owing by Borrower
to the REIT identified on Schedule 7.2(i)) to the Obligations at
any time owing by Borrower to the Agent and the Lenders under the
Loan Documents. The REIT agrees to make no claim for such
Indebtedness until all Obligations of Borrower have been fully
discharged. The REIT further agrees not to assign all or any part
of such Indebtedness unless Agent is given prior written notice
and such assignment is expressly made subject to the terms of
this Section 7.2(i). If Agent so requests, (i) all instruments
evidencing such Indebtedness shall be duly endorsed and delivered
to Agent, (ii) all security for such Indebtedness shall be duly
assigned and delivered to Agent, (iii) such Indebtedness shall be
enforced, collected and held by the REIT as trustee for Agent and
the Lenders and shall be paid over to Agent on account of the
Obligations, and (iv) the REIT shall execute, file and record
such documents and instruments and take such other action as
Agent deems necessary or appropriate to perfect, preserve and
enforce the Agent's and Lenders' rights in and to such
Indebtedness and any security therefor. If the REIT fails to take
any such action, within ten days after written notice from Agent,
then Agent, as attorney-in-fact for the REIT, is hereby
authorized to do so in the name of the REIT. The foregoing power
of attorney is coupled with an interest and cannot be revoked.
(j) Bankruptcy of Borrower. In any bankruptcy or other
proceeding in which the filing of claims is required by law, the
REIT shall file all claims which the REIT may have against
Borrower relating to any Indebtedness of Borrower to the REIT and
shall assign to Agent all rights of the REIT thereunder. If the
REIT does not file any such claim, within ten days after written
notice from Agent, then Agent, as attorney-in-fact for the REIT,
is hereby authorized to do so in the name of the REIT or, in
Agent's discretion, to assign the claim to a nominee and to cause
a proof of claim to be filed in the name of Agent's nominee. The
foregoing power of attorney is coupled with an interest and
cannot be revoked. Agent or its nominee shall have the right, in
its reasonable discretion, to accept or reject any plan proposed
in such proceeding and to take any other action which a party
filing a claim is entitled to do. In all such cases, whether in
administration, bankruptcy or otherwise, the Person or Persons
authorized to pay such claim shall pay to Agent the amount
payable on such claim and, to the full extent necessary for that
purpose, the REIT hereby assigns to Agent all of the REIT's
rights to any such payments or distributions; provided, however,
the REIT's obligations hereunder shall not be satisfied except to
the extent that Agent receives cash by reason of any such payment
or distribution. The rights of Agent shall continue, with respect
to any amount at any time paid by Borrower on account of any of
the Obligations which Agent or any of the Lenders shall be
required to restore or return upon the bankruptcy, insolvency or
reorganization of Borrower or for any other reasons, all as
though such amount had not been paid. Section 7.3 With respect to
Paragon GP Holdings.
(a) Corporate Existence. Paragon GP Holdings shall at all
times maintain its corporate existence.
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(b) Qualification, Name. Paragon GP Holdings shall qualify and
remain qualified to do business in each jurisdiction in which the
nature of its business requires it to be so qualified except for those
jurisdictions where failure to so qualify will not have a Material
Adverse Effect on the Borrower or the REIT. Paragon GP Holdings will
transact business solely in its own name.
(c) Compliance with Laws, Etc. Paragon GP Holdings shall (1)
comply with all Requirements of Law, and all restrictive covenants
affecting Paragon GP Holdings, and (2) obtain, as needed, all Permits
necessary for its operations and maintain such in good standing,
except in each of the foregoing cases where the failure to do so will
not have a Material Adverse Effect on the Borrower or the REIT.
(d) Payment of Taxes and Claims. Paragon GP Holdings shall pay
(1) all taxes, assessments and other governmental charges imposed upon
it or on any of its assets or in respect of any of its businesses or,
income before any penalty or interest accrues thereon, the failure to
make payment of which will have a Material Adverse Effect on the
Borrower or the REIT, and (2) all claims (including, without
limitation, claims for labor, services, materials and supplies) for
sums, material in the aggregate to Paragon GP Holdings, as the case
may be, which have become due and payable and which by law have or may
become a Lien, other than a judgment Lien, upon any of Paragon GP
Holdings' assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, however, that no such taxes,
assessments, and governmental charges referred to in clause 1 above or
claims referred to in clause 2 above need be paid if same are being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if adequate reserves shall have been set
aside therefor in accordance with GAAP.
(e) Material Contracts. Paragon GP Holdings shall perform all of
its obligations under any leases or agreements, except where the
failure to perform such obligations will not have a Material Adverse
Effect on the Borrower or the REIT.
(f) Conduct of Business. Paragon GP Holdings' sole business
purposes shall be to own Units of the Borrower, to function as the
General Partner of Borrower, and to own a one percent partnership
interest in certain Subsidiaries of the Borrower. Paragon GP Holdings
shall use all net proceeds it receives from the sale of its Securities
solely to purchase either Units of the Borrower or one percent
partnership interests in certain partnerships that will become
Subsidiaries of Borrower and shall consummate such purchases within
five Business Days of the date it receives such net proceeds.
(g) Subordination. Paragon GP Holdings subordinates all present
and future Indebtedness owing by Borrower to Paragon GP Holdings
(other than reimbursement and indemnification obligations owing by
Borrower to Paragon GP Holdings) to the Obligations at any time owing
by Borrower to the Agent and the Lenders under the Loan Documents.
Paragon GP Holdings agrees to make no claim for such Indebtedness
until all Obligations of Borrower have been fully discharged. Paragon
GP Holdings further agrees not to assign all or any part of such
Indebtedness unless Agent is given prior written notice and such
assignment is expressly made subject to the terms of this Section
7.3(g). If Agent so requests, (i) all instruments evidencing such
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Indebtedness shall be duly endorsed and delivered to Agent, (ii) all
security for such Indebtedness shall be duly assigned and delivered to
Agent, (iii) such Indebtedness shall be enforced, collected and held
by Paragon GP Holdings as trustee for Agent and the Lenders and shall
be paid over to Agent on account of the Obligations, and (iv) Paragon
GP Holdings shall execute, file and record such documents and
instruments and take such other action as Agent deems necessary or
appropriate to perfect, preserve and enforce the Agent's and Lenders'
rights in and to such Indebtedness and any security therefor. If
Paragon GP Holdings fails to take any such action within ten days
after written notice from Agent, then Agent, as attorney-in-fact for
Paragon GP Holdings, is hereby authorized to do so in the name of
Paragon GP Holdings. The foregoing power of attorney is coupled with
an interest and cannot be revoked.
(h) Bankruptcy of Borrower. In any bankruptcy or other proceeding
in which the filing of claims is required by law, Paragon GP Holdings
shall file all claims which Paragon GP Holdings may have against
Borrower relating to any Indebtedness of Borrower to Paragon GP
Holdings and shall assign to Agent all rights of Paragon GP Holdings
thereunder. If Paragon GP Holdings does not file any such claim within
ten days after written notice from Agent, then Agent, as
attorney-in-fact for Paragon GP Holdings, is hereby authorized to do
so in the name of Paragon GP Holdings or, in Agent's discretion, to
assign the claim to a nominee and to cause a proof of claim to be
filed in the name of Agent's nominee. The foregoing power of attorney
is coupled with an interest and cannot be revoked. Agent or its
nominee shall have the right, in its reasonable discretion, to accept
or reject any plan proposed in such proceeding and to take any other
action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy or otherwise, the Person
or Persons authorized to pay such claim shall pay to Agent the amount
payable on such claim and, to the full extent necessary for that
purpose, Paragon GP Holdings hereby assigns to Agent all of Paragon GP
Holdings' rights to any such payments or distributions; provided,
however, Paragon GP Holdings' obligations hereunder shall not be
satisfied except to the extent that Agent receives cash by reason of
any such payment or distribution. The rights of Agent shall continue,
with respect to any amount at any time paid by Borrower on account of
any of the Obligations which Agent or any of the Lenders shall be
required to restore or return upon the bankruptcy, insolvency or
reorganization of Borrower or for any other reasons, all as though
such amount had not been paid.
Section 7.4 With respect to Paragon LP Holdings.
(a) Corporate Existence. Paragon LP Holdings shall at all times
maintain its corporate existence.
(b) Qualification, Name. Paragon LP Holdings shall qualify and
remain qualified to do business in each jurisdiction in which the
nature of its business requires it to be so qualified except for those
jurisdictions where failure to so qualify will not have a Material
Adverse Effect on the Borrower or the REIT. Paragon LP Holdings will
transact business solely in its own name.
(c) Compliance with Laws, Etc. Paragon LP Holdings shall (1)
comply with all Requirements of Law, and all restrictive covenants
affecting Paragon LP Holdings, and
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(2) obtain, as needed, all Permits necessary for its operations and
maintain such in good standing, except in each of the foregoing cases
where the failure to do so will not have a Material Adverse Effect on
the Borrower or the REIT.
(d) Payment of Taxes and Claims. Paragon LP Holdings shall pay
(1) all taxes, assessments and other governmental charges imposed upon
it or on any of its assets or in respect of any of its businesses or,
income before any penalty or interest accrues thereon, the failure to
make payment of which will have a Material Adverse Effect on the
Borrower or the REIT; and (2) all claims (including, without
limitation, claims for labor, services, materials and supplies) for
sums, material in the aggregate to Paragon LP Holdings, as the case
may be, which have become due and payable and which by law have or may
become a Lien, other than a judgment Lien, upon any of Paragon LP
Holdings' assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, however, that no such taxes,
assessments, and governmental charges referred to in clause 1 above or
claims referred to in clause 2 above need be paid if same are being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted and if adequate reserves shall have been set
aside therefor in accordance with GAAP.
(e) Material Contracts. Paragon LP Holdings shall perform all of
its obligations under any leases or agreements, except where the
failure to perform such obligations will not have a Material Adverse
Effect on the Borrower or the REIT.
(f) Conduct of Business. Paragon LP Holdings' sole business
purpose shall be to own Units of the Borrower and to function as a
limited partner of the Borrower. Paragon LP Holdings shall use all net
proceeds it receives from the sale of its Securities solely to
purchase Units of the Borrower and shall consummate such purchases
within five Business Days of the date it receives such net proceeds.
(g) Subordination. Paragon LP Holdings subordinates all present
and future Indebtedness owing by Borrower to Paragon LP Holdings
(other than reimbursement and indemnification obligations owing by
Borrower to Paragon LP Holdings) to the Obligations at any time owing
by Borrower to the Agent and the Lenders under the Loan Documents.
Paragon LP Holdings agrees to make no claim for such Indebtedness
until all Obligations of Borrower have been fully discharged. Paragon
LP Holdings further agrees not to assign all or any part of such
Indebtedness unless Agent is given prior written notice and such
assignment is expressly made subject to the terms of this Section
7.4(g). If Agent so requests, (i) all instruments evidencing such
Indebtedness shall be duly endorsed and delivered to Agent, (ii) all
security for such Indebtedness shall be duly assigned and delivered to
Agent, (iii) such Indebtedness shall be enforced, collected and held
by Paragon LP Holdings as trustee for Agent and the Lenders and shall
be paid over to Agent on account of the Obligations, and (iv) Paragon
LP Holdings shall execute, file and record such documents and
instruments and take such other action as Agent deems necessary or
appropriate to perfect, preserve and enforce the Agent's and Lenders'
rights in and to such Indebtedness and any security therefor. If
Paragon LP Holdings fails to take any such action, within ten days
after written notice from Agent, then Agent, as attorney-in-fact for
Paragon LP Holdings, is hereby authorized to do so in the name of
Paragon LP Holdings. The foregoing power of attorney is coupled with
an interest and cannot be revoked.
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(h) Bankruptcy of Borrower. In any bankruptcy or other proceeding
in which the filing of claims is required by law, Paragon LP Holdings
shall file all claims which Paragon LP Holdings may have against
Borrower relating to any indebtedness of Borrower to Paragon LP
Holdings and shall assign to Agent all rights of Paragon LP Holdings
thereunder. If Paragon LP Holdings does not file any such claim within
ten days after written notice from Agent, then Agent, as
attorney-in-fact for Paragon LP Holdings, is hereby authorized to do
so in the name of Paragon LP Holdings or, in Agent's discretion, to
assign the claim to a nominee and to cause a proof of claim to be
filed in the name of Agent's nominee. The foregoing power of attorney
is coupled with an interest and cannot be revoked. Agent or its
nominee shall have the right, in its reasonable discretion, to accept
or reject any plan proposed in such proceeding and to take any other
action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy or otherwise, the Person
or Persons authorized to pay such claim shall pay to Agent the amount
payable on such claim and, to the full extent necessary for that
purpose, Paragon LP Holdings hereby assigns to Agent all of Paragon LP
Holdings' rights to any such payments or distributions; provided,
however, Paragon LP Holdings' obligations hereunder shall not be
satisfied except to the extent that Agent receives cash by reason of
any such payment or distribution. The rights of Agent shall continue,
with respect to any amount at any time paid by Borrower on account of
any of the Obligations which Agent or any of the Lenders shall be
required to restore or return upon the bankruptcy, insolvency or
reorganization of Borrower or for any other reasons, all as though
such amount had not been paid.
ARTICLE 8
NEGATIVE COVENANTS
Borrower covenants and agrees that, on and after the date hereof,
until payment in full of all of the Obligations, the expiration of the
Commitments and termination of this Agreement:
Section 8.1 With respect to Borrower:
(a) Indebtedness. Borrower shall not directly or indirectly
create, incur, assume or otherwise become or remain directly or
indirectly liable with respect to any Indebtedness, if, after
giving effect thereto, there would be a breach of any of the
financial covenants contained in Article 9.
(b) Liens. Borrower shall not directly or indirectly create,
incur, assume or permit to exist any Lien on, or with respect to,
any Property subject to Agent's Liens, except:
(1) Permitted Liens; and
(2) Liens arising under Section 302(f) of ERISA or
Section 412(n) of the Internal Revenue Code where the delinquent
contribution which gave rise to the Lien is paid within 30 days of its
original due date.
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Additionally, Borrower shall not encumber real Property owned solely
by Borrower with Liens that will secure more than one non-prepayable
Indebtedness if, after giving effect to such Liens, the aggregate
number of real Properties so encumbered exceeds 75% of the aggregate
number of all real Properties owned solely by Borrower.
(c) Investments. Borrower shall not directly or indirectly make
or own any Investment except:
(1) Investments in cash and Cash Equivalents; and
(2) Permitted Investments described in paragraph 7 of Addendum- I
to this Agreement.
(d) Restrictions on Fundamental Changes.
(1) Borrower shall not enter into any merger or consolidation in
which Borrower is not the surviving entity or liquidate, wind-up
or dissolve (or suffer any liquidation or dissolution).
(2) Borrower shall remain a limited partnership with Paragon GP
Holdings as its sole general partner.
(3) Borrower shall not change its Fiscal Year.
(4) Except for Permitted Investments, Borrower shall not engage
in any line of business other than development, ownership,
operation and management of apartment, retail and commercial
properties, asset management and business activities incidental
thereto.
(e) ERISA. Borrower shall not, and shall not permit any ERISA
Affiliates to, do any of the following to the extent that such act or
failure to act would result in the aggregate, after taking into
account any other such acts or failure to act, in a Material Adverse
Effect on Borrower or the REIT:
(1) Engage, or knowingly permit an ERISA Affiliate to
engage, in any prohibited transaction described in Section 406 of the
ERISA or Section 4975 of the Internal Revenue Code which is not exempt
under Section 407 or 408 of ERISA or Section 4975(d) of the Internal
Revenue Code for which a class exemption is not available or a private
exemption has not been previously obtained from the DOL;
(2) Permit to exist any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Internal Revenue Code),
whether or not waived;
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(3) Fail, or permit an ERISA Affiliate to fail to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Plan if such failure could result in
the imposition of a Lien or otherwise have a Material Adverse Effect
on Borrower or the REIT;
(4) Terminate, or permit an ERISA Affiliate to terminate, any
Benefit Plan which would result in any liability of Borrower, the
REIT, or an ERISA Affiliate under Title IV of ERISA; or
(5) Fail, or permit any ERISA Affiliate to fail, to pay any
required installment under Section (m) of Section 412 of the Internal
Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment
or other payment, if such failure could result in the imposition of a
Lien or otherwise have a Material Adverse Effect on Borrower or the
REIT.
(f) Environmental Liabilities. Borrower shall not become subject
to any Liabilities and Costs which Agent reasonably deems to have a
Material Adverse Effect on any Borrowing Base Property arising out of
or related to (1) the Release or threatened Release of any Contaminant
into the environment, or any Remedial Action in response thereto; or
(2) any violation of any Environmental Laws; provided, however, that
this covenant shall not be violated so long as (A) Borrower shall have
notified Agent of the assertion of such liability or required
expenditures within ten days after receiving written notice of such
assertion; (B) Borrower shall have continued to furnish Agent with
such information concerning such asserted liability or required
expenditure as Agent shall have reasonably requested, or is otherwise
provided herein; and (C) Borrower shall be diligently pursuing
indemnification, contribution or other reimbursement for such
liability or required expenditures from any Person which has an
obligation to provide indemnification or may otherwise be obligated to
reimburse Borrower for such liability or required expenditures.
(g) Amendment of Constituent Documents. Borrower shall not amend
its limited partnership agreement, or certificate of limited
partnership, if such amendment will have a Material Adverse Effect
upon Borrower, or upon Borrower's ability to perform its Obligations
under the Loan Documents.
(h) Margin Regulations. No portion of the proceeds of any
Borrowings shall be used in any manner which might cause the extension
of credit or the application of such proceeds to violate Regulation G,
Regulation U or Regulation X or any other regulation of the Federal
Reserve Board or to violate the Securities Exchange Act or the
Securities Act, in each case as in effect on the date or dates of
Borrowings and such use of proceeds.
(i) Management of Borrower. During the original term of this
Agreement, as well as the extension period provided for in Section
2.1(d) of this Agreement, William R. Cooper shall remain active in the
executive and operational management of Borrower and the REIT. If,
however, William Cooper is not so active in the management of the
Borrower or the REIT during the initial term of this Agreement, or if
exercised, during the extension period provided for in Section
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2.1(d), then, either (1) no fewer than any two of Brian Lavin, James
T. Cobb, Lewis A. Levey, and Robert H. Gidel must be active in the
management of Borrower and the REIT or serve on the board of directors
of the REIT, or (2) within 180 days thereof, the Borrower and the REIT
shall propose and appoint a management replacement for Mr. Cooper who
is acceptable to Agent and Requisite Lenders.
Section 8.2 With respect to the REIT:
(a) Restriction on Fundamental Changes.
(1) The REIT shall not enter into any merger or consolidation in which
the REIT is not the surviving entity or liquidate, wind-up or dissolve
(or suffer any liquidation or dissolution).
(2) The REIT shall not change its legal structure or Fiscal Year.
(3) The REIT shall not engage in any line of business other than
owning 100% of each of Paragon GP Holdings and Paragon LP Holdings.
(4) The REIT shall not have an Investment in any Person other than
Paragon GP Holdings and Paragon LP Holdings and its Investment in each
of Paragon GP Holdings and Paragon LP Holdings shall be limited solely
to the Securities of each of Paragon GP Holdings and Paragon LP
Holdings.
(b) ERISA. The REIT shall not, and shall not permit any ERISA
Affiliates to, do any of the following to the extent that such act or failure to
act would result in the aggregate, after taking into account any other such acts
or failure to act, in a Material Adverse Effect on the Borrower or the REIT;
(1) engage, or knowingly permit an ERISA Affiliate to
engage, in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code which is not
exempt under Section 407 or 408 of ERISA or Section 4975(d) of
the Internal Revenue Code for which a class exemption is not
available or a private exemption has not been previously obtained
from the DOL;
(2) Permit to exist any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the internal
Revenue Code), whether or not waived;
(3) Fail, or permit an ERISA Affiliate to fail, to pay
timely required contributions or annual installments due with
respect to any waived funding deficiency to any Plan if such
failure could result in the imposition of a Lien or otherwise
have a Material Adverse Effect on the Borrower or the REIT;
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(4) Terminate, or permit an ERISA Affiliate to
terminate, any Benefit Plan which would result in any liability of the
REIT or an ERISA Affiliate under Title IV of ERISA; or
(5) Fail, or permit any ERISA Affiliate to fail, to
pay any required installment under section (m) of Section 412 of the
Internal Revenue Code or any other payment required under Section 412
of the Internal Revenue Code on or before the due date for such
installment or other payment, if such failure could result in the
imposition of a Lien or otherwise have a Material Adverse Effect on the
Borrower or the REIT.
(c) Amendment of Charter or By-Laws. The REIT shall not amend its
charter documents or by-laws, if such amendment will have a Material
Adverse Effect upon the Borrower or the REIT or the REIT's ability to
perform its obligations under the Loan Documents.
(d) Disposal of Ownership Interests. The REIT will not directly
or indirectly convey, sell, transfer, assign, pledge or otherwise
encumber or dispose of any of its 100% ownership interest in each of
Paragon GP Holdings and Paragon LP Holdings.
Section 8.3 With respect to Paragon GP Holdings:
(a) Restriction on Fundamental Changes.
(1) Paragon GP Holdings shall not enter into any merger or
consolidation in which the REIT or the Borrower is not the surviving
entity or liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution).
(2) Paragon GP Holdings shall not change its legal structure or Fiscal
Year.
(3) Paragon GP Holdings shall not engage in any line of business
inconsistent with Section 7.3(f).
(4) Paragon GP Holdings shall not have an Investment in any Person
other than the Borrower and Subsidiaries of Borrower and any such
Investment shall be limited solely to an equity interest of no more
than 1%.
(b) ERISA. Paragon GP Holdings shall not, and shall not permit any
ERISA Affiliates to, do any of the following to the extent that such
act or failure to act would result in the aggregate, after taking into
account any other such acts or failure to act, in a Material Adverse
Effect on the Borrower or the REIT;
(1) engage, or knowingly permit an ERISA Affiliate to
engage, in any prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Internal Revenue Code which is not exempt under
Section 407 or 408 of ERISA
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or Section 4975(d) of the Internal Revenue Code for which a class
exemption is not available or a private exemption has not been
previously obtained from the DOL;
(2) Permit to exist any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Internal Revenue Code),
whether or not waived;
(3) Fail, or permit an ERISA Affiliate to fail, to pay timely required
contributions or annual installments due with respect to any waived
funding deficiency to any Plan if such failure could result in the
imposition of a Lien or otherwise have a Material Adverse Effect on
the Borrower or the REIT;
(4) Terminate, or permit an ERISA Affiliate to terminate, any Benefit
Plan which would result in any liability of the REIT or an ERISA
Affiliate under Title IV of ERISA; or
(5) Fail, or permit any ERISA Affiliate to fail, to pay any required
installment under section (m) of Section 412 of the Internal Revenue
Code or any other payment required under Section 412 of the Internal
Revenue Code on or before the due date for such installment or other
payment, if such failure could result in the imposition of a Lien or
otherwise have a Material Adverse Effect on the Borrower or the REIT.
(c) Amendment of Charter or By-Laws. Paragon GP Holdings shall not
amend its charter documents or by-laws, if such amendment will have a
Material Adverse Effect upon the Borrower or the REIT or Paragon GP
Holdings' ability to perform its obligations under the Loan Documents.
(d) Disposal of Units. Paragon GP Holdings shall not directly or
indirectly convey, sell, transfer, assign, pledge or otherwise
encumber or dispose of any Units of the Borrower, except that Paragon
GP Holdings may sell, transfer or dispose of Units in connection with
any cancellation or repurchase of REIT Securities by the REIT.
Section 8.4 With respect to Paragon LP Holdings:
(a) Restriction on Fundamental Changes.
(1) Paragon LP Holdings shall not enter into any merger or
consolidation in which the REIT or the Borrower is not the surviving
entity or liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution).
(2) Paragon LP Holdings shall not change its legal structure or Fiscal
Year.
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(3) Paragon LP Holdings shall not engage in any line of business other
than owning Units in the Borrower.
(4) Paragon LP Holdings shall not have an Investment in any Person
other than the Borrower and such Investment shall be limited solely to
Units.
(b) ERISA. Paragon LP Holdings shall not, and shall not permit any
ERISA Affiliates to, do any of the following to the extent that such
act or failure to act would result in the aggregate, after taking into
account any other such acts or failure to act, in a Material Adverse
Effect on the Borrower or the REIT;
(1) engage, or knowingly permit an ERISA Affiliate to engage, in
any prohibited transaction described in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code which is not exempt under
Section 407 or 408 of ERISA or Section 4975(d) of the Internal Revenue
Code for which a class exemption is not available or a private
exemption has not been previously obtained from the DOL;
(2) Permit to exist any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal
Revenue Code), whether or not waived;
(3) Fail, or permit an ERISA Affiliate to fail, to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Plan if such failure could result in
the imposition of a Lien or otherwise have a Material Adverse Effect
on the Borrower or the REIT;
(4) Terminate, or permit an ERISA Affiliate to terminate, any
Benefit Plan which would result in any liability of the REIT or an
ERISA Affiliate under Title IV of ERISA; or
(5) Fail, or permit any ERISA Affiliate to fail, to pay any
required installment under section (m) of Section 412 of the Internal
Revenue Code or any other payment required under Section 412 of the
Internal Revenue Code on or before the due date for such installment
or other payment, if such failure could result in the imposition of a
Lien or otherwise have a Material Adverse Effect on the Borrower or
the REIT.
(c) Amendment of Charter or By-Laws. Paragon LP Holdings shall not
amend its charter documents or by-laws, if such amendment will have a
Material Adverse Effect upon the Borrower or the REIT or Paragon LP
Holdings' ability to perform its obligations under the Loan Documents.
(d) Disposal of Units. Paragon LP Holdings shall not directly or
indirectly convey, sell, transfer, assign, pledge or otherwise
encumber or dispose of any Units of the Borrower,
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except that Paragon LP Holdings may sell, transfer or dispose of Units
in connection with any cancellation or repurchase of REIT Securities
by the REIT.
ARTICLE 9
FINANCIAL COVENANTS
Borrower covenants and agrees to honor the financial covenants set
forth in Addendum I to this Agreement (as amended from time to time
with the consent of Borrower and all Lenders) on and after Restatement
Date until payment in full of all the Obligations, the expiration of
all Commitments and the termination of this Agreement.
ARTICLE 10
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section10.1 Events of Default. Each of the following occurrences shall
constitute an Event of Default under this Agreement:
(a) Failure to Make Payments When Due. Borrower shall fail
to pay (1) any amount due on the Termination Date under the Loan
Documents; (2) any principal when due; (3) any interest on any
Loan within 15 days after the same becomes due; or (4) any fee or
other amount payable under any Loan Documents within 15 days
after written notice from Agent that the same has become due.
(b) Breach of Financial Covenants. Borrower shall fail to
satisfy any financial covenant set forth in Addendum I to this
Agreement and such failure shall continue for 60 days after the
earlier of the date of (1) Agent's receipt of notice thereof from
Borrower, and (2) notice thereof from Agent to Borrower.
(c) Other Defaults. Borrower, the REIT, Paragon GP Holdings,
or Paragon LP Holdings shall fail duly and punctually to perform
or observe any agreement, covenant or obligation binding on
Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings
under this Agreement or under any of the other Loan Documents
(other than as described in Sections 10.1(a), 10.1(b), 10.1(c) or
10.1(e)), and with respect to agreements, covenants or
obligations for which no time period for performance is otherwise
provided, such failure shall continue for 15 days after Borrower,
the REIT, Paragon GP Holdings, or Paragon LP Holdings, knew of
such failure (or such lesser period of time as is mandated by
applicable Requirements of Law); provided, however, if such
failure is not capable of cure within such 15 day period, then if
Borrower promptly undertakes action to cure such failure and
thereafter diligently prosecutes such cure to completion within
45 days after Borrower, the REIT, Paragon GP Holdings, or Paragon
LP Holdings knew of such failure, then Borrower shall not be in
default hereunder.
(d) Breach of Representation or Warranty. Any representation
or warranty made or deemed made by Borrower, the REIT, Paragon GP
Holdings, or Paragon LP Holdings to
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Agent or any Lender herein or in any of the other Loan Documents, or
in any statement, certificate or financial statements at any time
given by Borrower pursuant to any of the Loan Documents, shall be
false or misleading in any material respect on the date such
representation or warranty was made.
(e) Default as to Other Indebtedness. Borrower or the REIT shall
have (A) defaulted under any Other Indebtedness of such party (other
than Nonrecourse Indebtedness) and as a result thereof the holder(s)
of such Other Indebtedness shall have accelerated such Other
Indebtedness, if the aggregate amount of such accelerated Other
Indebtedness (other than Nonrecourse Indebtedness), together with the
aggregate amount of any Other Indebtedness (other than Nonrecourse
Indebtedness) of such party which has theretofore been accelerated, is
$5,000,000 or more; or (B) defaulted under Nonrecourse Indebtedness of
such party and as a result thereof the holder or holders of such
Nonrecourse Indebtedness shall have accelerated such Nonrecourse
Indebtedness, if the aggregate amount of such accelerated Nonrecourse
Indebtedness, together with the aggregate amount of any Nonrecourse
Indebtedness of such party which has been theretofore accelerated, is
$25,000,000.00 or more.
(f) Involuntary Bankruptcy; Appointment of Receiver, etc.
(1) An involuntary case shall be commenced against
Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings and the
petition shall not be dismissed within 60 days after commencement of
the case, or a court having jurisdiction shall enter a decree or order
for relief in respect of the Borrower, the REIT, Paragon GP Holdings,
or Paragon LP Holdings as the case may be, in an involuntary case,
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect; or any other similar relief shall be granted under
any applicable federal, state or foreign law, or
(2) A decree or order of a court having jurisdiction
shall be entered for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers
over Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings,
or over all or a substantial part of the Property of the Borrower, the
REIT, Paragon GP Holdings, or Paragon LP Holdings, or an interim
receiver, trustee or other custodian shall be appointed for the
Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings, or of
all or a substantial part of the Property of the Borrower, the REIT,
Paragon GP Holdings, or Paragon LP Holdings, or a warrant of
attachment, execution or similar process against any substantial part
of the Property of the Borrower, the REIT, Paragon GP Holdings, or
Paragon LP Holdings, shall be issued and any such event shall not be
stayed, vacated, dismissed, bonded or discharged within 60 days of
entry, appointment or issuance.
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. (1) The
Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings, shall
have an order for relief entered with respect to it or commence a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or shall consent to the entry
of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall
consent to the appointment of or taking of possession by a receiver,
trustee or other custodian for all or a substantial part of its
Property; (2) the Borrower, the REIT, Paragon GP
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Holdings, or Paragon LP Holdings, shall make any assignment for the
benefit of creditors or shall be unable or fail, or admit in writing
its inability, to pay its debts as such debts become due; or, (3) the
General Partner of Borrower, or the board of directors (or any
committee thereof) of any of the REIT, Paragon GP Holdings, or Paragon
LP Holdings, adopts any resolution or otherwise authorizes any action
to approve any of the foregoing.
(h) Judgments and Attachments. (1) Any money judgment (other than
a money judgment covered by insurance, but only if the insurer has
admitted liability with respect to such money judgment), writ or
warrant of attachment, or similar process involving in any case an
amount in excess of $1,000,000.00 shall be entered or filed against
the Borrower, the REIT, Paragon GP Holdings, or Paragon LP Holdings,
or their respective assets and shall remain undischarged, unvacated,
unbonded or unstayed for a period of 30 days; or (2) any judgment or
order of any court or administrative agency awarding material damages
shall be entered against the Borrower, the REIT, Paragon GP Holdings,
or Paragon LP Holdings, in any action under the Federal securities
laws seeking rescission of the purchase or sale of, or for damages
arising from the purchase or sale of, any Securities, such judgment or
order shall have become final after exhaustion of all available
appellate remedies and, in Agent's judgment, the payment of such
judgment or order will have a Material Adverse Effect on the Borrower
or the REIT, as the case may be.
(i) Dissolution. Any order, judgment or decree shall be entered
against the Borrower, the REIT, Paragon GP Holdings or Paragon LP
Holdings, decreeing its involuntary dissolution or split up and such
order shall remain undischarged and unstayed for a period in excess of
30 days; or the Borrower, the REIT, Paragon GP Holdings or Paragon LP
Holdings shall otherwise dissolve or cease to exist.
(j) Loan Documents; Failure of Security or Subordination. Except
as provided in Section 3.2, if for any reason (1) any material
provision of a Loan Document shall cease to be in full force and
effect, or any Lien intended to be created by any Loan Document shall
cease to be or is not valid or perfected; (2) any Lien in favor of
Agent contemplated by this Agreement or any Loan Document shall, at
any time, be invalidated or otherwise cease to be in full force and
effect; or (3) any such Lien or any Obligation shall be subordinated
or shall not have the priority contemplated by this Agreement or the
Loan Documents for any reason; and such failure shall continue for
more than 15 days after Agent provides written notice thereof to
Borrower.
(k) ERISA Liabilities. Any Termination Event occurs which will or
is reasonably likely to subject Borrower, the REIT, Paragon GP
Holdings, or Paragon LP Holdings, or any ERISA Affiliate of any of
them, to a liability which Agent reasonably determines will have a
Material Adverse Effect on Borrower or the REIT, or any ERISA
Affiliate of any of them, the plan administrator of any Benefit Plan
applies for approval under Section 412(d) of the Internal Revenue Code
for a waiver of the minimum funding standards of Section 412(a) of the
Internal Revenue Code and Agent reasonably determines that the
business hardship upon which the Section 412(d) waiver was based will
or could reasonably be anticipated to subject Borrower, the REIT, or
any ERISA Affiliate of any of them, to a liability which Agent
determines will have a Material Adverse Effect on Borrower or the
REIT.
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(l) Solvency. Borrower, the REIT, Paragon GP Holdings, or Paragon
LP Holdings shall cease to be Solvent.
(m) Management. William R. Cooper shall cease to be active in the
executive and operational management of Borrower and the REIT for any
reason whatsoever during the initial term of this Agreement, and if
exercised, during the extension period provided for in Section 2.1(d),
and either (1) Borrower and the REIT fail to propose and appoint a
management replacement for Mr. Cooper who is acceptable to Agent and
Requisite Lenders within 180 days of his death, incapacity,
resignation or termination, or (2) at least two of Brian Lavin, James
T. Cobb, Lewis A. Levey and Robert H. Gidel, fail to remain active in
the management, or serve on the Board of Directors of the REIT.
(n) Loss of Public Services. The curtailment in availability to
any Borrowing Base Property of utilities or other public services
necessary for the full occupancy and use of such Borrowing Base
Property, or the prohibition, enjoining or interruption of Borrower's
right to occupy, use or lease such Borrowing Base Property for a
continuous period of more than 30 days.
(o) Unauthorized Dispositions. The sale, conveyance, transfer,
assignment, mortgage, hypothecation, encumbrance (other than Permitted
Liens) or pledge, whether voluntary, involuntary or by operation of
law (herein collectively called "Disposition"), of (1) any Borrowing
Base Property or any interest therein, (2) ownership of the general
partnership interest in Borrower, or (3) the ownership of any stock in
the general partner of Borrower, as the case may be (unless the
corporation is a corporation required to file reports under Sections
13 or 15(d) of the Securities Exchange Act of 1934), without the prior
written consent of Agent. It is expressly agreed that in connection
with determining whether to grant or withhold such consent, Agent may
(but is not obligated to), among other things, (A) consider the
creditworthiness of the party to whom such Disposition will be made
and its management ability with respect to such Borrowing Base
Property, (B) consider whether or not the security for the payment and
performance of the Obligations, or Agent's ability to enforce its
rights, remedies and recourses with respect to such security, will be
impaired in any way by the proposed Disposition, (C) require, as a
condition to granting such consent, an increase in the rate of
interest payable under the Loan Notes or any other change in the terms
and provisions of the Loan Notes, or any of the other Loan Documents,
(D) require that Agent be reimbursed for all costs and expenses
incurred by Agent in investigating the creditworthiness and management
ability of the party to whom such Disposition will be made and in
determining whether Agent's security will be impaired by the proposed
Disposition, (E) require the payment to Agent of a transfer fee to
cover the cost of documenting the Disposition in its records, (F)
require the payment of its reasonable attorneys' fees in connection
with Disposition, (G) require the express assumption of the payment
and performance of the Obligations by the party to whom such
Disposition will be made (with or without release of Borrower from
liability for such Obligations), (H) require the execution of
assumption agreements, modification agreements, supplemental security
documents, financing statements and such other documents or
instruments as Agent shall reasonably require, satisfactory in form
and substance to Agent, (I) require endorsements (to the extent
available under applicable law) to any existing mortgagee title
insurance policies insuring Agent's liens and security interests
covering such Borrowing Base Property, and (J) require additional
security for the payment and performance of the Obligations; or
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(p) Lien Priority. Any Mortgage shall at any time cease to be a
valid first lien upon a Borrowing Base Property for any reason.
(q) Unauthorized Distributions. For any Fiscal Quarter,
distributions by Borrower on account of Units exceeds the sum of (1)
the product of (A) the aggregate amount of any dividends declared
during such Fiscal Quarter and (B) the sum of (i) the number of
outstanding shares of common stock of the REIT and (ii) the number of
Units owned by Persons other than Paragon GP Holdings and Paragon LP
Holdings and (2) the aggregate amount of expenses allocable to and
payable by each of Paragon GP Holdings, Paragon LP Holdings and the
REIT during such Fiscal Quarter, as substantiated in supporting
documentation provided to Agent.
An Event of Default shall be deemed "continuing" until cured or waived
in writing in accordance with Section 12.5.
Section10.2 Rights and Remedies.
(a) Acceleration and Other Remedies.
(1) Upon the occurrence of any Event of Default described in
the foregoing Sections 10.1(f) or 10.1(g) with respect to the
Borrower, or the REIT, the Commitments shall automatically and
immediately terminate and the unpaid principal amount of and any
and all accrued interest on the Loans shall automatically become
immediately due and payable, together with all additional
interest from time to time accrued thereon, and without
presentment, demand or protest or other requirements of any kind
(including without limitation valuation and appraisement,
diligence, presentment, notice of intent to demand or accelerate,
or notice of acceleration), all of which are hereby expressly
waived by Borrower, and the obligations of Lenders to make any
Loans hereunder shall thereupon terminate.
(2) Upon the occurrence and during the continuance of any
other Event of Default, Agent shall, at the request, or may, with
the consent, of Requisite Lenders, by written notice to Borrower,
(A) declare that the Commitments are terminated, whereupon the
Commitments and the obligation of Lenders to make any Loan
hereunder shall immediately terminate, and/or (B) declare the
unpaid principal amount of and any and all accrued and unpaid
interest on the Loans, and all of the other Obligations to be,
and the same shall thereupon be, immediately due and payable with
all additional interest from time to time accrued thereon, and
without presentment, demand, or protest or other requirements of
any kind (including without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand
or accelerate, or notice of acceleration), all of which are
hereby expressly waived by Borrower.
(3) After acceleration, upon the request of, or if consented
to by, the Requisite Lenders, Agent shall foreclose on the
Collateral.
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(4) Notwithstanding Section 10.2(a)(2) above, if 90 days
after the date of the written notice delivered by Agent to all
Lenders of the occurrence of an Event of Default under Section
10.1(a), fewer than the Requisite Lenders have requested, or have
been deemed to have consented to, (A) termination of the
Commitments, as provided in Section 10.2(a)(2)(A), and/or (B)
acceleration of the Loans and all other Obligations, as provided
in Section 10.2(a)(2)(B), and/or (C) any other course of action
recommended by Agent, then, provided that such Event of Default
is continuing and Lenders whose Pro Rata Shares represent at
least fifty-one percent (51%) of the aggregate Commitments, have
requested, or have been deemed to have consented to, termination
of the Commitment, as provided in Section 10.2(a)(2)(A), and/or
acceleration of the Loans and all other Obligations, as provided
in Section 10.2(a)(2)(B), and/or any other course of action
recommended by Agent, as the case may be, Agent shall take such
action, as shall have been requested or consented to.
(5) Notwithstanding Section 10.2(a)(3) above, if 90 days
after the acceleration of the Loans and all other Obligations, as
provided in Section 10.2(a)(2)(B) or Section 10.2(a)(4), fewer
than the Requisite Lenders but Lenders whose Pro Rata Shares
represent at least fifty-one percent (51%) of the aggregate
Commitments, have requested, or have been deemed to have
consented to, the foreclosure of the Collateral, as provided in
Section 10.2(a)(3), then Agent shall foreclose on the Collateral.
(b) Access to Information. If an Event of Default then exists,
Agent shall have, in addition to and not by way of a limitation of any
other rights and remedies contained in this Agreement or in the other
Loan Documents, the right within 48 hours after notice to Borrower to
obtain access to Borrower's data processing equipment, computer
hardware and software relating to the Borrowing Base Properties and
the other Collateral, and its accounting information relating to the
Borrowing Base Properties and the other Collateral, and to use all of
the foregoing and the information contained therein in any manner
Agent deems appropriate which is related to the preservation or
disposition of the Borrowing Base Properties and the other Collateral
or to the collection of the Obligations. Borrower hereby authorizes
any accountant or management Agent employed by Borrower to deliver
such items and information to Agent. Notwithstanding anything to the
contrary contained in the Loan Documents, upon the occurrence of and
during the continuance of an Event of Default, Agent shall be entitled
to request and receive, by or through Borrower or appropriate legal
process, any and all information concerning the Borrower, the REIT,
Paragon GP Holdings, Paragon LP Holdings, the Management Company, or
any Property of any of them, which is reasonably available or
obtainable.
(c) Use of Intangibles. To the extent Borrower has the power,
without violating the terms of any agreement existing as of the
Closing Date, to grant such a license, Agent (on behalf of all
Lenders) is hereby granted a license or other right to use, without
charge, Borrower's copyrights, rights of use of any name (other than
the name "Paragon," derivatives thereof and any trademarks, trade
names, service marks or logos, associated with the name Paragon),
trade secrets, trade names, tradestyles, trademarks, service marks and
advertising matter, or any property of a similar nature, as it
pertains to the Collateral, advertising for sale and selling any
Collateral.
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(d) IWaiver of Demand. Demand, presentment, protest and notice of
nonpayment are hereby waived by Borrower and the REIT. Borrower and
the REIT also waive, to the extent permitted by law, the benefit of
all valuation, appraisal and exemption laws.
(e) Waivers, Amendments and Remedies. No delay or omission of
Agent or Lenders to exercise any right under any Loan Document shall
impair such right or be construed to be a waiver of any Event of
Default or an acquiescence therein, and any single or partial exercise
of any such right shall not preclude other or further exercise thereof
or the exercise of any other right, and no waiver, amendment or other
variation of the terms, conditions or provisions of the Loan Documents
whatsoever shall be valid unless in a writing signed by Agent after
obtaining written approval thereof or the signature thereon of those
Lenders required to approve such waiver, amendment or other variation,
and then only to the extent specifically set forth in such writing.
All remedies contained in the Loan Documents or by law afforded shall
be cumulative and available to Agent and Lenders until the Obligations
have been paid in full, the Commitments have expired or terminated and
this Agreement has been terminated.
ARTICLE 11
AGENCY PROVISIONS
Section11.1 Appointment.
(a) Each Lender hereby (i) designates and appoints Wells Fargo as
Agent of such Lender under this Agreement and the Loan Documents, (ii)
authorizes and directs Agent to enter into the Loan Documents other
than this Agreement for the benefit of Lenders, and (iii) each Lender
hereby authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Loan Documents and to exercise
such powers as are set forth herein or therein, together with such
other powers as are reasonably incidental thereto, subject to the
limitations referred to in Sections 11.10(a), 11.10(b), 11.10(c) and
12.5. Agent agrees to act as Agent for the Lenders on the express
conditions contained in this Article 11.
(b) The provisions of this Article 11 are solely for the benefit
of Agent and Lenders, and Borrower shall not have any rights to rely
on or enforce any of the provisions hereof (other than as expressly
set forth in Sections 11.3, 11.9, or 11.13). In performing its
functions and duties under this Agreement, Agent shall act solely as
Agent of Lenders and does not assume and shall not be deemed to have
assumed any obligation toward, or relationship of agency or trusts
with or for, Borrower or any other Person.
Section11.2 Nature of Duties. Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement or
in the Loan Documents. The duties of Agent shall be administrative in
nature, consistent with its obligations hereunder. Subject to the
provisions of Sections 11.5 and 11.7, Agent shall administer the Loans
in the same manner as it administers its own loans. Agent shall not
have by reason of this Agreement or its designation as Agent a
fiduciary relationship in respect of any Lender. Promptly upon
execution by Borrower, Agent shall deliver to each Lender an original,
executed Loan Note in the original principal amount of such Lender's
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Commitment payable to the order of such Lender. All original, executed
Loan Documents other than the Loan Notes shall be retained by Agent.
Agent will deliver, however, to each Lender a true, complete and
correct copy of each Loan Document listed on the Closing Checklist.
Nothing in this Agreement or any of the Loan Documents, expressed or
implied, is intended or shall be construed to impose upon Agent any
obligation in respect of this Agreement or any of the Loan Documents
except as expressly set forth herein or therein. Agent shall not have
by reason of this Agreement a fiduciary relationship with any Lender.
Each Lender shall make its own independent investigation of the
financial condition and affairs of the Borrower, the REIT, Paragon GP
Holdings, Paragon LP Holdings and each Borrowing Base Property in
connection with the making and the continuance of the Loans hereunder
and shall make its own appraisal of the creditworthiness of the
Borrower, and, except as specifically provided herein, Agent shall not
have any duty or responsibility, either initially or on a continuing
basis, to provide any Lender with any credit or other information with
respect thereto, whether coming into its possession before the Closing
Date or at any time or times thereafter.
Section11.3 Loan Disbursements.
(a) Not later than the next Business Day following receipt of a
Notice of Borrowing, Agent shall send a copy thereof by facsimile to
each other Lender and shall otherwise notify each Lender of the
proposed Borrowing and the Funding Date. Each Lender shall make
available to Agent the amount of such Lender's Pro Rata Share of such
Borrowing in immediately available funds not later than the time
designated in Section 11.3(b). Unless Agent shall have been notified
by any Lender prior to such time for funding in respect of any
Borrowing that such Lender does not intend to make available to Agent
such Lender's Pro Rata Share of such Borrowing, Agent may assume that
such Lender has made such amount available to Agent. If a Lender (a
"Non-Funding Lender") does not make available to Agent such Lender's
Pro Rata Share of such Borrowing, any other Lender (a "Funding
Lender") in its sole discretion may, but shall not be obligated to,
fund to Borrower, all or any part of such Non-Funding Lender's Pro
Rata Share of such Borrowing. Such Non-Funding Lender shall pay to
such Funding Lender on demand the amount so funded by such Funding
Lender, together with interest thereon at the Federal Funds Rate. If
such Non-Funding Lender pays such Funding Lender the amount so funded
by such Funding Lender, then such amount shall constitute all or part
of such Non-Funding Lender's Pro Rata Share of such Borrowing. If,
however, the amount so funded by such Funding Lender is not made
available to such Funding Lender by the Non-Funding Lender, then
Borrower agrees to repay such Funding Lender such amount, together
with interest thereon at the Base Rate for each day from the date such
amount is made available to Borrower until the date such amount is
repaid to such Funding Lender. If both such Non-Funding Lender and
Borrower shall have paid and repaid, respectively, such corresponding
amount, such Funding Lender shall promptly return to Borrower the
refunded amount in same day funds, together with the interest thereon
that Borrower paid to such Funding Lender. Nothing in this Section
11.3(a) shall alter the respective rights and obligations of the
parties hereunder in respect of a Defaulting Lender or a Non-Pro Rata
Loan.
(b) Requests by Agent for funding by Lenders of Loans will be
made by telecopy. Each Lender shall make the amount of its Loan
available to Agent in Dollars and in immediately available funds, to
such bank and account, in El Segundo, California as Agent may
designate, not
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later than 10:00 A.M. California time, on the Funding Date designated
in the Notice of Borrowing with respect to such Loan, but in no event
earlier than two (2) Business Days following Lender's receipt of the
applicable Notice of Borrowing.
(c) Nothing in Section 11.3(a) shall be deemed to relieve any
Lender of its obligation hereunder to make its Pro Rata Share of Loans
on any Funding Date, nor shall any Lender be responsible for the
failure of any other Lender to perform its obligation to make any Loan
hereunder, and the Commitment of any Lender shall not be increased or
decreased as a result of the failure by any other Lender to perform
its obligation to make a Loan.
Section11.4 Distribution and Apportionment of Payments.
(a) Subject to Section 11.4(b), payments actually received by
Agent for the account of Lenders shall be paid to them promptly after
receipt thereof by Agent, but in any event within one Business Day.
Agent shall pay to such Lenders interest thereon, at the lesser of (1)
the Federal Funds Rate and (2) the rate of interest applicable to such
Loans, from the Business Day following receipt of such funds by Agent
until such funds are paid in immediately available funds to such
Lenders. Subject to Section 11.4(b), all payments of principal and
interest in respect of outstanding Loans, all payments of the fees
described in this Agreement, and all payments in respect of any other
Obligations shall be allocated among such of Lenders as are entitled
thereto, in proportion to their respective Pro Rata Shares or
otherwise as provided herein. Agent shall promptly distribute, but in
any event within one Business Day, to each Lender by wire transfer as
set forth on the appropriate counterpart signature page hereof, or on
the Assignment and Assumption, or as a Lender may request in writing,
such funds as it may be entitled to receive. Agent shall not be bound
to inquire into or determine the validity, scope or priority of any
interest or entitlement of any Lender and may suspend all payments and
seek appropriate relief (including, without limitation, instructions
from Requisite Lenders or all Lenders, as applicable, or an action in
the nature of interpleader) in the event of any doubt or dispute as to
any apportionment or distribution contemplated hereby. The order of
priority herein is set forth solely to determine the rights and
priorities of Lenders as amongst themselves and may at any time or
from time to time be changed by Lenders as they may elect, in writing
in accordance with Section 12.5, without necessity of notice to, or
consent of or approval by, Borrower or any other Person. All payments
or other sums received by Agent for the account of Lenders (including,
without limitation, principal and interest payments, the proceeds of
any and all insurance maintained with respect to any collateral, and
all proceeds from the condemnation of any Collateral) shall be held by
Agent, solely for the benefit of Lenders, consistent with the Loan
Documents, and shall not constitute assets of Agent.
(b) Notwithstanding any provision hereof to the contrary, until
such time as a Defaulting Lender has funded its Pro Rata Share which
was previously a Non Pro Rata Loan, or all other Lenders have received
payment in full (whether by repayment or prepayment) of the principal
and interest due in respect of such Non Pro Rata Loan, all of the
Obligations owing to such Defaulting Lender hereunder shall be
subordinated in right of payment, as provided in the following
sentence, to the prior payment in full of all principal, interest and
fees in respect of all Non Pro Rata Loans in which the Defaulting
Lender has not funded its Pro Rata Share (such principal, interest and
fees being referred to as "Senior Loans"). All amounts paid by
Borrower and otherwise due to be
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applied to the Obligations owing to the Defaulting Lender pursuant to
the terms hereof shall be distributed by Agent to the other Lenders in
accordance with their respective Pro Rata Shares (recalculated for
purposes hereof to exclude the Defaulting Lender's Commitment), until
all Senior Loans have been paid in full. This provision governs only
the relationship among Agent, each Defaulting Lender, and the other
Lenders. Nothing herein shall limit the obligation of Borrower to
repay all Loans in accordance with the terms of this Agreement. The
provisions of this Section 11.4(b) shall apply and be effective
regardless of whether an Event of Default occurs and is then
continuing, and notwithstanding (1) any other provision of this
Agreement to the contrary; (2) any instruction of Borrower as to its
desired application of payments; or (3) the suspension of such
Defaulting Lender's right to vote on matters which are subject to the
consent or approval of Requisite Lenders or all Lenders. No Unused
Facility Fee or any other fee shall accrue in favor of, or be payable
to, such Defaulting Lender from the date of any failure to fund Loans
or reimburse Agent for any Liabilities and Costs as herein provided
until such failure has been cured, and Agent shall be entitled to (A)
collect interest from such Defaulting Lender for the period from the
date on which the payment was due until the date on which the payment
is made at the Federal Funds Rate for each day during such period; (B)
withhold or setoff, and apply to the payment of the defaulted amount
and any related interest, any amounts to be paid to such Defaulting
Lender under this Agreement; and (C) bring an action or suit against
such Defaulting Lender in a court of competent jurisdiction to recover
the defaulted amount and any related interest. In addition, the
Defaulting Lender shall indemnify, defend and hold Agent and each of
the other Lenders harmless from and against any and all Liabilities
and Costs, plus interest thereon, at a rate which is 4% per annum
above the Base Rate, which they may sustain or incur by reason or as a
direct consequence of the Defaulting Lender's failure or refusal to
abide by its obligations under this Agreement.
Section11.5 Rights, Exculpation, Etc. None of Agent, any Affiliate of
Agent, nor any of their respective officers, directors, employees,
Agents, attorneys or consultants, shall be liable to any Lender for
any action taken or omitted by them hereunder or under any of the Loan
Documents, or in connection herewith or therewith, except that Agent
shall be liable for its gross negligence or willful misconduct (which
shall include fraud and bad faith) in the performance or
nonperformance of its express obligations hereunder. In the absence of
gross negligence or willful misconduct (which shall include fraud and
bad faith), Agent shall not be liable for any apportionment or
distribution of payments made by it in good faith pursuant to Section
11.4, and if any such apportionment or distribution is subsequently
determined to have been made in error, the sole recourse of any Person
to whom payment was due, but not made, shall be to recover from the
recipients of such payments any payment in excess of the amount to
which they are determined to have been entitled. Agent shall not be
responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution,
effectiveness, genuineness, validity, enforceability, collectability
or sufficiency of this Agreement, any of the Mortgage Documents or any
of the other Loan Documents, or any of the transactions contemplated
hereby and thereby; or for the financial condition of the Borrower, or
the REIT, or any of their respective Subsidiaries or Affiliates. Agent
shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or
conditions of this Agreement or any of the Loan Documents or the
financial condition of the Borrower or the REIT, or any of their
Subsidiaries or Affiliates, or the existence or possible existence of
any Unmatured Event of Default or Event of Default.
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Section11.6 Reliance. Agent and each Lender shall be entitled to
rely upon any written notices, statements, certificates, orders or
other documents, telecopies or any telephone message believed by it in
good faith to be genuine and correct and to have been signed, sent or
made by the proper Person, and with respect to all matters pertaining
to this Agreement or any of the other Loan Documents and its duties
hereunder or thereunder, upon advice of legal counsel (including
counsel for Borrower), independent public accountants and other
experts selected by it.
Section11.7 Indemnification. To the extent that Agent is not
reimbursed and indemnified by Borrower, Lenders will reimburse, within
ten Business Days after notice from Agent, and indemnify and defend
Agent for and against any and all Liabilities and Costs which may be
imposed on, incurred by, or asserted against, it in any way relating
to or arising out of this Agreement, the Mortgage Documents or any of
the other Loan Documents or any action taken or omitted by Agent or
under this Agreement, the Mortgage Documents or any of the other Loan
Documents, in proportion to each Lender's Pro Rata Share. No Lender,
however, shall be liable for any portion of such Liabilities and Costs
resulting from Agent's gross negligence or willful misconduct (which
shall include fraud and bad faith). The obligations of Lenders under
this Section 11.7 shall survive the payment in full of all obligations
and the termination of this Agreement. In the event that after payment
and distribution of any amount by Agent to Lenders, any Lender or
third party, including Borrower, any creditor of Borrower, or a
trustee in bankruptcy, recovers from Agent any amount found to have
been wrongfully paid to Agent or disbursed by Agent to Lenders, then
Lenders, in proportion to their respective Pro Rata Shares, or
otherwise as may have been distributed to Lenders, shall reimburse
Agent for all such amounts. Notwithstanding the foregoing, Agent shall
not be obligated to advance Liabilities and Costs and may require the
deposit by each Lender of its Pro Rata Share of any material
Liabilities and Costs anticipated by Agent before they are incurred or
made payable.
Section11.8 Agent and Lenders Individually. With respect to its
Pro Rata Share of the Commitments hereunder and the Loans made by it,
Agent shall have and may exercise the same rights and powers hereunder
and is subject to the same obligations and liabilities as, and to the
extent set forth herein for, any other Lender. The terms "Lenders,"
"Requisite Lenders," "Supermajority Lenders" or any similar terms may
include Agent in its individual capacity as a Lender or one of the
Requisite Lenders or one of the Supermajority Lenders, but neither the
term "Requisite Lenders" nor the term "Supermajority Lenders" shall
include Agent solely in its capacity as Agent and need not necessarily
include Agent in its capacity as a Lender. Each Lender and the Agent
and their respective Affiliates may accept deposits from, lend money
to, and generally engage in any kind of banking, trust or other
business with Borrower or any of its Subsidiaries or Affiliates.
Section11.9 Successor Agent; Resignation of Agent, Removal of Agent.
(a) Agent may resign from the performance of all of its functions
and duties hereunder at any time by giving at least 30 Business Days
prior written notice to Lenders and Borrower. Agent shall
automatically cease to be Agent hereunder in the event the Federal
Deposit Insurance Corporation or any other Governmental Authority
shall assume control of Agent. For good cause, Requisite Lenders may
remove Agent at any time by giving at least 30 Business Days prior
written notice to Agent, Borrower and all other Lenders. Such
resignation or removal shall
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take effect upon the acceptance by a successor Agent of appointment
pursuant to clauses (b) and (c) below or as otherwise provided below.
Concurrently with the effectiveness of such appointment, (1) Borrower
shall pay to the retiring or removed Agent any accrued and unpaid
Agency Fee, or (2) Agent shall refund to Borrower any prepaid agency
fee; in each case prorated to the effective date of the appointment of
a successor Agent.
(b) Upon any such notice of resignation by or removal of Agent,
Requisite Lenders shall appoint a successor Agent with the consent of
Borrower and with the consent of the proposed successor Agent, which
shall not be unreasonably withheld or delayed. Any successor Agent
must be a bank (1) the senior debt obligations of which (or such
Bank's parent's unsecured senior debt obligations) are rated not less
than Baa-2 by Moody's Investors Services, Inc. or a comparable rating
by a rating agency acceptable to Requisite Lenders; and (2) which has
total assets in excess of $10,000,000,000. Such successor Agent shall
separately confirm in writing with Borrower the fee to be paid to such
successor Agent.
(c) If a successor Agent shall not have been so appointed within
said 30 Business Day period, the retiring or removed Agent, with the
consent of Borrower (which may not be unreasonably withheld or
delayed), shall then appoint a successor Agent who shall meet the
requirements described in subsection (b) above and who shall serve as
Agent until such time, if any, as Requisite Lenders, with the consent
of Borrower, appoint a successor Agent as provided above.
Section11.10 Consent and Approvals.
(a) Each of the following shall require the approval or consent of
Requisite Lenders:
(1) Approval of an increase in the Borrowing Base Value of
any Borrowing Base Property if such increase is the result
of an increase in the Appraised Value of such Borrowing Base
Property (Section 3.3(b));
(2) Approval of a Construction Project on any Borrowing Base
Property (Section 3.4(d));
(3) Approval of changes in management of the Borrower and
the REIT pursuant to Section 8.1(i);
(4) Except as otherwise provided in Section 10.2(a)(4)),
acceleration following an Event of Default (Section
10.2(a));
(5) Except as otherwise provided in Section 10.2(a)(5),
approval of the exercise of rights and remedies under the
Loan Documents following an Event of Default (Section
10.2(a));
(6) Removal of Agent and appointment of a successor to Agent
(Section 11.9);
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(7) Approval of certain Protective Advances (Section
11.11(a));
(8) Except as otherwise provided in Section 11.11(e),
approval of a Post-Foreclosure Plan and related matters
(Section 11.11(e));
(9) Except as referred to in Section 11.10(b), 11.10(c)
below, approval of any amendment, modification or
termination of this Agreement or waiver of any provision
herein;
(10) Approval of any Major Agreement that has provisions
which are inconsistent with Section 3.4(b)(1); and
(11) Any material amendment to a Project Budget; provided,
however, that Agent may consent without the approval of the
Requisite Lenders to changes in the Development Plans and
increases in or reallocations of actual or projected costs
of the Improvements so long as such changes or increases (A)
do not involve a cost of more than the greater of $75,000
for any line item in the Project Budget or 15% of such line
item or (B) do not involve an aggregate increase in the
Project Budget of more than $400,000.
(b) Each of the following shall require the approval or consent
of Supermajority Lenders: (1) acceptance of each new Borrowing Base
Stabilized Property (Section 3.1); and(2) the conversion of a
Borrowing Base Development Property that does not achieve 90% of the
stabilized gross revenues (on an annualized basis) projected for the
first year in the Appraisal for each of three months by the Conversion
Date to a Borrowing Base Stabilized Property pursuant to (Section
3.3(b)); and (3) release of any Borrowing base Property if (a) there
will be only three or fewer Borrowing Base Stabilized Properties which
contribute less than $8,000,000 in value to the Borrowing Base or (b)
the average year of completion of the remaining Borrowing Base
Properties is prior to 1985; and (4) the encumbrance of more than 75%
of Borrower's wholly owned assets on a non-repayable,
cross-collateralized basis.
(c) Each amendment, modification or waiver specifically
enumerated in Section 12.5 shall require the consent of all
Lenders.
(d) Any Interest Period of 12 months shall require the consent of
all Lenders.
(e) In addition to the required consents or approvals referred to
in Sections 11.10(a) and (b) above, Agent may at any time request
instructions from Requisite Lenders with respect to any actions or
approvals which, by the terms of this Agreement or of any of the Loan
Documents, Agent is permitted or required to take or to grant without
instructions from any Lenders, and if such instructions are promptly
requested, Agent shall be absolutely entitled to refrain from taking
any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from taking any
action or withholding any approval under any of the Loan Documents
until it shall have received such instructions from Requisite Lenders.
Without limiting the foregoing, no Lender shall have any right of
action whatsoever against Agent as a result of Agent
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acting or refraining from acting under this Agreement, the Mortgage
Documents or any of the other Loan Documents in accordance with the
instructions of Requisite Lenders or, where applicable, either
Supermajority Lenders or all Lenders. Agent shall promptly notify each
Lender at any time that the Requisite Lenders have instructed Agent to
act or refrain from acting pursuant hereto.
(f) Each Lender agrees that any action taken by Agent at the
direction or with the consent of (1) either the Requisite Lenders or
Supermajority Lenders in accordance with the provisions of this
Agreement or any Loan Document, or (2) Lenders whose Pro Rata Shares
represent at least fifty-one (51%) of the aggregate Commitments, in
accordance with Sections 10.2(a)(4), 10.2(a)(5), and 11.11(e), and the
exercise by Agent at the request or with the consent of (A) either the
Requisite Lenders or Supermajority Lenders of the powers set forth
herein or therein, or (B) Lenders whose Pro Rata Shares represent at
least fifty-one (51%) of the aggregate Commitments, in accordance with
Sections 10.2(a)(4), 10.2(a)(5), and 11.11(e), and together with such
other powers as are reasonably incidental thereto, shall be authorized
by and binding upon all Lenders, except for actions specifically
requiring the approval of all Lenders. All communications from Agent
to Lenders requesting Lenders' determination, consent, approval or
disapproval (i) shall be given in the form of a written notice to each
Lender; (ii) shall be accompanied by a description of the matter or
thing as to which such determination, approval, consent or disapproval
is requested, or shall advise each Lender where such matter or thing
may be inspected, or shall otherwise describe the matter or issue to
be resolved; (iii) shall include, if reasonably requested by a Lender
and to the extent not previously provided to such Lender, written
materials and a summary of all oral information provided to Agent by
Borrower in respect of the matter or issue to be resolved; and (iv)
shall include Agent's recommended course of action or determination in
respect thereof. Each Lender shall reply promptly, but in any event
within 15 Business Days (the "Lender Reply Period"). Unless a Lender
shall give written notice to Agent that it objects to the
recommendation or determination of Agent (together with a written
explanation of the reasons behind such objection) within the Lender
Reply Period, such Lender shall be deemed to have approved of or
consented to such recommendation or determination. With respect to
decisions requiring the approval of Requisite Lenders, Supermajority
Lenders, all Lenders, or Lenders whose Pro Rata Shares represent at
least fifty one percent (51%) of the aggregate Commitments, as
provided in Sections 10.2(a)(4), 10.2(a)(5), and 11.11(e), Agent shall
submit its recommendation or determination for approval of or consent
to such recommendation or determination to all Lenders, and upon
receiving the required approval or consent shall follow the course of
action or determination recommended to Lenders by Agent or such other
course of action recommended by Requisite Lenders, Supermajority
Lenders, all Lenders, or Lenders whose Pro Rata Shares represent at
least fifty-one percent (51%) of the aggregate Commitments, as
provided in Sections 10.2(a)(4), 10.2(a)(5), and 11.11(e), and each
nonresponding Lender shall be deemed to have concurred with such
recommended course of action.
(g) Acceptance of each new Borrowing Base Development Property shall
require the consent of all Lenders.
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Section11.11 Agency Provisions Relating to Collateral.
(a) Agent is hereby authorized, without the necessity of any
notice to or further consent from any Lender, prior to an Event of
Default, to take any action with respect to any Collateral or Loan
Document which may be necessary to perfect and maintain perfected
Liens upon the Collateral granted pursuant to the Loan Documents.
Agent may make, and shall be reimbursed by Lenders (in accordance with
their Pro Rata Shares) to the extent not reimbursed by Borrower for,
Protective Advance(s) during any one calendar year with respect to
each Borrowing Base Property up to the sum of (1) amounts expended to
pay real estate taxes, assessments and governmental charges or levies
imposed upon such Borrowing Base Property; (2) amounts expended to pay
insurance premiums for policies of insurance related to such Borrowing
Base Property; and (3) One Hundred Thousand Dollars ($100,000).
Protective Advances during any calendar year (A) for any Borrowing
Base Property in excess of said sum or (B) that will cause the
aggregate Protective Advances for all Borrowing Base Properties to
exceed Five Hundred Thousand Dollars ($500,000), shall require the
consent of Requisite Lenders. In addition, Agent is hereby authorized
on behalf of all Lenders, without the necessity of any notice to or
further consent from any Lender, to waive the imposition of the late
fees provided for in Section 2.4(e) up to a maximum of four times
during the term of this Agreement.
(b) Lenders hereby irrevocably authorize Agent, at its option and
in its discretion, to release any Lien granted to or held by Agent
upon any Collateral (1) upon termination of the Commitments and
repayment and satisfaction of all Obligations, and termination of this
Agreement, or (2) constituting property being released in compliance
with Section 3.2, or (3) if approved, authorized or ratified in
writing by Agent at the direction of all Lenders. Without limiting
Agent's authority to act without any specific or further authorization
or consent, upon request by Agent at any time, Requisite Lenders shall
confirm in writing Agent's authority to release the Mortgage Documents
with respect to any Borrowing Base Property pursuant to Section 3.2.
Agent shall not be required to execute any document to evidence the
release of the Liens granted to Agent for the benefit of Lenders
herein or pursuant hereto upon any Collateral if, in Agent's opinion,
such document would expose Agent to liability or create any obligation
or entail any consequence other than the release of such Liens without
recourse or warranty, and such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon any
property which shall continue to constitute part of the Collateral.
(c) Except as provided in this Agreement, Agent shall have no
obligation whatsoever to any Lender or to any other Person to assure
that the Collateral exists or is owned by Borrower or is cared for,
protected or insured or has been encumbered or that the Liens granted
to Agent herein or in any of the other Loan Documents or pursuant
hereto or thereto have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any
particular priority.
(d) If Agent (1) employs counsel for advice or other
representation (whether or not any suit has been or shall be filed)
with respect to any Collateral or any part thereof, or any of the Loan
Documents, or the attempt to enforce any security interest or Lien on
any of the Collateral, or (2) commences any proceeding or in any way
seeks to enforce its rights or remedies under the
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Loan Documents against any Person other than any of the Lenders,
irrespective of whether as a result thereof Agent shall acquire title
to any Collateral, either through foreclosure, deed in lieu of
foreclosure or otherwise, each Lender, upon demand therefor from time
to time, shall contribute its share (based on its Pro Rata Share) of
the reasonable costs and/or expenses of any such advice or other
representation, enforcement or acquisition, including, but not limited
to, fees of receivers or trustees, court costs, title company charges,
filing and recording fees, appraisers' fees and fees and expenses of
attorneys to the extent not otherwise reimbursed by Borrower. In the
event of any litigation between Agent and any Lender arising out of
this Agreement, the non-prevailing party in such litigation shall pay
the counsel fees and expenses of the prevailing party(ies) incurred in
such litigation. Any loss of principal and interest resulting from any
Event of Default shall be shared by Lenders in accordance with their
respective Pro Rata Shares. If Agent determines it is necessary to
engage counsel for Lenders from and after the occurrence of an Event
of Default, said counsel shall be selected by Agent and written notice
of such selection, together with a copy of such counsel's engagement
letter and fee estimate, shall be delivered to Lenders; provided,
however, that such engagement of counsel for Lenders by Agent shall
not preclude any Lender from obtaining its own counsel.
(e) If all or any portion of the Collateral is acquired by Agent
as the result of a foreclosure or the acceptance of a deed or
assignment in lieu of foreclosure, or is retained in satisfaction of
all or any part of Borrower's obligations, the title to any such
Collateral, or any portion thereof, shall be held in the name of Agent
or a nominee or Subsidiary of Agent, as Agent, for the ratable benefit
of all Lenders. Agent shall prepare a recommended course of action for
such Collateral (the "Post-Foreclosure Plan"), which shall be subject
to the approval of the Requisite Lenders. If Requisite Lenders do not
approve such Post-Foreclosure Plan, any Lender shall be permitted to
submit an alternative Post-Foreclosure Plan to Agent, and Agent shall
submit any and all such additional Post-Foreclosure Plans to the
Lenders for evaluation and the approval of Requisite Lenders. Any
Post-Foreclosure Plan that has been submitted to all Lenders and that
fewer than the Requisite Lenders but Lenders whose Pro Rata Shares
represent fifty-one percent (51%) of the aggregate Commitments
approve, or are deemed to have approved, shall be binding on all the
Lenders if the Requisite Lenders do not approve, or are not deemed to
have approved, a PostForeclosure Plan within 90 days after Agent
submits its first Post-Foreclosure Plan to all of the Lenders. In
accordance with the approved Post-Foreclosure Plan, Agent shall
manage, operate, repair, administer, complete, construct, restore or
otherwise deal with the Collateral acquired, and shall administer all
transactions relating thereto, including, without limitation,
employing a management Agent, leasing Agent and other Agents,
contractors and employees, including Agents of the sale of such
Collateral, and the collecting of rents and other sums from such
Collateral and paying the expenses of such Collateral. Actions taken
by Agent with respect to the Collateral, which are not provided for in
the approved Post-Foreclosure Plan or reasonably incidental thereto,
shall require the consent of Requisite Lenders by way of supplement to
such Post-Foreclosure Plan. Upon demand therefor from time to time,
each Lender will contribute its share (based on its Pro Rata Share) of
all reasonable costs and expenses incurred by Agent pursuant to the
approved Post-Foreclosure Plan in connection with the construction,
operation, management, maintenance, leasing and sale of such
Collateral. In addition, Agent shall render or cause to be rendered by
the managing Agent, to each of the Lenders, monthly, an income and
expense statement for such Collateral, and each of the Lenders shall
promptly contribute its Pro Rata Share of any operating loss
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for such Collateral, and such other expenses and operating reserves as
Agent shall deem reasonably necessary pursuant to and in accordance
with the approved Post-Foreclosure Plan. To the extent there is net
operating income from such Collateral, Agent shall, in accordance with
the approved Post-Foreclosure Plan, determine the amount and timing of
distributions to Lenders. All such distributions shall be made to
Lenders in accordance with their respective Pro Rata Shares. Lenders
acknowledge that if title to any Collateral is obtained by Agent or
its nominee, such Collateral will not be held as a permanent
investment but will be liquidated as soon as practicable. Agent shall
undertake to sell such Collateral, at such price and upon such terms
and conditions as the Requisite Lenders reasonably shall determine to
be most advantageous. Any purchase money mortgage or deed of trust
taken in connection with the disposition of such Collateral in
accordance with the immediately preceding sentence shall name Agent,
as Agent for Lenders, as the beneficiary or mortgagee. In such case,
Agent and Lenders shall enter into an agreement with respect to such
purchase money mortgage or deed of trust defining the rights of
Lenders in the same Pro Rata Shares as provided hereunder, which
agreement shall be in all material respects similar to this Article 11
insofar as the same is appropriate or applicable.
Section 11.12 Lender Actions Against Collateral. Each Lender
agrees that it will not take any action, nor institute any actions or
proceedings, against Borrower or the REIT under any of the Loan
Documents with respect to exercising claims against or rights in any
Collateral without the consent of Requisite Lenders.
Section 11.13 Assignments and Participations.
(a) After first obtaining the approval of Agent and Borrower,
which approvals will not be unreasonably withheld, each Lender may
assign to one or more banks or financial institutions, all or a
portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment and the Loans
owing to it) and the other Loan Documents; provided, however, that (1)
each such assignment shall be of a constant, and not a varying,
percentage of the assigning Lender's rights and obligations under this
Agreement and the other Loan Documents and the assignment shall cover
the same percentage of such Lender's Commitment and Loans; (2) unless
Agent and Borrower otherwise consent, the aggregate amount of the
Commitment of the assigning Lender being assigned pursuant to each
such assignment (determined as of the date of the Assignment and
Assumption with respect to such assignment) shall in no event be less
than $10,000,000 and shall be an integral multiple of $1,000,000; (3)
after giving effect to such assignment, the aggregate amount of the
Commitment, if any, retained by the assigning Lender shall in no event
be less than $10,000,000.00; (4) at all times prior to its resignation
or replacement, as Agent, Wells Fargo's Commitment shall be equal to
or exceed the Commitment of each other Lender; (5) the parties of each
such assignment shall execute and deliver to Agent, for its approval
and acceptance, an Assignment and Assumption; and (6) Agent shall
receive from the assignor a processing fee of $3,000. Without
restricting the right of Borrower or Agent to reasonably object to any
bank or financial institution becoming an assignee of an interest of a
Lender hereunder, each proposed assignee must be an existing Lender or
a bank or financial institution which (A) has (or, in the case of a
bank which is a subsidiary, such bank's parent has) a rating of its
senior debt obligations of not less than Baa-2 by Moody's Investors
Services, Inc. or a comparable rating by a rating agency acceptable to
Agent, and (B) has total assets in excess of
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$10,000,000,000. Each of Agent and Borrower shall give written notice
to the assigning Lender if it objects to the proposed assignment
(together with a written explanation of the reasons behind such
objection) within ten Business Days following receipt of the assigning
Lender's written request for approval of the proposed assignment. Upon
such execution, delivery, approval and acceptance, and upon the
effective date specified in the applicable Assignment and Assumption,
(i) the assignee thereunder shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Assumption, have the rights and
obligations of a Lender hereunder, and (ii) the Lender-assignor
thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Assumption,
relinquish its rights and be released from its obligations under this
Agreement.
(b) By executing and delivering an Assignment and Assumption, the
Lender-assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (1)
other than as provided in such Assignment and Assumption, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any
other Loan Document, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or
any other Loan Document, or any other instrument or document furnished
pursuant hereto; (2) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of Borrower or the REIT, or the performance or observance by
Borrower or the REIT, Paragon GP Holdings or Paragon LP Holdings, of
any of their respective obligations under any Loan Document or any
other instrument or document furnished pursuant hereto; (3) such
assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in
Article 5 or delivered pursuant to Article 6 to the date of such
assignment and such other Loan Documents and other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Assumption;
(4) such assignee will, independently and without reliance upon Agent,
such assigning Lender or any other Lender and based on such documents
and information as it shall deem appropriate at the time, make its own
credit decisions in taking or not taking action under this Agreement;
(5) such assignee appoints and authorizes Agent to take such action as
Agent on its behalf, and to exercise such powers under this Agreement
and the other Loan Documents as are delegated to Agent by the terms
hereof and thereof, together with such powers as are reasonably
incidental thereto; and (6) such assignee agrees that it will perform
all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender in accordance with their
terms.
(c) Agent shall maintain at its address referred to on the
counterpart signature pages hereof, a copy of each Assignment and
Assumption delivered to and accepted by it, and shall record in the
Loan Account the names and addresses of each Lender and the Commitment
of, and principal amount of the Loans owing to, each Lender from time
to time. Borrower, Agent and Lenders may treat each Person whose name
is recorded in the Loan Account as a Lender hereunder for all purposes
of this Agreement.
(d) Upon its receipt of an Assignment and Assumption executed by
an assigning Lender and an assignee, Agent shall, if such Assignment
and Assumption has been properly
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completed and is in substantially the form of Exhibit A, (1) accept
such Assignment and Assumption; (2) record the information contained
therein in the Loan Account; and (3) give prompt notice thereof to
Borrower. Upon request, Borrower will execute and deliver to Agent an
appropriate replacement Loan Note or replacement Loan Notes in favor
of each assignee (and assignor, if such assignor is retaining a
portion of its Commitment and Loans) reflecting such assignee's (and
assignor's) Pro Rata Share(s) of the Facility. Upon execution and
delivery of such replacement Loan Notes the original Loan Note or Loan
Notes evidencing all or a portion of the Commitments and Loans being
assigned shall be canceled and returned to Borrower.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion
of its Commitment and the Loans owing to it) and the other Loan
Documents; provided, however, that (1) such Lender's obligations under
this Agreement (including, without limitation, its Commitment to
Borrower hereunder) and the other Loan Documents shall remain
unchanged; (2) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations; (3)
Borrower, Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights
and obligations under this Agreement and with regard to any and all
payments to be made under this Agreement; and (4) the holder of any
such participation shall not be entitled to voting rights under any
participation agreement except for voting rights with respect to (A)
increases in the Facility; (B) extensions of the Maturity Date, except
as provided in Section 2.1(d); (C) decreases in the interest rates
described in this Agreement; and (D) the release of all or
substantially all of the Collateral, except as specifically authorized
in Sections 3.2 and 11.11. No participant shall be entitled to vote on
any matter until the Lender with which such participant is
participating in the Facility and the Loans confirms such
participant's status as a participant hereunder.
(f) Borrower will use reasonable efforts to cooperate with Agent
and Lenders in connection with the assignment of interests under this
Agreement or the sale of participations herein.
(g) Borrower agrees that any Lender may disseminate to any such
potential purchaser, assignee or participant provided that such
prospective purchaser, assignee, or participant first agrees to be
bound by Section 12.21, all documents and information (including
without limitation all financial information) which have been or are
hereafter provided to or known to Lender with respect to: (1) any
Borrowing Base Property and its operation; (2) any party connected to
the Facility (including without limitation, the Borrower and the
REIT); and/or (3) any lending relationship other than the Facility
which any Lender may have with any party connected with the Facility.
(h) Anything in this Agreement to the contrary notwithstanding,
and without the need to comply with any of the formal or procedural
requirements of this Agreement, including Section 11.13, any Lender
may at any time and from time to time pledge and assign all or any
portion of its rights under all or any of the Loan Documents to a
Federal Reserve Bank. No such pledge or assignment shall release such
Lender from its obligations under the Loan Documents. To facilitate
any such pledge or assignment Agent shall, at the request of such
Lender, enter into a letter
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agreement with the Federal Reserve Bank substantially in the form of
the exhibit to Appendix C to the Federal Reserve Bank of New York
Operating Circular No. 12.
(i) Anything in this Agreement to the contrary notwithstanding,
any Lender may assign all or any portion of its rights and obligations
under this Agreement or the other Loan Documents to another branch
bank or Affiliate of such Lender without first obtaining the approval
of Agent and Borrower; provided that (1) at the time of such
assignment such Lender is not a Defaulting Lender; (2) such Lender
gives Agent and Borrower at least 15 days prior written notice of any
such assignment; (3) the parties to each such assignment execute and
deliver to Agent an Assignment and Assumption; and (4) Agent receives
from assignor a processing fee of $3,000.
(j) No Lender shall be permitted to assign or sell all or any
portion of its rights and obligations under this Agreement or the
other Loan Documents to Borrower or any Affiliate of Borrower.
Section11.14 Ratable Sharing. Subject to Sections 11.3 and 11.4,
Lenders agree among themselves that (a) with respect to all amounts
received by them which are applicable to the payment of the
Obligations, equitable adjustment will be made so that, in effect, all
such amounts will be shared among them ratably in accordance with
their Pro Rata Shares, whether received by voluntary payment, by the
exercise of a right of set-off or banker's lien, by counterclaim or
cross action, or by the enforcement of any or all of the Obligations
or the Loan Documents; and (b) if any of them shall by voluntary
payment or by the exercise of any right of counterclaim, set-off,
banker's lien or otherwise, receive payment of a proportion of the
aggregate amount of the Obligations held by it which is greater than
its Pro Rata Share of the payments on account of the Obligations, the
Lender receiving such excess payment shall purchase, without recourse
or warranty, an undivided interest and participation (which it shall
be deemed to have done simultaneously upon the receipt of such
payment) in such Obligations owed to the other Lenders so that all
such recoveries with respect to such Obligations shall be applied
ratably in accordance with their Pro Rata Shares; provided, that if
all or part of such excess payment received by the purchasing Lender
is thereafter recovered from it, those purchases shall be rescinded
and the purchase prices paid for such participations shall be returned
to that Lender to the extent necessary to adjust for such recovery,
but without interest except to the extent the purchasing Lender is
required to pay interest in connection with such recovery. Borrower
agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 11.14 may, to the fullest extent
permitted by law, exercise all of its rights of payment (including,
subject to Section 12.4, the right of set-off) with respect to such
participation, as fully as if such Lender were the direct creditor of
Borrower in the amount of such participation. No Lender shall exercise
any set-off, banker's lien, or other similar right, in respect of any
Obligations without the prior written approval of Agent.
Section11.15 Delivery of Documents. Agent shall as soon as
reasonably practicable distribute to each Lender at its primary
address set forth on the appropriate counterpart signature page
hereof, or at such other address as a Lender may request in writing,
copies of all documents that Agent receives from Borrower pursuant to
Sections 6.1 and 12.7, all documents that Agent receives or sends
pursuant to Article 2 (other than a Loan Account for Borrower or any
other Lender), and all documents, including notices, that Agent
receives from Borrower requesting any amendment,
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modification or waiver of a provision of this Agreement. In addition,
within 15 Business Days after receipt of a request in writing from a
Lender for written information or documents provided or prepared by
Borrower or for a statement of the Loan Account pursuant to Section
2.3, Agent shall deliver such written information or documents to such
requesting Lender if Agent has possession of such written information
or documents in its capacity as Agent or as a Lender.
Section11.16 Notice of Events of Default. Agent shall not be
deemed to have knowledge or notice of the occurrence of any Unmatured
Event of Default or Event of Default (other than nonpayment of
principal of or interest on the Loans) unless Agent has received
notice in writing from a Lender or Borrower referring to this
Agreement or any other Loan Documents, describing such event or
condition and expressly stating that such notice is a notice of an
Unmatured Event of Default or Event of Default. Should Agent receive
such notice of the occurrence of an Unmatured Event of Default or
Event of Default, or should Agent send Borrower a notice of Unmatured
Event of Default or Event of Default, Agent shall promptly deliver a
copy of the notice thereof to each Lender.
ARTICLE 12
MISCELLANEOUS
Section 12.1 Expenses.
(a) Generally. Borrower agrees upon demand to pay, or reimburse
Agent for, all of Agent's external audit, legal, appraisal, valuation
and investigation expenses, and for all other reasonable out-of-pocket
costs and expenses of every type and nature (including, without
limitation, the reasonable fees, expenses and disbursements of Agent's
outside counsel, auditors, accountants, appraisers, investment
bankers, printers, insurance and environmental advisers, and other
consultants and Agents incurred by Agent at any time (whether prior
to, on or after the date of this Agreement) in connection with (1) its
own audit and investigation of Borrower and the Borrowing Base; (2)
the negotiation, preparation and execution of this Agreement
(including, without limitation, the satisfaction or attempted
satisfaction of any of the conditions set forth in Article 4), the
Mortgage Documents and the other Loan Documents and the making of the
Loans; (3) the review and, if applicable, acceptance of additional
Borrowing Base Properties, including appraisal fees, title charges,
recording fees and reasonable attorneys' fees and costs incurred in
connection therewith; (4) the creation, perfection or protection of
Agent's Liens on the Collateral (including, without limitation, any
reasonable fees and expenses for title and lien searches, local
counsel in various jurisdictions, filing and recording fees and taxes,
duplication costs and corporate search fees); (5) administration of
this Agreement, the other Loan Documents, the Loans and the
Collateral, including, without limitation, consultation with attorneys
in connection therewith and obtaining periodic Appraisals of the
Borrowing Base Properties; and (6) the protection, collection or
enforcement of any of the Obligations or the Collateral.
(b) After an Event of Default. Borrower further agrees to pay, or
reimburse Agent and Lenders, for all reasonable out-of-pocket costs
and expenses, including, without limitation, reasonable attorneys'
fees and disbursements incurred by Agent or Lenders after the
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occurrence of an Event of Default (1) in enforcing any Obligation or
in foreclosing against the Collateral or evaluating, exercising or
enforcing any other right or remedy available by reason of such Event
of Default; (2) in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement in the nature of
a "work-out" or in any insolvency or bankruptcy proceeding; (3) in
commencing, defending or intervening in any litigation or in filing a
petition, complaint, answer, motion or other pleadings in any legal
proceeding relating to Borrower, the REIT, Paragon GP Holdings, or
Paragon LP Holdings, and related to or arising out of the transactions
contemplated hereby; (4) in taking any other action in or with respect
to any suit or proceeding (whether in bankruptcy or otherwise); (5) in
protecting, preserving, collecting, leasing, selling, taking
possession and/or liquidating any of the Collateral; or (6) attempting
to enforce or enforcing any Lien in any of the Collateral or any other
rights under the Mortgage Documents.
Section 12.2 Indemnity. Borrower further agrees to defend, protect,
indemnify and hold harmless Agent, each of the Lenders, each of their
respective Affiliates and participants, and each of the respective
officers, directors, employees, Agents, attorneys and consultants
(including, without limitation, those retained in connection with the
satisfaction or attempted satisfaction of any of the conditions set
forth in Article 4) of each of the foregoing (collectively, the
"Indemnitees") from and against any and all Liabilities and Costs,
imposed on, incurred by, or asserted against such Indemnitees (whether
based on any federal or state laws or other statutory regulations,
including, without limitation, securities and commercial laws and
regulations, under common law or at equitable cause, or on contract or
otherwise, including any Liabilities and Costs under federal, state or
local Environmental Laws, or arising as a result of a "prohibited
transaction" under ERISA) to the extent arising from, or in connection
with the past, present or future operations of the Borrower, the REIT,
or their respective predecessors in interest, or the past, present or
future environmental condition of any Borrowing Base Property, the
presence of asbestos-containing materials at any Borrowing Base
Property, the presence of Contaminants in groundwater at any Borrowing
Base Property, or the Release or threatened Release of any Contaminant
into the environment from any Borrowing Base Property), in any manner
relating to or arising out of this Agreement, the Mortgage Documents
or the other Loan Documents, or any act, event or transaction related
or attendant thereto, the making of and participation in the Loans and
the management of the Loans, or the use or intended use of the
proceeds of the Loans (collectively, the "Indemnified Matters");
provided, however, that Borrower shall have no obligation to any
Indemnitee hereunder with respect to (1) matters for which such
Indemnitee has been compensated pursuant to, or for which an exemption
is provided in, Sections 2.4(g), and 2.7 or any other provision of
this Agreement; and (2) Indemnified Matters caused by or resulting
from the willful misconduct, (which shall include fraud and bad faith)
or gross negligence, of that Indemnitee, as determined by a court of
competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence
may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.
Section 12.3 Change in Accounting Principles. Except as otherwise
provided herein, if any changes in accounting principles from those
used in the preparation of the most recent financial statements
delivered to Agent pursuant to the terms hereof are hereinafter
required or
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permitted by the rules, regulations, pronouncements and opinions of
the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants (or successors thereto or agencies with
similar functions) and are adopted by the Borrower, the REIT, Paragon
GP Holdings, Paragon LP Holdings, or the Management Company, with the
agreement of its independent certified public accountants and such
changes result in a change in the method of calculation of any of the
financial covenants, standards or terms found herein, the parties
hereto agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes, with the desired
result that the criteria for evaluating the financial condition of
Borrower shall be the same after such changes as if such changes had
not been made; provided, however, that no change in GAAP that would
affect the method of calculation of any of the financial covenants,
standards or terms shall be given effect in such calculations until
such provisions are amended, in a manner satisfactory to Agent and all
Lenders, to so reflect such change in accounting principles.
Section 12.4 Setoff. In addition to any Liens granted to Agent and any
rights now or hereafter granted under applicable law, and not by way
of limitation of any such Liens or rights, upon the occurrence and
during the continuance of any Event of Default, Agent and each Lender,
upon approval of Agent, is hereby authorized by Borrower at any time
or from time to time, without notice to Borrower, or to any other
Person (any such notice being hereby expressly waived) to set off,
appropriate, and apply any and all deposits (general or special,
including, but not limited to, Indebtedness evidenced by certificates
of deposit, whether matured or unmatured but not including trust
accounts) and any other Indebtedness at any time held or owing by
Agent or such Lender to or for the credit or the account of Borrower
against, and on account of, the Obligations of Borrower to Agent or
such Lender, including but not limited to, all Loans and all claims of
any nature or description arising out of or connected with this
Agreement or any of the other Loan Documents, irrespective of whether
or not (1) Agent or such Lender shall have made any demand hereunder,
or (2) Agent shall have declared the principal of and interest on the
Loans and other amounts due hereunder to be due and payable as
permitted by Article 11 and although said Obligations and liabilities,
or any of them, may be contingent or unmatured. Agent shall provide
written notice to Borrower of the exercise of any right granted in
this Section 12.4 within three Business Days after such right is
exercised.
Section 12.5 Amendments and Waivers. No amendment or modification of
any provision of this Agreement shall be effective without the written
agreement of Requisite Lenders (after notice to all Lenders) and
Borrower (except for amendments to Section 11.4(a) which do not
require the consent of Borrower). No termination or waiver of any
provision of this Agreement (including, without limitation, any waiver
of an Event of Default which does not specifically require the consent
of all Lenders), or consent to any departure by Borrower therefrom,
shall in any event be effective without the written concurrence of
Requisite Lenders (after notice to all Lenders), which Requisite
Lenders shall have the right to grant or withhold at their sole
discretion. Notwithstanding the foregoing, (a) any provision that
requires consent or approval of the Supermajority Lenders or that
provides for funding or distributions based on Pro Rata Shares shall
not be amended, modified, or waived without the written agreement of
the Supermajority Lenders such that (1) the consent or approval of the
Supermajority Lenders is no longer required or (2) funding or
distributions are based on anything other than Pro Rata Shares, (b)
the written consent of the Supermajority Lenders shall be required to
amend, modify or waive any provision of Article 11, if such amendment,
modification
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or waiver would have a Material Adverse Effect on any Lender, and (c)
the following amendments, modifications or waivers shall require the
consent of all Lenders:
(1) Increasing the Commitments or a Lender's Commitments;
(2) Changing the principal amount or final maturity of the Loans,
except as provided in Section 2.1(d);
(3) Reducing, modifying or amending the interest rate provisions
applicable to the Loans;
(4) Reducing the rates on which fees payable pursuant hereto are
determined;
(5) Forgiving or delaying any amount payable or receivable under
Article 2 (other than late fees);
(6) Changing the definition of "Requisite Lenders," "Supermajority
Lenders," "Loan Availability," "Maximum Loan Amount," "Pro Rata
Shares" or "Borrowing Base Value;"
(7) Changing any provision contained in Section 3.1(b), Section
11.10(d), this Section 12.5 or Addendum I to this Agreement;
(8) Releasing any obligor under any Loan Document, unless such release
is otherwise required or permitted by the terms of this Agreement; and
(9) Consent to assignment by Borrower of all of its duties and
Obligations under the Loan Documents.
Without limitation of the foregoing, no amendment, modification,
termination or waiver of any provision of Article 11 or any other
provision referring to Agent shall be effective without the written
concurrence of Agent. Any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was
given. No notice to or demand on Borrower in any case shall entitle
Borrower to any other further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or
consent effected in accordance with this Section 12.5 shall be binding
on each assignee, transferee or recipient of Agent's or any Lender's
Commitment under this Agreement or the Loans at the time outstanding.
Section 12.6 Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of an
Event of Default or Unmatured Event of Default if such action is taken
or condition exists, and if a particular action or condition is
expressly permitted under any covenant, unless expressly limited to
such covenant, the fact that it
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would not be permitted under the general provisions of another
covenant shall not constitute an Event of Default or Unmatured Event
of Default if such action is taken or condition exists.
Section 12.7 Notices and Delivery. Unless otherwise specifically
provided herein, any consent, notice or other communication herein
required or permitted to be given shall be in writing, and may be
personally served, telecopied or sent by courier service or United
States mail, and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of a telecopy, or four
Business Days after deposit in the United States mail (registered or
certified, with postage prepaid and properly addressed). Notices to
Agent pursuant to Article 2 shall not be effective until received by
Agent. For the purposes hereof, the addresses of the parties hereto
(until notice of a change thereof is delivered as provided in this
Section 12.7 shall be as set forth below each party's name on the
counter signature pages hereof, or, as to each party, at such other
address as may be designated by such party in a written notice to all
of the other parties. All deliveries to be made to Agent for
distribution to the Lenders shall be made to Agent at the addresses
specified for notice on the counter signature pages hereto and in
addition, a sufficient number of copies of each such delivery shall be
delivered to Agent for delivery to each Lender at the address
specified for deliveries on the counter signature page hereto or such
other address as may be designated by Agent in a written notice.
Section 12.8 Survival of Warranties, Indemnities and Agreements.
All agreements, representations, warranties and Indemnities made or
given herein shall survive the execution and delivery of this
Agreement and the other Loan Documents and the making and repayment of
the Loans hereunder, and such Indemnities shall survive termination
hereof.
Section 12.9 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of Agent or any Lender in
the exercise of any power, right or privilege under any of the Loan
Documents shall impair such power, right or privilege or be construed
to be a waiver of any Event of Default or Unmatured Event of Default
or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude further exercise thereof
or of any other right, power or privilege. All rights and remedies
existing under the Loan Documents are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
Section 12.10 Marshalling; Recourse to Security; Payments Set
Aside. Neither any Lender nor Agent shall be under any obligation to
marshall any assets in favor of Borrower or any other party or against
or in payment of any or all of the Obligations. Recourse to security
shall not be required at any time. To the extent that Borrower makes a
payment or payments to Agent or the Lenders, or Agent or the Lenders
enforce their Liens, or exercise their rights of setoff, and any such
payment, or the proceeds of such enforcement or setoff, or any part
thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then to the extent of such
recovery, the Obligation or part thereof originally intended to be
satisfied, and all Liens, rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.
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Section 12.11 Severability. If any provision in or obligation under
this Agreement or the other Loan Documents shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any
way be affected or impaired thereby; provided, however, that if the
rates of interest or any other amount payable hereunder, or the
collectability thereof, are declared to be or become invalid, illegal
or unenforceable, Lenders' obligations to make Loans shall not be
enforceable.
Section 12.12 Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given
any substantive effect.
Section 12.13 Governing Law. THIS AGREEMENT HAS BEEN EXECUTED UNDER,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF TEXAS FROM TIME TO TIME IN EFFECT EXCEPT TO THE EXTENT
PREEMPTED BY UNITED STATES FEDERAL LAW. This Agreement and the other
Loan Documents are intended to be performed in accordance with, and
only to the extent permitted by, all applicable Legal Requirements. It
is expressly stipulated and agreed to be the intent of Borrower and
Lenders at all times to comply with the applicable Texas law governing
the maximum rate or amount of interest payable on the Obligations (or
applicable United States federal law to the extent that it permits
Lender to contract for, charge, take, reserve or receive a greater
amount of interest than under Texas law). If the applicable law is
ever judicially interpreted so as to render usurious any amount called
for under the Loan Documents or contracted for, charged, taken,
reserved or received with respect to the Obligations, or if the
acceleration of the maturity of the Obligations or if any prepayment
by Borrower results in Borrower having paid any interest in excess of
that permitted by applicable law, then it is Borrower's and Lenders'
express intent that all excess amounts theretofore paid to Lenders be
credited on the principal balance of the Obligations (or, if the
Obligations have been or would thereby be paid in full, refunded to
Borrower), and the provisions of the Loan Documents immediately be
deemed reformed and the amounts thereafter collectible thereunder
reduced, without the necessity of the execution of any new documents,
so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and
thereunder. All sums paid or agreed to be paid to Lenders for the use,
forbearance or detention of the Obligations shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such Obligations until payment in
full so that the rate or amount of interest on account of such
Obligations does not exceed the usury ceiling from time to time in
effect and applicable to the Obligations for so long as the
Obligations are outstanding. To the extent that Lenders are relying on
Article 5069-1.04, as amended, of the Revised Civil Statutes of Texas
to determine the maximum rate ("Maximum Rate") payable on the
Obligations, Lender will utilize the indicated (weekly) rate ceiling
from time to time in effect as provided in Article 5069.04, as
amended. To the extent United States federal law permits Lenders to
contract for, charge or receive a greater amount of interest, Lenders
will rely on United States federal law instead of such Article
5069-1.04, as amended, for the purpose of determining the Maximum
Rate. Additionally, to the extent permitted by applicable law now in
effect, Lenders may, at their option and from time to time, implement
any other method of computing the Maximum Rate under such Article
5069-1.04, as amended, or under other applicable law by giving notice,
if
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required, to Borrower as provided by applicable law now or hereafter
in effect. In no event shall the provisions of Article 5069, chapter
15 of the Revised Civil Statutes of Texas (which regulates certain
revolving credit loan accounts and revolving triparty accounts) apply
to the Loans. Notwithstanding anything to the contrary contained in
this Agreement or in any of the other Loan Documents, it is not
Lenders' intention to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
Section 12.14 LIMITATION OF LIABILITY. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NO CLAIM MAY BE MADE BY BORROWER, THE REIT, PARAGON GP
HOLDINGS, OR PARAGON LP HOLDINGS, ANY Lender, OR ANY OTHER PERSON,
AGAINST Agent OR ANY Lender, OR THE AFFILIATES, DIRECTORS, OFFICERS,
EMPLOYEES, ATTORNEYS OR AGENTS OF ANY OF THEM, FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM
FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY OTHER THAN
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ARISING OUT OF OR RELATED TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION THEREWITH; AND BORROWER, THE REIT,
PARAGON GP HOLDINGS, PARAGON LP HOLDINGS, AND EACH Lender HEREBY
WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR ANY SUCH
DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
TO EXIST IN ITS FAVOR; PROVIDED, THAT IF A Lender REFUSES TO FUND A
LOAN AND A COURT OF COMPETENT JURISDICTION FINDS THAT SUCH REFUSAL WAS
WITHOUT JUSTIFICATION AND IN BAD FAITH, SUCH Lender SHALL BE LIABLE TO
BORROWER FOR BORROWER'S REASONABLE AND FORESEEABLE DAMAGES RESULTING
FROM SUCH REFUSAL TO FUND.
Section 12.15 Successors and Assigns. This Agreement and the other
Loan Documents shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of
the parties hereto and the successors and permitted assigns of Agent
and Lenders. The terms and provisions of this Agreement shall inure to
the benefit of any assignee or transferee of the Loans and the
Commitments of Lenders under this Agreement, and in the event of such
transfer or assignment, the rights and privileges herein conferred
upon Agent and Lenders shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions
hereof. Borrower's rights or any interest therein hereunder, and
Borrower's duties and Obligations hereunder, shall not be assigned
without the consent of all Lenders.
Section 12.16 Consent to Jurisdiction and Service of Process; Waiver
of Jury Trial. EXCEPT WITH RESPECT TO FORECLOSURE PROCEEDINGS AGAINST
ANY COLLATERAL WHICH BY REQUIREMENT OF LAW MUST BE BROUGHT IN THE
JURISDICTION WHERE SUCH COLLATERAL IS LOCATED, ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST BORROWER, THE REIT, PARAGON GP HOLDINGS,
AND PARAGON LP HOLDINGS, WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT MAY BE AND ALL JUDICIAL PROCEEDINGS BROUGHT BY ANY OF
BORROWER, THE REIT, PARAGON GP HOLDINGS AND PARAGON LP HOLDINGS WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE
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BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION HAVING
SITUS WITHIN THE BOUNDARIES OF THE FEDERAL COURT DISTRICT OF THE
NORTHERN DISTRICT OF TEXAS, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF BORROWER, THE REIT, PARAGON GP HOLDINGS AND PARAGON
LP HOLDINGS ACCEPTS, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT
RENDERED THEREBY FROM WHICH NO APPEAL HAS BEEN TAKEN OR IS AVAILABLE.
EACH OF BORROWER, THE REIT, PARAGON GP HOLDINGS AND PARAGON LP
HOLDINGS HEREBY DESIGNATES AND APPOINTS STUTZMAN & BROMBERG, A
PROFESSIONAL CORPORATION, TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING
HEREBY ACKNOWLEDGED BY SUCH PERSON TO BE EFFECTIVE AND BINDING SERVICE
IN EVERY RESPECT. SUCH APPOINTMENT SHALL BE REVOCABLE ONLY WITH
Agent'S PRIOR WRITTEN APPROVAL. EACH OF BORROWER, THE REIT, PARAGON GP
HOLDINGS, AND PARAGON LP HOLDINGS IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO ITS NOTICE ADDRESS SPECIFIED ON THE COUNTER
SIGNATURE PAGES HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS
AFTER SUCH MAILING. TO THE EXTENT PERMITTED BY LAW, EACH OF BORROWER,
THE REIT, PARAGON GP HOLDINGS, PARAGON LP HOLDINGS, AGENT AND THE
LENDERS IRREVOCABLY WAIVES (A) TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT;
AND (B) ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS)
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR SHALL LIMIT THE RIGHT OF Agent OR ANY Lender TO BRING PROCEEDINGS
AGAINST ANY OF THE BORROWER, THE REIT, PARAGON GP HOLDINGS AND PARAGON
LP HOLDINGS IN THE COURTS OF ANY OTHER JURISDICTION.
Section 12.17 Counterparts; Effectiveness; Inconsistencies. This
Agreement and any amendments, waivers, consents or supplements may be
executed in counterpart, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. This Agreement shall
become effective when Borrower, the REIT, Paragon GP Holdings, Paragon
LP Holdings, the initial Lenders and Agent have duly executed and
delivered counterpart execution pages of this Agreement to each other
(delivery by Borrower, the REIT, Paragon GP Holdings, and Paragon LP
Holdings, to Lenders and by any Lender to Borrower, the REIT, Paragon
GP Holdings, and Paragon LP Holdings, and any other Lender being
deemed to have been made by delivery to Agent). This Agreement and
each of the other Loan Documents shall be construed to the extent
reasonable to be consistent one with the other, but to the
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extent that the terms and conditions of this Agreement are actually
and directly inconsistent with the terms and conditions of any other
Loan Document, this Agreement shall govern.
Section 12.18 Performance of Obligations. Upon and during the
continuance of an Event of Default, Borrower agrees that Agent may,
but shall not have obligation to, make any payment or perform any act
required of Borrower or the REIT under any Loan Document or take any
other action which Agent in its discretion deems necessary or
desirable to protect or preserve the Collateral including, without
limitation, any action to (1) pay or discharge taxes, Liens, security
interests or other encumbrances levied or placed on or threatened
against any Collateral; and (2) effect any repairs or obtain any
insurance called for by the terms of any of the Loan Documents, and to
pay all or any part of the premiums therefor and the costs thereof.
Section 12.19 Construction. The parties acknowledge that each party
and its counsel have reviewed and had an opportunity to revise this
Agreement and that the normal rule of construction to the effect that
any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any
amendments or exhibits hereto.
Section 12.20 Entire Agreement. This Agreement, taken together with
all of the other Loan Documents and all certificates and other
documents delivered by Borrower to Agent, embodies the entire
agreement of the parties and supersedes all prior agreements, written
and oral, relating to the subject matter hereof.
Section 12.21 Confidentiality. Confidential Information obtained by
Agent or Lenders pursuant to this Agreement or in connection with the
Facility shall not be disseminated by Agent or any Lender and shall
not be disclosed to third parties other than (a) to regulators, taxing
authorities and other governmental agencies having jurisdiction over
Agent or any Lender; (b) in response to Requirements of Law; (c) to
their respective auditors and legal counsel; (d) in connection with
regulatory, administrative and judicial proceedings, including
enforcement proceedings relating to the Loan Documents; and (e) to any
prospective assignee of or participant in a Lender's interest under
the Agreement or any prospective purchaser of the assets or a
controlling interest in any Lender; provided that such prospective
assignee, participant or purchaser first agrees to be bound by the
provisions of this Section 12.21.
Section 12.22 Estoppel Certificates. If required by the underwriters
in connection with a public offering of securities of the REIT, Agent
shall provide an estoppel certificate certifying, as of such date,
that (a) to Agent's actual knowledge no Unmatured Event of Default or
Event of Default then exists (if such is the case, or if such is not
the case, specifying any Unmatured Event of Default or Event of
Default) and (b) the aggregate outstanding amount of the Loans. Such
certification shall not (1) prevent Agent or any Lender from later
making assertions or taking actions which are inconsistent with such
certification, if new facts or circumstances thereafter become known
to Agent or any Lender which would have a bearing thereon and which
were not known and could not reasonably have been known at the time
such estoppel certificate was delivered, and (2) shall not expose
Agent or any Lender to any liability or damages (direct or
consequential) for or by reason of any Person's reliance thereon.
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Section 12.23 Limitation of Liability. (a) None of Paragon GP
Holdings, Paragon LP Holdings, the REIT nor any officer, employee,
servant, controlling person, executive, director, Agent or authorized
representative of such Person (herein referred to as "operatives")
shall be liable personally for the Obligations. The sole recourse of
the Lenders and the Agent for satisfaction of the Obligations shall be
to the Borrower as an entity and the Borrower's assets, and not to any
assets of any of Paragon GP Holdings, Paragon LP Holdings, the REIT or
their respective operatives. In the event that an Event of Default
occurs in connection with the Obligations, no action shall be brought
against any of Paragon GP Holdings, Paragon LP Holdings, the REIT, or
their respective operatives. In the event of foreclosure or any other
sale or disposition of Property, no judgment for any deficiency
relating to the Obligations shall be obtainable by the Lenders or the
Agent against any of Paragon GP Holdings, Paragon LP Holdings, the
REIT, or their respective operatives.
(b) Notwithstanding anything in Section 12.23(a) above to the
contrary, (1) nothing herein shall limit or otherwise prejudice in any
way the right of the Agent or any Lender to proceed against Borrower
with respect to the enforcement of any Obligations or the liability of
Borrower for such Obligations, (2) nothing herein shall limit or
otherwise prejudice in any way the right of the Agent or any Lender to
proceed against each of Paragon GP Holdings, Paragon LP Holdings and
the REIT with respect to enforcement of its agreements to be bound by
certain provisions of this Agreement as expressly set forth in such
Person's counterpart signature page hereto or its liability for any
violation of such provisions, and (3) such limitations of liability
shall not apply to operatives if and to the extent that such Persons
commit fraud or willful misrepresentation.
This Section 12.23 shall be deemed incorporated in each Loan Document.
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of the Agreement. The undersigned acknowledges
that this Counterpart Execution Page shall become a part of the Agreement
and may be attached thereto. The undersigned further acknowledges its
receipt of a copy of the Agreement.
"BORROWER"
PARAGON GROUP L.P., a Delaware limited partnership
BY: Paragon Group GP Holdings, Inc., a Delaware
corporation, its General Partner
By: ______________________________________
Lynn T. Caldwell, Senior Vice President
ADDRESS FOR NOTICE:
7557 Rambler Road, Suite 1200
Dallas, Texas 75231-4167
Attention: Lynn T. Caldwell
Telephone: (214) 891-2000
Facsimile: (214) 891-2019
WITH A COPY TO:
Stutzman & Bromberg, P.C.
2323 Bryan Street, Suite 2200
Dallas, Texas 75201-2689
Attention: Carl C. Christoff
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of the Agreement. The undersigned acknowledges
that this Counterpart Execution Page shall become a part of the Agreement
and may be attached thereto. The undersigned further acknowledges its
receipt of a copy of the Agreement.
"LENDER"
COMMITMENT $45,000,000.00 WELLS FARGO REALTY ADVISORS
FUNDING, INCORPORATED, a Colorado
corporation
By: Wells Fargo Real Estate Group,
a California corporation, its agent
By: ______________________________
J. Kent Howard
Vice President
By: ______________________________
Joyce L. Demyan
Assistant Secretary
ADDRESS FOR NOTICE:
c/o Wells Fargo Real Estate Group Disbursement
Center
2120 East Park Place, Suite 100
El Segundo, CA 90245
Attention: Manager, AU #5847, Loan #5914.ZMD
Telephone: (310) 615-0200
Facsimile: (310) 615-1014
WITH A COPY TO:
Wells Fargo Real Estate Group, Inc.
12377 Merit Drive, Suite 300
Dallas, TX 75251
Attention: Account Officer
Telephone: (214) 661-8980
Facsimile (214) 386-4723
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of the Agreement. The undersigned acknowledges
that this Counterpart Execution Page shall become a part of the Agreement
and may be attached thereto. The undersigned further acknowledges its
receipt of a copy of the Agreement.
"LENDER"
COMMITMENT: $30,000,000.00 NATIONSBANK OF TEXAS, N.A.,
a national banking association
By:________________________
Name:______________________
Title:_____________________
ADDRESS FOR NOTICE:
NationsBank of Texas, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75202
Attention: John Lamb
Telephone: (214) 508-1521
Facsimile: (214) 508-1571
WITH A COPY TO:
NationsBank of Texas, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75202
Attention: Loan Administration
Telephone: (214) 508-1569
Facsimile: (214) 508-1571
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of the Agreement. The undersigned acknowledges
that this Counterpart Execution Page shall become a part of the Agreement
and may be attached thereto. The undersigned further acknowledges its
receipt of a copy of the Agreement.
"LENDER"
COMMITMENT: $10,000,000.00 THE BOATMEN'S NATIONAL BANK OF ST.LOUIS,
a national banking association
By:________________________
Name:______________________
Title:_____________________
ADDRESS FOR NOTICE:
7800 Forsyth Blvd., Suite 450
Clayton, Missouri 63105
Attention: Laura D. Kenny
Telephone: (314) 466-0558
Facsimile: (314) 466-0585
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and among
Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined therein)
(the "Agreement"), the undersigned acknowledges that it is bound by the terms
and conditions of the Agreement. The undersigned acknowledges that this
Counterpart Execution Page shall become a part of the Agreement and may be
attached thereto. The undersigned further acknowledges its receipt of a copy of
the Agreement.
"AGENT"
WELLS FARGO REALTY ADVISORS FUNDING,
INCORPORATED, a Colorado corporation
By: Wells Fargo Real Estate Group,
a California corporation, its agent
By: _______________
J. Kent Howard
Vice President
By: ___________________
Joyce L. Demyan
Assistant Secretary
ADDRESS FOR NOTICE:
c/o Wells Fargo Real Estate Group Disbursement Center
2120 East Park Place, Suite 100
El Segundo, CA 90245
Attention: Manager, AU #5847, Loan #5914.ZMD
Telephone: (310) 615-0200
Facsimile: (310) 615-1014
WITH A COPY TO:
Wells Fargo Real Estate Group, Inc.
12377 Merit Drive, Suite 300
Dallas, TX 75251
Attention: Account Officer
Telephone: (214) 661-8980
Facsimile (214) 386-4723
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LIBOR OFFICE:
c/o Wells Fargo Real Estate Group Disbursement Center
2120 East Park Place, Suite 100
El Segundo, CA 90245
Attention: Manager, AU No. 5847, Loan No. 5914.ZMD
Telephone: (310) 615-0200
Facsimile: (310) 615-1014
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of Sections 4.1(b), 4.1(f)(2), 5.2, 7.2, 8.2,
12.14 and 12.16 of the Agreement. The undersigned acknowledges that this
Counterpart Execution Page shall become a part of the Agreement and may be
attached thereto. The undersigned further acknowledges its receipt of a
copy of the Agreement.
"REIT"
PARAGON GROUP, INC., a Maryland corporation
By:_______________________________________
Lynn T. Caldwell, Senior Vice President
ADDRESS FOR NOTICE:
7557 Rambler Road, Suite 1200
Dallas, Texas 75231-4167
Attention: Lynn T. Caldwell
Telephone: (214) 891-2000
Facsimile: (214) 891-2019
WITH A COPY TO:
Stutzman & Bromberg, P.C.
2323 Bryan Street, Suite 2200
Dallas, Texas 75201-2689
Attention: Carl C. Christoff
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
119
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COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of Sections 4.1(c), 4.1(f)(3), 5.3, 7.3, 8.3,
12.14, and 12.16 of the Agreement. The undersigned acknowledges that this
Counterpart Execution Page shall become a part of the Agreement and may be
attached thereto. The undersigned further acknowledges its receipt of a
copy of the Agreement.
"PARAGON GP HOLDINGS"
PARAGON GROUP GP HOLDINGS, INC., a Delaware
corporation
By:
Lynn T. Caldwell, Senior Vice President
ADDRESS FOR NOTICE:
7557 Rambler Road, Suite 1200
Dallas, Texas 75231-4167
Attention: Lynn T. Caldwell
Telephone: (214) 891-2000
Facsimile: (214) 891-2019
WITH A COPY TO:
Stutzman & Bromberg, P.C.
2323 Bryan Street, Suite 2200
Dallas, Texas 75201-2689
Attention: Carl C. Christoff
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
120
<PAGE>
COUNTERPART EXECUTION PAGE
By execution of this Counterpart Execution Page to that certain Fifth
Amended and Restated Credit Agreement dated as of July 27, 1996, by and
among Paragon Group L.P. as Borrower, Wells Fargo Realty Advisors Funding,
Incorporated, as Agent for certain Lenders, and the Lenders (as defined
therein) (the "Agreement"), the undersigned acknowledges that it is bound
by the terms and conditions of Sections 4.1(d), 4.1(f)(4), 5.4, 7.4, 8.4,
12.14, and 12.16 of the Agreement. The undersigned acknowledges that this
Counterpart Execution Page shall become a part of the Agreement and may be
attached thereto. The undersigned further acknowledges its receipt of a
copy of the Agreement.
"PARAGON LP HOLDINGS"
PARAGON GROUP LP HOLDINGS, INC., a Delaware
corporation
By:______________________________________
Lynn T. Caldwell, Senior Vice President
ADDRESS FOR NOTICE:
7557 Rambler Road, Suite 1200
Dallas, Texas 75231-4167
Attention: Lynn T. Caldwell
Telephone: (214) 891-2000
Facsimile: (214) 891-2019
WITH A COPY TO:
Stutzman & Bromberg, P.C.
2323 Bryan Street, Suite 2200
Dallas, Texas 75201-2689
Attention: Carl C. Christoff
Telephone: (214) 969-4900
Facsimile: (214) 969-4999
121
<PAGE>
ADDENDA, EXHIBITS AND SCHEDULES
Addenda:
Addendum I - Borrower's Financial Covenants
Exhibits:
A - Form of Assignment and Assumption
B - Form of Borrowing Base Certificate
C - Closing Checklist
D - Form of Compliance Certificate
E - Funds Transfer Agreement
F - Form of Loan Note
G - Form of Notice of Borrowing
H - Form of Notice of Borrowing Worksheet
I - Form of Conversion Date Certificate
J - Form of Project Budget
K - Form of Loan Availability Certificate
Schedules:
1 - List of Borrowing Base Stabilized Properties
2 - List of Borrowing Base Development Properties
5.1(q) - Borrower Environmental Matters
5.1(v) - Contractual Obligations Not Terminable in 30 Days
5.3(p) - Partner Interests of Paragon GP Holdings in Subsidiaries of
the Borrower
7.1(b) - Business Names Used by Borrower
7.2(i) - Reimbursement and Indemnification Obligations of the Borrower
to the REIT
7.3(g) - Reimbursement and Indemnification Obligations of the Borrower
to Paragon
GP Holdings
7.4(g) - Reimbursement and Indemnification Obligations of the Borrower
to Paragon LP Holdings
122
<PAGE>
ADDENDUM I
Borrower's Financial Covenants
1. Defined Terms.
(a) "Capital Expenditures" means, on an annualized basis, with
respect to residential apartment properties for which the final
certificate of occupancy has been issued, Two Hundred ($200.00) per
dwelling unit and with respect to office properties and retail
properties, ($1.00) per square foot. With respect to the financial
covenants contained herein (1) Capital Expenditures shall be pro rated
on a quarterly basis and (2) Capital Expenditures with respect to
Investment Affiliates will be adjusted to reflect the Borrower's
ownership in such Investment Affiliates.
(b) "Debt Service" means for any period, Interest Expense for
such period plus scheduled principal amortization for such period on
all Indebtedness of the Borrower on a consolidated basis.
(c) "EBITDA" means, for any period (1) the sum of the amounts for
such period of (i) Net Income of Borrower, the REIT and their
respective Subsidiaries for such period (excluding equity in net
earnings or net loss of Investment Affiliates), (ii) depreciation and
amortization expense and other non-cash items deducted on the
Financial Statements in determining such Net Income for Borrower, the
REIT and their respective Subsidiaries for such period, (iii) interest
expense of Borrower, the REIT and their respective Subsidiaries, for
such period as reflected in such Person's financial statements, (iv)
Taxes of Borrower, the REIT and their respective Subsidiaries for such
period, and (v) cash dividends and distributions actually received by
Borrower from Investment Affiliates, minus (2) the extraordinary gains
(and plus the extraordinary losses) of Borrower, the REIT and their
respective Subsidiaries resulting from asset sales, write-ups, or
forgiveness of Indebtedness, determined in each case on a consolidated
basis in accordance with GAAP.
(d) "Funds From Operations" means, for any period, Borrower's Net
Income (or loss) for such period calculated on a GAAP basis excluding
gains (or losses) from debt restructuring and sales of property, plus
(i) real estate depreciation and amortization, (ii) adjustments for
Investment Affiliates, and (iii) adjustments for extraordinary or
unusual items, along with significant non-recurring items incurred
outside of the fundamental operations of the Borrower and as reflected
in Borrower's Form 10Q or 10K, as the case may be, filed with the SEC.
(e) "Gross Asset Value" means the sum of (1) annualized prior
Fiscal Quarter EBITDA (excluding (i) dividends and any other
distributions from Investment Affiliates, (ii) EBITDA attributable to
properties not owned by Borrower for the entire prior Fiscal Quarter
and (iii) any EBITDA from Development Properties valued as Work In
Process) capitalized at 9.25%, plus (2) the price paid for any
operating properties acquired during the prior Fiscal Quarter, plus
(3) cash and Cash Equivalents (excluding tenant deposits), plus (4)
100% of Work In Process , plus (5) Borrower's pro rata share of
annualized prior Fiscal Quarter Net Operating Income for Investment
Affiliate operating properties (excluding EBITDA attributable to
operating properties
Addendum - 1
<PAGE>
not owned by such Investment Affiliates for the entire prior Fiscal
Quarter) capitalized at 9.25% for multifamily properties and 10% for
office and/or industrial properties, plus (6) Borrower's pro rata
share of the price paid for operating properties acquired by
Investment Affiliates during the prior Fiscal Quarter, plus (7)
Borrower's pro rata share of Work In Process relating to properties
owned by Investment Affiliates.
(f) "Interest Expense" means, for any period, all paid, accrued
or capitalized interest (but excluding (1) capitalized interest
covered by an interest reserve established under a loan facility,
including the Facility, (2) interest attributable to capital
expenditures of Borrower for accounting purposes and not resulting
from actual borrowings, and (3) any non-cash deferred loan cost
amortization resulting from interest rate buy down expenses incurred
prior to the Restatement Date, loan fees, loan closing costs, and
other debt issuance costs included in Borrower's reported interest
expense pursuant to GAAP on a consolidated basis). Interest Expense
also shall include Borrower's Share (disregarding the contribution
obligations of co-owners or partners) of accrued, paid or capitalized
interest (except as excluded under clauses (1), (2), and (3) above)
with respect to any Accommodation Obligation.
(g) "Net Worth" means, at any time, (1) the sum of (A) the total
shareholders' equity of the REIT; (B) the value of all Units owned by
Persons other than Paragon GP Holdings and Paragon LP Holdings; and
(C) depreciation and amortization of the REIT, the Borrower, and their
respective Subsidiaries after June 30, 1994; minus (2) the sum of (A)
all intangible assets of the REIT; and (B) any intangible assets of
Borrower relating to minority interests in Borrower, determined on a
consolidated basis in accordance with GAAP.
(g) "Total Liabilities" means all GAAP liabilities, plus (1)
Indebtedness and Accommodation Obligations of Borrower that are not
GAAP liabilities; (2) 100% of the recourse liabilities of Borrower as
a general partner of any partnership that are not GAAP liabilities;
and (3) Borrower's pro rata share of non-recourse debt of Investment
Affiliates that are not GAAP liabilities. Total Liabilities, however,
shall exclude up to $15,000,000 (in aggregate) of accounts payable,
accrued liabilities and tenant security deposits.
(h) "Work in Process" means the aggregate Expended Project Costs
as reviewed and approved by Agent (as of the certification date),
including the cost of Land for Borrowing Base Development Properties
and the pro rata share of Expended Project Costs for Development
Properties other than Borrowing Base Development Properties.
2. Minimum Net Worth. Borrower shall maintain a Net Worth of not less
than 90% of the Net Worth of the REIT as of March 31, 1996. The Net
Worth of the REIT as of March 31, 1996, was $173,445,000.00.
3. Total Liabilities to Gross Asset Value Ratio. The ratio of
Borrower's Total Liabilities to Gross Asset Value shall not exceed
0.575:1.
4. EBITDA to Interest Expense Ratio. The ratio of EBITDA to Interest
Expense shall not be less than 2.00:1.
Addendum - 2
<PAGE>
5. EBITDA to Fixed Charges Ratio. The ratio of EBITDA to the sum of
Fixed Charges shall not be less than 1.75:1.
6. Distributions. Distributions by Borrower on account of Units shall
not exceed (a) 130% of Funds From Operations for the Fiscal Quarter
ending June 30, 1996; (b) 115% of Funds From Operations for the Fiscal
Quarter ending September 30, 1996; (c) 110% of Funds From Operations
for the Fiscal Quarters ending December 31, 1996, and March 31, 1997;
and (d) 105% of Funds From Operations for the Fiscal Quarter ending
June 30, 1997. Except as otherwise provided above, distributions by
Borrower on account of Units shall not exceed 95% of Funds From
Operations for any Fiscal Quarter. If a monetary Event of Default has
occurred and is continuing, then such distributions in any Fiscal Year
shall not exceed the minimum amount of taxable income that Borrower
must distribute in order to remain qualified as a real estate
investment trust, as defined in Section 856 of the Internal Revenue
Code, or any successor provision. Borrower's Funds From Operations for
the Fiscal Quarter immediately preceding the date on which any such
distribution is made shall be used to determine Borrower's compliance
with the distribution limitations set forth in this provision.
7. Permitted Investments. Borrower's primary business will be the
development, ownership, operation and management of apartment, retail
and commercial properties, asset management and business activities
and investments incidental thereto; provided, however, unimproved land
holdings, stock holdings (excluding short term equity investments
maintained for cash management purposes), investments in partnerships
and joint ventures which are Investment Affiliates, and Investment
Mortgages shall not exceed the following percentages of Gross Asset
Value.
Maximum Percentage
Permitted Investment of Gross Asset Value
Land: 2.5%
Securities of Persons other than the REIT, 5%
Paragon GP Holdings, Paragon LP Holdings,
and the Management Company:
Partnerships and joint ventures which are 22.5%
Investment Affiliates of either Borrower or the REIT:
Investment Mortgages: 5%
The value of Permitted Investments other than investments in partnerships
and joint ventures shall be calculated in conformity with GAAP. The value
of Permitted Investments in partnerships and joint ventures shall be
calculated in conformity with the calculation of Gross Asset Value. The
aggregate Permitted Investments of Borrower shall not exceed 25% of Gross
Asset Value.
Addendum - 3
<PAGE>
Additionally, the aggregate amount of the Construction Budgets for
Development Properties in which Borrower either has a direct or indirect
ownership interest shall not exceed (a) $100,000,000 from July 27, 1996,
through December 31, 1996; (b) $80,000,000 from January 1, 1997, through
June 30, 1997; and (c) $60,000,000 thereafter. If a Development Property is
owned by an Investment Affiliate of Borrower, then the product of (1)
Borrower's ownership interest in such Investment Affiliate and (2) the
amount of the Construction Budget for the Development Property shall be
used in calculating such Investment limitation.
8. Calculation. Each of the foregoing ratios and financial requirements
shall be calculated as of the last day of each Fiscal Quarter and shall be
satisfied at all times.
Addendum - 4
<PAGE>
EXHIBIT C
CLOSING CHECKLIST
1. Fifth Amended and Restated Credit Agreement
2. Loan Notes
(a) Wells Fargo Realty Advisors Funding, Incorporated
(i) $5,600,000 Loan Note
(ii) $5,145,000 Loan Note
(iii) $34,255,000 Loan Note
(b) NationsBank of Texas, N.A.
(i) $3,733,333 Loan Note
(ii) $3,430,000 Loan Note
(iii) $22,836,667 Loan Note
(c) The Boatmen's National Bank of St. Louis
(i) $1,244,447 Loan Note
(ii) $1,143,333 Loan Note
(iii) $7,612,220 Loan Note
3. Borrower's Affidavit
4 REIT Affidavit
5. Paragon GP Holdings Affidavit
6. Paragon LP Holdings Affidavit
7. Borrower's Counsel Legal Opinion
8. Compliance Certificate
C-1
Exhibit 21.1
LIST OF SUBSIDIARIES
Paragon Group GP Holdings, Inc., a Delaware corporation
Paragon Group LP Holdings, Inc., a Delaware corporation
Paragon Group L.P., a Delaware limited partnership
Paragon Residential Services, Inc., a Delaware corporation
Summer Place II Associates, Ltd., a Florida limited partnership
Summerset Bend Apartments I Associates, Ltd., a Florida limited partnership
Summer Place Associates, Ltd., a Florida limited partnership
Parsons Run Associates, Ltd., a Florida limited partnership
4th St. Station III Associates, Ltd., a Florida limited partnership
Fourth Street Station I Associates Limited, a Florida limited partnership
Lookout Pointe Associates, Ltd., a Florida limited partnership
Lookout Pointe II Associates, Ltd., a Florida limited partnership
Coco West Associates Limited, a Florida limited partnership
Coco West II Associates, Ltd., a Florida limited partnership
Greenhouse Associates Limited, a Florida limited partnership
Charlotte Eastchase Associates Limited, a North Carolina limited partnership
Lake George I Associates, Ltd., a Florida limited partnership
Lake George II Associates, Ltd., a Florida limited partnership
Southwood Associates, Ltd., a Florida limited partnership
Landtree Apartments Associates, Ltd., a Florida limited partnership
Charleston Westchase Associates, a South Carolina limited partnership
Irving Fairlane Associates, Ltd., a Texas limited partnership
Paragon Group-Glen Partners, a North Carolina limited partnership
Paragon-Ott Apartments II, Ltd., a Texas limited partnership
Paragon Group - Spanish Trace Partners, a Missouri general partnership
Paradim Charlotte I L.L.C., a Delaware limited liability company
Paradim Tampa I L.L.C., a Delaware limited liability company
Paradim Dallas I L.P., a Texas limited partnership
Orlando Summer Place Company, Ltd., a Florida limited partnership
Orlando Landtree Apartments Co., Ltd., a Florida limited partnership
Tampa Sheldon Road Apartments II Company, Ltd., a Florida limited partnership
Sheldon Road Apartments II Associates, Ltd., a Florida limited partnership
Brandon Parsons Run Company, Ltd., a Florida limited partnership
Orlando Summer Place III Company, Ltd., a Florida limited partnership
Charlotte Eastchase Company Limited, a North Carolina limited partnership
Tampa Greenhouse Company Limited, a Florida limited partnership
Irving Fairlane Company, Ltd., a Texas limited partnership
St. Petersburg 4th Street Station Company Limited, a Florida limited partnership
Charleston Westchase Company, a South Carolina limited partnership
St. Petersburg 4th St. Station III Co., Ltd., a Florida limited partnership
Tampa Sheldon Road Apartments I Co., Ltd., a Florida limited partnership
Tampa Summerset Bend Apartments I Co., Ltd., a Florida limited partnership
Sheldon Road Apartments I Associates, Ltd., a Florida limited partnership
Paradim, Inc.
Paradim Greensboro I L.L.C.
Paradim GP Dallas I, Inc.
Paradim LP Dallas I, Inc.
Exhibit 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-83144) of Paragon Group, Inc. of our report dated March 21,
1997 with respect to the consolidated and combined financial statements and
schedule of Paragon Group, Inc. included in the Form 10-K for the year ended
December 31, 1996.
ERNST & YOUNG LLP
Dallas, Texas
March 31, 1997
Exhibit 24.1
POWER OF ATTORNEY
Know all Men by These Presents, that each individual whose signature
appears below constitutes and appoints Thomas D. Ferguson and J.C. Lowenberg
III, and each of them, his true and lawful attorney-in-fact and agent with power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign an annual report on Form 10-K for the fiscal
year ended December 31, 1996 (the "Form 10-K") and to sign any and all
amendments to the Form 10-K, and to file the same, with all exhibits and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their, his or her
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Date: March 31, 1997
Signature Title
--------- -----
/s/ William R. Cooper Chief Executive Officer and Chairman of
- --------------------- the Board
William R. Cooper
/s/ Lewis A. Levey Vice Chairman and Director
- ------------------
Lewis A. Levey
/s/ Robert H. Gidel Chief Operating Officer, President and
- ------------------- Director
Robert H. Gidel
/s/ Thomas R. Delatour, Jr. Director
- ---------------------------
Thomas R. Delatour, Jr.
/s/ Richard J. Haayen Director
- ---------------------
Richard J. Haayen
/s/ Douglas D. Hawthorne Director
- ------------------------
Douglas D. Hawthorne
Director
- ----------------
William S. Janes
Director
- --------------
John H. Massey
Director
- ------------------
Joseph R. Musolino
/s/ Don M. Shine Director
- ----------------
Don M. Shine
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,328
<SECURITIES> 0
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0
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