SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the
|X| Definitive Proxy Statement Commission Only (as permitted
|_| Definitive Additional Materials by Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PARAGON GROUP, INC.
(Names of Registrants as Specified in Their Charters)
Not Applicable
(Name of Person(s) Filing Proxy Statement, if other than the Registrants)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|X| Fee paid previously with preliminary materials: $77,877.72
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
1
<PAGE>
[Paragon Group, Inc. Letterhead]
March 7, 1997
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Paragon Group, Inc. (the "Paragon Special Meeting") to be held on Tuesday, April
15, 1997, at 10:00 a.m., central time, at the Doubletree Hotel at Campbell
Centre, Skyline Room, 8250 North Central Expressway, Dallas, Texas 75206. I look
forward to personally greeting those stockholders who are able to attend.
At this Paragon Special Meeting, we will seek your approval of a proposal
to adopt an Agreement and Plan of Merger (the "Agreement") among Camden Property
Trust ("Camden"), a wholly-owned subsidiary of Camden ("Sub") and Paragon Group,
Inc. ("Paragon"), dated as of December 16, 1996. The Agreement provides for,
among other things, the merger of Paragon with and into Sub (the "Merger")
through a tax-free exchange of each share of Paragon Common Stock, $.01 par
value, for 0.64 common shares of beneficial interest of Camden, $.01 par value
(subject to increase at Camden's election to avoid termination of the Agreement
by Paragon, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus), whereby stockholders of Paragon will become shareholders
of Camden. Based on a Special Meeting date of April 15, 1997, if the average
closing price (the "Average Closing Price") of Camden Common Shares during the
period commencing on March 14, 1997 and ending on April 3, 1997 is less than
$25.67, at any time during the seven trading days beginning on April 4, 1997,
Paragon may give notice to Camden that it is electing to terminate the
Agreement. Camden then has the option during the three trading days commencing
with its receipt of such notice to increase the consideration to be paid to
Paragon stockholders by adjusting the Exchange Ratio to equal a number obtained
by dividing $16.43 by the Average Closing Price. If Camden elects to make the
adjustment, the Agreement (with the modified Exchange Ratio) will remain in
effect. To the extent that such three day time period would end on or after the
date of the Special Meeting, the parties anticipate adjourning their respective
Special Meetings until after the expiration of the three day period. Information
about the meeting and the various matters contemplated by the Agreement is
included in the Notice of Special Meeting and Joint Proxy Statement/Prospectus
which follow. Also included is a Proxy Card and postage-paid return envelope.
The Board of Directors of Paragon has carefully considered the terms and
conditions of the proposed Merger and has unanimously determined that the terms
of the Agreement and the transactions contemplated thereby are fair to Paragon's
stockholders from a financial point of view and are in the best interests of
Paragon's stockholders. In addition, the Board of Directors of Paragon has
received a written opinion of Merrill Lynch & Co. dated as of the date of the
Joint Proxy Statement/Prospectus that the Exchange Ratio (as defined in the
accompanying Joint Proxy Statement/Prospectus) is fair to the holders of Paragon
Common Stock from a financial point of view. Accordingly, the Board of Directors
of Paragon recommends that you vote FOR the proposal. See "RISK FACTORS" and
"THE MERGER--Background of and Reasons for the Merger--Paragon's Reasons for the
Merger" in the accompanying Joint Proxy Statement/Prospectus for a discussion of
the potential adverse effects of the merger.
The affirmative vote of two-thirds of the outstanding shares of Paragon
Common Stock entitled to vote at the Paragon Special Meeting is required in
order to approve the Agreement. No matter how many shares you own, please sign,
date and mail the enclosed Proxy Card in the return envelope provided or vote
via facsimile at (201)804-8693. YOUR VOTE IS IMPORTANT! Whether you attend the
meeting or not, please complete and return your Proxy Card as promptly as
possible. Should you have any questions or if you would like information on any
adjustments to the Exchange Ratio, please contact our proxy representative at
(800) 346-7885.
Sincerely,
William R. Cooper
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
PARAGON GROUP, INC.
7557 RAMBLER ROAD, SUITE 1200
DALLAS, TEXAS 75281
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, APRIL 15, 1997
You are cordially invited to attend a Special Meeting of Stockholders of
Paragon Group, Inc. ("Paragon") to be held on Tuesday, April 15, 1997, at 10:00
a.m., central time, at the Doubletree Hotel at Campbell Centre, Skyline Room,
8250 North Central Expressway, Dallas, Texas 75206 for the following purposes:
1. To approve and adopt the Agreement and Plan of Merger (the "Agreement")
among Camden Property Trust ("Camden"), Camden Subsidiary, Inc., a
wholly-owned subsidiary of Camden ("Sub") and Paragon, dated as of
December 16, 1996, pursuant to which: (i) Paragon will merge with and into
Sub; and (ii) each outstanding share of Paragon Common Stock, $.01 par
value, will be converted into the right to receive 0.64 (subject to
increase at Camden's election to avoid termination of the Agreement by
Paragon, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus) common shares of beneficial interest of Camden, $.01
par value ("Camden Common Shares"), with cash in lieu of fractional shares
and subject to adjustment under certain circumstances.
2. To approve the postponement or adjournment of the Special Meeting for the
solicitation of additional votes, if necessary.
3. To transact such other business as may properly come before such meeting
or any adjournments thereof.
Only stockholders of record at the close of business on February 24, 1997
will be entitled to vote at the meeting or any adjournments thereof. The
affirmative vote of two-thirds of the outstanding shares of Paragon Common Stock
entitled to vote at the Paragon Special Meeting is required in order to approve
the Agreement.
IF YOU ARE UNABLE TO BE PRESENT AT THE MEETING IN PERSON, PLEASE SIGN AND
DATE THE ENCLOSED PROXY WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE OR VOTE VIA FACSIMILE. FAILURE TO
RETURN YOUR PROPERLY EXECUTED PROXY OR TO VOTE AT THE MEETING WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
Jerry J. Bonner
Secretary
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
Camden Property Trust Special Meeting Paragon Group, Inc. Special Meeting
to be Held on April 15, 1997 to be Held on April 15, 1997
PROSPECTUS
CAMDEN PROPERTY TRUST
COMMON SHARES
This Joint Proxy Statement/Prospectus is being furnished to shareholders
of Camden Property Trust, a Texas real estate investment trust (together with
its subsidiaries, "Camden"), and stockholders of Paragon Group, Inc., a Maryland
corporation (together with its subsidiaries, "Paragon"), in connection with the
solicitation of proxies by the Board of Trust Managers of Camden (the "Camden
Board") for use at the Special Meeting of Shareholders of Camden (including any
adjournments or postponements thereof) (the "Camden Special Meeting") and by the
Board of Directors of Paragon (the "Paragon Board") for use at the Special
Meeting of Stockholders of Paragon (including any adjournments or postponements
thereof) (the "Paragon Special Meeting" and, together with the Camden Special
Meeting, the "Shareholder Meetings"), each to be held on Tuesday, April 15, 1997
at the time and place set forth in the accompanying notices.
The purpose of the Shareholder Meetings is to consider and vote upon an
Agreement and Plan of Merger, dated as of December 16, 1996 (the "Agreement"),
among Camden, Camden Subsidiary, Inc. ("Sub"), a Delaware corporation and a
wholly-owned subsidiary of Camden, and Paragon. The Agreement is attached to
this Joint Proxy Statement/Prospectus as ANNEX I.
The Agreement provides that Paragon would merge with and into Sub (the
"Merger," which term includes, where the context so indicates, the other
transactions contemplated by the Agreement). Upon consummation of the Merger,
each share of common stock, $.01 par value, of Paragon (the "Paragon Common
Stock") would be converted into the right to receive 0.64 (subject to increase
at Camden's election to avoid termination of the Agreement by Paragon, all as
more fully described herein) common shares of beneficial interest, $.01 par
value, of Camden (the "Camden Common Shares"), with cash in lieu of the issuance
of any fractional share interest. If the average closing price (the "Average
Closing Price") of Camden Common Shares during the period of 15 consecutive
trading days commencing on the twenty-second trading day prior to the date of
the Paragon Special Meeting (the "Pricing Period") is less than $25.67, at any
time during the seven trading days following the Pricing Period, Paragon may
give notice to Camden that it is electing to terminate the Agreement. Camden
then has the option during the three trading days commencing with its receipt of
such notice to increase the consideration to be paid to Paragon stockholders by
adjusting the Exchange Ratio to equal a number obtained by dividing $16.43 by
the Average Closing Price. If Camden elects to make the adjustment, the
Agreement (with the modified Exchange Ratio) will remain in effect. The
outstanding Camden Common Shares would remain outstanding as shares of Camden.
The Agreement also provides that two persons designated by Paragon would become
members of the Camden Board, filling vacancies created by increasing the size of
the Camden Board from five to seven trust managers. For information regarding
any adjustment to the Exchange Ratio, Camden shareholders should call
(800)922-6336 and Paragon stockholders should call (800)346-7885.
In connection with the Merger, the Second Amended and Restated Agreement
of Limited Partnership of Paragon Group, L.P., a Delaware limited partnership
("Paragon Operating Partnership"), will be amended and restated in its entirety
(as so amended, the "Operating Partnership Agreement"), which amendment and
restatement has been approved unanimously by the limited partners of Paragon
Operating Partnership.
Based on the closing price of Camden Common Shares on the New York Stock
Exchange (the "NYSE") of $27.625 per share on February 24, 1997, if the
Agreement is approved and the Merger is consummated, the total market value of
Camden would be approximately $727,633,080. Based on the number of shares of
Camden and Paragon outstanding on that date, approximately 36% of the shares of
Camden expected to be outstanding after the Merger would be issued to Paragon
stockholders. Based on the exchange ratio and the closing price of Camden Common
Shares on the NYSE on February 24, 1997, each Paragon stockholder would receive
in the Merger Camden Common Shares worth $17.68 for each share of Paragon Common
Stock owned on that date. For a description of the Agreement, see "THE MERGER."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Camden in respect of the Camden Common Shares to be issued to stockholders of
Paragon in connection with the Merger. The outstanding Camden Common Shares are,
and the shares offered hereby will be, listed on the NYSE and traded under the
symbol "CPT."
This Joint Proxy Statement/Prospectus and the accompanying proxy cards are
first being mailed to shareholders of Camden and stockholders of Paragon on or
about March 7, 1997.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is March 7, 1997.
<PAGE>
AVAILABLE INFORMATION
Both Camden and Paragon are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Camden and Paragon with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices at Suite 1400, 500 West Madison Street, Chicago, Illinois
60661 and Suite 1300, 7 World Trade Center, New York, New York 10048, and can
also be inspected and copied at the offices of the NYSE, 20 Broad Street, New
York, New York 10005. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the prescribed fees. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding Camden and Paragon and other registrants that have been filed
electronically with the Commission. The address of such site is
http://www.sec.gov.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST FROM THE OFFICE OF THE SECRETARY, CAMDEN
PROPERTY TRUST, 3200 SOUTHWEST FREEWAY, SUITE 1500, HOUSTON, TEXAS 77027
(TELEPHONE (713) 964-3555; FAX (713) 964-3599) AND THE OFFICE OF THE SECRETARY,
PARAGON GROUP, INC., 7557 RAMBLER ROAD, SUITE 1200, DALLAS, TEXAS 75231
(TELEPHONE (214) 891-2000; FAX (214) 891-2019). IN ORDER TO ALLOW ADEQUATE TIME
FOR DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 28, 1997.
This Joint Proxy Statement/Prospectus is part of a registration statement
on Form S-4 (together with all amendments and exhibits, the "Registration
Statement") filed by Camden with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Joint Proxy Statement/Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules of the
Commission. For further information, reference is made to the Registration
Statement.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Camden and its subsidiaries has been supplied by Camden, and all
information with respect to Paragon, its subsidiaries and Paragon Operating
Partnership has been supplied by Paragon.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES,
NOR DOES IT CONSTITUTE AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY
JURISDICTION TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
<PAGE>
TABLE OF CONTENTS
PAGE
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..............................1
SUMMARY........................................................................2
Parties to the Agreement.................................................2
Shareholder Meetings.....................................................2
Record Dates; Votes Required.............................................3
Recommendations..........................................................3
The Merger...............................................................5
Opinions of Financial Advisors...........................................5
Effective Time of the Merger.............................................5
Exchange Ratio...........................................................6
Management, Operations and Headquarters After the Merger.................6
Conditions to Consummation...............................................6
Anticipated Accounting Treatment.........................................7
Conduct of Business Pending the Merger...................................7
Interests of Certain Persons in the Merger...............................7
Federal Income Tax Consequences of the Merger............................7
Resales of Camden Common Shares..........................................7
Termination..............................................................8
Termination Fees.........................................................8
Other Related Transactions...............................................8
Dissenters' Rights.......................................................8
Differences in the Rights of Security Holders............................8
Sale of Properties.......................................................8
RISK FACTORS...................................................................9
Stock Price Fluctuations.................................................9
Effect of Market Interest Rates on Price of Camden Common Shares.........9
Benefits to Certain Directors and Officers of Paragon; Possible
Conflicts of Interest...............................................10
Loss of Rights by Paragon Stockholders..................................10
Termination Payments if Merger Fails to Occur...........................10
Real Estate Investment Risks............................................10
No Limitation on Amount of Debt that May be Incurred and Possible
Inability to Repay Debt.............................................11
Limited Control with Respect to Certain Properties......................11
Uninsured and Underinsured Losses Could Result in Loss of Value
of Property.........................................................12
Possible Environmental Liabilities......................................12
Costs of Compliance with Fair Housing Amendments Act and
Similar Laws........................................................12
Adverse Consequences of Failure to Qualify as a REIT....................13
Ownership Limits........................................................13
Consequences of Failure to Qualify Paragon Operating Partnership
as a Partnership....................................................13
Competition.............................................................14
Changes in Policies.....................................................14
EQUIVALENT PER SHARE DATA.....................................................15
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA............17
THE SPECIAL MEETINGS..........................................................23
Camden Special Meeting .................................................23
Paragon Special Meeting ................................................24
THE MERGER....................................................................25
Background of and Reasons for the Merger................................25
Opinions of Financial Advisors..........................................36
Exchange Ratio and Exchange for Camden Common Shares ...................46
Management and Operations After the Merger..............................47
Effective Time of the Merger............................................49
Headquarters ...........................................................49
Conditions to Consummation of the Merger................................49
Conduct of Business Pending the Merger..................................50
Extension, Waiver and Amendment; Termination............................52
Interests of Certain Persons in the Merger..............................53
Anticipated Accounting Treatment........................................55
Material Federal Income Tax Consequences................................55
Resales of Camden Common Shares.........................................55
<PAGE>
Registration Rights Agreement...........................................56
Other Related Transactions..............................................56
DISSENTERS' RIGHTS ...........................................................57
CAMDEN PROPERTY TRUST UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS...58
CAMDEN PROPERTY TRUST UNAUDITED PRO FORMA COMBINED BALANCE SHEET..............63
BUSINESS OF CAMDEN............................................................67
General.................................................................67
Operating Strategy......................................................67
Financial Strategy......................................................68
Markets and Competition.................................................69
Camden Portfolio Summary................................................70
BUSINESS OF PARAGON...........................................................72
General.................................................................72
Organizational Structure................................................72
Business Objectives and Strategy........................................72
Business Segments.......................................................73
Paragon Portfolio Summary...............................................75
COMPARATIVE RIGHTS OF SHAREHOLDERS............................................78
Capitalization..........................................................78
Voting Rights...........................................................78
Directors...............................................................78
Anti-Takeover Provisions................................................79
REIT Qualification Provisions...........................................80
Preemptive Rights.......................................................82
Assessment..............................................................82
Conversion; Redemption; Sinking Fund....................................82
Liquidation Rights......................................................82
Dividends and Other Distributions.......................................83
Shareholder Meetings....................................................83
Indemnification.........................................................83
Trust Manager and Director Liability....................................84
DESCRIPTION OF PARAGON OPERATING PARTNERSHIP..................................84
FEDERAL INCOME TAX CONSIDERATIONS.............................................85
Tax Considerations Relating to the Merger...............................86
Continuity of Interest Assumption.......................................86
Pre-Merger Dividends....................................................86
Taxation of Camden......................................................87
Requirements for Qualification..........................................88
Failure to Qualify......................................................91
Paragon Operating Partnership...........................................91
Taxation of Taxable U.S. Shareholders...................................93
Taxation of U.S. Shareholders on the Disposition of Common Stock........94
Capital Gains and Losses................................................94
Information Reporting Requirements and Backup Withholding...............94
Taxation of Tax-Exempt Shareholders.....................................95
Taxation of Non-U.S. Shareholders.......................................95
Other Tax Consequences..................................................96
EXPERTS.......................................................................97
LEGAL OPINIONS................................................................97
SHAREHOLDER PROPOSALS.........................................................97
OTHER MATTERS.................................................................97
Annex I -- Agreement and Plan of Merger
Annex II-A -- Opinion of PaineWebber Incorporated
Annex II-B -- Opinion of Merrill Lynch & Co.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents (File No. 1-12110) filed by Camden with the
Commission under the Exchange Act are hereby incorporated by reference in this
Joint Proxy Statement/Prospectus: (i) Camden's annual report on Form 10-K for
the year ended December 31, 1995; (ii) Camden's quarterly report on Form 10-Q
for the quarter ended March 31, 1996; (iii) Camden's quarterly report on Form
10-Q for the quarter ended June 30, 1996; (iv) Camden's quarterly report on Form
10-Q for the quarter ended September 30, 1996; (v) Camden's Current Report on
Form 8-K dated February 15, 1996; (vi) Camden's Current Report on Form 8-K dated
August 1, 1996; (vii) Camden's Current Report on Form 8-K dated October 10,
1996; (viii) Camden's Current Report on Form 8-K dated October 21, 1996; (ix)
Camden's Current Report on Form 8-K dated October 31, 1996; (x) Camden's Current
Report on Form 8-K dated November 19, 1996; (xi) Camden's Current Report on Form
8-K dated December 16, 1996; and (xii) the description of the Camden Common
Shares contained in Camden's registration statement on Form 8-A, filed under the
Exchange Act, including any amendment or reports filed for the purpose of
updating such description.
The following documents (File No.1-13220) filed by Paragon with the
Commission under the Exchange Act are hereby incorporated by reference in this
Joint Proxy Statement/Prospectus: (i) Paragon's annual report on Form 10-K for
the year ended December 31, 1995, as amended by Form 10-K/A filed on July 24,
1996; (ii) Paragon's quarterly report on Form 10-Q for the quarter ended March
31, 1996; (iii) Paragon's quarterly report on Form 10-Q for the quarter ended
June 30, 1996; (iv) Paragon's quarterly report on Form 10-Q for the quarter
ended September 30, 1996; (v) Paragon's Current Report on Form 8-K dated June 3,
1996; (vi) Paragon's Current Report on Form 8-K dated December 16, 1996; and
(vii) the description of the Paragon Common Stock contained in Paragon's
registration statement on Form 8-A filed under the Exchange Act, including any
amendment or reports filed for the purpose of updating such description.
All documents filed by Camden and Paragon pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the Shareholder Meetings shall
be deemed to be incorporated by reference herein. Also incorporated by reference
herein is the Agreement, which is attached to this Joint Proxy
Statement/Prospectus as ANNEX I.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein, or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
1
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING CAMDEN, PARAGON, PARAGON OPERATING PARTNERSHIP AND THE
MATTERS TO BE CONSIDERED AT THE SHAREHOLDER MEETINGS AND IS QUALIFIED IN ALL
RESPECTS BY THE INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS, THE ANNEXES HERETO AND THE DOCUMENTS
REFERRED TO HEREIN.
PARTIES TO THE AGREEMENT
CAMDEN. Camden is a self-administered and self-managed Texas real estate
investment trust (a "REIT") engaged in the acquisition, renovation,
construction, development and management of multifamily properties. As of
September 30, 1996, Camden owned and operated 49 multifamily properties located
in Houston, Dallas/Fort Worth, Austin, Corpus Christi, El Paso, Phoenix and
Tucson (the "Camden Operating Properties") containing 17,855 apartment units.
The Camden Operating Properties had a weighted average occupancy rate of 94.5%
for the quarter ended September 30, 1996. Camden also owns four properties that
it is developing (the "Camden Development Properties") in Houston, Dallas and
Phoenix, which will, when completed, add 1,510 units to its portfolio, and
intends to begin construction in the future on two properties (the "Camden
Future Development Properties" and, collectively with the Camden Operating
Properties and the Camden Development Properties, the "Camden Properties"),
which Camden anticipates will, when completed, add 448 units.
Camden's principal executive offices are located at 3200 Southwest
Freeway, Suite 1500, Houston, Texas 77027, and its telephone number is (713)
964-3555. For further information concerning Camden, see "BUSINESS OF CAMDEN."
PARAGON. Paragon, a Maryland corporation, is a fully integrated REIT
headquartered in Dallas, Texas whose business is the operation, development and
acquisition of multifamily residential communities in the Southwest, Midwest,
Carolina and Florida markets. Paragon is a self-administered and self-managed
REIT that, as of September 30, 1996, owned (either directly or through interests
in other entities) interests in 57 multifamily residential communities totalling
15,882 apartment units (the "Paragon Residential Properties") located in six
states, with three additional multifamily communities, totaling 856 residential
units, currently under construction (collectively, with the Paragon Residential
Properties, the "Paragon Properties"). Paragon also has indirect minority
ownership interests in three commercial properties, including a 20% interest in
a 401,625 square foot office building. In addition, as of September 30, 1996,
Paragon, through Paragon Residential Services, Inc. ("PRSI"), managed 78
multifamily residential communities (including the Paragon Residential
Properties) located across the United States, containing approximately 21,774
apartment units.
Paragon conducts substantially all of its business through Paragon
Operating Partnership, which Paragon 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 Paragon
Operating Partnership, and Paragon Group LP Holdings, Inc. ("Paragon LP
Holdings"), the holder of 79.1% of the units of limited partnership ("Units") in
Paragon Operating Partnership. The other limited partners of Paragon Operating
Partnership include entities controlled by Paragon executive officers and other
prior owners of interests in the Paragon Properties and other assets owned by
Paragon Operating Partnership. The Units are redeemable for cash or, at the
election of Paragon, shares of Paragon Common Stock on the basis of one Unit for
one share.
The principal executive offices of Paragon are located at 7557 Rambler
Road, Suite 1200, Dallas, Texas 75231, and its telephone number is (214)
891-2000. For further information concerning Paragon, see "BUSINESS OF PARAGON."
SHAREHOLDER MEETINGS
CAMDEN. The Camden Special Meeting will be held on Tuesday, April 15, 1997
at 10:00 a.m., Central Standard Time, at The Ritz Carlton Hotel, 1919 Briar Oaks
Lane, Houston, Texas. The purpose of the Camden Special Meeting is to consider
and vote upon a proposal to approve the Agreement and the issuance of Camden
Common Shares pursuant thereto.
PARAGON. The Paragon Special Meeting will be held on Tuesday, April 15,
1997 at 10:00 a.m., Central Standard Time, at the Doubletree Hotel at Campbell
Centre, 8250 North Central Expressway, Dallas, Texas. The purpose of the Paragon
Special Meeting is to consider and vote upon a proposal to approve the
Agreement. See "THE SPECIAL MEETINGS."
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RECORD DATES; VOTES REQUIRED
CAMDEN. Only holders of Camden Common Shares of record at the close of
business on February 24, 1997 (the "Camden Record Date") will be entitled to
vote at the Camden Special Meeting. The Agreement will be approved if it
receives the affirmative vote of a majority of the votes cast at the Camden
Special Meeting if a quorum is present or represented by proxy. The holders of a
majority of the Camden Common Shares entitled to vote, present in person or by
proxy, will constitute a quorum for purposes of the Camden Special Meeting. The
vote of a majority of the votes cast at the Camden Special Meeting, whether or
not a quorum is present, is necessary to approve the proposal which would allow
Camden to postpone or adjourn the Camden Special Meeting to solicit additional
votes. As of the Camden Record Date, there were 16,689,879 Camden Common Shares
outstanding and entitled to vote.
The members of the Camden Board and executive officers of Camden and their
affiliates are deemed to beneficially own, as of the Camden Record Date,
1,107,190 shares or approximately 6.4% of the outstanding Camden Common Shares
(including 479,000 shares issuable as of the Camden Record Date upon the
exercise of vested options). Concurrently with the execution of the Agreement,
certain members of the Camden Board and certain executive officers of Camden
entered into a voting agreement (the "Camden Voting Agreement") pursuant to
which such persons, representing 576,458 shares or approximately 3.5% of the
outstanding Camden Common Shares as of the Camden Record Date, agreed to vote
their Camden Common Shares then owned or thereafter acquired in favor of the
Merger. See "THE SPECIAL MEETINGS -- Camden Special Meeting."
PARAGON. Only holders of Paragon Common Stock of record at the close of
business on February 24, 1997 (the "Paragon Record Date" and, together with the
Camden Record Date, the "Record Dates") will be entitled to vote at the Paragon
Special Meeting. The affirmative vote of the holders of two-thirds of the shares
of Paragon Common Stock outstanding and entitled to vote is required to approve
the Agreement. The holders of a majority of the Paragon Common Stock entitled to
vote, present in person or by proxy, will constitute a quorum for purposes of
the Paragon Special Meeting. The vote of a majority of the votes cast at the
Paragon Special Meeting, whether or not a quorum is present, is necessary to
approve the proposal which would allow Paragon to postpone or adjourn the
Paragon Special Meeting to solicit additional votes. As of the Paragon Record
Date, there were 14,791,165 shares of Paragon Common Stock outstanding and
entitled to vote.
The members of the Paragon Board and executive officers of Paragon and
their affiliates beneficially owned, as of the Paragon Record Date, 1,306,622
shares or approximately 8.8% of the outstanding shares of Paragon Common Stock
(excluding 3,053,718 shares issuable upon conversion of Units into Paragon
Common Stock). Concurrently with the execution of the Agreement, certain members
of the Paragon Board and certain executive officers of Paragon entered into a
voting agreement (the "Paragon Voting Agreement") pursuant to which such
persons, representing 1,207,140 shares or approximately 8.2% of the outstanding
shares of Paragon Common Stock as of the Paragon Record Date, agreed to vote
their shares of Paragon Common Stock then owned or thereafter acquired in favor
of the Merger. See "THE SPECIAL MEETINGS -- Paragon Special Meeting."
RECOMMENDATIONS
The Boards of both Camden and Paragon have unanimously approved and
adopted the Agreement and each Board recommends a vote FOR approval of the
Agreement. Additionally, the Board of Directors of Paragon GP Holdings has
unanimously approved and adopted the form of Operating Partnership Agreement.
The approval of the Operating Partnership Agreement is not subject to the vote
of the shareholders of Camden or the stockholders of Paragon. See "THE SPECIAL
MEETINGS" and "THE MERGER."
In determining to recommend the Merger, the Camden Board considered the
following expected benefits from the Merger: (i) its potential for accretion to
Camden's funds from operations per share ("FFO"), (ii) increased size and
increased liquidity in Camden Common Shares and related improvement in access to
equity and debt capital, (iii) elimination of redundant activities in the
combined organization and the resulting savings in costs and expenses, (iv)
increased market share in certain Southwestern markets and entry into new
Southeastern and Midwestern growth markets, (v) increased geographic
diversification of Camden's post-Merger portfolio, (vi) access to Paragon's
development experience in other markets and increased development opportunities,
(vii) favorable positioning for future portfolio acquisitions and (viii) the
opinion of Camden's financial advisor that the Exchange Ratio (as defined below)
is fair to Camden from a financial point of view. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") to mean net income
(computed in
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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. Adjusted FFO ("AFFO") is FFO minus a normalized
charge for nonrevenue enhancing capital expenditures. Neither FFO nor AFFO
represent cash flows from operating activities as defined by GAAP and should not
be considered as an alternative to net income as an indication of Camden's
operating performance. See "THE MERGER -- Background of and Reasons for the
Merger -- Camden's Reasons for the Merger."
The Camden Board also considered the following potential adverse
consequences of the Merger: (i) expansion into a new region and new markets with
which Camden has little prior experience, (ii) the potential current imbalance
between supply of and demand for apartments in certain of these new markets,
(iii) the potential difficulties of integrating Paragon's property management
employees into Camden, (iv) the higher risk associated with increased
development activities, (v) increased debt to market capitalization and
encumbrances of assets, (vi) the significant costs involved in connection with
consummating the Merger, (vii) the substantial time and effort of Camden
management required to effectuate the Merger, integrate the business of Paragon
into Camden, and manage the increased and more diverse property portfolio, and
(viii) the risk that the anticipated benefits of the Merger might not be fully
realized. The Camden Board believes that the benefits and advantages of the
Merger far outweigh the negative factors and risks.
If the Merger is not consummated for any reason, Camden will return to
executing its strategic objective of being a major or even dominant apartment
owner in the larger markets in the Southwest. To the extent such opportunities
are available, it would likely consider other potential combinations with public
or private apartment owners that the Camden Board and management believe add
value and enhance the future earnings of Camden and otherwise are in the best
interests of Camden's shareholders.
In determining to recommend the Merger, the Paragon Board considered
the following factors which were material to its decision to approve the Merger:
(i) the improved access of the combined entity to the equity and debt capital
markets, (ii) the Paragon Board's determination that the Merger with Camden
represented the best available alternative for enhancing long-term Paragon
stockholder value, (iii) the expected operating efficiencies and cost savings
from the Merger, (iv) the Merger's potential to be accretive to Camden's FFO per
share in 1997 through 2001, (v) the economic terms of the Agreement, including
the Exchange Ratio and the 40.1% equity interest in the combined entity on a
fully diluted basis to be received by Paragon's stockholders, (vi) the other
terms and conditions of the Agreement, including the ability of the Paragon
Board to pursue an unsolicited superior competing transaction should its
fiduciary duties so require, (vii) the structure of the Merger as a
"stock-for-stock" rather than a "cash-for-stock" transaction, (viii) the similar
size and focus of the two companies, as well as the greater geographic
diversification provided by the Merger, (ix) benefits for the combined entity's
shareholders from the larger company, including increased liquidity as a result
of the larger total market capitalization of the combined entity, and (x) the
opinion of Paragon's financial advisor that the Exchange Ratio (as defined
below) was fair to the holders of shares of Paragon Common Stock from a
financial point of view. See "THE MERGER -- Background of and Reasons for the
Merger -- Paragon's Reasons for the Merger."
The Paragon Board also considered the following potential adverse
consequences of the Merger: (i) because the Exchange Ratio is fixed, a decline
in the value of Camden Common Shares would reduce the value of the consideration
to be received by Paragon stockholders in the Merger, (ii) the indicated annual
dividend per share of Paragon Common Stock following the Merger is expected to
decline from its current level of $1.86 to $1.22, a 34.6% reduction, (iii) the
various conditions to Camden's obligation to consummate the Merger,(iv) many
long-time corporate-level employees of Paragon will not continue to be employed
by the combined entity following the Merger, (v) the risk that the anticipated
benefits of the Merger may not be realized, (vi) the fact that under the terms
of the Agreement, Paragon and its directors, officers, employees, agents and
representatives are prohibited from initiating, soliciting or encouraging any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, a transaction which would compete with the Merger, except
if the Paragon Board determines in good faith after consultation with outside
legal counsel that it is required by its fiduciary obligations to do so, and
(vii) the leverage of the combined entity would be greater than Camden's
existing leverage and its coverage ratios would be lower than Camden's current
coverage ratios. In the view of the Paragon Board, the potentially negative
factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors considered by the Paragon Board
in its deliberations relating to the Merger.
If the Merger is not consummated for any reason, Paragon will continue to
pursue its business objectives of maximizing the value of its properties and
reducing overhead to increase its net cash flow. Paragon also would seek to
reduce the amount of its indebtedness through potential sales of properties and
improved cash flow. In addition, Paragon may seek
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another strategic combination. However, despite these measures, the Paragon
Board in all likelihood would decide to reduce Paragon's current dividend rate
substantially so that Paragon's AFFO would cover its dividends.
THE MERGER
The Agreement provides for a merger of Paragon with and into Sub, a
wholly-owned subsidiary of Camden. At the Effective Time of the Merger (as
hereinafter defined), each outstanding share of Paragon Common Stock would be
converted into the right to receive 0.64 Camden Common Shares (subject to
increase at Camden's election to avoid termination of the Agreement by Paragon),
with cash in lieu of the issuance of any fractional share interest. See "THE
MERGER -- Exchange Ratio and Exchange for Camden Common Shares."
OPINIONS OF FINANCIAL ADVISORS
CAMDEN. Camden received the oral opinion of PaineWebber Incorporated
("PaineWebber") at the meeting of the Camden Board on December 16, 1996, which
was confirmed in writing on December 20, 1996, and which was again confirmed in
writing on the date of this Joint Proxy Statement/Prospectus, that, as of the
respective dates of such opinions, the Exchange Ratio (as defined below) was
fair to Camden from a financial point of view.
PaineWebber is an investment banking and financial advisory firm and
continually is engaged in the valuation of businesses and their securities in
connection with private placements, mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, and valuations for
corporate purposes, especially with respect to REITs and other real estate
companies. Camden selected PaineWebber to serve as a financial advisor with
respect to the Merger because of its reputation and substantial experience in
transactions such as the Merger and PaineWebber's familiarity with Camden and
its operations.
Camden has agreed to pay PaineWebber a fee, a portion of which is
contingent upon consummation of the Merger, and to indemnify PaineWebber against
certain liabilities, including liabilities under the federal securities laws.
For additional information concerning PaineWebber and its opinion, see "THE
MERGER -- Opinions of Financial Advisors" and PaineWebber's opinion, dated as of
March 7, 1997, attached hereto as ANNEX II-A. The opinion of PaineWebber
should be read in its entirety with respect to the assumptions made, matters
considered and limits of the reviews undertaken by PaineWebber in rendering its
opinion.
PARAGON. Paragon received the written opinion of Merrill Lynch & Co.
("Merrill Lynch") at the meeting of the Paragon Board on December 16, 1996,
which was confirmed in writing on the date of this Joint Proxy
Statement/Prospectus, that, as of the respective dates of such opinions, the
Exchange Ratio (as defined below) was fair to holders of Paragon Common Stock
from a financial point of view.
Merrill Lynch is an internationally-recognized investment banking firm and
continually is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings and secondary distributions of listed and unlisted securities, and
valuations for estate, corporate and other purposes. Paragon selected Merrill
Lynch as its financial advisor because of Merrill Lynch's reputation and
substantial experience in transactions such as the Merger and Merrill Lynch's
familiarity with Paragon and its business.
Paragon has agreed to pay Merrill Lynch certain fees, to reimburse Merrill
Lynch for certain of its reasonable out-of-pocket expenses and to indemnify
Merrill Lynch against certain liabilities, including liabilities under the
federal securities laws. For additional information concerning Merrill Lynch and
its opinion, see "THE MERGER -- Opinions of Financial Advisors" and Merrill
Lynch's opinion, dated as of March 7, 1997, attached hereto as ANNEX II-B.
EFFECTIVE TIME OF THE MERGER
As soon as practicable after satisfaction of all conditions to
consummation of the Merger (see "THE MERGER -- Conditions to Consummation of the
Merger"), the parties will file a certificate of merger with the Delaware
Secretary of State and articles of merger with the State Department of
Assessments and Taxation of Maryland. For state law purposes, the Merger will
become effective upon the later of filing of a certificate of merger with the
Delaware Secretary of State in
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accordance with the Delaware General Corporation Law (the "DGCL") and issuance
of a certificate of merger by the State Department of Assessments and Taxation
of Maryland in accordance with the Maryland General Corporation Law (the
"MGCL"), or at such later time which Camden, Sub and Paragon shall have agreed
upon and designated in such filings in accordance with applicable law (the
"Effective Time"). For all other purposes, the Merger will be effective as of
April 1, 1997. Paragon and Camden each has the right, acting unilaterally so
long as it has not willfully and materially breached the Agreement, to terminate
the Agreement should the Merger not be consummated by the close of business on
June 30, 1997. See "THE MERGER -- Extension, Waiver and Amendment; Termination."
EXCHANGE RATIO
At the Effective Time of the Merger, each outstanding share of Paragon
Common Stock would be converted into the right to receive 0.64 Camden Common
Shares (subject to increase at Camden's election to avoid termination of the
Agreement by Paragon) (the "Exchange Ratio"), with cash in lieu of the issuance
of any fractional share interest. Additionally, after the Effective Time,
holders of Paragon Operating Partnership Units will have the right to redeem
their Units for Camden Common Shares or the cash equivalent thereof at the
option of Camden. See "THE MERGER -- Exchange Ratio and Exchange for Camden
Common Shares."
If the Average Closing Price of Camden Common Shares during the Pricing
Period is less than $25.67, at any time during the seven trading days following
the Pricing Period, Paragon may give notice to Camden that it is electing to
terminate the Agreement. During the three trading days commencing with receipt
of the notice, Camden may increase the consideration to be paid to Paragon
stockholders by adjusting the Exchange Ratio to equal a number obtained by
dividing $16.43 by the Average Closing Price. If Camden elects to make the
adjustment, the Agreement (with the modified Exchange Ratio) will remain in
effect.
Based on the Exchange Ratio and the 14,791,165 shares of Paragon Common
Stock outstanding on February 24, 1997, Camden would issue a total of 9,466,346
Camden Common Shares in the Merger. Based on the closing price of Camden Common
Shares on the NYSE on February 24, 1997 of $27.625 per share, the total market
value of Camden would be approximately $727,633,080. Based on the Exchange Ratio
and the number of Camden Common Shares and shares of Paragon Common Stock
outstanding on that date, approximately 36% of the shares expected to be
outstanding after the Effective Time of the Merger would be held by Paragon
stockholders.
MANAGEMENT, OPERATIONS AND HEADQUARTERS AFTER THE MERGER
Following the Merger, the Camden Board would consist of seven persons,
consisting of the five current Camden trust managers and two current Paragon
directors, William R. Cooper and Lewis A. Levey.
Richard J. Campo, the current Chairman of the Board and Chief Executive
Officer of Camden, would continue to be Chairman of the Board and Chief
Executive Officer of Camden. Brian F. Lavin, the current President-Residential
Group of Paragon, would become Senior Vice President-Asset Management of Camden.
The remaining executive officers of Camden would consist of the seven current
Camden executive officers. See "THE MERGER -- Management and Operations After
the Merger."
Upon consummation of the Merger and the adoption of the Operating
Partnership Agreement, management and control of Paragon Operating Partnership
will be vested in CPT-GP, Inc. (formerly Paragon GP Holdings), a wholly owned
subsidiary of Sub, which will serve as sole general partner.
Following the Merger, the headquarters of Camden would be located in
Houston, Texas at the current headquarters of Camden.
On a pro forma basis assuming completion of the Merger as of the Record
Date, members of the Camden Board and executive officers of Camden and their
affiliates would have been deemed to own 1,468,978 shares or approximately 5.5%
of the outstanding Camden Common Shares (excluding 1,168,690 shares issuable
upon the conversion of Paragon Operating Partnership Units into Camden Common
Shares and including 479,000 shares issuable upon the exercise of vested
options).
CONDITIONS TO CONSUMMATION
Consummation of the Merger is subject to satisfaction or waiver of certain
conditions, including, among other things, obtaining the requisite approval of
the shareholders of Camden and the stockholders of Paragon, and receipt by
Camden and Paragon of opinions of their respective counsel that the Merger will
qualify as a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"). See "THE MERGER -- Conditions to
Consummation of the Merger."
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ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method in accordance
with Accounting Principles Board Opinion No. 16. See "THE MERGER -- Anticipated
Accounting Treatment."
CONDUCT OF BUSINESS PENDING THE MERGER
Each of Camden and Paragon has agreed in the Agreement to operate its
business in the ordinary course and to refrain from taking certain actions
relating to the operation of its business pending consummation of the Merger
without the prior approval of the other party, except as otherwise permitted by
the Agreement. See "THE MERGER -- Conduct of Business Pending the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Paragon's management, as well as certain members of the
Paragon Board, have interests in the Merger in addition to their interests as
stockholders of Paragon. These include, among other things, provisions in the
Agreement relating to employment by Camden following the Merger, indemnification
and eligibility for and receipt of certain Camden employee benefits, and
entitlements under current Paragon employment agreements and employee benefit
plans that are triggered by the Merger. See "THE MERGER -- Interests of Certain
Persons in the Merger."
Pursuant to the Agreement, prior to the Effective Time, Camden will enter
into a registration rights agreement whereby Camden will agree to file (i)
within five days thereof a shelf registration statement, and use its best
efforts to cause such registration statement to be declared effective by the
Commission as soon as practicable, to permit the resale of Camden Common Shares
issued upon redemption of Paragon Operating Partnership Units, and (ii) within
45 days thereof a shelf registration statement (but with no obligation to cause
such registration statement to be declared effective prior to 90 days after the
Effective Time) to permit the resale of Camden Common Shares held by certain
persons who are affiliates of Paragon (the "Registration Rights Agreement"). See
"THE MERGER--Registration Rights Agreement."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization as defined
in Section 368(a) of the Code, with the result that Paragon stockholders will
not recognize gain or loss on the exchange of Paragon Common Stock for Camden
Common Shares except with respect to the receipt of cash in lieu of fractional
share interests (and the receipt of any Pre-Merger Dividends, as defined
herein). See "FEDERAL INCOME TAX CONSIDERATIONS -- Pre-Merger Dividend." A
condition to consummation of the Merger is the receipt by each of Camden and
Paragon of an opinion of counsel as to the qualification of the Merger as a
tax-free reorganization and certain other federal income tax matters. In
addition, counsel to Camden will provide to Camden and Paragon an opinion
regarding the continued qualification of Camden as a REIT after giving effect to
the Merger. Camden will also be provided an opinion of counsel to Paragon as to
the classification of Paragon Operating Partnership as a partnership for federal
income tax purposes. See "THE MERGER -- Conditions to Consummation of the
Merger" and " -- Material Federal Income Tax Consequences."
RESALES OF CAMDEN COMMON SHARES
Camden Common Shares received in the Merger will be freely transferable by
the holders thereof except for those shares held by holders who may be deemed to
be "affiliates" (generally including trust managers, directors, certain
executive officers and ten percent or more shareholders) of Paragon or Camden
under applicable federal securities laws. Paragon has agreed to use its best
efforts to cause the two current Paragon directors who will be named to the
Camden Board to execute "lock-up" agreements by which dispositions of Camden
Common Shares by such persons will be generally prohibited during the 90 days
following the Effective Date of the Merger, and it is a condition to Camden's
obligation to consummate the Merger that Camden receive the written agreements
of certain "affiliates" of Paragon that they will not dispose of Camden Common
Shares received by them in the Merger except in compliance with the Securities
Act. See "THE MERGER -- Resales of Camden Common Shares."
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TERMINATION
The Agreement provides that it may be terminated at any time prior to the
Effective Time, whether before or after the approval of the Agreement by the
shareholders of Camden and stockholders of Paragon, under certain circumstances.
See "THE MERGER--Extension, Waiver and Amendment; Termination."
TERMINATION FEES
The Agreement provides for the payment by Paragon of a termination fee up
to $10,000,000 if the Merger is terminated by Paragon or Camden under certain
circumstances, or reimbursement of expenses of up to $1,500,000 if the Merger is
terminated by Paragon or Camden under other circumstances. The Agreement also
provides for the reimbursement of expenses by Camden of up to $1,500,000 if the
Merger is terminated by Paragon or Camden under certain circumstances.
See "THE MERGER--Extension, Waiver and Amendment; Termination."
OTHER RELATED TRANSACTIONS
Upon consummation of the Merger, Paragon Operating Partnership will adopt
the Operating Partnership Agreement, which has been approved unanimously by the
limited partners of Paragon Operating Partnership. See "DESCRIPTION OF PARAGON
OPERATING PARTNERSHIP."
Simultaneously with the execution of the Agreement, Apartment Connection,
Inc. ("ACI"), a non-qualified REIT subsidiary of Camden, and Texas Paragon
Management Partners L.P. ("TPMP"), a partnership controlled by certain current
and former executive officers of Paragon, entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement" ) providing for the sale by TPMP of
all of the issued and outstanding voting stock of PRSI owned by TPMP to ACI or
an entity designated by ACI for a purchase price of $98,750 in cash. PRSI, which
conducts Paragon's residential property services business, is an affiliate of
Paragon in which Paragon Operating Partnership owns 95% of the economic
interest, with the remaining 5% owned by TPMP.
Immediately prior to the Effective Time, in satisfaction of certain
obligations of PRSI to Paragon Operating Partnership, PRSI will sell to Paragon
Operating Partnership 79,500 shares of Paragon Common Stock owned by PRSI.
DISSENTERS' RIGHTS
Neither holders of Camden Common Shares nor holders of Paragon Common
Stock will have statutory rights to appraisal of their shares. See "DISSENTERS'
RIGHTS."
DIFFERENCES IN THE RIGHTS OF SECURITY HOLDERS
Certain differences in Texas law, Camden's Amended and Restated
Declaration of Trust, as amended to date (the "Camden Declaration of Trust"),
and Camden's Bylaws may reduce certain existing rights of Paragon stockholders,
including loss of certain protections under Maryland law relating to
anti-takeover measures. See "COMPARATIVE RIGHTS OF SHAREHOLDERS."
SALE OF PROPERTIES
Camden, in the ordinary course of business, occasionally sells properties
in support of its continuing objective of improving the performance of its
portfolio, and will continue to review its current properties and the properties
acquired from Paragon for the purpose of targeting for disposition certain
properties which either are no longer in target marketplaces or are not meeting
its portfolio performance expectations. The proceeds from such sales will be
used for debt reduction, new developments and property acquisitions. No sales or
dispositions of Camden's or Paragon's properties are currently contemplated.
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RISK FACTORS
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS MAY INCLUDE FORWARD- LOOKING STATEMENTS WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH STATEMENTS CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL,"
"EXPECT," "ANTICIPATE," "ESTIMATE", "PROJECT" OR "CONTINUE" OR THE NEGATIVE
THEREOF OR OTHER COMPARABLE TERMINOLOGY. THE FOLLOWING MATTERS AND CERTAIN OTHER
FACTORS NOTED THROUGHOUT THIS JOINT PROXY STATEMENT/PROSPECTUS AND ANY DOCUMENTS
INCORPORATED BY REFERENCE HEREIN OR THEREIN AND EXHIBITS HERETO AND THERETO
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO
ANY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES,
THAT COULD CAUSE CAMDEN'S OR PARAGON'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE PREDICTED IN ANY SUCH FORWARD-LOOKING STATEMENTS.
In considering whether to approve the Agreement, Camden shareholders and
Paragon stockholders should carefully consider, in addition to the other
information in this Joint Proxy Statement/Prospectus, the following matters:
STOCK PRICE FLUCTUATIONS
The relative stock prices of the Camden Common Shares and the Paragon
Common Stock at the Effective Time of the Merger may vary significantly from the
prices as of the date of execution of the Agreement, the date hereof or the date
on which shareholders vote on the Agreement due to changes in the business,
operations and prospects of Camden or Paragon, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, general
market and economic conditions and other factors.
The Exchange Ratio was fixed at 0.64 at the time of execution of the
Agreement by the parties and is subject to adjustment only at the election of
Camden following receipt of notice of termination from Paragon arising from a
decrease in the average closing price of Camden Common Shares below $25.67 per
share during the Pricing Period. There can be no assurances that Paragon will
choose to proceed with the transaction in the event that the price of Camden
Common Shares falls below this floor. In determining whether to proceed, it is
expected that the Paragon Board would consider all of the facts and
circumstances as they exist at the time, paying particular attention to the
following material factors: (i) current industry, economic and market
conditions; (ii) the relative financial performance, condition, business
operations and prospects of Paragon and Camden; (iii) the likelihood that the
anticipated benefits of the Merger would be realized; (iv) the cause of the
decline in the price of Camden Common Shares; and (v) the recent stock price
performance of other multi-family residential REITS compared to Camden. In the
event that the Paragon Board elects to terminate the transaction after
evaluating these factors, there can be no assurances that the Camden Board would
elect to adjust the Exchange Ratio thereby permitting the Merger to proceed. It
is expected that the Camden Board would consider all the facts and circumstances
as they exist at the time, focusing on material factors such as (i) current
industry, economic and market conditions; (ii) the relative financial
performance, condition, business operations and prospects of Paragon and Camden;
and (iii) the likelihood that the anticipated benefits of the Merger would be
realized. Only in the event of a material adverse change in the Exchange Ratio
will the Paragon stockholders or the Camden shareholders, as applicable, be
resolicited. See "THE MERGER -- Extension, Waiver and Amendment; Termination."
Any increase or decrease of the market price of the Camden Common Shares
will correspondingly increase or decrease the total amount of merger
consideration to be received by Paragon stockholders pursuant to the Merger.
Further, there can be no assurances as to the trading volume or price of
the Camden Common Shares after the Merger. Events outside the control of Camden
which would adversely affect the market value of Camden's assets, as well as the
market value of the Camden Common Shares, may occur during the period from the
date of this Joint Proxy Statement/Prospectus to the date the Merger is
consummated or thereafter. All of the Camden Common Shares to be issued to
Paragon stockholders other than affiliates of Paragon in connection with the
Merger will be freely tradeable. Sales of a substantial number of Camden Common
Shares by current Paragon stockholders following the consummation of the Merger,
or the perception that such sales could occur, could adversely affect the market
price for Camden Common Shares after the Merger.
EFFECT OF MARKET INTEREST RATES ON PRICE OF CAMDEN COMMON SHARES
An increase in market interest rates may lead prospective purchasers of
Camden Common Shares to demand a higher anticipated annual yield from future
dividends. Such an increase in the required anticipated dividend yield may
adversely affect the market price of the Camden Common Shares.
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BENEFITS TO CERTAIN DIRECTORS AND OFFICERS OF PARAGON; POSSIBLE CONFLICTS OF
INTEREST
In considering the recommendation of the Paragon Board with respect to the
Agreement and the transactions contemplated thereby, Paragon stockholders should
be aware that certain members of the Paragon Board and management of Paragon
have certain interests in the Merger that are in addition to the interests of
stockholders of Paragon generally. See "THE MERGER -- Interests of Certain
Persons in the Merger." No special procedures were put in place to resolve any
conflicts resulting from these interests. However, the Paragon Board was aware
of these interests and was aware of their potential and considered them, among
other matters, in approving the Agreement and the transactions contemplated
thereby.
LOSS OF RIGHTS BY PARAGON STOCKHOLDERS
The rights of the holders of Paragon Common Stock are presently governed
by Maryland law, the Articles of Incorporation of Paragon (the "Paragon
Articles") and Paragon's Bylaws. After consummation of the Merger, the rights of
the holders of shares of Paragon Common Stock that are converted into Camden
Common Shares will be governed by Texas law, the Camden Declaration of Trust and
Camden's Bylaws. Certain differences may reduce certain existing rights of
Paragon stockholders, including the loss of certain protections under Maryland
law relating to anti-takeover measures for which Texas law does not provide
similar protections. See "COMPARATIVE RIGHTS OF SHAREHOLDERS."
TERMINATION PAYMENTS IF MERGER FAILS TO OCCUR
No assurance can be given that the Merger will be consummated. The
Agreement provides for the payment by Paragon of a termination fee of up to
$10,000,000 if the Merger is terminated by Paragon or Camden under certain
circumstances, or reimbursement of expenses of up to $1,500,000 if the Merger is
terminated by Paragon or Camden under other circumstances. The Agreement also
provides for the reimbursement of expenses by Camden of up to $1,500,000 if the
Merger is terminated by Paragon or Camden under certain circumstances.
The obligation to make such payment may adversely affect the ability of
Paragon or Camden to engage in another transaction in the event the Merger is
not consummated and may have an adverse impact on the financial condition of the
company incurring such obligation. See "THE MERGER -- Extension, Waiver and
Amendment; Termination."
REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
The yields from equity investments in real estate depend on the amount of income
generated and expenses incurred. If Camden's properties do not generate income
sufficient to meet operating expenses, debt service and capital expenditures,
Camden's ability to make distributions to its shareholders will be adversely
affected. Income from properties may be adversely affected by the general
economic climate, local conditions such as oversupply of apartments or a
reduction in demand for apartments in the area, the attractiveness of the
properties to residents, competition from other available apartments, inability
to collect rent from residents, changes in market rental rates, the need to
periodically repair, renovate and relet space, and the ability of the owner to
pay for adequate maintenance and insurance and increased operating costs
(including real estate taxes). Camden's income also would be adversely affected
if a significant number of residents were unable to pay rent or apartments could
not be rented on favorable terms. Certain significant expenditures associated
with each equity investment (such as mortgage payments, if any, real estate
taxes and maintenance costs) are generally not reduced when circumstances cause
a reduction in income from the investment. If a property is mortgaged to secure
payment of indebtedness, and if Camden is unable to meet its mortgage payments,
a loss could be sustained as a result of foreclosure on the mortgage. In
addition, income from properties and real estate values also are affected by
such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
Camden, in the normal course of its business, is continually evaluating a
number of potential acquisitions and entering into non-binding letters of intent
and may at any time or from time to time enter into contracts to acquire and may
acquire additional properties. No assurance can be given, however, that Camden
will have the opportunity to continue to make suitable property acquisitions on
terms favorable to Camden.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively
illiquid and, therefore, will tend to limit the ability of Camden to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, the Code places limits on a REIT'S ability to sell properties held for
fewer than four years, which may affect Camden's ability to sell properties
without adversely affecting returns to shareholders.
10
<PAGE>
DEPENDENCE ON GEOGRAPHICAL REGIONS. The developed properties in Camden's
current portfolio are located in the Southwestern United States and consist of
multifamily properties. Certain properties in Paragon's portfolio, to which
Camden will succeed as a result of the Merger, are located in the Southeastern
region of the United States, as well as in the Southwestern and Midwest regions
of the United States, and also consist of multifamily properties. A decline in
the economic conditions in those regions and in the market for apartments
therein may have an adverse impact on the performance of the portfolio of either
party, and the performance of Camden's portfolio following the Merger.
ACQUISITION RISKS. Assuming consummation of the Merger, Camden will have
increased its portfolio of apartment units owned from 19,633 at September 30,
1996 to 35,364 at the Effective Time (assuming the completion of certain
dispositions of properties by Camden and Paragon as more fully described in
"BUSINESS OF CAMDEN" and "BUSINESS OF PARAGON" herein), an increase of 80.1%.
Several of the properties acquired by Camden from Paragon are in markets where
Camden has not historically managed properties. Due primarily to the number and
relative geographic diversity of its properties after the Merger, Camden may not
have adequate management or other personnel or adequate systems or other
resources to manage its portfolio or its properties to the same level of
efficiency after the Merger, which could adversely affect operations and result
in less cash available for distributions to shareholders. Additionally, one of
the anticipated benefits of the Merger is the elimination of redundant
activities in the combined organization and the resulting savings in costs and
expenses. An inability to achieve these savings could adversely affect the
operating results and financial performance of Camden after the Merger.
DEVELOPMENT RISKS. As a result of the Merger, Camden will obtain ownership
of Paragon's development properties. Camden will be subject to the risks of real
estate development with respect to such development properties, including risks
of lack of financing, construction delays, budget overruns and lease-up. Camden
will be subject to similar risks in connection with any future development of
other properties.
NO LIMITATION ON AMOUNT OF DEBT THAT MAY BE INCURRED AND POSSIBLE INABILITY TO
REPAY DEBT
NO LIMITATION ON DEBT AND INCREASED INDEBTEDNESS. Camden intends to adhere
to a policy of maintaining a debt-to- total-market-capitalization ratio of less
than 50%. However, the organizational documents of Camden do not limit the
amount or percentage of indebtedness that it may incur. Therefore, the Camden
Board may change this policy without shareholder approval. Accordingly, Camden
could become more leveraged, resulting in an increased risk of default on its
obligations and in an increase in its debt service requirements, both of which
could adversely affect the financial condition of Camden.
Camden has maintained on a quarterly basis a financial structure with
no more than 40% total debt to total market capitalization since July 1993. Any
increase in Camden's total debt to total market capitalization as a result of
Camden's assumption of Paragon's debt pursuant to the Merger may have an adverse
affect on the ability of Camden to meet its current obligations. Additionally,
an increase in Camden's total debt to total market capitalization may adversely
affect Camden's ability to access debt as well as equity capital markets in the
future due to the resulting decreased ability to service debt.
DEBT FINANCING AND EXISTING DEBT MATURITIES. Camden is subject to the
risks normally associated with debt financing, including the risk that Camden's
FFO might be insufficient to meet required payments of principal and interest,
the risk that existing indebtedness on its properties (which in all cases will
not have been fully amortized at maturity) might not be able to be refinanced or
that the terms of such refinancing might not be as favorable as the terms of the
existing indebtedness.
LIMITED CONTROL WITH RESPECT TO CERTAIN PROPERTIES
With respect to certain of the Paragon Properties, Paragon has invested
through a joint venture, partnership or limited liability company in which
Paragon owns less than a 100% interest and is subject to certain consent rights
of the partners with respect to major decisions affecting such properties.
Although Paragon Operating Partnership has control of major decisions relating
to most of these partially owned properties, it has certain fiduciary
responsibilities to the other partners in those partnerships that it will need
to consider when making decisions that affect those properties.
After completion of the Merger, the foregoing may result in decisions with
respect to such properties that do not fully reflect the interest of Camden and
its shareholders at such time, and may include decisions relating to the
standards that Camden is required to satisfy in order to maintain its status as
a REIT for tax purposes. Further, Camden will acquire interests
11
<PAGE>
in some properties which Camden may be contractually restricted from selling
without the consent of certain unrelated parties.
UNINSURED AND UNDERINSURED LOSSES COULD RESULT IN LOSS OF VALUE OF PROPERTY
Camden carries comprehensive liability, fire, flood, extended coverage and
rental loss insurance with respect to its properties and its management believes
such coverage is of the type and amount customarily obtained for or by an owner
of real property assets. Similar coverage will be obtained for properties
acquired in the future. However, there are certain types of losses, generally of
a catastrophic nature, such as losses from floods or earthquakes, that may be
uninsurable or not economically insurable. The Camden Board exercises its
discretion in determining amounts, coverage limits and deductibility provisions
of insurance, with a view to maintaining appropriate insurance on Camden's
investments at a reasonable cost and on suitable terms. This may result in
insurance coverage that in the event of a substantial loss would not be
sufficient to pay the full current market value or current replacement cost of
Camden's lost investment. Inflation, changes in building codes and ordinances,
environmental considerations and other factors also might make it infeasible to
use insurance proceeds to replace the property after such property has been
damaged or destroyed.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations,
an owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. All of the properties
of Camden and Paragon have been subjected to Phase I or similar environmental
audits (which involve inspection without soil sampling or ground water analysis)
by independent environmental consultants. Neither party's environmental audit
reports have revealed any significant environmental liability, nor is Camden or
Paragon aware of any environmental liability with respect to its properties that
Camden's or Paragon's management believes would have a material adverse effect
on Camden's business, assets or results of operations following the Merger. No
assurance can be given that existing environmental studies with respect to such
properties reveal all environmental liabilities or that any prior owner of any
such property did not create any material environmental condition not known to
Camden or Paragon.
COSTS OF COMPLIANCE WITH FAIR HOUSING AMENDMENTS ACT AND SIMILAR LAWS
A number of federal, state and local laws exist which may require
modifications to the properties owned by Camden or restrict certain further
renovations thereof, with respect to access thereto by disabled persons. The
Fair Housing Amendments Act (the "FHA") imposes certain requirements related to
access by physically handicapped persons on multifamily properties first
occupied after March 13, 1991 or for which construction permits were obtained
after June 15, 1990. Noncompliance with the FHA could result in the imposition
of fines or the award of damages to private litigants. Camden believes that the
Camden Properties and the Paragon Properties that are subject to the FHA are in
compliance with such law.
The Americans with Disabilities Act of 1990 (the "ADA") requires public
accommodations to meet certain federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Compliance with
the ADA could require removal of structural barriers to handicapped access in
certain public areas of properties owned by Camden where such removal is readily
achievable. The ADA does not, however, consider residential properties, such as
multifamily properties, to be public accommodations or commercial facilities,
except to the extent portions of such facilities are open to the public. Final
regulations under the ADA have not yet been promulgated. Failure to comply with
the ADA could result in an imposition of fines or the award of damages to
private litigants. If required changes involve greater expenditures than Camden
currently anticipates, or if the changes must be made on a more accelerated
basis than it anticipates, Camden's ability to make expected distributions could
be adversely affected. Camden believes that its competitors face similar costs
in complying with the requirements of the ADA.
Additional and future legislation may impose other burdens or restrictions
on owners with respect to access by disabled persons. The ultimate costs of
complying with the FHA, ADA and other similar legislation are not currently
ascertainable and, while such costs are not expected to have a material effect
on Camden, such costs could be substantial. Limitations or
12
<PAGE>
restrictions on the completion of certain renovations may limit application of
Camden's investment strategy in certain instances or reduce overall returns on
Camden's investments.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Camden believes that it has operated so as to qualify as a REIT under the
Code since its formation. Although management of Camden believes that Camden is
organized and is operating in such a manner, no assurance can be given that
Camden will be able to continue to operate in a manner so as to qualify or
remain so qualified. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations and the determination of various factual
matters and circumstances not entirely within Camden's control. For example, in
order to qualify as a REIT, at least 95% of Camden's gross income in any year
must be derived from qualifying sources and Camden must make distributions to
shareholders aggregating annually at least 95% of its REIT taxable income
(excluding net capital gains). In addition, no assurance can be given that new
legislation, regulations, administrative interpretations or court decisions will
not change the tax laws with respect to qualification as a REIT or the federal
income tax consequences of such qualification. Camden, however, is not aware of
any currently pending tax legislation that would adversely affect its ability to
continue to qualify as a REIT.
For any taxable year that Camden fails to qualify as a REIT, Camden will
be subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at corporate rates. In addition, unless entitled to
relief under certain statutory provisions, Camden also will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of Camden
available for investment or distribution to shareholders because of the
additional tax liability to Camden for the year or years involved. In addition,
distributions no longer would be required to be made. To the extent that
distributions to shareholders would have been made in anticipation of Camden's
qualifying as a REIT, Camden might be required to borrow funds or to liquidate
certain of its investments to pay the applicable tax.
Paragon believes that, since its formation, it has operated so as to
qualify as a REIT under the Code. The failure of Paragon to qualify as a REIT
could have consequences generally similar to the consequences of the failure by
Camden to qualify as a REIT, as described above. Under certain circumstances,
Camden's qualification as a REIT following the Merger could depend on Paragon's
qualification as a REIT for periods prior to the Merger, and in any event, the
liabilities that Camden will assume in the Merger would include Paragon's
liability for any unpaid taxes, including taxes resulting if Paragon failed to
qualify as a REIT for any period prior to the Merger.
OWNERSHIP LIMITS
In order to maintain Camden's qualification as a REIT, not more than 50%
in value of its outstanding shares may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities). To
minimize the possibility that Camden will fail to qualify as a REIT under this
test, the Camden Declaration of Trust authorizes the Camden Board to take such
action as may be required to preserve its qualification as a REIT. Moreover, the
Camden Declaration of Trust, subject to certain exceptions, provides that no
holder may own, or be deemed to own, more than 9.8% of the total outstanding
capital stock of Camden. The Paragon Articles contain a similar limitation on
the ownership of Paragon capital stock. See "COMPARATIVE RIGHTS OF SHAREHOLDERS
- -- REIT Qualification Provisions."
These ownership limits, as well as the ability of Camden to issue other
classes of equity securities, may delay, defer or prevent a change in control of
Camden and may also deter tender offers for the Camden Common Shares, which
offers may be attractive to the shareholders, or limit the opportunity of
shareholders to receive a premium for their Camden Common Shares that might
otherwise exist if an investor were attempting to effect a change in control of
Camden. See also "COMPARATIVE RIGHTS OF SHAREHOLDERS -- Anti-takeover
Provisions."
CONSEQUENCES OF FAILURE TO QUALIFY PARAGON OPERATING PARTNERSHIP AS A
PARTNERSHIP
Camden and Paragon have received opinions of counsel to Paragon that
Paragon Operating Partnership is properly treated as a partnership for federal
income tax purposes. If the Internal Revenue Service were to challenge
successfully the tax status of Paragon Operating Partnership as a partnership
for federal income tax purposes, Paragon Operating Partnership would be taxable
as a corporation. In such event, since the value of either Paragon's ownership
interest in Paragon Operating Partnership prior to the Merger or Camden's
ownership interest in Paragon Operating Partnership after the Merger could
13
<PAGE>
exceed 5% of the value of its assets, Paragon, or Camden after the Merger, could
cease to qualify as a REIT. The same consequence could follow from a
determination that the affected REIT owned more than 10% of the voting stock of
Paragon Operating Partnership when treated as a corporation. In addition, the
imposition of a corporate tax on Paragon Operating Partnership would likely
reduce the cash available for distribution to shareholders. See "FEDERAL INCOME
TAX CONSIDERATIONS."
COMPETITION
All of the properties of Camden and Paragon are located in developed
areas. There are numerous other multifamily properties and real estate companies
within the market area of each such property which compete with Camden and
Paragon and will continue to compete with Camden after the Merger for residents
and development and acquisition opportunities, some of whom may have greater
resources than Camden. The number of competitive multifamily properties and real
estate companies in such areas could have a material effect on Camden's ability
to rent its apartments, its ability to raise or maintain the rents charged and
its development and acquisition opportunities.
CHANGES IN POLICIES
The major policies of Camden, including its policies with respect to
acquisitions, financings, growth, operations, development, debt capitalization
and distributions, are determined by the Camden Board. The Camden Board may from
time to time amend or revise these and other policies without a vote of the
shareholders of Camden. Accordingly, shareholders will have no control over
changes in these and similar policies of Camden, and changes in Camden's
policies may not fully serve the interest of all shareholders.
14
<PAGE>
EQUIVALENT PER SHARE DATA
The following summary presents selected comparative unaudited per share
information for Camden and Paragon on a historical basis and Camden and Paragon
on a pro forma combined basis assuming the combination had been effective
throughout the periods presented. Paragon pro forma equivalent per share amounts
are presented with respect to pro forma information. Such per share amounts
allow comparison of historical information with respect to the value of one
share of Paragon Common Stock to the corresponding information with respect to
the projected value of one share of Paragon Common Stock as a result of the
Merger and are computed by multiplying the pro forma amounts by the Exchange
Ratio.
For each of Camden and Paragon, income statement information for the year
ended December 31, 1995 and balance sheet information as of December 31, 1995
are based on, and should be read in conjunction with, the consolidated audited
financial statements of Camden and Paragon incorporated herein by reference. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." The remaining financial
information is based on the respective historical consolidated unaudited
financial statements of Camden and Paragon and the notes thereto. In the opinion
of the respective managements of Camden and Paragon, all adjustments necessary
to present a fair statement of results of interim periods of Camden and Paragon
(which adjustments were of a normal recurring nature) have been included.
Results for Camden and Paragon for the nine months ended September 30, 1996 are
not necessarily indicative of results to be expected for their entire fiscal
years, nor are pro forma amounts necessarily indicative of results that will be
obtained on a combined basis.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
NET INCOME PER COMMON SHARE
Primary (A)
Camden $ .31 $ .85
Paragon .79 .68
Camden and Paragon pro forma combined 0.66 1.18
Paragon pro forma equivalent (B) 0.42 0.76
CASH DIVIDENDS DECLARED PER COMMON SHARE
Camden $1.425 $ 1.84
Paragon 1.395 1.86
Camden and Paragon pro forma combined 1.425 1.84
Paragon pro forma equivalent (B) .912 1.18
SHAREHOLDERS' EQUITY (BOOK VALUE) PER
COMMON SHARE (end of period)
Camden $17.40 $18.45
Paragon 11.60 12.07
Camden and Paragon pro forma combined 21.22
Paragon pro forma equivalent (B) 13.58
15
<PAGE>
The following table presents the weighted average shares outstanding relevant
to the calculation of primary and fully-diluted net income per share as shown in
the preceding table.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(000s) (000s)
PRIMARY (A)
Camden ..................................... 14,573 14,424
Paragon .................................... 14,791 14,698
Camden and Paragon pro forma combined ...... 24,039 23,890
NOTE:
(A) Fully-diluted net income per common share is not dilutive and
therefore not presented herein.
(B) The Paragon pro forma equivalent is determined by multiplying the
Exchange Ratio (0.64) by the Camden and Paragon pro forma combined per
share amounts so that the per share amounts are equated to the comparative
values for each share of Paragon Common Stock.
MARKET PRICES PRIOR TO ANNOUNCEMENT OF THE MERGER
The following table discloses the price per share of Camden Common Shares
and Paragon Common Stock based on the last reported sale prices per share on the
NYSE on December 16, 1996, the last trading day prior to public announcement of
the execution of the Agreement, and on March 6, 1997, the most recent date for
which prices are available prior to mailing this Joint Proxy
Statement/Prospectus.
PRICE PER SHARE
---------------------------------------------------
PARAGON
HISTORICAL PRO FORMA EQUIVALENT (a)
------------------------- ------------------------
CAMDEN PARAGON
----------- -----------
December 16, 1996 ......... $ 28.625 $ 16.375 $ 18.32
March 6, 1997 ............. $ 27.75 $ 17.625 $ 17.76
- --------------
(a) Computed by multiplying the last sale price of Camden Common Shares by the
Exchange Ratio.
16
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following tables set forth the summary historical financial data for
Camden and the unaudited pro forma combined financial data for Camden and
Paragon as a combined entity, giving effect to the Merger as if it had occurred
on the dates indicated herein, after giving effect to the pro forma adjustments
and further adjustments described in the notes to the unaudited pro forma
combined financial statements appearing elsewhere in the Joint Proxy
Statement/Prospectus. The summary historical operating, balance sheet and cash
flow data for each of the years ended December 31, 1991, 1992, 1993, 1994 and
1995 are derived from the audited financial statements of Camden as reported in
their Annual Reports on Form 10-K and the summary historical operating, balance
sheet and cash flow data for each of the interim periods ended September 30,
1996 and 1995 are derived from the unaudited financial statements of Camden as
reported in their Quarterly Reports on Form 10-Q.
The unaudited pro forma combined operating and other data are presented as
if the Merger had been consummated at the beginning of each period presented.
The unaudited pro forma combined balance sheet data at September 30, 1996 is
presented as if the Merger had occurred on September 30, 1996. In the opinion of
management, all adjustments necessary to reflect the effects of these
transactions have been made. The Merger has been accounted for under the
purchase method of accounting in accordance with the Accounting Principles Board
Opinion No. 16.
The pro forma financial information should be read in conjunction with,
and are qualified in their entirety by, the respective historical audited
financial statements and notes thereto of Camden and Paragon incorporated by
reference into this Joint Proxy Statement/Prospectus and the unaudited pro forma
financial statements and notes thereto appearing elsewhere in the Joint Proxy
Statement/Prospectus.
The unaudited pro forma operating data and other data are presented for
comparative purposes only and are not necessarily indicative of what the actual
combined results of operations of Camden and Paragon would have been for the
periods presented, nor does such data purport to represent the results of future
periods.
17
<PAGE>
CAMDEN PROPERTY TRUST
SUMMARY HISTORICAL AND
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(In thousands, except per share and property data amounts)
<TABLE>
<CAPTION>
Camden Property Trust
-----------------------------------------------------------------------------------------
July 29 to
Nine Months Ended September 30, Years Ended December 31, December 31,
------------------------------------- ----------------------------------- ---------
Pro Forma Pro Forma
1996 1996 1995 1995 1995 1994 1993
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Revenues:
Rental income ...................... $ 146,095 $ 78,167 $ 67,409 $ 172,711 $ 92,275 $ 71,468 $ 16,785
Other income ....................... 11,222 4,422 3,722 13,128 4,999 3,988 782
----------- --------- --------- --------- --------- --------- ---------
Total revenues ................... 157,317 82,589 71,131 185,839 97,274 75,456 17,567
Expenses:
Property operating and maintenance . 60,127 30,356 26,850 69,412 37,093 29,352 6,907
Real estate taxes .................. 16,523 9,905 8,836 18,833 11,481 8,962 1,910
General and administrative ......... 6,265 1,938 1,625 6,631 2,263 2,574 291
Interest ........................... 26,111 12,984 9,794 26,532 13,843 8,807 1,340
Depreciation and amortization ...... 32,772 17,447 14,885 40,695 20,264 16,239 3,572
Minority interest in consolidated
partnerships .................... 65 -- -- 114 -- -- --
----------- --------- --------- --------- --------- --------- ---------
Total expenses ............. 141,863 72,630 61,990 162,217 84,944 65,934 14,020
----------- --------- --------- --------- --------- --------- ---------
Income before impairment loss, gain
(loss) on sales, extinguishment of
hedges and minority interest
of unitholders ..................... 15,454 9,959 9,141 23,622 12,330 9,522 3,547
Impairment loss on real estate held for
sale ............................... (1,143) -- -- -- -- -- --
Gain (Loss) on sales of properties
or business ........................ 12,718 (55) -- 12,752 -- -- --
Extinguishment of hedges upon debt
refinancing ........................ (5,351) (5,351) -- -- -- -- --
Minority interest of unitholders in
Operating Partnership .............. (3,382) -- -- (4,737) -- -- --
----------- --------- --------- --------- --------- --------- ---------
Net income (loss) ...................... 18,296 4,553 9,141 31,637 12,330 9,522 3,547
Preferred share dividends .............. (4) (4) (29) (39) (39) (20) --
----------- --------- --------- --------- --------- --------- ---------
Net income to common shareholders ...... $ 18,292 $ 4,549 $ 9,112 $ 31,598 $ 12,291 $ 9,502 $ 3,547
=========== ========= ========= ========= ========= ========= =========
Net income per common and common
equivalent share ................... $ 0.71 $ 0.31 $ 0.63 $ 1.23 $ 0.85 $ 0.77 $ 0.39
Distributions per common share ......... $ 1.425 $ 1.425 $ 1.38 $ 1.84 $ 1.84 $ 1.76 $ 0.68
Weighted average number of common
and common equivalent shares
outstanding ........................ 25,913 14,573 14,408 25,764 14,424 12,311 9,114
Balance Sheet Data (at end of period)
Real estate assets ..................... $ 1,272,984 $ 639,526 $ 584,870 -- $ 607,598 $ 510,324 $ 296,545
Accumulated depreciation ............... (51,321) (51,321) (31,619) -- (36,800) (17,731) (3,388)
Total assets ........................... 1,251,201 601,388 566,289 -- 582,352 504,284 304,345
Notes payable .......................... 544,418 273,659 217,490 -- 235,459 149,547 111,513
Series A Preferred Shares .............. -- -- 1,950 -- 1,950 1,950 1,950
Shareholders'/Partners' Equity ......... 562,259 258,596 271,083 -- 267,829 277,604 175,984
Common shares outstanding .............. 26,206 14,866 14,513 -- 14,514 14,273 9,162
Other Data
Cash flows provided by (used in)
Operating activities ............... -- $ 23,580 $ 27,774 -- $ 37,594 $ 33,560 $ 16,554
Investing activities ............... -- (33,930) (74,370) -- (97,003) (198,087) (237,346)
Financing activities ............... -- 12,044 48,077 -- 59,404 159,388 226,171
Funds from operations (a) .............. -- 26,720 23,229 -- 31,629 25,741 7,119
Funds from operations assuming
conversions of convertible
securities ......................... -- 29,261 25,995 -- 35,260 28,604 7,119
</TABLE>
Camden Predecessors
---------------------------------
January 1
to July 28, Years Ended December 31,
-------- ---------------------
1993 1992 1991
-------- --------- --------
Operating Data
Revenues:
Rental income ....................... $ 16,721 $ 20,645 $ 10,828
Other income ........................ 900 988 251
-------- --------- --------
Total revenues .................... 17,621 21,633 11,079
Expenses:
Property operating and maintenance .. 7,380 9,426 5,571
Real estate taxes ................... 1,989 2,560 1,430
General and administrative .......... 343 503 181
Interest ............................ 4,364 5,840 3,546
Depreciation and amortization ....... 3,045 4,037 2,268
Minority interest in consolidated
partnerships .....................
-------- --------- --------
Total expenses .............. 17,121 22,366 12,996
-------- --------- --------
Income before impairment loss, gain
(loss) on sales, extinguishment of
hedges and minority interest
of unitholders ...................... 500 (733) (1,917)
Impairment loss on real estate held for
sale ................................ -- -- --
Gain (Loss) on sales of properties
or business ......................... -- -- --
Extinguishment of hedges upon debt
refinancing ......................... -- -- --
Minority interest of unitholders in
Operating Partnership ............... -- -- --
-------- --------- --------
Net income (loss) ....................... $ 500 $ (733) $ (1,917)
======== ========= ========
Balance Sheet Data (at end of period)
Real estate assets ...................... -- $ 141,391 $ 62,852
Accumulated depreciation ................ -- (6,735) (3,198)
Total assets ............................ -- 149,500 62,322
Notes payable ........................... -- 102,201 38,592
Series A Preferred Shares ............... -- -- --
Shareholders'/Partners' Equity .......... -- 41,209 21,012
Common shares outstanding ............... -- -- --
Other Data
Cash flows provided by (used in)
Operating activities ................ $ 1,942 $ 4,289 $ 733
Investing activities ................ (4,297) (79,064) (19,814)
Financing activities ................ 1,073 75,630 19,029
Funds from operations (a) ............... 3,545 3,304 351
Funds from operations assuming
conversions of convertible securities 3,545 3,304 351
18
<PAGE>
<TABLE>
<CAPTION>
Camden Property Trust
-------------------------------------------------------------------
September 30, December 31,
--------------------------- ---------------------------
July 29 to
Pro Forma Pro Forma December 31,
1996 1996 1995 1995 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Data
Number of operating properties
(at end of period) ........................ 103 49 50 103 50 48 32
Number of operating units
(at end of period) ........................ 32,949 17,855 16,742 31,561 16,742 15,783 11,064
Number of operating units
(weighted average) ........................ -- 17,219 16,208 -- 16,412 13,694 7,935
Weighted average monthly revenue per unit ..... $ -- $ 533 $ 488 $ -- $ 494 $ 459 $ 434
Properties under development (at end of period) 6 4 7 -- 9 8 3
</TABLE>
Camden Predecessors
------------------------
December 31,
---------------
January 1 to
July 28,
1993 1992 1991
------- ------ ------
Property Data
Number of operating properties
(at end of period) ........................ 17 16 9
Number of operating units
(at end of period) ........................ 6,040 5,836 2,680
Number of operating units
(weighted average) ........................ 5,996 4,479 2,507
Weighted average monthly revenue per unit ..... $ 426 $ 402 $ 368
Properties under development (at end of period) -- 1 --
(a) Management considers FFO to be an appropriate measure of the performance of
an equity REIT. NAREIT currently defines FFO as net income (computed in
accordance with generally accepted accounting principles), excluding gains (or
loss) 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 required the add back of non-real
estate depreciation and amortization, such as loan cost amortization. Camden has
reported FFO according to the definitions proscribed by NAREIT for each of the
periods presented above. FFO does not represent cash flows from operating
activities as defined by GAAP and should not be considered as an alternative to
net income as an indicator of Camden's operating performance. FFO is not a
measure of liquidity, nor is it indicative of cash available to fund other cash
flow needs, including principal amortization, capital improvements and
distributions to shareholders. Further, FFO as disclosed by other REITs may not
be comparable to Camden's calculation of FFO.
19
<PAGE>
PARAGON GROUP, INC.
SUMMARY HISTORICAL FINANCIAL DATA
(In thousands, except per share and property data amounts)
<TABLE>
<CAPTION>
Paragon Group, Inc.
---------------------------------------------------
Nine Months Ended
September 30, July 27 to
----------------------- Year Ended December 31,
1995, December 31, 1994,
1996 as Restated (1) 1995 as Restated (1)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING DATA
Rental .......................... $ 67,928 $ 59,099 $ 80,437 $ 32,099
Property management and
leasing services .............. 8,276 16,141 22,296 9,821
Other income .................... 3,681 3,226 4,835 2,792
--------- --------- --------- ---------
Total revenues ................ 79,885 78,466 107,568 44,712
Operating expenses (before
depreciation and amortization) 45,857 44,269 60,075 24,798
Depreciation and amortization ... 14,606 12,659 18,561 7,019
Interest expense ................ 16,379 12,159 17,011 6,448
Reorganization costs (2) ........ -- -- -- 7,796
Gain on sale of commercial
property services business .... 11,930 -- -- --
Income (loss) before
extraordinary items ........... 11,718 7,822 10,063 (825)
Net extraordinary items (3) ..... -- -- -- 1,636
Net income ...................... $ 11,718 $ 7,822 $ 10,063 $ 811
Per share data:
Income (loss) before
extraordinary items ......... $ 0.79 $ 0.53 $ 0.68 $ (0.06)
Net income .................... $ 0.79 $ 0.53 $ 0.68 $ 0.06
Dividend declared per
common share outstanding (4) $ 1.395 $ 1.395 $ 1.86 $ 0.795
Weighted average common shares
outstanding ................. 14,791 14,697 14,698 14,514
BALANCE SHEET DATA
Real Estate, net of
accumulated depreciation ...... $ 486,782 $ 439,997 $ 505,034 $ 411,777
Total assets .................... 529,525 470,724 539,611 442,548
Mortgages and notes payable ..... 287,648 218,453 293,780 182,056
Stockholders' equity (deficit) .. 171,566 183,105 178,466 193,434
OTHER DATA
Cash flows provided by (used in):
Operating activities .......... $ 25,064 $ 28,929 $ 36,522 $ 11,098
Investing activities .......... (19,691) (41,972) (103,366) (192,477)
Financing activities .......... (8,169) 11,463 67,514 179,509
Funds from operation (5)....... 20,089 23,873 32,553 15,020
PROPERTY DATA (6)
Total Residential Properties (end
of period) .................... 54 49 53 49
Total Apartment Units
(end of period) ............... 15,094 13,240 14,818 13,240
Total Commercial Properties
(end of period) ............... 6 6 6 4
Weighted Average Monthly
Residential Rate per
Apartment Unit for
Residential Properties ........ $ 525 $ 507 $ 512 $ 488
Weighted Average Occupancy
for Residential Properties .... 93.3% 93.7% 93.6% 93.6%
Paragon Predecessors
-------------------------------------------------
Years Ended
January 1 to December 31,
July 26, -------------------------------------
1994 1993 1992 1991
-------- --------- --------- ---------
OPERATING DATA
Rental .......................... $ 39,018 $ 66,848 $ 60,984 $ 58,167
Property management and
leasing services .............. 13,875 24,900 24,541 23,913
Other income .................... 4,049 5,104 4,435 4,646
-------- --------- --------- ---------
Total revenues ................ 56,942 96,852 89,960 86,726
Operating expenses (before
depreciation and amortization) 33,375 52,560 51,300 48,852
Depreciation and amortization ... 6,499 11,321 10,747 11,844
Interest expense ................ 14,858 26,713 27,793 27,057
Reorganization costs (2) ........ -- -- -- --
Gain on sale of commercial
property services business .... -- -- -- --
Income (loss) before
extraordinary items ........... 2,639 6,871 277 661
Net extraordinary items (3) ..... 1,776 9,092 965 --
Net income ...................... $ 4,415 $ 15,963 $ 1,242 $ 661
Per share data:
Income (loss) before
extraordinary items ........... -- -- -- --
Net income .................... -- -- -- --
Dividend declared per
common share outstanding (4) .. -- -- -- --
Weighted average common shares
outstanding ................... -- -- -- --
BALANCE SHEET DATA
Real Estate, net of
accumulated depreciation ...... -- $ 245,523 $ 252,660 $ 242,599
Total assets .................... -- 262,953 266,242 256,903
Mortgages and notes payable ..... -- 267,650 274,174 264,739
Stockholders' equity (deficit) .. -- (40,031) (42,726) (40,985)
OTHER DATA
Cash flows provided by (used in):
Operating activities .......... $ 11,995 $ 18,630 $ 12,269 $ 15,979
Investing activities .......... (3,140) (3,585) (20,731) (4,658)
Financing activities .......... (5,927) (14,285) 7,342 (11,421)
Funds from operation (5)......... 9,739 19,228 11,918 13,231
PROPERTY DATA (6)
Total Residential Properties (end
of period) .................... -- 48 47 43
Total Apartment Units
(end of period) ............... -- 12,833 12,547 11,607
Total Commercial Properties
(end of period) ............... -- 4 4 4
Weighted Average Monthly
Residential Rate per
Apartment Unit for
Residential Properties ........ -- $ 474 $ 461 $ 448
Weighted Average Occupancy
for Residential Properties .... -- 93.8% 92.4% 90.7%
</TABLE>
20
<PAGE>
(1) In the fourth quarter of 1995, Paragon changed its method of accounting
for its investment in its property services subsidiary from the cost
method to consolidation. The financial statements for the nine months
ended September 30, 1995 and the period from July 27 through December 31,
1994 have been restated to reflect this accounting change.
(2) Reorganization costs represents non-recurring costs, principally legal,
accounting and other costs, incurred in connection with the formation of
Paragon.
(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 interests.
(4) The dividend paid by Paragon for the partial quarter ended September 30,
1994 was $.33 per share. During 1995, Paragon paid quarterly dividends,
with respect to the fourth quarter of 1994 through the third quarter of
1995, of $.465 per share. During 1996, Paragon 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, Paragon declared a dividend
with respect to the fourth quarter of 1996, of $.465 per share.
(5) FFO is defined by NAREIT to mean net income, computed in accordance with
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.
Paragon 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 Paragon's operating performance and is not indicative of cash
available to fund all cash flow needs, including principle amortization,
capital improvements and distributions to stockholders. Further, FFO as
disclosed by other REIT's may not be comparable to Paragon's calculation
of FFO. The following table represents Paragon's calculation of FFO (in
thousands):
<TABLE>
<CAPTION>
Paragon Group, Inc.
------------------------------------------------------------
Nine Months Ended
September 30, July 27 to
---------------------------- Year Ended December 31,
1995, December 31, 1994,
1996 as Restated (1) 1995 as Restated (1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income ...................... $ 11,718 $ 7,822 $ 10,063 $ 811
Adjustments to net income:
Minority interests in income .... 2,838 2,025 2,612 (207)
Minority interests in cash flow.. (162) (212) (287) (147)
Reorganization costs incurred
in connection with the
formation of Paragon ............ -- -- -- 7,796
Impairment loss on real
estate held for sale ............ 1,143 -- -- --
Gain on sale of property ........ -- -- -- --
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)
Real estate depreciation/
amortization .................... 13,212 11,169 15,377 6,357
Non-real estate depreciation/
amortization .................... -- -- -- 180
Real estate depreciation/
amortization from unconsolidated
ventures ........................ 620 379 542 180
Deferred loan cost amortization
included in interest expense .... -- -- -- 602
Paragon Predecessors
------------------------------------------------------------
Years Ended
December 31,
January 1 to --------------------------------------------
July 26,
1994 1993 1992 1991
------------ ------------ ------------ ------------
Net income ...................... $ 4,415 $ 15,963 $ 1,242 $ 661
Adjustments to net income:
Minority interests in income .... -- -- -- --
Minority interests in cash flow.. -- -- -- --
Reorganization costs incurred
in connection with the
formation of Paragon ............ -- -- --
Impairment loss on real
estate held for sale ............ -- -- -- --
Gain on sale of property ........ -- (136) (3) --
Gain on sale of commercial
property services business ...... -- -- -- --
Post-Measurement Date FFO
from commercial property
services business ............... -- -- --
Extraordinary items, net of
minority interests .............. (1,776) (9,092) (965) --
Real estate depreciation/
amortization .................... 6,200 10,771 10,201 10,993
Non-real estate depreciation/
amortization .................... 299 550 546 851
Real estate depreciation/
amortization from unconsolidated
ventures ........................ 110 -- -- --
Deferred loan cost amortization
included in interest expense .... 472 1,219 800 735
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Paragon Group, Inc. Paragon Predecessors
------------------------------------------------ -----------------------------------------------
Nine Months Ended Years Ended
September 30, July 27 to December 31,
----------------------- Year Ended December 31,January 1 to-----------------------------------
1995, December 31, 1994, July 26,
1996 as Restated (1) 1995 as Restated (1) 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amortization of management
and leasing contracts .......... 531 841 2,231 482 -- -- -- --
Grants/amortization of
employee restricted stock ...... 1,445 1,296 1,462 577 -- -- -- --
Other cash reorganization
expenses ....................... -- 553 553 -- -- -- -- --
Adjustment for straight
- -lining of rents ............... -- -- -- 25 19 (47) 97 (9)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Funds from Operations .......... $ 20,089 $ 23,853 $ 32,553 $ 15,020 $ 9,739 $ 19,228 $ 11,918 $ 13,231
========== ========== ========== ========== ========== ========== ========== ==========
Supplemental Information:
Adjustment for straight
- -lining of rents ............... $ (40) $ 6 $ (128) $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
(6) Includes statistical information for all stabilized residential properties
and all commercial properties for the periods presented as if controlled
by Paragon or the Paragon Predecessors. Residential property is considered
by Paragon 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.
22
<PAGE>
THE SPECIAL MEETINGS
CAMDEN SPECIAL MEETING
GENERAL. Each copy of this Joint Proxy Statement/Prospectus mailed to
holders of Camden Common Shares is accompanied by a form of proxy furnished in
connection with the solicitation of proxies by the Camden Board for use at the
Camden Special Meeting and any adjournment thereof. The Camden Special Meeting
is scheduled to be held on Tuesday, April 15, 1997 at 10:00 a.m., Central
Standard Time, at The Ritz Carlton Hotel, 1919 Briar Oaks Lane, Houston, Texas.
Only holders of record of Camden Common Shares on the Camden Record Date are
entitled to receive notice of and to vote at the Camden Special Meeting. At the
Camden Special Meeting, shareholders will consider and vote upon a proposal to
approve the Agreement. See "THE MERGER."
EACH HOLDER OF CAMDEN COMMON SHARES IS REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CAMDEN IN THE ENCLOSED,
POSTAGE- PAID ENVELOPE OR BY FACSIMILE. THE MERGER WILL BE APPROVED IF IT
RECEIVES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST AT THE CAMDEN
SPECIAL MEETING IF A QUORUM IS PRESENT OR REPRESENTED BY PROXY.
VOTING AND REVOCATION OF PROXIES. Any holder of Camden Common Shares who
has executed and delivered a proxy may revoke it at any time before it is voted
by attending and voting in person at the Camden Special Meeting or by giving
written notice of revocation or submitting a signed proxy bearing a later date
to Camden, Attention: Secretary, provided such notice or proxy is actually
received by Camden prior to the vote of shareholders. Shareholders may vote via
facsimile by sending the executed proxy to (713)234-2287. A proxy will not be
revoked by the death or incapacity of the shareholder executing it unless,
before the shares are voted, notice of such death or supervening incapacity is
filed with the Secretary or other person authorized to tabulate the votes on
behalf of Camden. The Camden Common Shares represented by properly executed
proxies received at or before the Camden Special Meeting and not subsequently
revoked will be voted as directed by the shareholders submitting such proxies.
IF INSTRUCTIONS ARE NOT GIVEN, PROXIES WILL BE VOTED FOR APPROVAL OF THE
AGREEMENT AND WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER
MATTERS PROPERLY PRESENTED FOR CONSIDERATION AT THE CAMDEN SPECIAL MEETING OR
ANY ADJOURNMENT THEREOF. The Bylaws of Camden permit the holders of a majority
of the shares represented at the Camden Special Meeting, whether or not
constituting a quorum, to adjourn the Camden Special Meeting or any adjournment
thereof. If necessary, unless authority to do so is withheld, the proxy holders
also may vote in favor of a proposal to adjourn the Camden Special Meeting to
permit further solicitation of proxies in order to obtain sufficient votes to
approve any of the matters being considered at the Camden Special Meeting.
Camden shareholders who wish to withhold from the persons named as proxies in
the enclosed Camden proxy authority to vote such shareholders' shares to adjourn
the Camden Special Meeting should so indicate by appropriately marking Item 2 on
the proxy.
SOLICITATION OF PROXIES. Camden will bear the costs of soliciting proxies
from the Camden shareholders. In addition to use of the mails, proxies may be
solicited personally or by telephone or facsimile by trust managers, officers
and other employees of Camden, who will not be specially compensated for such
solicitation activities. Arrangements also will be made with brokerage firms and
other custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares held of record by such persons, and
such persons will be reimbursed for their reasonable expenses incurred in that
effort by Camden.
VOTE REQUIRED. The Merger will be approved if it receives the affirmative
vote of a majority of the votes cast at the Camden Special Meeting if a quorum
is present or represented by proxy. The holders of a majority of the Camden
Common Shares entitled to vote, present in person or by proxy, constitute a
quorum for purposes of the Camden Special Meeting. A holder of a Camden Common
Share will be treated as being present at the Camden Special Meeting if the
holder of such share is (i) present in person at the meeting, or (ii)
represented at the meeting by a valid proxy, whether the instrument granting
such proxy is marked as casting a vote or abstaining, is left blank or does not
empower such proxy to vote with respect to some or all matters to be voted upon
at the Camden Special Meeting. The proposal allowing Camden to postpone or
adjourn the Camden Special Meeting to solicit additional votes will be approved
if it receives the affirmative vote of a majority of the votes cast at the
Camden Special Meeting, whether or not a quorum is present. Abstentions and
"broker non-votes" will not be treated as entitled to vote for purposes of
determining whether the proposals have received sufficient votes for approval.
23
<PAGE>
As of the Camden Record Date, there were 16,689,879 Camden Common Shares
outstanding and entitled to vote at the Camden Special Meeting, with each share
being entitled to one vote. As of the Camden Record Date, the members of the
Camden Board and the executive officers of Camden and their affiliates are
deemed to beneficially own a total of 1,107,190 shares (representing
approximately 6.4% of the outstanding Camden Common Shares, including 479,000
shares issuable as of the Camden Record Date upon the exercise of vested
options), all of which are expected to be voted in favor of the Agreement.
Concurrently with the execution of the Agreement, certain members of the Camden
Board and certain executive officers of Camden entered into the Camden Voting
Agreement pursuant to which such persons, representing 576,458 shares or
approximately 3.5% of the outstanding Camden Common Shares as of the Camden
Record Date, agreed to vote their Camden Common Shares then owned or thereafter
acquired in favor of the Merger.
RECOMMENDATION. For the reasons described herein, the Camden Board
unanimously approved the Agreement. The Camden Board believes the Merger is fair
to and in the best interests of Camden and its shareholders and unanimously
recommends that the shareholders of Camden vote FOR approval of the Agreement
and the issuance of Camden Common Shares pursuant thereto. In making its
recommendation, the Camden Board considered, among other things, the opinion of
PaineWebber that the Exchange Ratio is fair to Camden from a financial point of
view. See "THE MERGER -- Background of and Reasons for the Merger" and " --
Opinions of Financial Advisors."
OTHER MATTERS. Camden is unaware of any matter to be presented at the
Camden Special Meeting other than the proposal to approve the Merger and the
proposal to permit the postponement or adjournment of the Camden Special Meeting
to solicit additional votes.
PARAGON SPECIAL MEETING
GENERAL. This Joint Proxy Statement/Prospectus is being furnished to the
holders of Paragon Common Stock as of the Paragon Record Date and is accompanied
by a form of proxy, which is being solicited by the Paragon Board for use at the
Paragon Special Meeting to be held on Tuesday, April 15, 1997, at 10:00 a.m.,
Central Standard Time, at the Doubletree Hotel at Campbell Centre, 8250 North
Central Expressway, Dallas, Texas and any adjournments thereof. At the Paragon
Special Meeting, stockholders will vote on whether to approve the Agreement.
Proxies may be voted on such other matters as may properly come before the
Paragon Special Meeting, or any adjournments thereof, in the best judgment of
the proxy holders named therein. See "THE MERGER."
EACH HOLDER OF PARAGON COMMON STOCK IS REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO PARAGON IN THE ENCLOSED,
POSTAGE- PAID ENVELOPE OR BY FACSIMILE. FAILURE TO RETURN YOUR PROPERLY EXECUTED
PROXY OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
AGREEMENT.
PARAGON STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXIES.
VOTING AND REVOCATION OF PROXIES. Any holder of Paragon Common Stock who
has executed and delivered a proxy may revoke it at any time before it is voted
by attending and voting in person at the Paragon Special Meeting or by giving
written notice of revocation or submitting a signed proxy bearing a later date
to Paragon, Attention: Secretary, provided such notice or proxy is actually
received by Paragon prior to the vote of stockholders. Stockholders may vote via
facsimile by sending the executed proxy to (201)804-8693. A proxy will not be
revoked by the death or incapacity of the stockholder executing it unless,
before the shares are voted, notice of such death or supervening incapacity is
filed with the Secretary or other person authorized to tabulate the votes on
behalf of Paragon. The shares of Paragon Common Stock represented by properly
executed proxies received at or before the Paragon Special Meeting and not
subsequently revoked will be voted as directed by the stockholders submitting
such proxies. IF INSTRUCTIONS ARE NOT GIVEN, PROXIES WILL BE VOTED FOR APPROVAL
OF THE AGREEMENT AND WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDERS ON ANY
OTHER MATTERS PROPERLY PRESENTED FOR CONSIDERATION AT THE PARAGON SPECIAL
MEETING OR ANY ADJOURNMENT THEREOF. The Bylaws of Paragon permit the holders of
a majority of the shares represented at the Paragon Special Meeting, whether or
not constituting a quorum, to adjourn the Paragon Special Meeting or any
adjournment thereof. If necessary, unless authority to do so is withheld, the
proxy holders also may vote in favor of a proposal to adjourn the Paragon
Special Meeting to permit further solicitation of proxies in order to obtain
sufficient votes to approve any of the matters being considered at the Paragon
Special Meeting. Paragon stockholders who wish to withhold from the persons
named as proxies in the enclosed Paragon proxy
24
<PAGE>
authority to vote such stockholders' shares to adjourn the Paragon Special
Meeting should so indicate by appropriately marking Item 2 on the proxy.
SOLICITATION OF PROXIES. Paragon will bear the costs of soliciting
proxies from the Paragon stockholders. In addition to use of the mails, proxies
may be solicited personally or by telephone or facsimile by directors, officers
and other employees of Paragon, by Proveaux, Stephen & Spencer, Inc., a proxy
solicitor on retainer by Paragon, who will not be specially compensated for such
solicitation activities, or by Corporate Investor Communications, Inc. which
will be paid a solicitation fee of $5,250 (plus additional charges of up to
$1,000). Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares held of record by such persons, and
such persons will be reimbursed for their reasonable expenses incurred in that
effort by Paragon.
VOTE REQUIRED. The affirmative vote of the holders of two-thirds of the
outstanding shares of Paragon Common Stock entitled to vote at the Paragon
Special Meeting is required in order to approve the Agreement. The holders of a
majority of the Paragon Common Stock entitled to vote, present in person or by
proxy, constitute a quorum for purposes of the Paragon Special Meeting. The
proposal allowing Paragon to postpone or adjourn the Paragon Special Meeting to
solicit additional votes will be approved if it receives the affirmative vote of
a majority of the votes cast at the Paragon Special Meeting, whether or not a
quorum is present. Abstentions and "broker non-votes" will have the same effect
as negative votes for purposes of determining whether the proposals have
received sufficient votes for approval.
As of the Paragon Record Date, there were 14,791,165 shares of Paragon
Common Stock outstanding and entitled to vote at the Paragon Special Meeting,
with each share being entitled to one vote. As of the Paragon Record Date, the
members of the Paragon Board and the executive officers of Paragon and their
affiliates beneficially owned a total of 1,306,622 shares (representing
approximately 8.8% of the outstanding shares of Paragon Common Stock, excluding
3,053,718 shares issuable upon conversion of Units into Paragon Common Stock),
all of which are expected to be voted in favor of the Merger. Concurrently with
the execution of the Agreement, certain members of the Paragon Board and certain
executive officers of Paragon entered into the Paragon Voting Agreement pursuant
to which such persons, representing 1,207,140 shares or approximately 8.2% of
the outstanding shares of Paragon Common Stock as of the Paragon Record Date,
agreed to vote their shares of Paragon Common Stock then owned or thereafter
acquired in favor of the Merger.
RECOMMENDATION. For the reasons described herein, the Paragon Board
unanimously approved the Agreement. The Paragon Board believes that the Merger
is fair to and in the best interests of Paragon and its stockholders and
unanimously recommends that the Paragon stockholders vote FOR approval of the
Agreement. In making its recommendation, the Paragon Board has considered, among
other things, the opinion of Merrill Lynch that the Exchange Ratio is fair to
the Paragon stockholders from a financial point of view. See "THE MERGER --
Background of and Reasons for the Merger" and " -- Opinions of Financial
Advisors." Additionally, the Board of Directors of Paragon GP Holdings has
unanimously approved and adopted the form of Operating Partnership Agreement.
The approval of the Operating Partnership Agreement is not subject to the vote
of the shareholders of Camden or the stockholders of Paragon.
OTHER MATTERS. Paragon is unaware of any matter to be presented at the
Paragon Special Meeting other than the proposal to approve the Merger and the
proposal to permit the postponement or adjournment of the Paragon Special
Meeting to solicit additional votes.
THE MERGER
THE DETAILED TERMS OF THE MERGER ARE CONTAINED IN THE AGREEMENT ATTACHED
AS ANNEX I TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION
DESCRIBES THE MORE IMPORTANT ASPECTS OF THE MERGER AND THE TERMS OF THE
AGREEMENT. THIS DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
AGREEMENT, WHICH IS INCORPORATED BY REFERENCE HEREIN AND WHICH CAMDEN
SHAREHOLDERS AND PARAGON STOCKHOLDERS ARE URGED TO READ CAREFULLY.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. At its regular quarterly meeting on August 6,
1996, the Paragon Board met to review the business and operational performance
of Paragon during the second quarter of 1996, to declare its dividend for such
quarter and to consider various other matters. Management reviewed for the
Paragon Board the second quarter results of operations and the expected impact
on cash flow of the sale of Paragon's commercial property services subsidiary
effective on June 30. Management reported that it expected EBITDA for the full
year 1996 to be below 1995 and that the cash flow would not be
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sufficient to cover Paragon's current dividend for the foreseeable future. While
management believed that some improvement could be realized by continuing its
operational restructuring, cost cutting and increased focus on its multifamily
residential property operations, management indicated that it believed Paragon
should analyze various strategic alternatives available to it to enhance
long-term stockholder value. William Cooper, Paragon's Chief Executive Officer
and the Chairman of the Board of Directors, also reported on two recent meetings
of the Executive Committee of the Paragon Board (consisting of William Cooper,
Lewis Levey, Robert Gidel, Thomas Delatour and John Massey) at which the
Executive Committee had reviewed Paragon's financial and operating performance
and unanimously concluded that the Paragon Board should not reduce Paragon's
dividend level at that time due to the likely material adverse effect it would
have on Paragon's stock price but instead should retain an investment banking
firm to analyze potential strategic alternatives available to Paragon. Following
a discussion of the long-term prospects of Paragon and the potential advantages
and disadvantages of different potential strategic courses of action, upon the
recommendation of its Executive Committee, the Paragon Board unanimously
determined that it was in the best interest of Paragon to retain a financial
advisor to analyze, and advise the Paragon Board with respect to, various
strategic alternatives that might be available to Paragon. The Paragon Board
authorized the Executive Committee to interview investment banking firms and to
retain one as financial advisor to Paragon.
After interviewing two investment banking firms that were familiar with
Paragon, on August 22, 1996, the Executive Committee authorized and directed
management to retain Merrill Lynch as financial advisor to analyze, and advise
Paragon with respect to, various strategic alternatives that may be available to
it. Merrill Lynch promptly commenced work on the assignment and was formally
engaged on September 11, 1996.
On September 11, 1996, Merrill Lynch, presented a report to the Paragon
Board regarding its preliminary analysis of Paragon and the various strategic
alternatives available to it. After reviewing for the Paragon Board its stock
price trading history and performance relative to comparable multifamily
residential property REITs, Merrill Lynch observed that Paragon's ability to
generate internal and external growth would continue to be constrained by
several factors, including an inability to generate returns on acquisition and
development investments in excess of its currently high cost of capital,
increased competition for assets and resulting lower overall returns, and its
current relatively highly leveraged capital structure and high dividend payout
ratios (with expected 1996 and 1997 adjusted FFO ("AFFO") substantially below
the current dividend rate). Merrill Lynch indicated that, despite these
constraining factors on Paragon and in light of Paragon's solid portfolio,
strong operating and management capabilities, renewed focus on its multifamily
operations and attractive development opportunities, Merrill Lynch had
undertaken an initial review of strategic alternatives that could be available
to Paragon to enhance long-term stockholder value. These strategic alternatives
included a share repurchase program, a potential reduction in its dividend, an
acquisition of assets, a disposition of assets, a strategic merger, a strategic
equity investment, liquidation, and issuance of additional securities (including
corporate unsecured debt, secured debt or participating mortgage debt, preferred
stock, private placement of non-controlling equity and public equity). Based
upon its initial analysis and given the Paragon Board's objective of maximizing
long-term value to its stockholders, Merrill Lynch recommended that Paragon
pursue a dual process of strategic business combination and strategic equity
investment discussions with a limited universe of potential candidates. Merrill
Lynch indicated that, based on its preliminary analysis, these alternatives were
the recommended courses of action to enhance the growth in long-term value to
Paragon's stockholders. Following Merrill Lynch's report and deliberation of the
Paragon Board, and based upon Merrill Lynch's and management's recommendation,
the Paragon Board authorized and directed management, with Merrill Lynch's
assistance, to pursue confidential discussions regarding a potential strategic
business combination or strategic equity investment with a limited number of
candidates.
Following the Paragon Board's approval of a structured process in
September, Merrill Lynch and Paragon's management began preparing public and
non-public information and contacting selected parties. Non-public information
was distributed to certain interested parties after they entered into a
confidentiality agreement with Paragon pursuant to which each such candidate
agreed to maintain the confidentiality of materials provided by, as well as of
their discussions with, Paragon. In addition, each of these candidates agreed to
certain standstill arrangements with regard to Paragon for periods ranging from
one to three years. Several of these potential candidates met with Paragon's
management between September 11 and November 5, 1996.
Following requests made by Merrill Lynch to all of the candidates, Paragon
received, prior to October 25, 1996, verbal preliminary indications of interest
from several of the candidates, including Camden. Camden's preliminary proposal
contemplated a strategic stock-for-stock merger of Paragon into Camden, a
"DownREIT" structure, a preliminary indication
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of value per Paragon share of $17.25, two Paragon designees on a seven person
board of trust managers, and some continuing Paragon management involvement with
Camden with Brian Lavin as an executive officer.
On October 30, 1996, Camden's management reviewed and discussed with the
Camden Board the relative merits of a possible merger with Paragon, the status
of initial discussions with, and the terms of Camden's preliminary proposal to,
Paragon and the effects of the proposed merger structure, and discussed the
potential hiring of investment bankers to represent Camden in such a
transaction. The Camden Board directed management to continue discussions with
Paragon.
On November 1, 1996, the Executive Committee of the Paragon Board met to
review the progress of the strategic initiatives, including the preliminary
indications of interest. No action was taken at this meeting.
At the regular quarterly meeting of the Paragon Board on November 5, 1996,
Merrill Lynch, together with Paragon's management and legal counsel, reviewed
with the Paragon Board the status of discussions with the potential candidates
to date, each of the preliminary indications of interest and Merrill Lynch's
analyses of the proposals and the candidates. Focusing particularly on the three
potential strategic merger candidates (Camden and two other publicly-traded
REITs) that had expressed the most serious interest in a strategic merger and
had given the highest preliminary indications of value, Merrill Lynch reviewed
for the Paragon Board a number of preliminary analyses based on publicly
available information on each of these three candidates, including current
public market capitalization and trading multiples, a preliminary relative
affordability analysis that focused on 1997 breakeven valuations per share that
each of the three leading candidates could afford to offer for Paragon without
incurring dilution to projected FFO per share, in each case compared to each
candidate's preliminary valuation per share and Merrill Lynch's preliminary
estimate of Paragon's net asset value, a pro forma FFO contribution analysis and
a pro forma accretion/(dilution) summary. Merrill Lynch's analysis also showed
in each case that Paragon should expect a significant reduction in pro forma
dividends per share paid by the surviving company. Paragon's management also
expressed their view that each of these three candidates had a strong management
team and a sound business strategy that would fit well with Paragon's
operations. After reviewing and discussing each of the preliminary indications
of interest and Paragon's results of operations, business and short-term and
long-term prospects and plans, upon the recommendation of Merrill Lynch, the
Paragon Board authorized and directed management to proceed with discussions and
further due diligence with these three strategic merger candidates while
continuing to pursue the viability of a potential strategic equity investment
with two candidates that had expressed an interest.
At this meeting, Paragon's management also reviewed for the Paragon Board
its third quarter results of operations. Management indicated that third quarter
FFO per share was approximately $.03 per share lower than second quarter FFO per
share and lower than analysts' consensus estimates for the third quarter (but
was consistent with the information provided to potential strategic merger and
strategic equity investment candidates). Management also indicated that it
continued to believe that Paragon's cash flow from operations would not be
sufficient to cover its dividend at its current level for the foreseeable
future. Following a discussion of the advisability of continuing its dividend at
its current level in light of the continuing shortfall of cash from operations
to cover the dividend and the impact a reduction in the dividend would have on
its stock price and the strategic alternatives process, the Paragon Board
decided to maintain the dividend for the third quarter at its current level.
Between November 7 and 18, 1996, Paragon entered into a confidentiality
agreement with each of the three leading potential strategic merger candidates
pursuant to which Paragon agreed to maintain the confidentiality of materials
provided by, as well as of its discussions with, each such candidate and to
certain standstill arrangements with regard to each such candidate for periods
ranging from one to two years.
On November 8, 1996, Camden's management hired PaineWebber to analyze, and
advise the Camden Board with respect to, Camden's merger discussions with
Paragon. PaineWebber's responsibilities included conducting a due diligence
review of Paragon and issuing a fairness opinion with respect to the exchange
ratio in connection with the merger transaction to be negotiated between Camden
and Paragon.
On November 12, 1996, Paragon made a public announcement that it had
retained Merrill Lynch as its financial advisor to analyze, and advise the Board
with respect to, various strategic alternatives that might be available to
Paragon.
Over the next few weeks, Paragon's management and Merrill Lynch continued
discussions with the three leading strategic merger candidates and two strategic
equity investment candidates. During this period, the three strategic merger
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candidates visited Paragon's headquarters in Dallas and most of Paragon's
properties, met with Paragon's management and completed their preliminary due
diligence of Paragon. Merrill Lynch and Paragon's management also began their
preliminary financial and business due diligence of each of the candidates. On
November 20, 1996, an additional publicly-traded REIT entered into a
confidentiality and standstill agreement with Paragon and received certain
non-public information concerning Paragon. It subsequently submitted a
preliminary indication of interest for a stock-for-stock merger and was informed
that its preliminary terms were not competitive with other proposals currently
being pursued.
On November 21, 1996, Merrill Lynch requested each of the three leading
strategic merger candidates to submit a non-binding written proposal for a
transaction with Paragon by December 5, 1996. On November 26, 1996, Paragon's
counsel delivered to each of the three candidates and their counsel (and, in the
case of Camden and one other candidate, their financial advisor) a proposed form
of definitive merger agreement and requested that they submit their proposed
comments on the merger agreement as part of their written proposal. All three
strategic merger candidates submitted written proposals and made presentations
to Paragon's management and two of the three (including Camden) submitted a
revised form of merger agreement.
Camden submitted its non-binding written proposal on December 5, 1996.
Camden's proposal contemplated a tax-free, stock-for-stock merger of Paragon
into a wholly-owned subsidiary of Camden and the continuation of Paragon
Operating Partnership in a "DownREIT" structure. Each Paragon share would be
exchanged for 0.63 Camden shares and this exchange ratio would be fixed. Such a
transaction would have had a market value of approximately $17.50 per share of
Paragon Common Stock, based on the closing price of $27.75 per share of Camden
Common Shares on December 4, 1996. Camden would have the right not to consummate
the merger if its share price were to rise above $30.53 (which would have
resulted in Paragon's stockholders receiving more than $19.21 per share) and
Paragon would have the right not to consummate the merger if Camden's share
price were to fall below $24.98 (which would have resulted in Paragon's
stockholders receiving less than $15.75 per share). Paragon would have the right
to designate two of seven trust managers on Camden's Board of Trust Managers and
the extent of Paragon's management's involvement in Camden's management
following the merger would be determined prior to mailing of the proxy. Camden
also sought a break-up fee of $10 million or break-up expenses not to exceed
$1.5 million under certain limited circumstances.
The other two strategic merger candidates were both public company REITs.
Each proposed a tax-free, stock-for- stock merger, the continuation of Paragon
Operating Partnership and varying degrees of involvement by Paragon's directors
and management following the merger. One of these companies ("Company A")
proposed an exchange ratio with a market value lower than that of Camden's
proposal and the other company ("Company B") proposed an exchange ratio with a
market value higher than that of Camden's proposal. Company B's offer indicated
that it would expire on December 6, 1996, if not accepted prior to 5:00 p.m. on
such date.
On December 6, 1996, the Executive Committee of the Paragon Board held a
meeting to review the final indications of interest of the three strategic
merger candidates and to determine what further steps should be taken to
finalize such proposals. Merrill Lynch reviewed for the Executive Committee the
terms of each proposal and its preliminary financial analysis of each one.
Merrill Lynch presented its preliminary analysis of each candidate's estimated
net asset value (and the relationship of its current trading price to such net
asset value) and its accretion/(dilution) analysis (taking into account the
different expected cost savings provided by Paragon's management) of each
proposal. Merrill Lynch indicated that the Camden and Company B shares were
trading within the range of estimates of their respective net asset value, but
indicated that Company A's shares recently had risen significantly and were now
trading above Merrill Lynch's range of estimates of Company A's current net
asset value. Merrill Lynch also indicated that the proposals of Camden and
Company A would be accretive to each company's 1997 and 1998 FFO per share, but
that Company B's proposal may not be accretive to Company B's 1997 and 1998 FFO
per share (using potential cost savings estimates ranging from $0 to $5
million). In addition, Merrill Lynch reviewed with the Executive Committee its
pro forma FFO contribution and ownership analysis for each of these three
candidates, its imputed valuation of each proposal based on current trading
prices and exchange ratios, its pro forma debt-to- market capitalization
analysis, its pro forma AFFO payout ratio analysis and its pro forma indicated
Paragon dividend reduction analysis. Merrill Lynch noted to the Executive
Committee Company B's relatively high pro forma AFFO payout ratio and
debt-to-total market capitalization ratio. Merrill Lynch also informed the
Executive Committee of its current research ratings with respect to each
candidate's stock and noted that Camden had the highest possible short- and
long-term rating in its system. Merrill Lynch's analysis showed that Paragon
stockholders should expect a significant reduction in pro forma dividends per
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share in each case. The Executive Committee requested that Merrill Lynch go back
to Camden, Company A and Company B to attempt to improve certain terms of their
proposals.
On December 6, 1996, Company B agreed to extend its offer to December 10,
1996. Early in the afternoon on December 10, Mr. Cooper contacted Company B to
request it to extend its offer to the close of business on December 11 to permit
the Paragon Board to consider its proposal at its upcoming meeting. Company B
requested Mr. Cooper to indicate whether or not Mr. Cooper and Paragon's
Executive Committee and management intended to recommend Company B's proposal to
the Paragon Board, and Mr. Cooper indicated that Company B's proposal was
competitive with the others and that it should be considered by the Paragon
Board. Company B officially withdrew its proposal at approximately 4:00 p.m.
C.S.T. on December 10 in order to proceed with a proposed financing.
On December 11, 1996, the Executive Committee met prior to the meeting of
the full Paragon Board to review again the final proposals. Mr. Cooper informed
the Executive Committee that Company B had withdrawn its proposal but,
notwithstanding the official withdrawal of its proposal, Mr. Cooper and Merrill
Lynch expressed the view that Company B might be willing to go forward with a
transaction based on its proposal in the event that the Paragon Board determined
that it was the superior transaction. Management expressed their view that
Company B had withdrawn to proceed quickly with a financing and because it
likely believed that it would not be the merger partner selected by the Paragon
Board. Mr. Cooper stated that he had been unsuccessful in his attempts to
convince Company B to extend its proposal through December 11, 1996. Mr. Cooper
noted that he wanted the Paragon Board to consider all three proposals even
though Company B had officially withdrawn its proposal. Several members of the
Executive Committee expressed the view that Company B's proposal was not one
that was likely to be acceptable in light of concerns about certain execution
risks and post-merger financial ratios and Merrill Lynch's view that a
transaction with Company B may not be accretive to Company B and as a result
might not be well received by the market.
Merrill Lynch further informed the Executive Committee that Camden had
agreed to revise its proposal in certain respects. In its revised proposal,
Camden increased the exchange ratio from 0.63 to 0.64 share of Camden Common
Shares for each share of Paragon Common Stock. Such a transaction would have had
a market value of approximately $17.75 per share of Paragon Common Stock, based
on the closing price of $27.75 per Camden Common Share on December 4, 1996.
Camden gave up its proposed right not to consummate the merger if Camden's share
price rose above $30.53 per share. Paragon retained the right to terminate the
transaction if the price of Camden Common Shares fell below $25.67 per share,
but Camden could, under the terms of the new proposal, elect to prevent
Paragon's termination of the transaction by adjusting the exchange ratio to
provide a $16.43 per share value for Paragon Common Stock. Camden also agreed
that the Paragon Board could maintain its dividend for the fourth quarter of
1996 at its current rate ($0.465 per share of Paragon Common Stock) and then
convert to a dividend payment rate equal to Camden's (or $0.304 per quarter, or
$1.22 per year, per former Paragon share after giving effect to the 0.64
Exchange Ratio). Camden continued to insist that Paragon have the right to
designate only two of its trust managers (Messrs. Cooper and Levey) and refused
to reduce its proposed break-up fee. Merrill Lynch expressed its view that these
changes represented a significant improvement in the Camden proposal. Merrill
Lynch also indicated that Company A had refused to increase the collar protected
market value of its offer above $17.50 (or approximately $17.25 after taking
into account certain proposed adjustments based on estimates by Paragon's
management.) After a summary report from Merrill Lynch regarding its financial
analyses of the three proposals, Paragon's management and Merrill Lynch
indicated that they would recommend that Paragon pursue the proposed strategic
merger with Camden. Following further discussion and deliberation by the
Executive Committee, the Executive Committee unanimously determined to recommend
to the full Paragon Board that Paragon pursue the proposed strategic merger with
Camden.
Immediately following conclusion of the Executive Committee meeting on
December 11, 1996, the Paragon Board met to review the final proposals of the
three strategic merger candidates, including Company B's. Merrill Lynch and
Paragon's management both expressed the view that Company B might be willing to
proceed with a transaction if the Paragon Board decided to pursue a strategic
merger with Company B.
After reviewing for the Paragon Board the principal terms of each proposal
as described above, Merrill Lynch confirmed to the Paragon Board that, as of
December 11, 1996, the implied market value of the Camden proposal ($17.76 based
upon Camden's $27.75 share price on December 4, 1996 and $17.60 based upon
Camden's $27.50 share price on December 10, 1996) exceeded Company A's proposed
value ($17.50, reduced to approximately $17.25 after taking into account certain
proposed adjustments based on estimates by Paragon's management) and was
exceeded by Company B's proposed value ($18.84 based upon Company B's stock
price on December 9, 1996 and $18.05 based upon the price protection provisions
of
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Company B's proposal). Merrill Lynch also noted that Camden's proposed 0.64
exchange ratio was fixed (subject to Paragon's walk away right if the exchange
ratio would result in Paragon's stockholders receiving less than $16.43 per
share), which would result in Paragon's stockholders benefiting from all
increases in Camden's share price and bearing the burden of all price decreases
down to $25.67.
Due to the potential impact of stock price fluctuations on the value of
each of these proposals to Paragon's stockholders, the Paragon Board sought
information from Merrill Lynch as to whether the stock of each of these
companies currently was fairly valued in the market. Merrill Lynch reviewed with
the Paragon Board its ranges of preliminary standalone valuations of each of
these three companies using three different methodologies for each: (1) public
market comparables multiple analysis, (2) discounted cash flow analysis and (3)
net asset value calculation. Merrill Lynch stated that the current stock prices
of both Camden and Company B were within the ranges of values using each of the
valuation methodologies. Merrill Lynch also stated that the current stock price
of Company A, which had risen substantially during the previous 60 days
(approximately 13.6% above the average stock price over such period), traded at
a premium to its public market comparables, exceeded the high end of its net
asset value range and was within the range of its discounted cash flow analyses.
Merrill Lynch also reviewed with the Paragon Board its comparative
analysis of each of the three proposals on various other bases, including the
following: (a) 1997 and 1998 accretion/(dilution) analysis per share (Camden's
proposal would be accretive); (b) Merrill Lynch's analysts' numerical ratings of
the three companies (Camden had the highest possible short- and long-term rating
in the system); (c) 1997 accretion/(dilution) sensitivity to a $1.5 million
positive or negative performance (Camden's proposal would be somewhat sensitive
but still would be accretive in all cases); (d) expected cost saving synergies
from the merger provided by Paragon's management (Paragon's management's view
was that Camden would be expected to realize substantial cost savings quickly
and with a high degree of certainty); (e) pro forma percentage ownership of the
combined companies by Paragon's stockholders (approximately 40% of Camden on a
fully diluted basis); (f) pro forma contribution analysis based upon FFO, AFFO
and net asset value (Paragon's stockholders would receive in the case of Camden
a percentage interest generally greater than their relative contribution); (g)
the implied exchange ratio based upon the relative trading prices of Paragon and
each such company compared to the proposed exchange ratio (the implied exchange
ratio based on historical stock prices of Paragon and Camden over the preceding
12 months ranged from .560 to .790); (h) equity market values and total market
values; (i) 1997 FFO multiples (Camden's multiple is higher than that of
Paragon); (j) ratios of pro forma debt-to- market capitalization (Camden's ratio
is lower than that of Paragon); (k) pro forma estimated 1997 AFFO dividend
payout ratios (Camden's and Paragon's combined ratio would be 82%); and (l)
estimated 1997 percentage dilution to Paragon's current dividend (a merger with
Camden would result in a 34.6% reduction in dividends to Paragon's
stockholders). Taking into account the foregoing analyses and such other factors
as Merrill Lynch deemed relevant, Merrill Lynch recommended to the Paragon Board
that Paragon should pursue a strategic merger with Camden on the proposed terms.
Management of Paragon also reviewed with the Paragon Board the results of
its analysis and due diligence of each of the three companies, focusing
particularly on their geographic and operational fit with Paragon, the physical
condition of their properties, the magnitude and certainty of achieving cost
savings from a combination, their capital structures and relative costs of
capital (including investment grade ratings) to promote internal and external
growth, and the strength of their management teams. Based on its assessment of
these and other factors, Paragon's management recommended to the Paragon Board
that Paragon should pursue a strategic merger with Camden on the proposed terms.
After continued discussions of the analyses prepared by Merrill Lynch and
management, and taking into account the recommendations of Merrill Lynch, the
Executive Committee and management, the Paragon Board authorized and directed
Paragon's management to pursue negotiation of a definitive agreement with Camden
consistent with the proposal reviewed at the meeting. The Paragon Board also
directed management to continue pursuing cost cutting measures prior to
consummation of a merger in order to enhance the likelihood that the expected
cost savings would be achieved as promptly as possible.
From December 11 through December 16, 1996, Paragon's management and legal
counsel and Merrill Lynch negotiated with Camden's management and legal counsel
and PaineWebber with regard to the terms of a definitive merger agreement and
related documents.
On the morning of December 16, 1996, the Camden Board met with Camden's
management, legal counsel and PaineWebber to review the final proposal submitted
by Camden to Paragon and to consider and formally act upon the proposed Merger.
Following an oral presentation by PaineWebber regarding its financial analysis
of the transaction, PaineWebber rendered to the Camden Board the oral fairness
opinion that, subject to certain assumptions, factors and limitations set forth
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in the opinion, the Exchange Ratio was fair to Camden shareholders from a
financial point of view. See "--Opinion of Financial Advisors" below for a
discussion of PaineWebber's opinion. After a discussion of the Agreement and the
ancillary documents by legal counsel, the Camden Board discussed the terms of
the Merger and the proposed timetable of the transaction. Following such
discussions, the Camden Board unanimously approved the Merger, the proposed
Agreement and the ancillary documents.
On the afternoon of December 16, 1996, the Paragon Board met to consider
and formally act upon the proposed merger transaction with Camden. At this
meeting, Paragon's management, together with its financial and legal advisors,
updated the Paragon Board on the events since its December 11th meeting,
including reviewing in detail the terms of the proposed Agreement and related
documents. Merrill Lynch reviewed with the Paragon Board its financial analysis
of the proposed transaction and then rendered its oral fairness opinion to the
Paragon Board that, as of such date, subject to certain assumptions, factors and
limitations set forth in such opinion, the Exchange Ratio was fair to the
holders of shares of Paragon Common Stock from a financial point of view.
Merrill Lynch advised the Paragon Board that at Camden's trading price on
December 16, 1996 ($29.125), the Exchange Ratio represented a value to Paragon
stockholders of $18.64 per share. This Exchange Ratio represented an implied
premium of 15.6% over Paragon's opening price on November 13, 1996, the first
trading day after Paragon's public announcement that it was considering
potential strategic alternatives. See "--Opinion of Financial Advisors" below
for more details of Merrill Lynch's analyses and opinion. Given Merrill Lynch's
detailed valuation and financial analyses, its experience with REITs and mergers
of public companies, Merrill Lynch's analyses and opinion were important
considerations in the conclusion of the Paragon Board to approve the Agreement
and the Merger.
Paragon's legal counsel then gave a presentation to the Paragon Board on
the various documents to be entered into in connection with the Merger,
including a page-by-page review of the Agreement. Legal counsel also reviewed a
proposed timetable for completing the transaction. After lengthy discussions,
the Paragon Board unanimously approved the Merger, the proposed Agreement and
the transactions contemplated thereby.
CAMDEN'S REASONS FOR THE MERGER. The Camden Board believes that the terms
of the Agreement and the Merger and the other transactions contemplated thereby
are fair from a financial point of view to and are in the best interests of
Camden and its shareholders. Accordingly, the Camden Board has unanimously
approved the Agreement and recommends approval of the Agreement and such
transactions by the shareholders of Camden. In reaching its decision, the Camden
Board in two separate meetings, considered several factors, consulted with
Camden's management and legal counsel and was advised by PaineWebber, its
financial advisor in this transaction. The principal reasons, to which relative
weights were not assigned, for the Camden Board's approval of the Agreement and
its recommendation to the shareholders are as follows:
(1)Analyses by management show that the Merger should be accretive to
Camden's FFO per share in 1997. FFO is a widely accepted measure of an
equity REIT's operating performance. Higher FFO per share will likely
result in higher distributions to shareholders.
(2)The Merger almost doubles Camden's total capitalization and increases its
market equity from $489 million to approximately $817 million (based on
$27.75 per share, the closing price of Camden Common Shares on December 4,
1996). This increased size affords several benefits. First, the increased
number of shares in the market should result in greater liquidity for
holders of Camden Common Shares. The Camden Board believes that
institutional investors prefer larger capitalization companies when making
investment decisions due to greater liquidity which allows the purchase
and sale of larger volumes of shares without disrupting the market for
such shares. The Camden Board further believes that the increased market
capitalization and liquidity should result in a higher earnings multiple
and share price. Finally, the Camden Board believes that the credit rating
agencies generally favor larger capitalization companies and view them as
being more stable for unsecured debt investors. Both of these factors
increase the attractiveness of Camden to potential investors, and
ultimately should result in an improved ability to access favorably priced
equity and debt capital.
(3)The combined organization will allow the elimination of several redundant
positions and activities, including the integration of office facilities,
information systems, support functions and public company expenses.
Camden's Board believes that the Merger will allow Camden to realize
economics of scale by spreading costs over a larger number of units,
thereby improving Camden's profit margin. In addition, by taking advantage
of the "best practices" of each company, management believes there will be
significant savings in operating costs and general and administrative
expenses of approximately $6 million annually.
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(4)Camden's strategic objective has been to focus on specific core markets
located in high growth areas of the Southwest. Camden currently has six
core markets including Houston, Dallas, Austin, Corpus Christi, Phoenix
and Tucson, and has one property in El Paso. The Merger adds six
additional core markets to include: St. Louis, Louisville, the Carolinas,
Orlando and Tampa/St. Petersburg. Management considers each of these to be
good markets, with the Florida markets exhibiting higher growth patterns
similar to those in Texas and other southern cities, and with the
mid-western and Carolina markets considered to be more stable, moderate
growth markets. Currently, 75% of Camden's investment is in Houston and
Dallas. Following the merger, Camden's investment will be spread among
twelve core markets, with Houston representing 19% and Dallas representing
22%. The Camden Board believes that this geographic diversification is
preferred by the credit rating agencies and fixed income investors and
will be viewed positively when rating Camden's fixed income securities,
thereby improving Camden's access to attractively priced alternative
sources of capital. Additionally, these markets create a broader platform
for future development and acquisitions which should be attractive to
equity investors.
(5)Geographic diversification also reduces the vulnerability to recessions in
any particular region. The last recession was a "rolling recession,"
because it affected the economies of different regions at different times.
The Southwestern United States went into and emerged from the recession
earlier than the Southeast. This expansion into the Midwest and South
reduces the risk that a regional economic downturn affects all of the
apartment communities simultaneously. Thus, the geographic diversification
as a result of the Merger may smooth Camden's performance through the
economic cycles.
(6)Both Camden and Paragon have significant acquisition and development
experience. However, because of limited access to capital, Paragon has not
been as active as Camden in its markets. This merger provides Camden the
platform to expand its development program into other solid development
markets, capitalizing on the best practices and experience of both
companies. The Camden Board believes that both Camden and Paragon have
acquired and developed successfully in multiple markets. A larger platform
provides increased acquisition and development opportunities which should
enhance shareholder value and earnings.
(7)The Camden Board believes that since 1989, Camden (or its predecessor) has
been successful at acquiring, renovating, repositioning and managing
multifamily assets. By expanding its geographic boundaries beyond Texas
and the Southwest, Camden will have more opportunities to acquire
apartment portfolios having properties spread over a wider geographical
area. Additionally, certain of the assets in the Paragon portfolio present
opportunities for renovation and repositioning. The Merger provides an
immediate investment into assets in which Camden can add value, and opens
a wider geographical area for future investment opportunities. These
properties and opportunities could result in higher returns on investment.
While a number of Paragon's assets have been recently renovated, Camden's
Board believes there is significant opportunity to realize improved
operating cash flow from such renovated assets and other assets within the
Paragon portfolio.
(8)The financial presentation of PaineWebber and the December 16, 1996 oral
opinion of PaineWebber, which was confirmed in writing on December 20,
1996, and further confirmed in writing on the date of this Joint Proxy
Statement/Prospectus, that the Exchange Ratio was fair, from a financial
point of view, to Camden as of the date of such opinion and based upon and
subject to certain matters stated therein.
(9)Presentations from, and discussions with, certain executive officers of
Camden and outside legal counsel regarding the business, real estate
assets, financial, accounting and legal due diligence with respect to
Paragon and the terms and conditions of the Agreement.
The Camden Board and management also discussed certain potential negative
factors and risks that could arise or do arise from the Merger. These included,
among others, the expansion into a new region and new markets with which Camden
has little prior experience, potential current imbalance between supply of, and
demand for, apartments in certain of these new markets, the potential
difficulties of integrating Paragon's property management employees into Camden,
the higher risk associated with increased development activities, increased debt
to market capitalization and encumbrances of assets, the significant costs
involved in connection with consummating the Merger, the substantial time and
effort of Camden management required to effectuate the Merger, integrate the
business of Paragon into Camden, and manage the increased and more diverse
property portfolio and the risk that the expected benefits of the Merger might
not be fully realized. The Camden Board believed that the benefits and
advantages of the Merger far outweighed the negative factors and risks.
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THE CAMDEN BOARD BELIEVES THAT THE MERGER, INCLUDING THE EXCHANGE RATIO, IS
FAIR AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF CAMDEN AND HAS UNANIMOUSLY
APPROVED THE AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE AGREEMENT AND THE ISSUANCE OF CAMDEN COMMON SHARES PURSUANT THERETO.
In the event the Merger is not consummated for any reason, Camden will return
to executing its strategic objective of being a major or even dominant apartment
owner in the larger markets in the Southwest. To the extent such opportunities
are available, it would likely consider other potential combinations with public
or private apartment owners that the Camden Board and management believe add
value and enhance the future earnings of Camden and otherwise are in the best
interests of its shareholders.
PARAGON'S REASONS FOR THE MERGER. By unanimous vote, the Paragon Board
determined that the terms of the Agreement and the transactions contemplated
thereby, including the Exchange Ratio and the Merger, are fair to Paragon's
stockholders from a financial point of view and are in the best interests of
Paragon's stockholders. Accordingly, the Paragon Board approved and adopted the
Agreement and the transactions contemplated thereby and resolved to recommend
that Paragon's stockholders approve and adopt the Agreement and the transactions
contemplated thereby.
The Paragon Board believes that the Merger provides Paragon's stockholders
the opportunity to become equityholders in a substantially larger REIT with
greater resources and potential for long-term stock price appreciation than
Paragon or Camden on a standalone basis. Following the Merger, Camden will have
35,364 apartment units and a total market capitalization exceeding $1.2 billion.
The Paragon Board also believes that the Merger will combine complementary
assets of Paragon and Camden and expand the geographic diversification of
Camden's portfolio, while enabling the Paragon portfolio to benefit from
Camden's experienced management team. In addition, the Paragon Board believes
that the consolidation of the two companies will enable Paragon's stockholders
to participate meaningfully in the benefits to be realized in the Merger,
including cost reductions and other operating efficiencies and Camden's lower
cost of capital and greater access to capital.
In reaching its determination that the Agreement and the transactions
contemplated thereby are fair to Paragon's stockholders from a financial point
of view and in their best interests, the Paragon Board consulted with Merrill
Lynch, Paragon's senior management and legal counsel, and considered the
long-term interests of the Paragon stockholders based on several factors to
which relative weights were not assigned. The Paragon Board considered the
following factors which were material to its decision to approve the Merger:
(1) Information and analyses relating to the financial performance, condition,
business operations and prospects of Paragon and Camden, and current
industry, economic and market conditions. In this regard, the Paragon
Board placed special emphasis on, and viewed as favorable to its
determination, Camden's lower cost of equity and debt capital, its lower
leverage ratio, its investment grade rating for unsecured debt (resulting
in less dependence on secured mortgage indebtedness) and its substantially
lower dividend payout ratio, as compared to Paragon's current high cost of
capital, relatively highly leveraged capital structure, dependence on
secured mortgage financing and high dividend payout ratio (with dividend
payout ratios for 1996 and subsequent years expected to be substantially
above its AFFO at its current dividend rate). The Paragon Board believed
that Paragon's capital structure was too highly leveraged, Paragon was too
reliant on secured mortgage financing and its dividend payout ratio was
too high currently and the Paragon Board believed that the Merger would
alleviate these problems because the combined entity would have better
access to the equity and debt capital markets and on more favorable terms;
(2) Possible strategic alternatives to the Merger for enhancing long-term
stockholder value, including transactions with other potential strategic
merger partners or strategic equity investors. In particular, Paragon and
Merrill Lynch had contacted and received indications of interest from
several potential strategic merger partners and potential strategic equity
investment candidates. In this regard, the Paragon Board determined that
the Merger with Camden represented the best available alternative for
enhancing long-term Paragon stockholder value;
(3) The expected operating efficiencies and cost savings from the Merger of
approximately $4.1 million in 1997 and $6.5 million each year thereafter
(with certain inflation adjustments) based upon Paragon management's
estimates, and the
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Paragon Board's belief that Camden's management would be successful in
achieving these cost savings in the amounts and at the times contemplated,
particularly given the renewed emphasis of Paragon's management in
realizing some of these savings prior to consummation of the Merger;
(4) Based upon Merrill Lynch's 1997 and 1998 accretion/(dilution) analysis and
its 1997 accretion/(dilution) sensitivity analysis, the Merger is expected
to be accretive to Camden's FFO per share in 1997 through 2001 if Camden
raises additional new equity to reduce its pro forma debt-to-market
capitalization ratio from 40% to below 38% and even if it realizes a
negative variance of $1.5 million in 1997 estimated FFO. The Paragon Board
believed that it was important for the Merger to be accretive to Camden in
order to increase the likelihood of an increase in the value of the Camden
Common Shares to be received by Paragon's stockholders in the Merger;
(5) The economic terms of the Agreement, including the Exchange Ratio and the
40.1% equity interest in the combined entity on a fully diluted basis to
be received by Paragon's stockholders. In regard to the Exchange Ratio,
the Paragon Board considered that (a) the Exchange Ratio had been
determined through arm's-length negotiations, (b) the Exchange Ratio
represented an implied value to Paragon's stockholders of $18.64 based
upon Camden's trading price ($29.125) on December 16, 1996 (or a premium
of 15.6% over Paragon's opening price on November 13, 1996, the first
trading day after Paragon's announcement), of $17.76 based upon Camden's
trading price ($27.75) on December 4, 1996 (or a premium of 10.1%), and of
$17.60 based upon Camden's trading price ($27.50) on December 12, 1996 (or
a premium of 9.1%), (c) each of the implied values to Paragon's
stockholders referred to in clause (b) were above or within the ranges of
standalone values of Paragon using each of the valuation methodologies
(including net asset value) employed by Merrill Lynch, and (d) the implied
exchange ratios based upon the relative trading prices of Paragon and
Camden at most times over the last 180 days prior to December 16, 1996
were less than the Exchange Ratio. The Paragon Board emphasized the fact
that, based upon Merrill Lynch's analysis, Camden's current stock price
was within the ranges of standalone values of Camden using each of the
valuation methodologies employed by Merrill Lynch and thus appeared to the
Paragon Board to be fairly valued. Moreover, the Paragon Board also
emphasized that if the price of the Camden Common Shares fell below
$25.67, Paragon could walk away from the transaction unless Camden
adjusted the Exchange Ratio to protect a $16.43 per share value to Paragon
stockholders (which was within the ranges of standalone values of Paragon
using each of the valuation methodologies (including net asset value)
employed by Merrill Lynch). In regard to the Paragon stockholders' 40.1%
equity interest, the Paragon Board considered, based upon Merrill Lynch's
pro forma contribution analysis, that Paragon would contribute (before
taking into account potential synergies) between 38.3% and 39.6% of pro
forma FFO each year from 1997 through 1999, between 36.2% and 37.4% of pro
forma AFFO each year during such period and 40.5% of pro forma net asset
value based upon the midpoints of the net asset value ranges;
(6) The other terms and conditions of the Agreement, including the mutuality
of the representations and warranties and covenants, the requirement that
each party consult with the other on significant business and financial
matters prior to consummation of the Merger, the ability of the Paragon
Board to designate Mr. Cooper and Mr. Levey (each of whom has a
substantial equity investment in Paragon) to the Camden Board, and the
ability of the Paragon Board to pursue an unsolicited superior competing
transaction should its fiduciary duties so require;
(7) The structure of the Merger. In this regard, the Paragon Board placed
special emphasis on, and viewed as favorable to its determination, the
fact that the Merger, as a "stock-for-stock" rather than a
"cash-for-stock" transaction, will provide an opportunity for Paragon's
stockholders to share in any future appreciation of the stock price of the
combined entity and would be a tax-free transaction currently. The Paragon
Board also considered the additional benefit of maintaining the existence
of Paragon Operating Partnership through the "DownREIT" structure so as to
permit the limited partners therein to continue to defer currently a
substantial amount of taxable gain;
(8) The similarities between the two companies. In this regard, the Paragon
Board noted that Camden and Paragon are of comparable size, both focus on
the multifamily residential sector and the combination provides greater
geographic diversification and reduces the dependence on the Texas market.
The combined entity will have 35,364 units and total market capitalization
in excess of $1.2 billion;
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(9) Benefits for the combined entity's shareholders from the larger company,
including the Paragon Board's expectation that, in the future, the
combined entity will have improved access to capital markets for future
growth and Paragon's stockholders will have enhanced liquidity as a result
of the larger total equity market capitalization of the combined entity;
and
(10) The analyses, presentations, recommendations and opinions of Merrill Lynch
described under "--Background of the Merger" and "--Opinion of Financial
Advisors," including the opinions of Merrill Lynch that, as of the dates
of such opinions, subject to certain assumptions, factors and limitations
set forth in such opinions, the Exchange Ratio was fair to the holders of
shares of Paragon Common Stock from a financial point of view. In
particular, while the Paragon Board did not explicitly adopt Merrill
Lynch's financial analyses, the Paragon Board placed special emphasis on
such analyses and on Merrill Lynch's views regarding the Merger. The
Paragon Board viewed Merrill Lynch's opinions and recommendations as
favorable to its determination because Merrill Lynch is an internationally
recognized investment banking firm with experience in the valuation of
businesses and their securities in connection with mergers and
acquisitions and in providing advisory services and raising capital for
REITs.
The Paragon Board also considered the following potentially negative factors in
its deliberations concerning the Merger:
(1) The fact that, because the Exchange Ratio is fixed, a decline in the value
of Camden Common Shares would reduce the value of the consideration to be
received by Paragon stockholders in the Merger. This factor was mitigated,
in the Paragon Board's view, by the fact that because of the fixed
Exchange Ratio, Paragon stockholders would benefit from any appreciation
in the price of Camden Common Shares and because Paragon has the right to
walk away from the transaction if the price of Camden Common Shares falls
below $25.67 unless Camden adjusts the Exchange Ratio to equate to a
$16.43 per share value to Paragon stockholders;
(2) The fact that the indicated annual dividend per share of Paragon Common
Stock following the Merger is expected to decline from its current level
of $1.86 to $1.22, a 34.6% reduction. The Paragon Board believed that this
factor was mitigated by (a) the fact that the Paragon Board very likely
would have cut the current dividend in the absence of the Merger or an
alternative strategic transaction because Paragon's AFFO is substantially
below its current dividend level and would be expected to remain below
such level for the foreseeable future on a standalone basis and (b) the
fact that Paragon is entitled under the Agreement to pay its dividend for
the fourth quarter of 1996 at its current rate before converting to
Camden's rate thereafter;
(3) The various conditions to Camden's obligation to consummate the Merger.
See "THE MERGER--Conditions to Consummation of the Merger;"
(4) The fact that many long-time corporate-level employees of Paragon will not
continue to be employed by the combined entity following the Merger. This
factor was mitigated, in the Paragon Board's view, by the severance
package that will be offered to these employees and the acceleration of
vesting of their restricted stock and options, as well as the benefits
expected to be realized for all stockholders of the substantial cost
savings from the Merger;
(5) The risk that the anticipated benefits of the Merger may not be realized;
and
(6) The fact that under the terms of the Agreement, Paragon and its directors,
officers, employees, agents and representatives are prohibited from
initiating, soliciting or encouraging any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, a
transaction which would compete with the Merger except that if the Paragon
Board determines in good faith after consultation with outside legal
counsel that it is required by its fiduciary obligations to do so, the
Paragon Board may, among other things, respond to and engage in
discussions and negotiations with persons making unsolicited proposals or
inquiries and may approve or recommend such a transaction, and the
possibility that Paragon may be required, if the Agreement is terminated
under certain circumstances, to pay Camden a termination fee of $10
million or to reimburse Camden for up to $1.5 million of its out-of-pocket
expenses incurred in connection with the Merger. The Paragon Board
recognized that the inclusion of such provisions in the Agreement would
render it unlikely that a more attractive offer would be presented to
Paragon and its stockholders; however, the Paragon Board believed that,
based on the process it engaged in to find a strategic partner, the
Agreement represents the best opportunity to enhance long-term stockholder
value.
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The Paragon Board also realized that the leverage of the combined entity
would be greater than Camden's existing leverage and its coverage ratios would
be lower than Camden's current coverage ratios; however, the Paragon Board did
not view this as a negative factor because the increase in leverage would result
from the fact that Paragon is more highly leveraged than Camden, the combined
entity would be less highly leveraged than Paragon and the Paragon Board
understands that Camden may consider raising additional equity to reduce such
leverage and improve such coverage ratios.
The Paragon Board was aware of the provisions of the Agreement affording
indemnification and directors' insurance to the Paragon directors for actions
and omissions of such persons occurring prior to the effective time of the
Merger. These provisions were important to the Paragon Board; however, this
factor did not affect the Paragon Board's evaluation or recommendation of the
Merger because Paragon's Board had been advised by legal counsel that such
provisions are customary in agreements relating to business combinations.
In light of the wide variety of factors considered by the Paragon Board, the
Paragon Board did not quantify or otherwise attempt to assign relative weights
to the specific factors considered in making its determination. However, in the
view of the Paragon Board, the potentially negative factors considered by it
were not sufficient, either individually or collectively, to outweigh the
positive factors considered by the Paragon Board in its deliberations relating
to the Merger.
The Paragon Board was aware of Merrill Lynch's potential long or short
positions in Paragon's and Camden's securities and that Merrill Lynch also had
provided financial advisory and financing services in the past to Camden (as
well as for other companies that participated in the strategic transaction
process with Paragon) on unrelated matters. The Paragon Board did not view these
facts as unfavorable to the Paragon Board's determination or the Paragon Board's
special emphasis on Merrill Lynch's analyses, recommendations and opinions. The
Paragon Board also was aware that a substantial portion of Merrill Lynch's
compensation would be contingent upon consummation of the Merger and did not
view such contingency as unfavorable to the Paragon Board's determination or the
Paragon Board's special emphasis on Merrill Lynch's analyses, recommendations
and opinions. The reasons the Paragon Board did not view such potential
conflicts of Merrill Lynch unfavorably were: (i) the Paragon Board's belief that
Merrill Lynch would and did adhere to high standards of professionalism in
connection with its engagement; (ii) the fact that contingent fees for financial
advisors are common in merger transactions; and (iii) the fact that financial
advisors frequently conduct securities trading operations as an integral part of
their businesses and, accordingly, frequently retain the right to effect trades
in the securities of the clients to which they are providing advisory services.
In addition, the Paragon Board was aware that certain members of Paragon's
management and the Paragon Board have certain interests in the Merger that are
separate from the interests of stockholders of Paragon generally. See
"--Interests of Certain Persons in the Merger." On balance, the Paragon Board
viewed such interests as neutral to its determination because of the Paragon
Board's belief that such interests were reasonable under all of the
circumstances.
In the event the Merger is not consummated for any reason, Paragon will
continue to pursue its business objectives of maximizing the value of its
properties and reducing overhead to increase its net cash flow. Paragon also
would seek to reduce the amount of its indebtedness through potential sales of
properties and improved cash flow. In addition, Paragon may seek another
strategic combination. However, despite these measures, the Paragon Board in all
likelihood would decide to reduce Paragon's current dividend rate substantially
so that Paragon's AFFO would cover its dividends.
OPINIONS OF FINANCIAL ADVISORS
CAMDEN. Camden retained PaineWebber on November 8, 1996 to render financial
advisory services in connection with a possible business combination with
Paragon. In connection with the engagement, Camden asked PaineWebber to render
an opinion as to whether the Exchange Ratio was fair, from a financial point of
view, to the shareholders of Camden. PaineWebber was not requested to, and did
not make, any recommendation to the Camden Board as to the Exchange Ratio to be
provided for in the Merger, which Exchange Ratio was determined through
arms-length negotiations between Camden and Paragon.
The Camden Board retained PaineWebber to act as its advisor based upon
PaineWebber's prominence as an investment banking and financial advisory firm
with experience in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and valuations for corporate
purposes especially with respect to REITs and other real estate companies and
because of PaineWebber's familiarity with Camden and its operations.
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On December 16, 1996, PaineWebber delivered its oral opinion to the Camden
Board, which was confirmed in writing on December 20, 1996 and further confirmed
on the date of this Joint Proxy Statement/Prospectus (the "PaineWebber
Opinion"), to the effect that, as of the date of such opinion, based on
PaineWebber's review and subject to the limitations described below, the
Exchange Ratio was fair, from a financial point of view, to the shareholders of
Camden. The PaineWebber Opinion does not constitute a recommendation to any
shareholder of Camden as to how any such shareholder should vote on the Merger.
THE FULL TEXT OF THE PAINEWEBBER OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX II-A TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
In arriving at the opinion set forth below, PaineWebber, among other things:
(i) reviewed Paragon's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended December 31, 1995, Paragon's Form
10-Q and the related unaudited financial information for the nine months ended
September 30, 1996 and the prospectus, dated July 20, 1994, of Paragon relating
to the initial public offering of the Paragon Common Stock; (ii) reviewed
Camden's Annual Reports, Forms 10-K and related financial information for the
three fiscal years ended December 31, 1995, Camden's Form 10-Q and the related
unaudited financial information for the nine months ended September 30, 1996 and
the prospectus, dated July 22, 1993, of Camden relating to the initial public
offering of the Camden Common Shares; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of Paragon and Camden, furnished by Paragon and Camden,
respectively; (iv) conducted discussions with members of senior management of
Paragon and Camden concerning their respective businesses and prospects; (v)
reviewed the historical market prices and trading activity for Paragon Common
Stock and Camden Common Shares and compared them with that of certain publicly
traded companies which PaineWebber deemed to be reasonably similar to Paragon
and Camden, respectively; (vi) compared the results of operations of Paragon and
Camden with that of certain companies which PaineWebber deemed to be reasonably
similar to Paragon and Camden, respectively; (vii) compared the proposed
financial terms of the transaction contemplated by the Agreement with the
financial terms of certain other mergers and acquisitions which PaineWebber
deemed to be relevant; (viii) considered the pro forma effect of the Merger on
Camden's capitalization ratios, FFO and cash flow; (ix) reviewed the Agreement;
and (x) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as PaineWebber
deemed necessary, including PaineWebber's assessment of general economic, market
and monetary conditions.
In preparing its opinion, PaineWebber assumed that the Merger would be
accounted for under the purchase method of accounting and would be completed on
a tax-free basis. Further, PaineWebber relied on the accuracy and completeness
of all information supplied or otherwise made available to PaineWebber by
Paragon and Camden, and PaineWebber has not assumed any responsibility to
independently verify such information. PaineWebber has not assumed
responsibility for conducting a physical inspection of the properties and
facilities of Paragon or Camden or for making or obtaining an independent
appraisal of the assets and liabilities of Paragon or Camden. With respect to
the financial forecasts examined by PaineWebber, PaineWebber has assumed that
they were reasonably prepared and reflect the best currently available estimates
and good faith judgments of the management of Paragon and Camden as to the
future performance of Paragon and Camden, respectively, and their respective
properties; and PaineWebber has assumed that the modifications made by Camden to
the Paragon financial forecasts were reasonably made on bases reflecting the
best currently available estimates and good faith judgments of Camden's
management as to the future performance of Paragon and its properties.
PaineWebber has expressed no opinion as to the price at which the Camden Common
Shares to be issued in the Merger to the stockholders of Paragon may trade at
any time. The PaineWebber Opinion is based upon regulatory, economic, monetary
and market conditions existing on the date thereof.
PAINEWEBBER'S OPINION IS DIRECTED TO THE CAMDEN BOARD, ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY OF CAMDEN'S SHAREHOLDERS AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT CAMDEN'S SPECIAL MEETING. THE OPINION WAS RENDERED TO
THE CAMDEN BOARD FOR ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE THE
MERGER. THE PAINEWEBBER OPINION DOES NOT ADDRESS THE RELATIVE MERITS OF THE
MERGER AND ANY OTHER TRANSACTIONS OR BUSINESS STRATEGIES DISCUSSED BY THE CAMDEN
BOARD AS ALTERNATIVES TO THE MERGER OR THE DECISION OF THE CAMDEN BOARD TO
PROCEED WITH THE MERGER. THE
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DISCUSSION OF THE OPINION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses and
the application of those methods to the particular circumstances, and therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of the analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber Opinion. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither Camden nor PaineWebber assumes
responsibility for the accuracy of such analyses or estimates. The following
paragraphs summarize the significant quantitative financial and comparative
analyses performed by PaineWebber in arriving at its opinion.
CURRENT CAPITALIZATION. PaineWebber reviewed certain trading information
for each of Paragon and Camden and, on the basis thereof, calculated their
respective market values, market capitalizations and trading multiples based
on stock prices as of December 11, 1996 at $16.25 for Paragon and $27.50 for
Camden. For this purpose, PaineWebber defined "total market capitalization"
as market value of the company's common equity on a fully diluted basis
(including operating partnership units and "in the money" convertible
securities), plus total debt. PaineWebber calculated stocks price multiples
using publicly available estimates of future financial results as of December
11, 1996 published by First Call, a data service that monitors and publishes
a compilation of earnings estimates produced by selected research analysts
regarding companies of interest to institutional investors. For Paragon, the
FFO multiples for 1996 and 1997 were 11.1x and 9.9x respectively. For Camden,
the FFO multiples for 1996 and 1997 were 11.5x and 10.7 x, respectively.
SELECTED COMPARATIVE PUBLIC COMPANIES ANALYSIS. Using publicly available
information and estimates of future financial results published by First
Call, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of Paragon to the corresponding
data of certain publicly-traded companies that PaineWebber deemed to be
reasonably comparable (the "Comparative Companies"). The Comparative
Companies represented REITs focused primarily on multifamily properties.
These companies consisted of Equity Residential Properties Trust, Columbus
Realty Trust, United Dominion Realty Trust, Gables Residential Trust, Summit
Properties Inc., Walden Residential Properties Inc. (other than for purposes
of calculating historical FFO averages due to insufficient information),
Merry Land & Investment Co., Inc. and Wellsford Residential Properties. The
Comparative Companies were selected principally based on the consistency of
property types owned with those owned by Paragon.
PaineWebber derived a range of per share values for Paragon by applying
Paragon's FFO per share for two selected time periods to the corresponding
median estimated FFO multiple for the Comparative Companies for those same
periods. The two periods selected were the years ended December 31, 1996 and
1997. The FFO multiples for Paragon and the Comparative Companies were based
on average First Call FFO estimates for each of the respective periods. In
calculating the FFO multiples for the two selected periods, the December 11,
1996 closing stock prices of the Comparative Companies were used. PaineWebber
observed that (i) the FFO multiples for the Comparative Companies for the
year ended December 31, 1996 ranged from 10.3x to 13.8x, with a median of
11.9x, and (ii) the FFO multiples for the Comparative Companies for the year
ended December 31, 1997 ranged from 9.9x to 12.5x, with a median of 10.9x.
Per share values for Paragon were computed by multiplying Paragon's
projected FFO per share by the median FFO multiple for the Comparative
Companies for the years ended December 31, 1996 and 1997. The values produced
by this method were $17.49 and $17.88 per share for the years ended December
31, 1996 and 1997, respectively. PaineWebber observed that based on the
closing price of Camden Common Shares on the NYSE of $27.75 as of December 4,
1996, the Exchange Ratio yielded an offer value for the Paragon Common Stock
that was in the range produced by the Selected Comparative Public Companies
Analysis.
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to Paragon. Accordingly, a complete
analysis of the results of the foregoing calculations cannot be limited to a
quantitative review of such results and involves complex considerations and
judgments concerning differences in the financial and operating
characteristics of the Comparative Companies and other factors that could
affect the public trading value of the
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Comparative Companies as well as that of Paragon and Camden. In addition, the
multiples of common stock price to projected 1996 FFO and projected 1997 FFO
for the Comparative Companies are based on projections prepared by research
analysts using only publicly available information. Accordingly, such
estimates may or may not prove to be accurate.
STOCK TRADING HISTORY. PaineWebber reviewed the history of trading prices
for Camden Common Shares and Paragon Common Stock separately and reviewed the
trading history of the Paragon Common Stock (since January 1, 1994) in
relation to the Standard & Poor's 500 Index, an index comprised of the
Comparative Companies, the PaineWebber Multifamily REIT Index and the
PaineWebber REIT Index. The PaineWebber Multifamily REIT Index includes 31
equity multifamily REITs. The PaineWebber REIT Index includes 107 equity
REITs representing various property categories, including retail,
multifamily, commercial, mixed and lodging. The comparison to the index of
Comparative Companies was utilized to consider Paragon's historical stock
performance relative to a group of companies with similar properties. The
comparisons to the PaineWebber Multifamily REIT Index and the PaineWebber
REIT Index were utilized to consider Paragon's historical stock performance
relative to the multifamily REIT market and general REIT market,
respectively. PaineWebber noted that Paragon underperformed all of the
indices and Camden since August 1, 1994.
In addition, PaineWebber reviewed the historical implied exchange ratio
between Paragon and Camden and compared this to the Exchange Ratio.
PaineWebber noted that the historical exchange ratio was generally greater
than the Exchange Ratio from July 21, 1994 through August 20, 1996. Since
August 20, 1996 the implied historical exchange ratio has been less than the
Exchange Ratio. PaineWebber noted that the exchange ratio since August 20,
1996 is based on stock prices which reflect the current market conditions as
well as public information on the current state of operations at both Camden
and Paragon. PaineWebber observed that the Exchange Ratio is within the range
of historical implied exchange ratios.
PRO FORMA MERGER ANALYSIS. PaineWebber performed an analysis of the effect
of the Merger on Camden's FFO per share for 1997 and 1998, based on
projections and other information supplied by the managements of Camden and
Paragon. The projections prepared by Paragon were adjusted by Camden for
property operations and synergies, the purchase of certain minority
interests, acquisitions and dispositions of certain properties, the
refinancing of a portion of existing debt and changes in accounting policies.
The Pro Forma Merger Analysis assumed a closing of the Merger on January 1,
of each year presented. PaineWebber combined the projected results of Camden
with the projected results of Paragon to arrive at projected FFO for the
combined company. PaineWebber used the Exchange Ratio to estimate the number
of shares issued in the Merger. PaineWebber then compared the resulting pro
forma FFO per share in each year to Camden's projected stand-alone FFO per
share. This analysis indicated that the pro forma impact of the Merger was
accretive to Camden's FFO per share in 1997 and 1998.
While PaineWebber noted that the Merger was accretive on a pro forma
basis, PaineWebber also noted that the Merger would increase Camden's ratio
of debt to total market capitalization. Specifically, PaineWebber noted that
this ratio would increase from approximately 33.5% to approximately 38.7% on
a pro forma basis. PaineWebber conducted an additional analysis assuming an
equity offering at the December 4, 1996 Camden closing stock price of $27.75
to reduce Camden's ratio of debt to total market capitalization to its
pre-merger level of 33.5%. This analysis indicated that the pro forma impact
of the Merger following the assumed equity offering was still accretive to
Camden's FFO per share in 1997 and 1998.
NET ASSET VALUATION ANALYSIS. PaineWebber performed a net asset valuation
analysis of Paragon's operating multifamily assets by subtracting outstanding
debt from the gross estimated value of the properties. Gross estimated value
for the operating multifamily assets was estimated by capitalizing forecasted
1997 net operating income after reserves for recurring capital expenditures.
Gross estimated value for the unstabilized multifamily assets was estimated
by capitalizing forecast 1998 net operating income after reserves for
recurring capital expenditures. Capitalization rates were applied based on
each property's market and ranged from 8.0% to 9.0% and were based on
industry surveys published by certain independent research firms. The net
asset valuation was adjusted for the net equity value of the third party
management company and commercial properties, and the minority interests in
certain properties not owned by Paragon. The net asset valuation analysis
produced an estimated value for Paragon's equity of approximately $328
million, or $17.78 per share. PaineWebber observed that the $17.75 per share
value to be paid to Paragon stockholders in the Merger was slightly lower
than the value estimate produced by the net asset valuation analysis.
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CONTRIBUTION ANALYSIS. PaineWebber reviewed Camden's and Paragon's
financial contribution to the combined company on a projected pro forma
basis. Based on an Exchange Ratio of 0.64 for the Merger, PaineWebber noted
that on a pro forma basis, Paragon stockholders will receive an approximate
40.0% equity interest in the combined company on a fully diluted basis.
Assuming that Camden completes an equity offering to reduce its ratio of debt
to total market capitalization to its pre- merger level of 33.5%, Paragon
stockholders will receive an approximate 45.0% equity interest in the
combined company (counting the additional shares offered as Paragon's). Using
projected FFO results for the years ended December 31, 1996 and 1997, and
without attributing potential synergistic savings from the Merger,
PaineWebber calculated that Paragon would contribute approximately 36.5% of
the FFO of the combined company in 1997 and approximately 36.0% of the
combined company FFO in 1998. After attributing potential synergistic savings
from the Merger, PaineWebber calculated that Paragon would contribute
approximately 42.3% of the FFO of the combined company in 1997 and
approximately 43.1% of the combined company FFO in 1998. Including the
potential synergistic savings from the Merger and assuming an equity offering
to reduce Camden's ratio of debt to total market capitalization to the
pre-merger level of approximately 33.5%, PaineWebber calculated that Paragon
would contribute approximately 46.0% of the FFO of the combined company in
1997 and approximately 46.5% of the combined company FFO in 1998. While the
Contribution Analysis indicated that Paragon stockholders will receive a
greater percentage of the combined company than their relative contribution
of FFO would imply assuming no synergies, PaineWebber noted that Camden
believes it will be able to generate significant cost savings as a result of
the Merger. Including these synergies, Paragon stockholders will receive a
lower percentage of the combined company equity than their relative
contribution of FFO would imply in both the pre-equity offering and post-
equity offering analysis.
SELECTED TRANSACTIONS ANALYSIS. PaineWebber reviewed the financial terms,
to the extent publicly available, of eight then pending or completed mergers
between publicly-traded REITs (the "Selected Transactions"), PaineWebber
calculated various financial multiples and the premium over market price
based on certain publicly available information for each of the Selected
Transactions and compared them to corresponding multiples and premiums for
the Merger and the consideration to be paid to Paragon stockholders in the
Merger. The Selected Transactions included the following transactions: (i)
Holly Residential Properties, Inc.'s acquisition by Wellsford Residential
Trust, (ii) America First REIT, Inc. acquisition by MidAmerica Apartment
Communities, Inc., (iii) McArthur/Glen Realty Corp.'s acquisition by Horizon
Outlet Centers, Inc.'s, (iv) Real Estate Investment Trust of California's
acquisition by BRE Properties, Inc., (v) Tucker Properties Corporation's
acquisition by Bradley Real Estate, Inc., (vi) Copley Properties, Inc.'s
acquisition by EastGroup Properties, (vii) DeBartolo Realty Corporation's
acquisition by Simon Property Group, and (viii) the proposed acquisition of
South West Property Trust Inc. by United Dominion Realty Trust, Inc. For
purposes of comparison, PaineWebber utilized estimated FFO per share for the
next full calendar year based on First Call at the date the transaction was
announced. PaineWebber noted the multiple of equity purchase price to latest
estimated twelve months' FFO ranged from 6.6x to 10.5x (with a median of
9.3x) for the Selected Transactions, versus a multiple of 10.8x for the
Merger. PaineWebber further noted that the Selected Transactions were
effected or were proposed to be effected at premiums ranging from 1.6% to
43.6% over market price seven trading days prior to the public announcement
of such transactions, with a median of 10.5%, versus a premium of 8.4% for
the Merger. PaineWebber calculated the premium for the Merger based on the
market price of Paragon Common Stock seven trading days prior to December 16,
1996, the date that Paragon announced that it had entered into the Merger
Agreement with Camden. PaineWebber observed that the multiples and premiums
for the Merger were within the ranges established by the Selected
Transactions. PaineWebber then applied the median multiples for the Selected
Transactions to Paragon's projected 1997 FFO results and the median premium
to Paragon's pre-announcement market price, to arrive at a theoretical range
of per share values for Paragon. The range of values produced by this method
was $15.25 to $18.09 per share. PaineWebber observed that the $17.75 per
share value to be paid to Paragon stockholders in the Merger was within the
range produced by the Selected Transactions Analysis.
DISCOUNTED CASH FLOW VALUATION. The discounted cash flow valuation
assumes, as a basic premise, that the value of any real estate business can
be determined with reference to the current value of the future cash flow
that the real estate assets will generate for their owners. PaineWebber used
projections and other information supplied by the managements of Camden and
Paragon to estimate the free cash flow of Paragon's real estate portfolio
(defined as revenues less property operating expenses, real estate taxes,
capital expenditures and estimated incremental general and administrative
costs) for the six-year period beginning January 1, 1997 through December 31,
2002, inclusive, using discount rates ranging from 11.0% to 12.5%.
PaineWebber estimated the terminal value of Paragon's real estate portfolio
by taking estimated free cash flow in 2002, adding back estimated capital
expenditures for that year and applying terminal value capitalization rates
ranging from 8.5% to 9.5% to the resulting total. PaineWebber then discounted
the range of terminal values back to the
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assumed closing date at discount rates ranging from 11.0% to 12.5%, the same
discount rates used in valuing the free cash flow. PaineWebber then added
together the range of present values of the free cash flow and the range of
present values of terminal value, making certain adjustments to account for
minority interests in certain properties not owned by Paragon, the expected
sale of certain multifamily and commercial properties currently held by
Paragon, the projected acquisition of certain multifamily properties
currently managed by Paragon, and subtracting Paragon's projected debt
balance, to arrive at a discounted cash flow valuation for Paragon's equity.
The discounted cash flow valuation produced ranges of values for Paragon's
equity of $278.6 million to $375.4 million, or $15.09 to $20.33 per share.
PaineWebber observed that the $17.75 per share value to be paid to Paragon
stockholders in the Merger was within the range produced by the discounted
cash flow valuation of Paragon's equity.
Pursuant to an engagement letter dated November 8, 1996, PaineWebber has
received a fee of $200,000 for delivery of its opinion. In addition, PaineWebber
will receive an additional fee of 0.5% of consideration (as defined in the
engagement letter) paid by Camden in the Merger which as of September 30, 1996
would have been approximately $3.2 million, for financial advisory services
provided to Camden upon completion of the Merger. Camden has also agreed to
indemnify PaineWebber, its affiliates and their respective directors, officers,
employees, agents and controlling persons against certain liabilities, including
liabilities under federal securities laws.
In the past, PaineWebber and its affiliates have provided financial advisory
services and investment banking services to Camden and received fees for the
rendering of these services. PaineWebber may actively trade the securities of
Camden and Paragon for its own account and for the accounts of its customers
and, accordingly, PaineWebber may at any time hold long or short positions in
such securities.
PARAGON. On September 11, 1996, Paragon retained Merrill Lynch to act as its
exclusive financial advisor in connection with the evaluation of various
strategic alternatives available to Paragon. On December 16, 1996, Merrill Lynch
delivered its written opinion to the Paragon Board, which opinion was
subsequently confirmed in a written opinion dated the date of this Joint Proxy
Statement/Prospectus (the "Merrill Lynch Opinion"), to the effect that, as of
such dates and based upon the assumptions made, matters considered and limits of
review, as set forth in such opinions, the Exchange Ratio was fair to the
holders of Paragon Common Stock from a financial point of view.
A COPY OF THE MERRILL LYNCH OPINION DATED THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, IS
ATTACHED HERETO AS ANNEX II-B AND IS INCORPORATED BY REFERENCE HEREIN. THE
DESCRIPTION OF THE WRITTEN OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE WRITTEN OPINION. STOCKHOLDERS OF PARAGON
ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION IS
ADDRESSED TO THE PARAGON BOARD AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE EXCHANGE RATIO AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY PARAGON STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE PARAGON
SPECIAL MEETING. THE EXCHANGE RATIO WAS DETERMINED ON THE BASIS OF NEGOTIATIONS
BETWEEN PARAGON AND CAMDEN AND WAS APPROVED BY THE PARAGON BOARD.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch, among other things: (i) reviewed Paragon's Annual Report, Form 10-K and
related financial information for the fiscal year ended December 31, 1995 and
Paragon's Reports on Form 10-Q and the related unaudited financial information
for the quarterly periods ended March 31, 1996, June 30, 1996 and September 30,
1996; (ii) reviewed Camden's Annual Report, Form 10-K and related financial
information for the fiscal year ended December 31, 1995 and Camden's Reports on
Form 10-Q and the related unaudited financial information for the quarterly
periods ended March 31, 1996, June 30, 1996 and September 30, 1996; (iii)
reviewed certain information, including financial forecasts, relating to the
business, earnings, cash flow, assets and prospects of Paragon, as well as cost
savings and related synergies expected to result from the Merger, furnished to
it by Paragon; (iv) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of Camden,
furnished to it by Camden; (v) conducted discussions with members of senior
management of Paragon and Camden concerning their respective businesses and
prospects; (vi) reviewed the historical market prices and trading activity for
Paragon Common Stock and Camden Common Shares and compared them with those of
certain publicly traded companies which Merrill Lynch deemed to be reasonably
similar to Paragon and Camden, respectively; (vii) considered the pro forma
effect of the Merger on
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the combined entity's operating results and financial condition, as well as its
pro forma combined capitalization, capitalization ratios and FFO; (viii)
compared the results of operations of Paragon and Camden with those of certain
companies which Merrill Lynch deemed to be reasonably similar to Paragon and
Camden, respectively; (ix) compared the proposed financial terms of the
transactions contemplated by the Agreement with the financial terms of certain
other mergers and acquisitions which Merrill Lynch deemed to be relevant; (x)
reviewed the Agreement; and (xi) performed and reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as Merrill Lynch deemed necessary.
In preparing the Merrill Lynch Opinion, Merrill Lynch relied on the accuracy
and completeness in all material respects of all information supplied or
otherwise made available to it by Paragon and Camden, and did not independently
verify such information or undertake an independent appraisal of the assets or
liabilities of Paragon or Camden. With respect to the financial forecasts
furnished by Paragon and Camden, including those relating to potential expense
savings resulting from the Merger provided by Paragon's management, acquisitions
and new development, Merrill Lynch relied upon, without independent
investigation, the estimates of Paragon's and Camden's managements. In addition,
Merrill Lynch assumed that the financial forecasts furnished to it by Paragon
and Camden had been reasonably prepared and reflected the best currently
available estimates and judgment of Paragon's and Camden's management as to the
expected future financial performance of Paragon or Camden, as the case may be.
Also in that regard, based on certain representations of Paragon's management
that were incorporated into such financial forecasts, Merrill Lynch assumed that
the tax effects to the holders of Paragon Common Stock resulting from the
transactions contemplated by the Agreement would be immaterial.
The matters considered by Merrill Lynch in arriving at the Merrill Lynch
Opinion are based on numerous macroeconomic, operating and financial assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Paragon and Camden,
and involve the application of complex methodologies and educated judgment. Any
estimates contained in Merrill Lynch's analyses are not necessarily indicative
of actual past or future results or values, which may be significantly more or
less favorable than as set forth therein. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future and such estimates are inherently subject to
uncertainty. The Merrill Lynch Opinion does not present a discussion of the
relative merits of the Merger as compared with any other business plan or
opportunity that might be presented to Paragon, including alternative business
combinations with third parties, or the effect of any other arrangement in which
Paragon might engage.
At the meeting of the Paragon Board held on December 16, 1996, Merrill Lynch
presented certain financial analyses accompanied by written materials in
connection with the delivery of its fairness opinion. The following is a summary
of the material financial and comparative analyses performed by Merrill Lynch in
arriving at its December 16, 1996 and March 7, 1997 opinions.
HISTORICAL TRADING PERFORMANCE AND CURRENT CAPITALIZATION. Merrill Lynch
reviewed certain trading information for each of Paragon and Camden and, on
the basis thereof, calculated their respective market values, market
capitalizations and trading multiples based on stock prices as of December
12, 1996 of $16.38 for Paragon and $27.50 for Camden. For this purpose,
Merrill Lynch defined "total market capitalization" as market value of the
relevant company's common equity (including "in the money" convertible
securities as well as operating partnership units), plus total debt less
cash. Merrill Lynch then calculated the market value of each of Paragon and
Camden as a multiple of projected FFO (based on mean First Call Estimates)
and AFFO (based on estimates from Merrill Lynch Research). For Paragon, the
FFO multiples for 1996 and 1997 were 10.5x and 10.0x, respectively and the
AFFO multiples for 1996 and 1997 were 12.6x and 12.0x, respectively. For
Camden, the FFO multiples for 1996 and 1997 were 11.5x and 10.7x,
respectively, and the AFFO multiples for 1996 and 1997 were 12.3x and 11.4x,
respectively.
Merrill Lynch also reviewed the stock price history for Paragon and Camden
for the period December 9, 1994 through December 12, 1996 and noted certain
events and public announcements made by the respective companies during such
period.
ANALYSIS OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES. Using publicly
available information and estimates of future financial results published by
First Call and taken from Merrill Lynch Research, Merrill Lynch compared
certain financial and operating information and ratios for both Paragon and
Camden with the corresponding financial and operating information for a group
of publicly traded companies engaged primarily in the ownership, management,
operation and acquisition of multifamily properties which Merrill Lynch
deemed to be reasonably comparable to Paragon and Camden for the purpose of
its analysis: United Dominion Realty Trust, Inc., Walden Residential
Properties, Inc., Gables
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Residential Trust, Amli Residential Properties, Summit Properties,
Mid-America Apartment Communities, Camden Property Trust and Merry Land &
Investment Company, Inc. (the "Comparable Companies"). The estimates
published by First Call were not prepared in connection with the Merger or at
Merrill Lynch's request.
Merrill Lynch's calculations resulted in the following relevant ranges for
the Comparable Companies and for Paragon as of December 12, 1996: a range of
debt to total market capitalization of 28.0% to 48.8%, with a mean of 37.8%
(with Paragon at 48.4%); a range of dividend yields of 6.3% to 8.0%, with a
mean of 7.3% (with Paragon at 11.4%); a range of 1996 AFFO payout ratios of
82.2% to 103.3%, with a mean of 93.8% calculated on the basis of projected
results for 1996 (with Paragon at 143.1%); a range of equity market
capitalization as a multiple of projected 1996 FFO of 10.0x to 12.2x, with a
mean of 11.2x (with Paragon at 10.5x); a range of equity market
capitalization as a multiple of projected 1997 FFO of 9.6x to 11.0x, with a
mean of 10.4x (with Paragon at 10.0x); a range of equity market
capitalization as a multiple of projected 1996 AFFO of 11.3x to 14.5x, with a
mean of 12.9x (with Paragon at 12.6x); and a range of equity market
capitalization as a multiple of projected 1997 AFFO of 11.1x to 12.7x, with a
mean of 12.0x (with Paragon at 12.0x).
Merrill Lynch's calculations resulted in the following relevant ranges for
the Comparable Companies (excluding Camden) and for Camden as of December 12,
1996: a range of dividend yields of 6.3% to 8.0%, with a mean of 7.3% (with
Camden at 6.9%); a range of debt to total market capitalization of 28.0% to
48.8%, with a mean of 38.0% (with Camden at 36.5%); a range of AFFO payout
ratios of 82.2% to 103.3%, with a mean of 95.1% calculated on the basis of
projected results for 1996 (with Camden at 84.8%); a range of equity market
capitalization as a multiple of projected 1996 FFO of 10.0x to 12.2x, with a
mean of 11.2x (with Camden at 11.5x); a range of equity market capitalization
as a multiple of projected 1997 FFO of 9.6x to 11.0x, with a mean of 10.3x
(with Camden at 10.7x); a range of equity market capitalization as a multiple
of projected 1996 AFFO of 11.3x to 14.5x, with a mean of 13.0x (with Camden
at 12.3x); and a range of equity market capitalization as a multiple of
projected 1997 AFFO of 11.1x to 12.7x, with a mean of 12.1x (with Camden at
11.4x).
None of the companies utilized in the above analysis for comparative
purposes is, of course, identical to Paragon or Camden. Accordingly, a
complete analysis of the results of the foregoing calculations cannot be
limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the Comparable Companies and other factors that
could affect the public trading value of the Comparable Companies as well as
that of Paragon or Camden. In addition, the multiples of equity market
capitalization to estimated 1996 and projected 1997 FFO and AFFO for the
Comparable Companies are based on projections prepared by research analysts
using only publicly available information. Accordingly, such estimates may or
may not prove to be accurate.
COMPARABLE TRANSACTION ANALYSIS. Merrill Lynch also compared certain
financial ratios of the Merger with those of selected other mergers and
strategic transactions involving REITs which Merrill Lynch deemed to be
reasonably comparable to the Merger. These transactions were United Dominion
Realty, Inc.'s proposed merger with South West Property Trust Inc., Sun
Communities, Inc.'s proposed merger with Chateau Properties, Inc.,
Manufactured Homes Communities, Inc.'s proposed merger with Chateau
Properties, Inc., Chateau Properties, Inc.'s proposed merger with ROC
Communities, Inc., Highwoods Properties Inc.'s merger with Crocker Realty
Trust, Inc., Simon Property Group, Inc.'s merger with DeBartolo Realty
Corporation, Security Capital U.S. Realty's purchase of an interest in Carr
Realty Corporation, Bradley Real Estate Inc.'s merger with Tucker Properties
Corp., BRE Properties Inc.'s merger with REIT of California, Horizon Outlet
Centers Inc.'s merger with McArthur Glen Realty Corp., Mid America Apartment
Communities Inc.'s merger with America First REIT, Inc. and Wellsford
Residential Property Trust's merger with Holly Residential Properties.
Using publicly available information and estimates of financial results as
published by First Call, Merrill Lynch calculated the premiums of the implied
offer prices relative to the acquired company's stock price on the day before
announcement of the respective transaction and the implied offer values for
the acquired company, as of the day before the announcement of the respective
transaction, as a multiple of the projected FFO per share for such company.
This analysis yielded a range of premiums/(discounts) of (0.8%) to 38.0% with
a mean of 11.7% and a range of transaction FFO multiples of 6.6x to 15.5x
with a mean of 10.6x.
Merrill Lynch observed that, based on the closing price of Camden Common
Shares on the NYSE of $27.50 as of December 12, 1996, the Exchange Ratio
yielded an implied offer value of $17.60 per share of Paragon Common Stock
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resulting in a 9.1% premium and an offer value for the Paragon Common Stock
as a multiple of Paragon's projected 1997 FFO of 11.1x.
DISCOUNTED CASH FLOW ANALYSIS. Merrill Lynch performed discounted cash
flow analyses (i.e., an analysis of the present value of the projected
levered cash flows for the periods and using the discount rates indicated) of
Paragon based upon Paragon's management's assumption that Paragon's annual
dividend remained constant at $1.86 per share and projections provided by
Paragon's management of Paragon's FFO and AFFO for the years 1997 through
2001, inclusive, using discount rates reflecting an equity cost of capital
ranging from 16.0% to 19.0% and terminal value multiples of calendar year
2001 FFO ranging from 10.0x to 12.0x and terminal value multiples of calendar
year 2001 AFFO ranging from 12.0x to 14.0x. The range of present values per
Paragon share was approximately $14.80 to $18.72 using the FFO and AFFO
discounted dividend methods and approximately $14.15 to $17.58 based upon the
discounted AFFO method.
Merrill Lynch also performed discounted cash flow analyses of Camden based
upon projections provided by Camden's management of Camden's dividends, FFO
and AFFO for the years 1997 through 2001, inclusive, using discount rates
reflecting an equity cost of capital ranging from 15.00% to 17.00% and
terminal value multiples of calendar year 2001 FFO ranging from 10.0x to
12.0x and terminal value multiples of calendar year 2001 AFFO ranging from
12.0x to 14.0x. The range of present values per Camden share was
approximately $23.18 to $30.16 using the FFO and AFFO discounted dividend
methods and approximately $26.88 to $32.24 based upon the discounted AFFO
method.
NET ASSET VALUATION ANALYSIS. Merrill Lynch performed a net asset
valuation for Paragon based on an asset by asset real estate valuation of
Paragon's properties, an estimation of the current values for Paragon's other
assets and liabilities, and an estimation of Paragon's debt balances as of
December 31, 1996. The real estate valuation utilized property specific
projections prepared by Paragon's management for the years 1996 to 2001,
inclusive and two valuation methodologies. The low end of the range of values
utilized a direct capitalization method on 1996 property net operating income
after capital reserves and a range of capitalization rates of 9.0% to 10.0%.
The high end of the range of values utilized a property by property
discounted cash flow analysis, incorporating discount rates of 11.5% to 12.5%
and terminal capitalization rates on 2001 net operating income after capital
reserves of 8.75% to 9.75%. These calculations indicated a per share net
asset valuation range for Paragon of approximately $15.63 to $18.63.
Merrill Lynch also performed a net asset valuation for Camden based on an
asset by asset real estate valuation of Camden's properties, an estimation of
the current values for Camden's other assets and liabilities, and an
estimation of Camden's debt balances as of December 31, 1996. The real estate
valuation utilized property specific projections prepared by Camden's
management for the years 1996 to 2001, inclusive. For the operating portfolio
of Camden, the valuation utilized the direct capitalization method on 1997
property net operating income after capital reserves and a range of
capitalization rates of 8.25% to 9.00%. For Camden's properties which are
currently under development, a five year discounted cash flow analysis was
utilized, incorporating a discount rate of 12.0% and a terminal
capitalization rate on 2001 net operating income after capital reserves of
8.75%. These calculations indicated a per share net asset valuation range for
Camden of approximately $24.96 to $27.59.
IMPLIED EXCHANGE RATIO ANALYSIS. Merrill Lynch compared the historical
market price of Paragon during the 12 month period ended December 12, 1996 to
the historical market price of Camden during such period. The comparison
yielded an implied exchange ratio based on historical stock prices of 0.560
to 0.790.
Merrill Lynch utilized the results of the discounted cash flow analyses of
Paragon and Camden described above to calculate a range of implied exchange
ratios based on a comparison of the relative ranges of value for Camden and
Paragon. When the low Paragon discounted cash flow value was compared to the
high Camden discounted cash flow value and the high Paragon discounted cash
flow value was compared to the low Camden discounted cash flow value, the
analysis yielded an implied exchange ratio range of 0.444 to 0.787.
Merrill Lynch also utilized the results of the net asset valuation
analyses of Paragon and Camden described above to calculate a range of
implied exchange ratios based on a comparison of the relative ranges of net
asset value for Camden and Paragon. When the low estimate for Paragon's net
asset value was compared to the high estimate for Camden's net asset value
and the high estimate for Paragon's net asset value was compared to the low
estimate for Camden's net asset value, the analysis yielded an implied
exchange ratio range of 0.564 to 0.740.
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The Exchange Ratio under the Agreement is 0.64.
CONTRIBUTION ANALYSIS. Merrill Lynch observed that Paragon shareholders
would receive 40.1% of the Camden Common Shares outstanding after the Merger
(assuming an Exchange Ratio of 0.64), after giving effect to the issuance of
Camden Common Shares in the Merger and assuming full conversion of Paragon's
outstanding Units and pro forma for the conversion of Camden's convertible
debentures due 2001. Merrill Lynch reviewed certain projected operating and
financial information, including, among other things, FFO and AFFO for
Paragon, Camden and the pro forma combined entity without giving effect to
any combination benefits. Merrill Lynch observed that in 1997, 1998 and 1999
Paragon would contribute (before taking into account potential synergies)
38.9%, 39.6% and 38.3% to the combined entity's fully diluted FFO,
respectively, and 36.2%, 37.4% and 36.4% to the combined entity's fully
diluted AFFO, respectively. Merrill Lynch also reviewed the relative
contributions to the pro forma combined net asset valuation. The analysis
indicated that Paragon would contribute 40.5% of the combined net asset value
based upon the midpoints of the net asset value ranges.
PRO FORMA COMBINATION ANALYSIS. Merrill Lynch analyzed the pro forma
effects resulting from the Merger, including the potential impact on Camden's
projected stand alone FFO per share and the anticipated accretion (i.e., the
incremental increase) to Camden's FFO per share resulting from the Merger.
Merrill Lynch observed that, after giving effect to Paragon management's
estimate of the expense savings achievable as a result of the Merger, the
Merger would be accretive to Camden's projected FFO per share in each of the
years 1997 through 2001, inclusive. Merrill Lynch also observed that the
indicated annual dividend per Paragon share pro forma for the Merger would be
$1.22 per Paragon share, or a 34.6% implied reduction in Paragon's current
indicated dividend rate.
Merrill Lynch also analyzed the potential pro forma impact of the Merger
on Camden's projected stand alone FFO per share assuming that Camden issues
additional new equity in 1997. Merrill Lynch noted that, after giving effect
to Paragon management's estimate of the expense savings achievable as a
result of the Merger as well as the new equity, the Merger would be accretive
to Camden's projected FFO per share in each of the years 1997 through 2001,
inclusive.
CAPITALIZATION. In addition, Merrill Lynch compared Camden's book
capitalization as of December 31, 1996 to (i) its book capitalization as of
December 31, 1996 pro forma for the Merger and (ii) based on projections of
Paragon and Camden managements, Camden's book capitalization as of December
31, 1997 pro forma for the Merger without giving effect to any subsequent
equity offering. The total debt to equity ratio was 103.0%, 107.3% and 111.5%
as of December 31, 1996, pro forma December 31, 1996 and pro forma December
31, 1997, respectively. The total debt to capitalization ratio was 50.7%,
51.8% and 52.7% as of such respective dates. EBITDA as a multiple of interest
expense was 3.1x, 2.6x and 2.8x as of such respective dates, EBITDA as a
multiple of fixed charges was 3.1x, 2.6x and 2.7x as of such respective
dates, EBITDA less capital expenditures as a multiple of interest expense was
2.8x, 2.4x and 2.6x as of such respective dates and EBITDA less capital
expenditures as a multiple of fixed charges was 2.8x, 2.4x and 2.5x as of
such respective dates.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial or summary description. Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create a misleading view of the processes underlying its
analyses set forth in its opinion. In its analyses, Merrill Lynch made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond Camden's, Paragon's and
Merrill Lynch's control. Any estimates contained in Merrill Lynch's analyses are
not necessarily indicative of actual values, which may be significantly more or
less favorable than as set forth therein. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future, and such estimates are inherently subject
to uncertainty.
The Paragon Board selected Merrill Lynch to render a fairness opinion because
Merrill Lynch is an internationally recognized investment banking firm with
substantial experience in transactions similar to the Merger and because it is
familiar with Paragon and its business. Merrill Lynch has from time to time
rendered investment banking, financial advisory and other services to Paragon
for which it has received customary compensation. Merrill Lynch is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
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Pursuant to a letter agreement dated September 11, 1996, Paragon has agreed
to pay Merrill Lynch a transaction fee equal to 0.60% of the aggregate purchase
price paid by Camden upon consummation of the Merger. The fees paid or payable
to Merrill Lynch are not contingent upon the contents of the opinion delivered.
In addition, Paragon has agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, subject to certain limitations, and to indemnify Merrill
Lynch and certain related persons against certain liabilities arising out of or
in conjunction with its rendering of services under its engagement, including
certain liabilities under the federal securities laws.
In the ordinary course of its business, Merrill Lynch may actively trade in
the securities of Paragon and Camden for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
EXCHANGE RATIO AND EXCHANGE FOR CAMDEN COMMON SHARES
The Exchange Ratio was arrived at through arm's-length negotiations between
Camden and Paragon. See " -- Background of and Reasons for the Merger." Each
share of Paragon Common Stock issued and outstanding at the Effective Time of
the Merger would cease to be outstanding and would be converted into and
exchanged for the right to receive 0.64 Camden Common Shares (subject to
increase at Camden's election to avoid termination of the Agreement by Paragon).
Notwithstanding any other provision of the Agreement, each holder of shares
of Paragon Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a Camden Common Share (after taking
into account all certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) representing such holder's proportionate
interest, if any, in the net proceeds from the sale by American Stock Transfer &
Trust Company (the "Exchange Agent") in one or more transactions (which sale
transactions shall be made at such times, in such manner and on such terms as
the Exchange Agent shall determine in its reasonable discretion) on behalf of
all such holders of the aggregate of the fractional Camden Common Shares, as
applicable, which would otherwise have been issued. The sale of such Camden
Common Shares by the Exchange Agent shall be executed on the NYSE through one or
more member firms of the NYSE and shall be executed in round lots to the extent
practicable.
Prior to or as of the Effective Time of the Merger, and solely with respect
to individuals employed by Paragon immediately prior to that date, Paragon will
accelerate the vesting of up to 100,400 shares of Paragon Common Stock subject
to restricted stock awards and up to 279,000 shares of Paragon Common Stock
subject to options granted by Paragon under a Paragon stock incentive plan
(individually, a "Paragon Option" and collectively, the "Paragon Options") so as
to permit exercise of such Paragon Options prior to or as of the Effective Time.
At the Effective Time, all Paragon Options that have been authorized but are
unissued under a Paragon stock incentive or other employee benefit plan shall
terminate.
Additionally, the Merger has been structured so that Paragon Operating
Partnership will remain in place through the amendment and restatement of the
Operating Partnership Agreement. After the Effective Time, holders of Paragon
Operating Partnership Units (other than Paragon GP Holdings and Paragon LP
Holdings) will have the right to require Paragon Operating Partnership to redeem
their Units for Camden Common Shares or the cash equivalent thereof at the
option of Camden. See "DESCRIPTION OF PARAGON OPERATING PARTNERSHIP."
As soon as reasonably practicable after the Effective Time, Camden and
Paragon will cause the Exchange Agent to send to each holder of record of
Paragon Common Stock at such time, transmittal materials for use in exchanging
all of their certificates representing Paragon Common Stock for a certificate or
certificates representing Camden Common Shares and a check for any fractional
share interest, as applicable. The transmittal materials will contain
information and instructions with respect to the surrender of Paragon Common
Stock certificates in exchange for certificates representing Camden Common
Shares.
PARAGON STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender following the Effective Time of the Merger of all of the
certificates representing Paragon Common Stock registered in the name of a
holder of Paragon Common Stock (or indemnity satisfactory to Camden or the
Exchange Agent if any of such certificates are lost, stolen or destroyed),
together with a properly completed letter of transmittal, the Exchange Agent
will mail to such holder a certificate or certificates representing the number
of Camden Common Shares to which such
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holder is entitled, together with all undelivered dividends or distributions in
respect of such shares and, where applicable, a check for the amount
representing any fractional share interest (in each case, without interest).
Except for Paragon's regular quarterly dividends not in excess of $0.465 per
share of Paragon Common Stock for the fourth quarterly dividend payable during
the first calendar quarter of 1997 and $0.304 per share of Paragon Common Stock
for the first quarterly dividend payable during the second calendar quarter of
1997, or except with respect to a Final Paragon Dividend (as defined below),
Paragon has agreed not to declare, set aside or pay any dividends on the Paragon
Common Stock. To the extent necessary to satisfy the requirements of Section
857(a)(1) of the Code for the taxable year of Paragon ending at the Effective
Time, Paragon shall declare a dividend (the "Final Paragon Dividend") to holders
of Paragon Common Stock, the record date for which shall be close of business on
the last business day prior to the Effective Time, in an amount equal to the
minimum dividend sufficient to permit Paragon to satisfy such requirements. If
Paragon determines it necessary to declare the Final Paragon Dividend, it shall
notify Camden at least ten (10) days prior to the date for the Paragon Special
Meeting, and Camden shall declare a dividend per share to holders of Camden
Common Shares, the record date for which shall be the close of business on the
last business day prior to the Effective Time, in an amount per share equal to
the quotient obtained by dividing (x) the Final Paragon Dividend per share of
Paragon Common Stock paid by Paragon by (y) the Exchange Ratio.
Dividends declared by Camden after the Effective Time of the Merger will
include dividends on all Camden Common Shares issued in the Merger, but no
dividend or other distribution payable to the holders of record of Camden Common
Shares at or as of any time after the Effective Time of the Merger will be paid
to the holder of any Paragon Common Stock certificates until such holder
physically surrenders all such certificates as described above. Promptly after
such surrender, all undelivered dividends and other distributions and, where
applicable, a check for the amount representing any fractional share interest,
will be delivered to such holder (in each case, without interest). After the
Effective Time of the Merger, the stock transfer books of Paragon will be closed
and there will be no transfers on the transfer books of Paragon of the shares of
Paragon Common Stock that were outstanding immediately prior to the Effective
Time of the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
From and after the Effective Time of the Merger, the Camden Board will
consist of seven persons, five of whom are currently members of the Camden Board
and two of whom are members of the current Paragon Board designated by Paragon.
As of the Effective Time of the Merger, the size of the Camden Board will
increase from five to seven members and the two Paragon designees will be
elected to serve on the Camden Board.
Paragon's designees are:
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NAME AGE PRINCIPAL OCCUPATION WITH PARAGON
- ---- --- ---------------------------------
William R. Cooper 60 Chairman of the Board and Chief
Executive Officer of Paragon
Lewis A. Levey 54 Vice Chairman of the Board of
Directors of Paragon
William R. Cooper, 60, has been Chairman of the Board of Directors and Chief
Executive Officer of Paragon and Paragon GP Holdings since Paragon's initial
public offering in July 1994 (the "Paragon Initial Offering"). In addition, Mr.
Cooper was the President of Paragon and Paragon GP Holdings from the Paragon
Initial Offering until February 1995. He also has been Chairman of the Board of
Directors and Chief Executive Officer of Paragon Group Property Services, Inc.
("PGPSI"), since the Paragon Initial Offering and was the President of PGPSI
from the Paragon Initial Offering until December 1995. Prior to the Paragon
Initial Offering, Mr. Cooper had been with Paragon Group, Inc., a Texas
corporation (Paragon's predecessor ("Paragon-Texas")) 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. Mr. Cooper is a member of the Executive Committee of the Paragon
Board.
Lewis A. Levey, 54, has been the Vice Chairman of the Board of Directors of
Paragon and Paragon GP Holdings since February 1995 and a director of Paragon
and Paragon GP Holdings since the Paragon Initial Offering. He was a Managing
Director of Paragon's Midwest Region from the Paragon Initial Offering until
February 1995. Mr. Levey also was Vice Chairman of the Board of Directors of
PGPSI from December 1994 through June 1996 and was a Managing Director of PGPSI
from the Paragon Initial Offering until December 1994. Mr. Levey also has been
the Vice Chairman of the Board of Directors of PRSI since June 1996. Prior to
the Paragon Initial Offering. Mr. Levey was with Paragon-Texas 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-Texas, Mr. Levey was responsible for
supervising all aspects of Paragon-Texas real estate operations in Illinois,
Indiana, Kansas, Kentucky and Missouri. Mr. Levey is currently a member of the
board of directors of the National Multi-Housing Council (NMHC), and a Council
Member of ULI - 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).
Camden and Paragon expect that each of Paragon's designees will be available
to serve as a trust manager of Camden. In the event that any of such persons
becomes unable to serve as a trust manager, Paragon will designate an alternate.
Paragon's designees will serve until the 1997 Annual Meeting of Camden
shareholders and in accordance with Camden's Bylaws. Messrs. Cooper and Levey
will be nominated by the Camden Board for election at that meeting.
For a description of certain benefits to which Messrs. Cooper and Levey will
be entitled as a result of the Merger and as trust managers of Camden, see " --
Interests of Certain Persons in the Merger."
From and after the Effective Time of the Merger, the following persons will
serve as executive officers of Camden in the following capacities:
POSITION WITH CAMDEN
PERSON FOLLOWING THE MERGER CURRENT POSITION(1)
- ------ -------------------- -------------------
Richard J. Campo Chairman of the Board of Chairman of the Board of
Trust Managers and Chief Trust Managers and Chief
Executive Officer Executive Officer
D. Keith Oden President, Chief Operating President, Chief Operating
Officer Officer
Michael W. Biggs Senior Vice President - Senior Vice President -
Asset Management Asset Management
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POSITION WITH CAMDEN
PERSON FOLLOWING THE MERGER CURRENT POSITION(1)
- ------ -------------------- -------------------
G. Steven Dawson Senior Vice President - Senior Vice President -
Finance, Chief Financial Finance, Chief Financial
Officer, Treasurer and Officer, Treasurer and
Assistant Secretary Assistant Secretary
James M. Hinton Senior Vice President- Senior Vice President-
Acquisitions and Development Acquisitions and Development
Elizabeth Pringle Senior Vice President- Senior Vice President-
Johnson General Counsel, Secretary General Counsel, Secretary
and Assistant Treasurer and Assistant Treasurer
Brian F. Lavin Senior Vice President- President-Residential Group
Asset Management of Paragon
H. Malcolm Stewart Senior Vice President - Senior Vice President -
Construction Construction
- ------------
(1) With Camden unless otherwise stated.
EFFECTIVE TIME OF THE MERGER
As soon as practicable after satisfaction of all conditions to consummation
of the Merger (see " -- Conditions to Consummation of the Merger"), the parties
will file a certificate of merger with the Delaware Secretary of State and
articles of merger with the State Department of Assessments and Taxation of
Maryland. For state law purposes, the Merger will become effective upon the
later of filing of a certificate of merger with the Delaware Secretary of State
in accordance with the DGCL and issuance of a certificate of merger by the State
Department of Assessments and Taxation of Maryland in accordance with the MGCL,
or at such later time which Camden, Sub and Paragon shall have agreed upon and
designated in such filings in accordance with applicable law. For all other
purposes, the Merger will be effective as of April 1, 1997. Paragon and Camden
each has the right, acting unilaterally as long as it has not willfully and
materially breached the Agreement, to terminate the Agreement should the Merger
not be consummated by the close of business on June 30, 1997.
See " -- Extension, Waiver and Amendment; Termination."
Until the Effective Time of the Merger, Paragon stockholders will retain
their rights as stockholders of Paragon to vote on matters submitted to them.
HEADQUARTERS
After the Merger, the headquarters of Camden will continue to be located at
3200 Southwest Freeway, Suite 1500, Houston, Texas, the current headquarters of
Camden.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of Camden and Paragon to effect the Merger are
subject to the satisfaction of certain conditions, including the following: (i)
the Agreement and the transactions contemplated thereby shall have been approved
by the shareholders of the parties; (ii) the waiting period applicable to the
Merger, if any, under the Hart-Scott-Rodino Antitrust Improvements Act shall
have been terminated or shall have expired; (iii) Camden shall have obtained the
approval for the listing of the Camden Common Shares issuable in the Merger on
the NYSE, subject to official notice of issuance; (iv) the Registration
Statement shall have become effective and all necessary state securities law or
"Blue Sky" permits or approvals required to carry out the transactions
contemplated by the Agreement shall have been obtained and no stop order with
respect to any of the foregoing shall be in effect; (v) neither of the parties
shall be subject to any order or injunction of a court of competent jurisdiction
or other legal prohibition which prohibits the consummation of the transactions
contemplated by the Agreement; (vi) certain related transactions and agreements,
including the Voting Agreements, the Stock Purchase Agreement and the
Registration Rights Agreement, shall have been duly executed and remain in full
force and effect and, where applicable, consummated; and (vii) all material
actions by or in respect of or filings with any governmental entity required for
the consummation of the Merger and related transactions shall have been obtained
or made.
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Consummation of the Merger also is subject to the satisfaction or waiver of
various other conditions specified in the Agreement, including, among others:
(i) the representations and warranties of each party contained in the Agreement
shall be true and correct in all material respects as of the closing date; (ii)
each party shall have performed its obligations contained in the Agreement at or
prior to the Effective Time; (iii) from the date of the Agreement there shall
not have occurred any change in the financial condition, business or operations
of either party that would have or would be reasonably likely to have a material
adverse effect on the business, results of operations or financial condition of
such party; (iv) each party shall have received an opinion of counsel to the
effect described in " -- Material Federal Income Tax Consequences"; and (v) each
party shall have obtained all consents and waivers from third parties necessary
in connection with the consummation of the Merger and related transactions.
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the date of the Agreement to the Effective Time, the
parties agreed to carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as previously conducted and, to
the extent consistent therewith, use commercially reasonable efforts to preserve
intact their respective current business organization, goodwill and ongoing
businesses. Without limiting the generality of the foregoing, the parties also
agreed, except as disclosed to the other party upon execution of the Agreement
or in certain limited circumstances specified therein, that they shall not:
(i) (a) except for regular quarterly dividends and distributions (in the case
of Paragon Operating Partnership), declare, set aside or pay any dividends
on, or make any other distributions in respect of any of their capital stock
or any Units other than the Final Paragon Dividend required to be paid
pursuant to the Agreement (and the corresponding Paragon Operating
Partnership distribution), (b) except in connection with the Merger or
related transactions as required under the Paragon Operating Partnership
Agreement, split, combine or reclassify any capital stock, Units or other
partnership interests or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests or (c) except as required under the
Operating Partnership Agreement, purchase, redeem or otherwise acquire any
shares of their capital stock or any Units or any options, warrants or rights
to acquire, or security convertible into, shares of such capital stock or
such Units or partnership interests;
(ii) except as required under the Operating Partnership Agreement, issue,
deliver or sell, or grant any option or other right in respect of, any shares
of capital stock, any other voting securities (including Units or other
partnership interests) or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
(iii) amend the declaration of trust, articles or certificate of
incorporation, bylaws, partnership agreement or other comparable charter or
organizational documents of the parties;
(iv) merge or consolidate with any person;
(v) in any transaction or series of related transactions involving capital,
securities or other assets or indebtedness in excess of $100,000, without
obtaining the prior written consent of the other party which consent shall
not unreasonably be withheld or delayed: (a) acquire or agree to acquire by
merging or consolidating with, or by purchasing all or a substantial portion
of the equity securities or all or substantially all of the assets of, or by
any other manner, any business or any corporation, partnership, limited
liability company, joint venture, association, business trust or other
business organization or division thereof or interest therein; (b) subject to
any Encumbrance or Lien (as defined in the Agreement) or sell, lease or
otherwise dispose of any of their properties or any material assets or assign
or encumber the right to receive income, dividends, distributions and the
like; (c) make or agree to make any new capital expenditures, except in
accordance with budgets relating to such party that have been previously
delivered to the other party; or (d) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt securities,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of the
foregoing, prepay or refinance any indebtedness or make any loans, advances
or capital contributions to, or investments in, any other person;
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(vi) engage in any transactions of the types described in clauses (a), (b),
(c) and (d) of paragraph (v) above, whether or not related, involving, in the
aggregate, capital, securities or other assets or indebtedness in excess of
$500,000, without obtaining prior written consent of the other party;
(vii) make any tax election (except as provided in the Agreement or unless
required by law or necessary to preserve the party's status as a REIT or the
status of Paragon Operating Partnership or of any other party's subsidiary as
a partnership for federal income tax purposes);
(viii) (a) change in any material manner any of its methods, principles or
practices of accounting in effect, or (b) make or rescind any express or
deemed election relating to taxes, settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes, except in the case of settlements or
compromises relating to taxes on real property in an amount not to exceed,
individually or in the aggregate, $100,000, or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of its federal income tax return for the most
recently completed taxable year;
(ix) adopt any new employee benefit plan, incentive plan, severance plan,
stock option or similar plan, grant new stock appreciation rights or amend
any existing plan or rights, except such changes as are required by law or
which are not more favorable to participants than provisions presently in
effect;
(x) pay, discharge, settle or satisfy any claims, liabilities or objections
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the party
or incurred in the ordinary course of business consistent with past practice;
(xi) settle any shareholder derivative or class action claims arising out of
or in connection with the Merger or related transactions; and
(xii) enter into or amend or otherwise modify any agreement or arrangement
with persons that are affiliates or, as of the date hereof, are executive
officers, trust managers or directors without the consent of the other party.
Finally, Paragon has agreed not to initiate, solicit or encourage, directly
or indirectly, any inquiry or proposal that constitutes, or may reasonably be
expected to lead to, any Competing Transaction; that it will immediately
terminate any existing activities, discussions or negotiations with respect
thereto; and that it will notify Camden immediately if any inquiry or proposal
is received. "Competing Transaction" means any of the following with respect to
Paragon or any of its subsidiaries (other than the transactions contemplated by
the Agreement or a transaction with Camden or a Camden subsidiary): (i) with
respect only to Paragon, Paragon Operating Partnership or any group of Paragon
subsidiaries (acting in a single transaction or series of related transactions)
holding 20% or more of the assets of Paragon and the Paragon subsidiaries taken
as a whole, any merger, consolidation, share exchange, business combination, or
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 20% or more of the assets or equity securities
(including, without limitation, partnership interests and Units) of Paragon and
the Paragon subsidiaries taken as a whole, in a single transaction or series of
related transactions, excluding any bona fide financing transactions which do
not, individually or in the aggregate, have as a purpose or effect the sale or
transfer of control of such assets; (iii) any tender offer or exchange offer for
20% or more of the outstanding shares of capital stock of Paragon; (iv) any
transaction resulting in the issuance of shares representing 20% or more of the
outstanding capital stock of Paragon, or the filing of a registration statement
under the Securities Act in connection therewith; or (v) any public
announcements of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
Notwithstanding the above-described non-solicitation provision and any other
provisions of the Agreement, to the extent required by the fiduciary obligations
of the Paragon Board, as determined in good faith after consultation with
outside legal counsel, Paragon may: (i) disclose to its stockholders any
information required by applicable law to be disclosed; (ii) to the extent
applicable, comply with Rule 14e-2(a) promulgated under the Exchange Act with
respect to a Competing Transaction; (iii) in response to an unsolicited request
therefor, participate in discussions or negotiations with, or furnish
information pursuant to a confidentiality agreement to, or otherwise respond to
or deal with any person in connection with a Competing Transaction proposed by
such person; and (iv) approve or recommend (and in connection therewith withdraw
or modify its
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approval or recommendation of the Merger) and enter an agreement with respect to
a bona fide proposal of a Competing Transaction made by a third party which has
not been solicited or initiated by Paragon in violation of the Agreement and
which a majority of the Paragon Board determines in good faith (a) to be more
favorable to Paragon's stockholders than the Merger, and (b) is reasonably
capable of being consummated (a "Superior Competing Transaction").
EXTENSION, WAIVER AND AMENDMENT; TERMINATION
EXTENSION, WAIVER AND AMENDMENT. At any time prior to the Effective Time, the
parties may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties made to such party contained in the Agreement or
in any document delivered pursuant thereto, or (iii) waive compliance with any
of the agreements or conditions for the benefit of such party contained in the
Agreement. The parties may amend the Agreement at any time before or after
approval of the Agreement by their respective shareholders by action of their
respective Boards, but after any such shareholder approval is obtained, no
amendment shall be made which would alter the amount or change the form of the
consideration to be delivered to the Paragon stockholders or alter or change any
terms or conditions if such alteration or change would adversely affect Camden's
shareholders or Paragon's stockholders.
TERMINATION. The Agreement may be terminated prior to the Effective Time of
the Merger, either before or after approval by the Camden shareholders and
Paragon stockholders, under the circumstances specified therein, including: (i)
by mutual written consent duly authorized by the respective Boards of Camden and
Paragon; (ii) by Camden, upon a breach of any representation, warranty, covenant
or agreement on the part of Paragon, or if any representation or warranty of
Paragon shall have become untrue; (iii) by Paragon, upon a breach of any
representation, warranty, covenant or agreement on the part of Camden, or if any
representation or warranty of Camden shall have become untrue; (iv) by either
Camden or Paragon, if any judgment, injunction, order, decree or action by any
Governmental Entity (as defined in the Agreement) of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable; (v) by either Camden or Paragon, if the Merger shall not have
been consummated before June 30, 1997; PROVIDED, HOWEVER, that a party that has
willfully and materially breached a representation, warranty or covenant of such
party shall not be entitled to exercise such right to terminate; (vi) by either
Camden or Paragon if, upon a vote at a duly held Paragon Special Meeting or any
adjournment thereof, the approval of the Paragon stockholders shall not have
been obtained; (vii) by either Camden or Paragon if, upon a vote at a duly held
Camden Special Meeting or any adjournment thereof, the approval of the Camden
shareholders shall not have been obtained; (viii) by either Camden or Paragon,
if the consent of the partners of the Paragon Operating Partnership shall not
have been obtained by March 31, 1997; (ix) by Paragon, if prior to the Paragon
Special Meeting, the Paragon Board shall have withdrawn or modified in any
manner adverse to Camden its approval or recommendation of the Merger in
connection with, or approved or recommended, a Superior Competing Transaction;
(x) by Camden, if (a) prior to the Paragon Special Meeting, the Paragon Board
shall have withdrawn or modified in any manner adverse to Camden its approval or
recommendation of the Merger in connection with, or approved or recommended, any
Superior Competing Transaction or (b) Paragon shall have entered into a
definitive agreement with respect to any Competing Transaction; (xi) by Paragon
at any time during the seven trading day period following the Pricing Period (as
defined below) if the Average Closing Price (as defined below) shall be less
than $25.67, PROVIDED, HOWEVER, Camden shall have the option during the three
trading day period following receipt of notice of such termination to increase
the consideration paid to Paragon stockholders by adjusting the Exchange Ratio
to equal a number obtained by dividing (a) $16.43 by (b) the Average Closing
Price.
There can be no assurances that Paragon will choose to proceed with the
transaction in the event that the price of Camden Common Shares falls below the
floor described in clause (ix) above. In determining whether to proceed, the
Paragon Board would consider all of the facts and circumstances as they exist at
the time, paying particular attention to the following material factors: (i)
current industry, economic and market conditions; (ii) the relative financial
performance, condition, business operations and prospects of Paragon and Camden;
(iii) the likelihood that the anticipated benefits of the Merger would be
realized; (iv) the cause of the decline in the price of Camden Common Shares;
and (v) the recent stock price performance of other multi-family residential
REITs compared to Camden. In the event that the Paragon Board elects to
terminate the transaction after evaluating these factors, there can be no
assurances that the Camden Board would elect to adjust the Exchange Ratio
thereby permitting the Merger to proceed. The Camden Board would consider all of
the facts and circumstances as they exist at the time, focusing on such material
factors as: (i) current industry, economic and market conditions; (ii) the
relative financial performance, condition, business operations and prospects of
Paragon and Camden; and (iii) the likelihood that the anticipated benefits of
the Merger would be realized. Only in the event of a material adverse change in
the Exchange Ratio will the stockholders of Paragon or the shareholders of
Camden, as applicable, be resolicited.
"Average Closing Price" means the average of the closing prices of Camden
Common Shares on the NYSE for all trading days during the Pricing Period.
"Pricing Period" means the period of 15 consecutive trading days commencing on
the twenty- second trading day prior to the date of the Paragon Special Meeting.
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<PAGE>
TERMINATION FEES AND EXPENSES. Paragon has agreed that if the Agreement shall
be terminated (i) because (a) Paragon breaches any representation, warranty or
covenant, (b) Paragon does not obtain the required approval of the Paragon
stockholders, or (c) Paragon, prior to the Paragon Special Meeting, withdraws or
adversely modifies its approval or recommendation of the Merger in connection
with, or approves or recommends, a Superior Competing Transaction, and, with
respect to (i)(a)-(c), Paragon shall have entered into an agreement to
consummate a Competing Transaction, or (ii) because (a) Paragon breaches any
representation, warranty or covenant, (b) the Merger is not consummated before
June 30, 1997 or (c) Paragon does not obtain the required approval of the
Paragon stockholders, and, with respect to (ii)(a)-(c), within one year from the
date of such termination, Paragon consummates such a Competing Transaction or
enters into an agreement to consummate such a Competing Transaction which is
subsequently consummated, then Paragon will pay (provided that Camden was not in
material breach of any of its representations, warranties, covenants or
agreements at the time of termination) as directed by Camden a fee in an amount
up to $10,000,000 (as defined in the Agreement, the "Break-Up Fee").
Additionally, Paragon has agreed that if the Agreement shall be terminated
because (i) Paragon breaches any representation, warranty or covenant or (ii)
Paragon does not get the required shareholder vote, and no agreement for a
Competing Transaction shall have been entered into within one year from the date
of termination, then Paragon will pay, as directed by Camden, an amount up to
$1,500,000 (as defined in the Agreement, the "Break-Up Expenses"). For purposes
of clause (ii) of the first sentence above, a "Competing Transaction" shall
exclude unsolicited tender or exchange offers and transactions with certain
third parties with respect to which Paragon had negotiations prior to
termination of the Agreement as disclosed to Camden on the date of the
Agreement. The Break-Up Fee shall be reduced by any amounts previously paid in
respect of Break-Up Expenses. Paragon's obligation to pay any unpaid portion of
the Break-Up Fee or the Break-Up Expenses shall terminate three years from the
date of the Agreement.
Camden has agreed that if the Agreement shall be terminated because (i)
Camden breaches its representations, warranties or covenants or (ii) Camden does
not obtain the required shareholder approval, then Camden will pay (provided
that Paragon was not in material breach of any of its representations,
warranties, covenants or agreements at the time of termination), as directed by
Paragon Operating Partnership, an amount up to $1,500,000 (as defined in the
Agreement, the "Termination Expenses"). Camden's obligation to pay any unpaid
portion of the Termination Expenses shall terminate three years from the date of
the Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of Paragon and the Paragon Board may have
interests in the Merger in addition to their interests as stockholders of
Paragon generally. The Paragon Board either was aware of these interests or,
with respect to interests that arose subsequent to the execution of the
Agreement, was aware of their potential and considered them, among other
matters, in approving the Agreement and the transactions contemplated thereby.
SEVERANCE PAY POLICY. Pursuant to the terms of the Severance Pay Policy
adopted by Paragon in connection with the execution of the Agreement, certain
employees of Paragon will be entitled to severance pay upon termination of
employment. Generally, all employees of Paragon and affiliates whose employment
terminates for reasons that are not attributable to actions of the employee will
be entitled to receive a severance payment equal to (i) two days base salary for
employees with less than six months of completed service, (ii) five days base
salary for employees with six months through twelve months of completed service,
or (iii) ten days base salary for employees with thirteen months or more of
completed service. Additional severance payments will be made only to employees
who execute a separation agreement. In consideration for entering into a
separation agreement, a terminated employee will be entitled to receive
severance pay up to but not greater than six months of salary based on job
responsibility and tenure with Paragon. Messrs. Cooper and Levey have agreed to
waive their severance benefits under their current employment agreements, but
will have the right to receive severance payments on the same terms and
conditions as other employees under the Severance Pay Policy. Set forth below
opposite the name of the respective officer is the approximate maximum amount of
severance pay that the named executive officer may be paid under the Severance
Pay Policy: William R. Cooper, $100,000; Lewis A. Levey, $85,000; Robert H.
Gidel, $100,000; Brian F. Lavin, $85,000 (if he does not enter into a new
employment agreement with Camden); Thomas D. Ferguson, $75,000; Lynn T.
Caldwell, $67,500 and James T. Cobb, $62,500. Additionally, Jerry J. Bonner will
be entitled to three months severance pay, or $31,250, from Texas PGI, Inc., a
corporation controlled by certain current and former executive officers of
Paragon.
INDEMNIFICATION. From and after the Effective Time of the Merger, Camden
shall indemnify the directors or officers of Paragon who at any time prior to
the Effective Time of the Merger were entitled to indemnification under the
Paragon Articles and Bylaws or employment agreements between Paragon and its
officers existing on the date of the Agreement, in each case
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to the full extent permitted under the Texas Real Estate Investment Trust Act
(the "Texas REIT Act") in respect of actions or omissions occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by the Agreement). Camden shall either extend Paragon's existing
directors' and officers' liability insurance policy for acts or omissions
occurring prior to the Effective Time for a period of six years following the
Effective Time, or add such persons to Camden's existing directors' and
officers' liability insurance policy.
STOCK INCENTIVE PLANS. Prior to the Effective Time, Paragon will
accelerate the vesting of up to 80,400 shares of Paragon Common Stock subject to
restricted stock awards and up to 279,000 shares of Paragon Common Stock subject
to Paragon Options granted under Paragon's Stock Incentive Plan so as to permit
exercise of the Paragon Options prior to or as of the Effective Time. Of such
amounts, 30,000 of the restricted shares and 191,000 of the Paragon Options
(96,000 of which are in-the-money assuming a stock price of $17.75 per share of
Paragon Common Stock) for which vesting will be accelerated are held by
executive officers and directors of Paragon. Set forth below, opposite the name
of each executive officer of Paragon, is the number of restricted shares for
which vesting will be accelerated: Lynn T. Caldwell, 10,000 shares; and Thomas
D. Ferguson, 20,000 shares. Set forth below, opposite the name of each executive
officer and director of Paragon, is a calculation of the difference between an
assumed stock price of $17.75 per share of Paragon Common Stock and the exercise
price of the Paragon Options (the "Cash-Out Amount"), times the number of shares
issuable upon exercise of in-the-money options: William R. Cooper, $5,000; Lewis
A. Levey, $5,000; Don M. Shine, $7,500; Brian F. Lavin, $7,500; Jerry J. Bonner,
$3,500; Richard J. Haayen, $313; Douglas D. Hawthorne, $313; William S. Janes,
$313; John H. Massey, $313, Thomas R. Delatour, $313; Joseph R. Musolino, $313;
Thomas D. Ferguson, $5,000; James T. Cobb, $3,500; and Lynn T. Caldwell, $3,500.
Each of the optionees will be given the option of (i) receiving his or her
Cash-Out Amount in exchange for his or her agreement not to exercise his or her
Paragon Options or (ii) exercising his or her Paragon Options.
Also, pursuant to the Paragon Senior Management Amended and Restated
Incentive Stock Compensation Plan, four executive officers of Paragon will
receive stock grants as compensation for their efforts in connection with the
activities leading up to the consummation of the Merger. At the time of the
Merger, the following executive officers will be entitled to receive the number
of shares (having an assumed value of $17.75) set forth below opposite such
executive officer's name: Robert H. Gidel, 44,000 shares ($781,000); Thomas D.
Ferguson, 13,000 shares ($230,750); Brian F. Lavin, 6,250 shares ($110,938); and
Lynn T. Caldwell, 8,125 shares ($144,219).
Camden has agreed to waive the restrictions in the Paragon
Non-Solicitation and Right of First Opportunity Agreements for all Paragon
employees party thereto, including Messrs. Cooper, Levey, Shine, Bonner and
Cobb.
POST-ACQUISITION COMPENSATION AND BENEFITS. The Agreement provides that
Camden will employ certain officers of Paragon at the Effective Time of the
Merger. Camden also plans to employ certain other employees of Paragon at the
Effective Time of the Merger. Such officers and employees shall be entitled to
benefits that are in the aggregate not less favorable than those enjoyed by
Camden employees of comparable positions as of the Effective Time of the Merger.
Such benefits may include but not be limited to health, disability and life
insurance, 401(k) plans and deferred compensation plans, if any. Such employment
shall be at will and Camden shall be under no obligation to continue to employ
any individuals.
Camden currently pays non-employee Camden Board members an annual retainer of
$12,000 and an additional $1,000 for attendance at each regular and special
meeting plus a fee of $250 for each telephone conference. In addition, trust
managers receive a fee of $500 for attending each committee meeting unless such
meeting is on the same day as another meeting. Paragon currently pays
non-employee Paragon Board members an annual retainer of $15,000 and $1,000 for
attendance at each regular Paragon Board meeting and $500 for attendance at each
committee meeting. In each case, trust managers or directors who are also
employees receive no additional compensation. Following the Merger, Camden will
compensate non-employee Camden Board members elected pursuant to the Agreement
at the rates at which Camden currently compensates its other non-employee trust
managers. In addition, as provided by the Camden 1993 Share Incentive Plan, each
non-employee Camden Board member elected pursuant to the Agreement will be
granted 2,000 restricted Camden Common Shares upon each anniversary of election
to the Camden Board by the Camden shareholders following the Merger.
INTERESTS AS UNIT HOLDERS. The Merger has been structured so that Paragon
Operating Partnership will remain in place through the amendment and restatement
of the Operating Partnership Agreement. Consequently, Paragon believes that
Paragon Operating Partnership Unitholders will avoid the recognition of
significant taxable gain upon consummation of the Merger (which gain might have
been recognized in alternative structures). Additionally, after the Effective
Time, Paragon Unitholders (other than Paragon GP Holdings and Paragon LP
Holdings) will have the right to redeem their Units for Camden Common Shares or
the cash equivalent thereof at the option of Camden. As of September 30, 1996,
the following executive officers and directors owned directly or indirectly, the
number of Units set forth opposite such person's name: Mr. Cooper, 1,246,065;
Mr. Levey, 560,080; Mr. Shine, 215,541; Mr. Bonner, 55,196; Mr. Cobb, 70,532;
and Mr. Delatour 892,622.
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ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for using the purchase method in accordance with
Accounting Principles Board Opinion No. 16. The fair market value of the
consideration given by Camden in the Merger and the market value of liabilities
assumed will be used as the basis of the purchase price. The assets and
liabilities of Paragon will be revalued to their respective fair market values.
The financial statements of Camden will reflect the combined operations of
Camden and Paragon from the Effective Time of the Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING DISCUSSION SUMMARIZES FOR GENERAL INFORMATION THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PARAGON STOCKHOLDERS. THE
SUMMARY DOES NOT DISCUSS ALL POTENTIALLY RELEVANT FEDERAL INCOME TAX MATTERS OR
CONSEQUENCES TO ANY FOREIGN OR OTHER STOCKHOLDERS SUBJECT TO SPECIAL TAX
TREATMENT. THE TAX CONSEQUENCES TO ANY PARTICULAR STOCKHOLDER MAY DEPEND ON THE
STOCKHOLDER'S CIRCUMSTANCES. PARAGON STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS WITH REGARD TO FEDERAL, STATE AND LOCAL TAX CONSEQUENCES.
The Merger is intended to be a reorganization under Section 368(a) of the
Code, and the federal income tax consequences summarized below are based on the
assumption that the Merger will qualify as a reorganization. One condition to
consummation of the Merger is the receipt by each of Camden and Paragon of an
opinion of their respective counsel to the effect that for federal income tax
purposes the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In addition, Paragon's counsel must deliver to
Camden an opinion that Paragon Operating Partnership has been and continues to
be treated for federal income tax purposes as a partnership and that Paragon,
commencing with its taxable year ended December 31, 1994 through its short
taxable year ending on the Effective Time of the Merger, was organized and has
operated in conformity with the requirements for qualification and taxation as a
REIT. Furthermore, counsel to Camden must deliver to Paragon and Camden an
opinion that states that commencing with its taxable year ended December 31,
1993, Camden was organized and has operated in conformity with the requirements
for qualification and taxation as a REIT, and that the consummation of the
Merger will not result in the failure of Camden to continue to qualify as a REIT
for federal income tax purposes. The opinions of counsel will be based on
certain customary assumptions and representations regarding, among other things,
the lack of previous dealings between Paragon and Camden, the existing and
future ownership of Paragon and Camden capital stock and the future business
plans for Camden.
Assuming that the Merger qualifies as a reorganization under Section 368(a)
of the Code, a Paragon stockholder who receives solely Camden Common Shares in
exchange for his shares of Paragon Common Stock in the Merger will not recognize
any gain or loss on such exchange. If a stockholder receives Camden Common
Shares and cash in lieu of a fractional Camden Common Share, the stockholder
will recognize taxable gain or loss solely with respect to such cash equal to
the difference between such cash amount and the tax basis allocated to such
stockholder's fractional share interest. Such gain or loss generally will
constitute capital gain or loss if the stockholder's Paragon Common Stock was
held as a capital asset. A stockholder will have an aggregate tax basis in his
Camden Common Shares received in the Merger equal to his aggregate tax basis in
the shares of Paragon Common Stock (reduced by the amount of any tax basis
allocable to a fractional share interest for which cash is received) exchanged
therefor. A stockholder's holding period for Camden Common Shares received in
the Merger will include his holding period for the shares of Paragon Common
Stock exchanged therefor if they are held as a capital asset at the effective
date of the Merger. No gain or loss should be recognized by Camden, Sub or
Paragon as a result of the Merger.
RESALES OF CAMDEN COMMON SHARES
The Camden Common Shares issuable to holders of Paragon Common Stock upon
consummation of the Merger have been registered under the Securities Act, and
will be transferable freely and without restriction by those holders of Paragon
Common Stock who receive such shares following consummation of the Merger and
who are not deemed to be "affiliates" (as defined under the Securities Act, and
generally including trust managers, directors, certain executive officers and
ten percent or more stockholders) of Paragon or Camden. It is a condition to
Camden's obligation to consummate the Agreement that each person whom Paragon
has identified as an "affiliate" of Paragon for purposes of the Securities Act
deliver to Camden an agreement providing that such person will not transfer any
Camden Common Shares received by such person in connection with the Merger
except in compliance with the Securities Act. This Joint Proxy
Statement/Prospectus does not cover any resales of Camden Common Shares received
by affiliates of Paragon. In addition, Paragon agrees in the Agreement to use
its best efforts
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to have Messrs. Cooper and Levey execute "lock-up" agreements that will
generally prohibit dispositions of Camden Common Shares by such persons for 90
days following the Effective Time of the Merger.
REGISTRATION RIGHTS AGREEMENT
This Joint Proxy Statement/Prospectus does not cover any resales of Camden
Common Shares received by affiliates of Paragon. Pursuant to the Agreement, and
prior to the Effective Time, Camden will enter into a Registration Rights
Agreement pursuant to which Camden will agree to file (i) within five days
thereof a shelf registration statement, and use its best efforts to cause such
registration statement to be declared effective by the Commission as soon as
practicable, to permit the resale of Camden Common Shares issued upon conversion
of Paragon Operating Partnership Units, and (ii) within 45 days thereof a shelf
registration statement (but with no obligation to cause such registration
statement to be declared effective prior to 90 days after the Effective Time) to
permit the resale of Camden Common Shares held by certain persons who are
affiliates of Paragon. After the Effective Time, the Units will be redeemable
for cash or Camden Common Shares on the basis of one Unit for one share at the
option of Camden.
As of February 24, 1997, there were 3,675,258 Units of Paragon Operating
Partnership issued and outstanding. Set forth below opposite each person's name
is the number of Camden Common Shares which will be registrable under the
Registration Rights Agreement based on the 2,352,161 Units owned after the
Merger (assuming an Exchange Ratio of 0.64): PGI Associates, L.P. (the general
partner of which is a company controlled by Mr. Cooper and the limited partners
of which include Messrs. Cooper, Levey, Shine and Lavin), 1,413,016; FWP, L.P.
(the general partner of which is a company controlled by Mr. Delatour), 571,278;
WRC Holdings, Inc. (the owner of which is William R. Cooper), 21,978; Gateway
Mall Associates I, L.P. (the general partner of which is controlled by Messrs.
Cooper and Levey), 240,941; William R. Cooper, 22,972; Lewis A. Levey, 8,131;
Don M. Shine, 22,972; Jerry J. Bonner, 1,276; and other non-affiliates, 49,597.
Aditionally, FWP L.P. will own 380,800 Camden Common Shares that will be
registered for resale, for a total of 2,732,961 Camden Common Shares to be
registered pursuant to the Registration Rights Agreement.
OTHER RELATED TRANSACTIONS
Upon consummation of the Merger, Paragon Operating Partnership will adopt the
Operating Partnership Agreement, which has been approved unanimously by the
limited partners of Paragon Operating Partnership. See "DESCRIPTION OF PARAGON
OPERATING PARTNERSHIP."
Simultaneously with the execution of the Agreement, ACI, a non-qualified REIT
subsidiary of Camden, and TPMP, a partnership controlled by certain current and
former executive officers of Paragon, entered into a Stock Purchase Agreement
providing for the sale by TPMP of all of the issued and outstanding voting stock
of PRSI owned by TPMP to ACI or an entity designated by ACI for a purchase price
of $98,750 in cash. Mr. Cooper has a 69% limited partner interest in TPMP and
owns 100% of PGI Management Holdings, Inc., the 1% general partner of TPMP.
Messrs. Levey, Shine, Bonner and Cobb each own a 5% limited partner interest in
TPMP. PRSI, which conducts Paragon's residential property services business, is
an affiliate of Paragon in which Paragon Operating Partnership owns 95% of the
economic interest, with the remaining 5% owned by TPMP.
Immediately prior to the Effective Time, in satisfaction of certain
obligations of PRSI to Paragon Operating Partnership, PRSI will sell to Paragon
Operating Partnership 79,500 shares of Paragon Common Stock owned by PRSI.
THE PARAGON BOARD AND THE CAMDEN BOARD EACH UNANIMOUSLY RECOMMEND A VOTE FOR
THE AGREEMENT.
DISSENTERS' RIGHTS
Because the Paragon Common Stock was listed on the NYSE on the Paragon Record
Date, under Section 3-202(c)(1)(ii) of the MGCL, holders of the Paragon Common
Stock will not have statutory rights to demand and receive payment of the fair
value thereof. Holders of Camden Common Shares will not have statutory rights to
dissent from and obtain payment of the fair value of their shares because Camden
is not a party to the statutory merger of Paragon into Sub.
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CAMDEN PROPERTY TRUST
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1995 and the nine months ended September 30, 1996 are
presented as if the Merger had occurred on January 1, 1995. The Unaudited Pro
Forma Combined Statements of Operations give effect to the Merger under the
purchase method of accounting in accordance with Accounting Standards Board
Opinion No. 16, and as if the combined entity qualifying as a REIT, distributed
at least 95% of its taxable income, and therefore, incurred no federal income
tax liability for the periods presented. In addition to the Merger, the
Unaudited Pro Forma Combined Statements of Operations give effect to the sale of
Paragon's interest in PGPSI (after spin-off of the residential property services
business) as if the sale had occurred on January 1, 1995 (see Note B to the
Unaudited Pro Forma Combined Statements of Operations). The Merger adjustments
are based on certain estimates and currently available information. Such
adjustments could change as additional information becomes available, as
estimates are refined or as additional events occur, however, management does
not expect any changes in the purchase price or the allocation of such purchase
price to be significant. The Unaudited Pro Forma Combined Statements of
Operations are further adjusted to reflect the net effects of, (i) the sale by
Camden of 1,090,000 common shares for $25.875 per share in October 1996, (ii)
the conversion of $18.8 million principal amount of Camden's 7.33% Convertible
Subordinated Debentures into $18.2 million of common equity, net of costs,
subsequent to September 30, 1996 and through January 31, 1997 and (iii) the
completion by Camden of an offering of 7% Notes Due 2006 in an aggregate
principal amount of $75 million in November 1996. In the opinion of management,
all adjustments necessary to reflect the effects of these transactions have been
made.
The Unaudited Pro Forma Combined Statements of Operations are presented
for comparative purposes only and are not necessarily indicative of what the
actual combined results of Camden and Paragon would have been for the year ended
December 31, 1995 and the nine months ended September 30, 1996 if the Merger and
other adjustments had occurred at the beginning of each period presented, nor do
they purport to be indicative of the results of operations in future periods.
The Unaudited Pro Forma Combined Statements of Operations should be read in
conjunction with, and are qualified in their entirety by, the respective
historical financial statements and notes thereto of Camden and Paragon
incorporated by reference into this Joint Proxy Statement/Prospectus.
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CAMDEN PROPERTY TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------- ---------------------------------
Sale of Merger Camden Further As Further
Camden(A) Paragon(A) PGPSI(B) Adjustments Combined Adjustments(H) Adjusted
-------- --------- -------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Rental income .................... $ 92,275 $ 80,437 $ -- $ -- $ 172,711 $ -- $ 172,711
Other property income ............ 3,617 3,023 -- -- 6,641 -- 6,641
-------- --------- -------- ------- --------- ------- ---------
Total property income ............ 95,892 83,460 -- -- 179,352 -- 179,352
Equity in income of joint ventures -- 775 -- (76)(C) 699 -- 699
Fee and asset management ......... 1,029 23,571 (19,699) -- 4,901 -- 4,901
Other income ..................... 353 537 (3) -- 887 -- 887
-------- --------- -------- ------- --------- ------- ---------
Total revenues ................... 97,274 108,343 (19,702) (76) 185,839 -- 185,839
Expenses (I)
Property operating and maintenance 37,093 45,051 (12,732) -- 69,412 -- 69,412
Real estate taxes ................ 11,481 7,352 -- -- 18,833 -- 18,833
General and administrative ....... 2,263 7,672 (3,304) -- 6,631 -- 6,631
Interest ......................... 13,843 17,011 (23) (798)(D) 30,033 (3,501) 26,532
Depreciation and amortization .... 20,264 18,561 (1,794) 3,558(E) 40,589 106 40,695
Minority interest in consolidated
partnerships ..................... -- 114 -- -- 114 -- 114
-------- --------- -------- ------- --------- ------- ---------
Total expenses ................... 84,944 95,761 (17,853) 2,760 165,612 (3,395) 162,217
-------- --------- -------- ------- --------- ------- ---------
Income before gain (loss) on sales
of properties and business and
minority interest ................ 12,330 12,582 (1,849) (2,836) 20,227 3,395 23,622
Gain (Loss) on sales of properties
and business ..................... -- (21) 12,773 -- 12,752 -- 12,752
-------- --------- -------- ------- --------- ------- ---------
Income before minority interest .. 12,330 12,561 10,924 (2,836) 32,979 3,395 36,374
Minority interest of unitholders
in Operating Partnership ......... -- (2,498) (2,174) (65)(F) (4,737) -- (4,737)
-------- --------- -------- ------- --------- ------- ---------
Net income ....................... 12,330 10,063 8,750 (2,901) 28,242 3,395 31,637
Preferred share dividends ........ (39) -- -- -- (39) -- (39)
-------- --------- -------- ------- --------- ------- ---------
Net income to common shareholders $ 12,291 $ 10,063 $ 8,750 $(2,901) $ 28,203 $ 3,395 $ 31,598
======== ========= ======== ======= ========= ======= =========
Net income per common and
common equivalent share .......... $ 0.85 -- -- -- $ 1.18 -- $ 1.23
Distributions declared per
common share ..................... $ 1.84 -- -- -- $ 1.84 -- $ 1.84
Weighted average number of
common and common equivalent
shares outstanding ............... 14,424 -- -- 9,466 23,890(G) 1,874 25,764
</TABLE>
58
<PAGE>
CAMDEN PROPERTY TRUST
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------- --------------------------------
Sale of Merger Camden Further As Further
Camden(A) Paragon(A) PGPSI(B) Adjustments Combined Adjustments(H) Adjusted
-------- -------- ------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Rental income ......................... $ 78,167 $ 67,928 $ -- $ -- $ 146,095 $ -- $ 146,095
Other property income ................. 3,401 2,462 -- -- 5,863 -- 5,863
-------- -------- ------- ------- --------- ------- ---------
Total property income ................. 81,568 70,390 -- -- 151,958 -- 151,958
Equity in income of joint ventures .... -- 726 -- (57)(C) 669 -- 669
Fee and asset management .............. 640 9,010 (5,824) -- 3,826 -- 3,826
Other income .......................... 381 485 (2) -- 864 -- 864
-------- -------- ------- ------- --------- ------- ---------
Total revenues ........................ 82,589 80,611 (5,826) (57) 157,317 -- 157,317
Expenses (I)
Property operating and maintenance .... 30,356 33,831 (4,060) -- 60,127 -- 60,127
Real estate taxes ..................... 9,905 6,618 -- -- 16,523 -- 16,523
General and administrative ............ 1,938 5,408 (1,081) -- 6,265 -- 6,265
Interest .............................. 12,984 16,379 (3) (622)(D) 28,738 (2,627) 26,111
Depreciation and amortization ......... 17,447 14,606 (385) 1,023(E) 32,691 81 32,772
Minority interest in
consolidated partnerships ............. -- 65 -- -- 65 -- 65
-------- -------- ------- ------- --------- ------- ---------
Total expenses ........................ 72,630 76,907 (5,529) 401 144,409 (2,546) 141,863
-------- -------- ------- ------- --------- ------- ---------
Income before impairment loss,
gain (loss) on sales of properties
and business, extinguishment of
hedges upon debt refinancing and
minority interest ..................... 9,959 3,704 (297) (458) 12,908 2,546 15,454
Impairment loss on real estate held
for sale .............................. -- (1,143) -- -- (1,143) -- (1,143)
Gain (loss) on sales of properties
and business .......................... (55) 11,930 843 -- 12,718 -- 12,718
Extinguishment of hedges upon debt
refinancing ........................... (5,351) -- -- -- (5,351) -- (5,351)
-------- -------- ------- ------- --------- ------- ---------
Income before minority interest ....... 4,553 14,491 546 (458) 19,132 2,546 21,678
Minority interest of unitholders in
Operating Partnership ................. -- (2,773) (109) (500)(F) (3,382) -- (3,382)
-------- -------- ------- ------- --------- ------- ---------
Net income ............................ $ 4,553 $ 11,718 $ 437 $ (958) $ 15,750 $ 2,546 $ 18,296
Preferred share dividends ............. (4) -- -- -- (4) -- (4)
-------- -------- ------- ------- --------- ------- ---------
Net income to common shareholders ..... $ 4,549 $ 11,718 $ 437 $ (958) $ 15,746 $ 2,546 $ 18,292
======== ======== ======= ======= ========= ======= =========
Net income per common and common
equivalent share ...................... $ 0.31 -- -- -- $ 0.66 -- $ 0.71
Distributions declared per common share $ 1.425 -- -- -- $ 1.425 -- $ 1.425
Weighted average number of common and
common equivalent shares outstanding .. 14,573 -- -- 9,466 24,039(G) 1,874 25,913
</TABLE>
59
<PAGE>
CAMDEN PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 (In thousands, except per share amounts)
(A) Certain reclassifications have been made to Camden's and Paragon's
historical statements of operations to conform to the combined financial
statement presentation.
(B) Represents the elimination of the non-residential operations of PGPSI. Prior
to June 30, 1996, Paragon's management, leasing, construction and
development businesses were conducted through PGPSI. Effective June 30,
1996, Paragon sold its interest in PGPSI (after the spin-off of the
residential property services business) and formed PRSI to continue
Paragon's residential property services business previously conducted
through PGPSI.
(C) Represents the amortization of the discount required to record Paragon's
share of the debt of the joint ventures at fair value based on current
interest rates.
(D) Represents the net adjustment to interest expense, as follows:
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
----------------- ------------------
To reverse the amortization of Paragon's
deferred financing costs which will
have a zero fair value in connection
with the Merger $ (1,559) $ (1,203)
To record the amortization of the
discount required to record Paragon's
mortgages and other notes payable at
fair value based on current interest
rates 199 150
To reflect the additional borrowings of
$11,235 to fund the Merger and
registration costs (See Notes (B) and
(I) of the Pro Forma Combined Balance
Sheet) at current market interest rates
of 7.08% available to Camden under its
unsecured credit facility 796 606
To record the net reduction in interest
expense due to the retirement of
Paragon's line of credit in accordance
with the terms of the loan agreement
and to finance this retirement with
Camden's unsecured credit facility (234) (175)
---- -----
$(798) $(622)
====== ======
(E) Represents the net increase in depreciation of real estate owned as a result
of recording the Paragon real estate assets at fair value versus historical
cost. Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which have an estimated weighted average
useful life of approximately 23 years. Buildings have been depreciated over
35 years and other assets over 3 to 15 years depending on the useful life of
the related asset.
Calculation of the fair value of depreciable real estate assets at September
30, 1996:
Purchase price (See Pro Forma Combined Balance Sheet Note (B)) $649,758
Less:
Purchase price allocated to projects under
development, including land .................................. 18,355
Purchase price allocated to investment in
real estate joint ventures ................................... 19,969
Purchase price allocated to real estate held for sale ........ 49,579
Purchase price allocated to cash and other assets ............ 16,300
Purchase price allocated to land ............................. 78,075
--------
Pro forma basis of Paragon's depreciable real
estate held for investment at fair value ..................... $467,480
========
Calculation of depreciation of real estate owned for the year ended December
31, 1995 and the nine months ended September 30, 1996 is as follows:
60
<PAGE>
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
--------------- ----------------
Depreciation expense based upon an
estimated weighted average useful
life of approximately 23 years ........ $ 20,325 $ 15,244
Less historical Paragon depreciation of
real estate owned ..................... (16,767) (14,221)
-------- --------
Pro forma adjustment .................. $ 3,558 $ 1,023
======== ========
(F) Represents an adjustment in the Unitholders' minority interest ownership to
19.9% of the earnings of Sub. Such Unitholders' interest is in the earnings
of assets owned by the Sub only, and not the combined entity.
(G) The pro forma weighted average shares outstanding for the year ended
December 31, 1995 and the nine months ended September 30, 1996 are computed
as follows:
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
-------------- --------------
Camden's historical weighted average
number of common and common equivalent
shares outstanding ..................... 14,424 14,573
Issuance of Camden's common shares at an
exchange ratio of 0.64 for all of
Paragon's common stock in connection
with the Merger * ...................... 9,466 9,466
------ ------
Pro forma shares ....................... 23,890 24,039
====== ======
- ------------
* Paragon's September 30, 1996 common shares outstanding multiplied by the
exchange ratio.
(H) Represents further adjustments to reflect the reduction of interest expense
and to record the amortization of debt discount resulting from, (i) the
sale by Camden of 1,090 common shares for $25.875 per share in October
1996, (ii) the conversion of $18.8 million principal amount of Camden's
7.33% Convertible Subordinated Debentures into $18.2 million of common
equity, net of costs, subsequent to September 30, 1996 and through January
31, 1997 and (iii) the completion by Camden of an offering of 7% Notes Due
2006 in an aggregate principal amount of $75 million in November 1996.
(I) Although not presented as pro forma adjustments because they do not meet
the criteria for such presentation, management anticipates that the Merger
will create significant administrative cost savings of approximately $6
million in the first full year of operations.
61
<PAGE>
CAMDEN PROPERTY TRUST
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet gives effect to the proposed
Merger of Camden and Paragon as if the Merger had occurred on September 30,
1996. The Unaudited Pro Forma Combined Balance Sheet gives effect to the Merger
under the purchase method of accounting in accordance with Accounting Standards
Board Opinion No. 16. In the opinion of management, all significant adjustments
necessary to reflect the effects of the Merger have been made. The Merger
adjustments are based on certain estimates and currently available information.
Such adjustments could change as additional information becomes available, as
estimates are refined or as additional events occur, however, management does
not expect any changes in the purchase price or the allocation of such purchase
price to be significant. The Unaudited Pro Forma Combined Balance Sheet is
further adjusted to reflect the net effect of, (i) the sale by Camden of
1,090,000 common shares for $25.875 per share in October 1996, (ii) the
conversion of $18.8 million principal amount of Camden's 7.33% Convertible
Subordinated Debentures into $18.2 million of common equity, net of costs,
subsequent to September 30, 1996 and through January 31, 1997, and (iii) the
completion by Camden of an offering of 7% Notes Due 2006 in an aggregate
principal amount of $75 million in November 1996.
The Unaudited Pro Forma Combined Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual combined
financial position of Camden and Paragon would have been at September 30, 1996,
nor does it purport to represent the future combined financial position of
Camden and Paragon. This Unaudited Pro Forma Combined Balance Sheet should be
read in conjunction with, and is qualified in its entirety by, the respective
historical financial statements and notes thereto of Camden and Paragon
incorporated by reference into this Joint Proxy Statement/Prospectus.
62
<PAGE>
CAMDEN PROPERTY TRUST
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------- ----------------------------
Merger Camden Further As Further
Camden Paragon(A) Adjustments(B) Combined Adjustments(J) Adjusted
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate assets:
Real estate held for investment, net...... $ 547,967 $ 432,130 $ 113,425 (C) $ 1,093,522 $ -- $ 1,093,522
Projects under development, including land 40,238 17,720 635 (D) 58,593 -- 58,593
Investment in real estate joint ventures.. -- 18,264 1,705 (D) 19,969 -- 19,969
Real estate held for sale ................ -- 36,932 12,647 (D) 49,579 -- 49,579
--------- --------- ----------- ----------- ----------- -----------
588,205 505,046 128,412 1,221,663 -- 1,221,663
Cash and cash equivalents ................ 1,930 3,787 -- 5,717 -- 5,717
Other assets ............................. 11,253 20,692 (8,179)(E) 23,766 55 23,821
--------- --------- ----------- ----------- ----------- -----------
Total assets ............................. $ 601,388 $ 529,525 $ 120,233 $ 1,251,146 $ 55 $ 1,251,201
========= ========= =========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Liabilities:
Notes payable:
Unsecured ................................ $ 180,609 -- $ 57,935 (F) $ 238,544 $ 7,464 $ 246,008
Secured .................................. 93,050 287,648 (47,829)(F) 332,869 (34,459) 298,410
--------- --------- ----------- ----------- ----------- -----------
273,659 287,648 10,106 571,413 (26,995) 544,418
Distributions payable .................... 6,987 -- 5,614 (G) 12,601 -- 12,601
Accounts payable, accrued expenses
and other ................................ 21,383 25,202 (755)(H) 45,830 -- 45,830
--------- --------- ----------- ----------- ----------- -----------
Total liabilities ........................ 302,029 312,850 14,965 629,844 (26,995) 602,849
--------- --------- ----------- ----------- ----------- -----------
Minority interest of unitholders in
Operating Partnership .................... -- 45,109 20,160 (B) 64,151 -- 64,151
-- (1,118)(G) -- -- --
7.33% Convertible Subordinated
Debentures ............................... 40,763 -- -- 40,763 (18,821) 21,942
Shareholders' Equity:
Common shares of beneficial interest ..... 149 148 (53)(I) 244 18 262
Additional paid-in capital ............... 307,779 204,617 57,576 (I) 569,972 45,853 615,825
Distributions in excess of net
income ................................... (45,911) (30,072) 25,576 (I) (50,407) -- (50,407)
Unearned restricted share awards ......... (3,421) (3,127) 3,127 (I) (3,421) -- (3,421)
--------- --------- ----------- ----------- ----------- -----------
Total shareholders' equity ............... 258,596 171,566 86,226 516,388 45,871 562,259
--------- --------- ----------- ----------- ----------- -----------
Total liabilities and shareholder's
equity ................................... $ 601,388 $ 529,525 $ 120,233 $ 1,251,146 $ 55 $ 1,251,201
========= ========= =========== =========== =========== ===========
</TABLE>
63
<PAGE>
CAMDEN PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(In thousands, except per share amounts)
(A) Certain reclassifications have been made to Paragon's historical balance
sheet to conform to Camden's balance sheet presentation.
(B) Represents adjustments to record the Merger in accordance with the purchase
method of accounting, based upon the assumed purchase price of $649,758
assuming a market value of $27.75 per share of Camden common shares, as
follows:
Issuance of 9,466 shares of Camden common
shares based on a 0.64 exchange ratio
in exchange for 14,791 shares of Paragon common stock $ 262,688
Issuance of 2,352 operating partnership
units to unitholders based on a 0.64 exchange
ratio for 3,675 units in Paragon Operating Partnership 65,269
Assumption of Paragon liabilities ...................... 312,850
Adjustment to record Paragon mortgages,
other notes payable and other liabilities
at fair value ........................................ (1,884)
Merger costs (See calculation below) ................... 10,835
---------
$ 649,758
=========
The following is a calculation of the estimated fees and other expenses
related to the Merger:
Advisory fees .............................. $ 7,000
Legal and accounting fees .................. 1,000
Termination, severance and relocations costs 2,000
Payment of options ......................... 85
Due diligence .............................. 250
Other ...................................... 500
-------
$10,835
=======
(C) Fair value adjustments of Paragon's real estate assets held for investment
based upon Camden's purchase price and the adjustment to eliminate
Paragon's historical accumulated depreciation of $123,486.
(D) To fair value the historical cost in Paragon's other real estate assets
based on subsequent sales, contracts and fair values.
(E) To fair value Paragon's other assets by $3,301 and to reverse deferred
financing costs and similar costs of $4,878, which have a zero fair value
in connection with the Merger.
(F) Represents the net adjustment to notes payable as follows:
<TABLE>
<CAPTION>
Unsecured Secured
Notes Payable Notes Payable
---------------- ---------------
<S> <C> <C>
To record the discount required to adjust Paragon
mortgages and other notes payable to estimated
fair value using current market quotations .... $ $ (1,129)
Additional borrowings of $11,235 of unsecured debt
incurred by Camden to fund Merger costs of
$10,835 (See Note (B) and registration costs of
$400 (See Note (I))............................ 11,235
To record the retirement of Paragon's line
with Camden's unsecured credit facility ....... 46,700 (46,700)
------- --------
Pro forma adjustment ............................. $57,935 $(47,829)
======= ========
</TABLE>
(G) To adjust historical distributions declared on September 30, 1996 at $0.475
per common share or unit based on the issuance by Camden of 9,466 common
shares and 2,352 Units to Unitholders as if the shares had been issued at
that date.
(H) Adjustment to record Paragon's accrued expenses and other liabilities at
fair value.
64
<PAGE>
(I) To adjust Camden's and Paragon's shareholders' equity to reflect the
issuance of 9,466 (at an exchange ratio of 0.64) shares of Camden common
stock at an assumed price of $27.75 per share, in exchange for all of the
14,791 outstanding shares of Paragon's common stock and to record the
estimated registration costs in connection with the Merger of $400, as
follows:
<TABLE>
<CAPTION>
Additional Distributions Unearned
Common Paid-in in Excess of Restricted Share
Shares Capital Net Income Awards
------ --------- ------------- ----------------
<S> <C> <C> <C> <C>
Issuance of Camden common
shares ............................. $ 95 $ 262,593 $ -- $ --
Registration costs incurred in
connection with the Merger ......... -- (400) -- --
Distributions on issued common
shares ............................. -- -- (4,496) --
Paragon's historical shareholders'
equity ............................. (148) (204,617) 30,072 3,127
---- -------- ------- -------
Pro forma adjustments ............ $ (53) $ 57,576 $25,576 $ 3,127
===== ========= ======= =======
</TABLE>
(J) Represents further adjustments to reflect the net effect of, (i) the sale
by Camden of 1,090 common shares for $25.875 per share in October 1996,
(ii) the conversion of $18.8 million principal amount of Camden's 7.33%
Convertible Subordinated Debentures into $18.2 million of common equity,
net of costs, subsequent to September 30, 1996 and through January 31, 1997
and (iii) the completion by Camden of an offering of 7% Notes Due 2006 in
an aggregate principal amount of $75 million in November 1996 as follows:
<TABLE>
<CAPTION>
Common
Shares Notes Debenture Further
Offering Offering Conversion Adjustments
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS:
Other assets ............................ $ -- $ 645 $ (590) $ 55
-------- -------- -------- --------
Total assets .......................... $ -- $ 645 $ (590) $ 55
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable:
Unsecured ............................ $ (2,581) $ 10,045 $ -- $ 7,464
Secured .............................. (25,059) (9,400) -- (34,459)
-------- -------- -------- --------
Total liabilities .................... (27,640) 645 -- (26,995)
-------- -------- -------- --------
7.33% Convertible Subordinated Debentures -- -- (18,821) (18,821)
Shareholders' Equity
Common shares of beneficial interest .. 11 -- 7 18
Additional paid-in-capital ............ 27,629 -- 18,224 45,853
-------- -------- -------- --------
Total shareholders' equity ........... 27,640 -- 18,231 45,871
-------- -------- -------- --------
Total liabilities and shareholders'
equity ............................. $ -- $ 645 $ (590) $ 55
======== ======== ======== ========
</TABLE>
65
<PAGE>
BUSINESS OF CAMDEN
GENERAL
Camden and its subsidiaries are engaged in the ownership, development,
acquisition, management, marketing and disposition of multifamily apartment
communities in the Southwestern United States. As of September 30, 1996, Camden
owned and operated 49 multifamily properties located in Houston, Dallas/Fort
Worth, Austin, Corpus Christi, El Paso, Phoenix and Tucson. These 49 Camden
Operating Properties contained 17,855 apartment units and had a weighted average
occupancy rate of 94.5% at September 30, 1996.
During 1996, Camden continued the selective development of new apartment
properties in Camden's core markets. As of September 30, 1996, Camden had four
properties under construction. These four Camden Development Properties located
in Houston, Dallas and Phoenix will, when completed, add 1,510 units to the
portfolio. Camden also has two Camden Future Development Properties which Camden
anticipates will, when completed, add an estimated 448 units to the portfolio.
At September 30, 1996, Camden employed 626 persons approximately 65 of whom
were located at Camden's headquarters and 561 of whom were "on-site" or in
regional operating offices. Camden's headquarters are located at 3200 Southwest
Freeway, Suite 1500, Houston, Texas 77027 and its telephone number is (713)
964-3555.
OPERATING STRATEGY
Management believes that producing consistent earnings growth and
developing a strategy for selective investment in favorable markets are crucial
factors to Camden's success. Camden relies heavily on its sophisticated property
management capabilities and innovative operating strategies in its efforts to
produce consistent earnings growth.
SOPHISTICATED PROPERTY MANAGEMENT. Management believes the depth of its
organization enables Camden to deliver quality services, thereby promoting
resident satisfaction and improving resident retention, which reduces operating
expenses. Camden manages the Camden Properties utilizing its staff of
professionals and support personnel, including certified property managers,
certified public accountants, experienced apartment managers and leasing agents,
and trained apartment maintenance technicians. All on-site personnel are trained
to deliver high quality services to their residents. Camden attempts to motivate
on-site employees through incentive compensation arrangements based upon the net
operating income produced at their property, as well as rental rate increases
and the level of lease renewals achieved.
INNOVATIVE OPERATING STRATEGIES. Management believes an intense focus on
operations is necessary to realize consistent, sustained earnings growth.
Ensuring resident satisfaction, increasing rents as market conditions allow,
maximizing rent collections, maintaining property occupancy at optimal levels
and controlling operating costs comprise Camden's principal strategies to
maximize property net operating income. Lease terms are generally staggered
based on vacancy exposure by apartment type so that lease expirations are better
matched to each Camden Property's seasonal rental patterns. Camden offers leases
of six-month to thirteen-month terms, with individual property marketing plans
structured to respond to local market conditions. In addition, Camden conducts
ongoing customer service surveys to ensure timely responsiveness to changing
resident needs and the highest level of resident satisfaction.
Recent examples of management's emphasis on innovative approaches to
resident satisfaction include the introduction of Teleserve, Inc., doing
business as CamTel ("CamTel"), Camden's proprietary telecommunications provider,
and a strategic alliance with a leading cable television provider. CamTel is a
nonqualified-REIT subsidiary of Camden that was established to provide higher
quality, fiber optic, central office switched telecommunications service to
residents in Camden's Properties. Management believes this unique
telecommunications alternative will differentiate Camden's properties from those
of its competitors and increase resident retention. Camden has also entered into
a strategic alliance with a premier Houston cable television operator to service
its Houston portfolio. This alliance results in Camden's Houston residents
receiving the highest quality cable television service (78 channels, fully fiber
optic transmission) for the lowest monthly cost available in the market.
ACQUISITIONS AND DISPOSITIONS. Camden believes it is well positioned in its
markets with the expertise to take advantage of both acquisition and development
opportunities. This dual capability, combined with what management believes is a
conservative financial structure, affords Camden the ability to concentrate its
growth efforts towards selective acquisition opportunities and development
alternatives.
66
<PAGE>
Several of Camden's core markets are targeted by Camden for continued
acquisitions during 1997. Camden plans to continue diversification of its
investments within its core markets, both geographically and in terms of the
number of units and selection of amenities offered. The broadest segment of
Camden's core markets is comprised of properties which are ten to fifteen years
old. Camden's Properties have an average age of eleven years (calculated on a
basis of investment dollars). Camden believes its demonstrated ability to make
physical improvements to acquired properties, such as new or enhanced
landscaping design, new or upgraded amenities and redesigned building
structures, coupled with a strong focus on property management and marketing,
has resulted in attractive yields on the acquired Camden Properties.
To generate consistent earnings growth, Camden seeks to selectively dispose
of properties and redeploy capital if management determines a property cannot
meet long-term earnings growth expectations. Camden disposed of five properties
containing 1,219 units in 1996. The net proceeds of approximately $30 million
from the property dispositions were utilized to reduce outstanding debt of
Camden.
NEW DEVELOPMENT. Selective development of new apartment properties in
Camden's core markets will continue to be important to the growth of Camden's
portfolio for the next several years. Camden uses experienced on-site
construction superintendents, operating under the supervision of project
managers and senior management, to control the construction process. All
development decisions are made from the corporate office. Risks inherent to
developing real estate include zoning changes and environmental matters. There
is also the risk that certain assumptions concerning economic conditions may
change during the development process. Management believes that it understands
and effectively manages the risks associated with development and that the risks
of new development are justified by higher potential yields.
FINANCIAL STRATEGY
CONSERVATIVE FINANCIAL STRUCTURE. Camden seeks to continue to maintain a
conservative capital structure by: (i) targeting a ratio of total debt to total
market capitalization of less than 50%; (ii) extending and sequencing the
maturity dates of its debt where possible; (iii) borrowing at fixed rates; (iv)
borrowing on an unsecured basis; (v) maintaining a substantial number of
unencumbered assets; and (vi) maintaining a conservative debt service coverage
ratio. Management is committed to maintaining a conservative financial structure
and financial flexibility in the future. However, the organizational documents
of Camden do not limit the amount or percentage of indebtedness that it may
incur. Therefore, the Camden Board may change this policy without shareholder
approval.
Camden has maintained on a quarterly basis a conservative financial
structure with no more than 40% total debt to total market capitalization since
its initial public offering (the "Camden IPO") in July 1993. At September 30,
1996, Camden's ratio of total debt to total market capitalization was
approximately 39.2% (based on the closing price of $25.625 per Common Share of
Camden on the NYSE composite tape on September 30, 1996). This ratio represents
total consolidated debt of Camden (excluding Camden's 7.33% Convertible
Subordinated Debentures due 2001 (the "Convertible Debentures") as a percentage
of the market value of the Camden Common Shares (including Camden Common Shares
issuable upon conversion of the Convertible Debentures), but excluding Camden
Common Shares issuable upon exercise of outstanding options) plus total
consolidated debt (excluding the Convertible Debentures). The
debt-to-total-market-capitalization ratio is based on market values of equity
and, accordingly, will fluctuate with changes in the price of the Camden Common
Shares (and the issuance of additional Camden Common Shares or other equity
capital, if any). In general, the lower a company's
debt-to-total-market-capitalization ratio, the greater its ability to access
debt as well as equity capital markets due to its greater ability to service
debt.
For the nine months ended September 30, 1996, Camden's ratio of earnings
before interest, income taxes, depreciation and amortization to interest expense
was 3.0:1. Camden intends to maintain a conservative payout ratio of shareholder
distributions to FFO available to common shareholders. Management believes that
these strategies have enabled and will continue to enable Camden to access the
debt and equity capital markets for its long-term capital requirements, such as
debt refinancing and financing for acquisitions and development.
FINANCIAL FLEXIBILITY. Camden seeks to retain access to a variety of
financing sources, including common and preferred equity and unsecured debt.
Camden has an unsecured credit facility with five banks for a total commitment
of $150 million ("the Unsecured Credit Facility"). Camden's strategy is to
finance acquisitions and development with cash, using borrowings under the
Unsecured Credit Facility, and to subsequently permanently finance these
investments and reduce the amounts outstanding under the Unsecured Credit
Facility with funds raised in the capital markets. As of September 30, 1996, 82%
of Camden's real estate assets were unencumbered.
67
<PAGE>
In February 1996, Camden issued, from its previously filed shelf
registration statement, an aggregate principal amount of $100 million of 6-5/8%
five-year senior unsecured notes. In October 1996, Camden completed the sale of
1,090,000 Camden Common Shares, from the same shelf registration statement, at a
price of $25 7/8 per share. In November 1996, Camden issued, from the same shelf
registration statement, an aggregate principal amount of $75 million of 7%
ten-year senior unsecured notes. Camden primarily used the net proceeds to
reduce indebtedness under the Unsecured Credit Facility. Also subsequent to
September 30, 1996, $18.8 million in principal amount of Convertible Debentures
were converted into 784,206 Camden Common Shares.
As Camden's capital base has broadened, its financial strength and credit
standing have improved. Camden's senior debt is currently rated Baa3 by Moody's,
BBB- by Standard & Poor's and BBB- by Duff & Phelps. As a result of its
investment grade debt ratings, Camden has used and expects to continue to use
unsecured debt as its primary debt funding source, and will seek to continue to
use common equity and may use preferred equity for additional capital.
MARKETS AND COMPETITION
Camden's portfolio consists of middle to upper market apartment properties.
Camden has expanded its portfolio since the Camden IPO through targeted
acquisitions and development in selected high-growth markets. By combining
acquisition, renovation and development capabilities, management believes it is
able to better respond to changing conditions in each market, thereby reducing
market risk and allowing Camden to take advantage of opportunities as they
arise.
At September 30, 1996, 93% of Camden's real estate assets were located in
Texas. Since the Camden IPO, Camden has diversified into other markets in the
Southwestern United States, including Phoenix and Tucson, with additional
development properties in Phoenix, Corpus Christi, Austin and Dallas. At the
time of the Camden IPO, approximately 77% of the Camden Properties (based on the
number of units) were located in Houston. At September 30, 1996, after giving
effect to the anticipated completion of the Camden Development Properties and
the Camden Future Development Properties, 38% of the Camden Properties were
located in Houston. Camden intends to continue this diversification, while
maintaining its focus on markets in the Southwestern United States. Camden
believes that these markets will continue to provide attractive multifamily
investment opportunities and are sufficiently diversified to provide economic
stability to its portfolio.
Camden believes it has benefitted from the strong employment growth and
economic diversification within the state of Texas. Camden also believes the
diversified employment base of the Texas metropolitan areas where the Camden
Properties are located provides significant stability to Camden's cash flow. For
example, the major industries in Houston include petrochemicals, health care,
technology and education. In Dallas, the major industries include trade,
transportation and energy. In Austin, the major industries include government,
education and technology.
Camden believes that there is a limited supply of vacant apartments in the
markets where the Camden Properties are located due to only moderate new
construction of multifamily apartment properties during the last decade. Camden
expects the rate of new apartment construction in these markets to continue to
be restrained in the near future, due to higher investment yield requirements,
continued conservative lending parameters, restrictions on building relating to
political factors, impact fees and infrastructure assessments and the lack of
tax and governmental incentives.
There are numerous housing alternatives that compete with Camden's
Properties in attracting residents. Camden's Properties compete directly with
other multifamily properties and single family homes that are available for rent
in the markets in which Camden's properties are located. Camden's Properties
also compete for residents with the new and existing owned-home market. The
demand for rental housing is driven by economic and demographic trends. Recent
trends in the economics of renting versus home ownership indicate an increasing
demand for rental housing in certain markets, despite relatively low residential
mortgage interest rates. Rental demand should be strong in areas anticipated to
experience in-migration, due to the younger ages that characterize movers as
well as the relatively high cost of home ownership in higher growth areas. In
addition, management believes that the accelerating growth in the formation of
non-traditional households, which tend to rent, should increase the demand for
apartments.
68
<PAGE>
CAMDEN PORTFOLIO SUMMARY
Portfolio Information as of September 30, 1996
CAMDEN OPERATING PROPERTIES
<TABLE>
<CAPTION>
SEPTEMBER 1996
AVERAGE
MONTHLY RENTAL RATES
-------------------
NUMBER YEAR PLACED AVERAGE UNIT 1996 AVERAGE
PROPERTY AND LOCATION OF UNITS IN SERVICE SIZE (SQ FT) OCCUPANCY (a) PER UNIT PER SQ FT
- --------------------- -------- ----------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ARIZONA
PHOENIX
Scottsdale Legacy ... 428 1995 1,067 (f) $876 $ 0.82
TUCSON
Eastridge ........... 456 1984 559 95% 443 0.79
Oracle Villa ........ 365 1974 1,026 92% 713 0.70
TEXAS
AUSTIN
Autumn Woods ........ 283 1984 644 95% 553 0.86
Calibre Crossing .... 183 1986 705 93% 588 0.84
Huntingdon .......... 398 1995 903 89% 814 0.90
Quail Ridge ......... 167 1984 859 95% 673 0.78
Ridgecrest .......... 284 1995 851 92% 774 0.91
South Oaks .......... 430 1980 705 91% 573 0.81
CORPUS CHRISTI
Breakers (b) ........ 288 1996 861 97% 741 0.85
Miramar (c) ......... 244 1994/95 722 94% 653 0.92
Potters Mill ........ 344 1986 775 94% 575 0.74
Waterford ........... 580 1976/80 767 92% 509 0.66
DALLAS/FORT WORTH
Cottonwood Ridge .... 208 1985 829 97% 529 0.64
Emerald Valley ...... 516 1986 743 96% 611 0.82
Emerald Village ..... 304 1987 713 97% 580 0.81
Glen Lakes .......... 424 1979 877 95% 697 0.80
Ivory Canyon ........ 602 1986 548 95% 502 0.92
North Dallas Crossing 446 1985 730 94% 589 0.81
Oakland Hills ....... 476 1985 853 95% 563 0.66
Park at Addison ..... 456 1996 942 (f) 837 0.89
Pineapple Place ..... 256 1983 652 95% 543 0.83
Randol Mill Terrace . 340 1984 848 94% 538 0.63
Shadowlake .......... 264 1984 733 92% 533 0.73
Towne Centre Village 188 1983 735 96% 530 0.72
Towne Crossing ...... 442 1984 772 95% 535 0.69
Valley Creek Village 380 1984 855 96% 588 0.69
Valley Ridge ........ 408 1987 773 94% 573 0.74
Westview ............ 335 1983 697 95% 562 0.81
EL PASO
La Plaza ............ 129 1969 997 97% 578 0.58
HOUSTON
Armand Place (d) .... 244 1979 929 94% 608 0.65
Bay Crest Village ... 96 1980 855 90% 580 0.68
Bay Place ........... 193 1968 856 91% 529 0.62
Brighton Place ...... 282 1978 749 95% 503 0.67
Cambridge Place ..... 336 1979 771 96% 516 0.67
Crossing, The ....... 366 1982 762 96% 509 0.67
Driscoll Place ...... 488 1983 708 95% 437 0.62
Eagle Creek ......... 456 1984 639 97% 503 0.79
Hayes Place ......... 307 1980 746 93% 485 0.65
Jones Crossing ...... 290 1982 748 96% 517 0.69
Roseland Place ...... 671 1982 726 97% 498 0.69
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
NUMBER YEAR PLACED AVERAGE UNIT 1996 AVERAGE
PROPERTY AND LOCATION OF UNITS IN SERVICE SIZE (SQ FT) OCCUPANCY (a) PER UNIT PER SQ FT
- --------------------- -------- ----------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sierra Pines I & II(e) 804 1982 766 93% 455 0.59
Southpoint ........... 244 1981 730 96% 542 0.74
Stonebridge .......... 204 1993 845 96% 724 0.86
Vanderbilt Square I(b) 516 1995 963 98% 982 1.02
Wallingford .......... 462 1980 787 94% 531 0.67
Wilshire Place ....... 536 1982 761 94% 504 0.66
Woodland Park ........ 288 1995 866 96% 744 0.86
Wyndham Park ......... 448 1978/81 797 92% 474 0.59
------- --- ---- ---- -----
TOTAL .................... 17,855 783 94% $587 $ 0.75
</TABLE>
CAMDEN DEVELOPMENT PROPERTIES
NUMBER YEAR PLACED AVERAGE UNIT
PROPERTY AND LOCATION OF UNITS IN SERVICE SIZE (SQ FT)
- --------------------- -------- ----------- ------------
ARIZONA
PHOENIX
Park at Arrowhead
Springs ............. 288 1997 925
TEXAS
DALLAS/FORT WORTH
Park at Buckingham .. 464 1997 919
Park at Centreport(g) 268 1998 910
HOUSTON
Park at Sugargrove .. 380 1997 917
Vanderbilt Square II. 378 1997 726
---
TOTAL ................... 1,778 877
---
GRAND TOTAL ............. 19,633 792
====== ===
Notes:
(a) Represents the average physical occupancy for the nine-month period ended
September 30, 1996.
(b) The 1996 Average Occupancy figure calculated from the date at which the
occupancy exceeded 90% through September 30, 1996.
(c) Miramar is a student housing project for Texas A&M - Corpus Christi. The
1996 Average Occupancy includes summer which is normally subject to high
vacancies.
(d) Property sold in December 1996.
(e) Phase II of Sierra Pines was acquired in May 1996, increasing the total
number of units at this property from 404 to 804.
(f) These properties were still in lease-up at September 30, 1996; both
properties exceeded 90% occupancy in the fourth quarter of 1996.
(g) Construction began in the fourth quarter of 1996. This property was
previously considered a Camden Future Development Property.
70
<PAGE>
BUSINESS OF PARAGON
GENERAL
Paragon is a fully integrated REIT headquartered in Dallas, Texas whose
business is the operation, development and acquisition of multifamily
residential communities in the Southwest, Midwest, Carolina and Florida markets.
Paragon is a self- administered and self-managed REIT that, as of September 30,
1996, owned interests in 57 completed multifamily residential communities
totalling 15,882 apartment units located in six states, with three additional
multifamily residential communities, totaling 856 residential units, currently
under construction. Paragon also has indirect minority ownership interests in
three commercial properties, including a 20% interest in a 401,625 square foot
office building. In addition, as of September 30, 1996, Paragon, through PRSI,
managed 78 multifamily residential communities (including the Paragon
Residential Properties) located across the United States, containing
approximately 21,774 apartment units.
Paragon and its affiliates succeeded in July 1994 to substantially all of
the interests of Paragon-Texas, and certain others in the Paragon Properties and
to Paragon's property services businesses. Concurrently, Paragon consummated an
initial public 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. Paragon sold its commercial property services business as of
June 30, 1996 and had sold all of its wholly-owned commercial properties as of
December 20, 1996.
Paragon's principal executive offices are located at 7557 Rambler Road,
Suite 1200, Dallas, Texas 75231, and its telephone number is (214) 891-2000.
Paragon is a Maryland corporation that was incorporated on March 23, 1994.
ORGANIZATIONAL STRUCTURE
Paragon conducts substantially all of its business through Paragon
Operating Partnership, which Paragon controls through its wholly owned
subsidiaries, Paragon GP Holdings, the sole general partner of and the holder of
a 1.0% interest in Paragon Operating Partnership, and Paragon LP Holdings, the
holder of 79.1% of the Units in Paragon Operating Partnership as of September
30, 1996. The other limited partners of Paragon Operating Partnership include
entities controlled by Paragon's executive officers and other prior owners of
interests in the Paragon Properties and other assets owned by Paragon Operating
Partnership. As sole general partner, Paragon GP Holdings has the exclusive
power to manage and conduct the business of Paragon Operating Partnership.
Paragon's interests in Paragon 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, Paragon Operating Partnership in
proportion to its percentage interest therein.
Paragon's residential property services business is conducted by PRSI, an
affiliate in which Paragon 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 TPMP. As of June 30, 1996, Paragon sold its
economic interest in the commercial property services business which previously
has been conducted by PGPSI, and PRSI succeeded to the residential property
services business of PGPSI.
BUSINESS OBJECTIVES AND STRATEGY
Paragon's business objectives have focused on generating stable and
increasing cash flow and asset value through (i) 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 disposition of assets and
capital redeployment, and (v) continued utilization of joint venture
opportunities to broaden Paragon's investment capability in its key markets and
to enhance the yield generated on Paragon's invested capital. Paragon's current
strategy also includes liquidating commercial assets to redeploy resources into
its core business of multifamily assets and selectively liquidating multifamily
assets which are not in its key markets or which management believes are not
consistent with the characteristics of the overall portfolio.
QUARTERLY DIVIDENDS. On November 26, 1996, Paragon paid a dividend with
respect to the third quarter of 1996 of $0.465 per share of Paragon Common Stock
to holders of record on November 15, 1996. Concurrently, Paragon Operating
71
<PAGE>
Partnership paid a distribution of $0.465 per Unit to Unitholders of record on
November 15, 1996. On January 2, 1997, the Paragon Board declared a dividend
with respect to the fourth quarter of 1996, of $0.465 per share of Paragon
Common Stock to holders of record on January 13, 1997, to be paid on January 23,
1997. Concurrently, the Board of Directors of Paragon GP Holdings, as general
partner of Paragon Operating Partnership, declared a distribution of $0.465 per
Unit to Unitholders of record on January 13, 1997, to be paid on January 23,
1997.
COMPLETED INVESTMENTS. On November 8, 1996, Paragon purchased two
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. In connection with the purchase, Paragon assumed a mortgage note as
described below. On December 13, 1996, Paragon purchased 12.6 acres of land in
Orlando, Florida for $2,006,988. Paragon expects to develop the land as a
320-unit multifamily property, which will be the second phase of the completed
272-unit Renaissance Pointe Phase I property.
COMPLETED DISPOSITIONS. On October 1, 1996, Paragon sold Southwood Mall, a
113,949 square foot shopping center located in Bradenton, Florida for
$3,170,000. On December 4, 1996, Paragon sold for $3,700,000 the Post and
Paddock, a 108,600 square foot office/warehouse property, located in suburban
Dallas, Texas. Paragon completed development of this property in November of
1996. Proceeds from the sales of these properties were used to fund Paragon's
development activity.
On November 1, 1996, Paragon sold Westgate Centre, a 58,935 square foot
shopping center in St. Louis, Missouri for $7,130,000. Proceeds from the sale
were used to fund a portion of the two multifamily acquisitions discussed above.
On December 13, 1996, Paragon sold for $13,800,000 Turtle Creek I and
Turtle Creek II, two multifamily residential communities located in Asheville,
North Carolina, which are comprised of 208 and 176 units, respectively. On
December 19, 1996, Paragon sold for $10,000,000 The Paragon, a 102,517 square
foot office complex in St. Louis, Missouri. Proceeds from the sales of these
properties were used to repay borrowings under the line of credit.
On January 15, 1997, Paragon sold for $11,000,000 (plus loan pre-payment
penalties) Westchase apartments, a 352 unit multifamily residential community,
located in Charleston, South Carolina. On January 27, 1997, Paragon sold for
approximately $5,500,000 Brookfield apartments, a 232 unit multifamily
residential community, located in Dallas, Texas. On January 31, 1997, Paragon
sold for $6,875,000 San Miguel apartments, a 251 unit multifamily residential
community, located in St. Charles, Missouri.
FINANCING ACTIVITY. On November 6, 1996, Paragon borrowed $7,400,000,
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 price of the two multifamily acquisitions
discussed above.
In connection with the acquisition of the River Oaks apartments, Paragon
assumed a mortgage note which has an interest rate of 8.44%, calls for payments
of principal and interest and matures on October 15, 1999. The balance of the
note on November 8, 1996, the date of assumption, was approximately $6.36
million.
BUSINESS SEGMENTS
Paragon's two primary business segments are property operations and
property service operations.
PROPERTY OPERATIONS. Paragon's property operations generate the majority
of its revenue and substantially all of its net income. Paragon's practice is to
seek opportunities to improve operating margins at the Paragon Properties and to
implement more effective and consistent marketing of its apartment communities
to potential residents.
As of September 30, 1996, Paragon owned, directly or indirectly, 60
Paragon Residential Properties, 55 of which Paragon considers to have reached
stabilized occupancy. A residential property is considered by Paragon 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. Development of two Paragon Residential Properties
was recently completed and these Paragon Residential Properties are in the
initial phase of lease-up. Three Paragon Residential Properties are currently
under construction, with completion scheduled to occur in the first or second
quarter of 1997. When development is complete, Paragon will own 60 completed
Paragon Residential Properties with 16,738 apartment units. The Paragon
Properties range
72
<PAGE>
in size from 112 apartment units to 708 units and the average apartment unit
size is approximately 790 square feet. The average age of the 55 stabilized
Paragon Properties is 12.5 years as of September 30, 1996.
The following tables describe the geographic distribution of the Paragon
Properties (including recently developed Paragon Properties and Paragon
Properties under construction) and provide certain information on each such
Paragon Properties as of September 30, 1996.
NUMBER OF
NUMBER OF APARTMENT UNITS
STATE PROPERTIES (UNDER CONSTRUCTION)
----- ---------- --------------------
Florida 21 6,007
Missouri 14 3,738 (288)
North Carolina 10 2,663 (568)
Texas 9 2,836
Kentucky 5 1,142
South Carolina 1 352
PROPERTY SERVICES BUSINESS. PRSI performs a variety of property service
tasks for Paragon, affiliated property owners and third-party owners and
provides Paragon with in-depth knowledge about existing and new markets and
submarkets. PRSI continues to focus on maximizing property performance through
proactive management that focuses on maintaining resident satisfaction to reduce
lease rollover, aggressive reletting of apartment units and utilizing operating
efficiencies resulting from the size of PRSI's management operations.
73
<PAGE>
PARAGON PORTFOLIO SUMMARY
Portfolio Information as of September 30, 1996
PARAGON OPERATING PROPERTIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
AVERAGE MONTHLY
AVERAGE 1996 RENTAL REVENUE
NUMBER YEAR PLACED NET RENTAL UNIT SIZE AVERAGE ------------------
PROPERTY AND LOCATION OF UNITS IN SERVICE AREA (SQ FT) (SQ FT) OCCUPANCY PER UNIT PER SQ FT
- -------- --- -------- ------- ---------- ------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FLORIDA
ORLANDO
Grove 232 1973 157,116 677 96.4% $429 $0.63
Landtree 220 1983 164,484 748 95.9% 472 0.63
The Reserve 146 1991 130,368 893 98.0% 592 0.66
Summerplace I & II 344 1984 260,520 757 91.5% 449 0.59
Summerplace III 208 1986 152,022 731 89.6% 453 0.62
The Vineyard 380 1990 303,148 798 95.3% 538 0.67
ST. PETERSBURG
4th Street Station I 384 1982 278,118 724 86.3% 469 0.65
4th Street Station II 304 1983 222,702 733 85.0% 469 0.64
TAMPA
Broadmoor 384 1986 250,032 651 91.6% 420 0.64
Chasewood 247 1985 173,889 704 93.6% 452 0.64
CocoWest I 208 1983 149,838 720 91.1% 431 0.60
CocoWest II 276 1985 199,668 723 92.0% 425 0.59
Dolphin Pointe 416 1989 315,406 758 93.2% 504 0.66
Greenhouse 324 1982 224,958 694 93.5% 409 0.59
Lookout Pointe 416 1987 306,528 737 94.5% 487 0.66
Parsons Run 228 1986 166,056 728 94.7% 470 0.65
Schooner Bay 278 1986 202,304 728 93.7% 526 0.72
Summerset Bend 272 1984 197,982 728 95.7% 462 0.64
WINTERHAVEN
Lake I 192 1976 139,698 728 92.0% 382 0.53
KENTUCKY
LOUISVILLE
Copper Creek 224 1987 164,024 732 95.3% 571 0.78
Deerfield 400 1987/90 298,336 746 93.6% 557 0.75
Glenridge 138 1990 126,340 916 95.4% 691 0.75
Post Oak 126 1981 106,780 847 94.3% 520 0.61
Sundance 254 1975 173,130 682 96.3% 463 0.68
MISSOURI
KANSAS CITY
Camden Passage 308 1989 238,324 774 96.2% 643 0.83
ST. CHARLES
San Miguel(2) 251 1970 214,430 854 87.5% 493 0.58
ST. LOUIS
Knollwood I 308 1981 222,648 723 94.8% 467 0.65
Knollwood II 300 1985 216,036 72 97.2% 483 0.67
Pear Tree 134 1967 96,892 723 95.7% 458 0.63
Spanish Trace 372 1972 430,628 1,158 96.0% 604 0.52
Sunswept 334 1971 268,842 805 95.1% 459 0.57
Tempo 304 1975 205,381 676 93.0% 449 0.66
The Cove 276 1990 228,480 828 98.4% 829 1.00
The Knolls 112 1973 167,270 1,493 97.2% 731 0.49
Westchase Park 160 1986 151,124 945 94.8% 776 0.82
Westgate I 189 1973 220,967 1,169 86.3% 741 0.63
Westgate II 402 1980 338,659 842 85.1% 597 0.71
</TABLE>
74
<PAGE>
PARAGON OPERATING PROPERTIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
AVERAGE MONTHLY
AVERAGE 1996 RENTAL REVENUE
NUMBER YEAR PLACED NET RENTAL UNIT SIZE AVERAGE ------------------
PROPERTY AND LOCATION OF UNITS IN SERVICE AREA (SQ FT) (SQ FT) OCCUPANCY PER UNIT PER SQ FT
- -------- --- -------- ------- ---------- ------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH CAROLINA
ASHEVILLE
Turtlecreek I(2) 208 1973 216,868 1,043 90.7% 574 0.55
Turtlecreek II(2) 176 1985 127,702 726 95.3% 535 0.74
CHARLOTTE
Copper Creek 208 1989 146,248 703 93.6% 527 0.75
Eastchase 220 1986 153,560 698 95.9% 509 0.73
Falls 352 1984 248,391 706 95.8% 553 0.78
Pinehurst 407 1967 466,865 1,147 93.2% 647 0.56
The Overlook (1) 220 1985 165,790 754 96.3% 563 0.75
GREENSBORO
Glen 304 1980 201,112 662 93.1% 497 0.75
SOUTH CAROLINA
CHARLESTON
Westchase (2) 352 1986 248,391 706 96.8% 463 0.66
TEXAS
DALLAS
Brookfield (2) 232 1986 165,544 714 94.9% 443 0.62
Chesapeake 128 1982 116,708 912 92.0% 635 0.70
Highpoint (1) 708 1985 591,428 835 89.4% 550 0.66
Nob Hill 486 1986 311,940 642 90.8% 435 0.68
IRVING
Fairlane 320 1980 213,200 666 97.4% 437 0.66
Los Rios 286 1992 220,660 772 93.9% 738 0.96
PLANO
Highland Trace 160 1985 130,531 816 95.8% 581 0.71
--- ------- --- --- ----
TOTAL/WEIGHTED 14,818 11,588,066 782 93.3% $522 $0.67
AVERAGE
PARAGON DEVELOPMENT PROPERTIES
NINE MONTHS ENDED
SEPTEMBER 30, 1996
AVERAGE MONTHLY
AVERAGE 1996 RENTAL REVENUE
NUMBER YEAR PLACED NET RENTAL UNIT SIZE AVERAGE ------------------
PROPERTY AND LOCATION OF UNITS IN SERVICE AREA (SQ FT) (SQ FT) OCCUPANCY PER UNIT PER SQ FT
- -------- --- -------- ------- ---------- ------------ --------- --------- -------- ---------
FLORIDA
ORLANDO
Renaissance Pointe 272 1996 255,604 940
TAMPA
Heron Pointe 276 1996 259,872 942
MISSOURI
KANSAS CITY
Camden Passage II 288 257,736 895
NORTH CAROLINA
CHARLOTTE
The Park 232 199,388 859
GREENSBORO
Brassfield Park (1) 336 298,604 889
</TABLE>
75
<PAGE>
PARAGON DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
AVERAGE MONTHLY
AVERAGE 1996 RENTAL REVENUE
NUMBER YEAR PLACED NET RENTAL UNIT SIZE AVERAGE ------------------
PROPERTY AND LOCATION OF UNITS IN SERVICE AREA (SQ FT) (SQ FT) OCCUPANCY PER UNIT PER SQ FT
- -------- --- -------- ------- ---------- ------------ --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
TEXAS
DALLAS
Stone Creek 240 1996 199,521 831 88.9% 714 0.86
Stone Gate 276 1996 240,312 871
--- ------- ---
TOTAL/WEIGHTED AVG 1,920 1,711,037 891
</TABLE>
Note: (1) Owned through Paradim Joint Venture
(2) Sold subsequent to September 30, 1996.
76
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Merger, Paragon stockholders automatically
would become shareholders of Camden and their rights as shareholders would be
determined by the Camden Declaration of Trust and the Camden Bylaws. The
following is a summary of the material differences in the rights of shareholders
of Camden and Paragon.
CAPITALIZATION
CAMDEN. Camden is authorized to issue 100,000,000 Camden Common Shares, of
which 16,689,879 shares were issued and outstanding as of the Camden Record
Date. Camden also is authorized to issue 10,000,000 preferred shares of
beneficial interest, $.01 par value (the "Camden Preferred Shares"), of which no
shares are currently outstanding. The Camden Declaration of Trust also provides
for the reclassification of outstanding capital stock as "Excess Securities" in
connection with transfers resulting in ownership of shares in violation of the
ownership limits set forth in the Camden Declaration of Trust in order to
protect Camden's status as a REIT for federal income tax purposes ("Camden
Excess Securities"). See "-- REIT Qualification Provisions."
The Camden Declaration of Trust authorizes the Camden Board, without
further action by the Camden shareholders, to provide for the issuance of Camden
Preferred Shares in one or more series and to fix the voting powers,
designations, preferences, exchange or conversion rights, options, restrictions,
special rights or relations, dividend rights or limitations, qualifications or
terms, or conditions of redemption thereof, by adopting a resolution or
resolutions creating and designating such series. The rights of the holders of
Camden Common Shares are subject to the rights and preferences of the holders of
any Camden Preferred Shares or series thereof that the Camden Board may issue.
See " -- Anti-Takeover Provisions."
PARAGON. Paragon is authorized to issue 200,000,000 shares of capital
stock, all having a par value of $.01 per share, of which (i) 100,000,000 shares
are classified as Paragon Common Stock; (ii) 50,000,000 shares are classified as
preferred stock ("Paragon Preferred Stock"); and (iii) 50,000,000 shares are
classified as excess stock ("Paragon Excess Stock"). Paragon had 14,791,165
shares of Paragon Common Stock issued and outstanding as of the Paragon Record
Date, no shares of Paragon Preferred Stock issued and outstanding and no shares
of Paragon Excess Stock outstanding.
The Paragon Articles authorize the Paragon Board, without stockholder
approval, to provide for the issuance of Paragon Preferred Stock in one or more
series and to fix the preferences, conversion and other rights, voting rights,
restrictions and limitations as to dividends, qualifications and terms and
conditions of redemption as the Paragon Board may determine. The rights of the
holders of Paragon Common Stock are subject to the rights and preferences of the
holders of any Paragon Preferred Stock or series thereof that the Paragon Board
may issue. See " -- Anti-Takeover Provisions."
VOTING RIGHTS
CAMDEN. Each holder of Camden Common Shares is entitled to one vote per
share and to the same and identical voting rights as other holders of Camden
Common Shares. Holders of Camden Common Shares do not have cumulative voting
rights. Except as may otherwise be provided in a designation of a series of
Camden Preferred Shares or as otherwise expressly required by law, holders of
Camden Preferred Shares do not have any voting rights. The holders of Camden
Excess Securities have no voting rights on any matters except as otherwise
expressly required by law.
PARAGON. Each holder of Paragon Common Stock is entitled to one vote per
share and to the same and identical voting rights as other holders of Paragon
Common Stock. Holders of Paragon Common Stock do not have cumulative voting
rights. Holders of Paragon Preferred Stock have such voting rights, if any, as
established by the Paragon Board in the designation of a series of Paragon
Preferred Stock or as otherwise expressly required by law. The holders of
Paragon Excess Stock have no voting rights on any matters except as otherwise
expressly required by law.
DIRECTORS
CAMDEN. The Camden Bylaws provide for a Board of Trust Managers having two
to seven members. The Camden Board may increase or decrease the number of trust
managers, and vacancies, whether arising from an increase in the number of trust
managers or from the failure by shareholders to elect the full authorized number
of trust managers, may be filled by the vote of the holders of at least
two-thirds of the outstanding shares at an annual or special meeting of the
shareholders or
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by the Camden Board (including by the affirmative vote of a majority of the
remaining trust managers if less than a quorum of the trust managers remains).
A member of the Camden Board may be removed with or without cause by the
affirmative vote of shareholders holding at least two-thirds of all Camden
Common Shares authorized to be cast and entitled to vote on the election of
trust managers.
PARAGON. The number of persons constituting the Paragon Board is ten. The
Paragon bylaws provide that the Paragon board shall have three to fifteen
directors, provided that in certain circumstances the number of directors may be
less than three but not less than one. The directors of Paragon are divided into
three classes, with approximately one-third of the directors elected by the
stockholders annually. Consequently, members of the Paragon board serve
staggered three-year terms.
Except in the case of a vacancy on the Paragon Board among the directors
elected by a class or series of capital stock other than Paragon Common Stock,
the Paragon Articles provide that any vacancy on the Paragon Board may be filled
by the affirmative vote of the remaining directors (except that a vacancy which
results from an increase in the number of directors may be filled by a majority
of the entire Paragon Board), and in the case of a vacancy resulting from the
removal of a director, by the vote of a plurality of all the votes of the
stockholders cast at an annual or special meeting at which a quorum is present.
Any vacancy on the Paragon Board among the directors elected by a class or
series of capital stock (other than Paragon Common Stock) may be filled by a
majority of the remaining directors elected by that class or series or the sole
remaining directors elected by that class or series, or by the vote of a
plurality of all the votes of the stockholders of that class or series at an
annual or special meeting at which a quorum is present.
Under the Paragon Articles, Paragon directors may be removed only for
cause and only by the affirmative vote of stockholders holding at least
two-thirds of all shares of Paragon capital stock entitled to vote on the
election of directors.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Maryland law, the Camden Declaration of Trust and
the Paragon Articles may discourage an attempt to acquire control of Camden or
Paragon, respectively, that a majority of either corporation's shareholders
determined was in their best interests. These provisions also may render the
removal of one or all trust managers or directors more difficult or deter or
delay of control that the Camden Board or Paragon Board, respectively, did not
approve. Provisions of the Camden Declaration of Trust and Paragon Articles
intended to preserve qualified REIT status under the Code may have the same
effects. See " -- REIT Qualification Provisions."
CAMDEN.
AUTHORIZED PREFERRED SHARES. The rights of holders of Camden Common Shares
will be subject to, and may be adversely affected by, the rights of holders of
any Camden Preferred Shares that may be issued in the future. Any such issuance
may adversely affect the interests of holders of Camden Common Shares by
limiting the control that such holders may exert by exercise of their voting
rights, by subordinating their rights in liquidation to the rights of the
holders of such Camden Preferred Shares, and otherwise. In addition, the
issuance of Camden Preferred Shares, in some circumstances, may deter or
discourage takeover attempts and other changes in control of Camden by making it
more difficult for a person who has gained a substantial equity interest in
Camden to obtain control or to exercise control effectively. Camden has no
current plans or agreements with respect to the issuance of any Camden Preferred
Shares.
CERTAIN BUSINESS COMBINATIONS. The Camden Declaration of Trust provides
that, under certain circumstances, the affirmative vote of the holders of not
less than 80% of the outstanding shares of the Camden Common Shares and Camden
Preferred Shares is required for the approval or authorization of certain
business combinations. Generally, the type of combinations affected by this
voting threshold are substantial transactions between Camden and "related
persons," defined to be persons that beneficially own in the aggregate more than
50% of the capital stock of Camden. Further, holders of not less than 50% of the
outstanding shares of capital stock not owned, directly or indirectly, by such
"related person" is required for approval of such combinations, unless the
affirmative vote of not less than 90% of the outstanding shares of capital stock
of Camden is obtained.
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PARAGON.
AUTHORIZED PREFERRED STOCK. The Paragon Board may authorize the issuance
of Paragon Preferred Stock at such times, for such purposes and for such
consideration as it may deem advisable without further stockholder approval. The
issuance of Paragon Preferred Stock under certain circumstances may have the
effect of discouraging an attempt by a third party to acquire control of Paragon
by, for example, authorizing the issuance of a series of Paragon Preferred Stock
with rights and preferences designed to impede the proposed transaction, or by
making it more difficult for a person who has gained a substantial equity
interest in Paragon to obtain control or to exercise control effectively.
MARYLAND LEGISLATION. The MGCL provides that control shares (as defined
below) of a Maryland corporation acquired in a "control share acquisition" have
no voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares owned by the acquiror,
or by officers or by directors who are employees of the corporation. "Control
shares" are voting shares which, if aggregated with all other such shares
previously acquired by the acquiror or in respect of which the acquiror is
entitled to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror, directly or
indirectly, to exercise or direct the exercise of voting power in electing
directors within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third of all voting power, (ii) one-third or more but
less than a majority of all voting power or (iii) a majority or more of all
voting power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the direct or indirect acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay certain
of the corporation's expenses), may compel the board of directors of a Maryland
corporation to call a special meeting of stockholders to be held within 50 days
of demand to consider the voting rights of the shares. If no request for a
meeting is made, the corporation may itself present the question at any
stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the MGCL,
then, subject to certain conditions and limitations, the corporation may redeem
any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or, if a meeting is held, as of the
date of any meeting of stockholders at which the voting rights of such shares
are considered and not approved. If voting rights for control shares are
approved at a stockholders meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares
acquired in a merger, consolidation or share exchange if the Maryland
corporation is a party to the transaction or (b) to acquisitions approved or
exempted by the articles of incorporation or bylaws of the Maryland corporation.
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns, directly or indirectly, ten
percent or more of the voting power of the corporation's voting stock (an
"Interested Stockholder") or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was an Interested
Stockholder or an affiliate thereof, are prohibited for five years after the
most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of the corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
voting stock of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the Maryland
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder.
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REIT QUALIFICATION PROVISIONS
CAMDEN. The Camden Declaration of Trust, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the total outstanding capital stock ("Camden Capital Stock"). The Camden Board
is not permitted to waive the Ownership Limit. Further, any transfer of Camden
Capital Stock that would: (i) result in the Camden Capital Stock being owned by
fewer than 100 persons; (ii) result in Camden being "closely held" within the
meaning of Section 856(h) of the Code; or (iii) result in the disqualification
of Camden as a REIT, is considered to be null and void, and the intended
transferee will acquire no rights in the shares, except as provided in the
Camden Declaration of Trust regarding Camden Excess Securities.
The Camden Declaration of Trust provides that Camden Capital Stock owned,
or deemed to be owned, or transferred to a shareholder in excess of the
Ownership Limit will automatically be deemed to be Camden Excess Securities and
as such will be deemed to have been transferred to Camden as trustee of a trust
for the exclusive benefit of the transferees to whom such Camden Capital Stock
may ultimately be transferred without violating the Ownership Limit. While the
Camden Excess Securities are held in trust, they will not be entitled to vote,
and they will not be entitled to participate in dividends or other
distributions. Any dividend or distribution paid to a proposed transferee of
Camden Excess Securities prior to the discovery by Camden that Camden Capital
Stock has been transferred in violation of the provisions of the Camden
Declaration of Trust shall be repaid to Camden upon demand. The original
transferee-shareholder may, at any time Camden Excess Securities are held by
Camden in trust, transfer the interest in the trust representing the Camden
Excess Securities to any individual whose ownership of the Camden Capital Stock
that have been deemed to be Camden Excess Securities would be permitted under
the Ownership Limit, at a price not in excess of the price paid by the original
transferee-shareholder for the Camden Capital Stock that were exchanged into
Camden Excess Securities. Immediately upon the transfer to the permitted
transferee, the Camden Excess Securities will automatically be deemed to be
Camden Capital Stock of the class from which they were converted. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulation, then the intended
transferee-shareholder of any Camden Excess Securities may be deemed, at the
option of Camden, to have acted as an agent on behalf of Camden in acquiring the
Camden Excess Securities and to hold the Camden Excess Securities on behalf of
Camden.
In addition to the foregoing transfer restrictions, Camden will have the
right, for a period of 90 days during the time any Camden Excess Securities are
held by Camden in trust, to purchase all or any portion of the Camden Excess
Securities from the original transferee-shareholder at the lesser of the price
paid for the Camden Capital Stock by the original transferee- shareholder and
the market price (as determined in the manner set forth in the Camden
Declaration of Trust) of the Camden Capital Stock on the date Camden exercises
its option to purchase. The 90-day period begins on the later of the date of the
violative transfer or date the Camden Board determines that a violative transfer
has been made.
Each shareholder shall upon demand be required to disclose to Camden in
writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as the Camden Board deems necessary to comply
with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
The Ownership Limit may have the effect of precluding acquisition of
control of Camden unless the Camden Board and the shareholders determine that
maintenance of REIT status is no longer in the best interest of Camden.
PARAGON. In order to assist in preserving Paragon's status as a REIT under
the Code, the Paragon Articles provide that, subject to certain exceptions, no
stockholder may directly or indirectly acquire or hold a beneficial ownership
interest (determined in accordance with the attribution rules applicable to
ownership of REIT shares under the Code) in more than 9.8% of the outstanding
shares (the "Percentage Limit") of any class or series of Paragon capital stock
("Paragon Capital Stock"). The Paragon Board may waive the Percentage Limit with
respect to a particular stockholder under certain circumstances. Additionally,
any transfer of Paragon Capital Stock that would (i) result in Paragon Capital
Stock being owned by fewer than 100 persons; or (ii) result in Paragon being
"closely held" within the meaning of Section 856(h) of the Code, shall be void
AB INITIO and the intended transferee shall acquire no rights in the shares.
Subject to certain exceptions, if any person acquires or holds shares of
Paragon Capital Stock in excess of the applicable Percentage Limit (the "Excess
Shares"), such Excess Shares will automatically be deemed to have been converted
into Paragon Excess Stock and transferred by operation of law to Paragon as
trustee for the person or persons unaffiliated with
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the acquiror or holder to whom the Excess Shares are ultimately transferred.
Upon transfer to such person or persons, the Excess Shares are reconverted to
shares of Paragon Capital Stock of the same class or series from which converted
to Excess Shares.
Excess Shares may not be voted and are not entitled to distributions or
dividends until they cease to be Excess Shares. In addition, Paragon may redeem
Excess Shares within 90 days of receipt of actual notice of their existence at a
redemption price equal to the lower of the price paid by the acquiror or holder
for the shares of Paragon Capital Stock becoming Excess Shares and the market
price of such shares on the redemption date.
Notwithstanding any other provision of the Paragon Articles, any
acquisition of Paragon Capital Stock that would result in the disqualification
of Paragon as a REIT under the Code shall be null and void, and the Paragon
Board is authorized to take any action it deems necessary or desirable to
preserve Paragon's qualification as a REIT.
Paragon stockholders and their transferees are or may be required to
disclose to Paragon information relating to ownership of Paragon Capital Stock,
and the Paragon Board may refuse to permit a transfer of Paragon Capital Stock
if in its opinion such transfer would jeopardize the qualification of Paragon as
a REIT.
The Paragon Board may not take any action to terminate Paragon's status as
a REIT until such time as (i) the Paragon Board adopts a resolution recommending
that Paragon terminate its status as a REIT and (ii) such resolution is approved
by at least two-thirds of all the votes entitled to be cast by holders of
Paragon Capital Stock.
PREEMPTIVE RIGHTS
Neither the shareholders of Camden nor the stockholders of Paragon have
preemptive rights. Thus, if additional Camden Common Shares or shares of Paragon
Common Stock were issued, the proportions of capital stock ownership of the
holders thereof would be reduced, to the extent they did not participate in such
additional issuance of shares.
ASSESSMENT
All outstanding Camden Common Shares are, and those to be issued pursuant
to the Agreement will be, fully paid and nonassessable.
The shares of Paragon Common Stock presently outstanding are fully paid
and nonassessable.
CONVERSION; REDEMPTION; SINKING FUND
Neither Camden Common Shares nor Paragon Common Stock is convertible,
redeemable or entitled to any sinking fund.
LIQUIDATION RIGHTS
CAMDEN. In the event of the liquidation, dissolution or winding-up of the
affairs of Camden, holders of outstanding Camden Common Shares are entitled to
share, in proportion to their respective interests, in Camden's assets and funds
remaining after payment, or provision for payment, of all debts and other
liabilities of Camden. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of Camden, the holders of Camden Preferred Shares will
be entitled to receive out of the assets of Camden available for distribution to
shareholders, before any distribution is made to holders of Camden Common
Shares, liquidation preferences in the amounts prescribed by the applicable
series designations. The holders of any series of Camden Preferred Shares will
not be entitled to receive the liquidation preference of such series until the
liquidation preference of any other series of Camden Preferred Shares ranking
senior to the such series with respect to rights upon liquidation, dissolution
or winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of Camden, the assets of Camden shall be insufficient to make such full
payments to holders of Camden Preferred Shares, then such assets shall be
distributed pro rata among holders of Camden Preferred Shares. After payment of
the full amount of the liquidating distribution to which they are entitled, the
holders of Camden Preferred Shares will not be entitled to any further
participation in any distribution of assets by Camden. Neither a consolidation
or merger of Camden with or into another corporation nor a merger of another
corporation
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with or into Camden nor a sale, lease or conveyance of all or any part of
Camden's property or business shall be considered a liquidation, dissolution or
winding up of Camden.
PARAGON. In the event of liquidation, dissolution or winding up of
Paragon, whether voluntary or involuntary, the holders of Paragon Common Stock
would be entitled to share ratably in any of its net assets or funds which are
available for distribution to its stockholders after the satisfaction of its
liabilities or after adequate provision is made therefor, subject to the rights
of the holders of any Paragon Preferred Stock outstanding at the time.
DIVIDENDS AND OTHER DISTRIBUTIONS
In order to remain qualified as a REIT under the Code, each of Camden and
Paragon must distribute to its shareholders at least 95% of its taxable income
(other than net capital gain) annually. See "FEDERAL INCOME TAX CONSIDERATIONS
- -- Requirements for Qualification -- Distribution Requirements."
CAMDEN. Holders of Camden Common Shares are entitled to cash dividends
when, if and as declared by the Camden Board. There can be no assurance as to
the payment of dividends on Camden Common Shares in the future because such
payment will depend upon the earnings and financial condition of Camden, as well
as other related factors. The Texas REIT Act provides that Camden may not pay
dividends if after giving effect to the distribution, Camden would be insolvent
or if the dividend exceeds the surplus of Camden.
PARAGON. The holders of Paragon Common Stock are entitled to share ratably
in dividends when and as declared by the Paragon Board out of funds legally
available therefor. The Paragon Articles permit the issuance of Paragon
Preferred Stock having the right to receive dividends before dividends on the
Paragon Common Stock are declared or paid. The MGCL provides that Paragon may
not pay dividends if after giving effect to the dividend, Paragon would not be
able to pay its indebtedness as the indebtedness becomes due in the usual course
of business or Paragon's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if Paragon were to be
dissolved at such time, to satisfy any preferential rights upon dissolution held
by its stockholders whose preferential rights are superior to those receiving
the dividend.
SHAREHOLDER MEETINGS
CAMDEN. Under Camden's Bylaws, special meetings of Camden shareholders may
be called by the Camden Board, any officer of Camden or the holders of at least
10% of all of the shares entitled to vote at such meeting.
PARAGON. Under Paragon's Bylaws, special meetings of the stockholders may
be called at any time by the Chairman of the Paragon Board, the President, a
majority of the Paragon Board or by written request of the holders of at least
25% of all the shares entitled to vote at such meeting.
INDEMNIFICATION
CAMDEN. Trust managers and officers of Camden may be indemnified against
judgments, fines, penalties, amounts paid in settlement and claims imposed upon
or asserted against them as provided in the Texas REIT Act, the Camden
Declaration of Trust and the Camden Bylaws. Such indemnification covers all
costs and expenses reasonably incurred by such officer or trust manager. The
Camden Board, by a majority vote of a quorum (or, if unavailable, a committee)
of disinterested trust managers or, under certain circumstances, independent
counsel appointed by the Camden Board, must determine that the trust manager or
officer seeking indemnification acted in good faith while reasonably believing,
in the case of conduct in an official capacity, that such conduct was in
Camden's best interests or, in all other cases, that such conduct was at least
not opposed to Camden's best interests and, in the case of any criminal
proceeding, that such person had no reasonable belief that such conduct was
unlawful.
If the person involved is not a trust manager or officer of Camden, the
Camden Board may cause Camden to indemnify to the same extent allowed for trust
managers and officers of Camden such person who was or is a party to a
proceeding, by reason of the fact that he is or was an employee or agent of
Camden, or is or was serving at the request of Camden as a trust manager,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise.
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PARAGON. The Paragon Articles and the Paragon Bylaws authorize Paragon, to
the maximum extent permitted by Maryland law, to indemnify and to make advances
for indemnification to any present or former director or officer of Paragon and
any person who is or was serving as an employee or agent of Paragon and who is
made a party to the proceeding by reason of his service in that capacity, unless
it is established that (a) the act or omission of the indemnitee was committed
in bad faith or the result of active and deliberate dishonesty, (b) the
indemnitee actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the indemnitee had
reasonable cause to believe that the act or omission was unlawful. Such
indemnification covers all costs and expenses reasonably incurred by the
indemnitee.
Indemnification may not be made unless authorized for a specific
proceeding after a favorable determination by (a) a majority of a quorum of
directors not parties to the proceeding or if such a quorum cannot be obtained
by a majority of a committee of two or more such directors designated by a
majority of the full Paragon Board, (b) special legal counsel selected by the
Paragon Board or a committee of the Paragon Board, or (c) the Paragon
stockholders.
TRUST MANAGER AND DIRECTOR LIABILITY
As permitted by the Texas REIT Act and the MGCL, respectively, the Camden
Declaration of Trust and the Paragon Articles eliminate the liability of trust
managers, directors and officers of Camden and Paragon, respectively, for
monetary damages in a shareholder or derivative proceeding.
DESCRIPTION OF PARAGON OPERATING PARTNERSHIP
Paragon currently holds all of its assets and conducts all of its
operations through Paragon Operating Partnership. In connection with the Merger,
Camden will acquire an indirect 80.1% interest in Paragon Operating Partnership,
which will be renamed Camden Operating, L.P. Camden will own a 1% general
partner interest, through CPT-GP, Inc., formerly Paragon GP Holdings ("CPT-GP"),
which will become a wholly-owned indirect subsidiary of Camden as a result of
the Merger, and a 79.1% limited partner interest, through CPT-LP, Inc. ,formerly
Paragon LP Holdings ("CPT-LP"), which also will become a wholly-owned indirect
subsidiary of Camden as a result of the Merger.
Paragon Operating Partnership is organized as a Delaware limited
partnership. Pursuant to the terms of the Operating Partnership Agreement, which
has been unanimously approved by the limited partners of Paragon Operating
Partnership and will be adopted upon the consummation of the Merger, CPT-GP, as
the sole general partner, has full responsibility for the management and control
of Paragon Operating Partnership and the limited partners have no authority to
transact business for or participate in the management decisions of Paragon
Operating Partnership except in the limited circumstances described herein.
Camden will continue to engage directly in the business of owning and operating
real estate and engage in other related activities outside of the business of
Paragon Operating Partnership. Neither Camden nor CPT-GP will have any
obligation to present opportunities to or otherwise conduct its business through
Paragon Operating Partnership.
Upon the consummation of the Merger, the number of Units held by each
partner will be restated so that it corresponds to the number of Camden Common
Shares that would have been received in the Merger if such partner had been a
Paragon stockholder and the Units held by such partner had been shares of
Paragon Common Stock (I.E., the number of Units held by such partner multiplied
by the Exchange Ratio).
Generally, under the Operating Partnership Agreement, all distributions
are to be made to the partners in accordance with their percentage interests in
Paragon Operating Partnership (subject to certain preferential distributions to
which holders of certain classes of interests in Paragon Operating Partnership
may be entitled). Accordingly, Camden and its subsidiaries generally should
receive 80.1% of all distributions made by Paragon Operating Partnership. The
Operating Partnership Agreement affords CPT-GP, as the general partner,
substantial latitude in determining the amount of cash to be distributed by
Paragon Operating Partnership. CPT-GP, however, must use its reasonable efforts
to cause Paragon Operating Partnership to operate in a manner that enables
Paragon Operating Partnership to maintain a distribution rate per Unit that is
equal to the distribution rate per Camden Common Share. CPT-GP will be required
under the Operating Partnership Agreement to act in good faith in attempting to
cause Paragon Operating Partnership to achieve this distribution rate but Camden
would not be required to invest equity or otherwise provide funds (other than
repayment of any borrowings by Camden and its affiliates from Paragon Operating
Partnership) to permit such distributions.
The Operating Partnership Agreement grants to limited partners (other than
CPT-LP) the right to require Paragon Operating Partnership to redeem each of
their Units for one Camden Common Share or the cash equivalent thereof, at the
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option of Camden. After giving effect to the 0.64 Exchange Ratio, a maximum of
2,352,161 Units would be redeemable, and thus a maximum of 2,352,161 Camden
Common Shares would be issuable, as of the date of this Joint Proxy
Statement/Prospectus.
Under the Operating Partnership Agreement, CPT-GP may cause Paragon
Operating Partnership to sell or dispose of any or all of its assets without
obtaining the consent of limited partners, unless such sale or disposition is of
all or substantially all of Paragon Operating Partnership's assets. A sale or
other disposition, by merger or otherwise, of all or substantially all of
Paragon Operating Partnership's assets would require the consent of holders of a
majority of the Units (excluding Units held by CPT-GP, CPT-LP and other
affiliates of Camden), unless the sale or other disposition is in connection
with a merger or other similar transaction involving CPT-GP, CPT-LP or Camden
and in which the limited partners in Paragon Operating Partnership will receive,
or have the right to elect to receive, the same consideration as will be
received by shareholders of Camden. A sale or other disposition of all or
substantially all of Paragon Operating Partnership's assets in connection with
such a transaction would only require the consent of the partners holding
two-thirds or more of the then outstanding Units (including Units held by CPT-GP
and CPT-LP and other affiliates of Camden). Since Camden would control 80.1% of
the Units, it would be able to control the outcome of any such vote.
Under the Operating Partnership Agreement, each of Camden, CPT-GP and
CPT-LP may engage in any merger, consolidation or other business combination
with or into another person, sale of all or substantially all of its assets, or
any reclassification, recapitalization or change of its outstanding shares so
long as either (i) in connection with such a transaction, all limited partners
either will receive, or will have the right to elect to receive for each Unit,
the same consideration as will be received by shareholders of Camden (on a per
share basis), or (ii) such transaction is approved by limited partners holding a
majority of the Units (excluding Units held by CPT-GP and CPT-LP and other
affiliates of Camden). Except as permitted under the preceding sentence, none of
CPT-GP, CPT-LP or Camden would be permitted to voluntarily withdraw from Paragon
Operating Partnership or transfer or assign its interests in Paragon Operating
Partnership without the consent of all of the limited partners.
Limited partners of Paragon Operating Partnership generally may not
transfer their Units without the consent of CPT- GP. However, limited partners
may transfer their Units, with or without the consent of CPT-GP, in certain
limited cases, including transfers to certain family members and affiliates,
pursuant to gifts, or to a lender pursuant to the grant of a security interest
or other encumbrance in a bona fide transaction, provided that such transfer
would not cause Paragon Operating Partnership to be taxable as a corporation for
federal income tax purposes, would not cause a termination of Paragon Operating
Partnership for federal income tax purposes, would not cause Camden to cease to
comply with requirements under the Code for qualification as a REIT or subject
Camden to additional taxes under Sections 857 or 4981 of the Code, would not
violate any federal or state securities law or regulation and would not be
effectuated through an "established securities market" or a "secondary market
(or substantial equivalent thereof)" within the meaning of Section 7704 of the
Code. However, limited partners must provide CPT-GP with written notice of any
such permitted transfer.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax considerations
relating to the Merger and the subsequent ownership and disposition of Camden
Common Shares that may be relevant to a holder of Camden Common Shares or
Paragon Common Stock. The summary does not address all aspects of taxation that
may be relevant to particular shareholders in light of their personal investment
or tax circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, persons who are not citizens or residents of the United
States and persons who acquired their Paragon Common Stock pursuant to the
exercise of an employee stock option or otherwise as compensation) subject to
special treatment under the federal income tax laws. The summary is based on
current provisions of the Code, existing, temporary and currently proposed
Treasury Regulations promulgated under the Code, the legislative history of the
Code, existing administrative rulings and practices of the Internal Revenue
Service (the "Service" or "IRS") and judicial decisions. No assurance can be
given that future legislative, judicial or administrative actions or decisions,
which may be retroactive in effect, will not affect the accuracy of statements
in the summary as applicable to transactions entered into or contemplated prior
to the effective date of such changes.
EACH PARAGON STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE MERGER, THE ACQUISITION, OWNERSHIP
AND SALE OF THE CAMDEN COMMON SHARES AND OF CAMDEN'S ELECTION TO BE TAXED AS A
REIT,
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INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE
MERGER, SUCH ACQUISITION, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
TAX CONSIDERATIONS RELATING TO THE MERGER
The Merger is intended to be a reorganization under Section 368(a) of the
Code, and the federal income tax consequences summarized below are based on the
assumption that the Merger will qualify as a reorganization. If the Merger
qualifies as a reorganization under Section 368(a) of the Code, a Paragon
stockholder who receives solely Camden Common Shares in exchange for his shares
of Paragon Common Stock will not recognize any gain or loss on the exchange (but
all Camden shareholders and Paragon stockholders will recognize income in the
amount of any Pre-Merger Dividends (as defined below) made to them. See
"--Pre-Merger Dividends" below.) If a Paragon stockholder receives Camden Common
Shares and cash in lieu of a fractional Camden Common Share, the Paragon
stockholder will recognize taxable gain or loss solely with respect to such cash
in an amount equal to the difference between such cash amount and the tax basis
allocated to such Paragon stockholder's fractional share interest. Such gain or
loss generally will constitute capital gain or loss if the stockholder's Paragon
Common Stock was held as a capital asset. A Paragon stockholder will have an
aggregate tax basis in his Camden Common Shares received in the Merger equal to
his aggregate tax basis in the shares of Paragon Common Stock (reduced by the
amount of any tax basis allocable to a fractional share interest for which cash
is received) exchanged therefor. A Paragon stockholder's holding period for
Camden Common Shares received in the Merger will include his holding period for
the shares of Paragon Common Stock exchanged therefor, if such shares are held
as a capital asset by the Paragon stockholder upon the Effective Time of the
Merger. No gain or loss should be recognized by Camden, Sub or Paragon as a
result of the Merger. Hogan & Hartson L.L.P. ("Hogan & Hartson") and Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell Sapp") have delivered opinions to
Paragon and Camden, respectively, that the Merger will qualify as a
reorganization under the provisions of Section 368(a) of the Code, based on
certain factual assumptions and representations made by Paragon, Camden, and
certain Paragon shareholders. Of particular importance are certain assumptions
and representations relating to the "continuity of interest" requirement
discussed below.
CONTINUITY OF INTEREST ASSUMPTION
To qualify as a reorganization, among other requirements, the Merger must
satisfy a "continuity of interest" test, under which the historic Paragon
stockholders must continue to retain a meaningful ownership interest in Camden
after the Merger. Generally, this test will be considered satisfied if
historical Paragon stockholders exchange at least 50% of the Paragon Common
Stock for Camden Common Shares in the Merger and the Paragon stockholders do not
at the time of the Merger plan to dispose of those Camden Common Shares.
Management of Camden and Paragon have represented that they are not aware of any
plan on the part of the Paragon stockholders that would cause this test not to
be satisfied. Based upon these representations, each of Hogan & Hartson and
Liddell Sapp have assumed, for purposes of their opinions, that the continuity
of interest requirement will be satisfied.
PRE-MERGER DIVIDENDS
The Agreement provides that Paragon shall distribute to its stockholders
immediately prior to the Merger the minimum amount necessary for Paragon to
satisfy the REIT distribution requirements under Section 857(a) of the Code for
Paragon's short taxable year ending with the Merger. The Agreement also provides
that, should such distribution by Paragon occur, Camden shall distribute to its
shareholders an amount per share equal to (i) the amount per share of any such
pre-Merger dividend paid by Paragon divided by (ii) the Exchange Ratio. Any such
distributions of Paragon and Camden are referred to herein as "Pre-Merger
Dividends." Except as provided below with respect to Pre-Merger Dividends (if
any) designated as capital gain dividends, (i) any Pre-Merger Dividends made to
Paragon's taxable U.S. shareholders out of Paragon's current or accumulated
earnings and profits would be taken into account by such U.S. shareholders as
ordinary income and would not be eligible for the dividends received deduction
generally available for corporations and (ii) any Pre-Merger Dividends made to
Camden's taxable U.S. shareholders out of Camden's current or accumulated
earnings and profits would be taken into account by such U.S. shareholders as
ordinary income and would not be eligible for the dividends received deduction
generally available for corporations. Any Pre-Merger Dividends in excess of
current and accumulated earnings and profits of Paragon (in the case of any
Paragon Pre-Merger Dividends) or Camden (in the case of any Camden Pre-Merger
Dividends) would not be taxable to the shareholder to the extent that such
distribution does not exceed the adjusted basis of the shareholder's shares with
respect to which the distribution is made, but rather would reduce the adjusted
basis of such shares. To the extent that
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any such Pre-Merger Dividend in excess of earnings and profits exceeds the
adjusted basis of the shareholder's shares, such distribution would be included
in the shareholder's income as long-term capital gain (or short-term capital
gain if the shares have been held for one year or less) assuming the shareholder
holds the stock as a capital asset at the time of the Merger. Any Pre-Merger
Dividends designated as capital gain dividends will be taxed as long-term
capital gains (to the extent they do not exceed the payor's actual net capital
gain for the taxable year), provided that corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
TAXATION OF CAMDEN
Each of Camden and Paragon currently has in effect an election to be taxed
as a REIT under Sections 856 through 860 of the Code. Each of Camden and Paragon
believes that it has, since its inception, been organized and operated in such a
manner so as to qualify for taxation as a REIT under the Code. Camden's
continued qualification as a REIT after the Merger will depend in part upon
Paragon's qualification as a REIT immediately prior to the Merger. In this
regard, as a condition to the Merger, Camden will obtain an opinion from counsel
to Paragon that Paragon, commencing with its taxable year ended December 31,
1994 through its short taxable year ending on the Effective Time of the Merger,
was organized and has operated in conformity with the requirements for
qualification and taxation as a REIT. Furthermore, counsel to Camden will
deliver an opinion to each of Camden and Paragon that commencing with Camden's
taxable year ended December 31, 1993, Camden was organized and has operated in
conformity with the requirements for qualification and taxation as a REIT, and
that the consummation of the Merger will not result in the failure of Camden to
continue to qualify as a REIT. Camden intends to continue to operate in a manner
so as to qualify as a REIT following the Effective Time of the Merger, but no
assurance can be given that Camden will qualify or remain qualified as a REIT.
As a result of the Merger, Paragon's separate existence will cease as of the
Effective Time of the Merger. Accordingly, the following discussion summarizes
only the taxation of Camden. Prior to the Effective Time of the Merger, the
taxation of Paragon as a REIT is similar to that described herein with respect
to Camden.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth certain
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations thereof, all of which
are subject to change prospectively or retroactively.
So long as Camden continues to qualify for taxation as a REIT, it
generally will not be subject to federal corporate income tax on its net income
that is distributed currently to its shareholders. That treatment substantially
eliminates the "double taxation" (i.e., taxation at both the corporate and
shareholder levels) that generally results from investment in a corporation.
However, Camden will be subject to federal income tax in the following
circumstances. First, Camden will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, Camden may be subject to the "alternative
minimum tax" on items of tax preference, if any. Third, if Camden has (i) net
income from the sale or other disposition of "foreclosure property" that is held
primarily for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if Camden has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if Camden should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and nonetheless
has maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on the net income attributable
to the greater of the amount by which it fails the 75% or 95% gross income test.
Sixth, if Camden should fail to distribute during each calendar year at least
the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its
REIT capital gain net income for such year and (iii) any undistributed taxable
income from prior periods, it would be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. Seventh, if
Camden acquires any asset from a C corporation (i.e., a corporation generally
subject to full corporate-level tax) in a transaction in which the basis of the
asset in the acquiror's hands is determined by reference to the basis of the
asset (or any other asset) in the hands of the C corporation and the acquiror
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by it, then to the extent
of such asset's "built-in-gain" (i.e., the excess of the fair market value of
such asset at the time of acquisition by Camden or Paragon over the adjusted
basis in such asset at such time), such gain will be subject
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to tax at the highest regular corporate rate applicable. The results described
above with respect to the recognition of "built-in- gain" assume that Camden
will make an election pursuant to IRS Notice 88-19 if it were to make any such
acquisition.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding shares of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of each taxable year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year which has not been revoked or terminated) and satisfies
all relevant filing and other administrative requirements established by the
Service that must be met in order to elect and maintain REIT status; (viii) that
uses a calendar year for federal income tax purposes and complies with the
recordkeeping requirements of the Code and Treasury Regulations promulgated
thereunder; and (ix) that meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (i) to
(iv), inclusive, must be met during the entire taxable year and that condition
(v) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. For
purposes of determining stock ownership under the 5/50 Rule, a supplemental
unemployment compensation benefits plan, a private foundation or a portion of a
trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. A trust that is a qualified trust under
Code section 401(a), however, generally is not considered an individual and
beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of the 5/50
Rule.
The Camden Declaration of Trust and the Paragon Articles contain
restrictions regarding the transfer of Camden Common Shares and Paragon Common
Stock that are intended to assist Camden and Paragon in continuing to satisfy
the share ownership requirements described in clauses (v) and (vi) above. Such
transfer restrictions are described in "COMPARATIVE RIGHTS OF SHAREHOLDERS --
REIT Qualification Provisions."
Both Camden and Paragon currently have wholly-owned corporate subsidiaries
(the "Corporate Subsidiaries"). Upon consummation of the Merger, Paragon will be
merged into a direct corporate subsidiary of Camden and the Paragon Corporate
Subsidiaries in existence at the Effective Date of the Merger will become
indirect Corporate Subsidiaries of Camden. Camden may form or acquire additional
Corporate Subsidiaries in the future. Code section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities and items of income, deduction
and credit of a "qualified REIT subsidiary" shall be treated as assets,
liabilities and items of income, deduction and credit of the REIT. A "qualified
REIT subsidiary" is a corporation, all of the capital stock of which has been
held by the REIT at all times during the period such corporation was in
existence. The IRS has ruled in a number of private letter rulings that
subsidiaries acquired by a REIT as a result of a merger will be treated as
"qualified REIT subsidiaries" even though the REIT has not held all of the
capital stock of such subsidiary at all times during the period such corporation
was in existence. Accordingly, the Corporate Subsidiaries of Paragon should
constitute "qualified REIT subsidiaries" of Camden following the Merger so long
as Camden continues to hold 100% of the stock of such Corporate Subsidiaries,
either directly or through Sub. Furthermore, the Service has ruled privately
that if a corporation merges into a "qualified REIT subsidiary," such merger
will not affect the status of the "qualified REIT subsidiary." Accordingly, Sub
should continue to constitute a "qualified REIT subsidiary" following the
Merger. In applying the income and asset tests described below, any Corporate
Subsidiaries of Camden that are "qualified REIT subsidiaries" will be ignored,
and all assets, liabilities and items of income, deduction and credit of such
Corporate Subsidiaries will be treated as assets, liabilities and items of
income, deduction and credit of Camden. Because each of the current Corporate
Subsidiaries will continue to be a "qualified REIT subsidiary" of Camden after
the Merger, no such Corporate Subsidiary will be subject to federal corporate
income taxation, although it may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership (based on the REIT's capital interest in the
partnership) and will be deemed to be entitled to the gross income of the
partnership attributable to such share. In addition, the assets and gross income
of the partnership will retain the same character in the hands of the REIT for
purposes of section 856 of the Code, including satisfying the gross income and
asset tests described below. Paragon GP Holdings, a Corporate Subsidiary of
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Paragon, holds a 1.0% general partner interest in Paragon Operating Partnership
(the "GP Interest") and Paragon LP Holdings, which is also a Corporate
Subsidiary of Paragon, holds a 79.1% limited partner interest in Paragon
Operating Partnership (the "LP Interest"). The ownership of the GP Interest and
LP Interest by Corporate Subsidiaries of Paragon results in Paragon's
proportionate share of the assets, liabilities and items of income of Paragon
Operating Partnership being treated as assets, liabilities and items of income
of Paragon for purposes of the asset and income tests described below. Following
the Merger, Paragon GP Holdings and Paragon LP Holdings will become Camden
Corporate Subsidiaries, hence, Camden's proportionate share of the assets,
liabilities and items of income of Paragon Operating Partnership attributable to
the GP Interest and LP Interest will be treated as assets, liabilities and items
of income of Camden for purposes of applying the asset and income tests
described below.
INCOME TESTS. In order for Camden to qualify and to maintain its
qualification as a REIT, three requirements relating to gross income must be
satisfied annually. First, at least 75% of its gross income (excluding gross
income from prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from investments relating
to real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or temporary investment
income. Second, at least 95% of its gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property or temporary investments, and from dividends, other types of interest
and gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. Third, not more than 30% of its gross income
(including gross income from prohibited transactions) for each taxable year may
be gain from the sale or other disposition of (i) stock or securities held for
less than one year, (ii) dealer property that is not foreclosure property and
(iii) certain real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property).
The rent received by Camden from its tenants ("Rent") will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
Rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code provides
that rents received from a tenant of Camden will not qualify as "rents from real
property" in satisfying the gross income tests if Camden, or a direct or
indirect owner of 10% or more of Camden, directly or constructively owns 10% or
more of such tenant (a "Related Party Tenant"). Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for the Rent to qualify as "rents from real property,"
Camden generally must not operate or manage its properties or furnish or render
services to the tenants of such properties, other than through an "independent
contractor" who is adequately compensated and from whom Camden derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent the services provided by Camden are "usually or customarily rendered"
in connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant."
Camden does not charge, and Camden will not charge after the Merger, Rent
for any portion of any property that is based, in whole or in part, on the gross
income or profits of any person. Paragon does not charge Rent for any portion of
any commercial property that is based, in whole or in part, on the net income or
profits of any person except by reason of being based on a fixed percentage or
percentages of receipts of sales, as described above. Camden intends to dispose
completely of Paragon's commercial properties and will restrict its rental
activities to apartment properties for which it will not charge Rent for any
portion that is based, in whole or in part, on the income or profits of any
person. In addition, Camden has not received and Camden does not anticipate
receiving after the Merger any Rent from a Related Party Tenant. Also, the Rent
attributable to personal property leased in connection with any lease (a
"Lease") of real property by Camden does not exceed, and such Rent charged by
Camden after the Merger will not exceed, 15% of the total Rent received under
the Lease. Finally, Camden does not operate or manage its properties or furnish
or render services (other than services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant") to the tenants of its
properties other than through an "independent contractor" who is adequately
compensated and from whom Camden derives no revenue.
If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with any
Lease of real property exceeds 15% of the total Rent received under the Lease
for a taxable year, the portion of the Rent that is attributable to personal
property will not be qualifying income for purposes of either
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the 75% or 95% gross income test. Thus, if the Rent attributable to personal
property, plus any other income received by Camden during a taxable year that is
not qualifying income for purposes of the 95% gross income test, exceeds 5% of
its gross income during such year, Camden likely would lose its REIT status. If,
however, any portion of the Rent received under a Lease does not qualify as
"rents from real property" because either (i) the Rent is considered based on
the income or profits of any person or (ii) the tenant is a Related Party
Tenant, none of the Rent received by Camden under such Lease would qualify as
"rents from real property." In that case, if the Rent received by Camden under
such Lease, plus any other income received by it during the taxable year that is
not qualifying income for purposes of the 95% gross income test, exceeds 5% of
its gross income for such year, Camden likely would lose its REIT status.
Finally, if any portion of the Rent does not qualify as "rents from real
property" because Camden furnishes noncustomary services with respect to a
property other than through a qualifying independent contractor, none of the
Rent received by it with respect to the such property would qualify as "rents
from real property." In that case, if the Rent received by Camden with respect
to such property, plus any other income received by it during the taxable year
that is not qualifying income for purposes of the 95% gross income test, exceeds
5% of its gross income for such year, Camden would lose its REIT status.
From time to time, Camden has entered into hedging transactions with
respect to one or more of its assets or liabilities, and Camden may continue to
enter into such hedging transactions following consummation of the Merger. Such
transactions include or may include interest rate swap contracts, interest rate
cap or floor contracts, futures or forward contracts and options. To the extent
that Camden has entered or enters into an interest rate swap or cap contract to
hedge any variable rate indebtedness incurred to acquire or carry real estate
assets, any periodic income or gain from the disposition of such contract should
be qualifying income for purposes of the 95% gross income test, but not the 75%
gross income test. Furthermore, any such contract would be considered a
"security" for purposes of applying the 30% gross income test. To the extent
that Camden hedges with other types of financial instruments or in other
situations, it may not be entirely clear how the income from those transactions
will be treated for purposes of the various income tests that apply to REITs
under the Code. Camden has structured, and Camden intends to structure in the
future, any hedging transactions in a manner that will not jeopardize its status
as a REIT.
If Camden fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if the failure to meet such tests is due
to reasonable cause and not due to willful neglect, Camden attaches a schedule
of the sources of its income to its return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Camden would be entitled to the
benefit of those relief provisions. As discussed above in "FEDERAL INCOME TAX
CONSIDERATIONS -- Taxation of Camden" even if those relief provisions apply, a
100% tax would be imposed on the net income attributable to the greater of the
amount by which Camden fails the 75% and 95% gross income tests. No such relief
is available for violations of the 30% income test.
ASSET TESTS. Camden, at the close of each quarter of each taxable year,
also must satisfy two tests relating to the nature of its assets. First, at
least 75% of the value of its total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets" or, in cases where it raises new capital through stock or long-term (at
least five-year) debt offerings, temporary investments in stock or debt
instruments during the one-year period following its receipt of such capital.
The term "real estate assets" includes interests in real property, interests in
mortgages on real property to the extent the principal balance of a mortgage
does not exceed the value of the associated real property and shares of other
REITs. For purposes of the 75% asset test, the term "interest in real property"
includes an interest in land and improvements thereon, such as buildings or
other inherently permanent structures (including items that are structural
components of such buildings or structures), a leasehold of real property and an
option to acquire real property (or a leasehold of real property). Second, of
the investments not included in the 75% asset class, the value of any one
issuer's securities owned by Camden may not exceed 5% of the value of its total
assets and Camden may not own more than 10% of any one issuer's outstanding
voting securities (except for the interest of Camden in any qualified REIT
subsidiary).
If Camden should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause it to lose its REIT status if (i) it
satisfied the asset tests at the close of the preceding calendar quarter and
(ii) the discrepancy between the value of its assets and the asset tests either
did not exist immediately after the acquisition of any particular asset or was
not wholly or partly caused by such an acquisition (i.e., the discrepancy arose
from changes in the market values of its assets). If the condition described in
clause (ii) of the preceding sentence were not satisfied, Camden still could
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.
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DISTRIBUTION REQUIREMENTS. Camden, in order to qualify as a REIT, is
required to distribute with respect to each taxable year dividends (other than
capital gain dividends) to its shareholders in an aggregate amount at least
equal to (i) the sum of (A) 95% of its "REIT taxable income" (computed without
regard to the dividends paid deduction and its net capital gain) and (B) 95% of
the net income (after tax), if any, from foreclosure property, minus (ii) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before Camden timely files its federal income tax return for such year and if
paid on or before the first regular dividend payment date after such
declaration. To the extent that Camden does not distribute all of its net
capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if Camden should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain income for
such year and (iii) any undistributed taxable income from prior periods, it
would be subject to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed.
Under certain circumstances, Camden may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to its shareholders in a later year, which may be included in its deduction for
dividends paid for the earlier year. Although Camden may be able to avoid being
taxed on amounts distributed as deficiency dividends, it will be required to pay
to the Service interest based upon the amount of any deduction taken for
deficiency dividends.
RECORDKEEPING REQUIREMENTS. Pursuant to applicable Treasury Regulations,
in order to be able to elect to be taxed as a REIT, Camden must maintain certain
records and request on an annual basis certain information from its shareholders
designed to disclose the actual ownership of its outstanding shares.
FAILURE TO QUALIFY
If Camden fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, it will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which Camden fails to
qualify will not be deductible nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, Camden also will be disqualified from taxation as a REIT for the
four taxable years following the year during which it ceased to qualify as a
REIT. It is not possible to predict whether in all circumstances Camden would be
entitled to such statutory relief.
PARAGON OPERATING PARTNERSHIP
CAMDEN'S ADJUSTED TAX BASIS IN PARAGON OPERATING PARTNERSHIP. Immediately
after the Merger, Camden's adjusted tax basis in Paragon Operating Partnership
(attributable to the GP Interest and the LP Interest held by Paragon GP Holdings
and Paragon LP Holdings, respectively) will equal Paragon's adjusted tax basis
in Paragon Operating Partnership immediately prior to the Merger (attributable
to the GP Interest and the LP Interest held by Paragon GP Holdings and Paragon
LP Holdings), and thereafter, shall be (i) increased by (a) the amount of any
additional capital contributions made by Camden or any of its Corporate
Subsidiaries to Paragon Operating Partnership, (b) Camden's allocable share of
Paragon Operating Partnership's income (attributable to the ownership of the GP
Interest and the LP Interest by Camden Corporate Subsidiaries), if any, and (c)
any further increases in Camden's allocable share of the liabilities of Paragon
Operating Partnership (attributable to the ownership of the GP Interest and the
LP Interest by Camden Corporate Subsidiaries) and (ii) decreased, but not below
zero, by (a) Camden's allocable share of losses (attributable to the ownership
of the GP Interest and the LP Interest by Camden Corporate Subsidiaries)
suffered by Paragon Operating Partnership, (b) the amount of cash and property
distributed by Paragon Operating Partnership to Camden or its Corporate
Subsidiaries and (c) any decreases in Camden's share of liabilities of Paragon
Operating Partnership (attributable to the ownership of the GP Interest and the
LP Interest by Camden Corporate Subsidiaries).
ENTITY CLASSIFICATION. Paragon's (and following the Merger, Camden's)
interest in Paragon Operating Partnership involves special tax considerations,
including the possibility of a challenge by the Service of the status of Paragon
Operating Partnership as a partnership (as opposed to an association taxable as
a corporation) for federal income tax purposes. If Paragon Operating Partnership
were treated as an association, it would be taxable as a corporation, and
therefore, subject to an entity- level tax on its income. In such a situation,
the treatment of Paragon Operating Partnership's assets and items of gross
income would change, which would preclude Paragon and/or Camden from satisfying
the asset and income tests required to be satisfied
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to qualify as a REIT. In addition, any change in Paragon Operating Partnership's
status for tax purposes might be treated as a taxable event in which case
Paragon and/or Camden might incur a tax liability without any related cash
distributions. For periods prior to January 1, 1997, an organization formed as a
partnership will be treated as a corporation for federal income tax purposes if
it has more than two of the four corporate characteristics that the Treasury
Regulations use to distinguish a partnership from a corporation. These four
characteristics are (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests.
Recently, the Service promulgated regulations regarding the classification
of organizations for federal tax purposes (the "Check the Box Regulations"). The
Check the Box Regulations are effective as of January 1, 1997, and generally
replace the four factor test described above. Under the Check the Box
Regulations, an entity which has at least two members and which is not a
"corporation" may elect to be taxed as a partnership. Under the Check the Box
Regulations, the term "corporation" is generally defined to include (i) business
entities organized under a federal or state statute, if the statute describes
such entities as incorporated or as corporations; (ii) associations taxable as
corporations (as determined under Section 301.7701-3 of the Treasury
Regulations); (iii) business entities organized under a state statute which
describes the entity as a joint-stock company or joint-stock association; (iv)
insurance companies; (v) certain state-chartered business entities conducting
banking activities; (vi) certain business entities owned by a state or a
political subdivision thereof; (vii) business entities taxable as a corporation
under a provision of the Internal Revenue Code other than Section 7701(a)(3);
and (viii) certain foreign entities. Under the Check the Box Regulations, unless
an entity elects otherwise, an entity that has more than two members and is not
a corporation, as described above, will be a partnership.
The Check the Box Regulations also provide transition rules for existing
entities. Under the Check the Box Regulations, the Service will not challenge
the prior classification of an existing entity for periods prior to January 1,
1997, if (i) the entity has a reasonable basis (within the meaning of Section
6662 of the Code) for its claimed classification; (ii) the entity and all
members of the entity recognize the federal tax consequences of any change in
the entity's classification within the 60 months prior to January 1, 1997; and
(iii) neither the entity nor any member had been notified in writing on or
before May 8, 1996, that the classification of the entity was under examination
by the Service. Paragon Operating Partnership is subject to these transition
rules.
If the Service were to allege that Paragon Operating Partnership is a
"publicly traded partnership" under Section 7704 of the Code, and if such a
challenge were successful, Paragon Operating Partnership would be subject to tax
as a corporation under the Code unless certain conditions relating to the nature
of its income were satisfied. A partnership is a publicly traded partnership if
interests in such partnership are either traded on an established securities
market or are "readily tradable on a secondary market (or the substantial
equivalent thereof)." Section 7704 of the Code does not define the phrase
"readily tradable on a secondary market (or the substantial equivalent
thereof)." In November 1995, the Service issued final Treasury Regulations under
Section 7704 pertaining to this definition. The final regulations are generally
effective for taxable years beginning after December 31, 1995. Under
transitional rules, however, partnerships that were actively engaged in an
activity before December 4, 1995, apply the final regulations in taxable years
beginning after December 31, 2005, unless the partnership adds a "substantial
new line of business" after December 4, 1995, in which case the final
regulations become effective for the taxable year in which the partnership adds
the new line of business. During the transition period, eligible partnerships
may continue to rely upon Notice 88-75, which addresses the issue of when
partnership interests are "readily tradable on a secondary market or the
substantial equivalent thereof." Because Paragon Operating Partnership was
actively engaged in an activity before December 4, 1995, provisions of Notice
88-75 shall apply in determining whether or not Paragon Operating Partnership is
a publicly traded partnership, and thereby potentially subject to tax as a
corporation under the Code. In Notice 88-75, the Service stated that (i) a
secondary market is generally indicated by the existence of a person ready to
make a market in the interest, and (ii) an interest is "readily tradable" if the
interest is regularly quoted by persons such as brokers and dealers who are
making a market in the partnership interest. The Notice further provides that a
"substantial equivalent" of a secondary market exists if there is not an
identifiable market maker, but either (i) the holder of an interest has a
readily available, regular, and ongoing opportunity to sell or exchange such
interest through a public means of obtaining or providing information of offers
to buy, sell or exchange interests, or (ii) buyers and sellers have the
opportunity to buy, sell or exchange interests in a time frame and with the
regularity and continuity that the existence of a market maker would provide.
The final regulations shall not apply to Paragon Operating Partnership until the
taxable years beginning after December 31, 2005, unless it adds a "substantial
new line of business" before December 31, 2005.
Even if Paragon Operating Partnership were deemed to be a publicly traded
partnership, depending upon circumstances at the time, it still could avoid
taxation as a corporation under Section 7704 of the Code, based upon the nature
of its income.
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A publicly traded corporation is not taxed as a corporation if at least 90% of
its gross income for each taxable year consists of certain passive-type income,
including interest, dividends, real property rents, and gains from the sale or
other disposition of real property. Paragon Operating Partnership expects that
its income will continue to consist predominantly of these types of income.
Paragon's counsel has rendered an opinion that based on provisions of
Paragon Operating Partnership Agreement and the facts, representations and
assumptions set forth in such opinion, Paragon Operating Partnership will be
treated as a partnership for federal income tax purposes.
ALLOCATIONS WITH RESPECT TO CONTRIBUTED OR REVALUED PROPERTY. Pursuant to
Section 704(c) of the Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that for federal tax purposes the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. Under Treasury Regulations promulgated under Section 704 of
the Code, similar rules apply when a partnership elects to "revalue" its assets
in certain situations, such as when a contribution of property is made to a
partnership by a new partner.
The Paragon Operating Partnership Agreement requires that income, gain,
loss and deduction attributable to contributed property with a Book-Tax
Difference must be allocated such that the contributing partner is charged with,
or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution in a manner
consistent with Section 704(c) of the Code. The Paragon Operating Partnership
Agreement contains a similar provision for Book-Tax Differences arising from a
revaluation of partnership assets. The Paragon Operating Partnership Agreement
also provides that with regard to properties contributed to Paragon Operating
Partnership and held by Paragon Operating Partnership at the Effective Time, the
"traditional method" as set forth in Treasury Regulation Section 1.704-3(b)
shall be utilized to eliminate Book-Tax Differences.
Based on the foregoing, in general, if any asset contributed to or
revalued by Paragon Operating Partnership is determined to have a fair market
value which is greater than its adjusted tax basis, certain partners of Paragon
Operating Partnership will be allocated lower amounts of depreciation deductions
for tax purposes by Paragon Operating Partnership and increased taxable income
and gain on sale. Such allocations will tend to eliminate the Book-Tax
Difference over the life of Paragon Operating Partnership. However, the special
allocation rules of Section 704(c) of the Code do not always entirely rectify
the Book-Tax Difference on an annual basis or with respect to a specific
transaction such as a sale. Thus, Camden (through the LP Interest and GP
Interest held by Camden's Corporate Subsidiaries) may be allocated lower
depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of contributed assets by Paragon Operating
Partnership and such amounts may be in excess of the economic or book income
allocated to it as result of such sale. This may cause Camden to recognize
taxable income in excess of cash proceeds, which might adversely affect Camden's
ability to comply with the distribution requirements for REITs.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As long as Camden qualifies as a REIT, distributions made to taxable U.S.
Shareholders (as hereinafter defined) out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. Shareholder" means a holder of Camden Common Shares
that for United States federal income tax purposes is (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source. Distributions
that are designated as capital gain dividends will be taxed as long-term capital
gains (to the extent they do not exceed the payor's actual net capital gain for
the taxable year) without regard to the period for which the U.S. Shareholder
has held his shares. However, corporate U.S. Shareholders may be required to
treat up to 20% of certain capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a U.S. Shareholder to the extent that they do not exceed the
adjusted basis of the U.S. Shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that
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such distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a U.S. Shareholder's shares, such distributions
will be included in income as long-term capital gain (or short-term capital gain
if such shares have been held for one year or less), assuming that such shares
are capital assets in the hands of the U.S. Shareholder. In addition, any
distribution declared by Camden in October, November or December of any year and
payable to a U.S. Shareholder of record on a specified date in any such month
shall be treated as both paid by the payor and received by the U.S. Shareholder
on December 31 of such year, provided that the distribution is actually paid by
the payor during January of the following calendar year.
U.S. Shareholders may not include in their individual income tax returns
any net operating losses or capital losses of Camden. Instead, such losses would
be carried over by Camden for potential offset against its future income
(subject to certain limitations). Taxable distributions from Camden and gain
from the disposition of Camden Common Shares will not be treated as passive
activity income and, therefore, U.S. Shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a shareholder is a limited partner) against such
income. In addition, taxable distributions from Camden generally will be treated
as investment income for purposes of the investment interest limitations.
Capital gains from the disposition of Camden Common Shares (distributions
treated as such), however, will be treated as investment income only if the U.S.
Shareholder so elects, in which case such capital gains will be taxed at
ordinary income rates. Camden will notify shareholders after the close of
Camden's taxable year as to the portions of the distributions attributable to
that year that constitute ordinary income, return of capital and capital gain.
TAXATION OF U.S. SHAREHOLDERS ON THE DISPOSITION OF COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of shares
of Camden Common Shares by a U.S. Shareholder who is not a dealer in securities
will be treated as long-term capital gain or loss if the shares have been held
for more than one year and otherwise as short-term capital gain or loss.
However, any loss upon a sale or exchange by a U.S. Shareholder who has held
such shares for six months or less (after applying certain holding period
rules), will be treated as a long-term capital loss to the extent of
distributions from Camden required to be treated by such U.S. Shareholder as
long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of shares of Camden Common Shares may be disallowed if other shares
of the same common shares are purchased within 30 days before or after the
disposition.
CAPITAL GAINS AND LOSSES
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%,
and the tax rate on net capital gains applicable to individuals is 28%. Thus,
the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against an individual's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Camden will report to its U.S. Shareholders and to the Service the amount
of distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a U.S. Shareholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid unless
such holder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. Shareholder who does not provide Camden with
his correct taxpayer identification number also may be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be creditable
against the U.S. Shareholder's income tax liability. In addition, Camden may be
required to withhold a portion of capital gain distributions to any U.S.
Shareholders who fail to certify their nonforeign status to Camden. The Service
issued proposed regulations in April 1996 regarding the backup withholding rules
as applied to Non-U.S. Shareholders (as hereinafter defined). Those proposed
regulations would alter the current system of backup withholding compliance. See
" -- Taxation of Non-U.S. Shareholders."
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TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued a published
ruling that dividend distributions from a REIT to an exempt employee pension
trust do not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt employee pension
trust. Based on that ruling, amounts distributed by Camden to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of Camden Common Shares or Paragon Common
Stock with debt, a portion of its income from distributions on such shares will
constitute UBTI pursuant to the "debt-financed property" rules. Furthermore,
social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts and qualified group legal services plans that are exempt from
taxation under paragraphs (7), (9), (17) and (20), respectively, of Code section
501(c) are subject to different UBTI rules, which generally will require them to
characterize distributions from Camden as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of the Camden Common
Shares is required to treat a percentage of the dividends on its Camden Common
Shares as UBTI (the "UBTI Percentage"). The UBTI Percentage is the gross income
derived by Camden from an unrelated trade or business (determined as if Camden
were a pension trust) divided by the gross income of Camden for the year in
which the dividends are paid. The UBTI rule applies to a pension trust holding
more than 10% of the Camden Common Shares only if (i) the UBTI Percentage is at
least 5%, (ii) Camden or Paragon, as the case may be, qualifies as a REIT by
reason of the modification of the 5/50 Rule that allows the beneficiaries of the
pension trust to be treated as holding shares of Camden or Paragon, as the case
may be, in proportion to their actuarial interests in the pension trust and
(iii) either (A) one pension trust owns more than 25% of the value of Camden's
Common Shares or (B) a group of pension trusts individually holding more than
10% of the value of Camden's shares collectively owns more than 50% of the value
of Camden's shares.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
holders of Camden Common Shares (collectively, "Non-U.S. Shareholders") are
complex and no attempt will be made herein to provide more than a summary of
such rules. NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO
AN INVESTMENT IN CAMDEN COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges of United States real property interests and are not
designated by the payor as capital gains dividends will be treated as dividends
of ordinary income to the extent that they are made out of the payor's current
or accumulated earnings and profits. Such distributions ordinarily will be
subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in Camden Common Shares is treated as
effectively connected with the Non-U.S. Shareholder's conduct of a United States
trade or business, the Non-U.S. Shareholder generally will be subject to federal
income tax at graduated rates, in the same manner as U.S. Shareholders are taxed
with respect to such distributions (and also may be subject to the 30% branch
profits tax in the case of a Non-U.S. Shareholder that is a corporate Non-U.S.
Shareholder). Camden expects to withhold United States income tax at the rate of
30% on the gross amount of any such distributions made to a Non-U.S. Shareholder
unless (i) a lower treaty rate applies and any required form evidencing
eligibility for that reduced rate is filed with Camden or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with Camden claiming that the distribution is
effectively connected income. The Service issued proposed regulations in April
1996 that would modify the manner in which Camden complies with the withholding
requirements.
Distributions in excess of current and accumulated earnings and profits of
Camden will not be taxable to a shareholder to the extent that such
distributions do not exceed the adjusted basis of the shareholder's Camden
Common Shares but rather will reduce the adjusted basis of such shares. To the
extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's Camden Common
Shares, such distributions will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of his Camden Common Shares as described below. Because it generally
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of any distribution normally will be subject to withholding at
the same rate as a dividend. However, amounts so withheld are
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refundable to the extent it is determined subsequently that such distribution
was, in fact, in excess of the payor's current and accumulated earnings and
profits.
In August 1996, the President signed into law the Small Business Job
Protection Act of 1996, which requires Camden to withhold 10% of any
distribution in excess of its current and accumulated earnings and profits. That
statute is effective for distributions made after August 20, 1996. Consequently,
to the extent that Camden otherwise would not have withheld tax at a rate
greater than 10% on any distribution (or portion thereof), such distribution (or
portion thereof) will be subject to withholding at a rate of 10%.
For any year in which Camden qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of United States real property
interests are taxed to a Non-U.S. Shareholder as if such gain were effectively
connected with a United States business. Non-U.S. Shareholders thus would be
taxed at the normal capital gain rates applicable to U.S. Shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions subject to FIRPTA also
may be subject to the 30% branch profits tax in the hands of a corporate United
States Shareholder not entitled to treaty relief or exemption. The payor is
required to withhold 35% of any distribution that is designated by it as a
capital gains dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his Camden Common
Shares generally will not be taxed under FIRPTA if Camden is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. Camden is currently a "domestically-controlled
REIT" and, therefore, the sale of Camden Common Shares will not be subject to
taxation under FIRPTA. However, no assurance can be given that Camden will
continue to be a "domestically-controlled REIT." Furthermore, gain not subject
to FIRPTA will be taxable to a Non-U.S. Shareholder if (i) investment in Camden
Common Shares or Paragon Common Stock is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. Shareholders with
respect to such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year and certain other conditions apply, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital gains.
If the gain on the sale of Camden Common Shares or Paragon Common Stock were to
be subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject
to the same treatment as U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals, and the possible application of the 30%
branch profits tax in the case of corporate Non-U.S. Shareholders).
OTHER TAX CONSEQUENCES
Camden, Paragon Operating Partnership, the Camden Corporate Subsidiaries
or Camden shareholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which it or they own property,
transact business or reside. The state and local tax treatment of Camden and its
shareholders may not conform to the federal income tax consequences discussed
above. CONSEQUENTLY, PARAGON STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE EFFECT OF STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN CAMDEN.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from Camden's annual
report on Form 10-K for the year ended December 31, 1995 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements and related financial statement
schedule of Paragon included in its annual report on Form 10-K for the year
ended December 31, 1995 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon
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included therein and incorporated herein by reference. Such consolidated
financial statements and schedule are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL OPINIONS
The legality of the Camden Common Shares to be issued in the Merger will
be passed on for Camden by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas,
Texas.
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas, Texas, counsel to
Camden, and Hogan & Hartson L.L.P., Washington D.C., counsel to Paragon, will
deliver opinions to Camden and Paragon, respectively, concerning federal income
tax consequences of the Merger. See "THE MERGER -- Material Federal Income Tax
Consequences." Also, Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. will deliver
an opinion to each of Camden and Paragon that, commencing with its taxable year
ended December 31, 1993, Camden was organized and has operated in conformity
with the requirements for qualification and taxation as a REIT, and Hogan &
Hartson L.L.P. will deliver an opinion to Camden that, commencing with its
taxable year ended December 31, 1994, Paragon was organized and has operated in
conformity with the requirements for qualification and taxation as a REIT and
regarding Paragon Operating Partnership's taxation as a partnership prior to the
Merger.
SHAREHOLDER PROPOSALS
Any proposals by Camden shareholders to be presented at Camden's 1997
Annual Meeting of Shareholders must have been received by Camden no later than
November 29, 1996 in order to be included in Camden's proxy materials relating
to the meeting. Any proposals by Paragon stockholders to be presented at
Paragon's 1997 Annual Meeting of Stockholders, assuming that the Merger is not
consummated by June 30, 1997, must be received by Paragon between February 5,
1997 and March 7, 1997 pursuant to Paragon's Bylaws in order to be included in
Paragon's proxy materials relating to the meeting.
OTHER MATTERS
The Camden Board does not intend to bring any matter before the Camden
Special Meeting other than as specifically set forth in the Notice of Special
Meeting of Shareholders, nor does it know of any matter to be brought before the
Camden Special Meeting by others. If, however, any other matters properly come
before the Special Meeting, it is the intention of the proxyholders to vote such
proxy in accordance with the decision of a majority of the Camden Board.
The Paragon Board does not intend to bring any matter before the Paragon
Special Meeting other than as specifically set forth in the Notice of Special
Meeting of Stockholders, nor does it know of any matter to be brought before the
Paragon Special Meeting by others. If, however, any other matters properly come
before the Paragon Special Meeting, it is the intention of the proxyholders to
vote such proxy in accordance with the decision of a majority of the Paragon
Board.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
Dated as of December 16, 1996,
Among
CAMDEN PROPERTY TRUST
CAMDEN SUBSIDIARY, INC.
And
PARAGON GROUP, INC.
<PAGE>
ARTICLE I THE MERGER...........................................................2
SECTION 1.1 The Merger.....................................................2
SECTION 1.2 Closing........................................................2
SECTION 1.3 Effective Time.................................................2
SECTION 1.4 Amendment of Operating
Partnership Agreement.....................................................2
SECTION 1.5 Effects of the Merger..........................................2
SECTION 1.6 Articles of Incorporation
and Bylaws................................................................3
SECTION 1.7 Trust Managers.................................................3
SECTION 1.8 Officers.......................................................3
SECTION 1.9 Purchase of Common Stock
by the Operating Partnership..............................................3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...........................3
SECTION 2.1 Effect on Capital Stock.........................................3
(a) Cancellation of Treasury Stock......................................3
(b) Conversion of Common Stock .........................................3
(c) Shares of Camden Common Stock.......................................4
SECTION 2.2 Exchange of Certificates........................................4
(a) Exchange Agent......................................................4
(b) Camden To Provide Merger Consideration..............................4
(c) Exchange Procedure .................................................4
(d) Record Dates for Final Dividends;
Distributions with Respect to
Unexchanged Shares..............................................4
(e) No Further Ownership Rights
in Common Stock.................................................5
(f) No Liability........................................................5
(g) No Fractional Shares ...............................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES.....................................6
SECTION 3.1 Representations and Warranties
of the Company..................................................6
(a) Organization, Standing and Corporate
Power of the Company............................................6
(b) Company Subsidiaries ...............................................6
(c) Capital Structure ..................................................7
(d) Authority; Noncontravention; Consents ..............................7
(e) SEC Documents; Financial Statements;
Undisclosed Liabilities.........................................8
(f) Absence of Certain Changes or Events ...............................9
(g) Litigation .........................................................9
(h) Properties .........................................................9
(i) Environmental Matters .............................................10
(j) Related Party Transactions ........................................10
(k) Absence of Changes in Benefit Plans;
ERISA Compliance ..............................................11
(l) Taxes .............................................................11
(m) No Payments to Employees, Officers
or Directors ..................................................12
(n) Brokers; Schedule of Fees and Expenses ............................12
(o) Compliance with Laws ..............................................12
(p) Contracts; Debt Instruments .......................................12
(q) Opinion of Financial Advisor ......................................13
(r) State Takeover Statutes ...........................................13
(s) Registration Statement ............................................13
(t) Investment Company Act of 1940 ....................................13
(u) Vote Required .....................................................13
SECTION 3.2 Representations and Warranties
of Camden......................................................13
(a) Organization, Standing and Corporate
Power of Camden and Camden Sub ................................13
(b) Camden Subsidiaries ...............................................14
(i)
<PAGE>
(c) Capital Structure .................................................14
(d) Authority; Noncontravention; Consents .............................14
(e) SEC Documents; Financial Statements; Undisclosed Liabilities ......15
(f) Absence of Certain Changes or Events ..............................16
(g) Litigation ........................................................16
(h) Properties ........................................................16
(i) Environmental Matters .............................................17
(j) Related Party Transactions ........................................17
(k) Absence of Changes in Benefit Plans; ERISA Compliance .............18
(l) Taxes .............................................................18
(m) No Payments to Employees, Officers or Directors ...................19
(n) Brokers; Schedule of Fees and Expenses ............................19
(o) Compliance with Laws ..............................................19
(p) Contracts; Debt Instruments .......................................19
(q) Interim Operations of Sub .........................................19
(r) Opinion of Financial Advisor ......................................19
(s) State Takeover Statutes ...........................................20
(t) Registration Statement ............................................20
(u) Vote Required .....................................................20
(v) Investment Company Act of 1940 ....................................20
ARTICLE IV COVENANTS..........................................................20
SECTION 4.1 Conduct of Business by the Company..............................20
SECTION 4.2 Conduct of Business by Camden...................................22
SECTION 4.3 Other Actions...................................................23
ARTICLE V ADDITIONAL COVENANTS................................................24
SECTION 5.1 Preparation of the Registration Statement
and the Proxy Statement; Shareholders
Meeting and Camden Shareholders Meeting.......................24
SECTION 5.2 Access to Information; Confidentiality..........................25
SECTION 5.3 Commercially Reasonable Efforts; Notification...................25
SECTION 5.4 Affiliates......................................................26
SECTION 5.5 Tax Treatment...................................................26
SECTION 5.6 Camden Board of Trust Managers..................................26
SECTION 5.7 No Solicitation of Transactions by the Company..................26
SECTION 5.8 Public Announcements............................................26
SECTION 5.9 Listing.........................................................27
SECTION 5.10 Letters of Accountants........................................27
SECTION 5.11 Transfer and Gains Taxes......................................27
SECTION 5.12 Benefit Plans and Other Employee Arrangements.................27
(a) Benefit Plans .....................................................27
(b) Stock Incentive Plan ..............................................27
(c) Severance Program .................................................28
(d) Cooperation .......................................................28
SECTION 5.13 Indemnification; Directors' and Officers' Insurance...........28
SECTION 5.14 REIT Qualification of Paradim.................................29
SECTION 5.15 Termination of Certain Employment Agreements..................29
ARTICLE VI CONDITIONS PRECEDENT...............................................29
SECTION 6.1 Conditions to Each Party's Obligation To Effect the Merger.....29
(a) Shareholder Approvals .............................................29
(b) HSR Act ...........................................................30
(ii)
<PAGE>
(c) Listing of Shares .................................................30
(d) Registration Statement ............................................30
(e) No Injunctions or Restraints ......................................30
(f) Blue Sky Laws .....................................................30
(g) Related Transactions ..............................................30
(h) Certain Actions and Consents ......................................30
SECTION 6.2 Conditions to Obligations of Camden and Camden Sub.............30
(a) Representations and Warranties ....................................30
(b) Performance of Obligations of the Company ........................30
(c) Material Adverse Change ...........................................30
(d) Opinions Relating to REIT and Partnership Status ..................31
(e) Other Tax Opinion .................................................31
(f) Consents ..........................................................31
SECTION 6.3 Conditions to Obligations of the Company........................31
(a) Representations and Warranties ...................................31
(b) Performance of Obligations of Camden .............................31
(c) Material Adverse Change ..........................................31
(d) Opinion Relating to REIT Status ..................................31
(e) Other Tax Opinion ................................................32
(f) Consents .........................................................32
(g) The Investment Company Act Opinion ...............................32
ARTICLE VII BOARD ACTIONS.....................................................32
SECTION 7.1 Board Actions...................................................32
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................33
SECTION 8.1 Termination.....................................................33
SECTION 8.2 Expenses........................................................34
SECTION 8.3 Effect of Termination...........................................35
SECTION 8.4 Amendment.......................................................36
SECTION 8.5 Extension; Waiver...............................................36
ARTICLE IX GENERAL PROVISIONS.................................................36
SECTION 9.1 Nonsurvival of Representations and Warranties...................36
SECTION 9.2 Notices.........................................................36
SECTION 9.3 Certain Definitions.............................................37
SECTION 9.4 Interpretation..................................................38
SECTION 9.5 Counterparts....................................................38
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries..................38
SECTION 9.7 GOVERNING LAW...................................................38
SECTION 9.8 Assignment......................................................38
SECTION 9.9 Enforcement.....................................................39
SECTION 9.10 Severability...................................................39
EXHIBITS:
A Form of Amended and Restated Operating Partnership Agreement
B Form of Affiliates Letter
C Terms of Severance
D Form of Registration Rights Agreement
E Forms of Letters and Certificates Supporting Tax Opinion
F Forms of Letters and Certificates Supporting Tax Opinion
G Form of Lock Up Agreement
(iii)
<PAGE>
Annex A - Parties to Company Voting Agreement
Annex B - Parties to Camden Voting Agreement
Schedules:
Schedule 1.7 Trust Managers of Camden
Schedule 1.8 Officers of Surviving Corporation
Schedule 3.1(b) Company Subsidiaries
Schedule 3.1(c) Capital Structure
Schedule 3.1(d) Authority; Noncontravention; Consents
Schedule 3.1(e) SEC Documents; Financial Statements; Undisclosed Liabilities
Schedule 3.1(f) Certain Changes or Events
Schedule 3.1(g) Litigation
Schedule 3.1(h) Company Properties
Schedule 3.1(j) Company Related Party Transactions
Schedule 3.1(k)(i) Changes in Benefit Plans
Schedule 3.1(k)(ii)ERISA Compliance
Schedule 3.1(l) Taxes
Schedule 3.1(m) Payments to Employees, Officers and
Directors
Schedule 3.1(o) Compliance with Laws (Exceptions)
Schedule 3.1(p)(i) Contracts
Schedule 3.1(p)(ii)Debt Instruments
Schedule 3.2(b) Camden Subsidiaries
Schedule 3.2(c) Camden Capital Structure
Schedule 3.2(d) Authority; Noncontravention; Consents
Schedule 3.2(e) Camden Liabilities
Schedule 3.2(f) Certain Changes or Events
Schedule 3.2(g) Litigation
Schedule 3.2(h) Camden Properties
Schedule 3.2(j) Camden Related Party Transactions
Schedule 3.2(k)(i) Changes in Benefit Plans
Schedule 3.2(k)(ii)ERISA Compliance
Schedule 3.2(l) Taxes
Schedule 3.2(m) Payments to Employees, Officers or Directors
Schedule 3.2(p)(i) Contracts
Schedule 3.2(p)(ii)Debt Instruments
Schedule 4.1 Conduct of Business by the Company (Exceptions to Covenants)
Schedule 4.2 Conduct of Business by Camden (Exceptions to Covenants)
Schedule 5.15 Termination of Employment
Schedule 8.2(b) Competing Transactions (exceptions)
Schedule 9.3 Persons with "Knowledge" of the Company or Camden.
(iv)
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated as
of December 16, 1996 is made and entered into between Camden Property Trust, a
Texas real estate investment trust ("CAMDEN"), Camden Subsidiary, Inc., a
Delaware corporation and a direct wholly-owned subsidiary of Camden ("CAMDEN
SUB"), and Paragon Group, Inc., a Maryland corporation (the "COMPANY").
RECITALS
(a)Certain capitalized terms used herein shall have the
meanings assigned to them in Section 9.3.
(b) The respective Boards of Directors of Camden, Camden Sub
and the Company have approved the merger of the Company with and into Camden
Sub, Camden's direct wholly-owned subsidiary, as set forth below (the "MERGER"),
upon the terms and subject to the conditions set forth in this Agreement,
whereby each issued and outstanding share of common stock, par value $.01 per
share, of the Company (the "COMMON STOCK") will be converted into the right to
receive the Merger Consideration (as defined below).
(c)Camden, Camden Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
(d) For federal income tax purposes it is intended that the
Merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE").
(e)Concurrently with the execution of this Agreement and as
an inducement to Camden to enter into this Agreement, each of the persons listed
on ANNEX A has entered into a voting agreement (the "COMPANY VOTING AGREEMENT")
pursuant to which such person has agreed, among other things, to vote its shares
of Common Stock in favor of this Agreement, the Merger and any other matter
which requires its vote in connection with the transactions contemplated by this
Agreement, including the consent to certain amendments to the Operating
Partnership Agreement (as defined in Section 1.4) and, as applicable, the
consent to the Operating Partnership Transaction (as defined in Section 1.4).
(f)Concurrently with the execution of this Agreement and as
an inducement to the Company to enter into this Agreement, each of the persons
listed on ANNEX B has entered into a voting agreement (the "CAMDEN VOTING
AGREEMENT") pursuant to which such person has agreed, among other things, to
vote its common shares of beneficial interest, par value $.01, of Camden (the
"CAMDEN COMMON STOCK"), in favor of this Agreement, the Merger and any other
matter which requires its vote in connection with the transactions contemplated
by this Agreement.
(g) Simultaneously with the execution of this Agreement, the
Camden Management Company (as defined below) and TPMP (as defined below) have
entered into a Stock Purchase Agreement (the "STOCK PURCHASE AGREEMENT")
providing for the sale by TPMP of all of the issued and outstanding voting stock
of the Residential Management Corporation (as defined below) owned by TPMP to an
entity designated by Camden simultaneously with the completion of the other
Transactions (as defined below).
(h) In connection with the Merger, the Second Amended and
Restated Agreement of Limited Partnership of the Operating Partnership (the
"OPERATING PARTNERSHIP AGREEMENT") will be amended and restated in its entirety
substantially in the form attached hereto as EXHIBIT A hereto, or if the
required consents to the contemplated amendments to the Operating Partnership
Agreement are not received, then at the option of the Company in its sole
discretion, the Operating Partnership will be merged with and into either (i) a
newly formed Delaware limited partnership (the "NEW PARTNERSHIP"), or (ii)
Camden Sub.
(i) The transactions contemplated by this Agreement, the
Company Voting Agreement, the Camden Voting Agreement, the Stock Purchase
Agreement and the other agreements and documents contemplated
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<PAGE>
hereby, including, without limitation, the Merger, shall be referred to
collectively in this Agreement as the 'TRANSACTIONS."
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements contained in this Agreement, the parties
hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the corporation
law of Delaware (the "CORPORATION LAW") and the Maryland General Corporation Law
("MGCL"), the Company shall be merged with and into Camden Sub at the Effective
Time. Following the Merger, the separate corporate existence of the Company
shall cease and Camden Sub shall continue as the surviving corporation (the
"SURVIVING CORPORATION") and shall succeed to and assume all the rights and
obligations of the Company in accordance with the Corporation Law.
SECTION 1.2 CLOSING. The closing of the Merger will take
place at 10:00 a.m. on a date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Sections 6.2 and 6.3)
shall be no later than the second business day after satisfaction or waiver of
the conditions set forth in Section 6.1 (the "CLOSING DATE"), at the offices of
Hogan & Hartson L.L.P., 555 13th Street, N.W., Washington, D.C., unless another
date or place is agreed to by the parties hereto.
SECTION 1.3 EFFECTIVE TIME. As soon as practicable following
the satisfaction or waiver of the conditions set forth in Article VI, the
parties shall file a certificate of merger or other appropriate documents (the
"CERTIFICATE OF MERGER") executed in accordance with the Corporation Law and
articles of merger or other appropriate documents (the "ARTICLES OF MERGER")
executed in accordance with the MGCL and shall make all other filings or
recordings required under the Corporation Law or the MGCL. The Merger shall
become effective upon the later of: (i) the issuance of a certificate of merger
by the State Department of Assessments and Taxation of Maryland ("SDAT") in
accordance with the MGCL and (ii) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware, or at such later time which
Camden, Camden Sub and the Company have agreed upon and designated in such
filings in accordance with applicable law (the time the Merger becomes effective
being the "EFFECTIVE TIME"), it being understood that the parties shall cause
the Effective Time to occur on the Closing Date.
SECTION 1.4 AMENDMENT OF OPERATING PARTNERSHIP AGREEMENT. In
connection with the transactions contemplated by the Merger, the Operating
Partnership Agreement shall be amended and restated in its entirety
substantially in the form attached hereto as EXHIBIT A, effective as of the
Effective Time; PROVIDED, HOWEVER, that in the event that the Required
Partnership Vote is not received, then at the option of the Company in its sole
discretion and assuming receipt of the necessary approvals set forth in Section
3.1(u), the Operating Partnership will be merged with and into either (i) the
New Partnership, which will have a partnership agreement substantially in the
form attached hereto as EXHIBIT A or (ii) Camden Sub (such transaction, if
selected by the Company and submitted to the limited partners for approval being
hereinafter referred to as the "OPERATING PARTNERSHIP TRANSACTION"). In the case
of (i) above, each Unit (as defined in Section 3.1(c)) will be converted into
units of partnership interest of the New Partnership based upon the Exchange
Ratio (as defined in Section 2.1(b)), as though each Unit were a share of Common
Stock and each unit of partnership interest in the New Partnership were a share
of Camden Common Stock. In the case of (ii) above, Units shall be converted into
shares of Camden Common Stock based upon the Exchange Ratio, as though each Unit
were a share of Common Stock.
SECTION 1.5 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the Corporation Law and the MGCL.
SECTION 1.6 ARTICLES OF INCORPORATION AND BYLAWS. The
Certificate of Incorporation of Camden Sub, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with applicable law. The Bylaws of
Camden Sub, as in
I-2
<PAGE>
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation, until duly amended in accordance with applicable law.
Prior to the Effective Time, Camden shall amend its Bylaws to the extent
necessary to increase the size of the Board of Trust Managers as provided in
Section 5.6 and shall appoint William R. Cooper and Lewis A. Levey (or such
other person or persons designated by the Company in the event either of the
designated persons is unable or unwilling to serve) to fill such vacancies and
serve in accordance with the Bylaws.
SECTION 1.7 TRUST MANAGERS. The Trust Managers of Camden
immediately following the Effective Time shall be the persons named on SCHEDULE
1.7 attached hereto, each of whom shall serve in accordance with the Texas REIT
Act and Camden's Bylaws. Such Trust Managers of Camden shall be appointed to the
committees of the Camden Board of Trustees as indicated on SCHEDULE 1.7.
Immediately following the Effective Time, Camden shall cause the size and
composition of the Board of Directors of each of Camden Sub, GP Holdings and LP
Holdings to be the same as Camden's Board of Trust Managers.
SECTION 1.8 OFFICERS. The officers of Camden Sub immediately
following the Effective Time shall be the persons named on SCHEDULE 1.8 attached
hereto, all of whom shall serve until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be. The parties shall cooperate to determine, prior to the filing
of the Registration Statement, the full extent of the involvement of Paragon's
senior management in the senior management of Camden following the Merger.
SECTION 1.9 PURCHASE OF COMMON STOCK BY THE OPERATING
PARTNERSHIP. Immediately prior to the Effective Time, in satisfaction of certain
obligations of Residential Management Corporation to the Operating Partnership,
including outstanding indebtedness of Residential Management Corporation held by
the Operating Partnership, Residential Management Corporation will sell to the
Operating Partnership 79,500 shares of Common Stock owned by Residential
Management Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. By virtue of the Merger
and without any action on the part of the holder of any shares of Common Stock
or the holder of any shares of capital stock of Camden:
(a)CANCELLATION OF TREASURY STOCK. As of the Effective Time,
any shares of capital stock of the Company that are owned by the Company or any
Company Subsidiary (as defined below) (other than the 84,486 shares of Common
Stock currently owned by the Residential Management Corporation, 79,500 of which
will be purchased by the Operating Partnership pursuant to Section 1.9 hereof,
all of which shares shall be treated in the manner described in Section 2.1(b)
hereof) shall automatically be canceled and retired and all rights with respect
thereto shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(b) CONVERSION OF COMMON STOCK. Upon the Effective Time, each
issued and outstanding share of Common Stock (other than any shares to be
canceled in accordance with Section 2.1(a)) shall be converted into the right to
receive from Camden sixty-four one hundredths (.64) of a fully paid and
nonassessable share of Camden Common Stock (the "EXCHANGE RATIO"); PROVIDED,
HOWEVER, that the Exchange Ratio may be adjusted as set forth in Section 8.1(k)
hereof. As of the Effective Time, all shares of Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and all rights with
respect thereto shall cease to exist, and each holder of a certificate
representing any such shares of Common Stock shall cease to have any rights with
respect thereto, except the right to receive, upon surrender of such certificate
in accordance with Section 2.2(c), certificates representing the shares of
Camden Common Stock required to be delivered under this Section 2.1(b) and any
cash in lieu of fractional shares of Camden Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate (the "MERGER
CONSIDERATION") as set forth in Section 2.2(g), and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(d), in
each case without interest and less any required withholding taxes.
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<PAGE>
(c)SHARES OF CAMDEN COMMON STOCK. Upon the Effective Time,
each share of Camden Common Stock outstanding immediately prior to the Effective
Time shall remain outstanding and shall represent one share of validly issued,
fully paid and nonassessable Camden Common Stock.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a)EXCHANGE AGENT. Prior to the Effective Time, Camden Sub
shall appoint American Stock Transfer & Trust Company or another bank or trust
company reasonably acceptable to the Company to act as exchange agent (the
"EXCHANGE AGENT") for the exchange of the Merger Consideration upon surrender of
certificates representing issued and outstanding Common Stock.
(b) CAMDEN TO PROVIDE MERGER CONSIDERATION. Camden Sub shall
provide to the Exchange Agent on or before the Effective Time, for the benefit
of the holders of Common Stock, shares of Camden Common Stock issuable (the
"EXCHANGE FUND") in exchange for the issued and outstanding shares of Common
Stock pursuant to Section 2.1. The Company shall provide to the Exchange Agent
on or before the Effective Time, for the benefit of the holders of Common Stock,
cash payable in respect of dividends pursuant to Section 2.2(d)(i).
(c)EXCHANGE PROCEDURE. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Common Stock (the "CERTIFICATES") whose shares
were converted into the right to receive the Merger Consideration pursuant to
Section 2.1 (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in a form
and have such other provisions as Camden Sub may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Camden Sub, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration into which the shares of Common Stock theretofore represented by
such Certificate shall have been converted pursuant to Section 2.1 and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(d), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Common Stock which is not registered
in the transfer records of the Company, payment may be made to a person other
than the person in whose name the Certificate so surrendered is registered if
such Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment either shall pay any transfer or
other taxes required by reason of such payment being made to a person other than
the registered holder of such Certificate or establish to the satisfaction of
Camden Sub that such tax or taxes have been paid or are not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without interest, into
which the shares of Common Stock theretofore represented by such Certificate
shall have been converted pursuant to Section 2.1, and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.2(d). No
interest will be paid or will accrue on the Merger Consideration upon the
surrender of any Certificate or on any cash payable pursuant to Section 2.2(d)
or Section 2.2(g).
(d) RECORD DATES FOR FINAL DIVIDENDS; DISTRIBUTIONS WITH
RESPECT TO UNEXCHANGED SHARES.
(i) To the extent necessary to satisfy the requirements
of Section 857(a)(1) of the Code for the taxable year of the Company ending at
the Effective Time, the Company shall declare a dividend (the "FINAL COMPANY
DIVIDEND") to holders of Common Stock, the record date for which shall be close
of business on the last business day prior to the Effective Time, in an amount
equal to the minimum dividend sufficient to permit the Company to satisfy such
requirements. If the Company determines it necessary to declare the Final
Company Dividend, it shall notify Camden at least ten (10) days prior to the
date for the Company Shareholders Meeting, and Camden shall declare a dividend
per share to holders of Camden Common Stock, the record date for which shall be
the close of business on the last business day prior to the Effective Time, in
an amount per share equal to the quotient obtained by dividing (x) the Final
Company Dividend per share of Common Stock paid by the Company by (y) the
Exchange Ratio. The dividends payable hereunder to holders of Common Stock shall
be paid upon presentation of the certificates of Common Stock for exchange in
accordance with this Article II.
I-4
<PAGE>
(ii) No dividends or other distributions with respect to
Camden Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Camden
Common Stock represented thereby, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(g), in each case
until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable escheat laws, following surrender of any
such Certificate there shall be paid to the holder of such Certificate, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of any fractional share of Camden Common Stock to which such holder is
entitled pursuant to Section 2.2(g) and (ii) if such Certificate is exchangeable
for one or more whole shares of Camden Common Stock, (x) at the time of such
surrender the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Camden Common Stock and (y) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of Camden Common Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All Merger
Consideration paid upon the surrender of Certificates in accordance with the
terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Common Stock theretofore represented by such Certificates; PROVIDED,
HOWEVER, that the Company shall transfer to the Exchange Agent cash sufficient
to pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by the Company on such
shares of Common Stock in accordance with the terms of this Agreement or prior
to the date of this Agreement and which remain unpaid at the Effective Time and
have not been paid prior to such surrender, and there shall be no further
registration of transfers on the stock transfer books of the Company of the
shares of Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation or Camden for any reason, they shall be canceled and exchanged as
Reprovided in this Article II.
(f) NO LIABILITY. None of Camden, Camden Sub, the Company or
the Exchange Agent shall be liable to any person in respect of any Merger
Consideration or dividends delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Any portion of the
Exchange Fund delivered to the Exchange Agent pursuant to this Agreement that
remains unclaimed for six months after the Effective Time shall be redelivered
by the Exchange Agent to Camden, upon demand, and any holders of Certificates
who have not theretofore complied with Section 2.2(c) shall thereafter look only
to Camden for delivery of the Merger Consideration and any unpaid dividends,
subject to applicable escheat and other similar laws.
(g) NO FRACTIONAL SHARES.
(i) No certificates or scrip representing fractional
shares of Camden Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote, to receive dividends or to any other rights of a stockholder of
Camden.
(ii) Notwithstanding any other provision of this
Agreement, each holder of shares of Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Camden Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, from the Exchange Agent in accordance with the
provisions of this Section 2.2(g), a cash payment in lieu of such fractional
shares of Camden Common Stock, as applicable, representing such holder's
proportionate interest, if any, in the net proceeds from the sale by the
Exchange Agent in one or more transactions (which sale transactions shall be
made at such times, in such manner and on such terms as the Exchange Agent shall
determine in its reasonable discretion) on behalf of all such holders of the
aggregate of the fractional shares of Camden Common Stock, as applicable, which
would otherwise have been issued (the "EXCESS CAMDEN SHARES"). The sale of the
Excess Camden Shares by the Exchange Agent shall be executed on the New York
Stock Exchange (the "NYSE") through one or more member firms of the NYSE and
shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of
Certificates, the Exchange Agent will hold such proceeds in trust (the "EXCHANGE
TRUST") for the holders of Certificates. Camden shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent, incurred in connection with this sale of
the Excess Camden Shares (other than transfer taxes that, under applicable state
law,
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are solely the liability of the holders of Common Stock exchanging such shares
in the Merger (which taxes shall be paid by such holders). As soon as
practicable after the determination of the amount of cash, if any, to be paid to
holders of Certificates in lieu of any fractional shares of Camden Common Stock,
the Exchange Agent shall make available such amounts to such holders of
Certificates without interest.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Camden and Camden Sub as follows:
(a)ORGANIZATION, STANDING AND CORPORATE POWER OF THE COMPANY.
The Company is a corporation duly organized and validly existing under the laws
of Maryland and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not have a
material adverse effect on the business, properties, assets, financial condition
or results of operations of the Company and the Company Subsidiaries (as defined
below) taken as a whole (a "MATERIAL ADVERSE EFFECT"). The Company has delivered
to Camden complete and correct copies of its Articles of Amendment and
Restatement of Articles of Incorporation and Amended and Restated Bylaws, as
amended to the date of this Agreement.
(b) COMPANY SUBSIDIARIES. SCHEDULE 3.1(b) to the Company
Disclosure Letter (as defined below) sets forth each Company Subsidiary and the
ownership interest therein of the Company. Except as set forth on SCHEDULE
3.1(b) to the Company Disclosure Letter, (A) all the outstanding shares of
capital stock of each Company Subsidiary that is a corporation have been validly
issued and are fully paid and nonassessable, are owned by the Company or by
another Company Subsidiary free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever
(collectively, "LIENS") and (B) all equity interests in each Company Subsidiary
that is a partnership, joint venture, limited liability company or trust are
owned by the Company, by another Company Subsidiary, or by the Company and
another Company Subsidiary, or by two or more Company Subsidiaries free and
clear of all Liens. Except for the capital stock of or other equity or ownership
interests in the Company Subsidiaries, and except as set forth on SCHEDULE
3.1(b) to the Company Disclosure Letter, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any person. Each
Company Subsidiary that is a corporation is duly incorporated and validly
existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted, and each Company Subsidiary that is a partnership, limited liability
company or trust is duly organized and validly existing under the laws of its
jurisdiction of organization and has the requisite power and authority to carry
on its business as now being conducted. Except as set forth on SCHEDULE 3.1(b)
to the Company Disclosure Letter, each Company Subsidiary is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed, individually or in the
aggregate, would not have a Material Adverse Effect. Copies of the Articles of
Incorporation, Bylaws, organization documents and partnership and joint venture
agreements of each Company Subsidiary, as amended to the date of this Agreement,
have been previously delivered or made available to Camden.
(c)CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock; 50,000,000 shares of
preferred stock, par value $.01 per share (the "PREFERRED STOCK"); and
50,000,000 shares of excess common stock, par value $.01 per share ("EXCESS
COMMON STOCK"). On the date hereof (i) 14,791,165 shares of Common Stock
(including 84,486 shares held by the Residential Management Corporation, a
portion of which shall be sold pursuant to Section 1.9 hereof) and no shares of
Preferred Stock or Excess Stock were issued and outstanding, (ii) no shares of
Common Stock, Preferred Stock or Excess Stock were held by the Company in its
treasury, (iii) no shares of Common Stock were available for issuance under the
Company's employee benefit or incentive plans pursuant to awards granted by the
Company (the "COMPANY
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EMPLOYEE STOCK PLANS"), (iv) 279,000 shares of Common Stock were issuable upon
exercise of outstanding options (the "COMPANY OPTIONS") to purchase Common
Stock, (v) 3,675,258 shares of Common Stock were reserved for issuance upon the
redemption of units of partnership interest in the Operating Partnership (the
"UNITS") for shares of Common Stock pursuant to the Operating Partnership
Agreement and (vi) 50,000 shares of Common Stock are reserved for issuance upon
exercise of the warrants set forth on SCHEDULE 3.1(c) to the Company Disclosure
Letter. On the date of this Agreement, except as set forth above in this Section
3.1(c) or as required pursuant to the Operating Partnership Agreement, no shares
of capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding. There are no outstanding stock appreciation rights
relating to the capital stock of the Company. All outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which shareholders of the Company may vote. Except (A) for the
Company Options, (B) for the Units (which, under the Operating Partnership
Agreement, may be redeemed by limited partners of the Operating Partnership
(other than Units held by GP Holdings or LP Holdings) for one share of Common
Stock per Unit or the cash equivalent thereof, at the Company's election), (C)
as set forth in SCHEDULE 3.1(c) to the Company Disclosure Letter, or (D) as
otherwise permitted under Section 4.1, as of the date of this Agreement there
are no outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
Company Subsidiary is a party or by which such entity is bound, obligating the
Company or any Company Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock, voting securities
or other ownership interests of the Company or any Company Subsidiary or
obligating the Company or any Company Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to the Company or a Company
Subsidiary). Except as set forth on SCHEDULE 3.1(c) to the Company Disclosure
Letter or as required under the Operating Partnership Agreement, there are no
outstanding contractual obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any capital stock, voting securities or other ownership interests in
any Company Subsidiary or make any material investment (in the form of a loan,
capital contribution or otherwise) in any person (other than a Company
Subsidiary).
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. The Company has
the requisite corporate power and authority to enter into this Agreement and,
subject to approval of this Agreement by the vote of the holders of the Common
Stock required to approve this Agreement and the transactions contemplated
hereby (the "COMPANY SHAREHOLDER APPROVALS"), to consummate the transactions
contemplated by this Agreement to which the Company is a party. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by this Agreement to which the Company
is a party have been duly authorized by all necessary corporate action on the
part of the Company, subject to approval of this Agreement pursuant to the
Company Shareholder Approvals. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. Except
for approval of the amendments to the Operating Partnership Agreement or
approval of the Operating Partnership Transaction, as the case may be,
contemplated under Section 1.4 or as set forth in SCHEDULE 3.1(d) to the Company
Disclosure Letter, the execution and delivery of this Agreement by the Company
do not, and the consummation of the transactions contemplated by this Agreement
to which the Company is a party and compliance by the Company with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Company Subsidiary
under, (i) the Articles of Amendment and Restatement of Articles of
Incorporation or the Amended and Restated Bylaws of the Company or the
comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any Company Subsidiary, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession, contract,
franchise or license applicable to the Company or any Company Subsidiary or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law, ordinance, rule or regulation (collectively,
"LAWS") applicable to the Company or any Company Subsidiary, or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights or Liens that individually or in the
aggregate would not (x) have a Material Adverse Effect or (y) prevent the
consummation of the Transactions. No consent, approval, order or authorization
of, or registration, declaration or filing with, any federal, state or local
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government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "GOVERNMENTAL
ENTITY"), is required by or with respect to the Company or any Company
Subsidiary in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
by this Agreement, except for (i) the filing by any person in connection with
any of the Transactions of a premerger notification and report form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), to the extent applicable, (ii) the filing with the Securities and
Exchange Commission (the "SEC") of (x) a joint proxy statement relating to the
approval by the Company's stockholders and Camden's shareholders of the
transactions contemplated by this Agreement (as amended or supplemented from
time to time, the "PROXY STATEMENT") and (y) such reports under Section 13(a) of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (iii) the filing of Articles of Merger with the SDAT and the
Certificate of Merger with the Secretary of State of the State of Delaware, (iv)
such filings as may be required in connection with the payment of any Transfer
and Gains Taxes (as defined below) and (v) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (A) as are set
forth in SCHEDULE 3.1(d) to the Company Disclosure Letter, (B) as may be
required under (x) federal, state or local environmental laws or (y) the "blue
sky" laws of various states or (C) which, if not obtained or made, would not
prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement or otherwise prevent the Company
from performing its obligations under this Agreement in any material respect or
have, individually or in the aggregate, a Material Adverse Effect.
(e)SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. The Company has filed all required reports, schedules, forms,
statements and other documents with the SEC since the July 27, 1994 (the
"COMPANY SEC DOCUMENTS"). All of the Company SEC Documents (other than
preliminary material), as of their respective filing dates, complied in all
material respects with all applicable requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), and the Exchange Act and, in each case,
the rules and regulations promulgated thereunder applicable to such Company SEC
Documents. None of the Company SEC Documents at the time of filing and
effectiveness contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except to the extent such statements have been modified or
superseded by later Company SEC Documents. The consolidated financial statements
of the Company included in the Company SEC Documents complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the consolidated financial position of the Company as of
the dates thereof and the consolidated results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). The audited financial statements of the
unconsolidated Company Subsidiaries previously delivered to Camden (the
"UNCONSOLIDATED COMPANY FINANCIAL STATEMENTS") have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly presented, in accordance with
the applicable requirements of GAAP, the financial position of such Company
Subsidiaries, taken as a whole, as of the dates thereof, the results of their
respective operations and cash flows for the periods then ended. Except as set
forth in the Company SEC Documents, in the Unconsolidated Company Financial
Statements, in SCHEDULE 3.1(E) to the Company Disclosure Letter or as permitted
by Section 4.1 (for the purposes of this sentence, as if Section 4.1 had been in
effect since September 30, 1996), neither the Company nor any Company Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of the Company or, to the Knowledge of the Company, of any
unconsolidated Company Subsidiary or in the notes thereto and which,
individually or in the aggregate, would have a Material Adverse Effect.
(f)ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Company SEC Documents or in SCHEDULE 3.1(f) to the Company Disclosure
Letter, since the date of the most recent financial statements included in the
Company SEC Documents (the "FINANCIAL STATEMENT DATE") and to the date of this
Agreement, the Company and the Company Subsidiaries have conducted their
business only in the ordinary course and there has not been (i) any change that
would have a Material Adverse Effect (a "MATERIAL ADVERSE CHANGE"), nor has
there been any occurrence or circumstance that with the passage of time would
reasonably be expected to
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result in a Material Adverse Change, (ii) except for regular quarterly (x)
dividends (in the case of the Company) not in excess of $.465 per share of
Common Stock and (y) distributions (in the case of the Operating Partnership)
not in excess of $.465 per Unit, in each case with customary record and payment
dates, any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of the
Company's capital stock or any Units, other than any dividend required to be
paid pursuant to Section 2.2 (and any corresponding Operating Partnership
distribution), (iii) any split, combination or reclassification of any of the
Company's capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for, or giving
the right to acquire by exchange or exercise, shares of its capital stock or any
issuance of an ownership interest in, any Company Subsidiary except as permitted
by Section 4.1, (iv) any damage, destruction or loss, not covered by insurance,
that has or would have a Material Adverse Effect or (v) any change in accounting
methods, principles or practices by the Company or any Company Subsidiary,
except insofar as may have been disclosed in the Company SEC Documents or
required by a change in GAAP.
(g) LITIGATION. Except as disclosed in the Company SEC
Documents or in SCHEDULE 3.1(g) to the Company Disclosure Letter, and other than
personal injury and other routine tort litigation arising from the ordinary
course of operations of the Company and the Company Subsidiaries (i) which are
covered by adequate insurance or (ii) for which all material costs and
liabilities arising therefrom are reimbursable pursuant to common area
maintenance or similar agreements, there is no suit, action or proceeding
pending or threatened in writing against or affecting the Company or any Company
Subsidiary that, individually or in the aggregate, could reasonably be expected
to (A) have a Material Adverse Effect or (B) prevent the consummation of any of
the Transactions, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator outstanding against the Company or any
Company Subsidiary having, or which, insofar as reasonably can be foreseen, in
the future would have, any such effect.
(h) PROPERTIES. Except as provided in SCHEDULE 3.1(h) of the
Company Disclosure Letter, the Company or one of the Company Subsidiaries owns
fee simple title to each of the real properties identified in SCHEDULE 3.1(h) of
the Company Disclosure Letter (the "COMPANY PROPERTIES"), which are all of the
real estate properties owned by them, in each case (except as provided below)
free and clear of liens, mortgages or deeds of trust, claims against title,
charges which are liens, security interests or other encumbrances on title
("ENCUMBRANCES"). The Company Properties (other than the Company Properties
under development) are not subject to any rights of way, written agreements,
laws, ordinances and regulations affecting building use or occupancy, or
reservations of an interest in title (collectively, "PROPERTY RESTRICTIONS"),
except for (i) Encumbrances and Property Restrictions set forth in the Company
Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or
any governmental body or authority with respect to real property, including
zoning regulations, provided they do not materially adversely affect the current
use of any Company Property, (iii) Encumbrances and Property Restrictions
disclosed on existing title reports or existing surveys (in either case copies
of which title reports and surveys have been delivered or made available to
Camden and listed in the Company Disclosure Letter, provided, however, platting
of development land will not be shown on existing title reports) and (iv)
mechanics', carriers', workmen's, repairmen's liens and other Encumbrances,
Property Restrictions and other limitations of any kind, if any, which,
individually or in the aggregate, are not substantial in amount, do not
materially detract from the value of or materially interfere with the present
use of any of the Company Properties subject thereto or affected thereby, and do
not otherwise have a Material Adverse Effect and which have arisen or been
incurred only in the ordinary course of business. Except as provided in SCHEDULE
3.1(h), valid policies of title insurance have been issued insuring the
Company's or the applicable Company Subsidiaries' fee simple title to the
Company Properties in amounts at least equal to the purchase price thereof,
subject only to the matters disclosed above and on the Company Disclosure
Letter, and such policies are, at the date hereof, in full force and effect and
no material claim has been made against any such policy. Except as provided in
SCHEDULE 3.1(h) of the Company Disclosure Letter, (i) the Company has no
Knowledge that any certificate, permit or license from any governmental
authority having jurisdiction over any of the Company Properties or any
agreement, easement or other right which is necessary to permit the lawful use
and operation of the buildings and improvements on any of the Company Properties
or which is necessary to permit the lawful use and operation of all driveways,
roads and other means of egress and ingress to and from any of the Company
Properties has not been obtained and is not in full force and effect, or of any
pending threat of modification or cancellation of any of same; (ii) the Company
has not received written notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirement affecting any portion
of any of the Company Properties issued by any governmental authority; (iii)
there are no material structural defects relating to the Company Properties;
(iv) there are no Company
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Properties whose building systems are not in working order in any material
respect; (v) there is no physical damage to any Company Property in excess of
$100,000 for which there is no insurance in effect covering the cost of the
restoration; or (vi) there is no current renovation or restoration to any
Company Property the remaining cost of which exceeds $100,000. Neither the
Company nor any of the Company Subsidiaries has received any notice to the
effect that (A) any condemnation or rezoning proceedings are pending or
threatened with respect to any of the Company Properties or (B) any zoning,
building or similar law, code, ordinance, order or regulation is or will be
violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the Company Properties or by the continued
maintenance, operation or use of the parking areas. All work to be performed,
payments to be made and actions to be taken by the Company or the Company
Subsidiaries prior to the date hereof pursuant to any agreement entered into
with a governmental body or authority in connection with a site approval, zoning
reclassification or other similar action relating to the Company Properties
(e.g., Local Improvement District, Road Improvement District, Environmental
Mitigation) has been performed, paid or taken, as the case may be, and the
Company has no Knowledge of any planned or proposed work, payments or actions
that may be required after the date hereof pursuant to such agreements.
(i)ENVIRONMENTAL MATTERS. None of the Company, any of the
Company Subsidiaries or, to the Company's Knowledge, any other person has caused
or permitted (a) the unlawful presence of any hazardous substances, hazardous
materials, toxic substances or waste materials (collectively, "HAZARDOUS
MATERIALS") on any of the Company Properties, or (b) any unlawful spills,
releases, discharges or disposal of Hazardous Materials to have occurred or be
presently occurring on or from the Company Properties as a result of any
construction on or operation and use of such properties, which presence or
occurrence would, individually or in the aggregate, have a Material Adverse
Effect; and in connection with the construction on or operation and use of the
Company Properties, the Company and the Company Subsidiaries have not failed to
comply in any material respect with all applicable local, state and federal
environmental laws, regulations, ordinances and administrative and judicial
orders relating to the generation, recycling, reuse, sale, storage, handling,
transport and disposal of any Hazardous Materials.
(j)RELATED PARTY TRANSACTIONS. Set forth in SCHEDULE 3.1(J)
of the Company Disclosure Letter is a list of all arrangements, agreements and
contracts entered into by the Company or any of the Company Subsidiaries with
(i) any person who is an officer, director or affiliate of the Company or any of
the Company Subsidiaries, any relative of any of the foregoing or any entity of
which any of the foregoing is an affiliate or (ii) any person who acquired
Common Stock in a private placement. Such documents, copies of all of which have
previously been delivered or made available to Camden, are listed in SCHEDULE
3.1(J) of the Company Disclosure Letter.
(k) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the Company SEC Documents or
in SCHEDULE 3.1(K) (I) to the Company Disclosure Letter and except as permitted
by Section 4.1 (for the purpose of this sentence, as if Section 4.1 had been in
effect since December 31, 1995), since the date of the most recent audited
financial statements included in the Company SEC Documents, there has not been
any adoption or amendment by the Company or any Company Subsidiary of any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other employee
benefit plan, arrangement or understanding (whether or not legally binding, or
oral or in writing) providing benefits to any current or former employee,
officer or director of the Company, any Company Subsidiary, or any person
affiliated with the Company under Section 414 (b), (c), (m) or (o) of the Code
(collectively, "COMPANY BENEFIT PLANS").
(ii) Except as described in the Company SEC Documents or
in SCHEDULE 3.1(k) (ii) to the Company Disclosure Letter or as would not have a
Material Adverse Effect, (A) all Company Benefit Plans of the Company and the
Company Subsidiaries including any such plan that is an "employee benefit plan"
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), are in compliance with all applicable requirements
of law, including ERISA and the Code, and (B) neither the Company nor any
Company Subsidiary has any liabilities or obligations with respect to any such
Company Benefit Plan, whether accrued, contingent or otherwise, nor to the
Knowledge of the Company are any such liabilities or obligations expected to be
incurred. Except as set forth in SCHEDULE 3.1(K) (II) to the Company Disclosure
Letter, the execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any
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additional or subsequent events) constitute an event under any Company Benefit
Plan of the Company or a Company Subsidiary, policy, arrangement or agreement or
any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any employee or director. The only severance agreements or severance policies
applicable to the Company or the Company Subsidiaries are the agreement and
policies specifically referred to in SCHEDULE 3.1(k) (ii) to the Company
Disclosure Letter and the severance program referred to in Section 5.12(c).
(l)TAXES.
(i) Each of the Company and each Company Subsidiary has
(A) filed all Tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so) and all such returns and reports are accurate and complete
in all material respects; and (B) paid (or the Company has paid on its behalf)
all Taxes shown on such returns and reports as required to be paid by it, and
the most recent financial statements contained in the Company SEC Documents
reflect an adequate reserve for all material Taxes payable by the Company (and
by those Company Subsidiaries whose financial statements are contained therein)
for all taxable periods and portions thereof through the date of such financial
statements. True, correct and complete copies of all federal, state and local
Tax returns and reports for the Company and each Company Subsidiary, and all
written communications relating thereto, have been delivered or made available
to representatives of Camden. Since the Financial Statement Date, the Company
has incurred no liability for taxes under Sections 857(b), 860(c) or 4981 of the
Code, and neither the Company nor any Company Subsidiary has incurred any
material liability for Taxes other than in the ordinary course of business. To
the Knowledge of the Company, no event has occurred, and no condition or
circumstance exists, which presents a material risk that any material Tax
described in the preceding sentence will be imposed upon the Company. Except as
set forth on SCHEDULE 3.1(l) to the Company Disclosure Letter, to the Knowledge
of the Company, no deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of the Company Subsidiaries, and no requests
for waivers of the time to assess any such Taxes are pending. As used in this
Agreement, "TAXES" shall include all federal, state, local and foreign income,
property, sales, excise and other taxes, tariffs or governmental charges of any
nature whatsoever, together with penalties, interest or additions to Tax with
respect thereto.
(ii) The Company (A) for all taxable years commencing
with 1994 through the most recent December 31, has been subject to taxation as a
real estate investment trust (a "REIT") within the meaning of the Code and has
satisfied all requirements to qualify as a REIT for such years, (B) has
operated, and intends to continue to operate, in such a manner as to qualify as
a REIT for the tax year ending December 31, 1996, and (C) has not taken or
omitted to take any action which would reasonably be expected to result in a
challenge to its status as a REIT, and to the Company's Knowledge, no such
challenge is pending or threatened. Each Company Subsidiary which is a
partnership, joint venture or limited liability company has been during and
since 1994 and continues to be treated for federal income tax purposes as a
partnership and not as a corporation or an association taxable as a corporation.
Each Company Subsidiary which is a corporation for federal income tax purposes
and with respect to which all of the outstanding capital stock is owned solely
by the Company (or solely by a Company Subsidiary that is a corporation wholly
owned by the Company) is a "qualified REIT subsidiary" as defined in Section
856(i) of the Code. Neither the Company nor any Company Subsidiary holds any
asset (x) the disposition of which would be subject to rules similar to Section
1374 of the Code as a result of an election under IRS Notice 88-19 or (y) that
is subject to a consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder.
(iii) Paradim is organized in conformity with the
requirements for qualification as a REIT under the Code, and the method of
operation of Paradim will permit Paradim to meet the requirements for taxation
as a REIT under the Code beginning with its taxable year ending December 31,
1996 and continuing for its subsequent taxable years (assuming that Paradim has
at least 100 shareholders not later than January 30, 1997).
(m) NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except
as set forth on SCHEDULE 3.1(m) to the Company Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no employment or severance
contract, or other agreement requiring payments to be made or increasing any
amounts payable thereunder on a change of control or otherwise as a result of
the consummation of any of the Transactions, with respect to any employee,
officer or director of the Company or any Company Subsidiary.
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(n) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker,
investment banker, financial advisor or other person, other than Merrill Lynch &
Co. ("MERRILL LYNCH"), the fees and expenses of which have previously been
disclosed to Camden and will be paid by the Company, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the Transactions based upon arrangements made by or on behalf of
the Company or any Company Subsidiary.
(o) COMPLIANCE WITH LAWS. To the Knowledge of the Company,
except as disclosed in the Company SEC Documents and except as set forth in
SCHEDULE 3.1(o) to the Company Disclosure Letter, neither the Company nor any of
the Company Subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, judgment, decree or order of any Governmental
Entity applicable to its business, properties or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
(p) CONTRACTS; DEBT INSTRUMENTS.
(i) To the Knowledge of the Company, neither the Company
nor any Company Subsidiary is in violation of or in default under (nor does
there exist any condition which upon the passage of time or the giving of notice
or both would cause such a violation of or default under) any material loan or
credit agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in SCHEDULE 3.1(P)(I) to the Company
Disclosure Letter and except for violations or defaults that would not,
individually or in the aggregate, result in a Material Adverse Effect.
(ii) Except for any of the following expressly
identified in the Company SEC Documents and except as permitted by Section 4.1,
SCHEDULE 3.1(p)(ii) to the Company Disclosure Letter sets forth (x) a list of
all loan or credit agreements, notes, bonds, mortgages, indentures and other
agreements and instruments pursuant to which any indebtedness of the Company or
any of the Company Subsidiaries, other than indebtedness payable to the Company
or a Company Subsidiary or to any third-party partner or joint venturer in any
Company Subsidiary, in an aggregate principal amount in excess of $100,000 per
item is outstanding or may be incurred and (y) the respective principal amounts
outstanding thereunder on December 16, 1996. For purposes of this Section 3.1(p)
(ii) and Section 3.2(p) (ii), "INDEBTEDNESS" shall mean, with respect to any
person, without duplication, (A) all indebtedness of such person for borrowed
money, whether secured or unsecured, (B) all obligations of such person under
conditional sale or other title retention agreements relating to property
purchased by such person, (C) all capitalized lease obligations of such person,
(D) all obligations of such person under interest rate or currency hedging
transactions (valued at the termination value thereof) and (E) all guarantees of
such person of any such indebtedness of any other person.
(q) OPINION OF FINANCIAL ADVISOR. The Company has received
the opinion of Merrill Lynch & Co., satisfactory to the Company, a copy of which
has been provided to Camden, to the effect that the Exchange Ratio provided for
in this Agreement in connection with the exchange of the Merger Consideration
for Common Stock is fair to the stockholders of the Company from a financial
point of view.
(r) STATE TAKEOVER STATUTES. The Company has taken all action
necessary, if any, to exempt transactions between Camden and the Company and its
affiliates from the operation of any "fair price," "moratorium," "control share
acquisition" or any other anti-takeover statute or similar statute enacted under
the state or federal laws of the United States or similar statute or regulation
(a "TAKEOVER STATUTE").
(s) REGISTRATION STATEMENT. The information furnished to
Camden by the Company for inclusion in the Registration Statement will not, as
of the effective date of the Registration Statement (as defined in Section
3.2(d)), contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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(t) INVESTMENT COMPANY ACT OF 1940. Neither the Company nor
any of the Company Subsidiaries is, or at the Effective Time will be, required
to be registered under the Investment Company Act of 1940, as amended (the "1940
ACT").
(u) VOTE REQUIRED. The affirmative vote of at least
two-thirds of the outstanding shares of Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary (under
applicable law or otherwise) to approve this Agreement and the Transactions. The
affirmative consent of the holders of all of the issued and outstanding Units of
the Operating Partnership, in the case of an amendment to the Operating
Partnership Agreement as described in Section 5.1(c), or the affirmative consent
of two-thirds of the holders of all of the issued and outstanding Units of the
Operating Partnership (including Units held by GP Holdings or LP Holdings), in
the case of a merger of the Operating Partnership pursuant to Section 5.1(d)(i)
or 5.1(d)(ii), is the only vote of the holders of any equity securities of any
Company Subsidiary necessary (under applicable law or otherwise) to approve any
of the Transactions.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF CAMDEN Camden
represents and warrants to the Company as follows:
(a)ORGANIZATION, STANDING AND CORPORATE POWER OF CAMDEN AND
CAMDEN SUB. Each of Camden and Camden Sub is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of Camden and Camden Sub is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, would not have a
material adverse effect on the business, properties, assets, financial condition
or results of operations of Camden and the Camden Subsidiaries (as defined
below), taken as a whole (an "CAMDEN MATERIAL ADVERSE EFFECT"). Each of Camden
and Camden Sub has delivered to the Company complete and correct copies of its
Declaration of Trust or Articles of Incorporation and Bylaws (as the case may
be), as amended or supplemented to the date of this Agreement.
(b) CAMDEN SUBSIDIARIES. SCHEDULE 3.2(b) to the Camden Disclosure
Letter sets forth each Camden Subsidiary (as defined below) (other than Camden
Sub) and the ownership interest therein of Camden. Except as set forth in
SCHEDULE 3.2(b) to the Camden Disclosure Letter, (A) all the outstanding shares
of capital stock of each Camden Subsidiary that is a corporation have been
validly issued and are fully paid and nonassessable and are owned by Camden, by
another Camden Subsidiary or by Camden and another Camden Subsidiary, free and
clear of all Liens and (B) all equity interests in each Camden Subsidiary that
is a partnership, joint venture, limited liability company or trust are owned by
Camden, by another Camden Subsidiary or by Camden and another Camden Subsidiary
free and clear of all Liens. Except for the capital stock of or other equity or
ownership interests in the Camden Subsidiaries and except as set forth in
SCHEDULE 3.2(B) to the Camden Disclosure Letter, Camden does not own, directly
or indirectly, any capital stock or other ownership interest in any person. Each
Camden Subsidiary (other than Camden Sub) that is a corporation is duly
incorporated and validly existing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to carry on
its business as now being conducted, and each Camden Subsidiary that is a
partnership, limited liability company or trust is duly organized and validly
existing under the laws of its jurisdiction of organization and has the
requisite power and authority to carry on its business as now being conducted.
Each Camden Subsidiary is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed, individually or in the aggregate, would not have a Camden Material
Adverse Effect. Copies of the Articles of Incorporation, Bylaws, organization
documents and partnership and joint venture agreements of each Camden
Subsidiary, as amended to the date of this Agreement, have been previously
delivered or made available to the Company.
(c)CAPITAL STRUCTURE. The authorized capital stock of Camden
consists of 100,000,000 shares of Camden Common Stock and 10,000,000 preferred
shares of beneficial interest, par value $.01 per share (the "CAMDEN PREFERRED
STOCK"). On the date hereof, (i) 16,308,185 shares of Camden Common Stock and no
shares of Camden Preferred Stock were issued and outstanding, (ii) no shares of
Camden Stock or Camden Preferred Stock
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<PAGE>
were held by Camden in its treasury, (iii) 530,261 shares of Camden Common Stock
were available for issuance under Camden's employee benefit or incentive plans
("CAMDEN EMPLOYEE STOCK PLANS"), and (iv) 534,601 shares of Camden Common Stock
were issuable upon exercise of outstanding stock options (the "CAMDEN OPTIONS")
to purchase shares of Camden Common Stock. On the date of this Agreement, except
as set forth in this Section 3.2(c), no shares of capital stock or other voting
securities of Camden were issued, reserved for issuance or outstanding. There
are no outstanding stock appreciation rights relating to the capital stock of
Camden All outstanding shares of capital stock of Camden are, and all shares
which may be issued pursuant to this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth on SCHEDULE 3.2(c) to the Camden
Disclosure Letter, there are no bonds, debentures, notes or other indebtedness
of Camden having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders of
Camden may vote. Except (A) for the Camden Options, (B) as set forth in SCHEDULE
3.2(c) to the Camden Disclosure Letter, (C) as otherwise permitted under Section
4.2 or (D) as contemplated under Camden's dividend reinvestment plan, as of the
date of this Agreement there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Camden or any Camden Subsidiary is a party or by which such entity is
bound, obligating Camden or any Camden Subsidiary to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock,
voting securities or other ownership interests of Camden or of any Camden
Subsidiary or obligating Camden or any Camden Subsidiary to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking (other than to Camden or an Camden
Subsidiary). Except as set forth on SCHEDULE 3.2(c) to the Camden Disclosure
Letter, there are no outstanding contractual obligations of Camden or any Camden
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock or other ownership interests in any Camden Subsidiary or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
person (other than an Camden Subsidiary).
(d) AUTHORITY; NONCONTRAVENTION; CONSENTS. Each of Camden and
Camden Sub has the requisite corporate power and authority to enter into this
Agreement, and subject to approval of this Agreement by the vote of the holders
of the Camden Stock required to approve this Agreement and the transactions
contemplated hereby (including, without limitation, the issuance of Camden
Common Stock in connection with the Merger (the "CAMDEN SHAREHOLDER APPROVALS"
and, together with the Company Shareholder Approvals, the "SHAREHOLDER
APPROVALS") to consummate the transactions contemplated by this Agreement to
which Camden or Camden Sub (as the case may be) is a party. The execution and
delivery of this Agreement by each of Camden and Camden Sub and the consummation
by each of Camden and Camden Sub of the transactions contemplated by this
Agreement to which Camden or Camden Sub (as the case may) is a party have been
duly authorized by all necessary corporate action on the part of each of Camden
and Camden Sub, subject to approval of this Agreement pursuant to the Camden
Shareholder Approvals. This Agreement has been duly executed and delivered by
each of Camden and Camden Sub and constitutes a valid and binding obligation of
each of Camden and Camden Sub, enforceable against each of Camden and Camden Sub
in accordance with its terms. Except as set forth in SCHEDULE 3.2(d) to the
Camden Disclosure Letter, the execution and delivery of this Agreement by each
of Camden and Camden Sub do not, and the consummation of the transactions
contemplated by this Agreement to which Camden or Camden Sub (as the case may
be) is a party and compliance by each of Camden and Camden Sub with the
provisions of this Agreement will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the creation of any Lien
upon any of the properties or assets of Camden, Camden Sub, or any other Camden
Subsidiary under, (i) the Declaration of Trust, Articles of Incorporation or
By-laws (as the case may be) of Camden and Camden Sub or the comparable charter
or organizational documents or partnership or similar agreement (as the case may
be) of any other Camden Subsidiary each as amended or supplemented to the date
of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement, instrument,
permit, concession, franchise or license applicable to Camden, Camden Sub or any
other Camden Subsidiary or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any Laws applicable to Camden, Camden Sub or any other
Camden Subsidiary or their respective properties or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights
or Liens that individually or in the aggregate would not (x) have a Camden
Material Adverse Effect or (y) prevent the consummation of the Transactions. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Camden,
Camden Sub or any Camden Subsidiary in connection with the execution and
delivery of this Agreement or the consummation by Camden
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<PAGE>
or Camden Sub, as the case may be, of any of the transactions contemplated by
this Agreement, except for (i) the filing by any person in connection with any
of the Transactions of a pre-merger notification and report form under the HSR
Act to the extent applicable, (ii) the filing with the SEC of (x) the Proxy
Statement and a registration statement on Form S-4 (or other appropriate form)
in connection with the registration of the Camden Common Stock constituting the
Merger Consideration (the "REGISTRATION STATEMENT") and (y) such reports under
Section 13 (a) of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (iii) the filing
of the Articles of Merger with the SDAT and the Certificate of Merger with the
Secretary of State of the State of Delaware, (iv) such filings as may be
required in connection with the payment of any Transfer and Gains Taxes and (v)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings as are set forth in SCHEDULE 3.2(d) to the Camden
Disclosure Letter or (A) as may be required under (x) federal, state or local
environmental laws or (y) the "blue sky" laws of various states or (B) which, if
not obtained or made, would not prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or
otherwise prevent Camden or Camden Sub from performing their respective
obligations under this Agreement in any material respect or have, individually
or in the aggregate, a Camden Material Adverse Effect.
(e)SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES. Camden has filed all required reports, schedules, forms, statements
and other documents with the SEC since July 29, 1993 (the "CAMDEN SEC
DOCUMENTS"). All of the Camden SEC Documents (other than preliminary material),
as of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder. None of the Camden SEC
Documents at the time of filing and effectiveness contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
such statements have been modified or superseded by later Camden SEC Documents.
The consolidated financial statements of Camden included in the Camden SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the consolidated financial position of Camden and the
Camden Subsidiaries, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). The audited financial statements of the unconsolidated Camden
Subsidiaries previously delivered to the Company (the "UNCONSOLIDATED CAMDEN
FINANCIAL STATEMENTS") have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented, in accordance with the applicable
requirements of GAAP, the financial position of such Camden Subsidiaries, taken
as a whole, as of the dates thereof and the results of their respective
operations and cash flows for the periods then ended. Except as set forth in the
Camden SEC Documents, in the Unconsolidated Camden Financial Statements, in
SCHEDULE 3.2(e) to the Camden Disclosure Letter or as permitted by Section 4.2
(for the purpose of this sentence, as if Section 4.2 had been in effect since
September 30, 1996), neither Camden nor any Camden Subsidiary has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by GAAP to be set forth on a consolidated balance sheet
of Camden or, to the Knowledge of Camden, of any unconsolidated Camden
Subsidiary or in the notes thereto and which, individually or in the aggregate,
would have a Camden Material Adverse Effect.
(f)ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Camden SEC Documents or in SCHEDULE 3.2(f) to the Camden Disclosure
Letter, since the date of the most recent financial statements included in the
Camden SEC Documents (the "CAMDEN FINANCIAL STATEMENT DATE") to the date of this
Agreement, Camden and the Camden Subsidiaries have conducted their business only
in the ordinary course and there has not been (i) any change that would have a
Camden Material Adverse Effect (a "CAMDEN MATERIAL ADVERSE CHANGE"), nor has
there been any occurrence or circumstance that with the passage of time would
reasonably be expected to result in a Camden Material Adverse Change, (ii)
except for regular quarterly dividends not in excess of $.475 per share of
Camden Common Stock any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) with respect to any of
Camden's capital stock, other than any dividend required to be paid pursuant to
Section 2.2, (iii) any split, combination or reclassification of any of Camden's
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, or giving the right
to acquire by exchange or exercise, shares of its capital stock or any issuance
of an ownership interest in any Camden
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Subsidiary, except as permitted by Section 4.2, (iv) any damage, destruction or
loss, not covered by insurance, that has or would have a Camden Material Adverse
Effect or (v) any change in accounting methods, principles or practices by
Camden or any Camden Subsidiary except insofar as may have been disclosed in the
Camden SEC Documents or required by a change in GAAP.
(g) LITIGATION. Except as disclosed in the Camden SEC
Documents or in SCHEDULE 3.2(g) of the Camden Disclosure Letter, and other than
personal injury and other routine tort litigation arising from the ordinary
course of operations of Camden, and the Camden Subsidiaries (i) which are
covered by adequate insurance or (ii) for which all material costs and
liabilities arising therefrom are reimbursable pursuant to common area
maintenance or similar agreements, there is no suit, action or proceeding
pending or threatened in writing against or affecting Camden or any Camden
Subsidiary that, individually or in the aggregate, could reasonably be expected
to (A) have a Camden Material Adverse Effect or (B) prevent the consummation of
any of the Transactions, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Camden or any
Camden Subsidiary or having, or which, insofar as reasonably can be foreseen, in
the future would have any such effect.
(h) PROPERTIES. Except as provided in SCHEDULE 3.2(h) of the
Camden Disclosure Letter, Camden or one of the Camden Subsidiaries own fee
simple title to each of the real properties identified in SCHEDULE 3.2(h) of the
Camden Disclosure Letter (the "CAMDEN PROPERTIES"), which are all of the real
estate properties owned by them, in each case (except as provided below) free
and clear of Encumbrances. The Camden Properties (other than the Camden
Properties under development) are not subject to any Property Restrictions,
except for (i) Encumbrances and Property Restrictions set forth in the Camden
Disclosure Letter, (ii) Property Restrictions imposed or promulgated by law or
any governmental body or authority with respect to real property, including
zoning regulations, provided they do not materially adversely affect the current
use of any Camden Property, (iii) Encumbrances and Property Restrictions
disclosed on existing title reports or existing surveys (in either case copies
of which title reports and surveys have been delivered or made available to the
Company and listed in the Camden Disclosure Letter (as such list may be updated
within five (5) days of the date hereof), PROVIDED, HOWEVER, platting of
development land will not be shown on existing title reports), and (iv)
mechanics', carriers', workmen's, repairmen's liens and other Encumbrances,
Property Restrictions and other limitations of any kind, if any, which,
individually or in the aggregate, are not substantial in amount, do not
materially detract from the value of or materially interfere with the present
use of any of the Camden Properties subject thereto or affected thereby, and do
not otherwise have a Camden Material Adverse Effect and which have arisen or
been incurred only in the ordinary course of business. Except as provided in
SCHEDULE 3.2(h) of the Camden Disclosure Letter, valid policies of title
insurance have been issued insuring Camden's or the applicable Camden
Subsidiaries' fee simple title to the Camden Properties in amounts at least
equal to the purchase price thereof, subject only to the matters disclosed above
and on the Camden Disclosure Letter, and such policies are, at the date hereof,
in full force and effect and no material claim has been made against any such
policy. Except as provided in SCHEDULE 3.2(h) of the Camden Disclosure Letter,
(i) Camden has no Knowledge that any certificate, permit or license from any
governmental authority having jurisdiction over any of the Camden Properties or
any agreement, easement or other right which is necessary to permit the lawful
use and operation of the buildings and improvements on any of the Camden
Properties or which is necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any of the
Camden Properties has not been obtained and is not in full force and effect, or
of any pending threat of modification or cancellation of any of same; (ii)
Camden has not received written notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirement affecting any portion
of any of the Camden Properties issued by any governmental authority; (iii)
there are no material structural defects relating to the Camden Properties; (iv)
there are no Camden Properties whose building systems are not in working order
in any material respect; (v) there is no physical damage to any Camden Property
in excess of $100,000 for which there is no insurance in effect covering the
cost of the restoration; or (vi) there is no current renovation or restoration
to any Camden Property the remaining cost of which exceeds $100,000. Neither
Camden nor any of the Camden Subsidiaries has received any notice to the effect
that (A) any condemnation or rezoning proceedings are pending or threatened with
respect to any of the Camden Properties or (B) any zoning, building or similar
law, code, ordinance, order or regulation is or will be violated by the
continued maintenance, operation or use of any buildings or other improvements
on any of the Camden Properties or by the continued maintenance, operation or
use of the parking areas. All work to be performed, payments to be made and
actions to be taken by Camden or Camden Subsidiaries prior to the date hereof
pursuant to any agreement entered into with a governmental body or authority in
connection with a site approval, zoning reclassification or other similar action
relating to the Camden Properties (e.g., Local Improvement District, Road
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Improvement District, Environmental Mitigation) has been performed, paid or
taken, as the case may be, and Camden has no Knowledge of any planned or
proposed work, payments or actions that may be required after the date hereof
pursuant to such agreements.
(i) ENVIRONMENTAL MATTERS. None of Camden, any of the Camden
Subsidiaries or, to the Knowledge of Camden, any other person has caused or
permitted (a) the unlawful presence of any Hazardous Materials on any of the
Camden Properties, or (b) any unlawful spills, releases, discharges or disposal
of Hazardous Materials to have occurred or be presently occurring on or from the
Camden Properties as a result of any construction on or operation and use of
such properties, which presence or occurrence would, individually or in the
aggregate, have a Camden Material Adverse Effect; and in connection with the
construction on or operation and use of the Camden Properties, Camden and the
Camden Subsidiaries have not failed to comply in any material respect with all
applicable local, state and federal environmental laws, regulations, ordinances
and administrative and judicial orders relating to the generation, recycling,
reuse, sale, storage, handling, transport and disposal of any Hazardous
Materials.
(j) RELATED PARTY TRANSACTIONS. Set forth in SCHEDULE 3.2(j)
of the Camden Disclosure Letter is a list of all arrangements, agreements and
contracts entered into by Camden, Camden Sub or any of the Camden Subsidiaries
with (i) any person who is an officer, director or affiliate of Camden, Camden
Sub or any of the Camden Subsidiaries, any relative of any of the foregoing or
any entity of which any of the foregoing is an affiliate or (ii) any person who
acquired Camden Common Stock in a private placement. Such documents, copies of
all of which have previously been delivered or made available to the Company,
are listed in SCHEDULE 3.2(j) of the Camden Disclosure Letter.
(k) ABSENCE OF CHANGES IN BENEFIT PLANS; ERISA COMPLIANCE.
(i) Except as disclosed in the Camden SEC Documents or
in SCHEDULE 3.2(k) (i) to the Camden Disclosure Letter and except as permitted
by Section 4.2 (for the purpose of this sentence, as if Section 4.2 had been in
effect since December 31, 1995), since the date of the most recent audited
financial statements included in the Camden SEC Documents, there has not been
any adoption or amendment by Camden or any Camden Subsidiary of any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other employee
benefit plan, arrangement or understanding (whether or not legally binding or
oral or in writing) providing benefits to any current or former employee,
officer or director of Camden, any Camden Subsidiary, or any person affiliated
with Camden under Section 414 (b), (c), (m) or (o) of the Code (collectively,
"CAMDEN BENEFIT PLANS").
(ii) Except as described in the Camden SEC Documents or
in SCHEDULE 3.2(k) (ii) to the Camden Disclosure Letter or as would not have a
Camden Material Adverse Effect, (A) all Camden Benefit Plans, including any such
plan that is an "employee benefit plan" as defined in Section 3(3) of ERISA, are
in compliance with all applicable requirements of law, including ERISA and the
Code, and (B) neither Camden nor any Camden Subsidiary has any liabilities or
obligations with respect to any such Camden Benefit Plans, whether accrued,
contingent or otherwise, nor to the Knowledge of Camden are any such liabilities
or obligations expected to be incurred. Except as set forth in SCHEDULE 3.2(k)
(ii) to the Camden Disclosure Letter, the execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Camden Benefit Plan, policy, arrangement or agreement or any trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any employee or
director. The only severance agreements or severance policies applicable to
Camden or Camden Subsidiaries are the agreement and policies specifically
referred to in SCHEDULE 3.2(k)(ii) to the Camden Disclosure Letter and the
severance program referred to in Section 5.12 (c).
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(l) TAXES.
(i) Each of Camden and each Camden Subsidiary has (A)
filed all Tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so) and all such returns and reports are accurate and complete
in all material respects; and (B) paid (or Camden has paid on its behalf) all
Taxes shown on such returns and reports as required to be paid by it, and the
most recent financial statements contained in the Camden SEC Documents reflect
an adequate reserve for all material Taxes payable by Camden (and by those
Camden Subsidiaries and whose financial statements are contained therein) for
all taxable periods and portions thereof through the date of such financial
statements. True, correct and complete copies of all federal, state and local
Tax returns and reports for Camden and each Camden Subsidiary and all written
communications relating thereto have been delivered or made available to
representatives of the Company. Since the Camden Financial Statement Date,
Camden has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981
of the Code, and neither Camden nor any Camden Subsidiary has incurred any
material liability for Taxes other than in the ordinary course of business. To
the Knowledge of Camden, no event has occurred, and no condition or circumstance
exists, which presents a material risk that any material Tax described in the
preceding sentence will be imposed upon Camden. Except as set forth on SCHEDULE
3.2(l), to the Knowledge of Camden, no deficiencies for any Taxes have been
proposed, asserted or assessed against Camden or any of the Camden Subsidiaries,
and no requests for waivers of the time to assess any such Taxes are pending.
(ii) Camden (A) for all taxable years commencing with
1993 through the most recent December 31, has been subject to taxation as a REIT
within the meaning of the Code and has satisfied all requirements to qualify as
a REIT for such years, (B) has operated, and intends to continue to operate, in
such a manner as to qualify as a REIT for the tax year ending December 31, 1996,
and (C) has not taken or omitted to take any action which would reasonably be
expected to result in a challenge to its status as a REIT, and to Camden's
Knowledge, no such challenge is pending or threatened. Each Camden Subsidiary
which is a partnership, joint venture or limited liability company has been
treated during and since 1993 and continues to be treated for federal income tax
purposes as a partnership and not as a corporation or as an association taxable
as a corporation. Each Camden Subsidiary which is a corporation for federal
income tax purposes and with respect to which all of the outstanding capital
stock is owned solely by Camden (or solely by an Camden Subsidiary that is a
corporation wholly owned by Camden) is a "qualified REIT subsidiary" as defined
in Section 856(i) of the Code. Neither Camden nor any Camden Subsidiary holds
any asset (x) the disposition of which would be subject to rules similar to
Section 1374 of the Code as a result of an election under IRS Notice 88-19 or
(y) that is subject to a consent filed pursuant to Section 341(f) of the Code
and the regulations thereunder.
(m) NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
set forth in SCHEDULE 3.2(m) to the Camden Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no employment or severance
contract, or other agreement requiring payments to be made or increasing any
amounts payable thereunder on a change of control or otherwise as a result of
the consummation of any of the Transactions, with respect to any employee,
officer or director of Camden or any Camden Subsidiary.
(n) BROKERS; SCHEDULE OF FEES AND EXPENSES. No broker, investment
banker, financial advisor or other person, other than PaineWebber Incorporated
("PAINEWEBBER"), the fees and expenses of which have previously been disclosed
to the Company and will be paid by Camden, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Camden or
any other Camden Subsidiary.
(o) COMPLIANCE WITH LAWS. To the Knowledge of Camden, except as
disclosed in the Camden SEC Documents, neither Camden nor any of the Camden
Subsidiaries has violated or failed to comply with any statute, law, ordinance,
regulation, rule, judgment, decree or order of any Governmental Entity
applicable to its business, properties or operations, except for violations and
failures to comply that would not, individually or in the aggregate, reasonably
be expected to result in a Camden Material Adverse Effect.
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(p) CONTRACTS; DEBT INSTRUMENTS.
(i) To the Knowledge of Camden, neither Camden nor any
Camden Subsidiary is in violation of or in default under (nor does there exist
any condition which upon the passage of time or the giving of notice or both
would cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in SCHEDULE 3.2(p) (i) to the Camden
Disclosure Letter and except for violations or defaults that would not,
individually or in the aggregate, result in a Camden Material Adverse Effect.
(ii) Except for any of the following expressly
identified in the most recent financial statements contained in the Camden SEC
Documents and except as permitted by Section 4.2, SCHEDULE 3.2(p) (ii) to the
Camden Disclosure Letter sets forth (x) a list of all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments
pursuant to which any indebtedness of Camden or any of the Camden Subsidiaries,
other than indebtedness payable to Camden or a Camden Subsidiary or to any
third-party partner or joint venturer in any Camden Subsidiary, in an aggregate
principal amount in excess of $100,000 per item is outstanding or may be
incurred and (y) the respective principal amounts outstanding thereunder on
December 16, 1996.
(q) INTERIM OPERATIONS OF SUB. Camden Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated by this Agreement.
(r) OPINION OF FINANCIAL ADVISOR. Camden has received the opinion
of PaineWebber, satisfactory to Camden, a copy of which has been provided to the
Company, to the effect that the Exchange Ratio provided for in this Agreement in
connection with the exchange of the Merger Consideration for Common Stock is
fair to Camden and the stockholders of Camden from a financial point of view.
(s) STATE TAKEOVER STATUTES. Camden has taken all action
necessary, if any, to exempt transactions with the Company and its affiliates
from the operation of Takeover Statutes.
(t) REGISTRATION STATEMENT. The Registration Statement will
conform in all material respects to the requirements of the Securities Act and
the rules and regulations of the SEC thereunder and will not, as of the
effective date of the Registration Statement, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the prospectus
included therein will not, as of the date thereof or as of the Effective Time,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any statements
or omissions made in reliance upon and in conformity with information furnished
to Camden by the Company in writing for inclusion in the Registration Statement.
(u) VOTE REQUIRED. The affirmative vote of a majority of the
shares present in person or by proxy at the Camden Shareholders Meeting is the
only vote of the holders of any class or series of Camden's capital stock
necessary (under applicable law or otherwise) to approve this Agreement and the
transactions contemplated hereby.
(v) INVESTMENT COMPANY ACT OF 1940. None of Camden, Camden Sub or
any of the Camden Subsidiaries is, or at the Effective Time will be, required to
be registered under the Investment Company Act of 1940, as amended (the "1940
Act").
ARTICLE IV
COVENANTS
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY. During the period
from the date of this Agreement to the Effective Time, the Company shall, and
shall cause (or, in the case of Company Subsidiaries that
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the Company does not control, shall use commercially reasonable efforts to
cause) the Company Subsidiaries each to, carry on its businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent therewith, use commercially reasonable
efforts to preserve intact its current business organization, goodwill and
ongoing businesses. Without limiting the generality of the foregoing, the
following additional restrictions shall apply: During the period from the date
of this Agreement to the Effective Time, except as set forth in SCHEDULE 4.1 to
the Company Disclosure Letter, the Company shall not and shall cause (or, in the
case of Company Subsidiaries which it does not control, shall use commercially
reasonable efforts to cause) the Company Subsidiaries not to (and not to
authorize or commit or agree to):
(a) (i) except for (x) its regular quarterly dividends (in the
case of the Company) not in excess of $.465 per share of Common Stock for the
fourth quarterly dividend payable during the first calendar quarter of 1997 and
$.304 per share of Common Stock for the first quarterly dividend payable during
the second calendar quarter of 1997 and (y) distributions (in the case of the
Operating Partnership) not in excess of $.465 per Unit for the fourth quarterly
distribution payable during the first calendar quarter of 1997 and $.304 per
Unit for the first quarterly distribution payable during the second calendar
quarter of 1997, as the case may be, in each case with the same record and
payment dates as the record and payment dates relating to dividends payable on
the Camden Common Stock during such calendar quarters (as previously disclosed
by Camden), declare, set aside or pay any dividends on, or make any other
distributions in respect of any of the Company's capital stock or any Units
other than the dividend required to be paid pursuant to Section 2.2(d)(i) (and
the corresponding Operating Partnership distribution), (ii) except in connection
with the Transactions as required under the Operating Partnership Agreement,
split, combine or reclassify any capital stock, Units or other partnership
interests or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of such capital stock or
partnership interests or (iii) except as required under the Operating
Partnership Agreement, purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any Units or any options, warrants or rights to
acquire, or security convertible into, shares of such capital stock or such
Units or partnership interests;
(b) except as contemplated under or required pursuant to the
Operating Partnership Agreement, Section 1.9, Section 4.1(e) and the exercise of
stock options or issuance of shares pursuant to stock rights or warrants
outstanding on the date of this Agreement, issue, deliver or sell, or grant any
option or other right in respect of, any shares of capital stock, any other
voting securities (including Units or other partnership interests) of the
Company or any Company Subsidiary or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities except to the Company or a Company Subsidiary;
(c) except as otherwise contemplated by this Agreement, amend the
articles or certificate of incorporation, bylaws, partnership agreement or other
comparable charter or organizational documents of the Company or any Company
Subsidiary;
(d) in the case of the Company, the Operating Partnership or any
other Company Subsidiary, merge or consolidate with any person;
(e) in any transaction or series of related transactions
involving capital, securities or other assets or indebtedness of the Company, a
Company Subsidiary, or any combination thereof in excess of $100,000, without
obtaining the prior written consent of Camden which consent shall not
unreasonably be withheld or delayed: (i) acquire or agree to acquire by merging
or consolidating with, or by purchasing all or a substantial portion of the
equity securities or all or substantially all of the assets of, or by any other
manner, any business or any corporation, partnership, limited liability company,
joint venture, association, business trust or other business organization or
division thereof or interest therein; (ii) subject to any Encumbrance or Lien or
sell, lease or otherwise dispose of any of the Company Properties or any
material assets or assign or encumber the right to receive income, dividends,
distributions and the like; (iii) make or agree to make any new capital
expenditures, except in accordance with budgets relating to the Company or the
Company Subsidiaries that have been previously delivered to Camden; or (iv)
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, prepay or refinance any
indebtedness or make any loans, advances or capital contributions to, or
investments in, any other person;
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(f) engage in any transactions of the types described in clauses
(i), (ii), (iii) and (iv) of paragraph (e) above, whether or not related,
involving, in the aggregate, capital, securities or other assets or indebtedness
of the Company or a Company Subsidiary, or any combination thereof in excess of
$500,000, without obtaining the prior written consent of Camden;
(g) make any tax election (except as provided in Section 5.14 or
unless required by law or necessary to preserve the Company's status as a REIT
or the status of the Operating Partnership or of any other Company Subsidiary as
a partnership for federal income tax purposes);
(h) (i) change in any material manner any of its methods,
principles or practices of accounting in effect at the Financial Statement Date,
or (ii) make or rescind any express or deemed election relating to taxes, settle
or compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to taxes, except in the case of
settlements or compromises relating to taxes on real property in an amount not
to exceed, individually or in the aggregate, $100,000, or change any of its
methods of reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income tax return for the most
recently completed taxable year except, in the case of clause (i), as may be
required by the SEC, applicable law or GAAP;
(i) except as provided in this Agreement, adopt any new employee
benefit plan, incentive plan, severance plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, except
such changes as are required by law or which are not more favorable to
participants than provisions presently in effect;
(j) pay, discharge, settle or satisfy any claims, liabilities or
objections (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of the Company
included in the Company SEC Documents or incurred in the ordinary course of
business consistent with past practice;
(k) settle any shareholder derivative or class action claims
arising out of or in connection with any of the Transactions; and
(l) enter into or amend or otherwise modify any agreement or
arrangement with persons that are affiliates or, as of the date hereof, are
executive officers or directors of the Company or any Company Subsidiary without
the consent of Camden.
SECTION 4.2 CONDUCT OF BUSINESS BY CAMDEN. During the period from
the date of this Agreement to the Effective Time, Camden shall, and shall cause
(or, in the case of Camden Subsidiaries that Camden does not control, shall use
commercially reasonable efforts to cause) the Camden Subsidiaries each to carry
on its businesses in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted and, to the extent consistent therewith, use
commercially reasonable efforts to preserve intact its current business
organization, goodwill and ongoing businesses. Without limiting the generality
of the foregoing, the following additional restrictions shall apply: During the
period from the date of this Agreement to the Effective Time, except as set
forth in SCHEDULE 4.2 to the Camden Disclosure Letter, Camden shall not and
shall cause (or, in the case of Camden Subsidiaries which Camden does not
control, shall use commercially reasonable efforts to cause) the Camden
Subsidiaries not to (and not to authorize or commit or agree to):
(a) (i) except for regular quarterly dividends not in excess of
$.475 per share of Camden Common Stock, with customary record and payment dates,
declare, set aside or pay any dividends on, or make any other distributions in
respect of, any of Camden capital stock or partnership interests or stock in any
Camden Subsidiary that is not directly or indirectly wholly-owned by Camden,
other than the dividend required to be paid pursuant to Section 2.2(d) (i), (ii)
except in connection with the Transactions, split, combine or reclassify any
capital stock or partnership interests or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of such
capital stock or partnership interests or (iii) purchase, redeem or otherwise
acquire any
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shares of capital stock of Camden or any options, warrants or rights to acquire,
or security convertible into, shares of capital stock of Camden;
(b) except as contemplated under or required pursuant to this
Agreement, Camden's dividend reinvestment plan and Camden Employee Stock Plans,
and the exercise of stock options or warrants outstanding on the date hereof,
Section 4.2(e), issue, deliver or sell, or grant any option or other right in
respect of, any shares of capital stock, any other voting securities of the
Camden or any Camden Subsidiary or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities except to Camden or a Camden Subsidiary;
(c) except as otherwise contemplated by this Agreement, amend the
declaration of trust, charter, articles or certificate of incorporation, bylaws,
code of regulations, partnership agreement or other comparable charter or
organizational documents of Camden or any Camden Subsidiary;
(d) in the case of Camden, or any Camden Subsidiary, merge or
consolidate with any person;
(e) in any transaction or series of related transactions
involving capital, securities, other assets or indebtedness of Camden or a
Camden Subsidiary or any combination thereof in excess of $100,000, without
obtaining the prior written consent of the Company, which consent shall not
unreasonably be withheld or delayed: (i) acquire or agree to acquire by merging
or consolidating with, or by purchasing all or a substantial portion of the
equity securities or all or substantially all assets of, or by any other manner,
any business or any corporation, partnership, limited liability company, joint
venture, association, business trust or other business organization or division
thereof or interest therein; (ii) subject to any Encumbrance or Lien or sell,
lease or otherwise dispose of any of the Camden Properties or any material
assets or assign or encumber the right to receive income, dividends,
distributions and the like; (iii) make or agree to make any new capital
expenditures, except in accordance with budgets relating to Camden or Camden
Subsidiaries that have been previously delivered to the Company; or (iv) incur
any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of Camden, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, prepay or refinance any indebtedness or
make any loans, advances or capital contributions to, or investments in, any
other person;
(f) engage in any transactions of the types described in clauses
(i), (ii), (iii) and (iv) of paragraph (e) above, whether or not related,
involving, in the aggregate, capital, securities or other assets or obligations
of Camden or an Camden Subsidiary or any combination thereof in excess of
$500,000 without obtaining the prior written consent of the Company;
(g) make any tax election (unless required by law or necessary to
preserve Camden's status as a REIT or the status of any Camden Subsidiary as a
partnership for federal income tax purposes);
(h) (i) change in any material manner any of its methods,
principles or practices of accounting in effect at the Camden Financial
Statement Date, or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, except in
the case of settlements or compromises relating to taxes on real property in an
amount not to exceed, individually or in the aggregate, $100,000, or change any
of its methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of its federal income tax return for the
most recently completed fiscal year, except, in the case of clause (i), as may
be required by the SEC, applicable law or GAAP;
(i) enter into or amend or otherwise modify any agreement or
arrangement with persons that are affiliates or, as of the date hereof, are
executive officers, trust managers or directors of Camden or any Camden
Subsidiary without the consent of the Company.
(j) pay, discharge, settle or satisfy any claims, liabilities or
objections (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary
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course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of the
Camden included in the Camden SEC Documents or incurred in the ordinary course
of business consistent with past practice;
(k) except as provided in this Agreement, adopt any new employee
benefit plan, incentive plan, severance plan, stock option or similar plan,
grant new stock appreciation rights or amend any existing plan or rights, except
such changes as are required by law or which are not more favorable to
participants than provisions presently in effect; and
(l) settle any shareholder derivative or class action claims
arising out of or in connection with any of the Transactions.
SECTION 4.3 OTHER ACTIONS. Each of Company on the one hand and
Camden and Camden Sub on the other hand shall not and shall use commercially
reasonable efforts to cause its respective subsidiaries and joint ventures not
to take any action that would result in (i) any of the representations and
warranties of such party (without giving effect to any "Knowledge"
qualification) set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties (without giving
effect to any "Knowledge" qualification) that are not so qualified becoming
untrue in any material respect or (iii) except as contemplated by Section 7.1,
any of the conditions to the Merger set forth in Article VI not being satisfied.
ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE
PROXY STATEMENT; SHAREHOLDERS MEETING AND CAMDEN SHAREHOLDERS MEETING.
(a) As soon as practicable following the date of this Agreement,
the Company and Camden shall prepare and file with the SEC a preliminary Proxy
Statement in form and substance satisfactory to each of Camden and the Company,
and Camden shall prepare and file with the SEC the Registration Statement, in
which the Proxy Statement will be included as a prospectus. Each of the Company
and Camden shall use its best efforts to (i) respond to any comments of the SEC
and (ii) have the Registration Statement declared effective under the Securities
Act and the rules and regulations promulgated thereunder as promptly as
practicable after such filing and to keep the Registration Statement effective
as long as is reasonably necessary to consummate the Merger. Each of the Company
and Camden will use its best efforts to cause the Proxy Statement to be mailed
to the Company's shareholders or Camden's shareholders, respectively, as
promptly as practicable after the Registration Statement is declared effective
under the Securities Act . Each party will notify the other promptly of the
receipt of any comments from the SEC and of any request by the SEC for
amendments or supplements to the Registration Statement or the Proxy Statement
or for additional information and will supply the other with copies of all
correspondence between such party or any of its representatives and the SEC,
with respect to the Registration Statement or the Proxy Statement. The
Registration Statement and the Proxy Statement shall comply in all material
respects with all applicable requirements of law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the
Registration Statement or the Proxy Statement, Camden or the Company, as the
case may be, shall promptly inform the other of such occurrences and cooperate
in filing with the SEC and/or mailing to the shareholders of Camden and the
shareholders of the Company such amendment or supplement. The Proxy Statement
shall include the recommendations of the Board of Directors of Camden in favor
of the issuance of Camden Common Stock and of the Board of Directors of the
Company in favor of the Merger, provided that the recommendation of the Board of
Directors of the Company may not be included or may be withdrawn if the Board of
Directors of the Company has accepted a proposal for a Superior Competing
Transaction (as defined below) in accordance with the terms of Section 7.1.
Camden also shall take any action required to be taken under any applicable
state securities or "blue sky" laws in connection with the issuance of Camden
Stock pursuant to the Merger, and the Company shall furnish all information
concerning the Company and the holders of the Common Stock and rights to acquire
Common Stock pursuant to the Company Employee Stock Plans as may be reasonably
requested in connection with any such action. Camden will use its best efforts
to obtain, prior to the effective date of the Registration Statement, all
necessary state
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securities or "blue sky" permits or approvals required to carry out the
transactions contemplated by this Agreement and will pay or cause a Camden
Subsidiary to pay all expenses incident thereto.
(b) The Company will, as soon as practicable following the date
of this Agreement (but in no event sooner than 30 days following the date the
Proxy Statement is mailed to the shareholders of the Company), duly call, give
notice of, convene and hold a meeting of its shareholders (the "COMPANY
SHAREHOLDERS MEETING") for the purpose of obtaining the Company Shareholder
Approvals. The Company will, through its Board of Directors, recommend to its
shareholders approval of this Agreement and the transactions contemplated by
this Agreement; provided that the recommendation of the Board of Directors of
the Company may be withdrawn if the Board of Directors of the Company has
accepted a proposal for a Superior Competing Transaction (as defined below) in
accordance with the terms of Section 7.1(d).
(c) As contemplated by Section 1.4, as soon as practicable
following the date of this Agreement, the Company will cause GP Holdings, as the
general partner of the Operating Partnership, to solicit the Required
Partnership Vote.
(d) In the event that the Required Partnership Vote is not
received, as soon thereafter as practicable the Company will cause GP Holdings,
as the general partner of the Operating Partnership, to solicit the written
consent of the Unit holders holding two-thirds of the outstanding Units to
approve the Operating Partnership Transaction, which may be either of the
following transactions, which determination shall be at the sole discretion of
the Company:
(i) the merger of the Operating Partnership with and into
the New Partnership in which Camden Sub initially will be the 99% limited
partner and Camden initially will be the 1% general partner (the "NEW
PARTNERSHIP"), in which case articles of merger in the form mutually agreed by
the Company and Camden shall be filed and the New Partnership shall have a
partnership agreement substantially in the form attached hereto as EXHIBIT A; or
(ii) the merger of the Operating Partnership with and into
Camden Sub, in which case articles of merger in the form mutually agreed by the
Company and Camden shall be filed.
(e) Camden will, as soon as practicable following the date of
this Agreement (but in no event sooner than 30 days following the date the Proxy
Statement is mailed to the shareholders of Camden), duly call, give notice of,
convene and hold a meeting of its shareholders (the "CAMDEN SHAREHOLDERS
MEETING") for the purpose of obtaining the Camden Shareholder Approvals. Camden
will, through its Board of Directors, recommend to its stockholders approval of
this Agreement and the transactions contemplated by this Agreement, including,
but not limited to the requisite vote of such shareholders approving the
issuance of the Camden Common Stock in connection with the Merger in accordance
with the rules of the NYSE.
SECTION 5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. Subject to
the requirements of confidentiality agreements with third parties, each of the
Company and Camden shall, and shall cause each of its respective subsidiaries
(including all Company Subsidiaries and all Camden Subsidiaries) and joint
ventures to, afford to the other party and to the officers, employees,
accountants, counsel, financial advisors and other representatives of such other
party, reasonable access during normal business hours during the period prior to
the Effective Time to all their respective properties, books, contracts,
commitments, personnel and records and, during such period, each of the Company
and Camden shall, and shall cause each of its respective subsidiaries (including
all Company Subsidiaries and all Camden Subsidiaries) to, furnish promptly to
the other party (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Each of the Company and Camden will hold, and will use commercially reasonable
efforts to cause its and its respective subsidiaries (including all Company
Subsidiaries and all Camden Subsidiaries) and joint ventures' officers,
employees, accountants, counsel, financial advisors and other representatives
and affiliates to hold, any nonpublic information in confidence to the extent
required by, and in accordance with, and will comply with the provisions of the
letter agreement dated as of September 26, 1996 between the Company and Camden
(the "CONFIDENTIALITY AGREEMENT").
SECTION 5.3 COMMERCIALLY REASONABLE EFFORTS; NOTIFICATION.
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(a) Subject to the terms and conditions herein provided, the
Company and Camden shall: (a) to the extent required, promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act with respect to the Merger; (b) use all commercially reasonable efforts
to cooperate with one another in (i) determining which filings are required to
be made prior to the Effective Time with, and which consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions and any third parties in connection with the execution
and delivery of this Agreement, and the consummation of the transactions
contemplated by such agreements and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits and authorizations (c) use
all commercially reasonable efforts to obtain in writing any consents required
from third parties to effectuate the Merger, such consents to be in reasonably
satisfactory form to the Company and Camden; and (d) use all commercially
reasonable efforts to take, or cause to be taken, all other action and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors of the Company and Camden shall take all such necessary action.
(b) The Company shall give prompt notice to Camden, and Camden or
Camden Sub shall give prompt notice to the Company, if (i) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER, that
no such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
SECTION 5.4 AFFILIATES. Prior to the Closing Date, the Company
shall deliver to Camden a letter identifying all persons who are, at the time
this Agreement is submitted for approval to the shareholders of the Company,
"affiliates" of the Company (as the case may be) for purposes of Rule 145 under
the Securities Act. The Company shall use its best efforts to cause each such
person to deliver to Camden on or prior to the Closing Date a written agreement
substantially in the form attached as EXHIBIT B hereto.
SECTION 5.5 TAX TREATMENT. Each of Camden and the Company shall
use its reasonable best efforts to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a) of the Code and to obtain
the opinions of counsel referred to in Sections 6.2(e) and 6.3(e).
SECTION 5.6 CAMDEN BOARD OF TRUST MANAGERS. Camden shall take all
steps necessary to increase the number of trust managers of Camden from 5 trust
managers to 7 trust managers effective as of the Effective Time and to fill
vacancies in accordance with Section 1.8.
SECTION 5.7 NO SOLICITATION OF TRANSACTIONS BY THE COMPANY.
Subject to Section 7.1, (a), the Company shall not directly or indirectly,
through any officer, director, employee, agent, investment banker, financial
advisor, attorney, accountant, broker, finder or other representative retained
by the Company, initiate, solicit or encourage (including by way of furnishing
non-public information or assistance) any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined below), or authorize or permit any of the
officers, directors, employees or agents of the Company or any attorney,
investment banker, financial advisor, attorney, accountant, broker, finder or
other representative retained by the Company to take any such action, (b) the
Company shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Competing Transaction and will take the steps necessary to
inform such parties of the obligations undertaken in this Section 5.7 and (c)
the Company shall notify Camden in writing (as promptly as practicable) if it
receives any inquiries, proposals or requests for information relating to such
matters. For purposes of this Agreement, "COMPETING TRANSACTION" shall mean any
of the following with respect to the Company or any Company Subsidiaries (other
than the transactions contemplated by this Agreement or a transaction with
Camden or a Camden Subsidiary): (i) with respect only to the Company, the
Operating Partnership or any group of Company Subsidiaries (acting in a single
transaction or series of related transactions) holding 20% or more of the assets
of the Company and the Company Subsidiaries taken as a whole, any merger,
consolidation, share exchange, business combination, or similar transaction;
(ii) any sale, lease, exchange,
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mortgage, pledge, transfer or other disposition of 20% or more of the assets or
equity securities (including, without limitation, partnership interests and
Units) of the Company and the Company Subsidiaries taken as a whole, in a single
transaction or series of related transactions, excluding any bona fide financing
transactions which do not, individually or in the aggregate, have as a purpose
or effect the sale or transfer of control of such assets; (iii) any tender offer
or exchange offer for 20% or more of the outstanding shares of capital stock of
the Company; (iv) any transaction resulting in the issuance of share
representing 20% or more of the outstanding capital stock of the Company, or the
filing of a registration statement under the Securities Act in connection
therewith; or (v) any public announcements of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. Camden and Camden Sub on the
one hand and the Company on the other hand will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press release or other public statements with respect to the Transactions,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release to be issued with respect to the Transactions will be in
the form agreed to by the parties hereto prior to the execution of this
Agreement.
SECTION 5.9 LISTING. Camden will promptly prepare and submit to
the NYSE a supplemental listing application covering Camden Common Stock
issuable in the Merger. Prior to the Effective Time, Camden shall use its best
efforts to have NYSE approve for listing, upon official notice of issuance, the
Camden Common Stock to be issued in the Merger.
SECTION 5.10 LETTERS OF ACCOUNTANTS.
(a) The Company shall use its reasonable best efforts to cause to
be delivered to Camden "comfort" letters of Ernst & Young L.L.P., the Company's
independent public accountants, dated and delivered the date on which the
Registration Statement shall become effective and as of the Effective Time, and
addressed to Camden, in form and substance reasonably satisfactory to Camden and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
(b) Camden shall use its reasonable best efforts to cause to be
delivered to the Company "comfort" letters of Deloitte & Touche, LLP, Camden's
independent public accountants, dated the date on which the Registration
Statement shall become effective and as of the Effective Time, and addressed to
the Company, in form and substance reasonably satisfactory to the Company and
reasonably customary in scope and substance for letters delivered by independent
public accountants in connection with transactions such as those contemplated by
this Agreement.
SECTION 5.11 TRANSFER AND GAINS TAXES. Camden and the Company
shall cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added stock transfer and stamp
taxes, any transfer, recording, registration and other fees and any similar
taxes which become payable in connection with the Transactions (together with
any related interests, penalties or additions to tax, "TRANSFER AND GAINS
TAXES"). From and after the Effective Time, Camden shall cause the Operating
Partnership to pay, without deduction or withholding from any amounts payable to
the holders of the Common Stock, all Transfer and Gains Taxes (other than any
such taxes that are solely the liability of the holders of the Common Stock
under applicable state law).
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SECTION 5.12 BENEFIT PLANS AND OTHER EMPLOYEE ARRANGEMENTS.
(a) BENEFIT PLANS. After the Effective Time Camden shall provide
benefits to employees of the Company and the Company Subsidiaries that are not
less favorable to such employees than those provided to similarly situated
employees of Camden and the Camden Subsidiaries. With respect to any Camden
Benefit Plan which is an "employee benefit plan" as defined in Section 3(3) of
ERISA, solely for purposes of determining eligibility to participate, vesting,
and entitlement to benefits but not for purposes of accrual of pension benefits,
service with the Company or any Company Subsidiary shall be treated as service
with Camden or the Camden Subsidiaries (as applicable); PROVIDED, HOWEVER, that
such service shall not be recognized to the extent that such recognition would
result in a duplication of benefits (or is not otherwise recognized for such
purposes under the Camden Benefit Plans). Except as otherwise provided herein,
Camden shall be under no obligation to maintain the compensation and benefits
currently provided by the Company to its employees.
(b) STOCK INCENTIVE PLAN. Prior to or as of the Effective Time
and solely with respect to individuals employed by the Company immediately prior
to that date, the Company shall accelerate the vesting of up to 110,400 shares
of Common Stock subject to restricted stock awards and up to 279,000 shares of
Common Stock subject to Stock Options granted under the Company's Stock
Incentive Plan (the "STOCK INCENTIVE PLAN") so as to permit exercise of the
Stock Options prior to or as of the Effective Time.
(c) SEVERANCE PROGRAM. As of the Effective Time, Camden shall
adopt a severance program with respect to certain employees of the Company and
the Company Subsidiaries employed by the Company containing terms substantially
the same as set forth on the form attached hereto as EXHIBIT C, and Camden shall
maintain such severance program in accordance with the terms thereof.
(d) COOPERATION. The Company and Camden shall cooperate in good
faith with respect to the effectuation of the covenants described in subsections
(b) and (c).
SECTION 5.13 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
(a) The Company shall, and from and after the Effective Time,
Camden shall indemnify, defend and hold harmless each person who is now or has
been at any time prior to the date hereof or who becomes prior to the Effective
Time, an officer or director of the Company or any Company Subsidiary (the
"INDEMNIFIED PARTIES") against all losses, claims, damages, costs, expenses
(including attorneys' fees and expenses), liabilities or judgments or amounts
that are paid in settlement of, with the approval of the indemnifying party
(which approval shall not be unreasonably withheld), or otherwise in connection
with any threatened or actual claim, action, suit proceeding or investigation
based on or arising out of the fact that such person is or was a director or
officer of the Company or any Company Subsidiary at or prior to the Effective
Time, whether asserted or claimed prior to, or at or after, the Effective Time
("INDEMNIFIED LIABILITIES"), including all Indemnified Liabilities based on, or
arising out of, or pertaining to this Agreement or the Transactions, in each
case to the full extent a corporation is permitted under the Corporation Law to
indemnify its own directors or officers as the case may be (and Camden shall pay
expenses in advance of the final disposition of any such action or proceeding to
each Indemnified Party to the full extent permitted by law subject to the
limitations set forth in the fourth sentence of this Section 5.13 (a)). Any
Indemnified Parties proposing to assert the right to be indemnified under this
Section 5.13 shall, promptly after receipt of notice of commencement of any
action against such Indemnified Parties in respect of which a claim is to be
made under this Section 5.13 against the Company, and from and after the
Effective Time, Camden (collectively, the "INDEMNIFYING PARTIES"), notify the
Indemnifying Parties of the commencement of such action, enclosing a copy of all
papers served. If any such action is brought against any of the Indemnified
Parties and such Indemnified Parties notify the Indemnifying Parties of its
commencement, the Indemnifying Parties will be entitled to participate in and,
to the extent that they elect by delivering written notice to such Indemnified
Parties promptly after receiving notice of the commencement of the action from
the Indemnified Parties, to assume the defense of the action and after notice
from the Indemnifying Parties to the Indemnified Parties of their election to
assume the defense, the Indemnifying Parties will not be liable to the
Indemnified Parties for any legal or other expenses except as provided below. If
the Indemnifying Parties assume the defense, the Indemnifying Parties shall have
the right to settle such action without the consent of the Indemnified Parties;
PROVIDED, HOWEVER, that the Indemnifying Parties shall be required to obtain
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such consent (which consent shall not be unreasonably withheld)
if the settlement includes any admission or wrongdoing on the part of the
Indemnified Parties or any decree or restriction on the Indemnified Parties or
their officers or directors; PROVIDED, FURTHER, that no Indemnifying Parties, in
the defense of any such action shall, except with the consent of the Indemnified
Parties (which consent shall not be unreasonably withheld), consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Parties of a release from all liability with respect to such action.
The Indemnified Parties will have the right to employ their own counsel in any
such action, but the fees, expenses and other charges of such counsel will be at
the expense of such Indemnified Parties unless (i) the employment of counsel by
the Indemnified Parties has been authorized in writing by the Indemnifying
Parties, (ii) the Indemnified Parties have reasonably concluded (based on
written advice of counsel) that there may be legal defenses available to them
that are different from or in addition to those available to the Indemnifying
Parties, (iii) a conflict or potential conflict exists (based on written advice
of counsel to the Indemnified Parties) between the Indemnified Parties and the
Indemnifying Parties (in which case the Indemnifying Parties will not have the
right to direct the defense of such action on behalf of the Indemnified Parties)
or (iv) the Indemnifying Parties have not in fact employed counsel to assume the
defense of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
Indemnifying Parties. It is understood that the Indemnifying Parties shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees, disbursements and other charges
of more than one separate firm admitted to practice in such jurisdiction at any
one time from all such Indemnified Parties unless (a) the employment of more
than one counsel has been authorized in writing by the Indemnifying Parties, (b)
any of the Indemnified Parties have reasonably concluded (based on advice of
counsel) that there may be legal defenses available to them that are different
from or in addition to those available to other Indemnified Parties or (c) a
conflict or potential conflict exists (based on advice of counsel to the
Indemnified Parties) between any of the Indemnified Parties and the other
Indemnified Parties, in each case of which the Indemnifying Parties shall be
obligated to pay the reasonable and appropriate fees and expenses of such
additional counsel or counsels. The Indemnifying Parties will not be liable for
any settlement of any action or claim effected without their written consent
(which consent shall not be unreasonably withheld).
(b) The provisions of this Section 5.13 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Camden and the Company.
(c) Camden shall either (i) extend the Company's existing
directors' and officers' liability insurance policy as of the date hereof (or a
policy providing coverage on the same or better terms and conditions) for acts
or omissions occurring prior to the Effective Time by persons who are currently
covered by such insurance policy maintained by the Company for a period of six
(6) years following the Effective Time, or (ii) add such persons to the existing
directors and officers liability insurance policy of Camden, PROVIDED, HOWEVER,
that such insurance shall provide directors and officers of the Company the same
coverage as similarly situated officers and directors of Camden and such
insurance shall be maintained by Camden for a period of six (6) years following
the Effective Time.
(d) In the event that Camden or any of it respective successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then, and in each such case the successors and assigns of such
entity shall assume the obligations set forth in this Section 5.13, which
obligations are expressly intended to be for the irreversible benefit of, and
shall be enforceable by, each director and officer covered hereby.
SECTION 5.14 REIT QUALIFICATION OF PARADIM. The Company will use
its best efforts to cause Paradim to meet the requirements to qualify, beginning
with its taxable year ending December 31, 1996, as a REIT under the Code. In the
event that Paradim files its federal income tax return for the taxable year
ended December 31, 1996 prior to the Effective Time, the Company will cause
Paradim to elect to be treated for such taxable year as a REIT under the Code.
SECTION 5.15 TERMINATION OF CERTAIN EMPLOYMENT AGREEMENTS The
Company shall take such actions as may be necessary to terminate the employment
agreements of Messrs. Cooper and Levey set forth on
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SCHEDULE 5.15 to the Company Disclosure Schedule effective as of the Effective
Time. No such termination shall have any effect on the non-solicitation and
right of first opportunity agreements to which each of Messrs. Cooper and Levey
is a party.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger and to
consummate the other Transactions contemplated to occur on the Closing Date is
subject to the satisfaction or waiver on or prior to the Effective Time of the
following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement shall have been
approved and adopted by the Shareholder Approvals.
(b) HSR ACT. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
(c) LISTING OF SHARES. The NYSE shall have approved for listing
the Camden Common Stock to be issued in the Merger.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings by the SEC seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger or any of the other Transactions shall be in effect.
(f) BLUE SKY LAWS. Camden shall have received all state
securities or "blue sky" permits and other authorizations necessary to issue the
shares of Camden Common Stock comprising the Merger Consideration.
(g) RELATED TRANSACTIONS. The Stock Purchase Agreement, the
Company Voting Agreement and the Camden Voting Agreement shall remain in full
force and effect and the respective transactions contemplated thereby shall have
been consummated prior to, or are being consummated simultaneously with, the
Merger. An Amended and Restated Operating Partnership Agreement substantially in
the form appended hereto as EXHIBIT A (or a merger of the Operating Partnership
in the Operating Partnership Transaction, as applicable), a Lock-Up Agreement
substantially in the form appended hereto as EXHIBIT G, and a Registration
Rights Agreement substantially in the form appended hereto as EXHIBIT D shall
each have been duly executed and delivered by the parties thereto and shall
remain in full force and effect.
(h) CERTAIN ACTIONS AND CONSENTS. All material actions by or in
respect of or filings with any Governmental Entity required for the consummation
of the Transactions shall have been obtained or made and the requisite consents
of the partners of the Operating Partnership described in Sections 1.4 and
3.1(u) shall have been obtained for either the amendment and restatement of the
Operating Partnership Agreement or the Operating Partnership Transaction.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF CAMDEN AND CAMDEN SUB.
The obligations of Camden and Camden Sub to effect the Merger and to consummate
the other Transactions contemplated to occur on the Closing Date are further
subject to the following conditions, any one or more of which may be waived by
both Camden:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms to
another date, and Camden shall have received a certificate (which certificate
may be qualified by Knowledge to the same extent as such
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representations and warranties are so qualified) signed on behalf of the Company
by the chief executive officer or the chief financial officer of the Company to
such effect. This condition shall be deemed satisfied unless any or all breaches
of the Company's representations and warranties in this Agreement (without
giving effect to any materiality qualification or limitation) is reasonably
expected to have a Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and Camden shall
have received a certificate signed on behalf of the Company by the chief
executive officer or the chief financial officer of the Company to such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall have been no Material Adverse Change and Camden shall have received
a certificate of the chief executive officer or chief financial officer of the
Company certifying to such effect.
(d) OPINIONS RELATING TO REIT AND PARTNERSHIP STATUS. Camden
shall have received (i) an opinion of Counsel to the Company, dated as of the
Closing Date, reasonably satisfactory to Camden that, (A) commencing with its
taxable year ended December 31, 1994, the Company was organized and has operated
in conformity with the requirements for qualification as a REIT under the Code
and (B) the Operating Partnership has been during and since 1994, and continues
to be, treated for federal income tax purposes as a partnership, and not as a
corporation or an association taxable as a corporation (with customary
exceptions, assumptions and qualifications and based upon customary
representations) and (ii) an opinion of Counsel to Camden, dated as of the
Closing Date, reasonably satisfactory to Camden, that, commencing with its
taxable year ended December 31, 1993, Camden was organized and has operated in
conformity with the requirements for qualification as a REIT under the Code and
that, after giving effect to the Merger, Camden's proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code (with customary exceptions, assumptions and
qualifications and based upon customary representations).
(e) OTHER TAX OPINION. Camden shall have received an opinion
dated as of the Closing Date from Counsel to Camden, based upon certificates and
letters, which letters and certificates are substantially in the form set forth
in EXHIBIT E hereto and dated the Closing Date, to the effect that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Code.
(f) CONSENTS. All consents and waivers (including, without
limitation, waivers of rights of first refusal) from third parties necessary in
connection with the consummation of the Transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not result, individually or in the aggregate, in a Camden Material Adverse
Effect or a Material Adverse Effect.
Notwithstanding the foregoing, Camden shall not be obligated to
effect the Merger if the failure of one or more of the conditions set forth in
Sections 6.2(a), 6.2(c) and 6.2(f) to be satisfied, in the aggregate, causes a
Camden Material Adverse Effect.
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligation of the Company to effect the Merger and to
consummate the other Transactions contemplated to occur on the Closing Date is
further subject to the following conditions, any one or more of which may be
waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Camden set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Closing Date, as though made on and as
of the Closing Date, except to the extent the representation or warranty is
expressly limited by its terms to another date, and the Company shall have
received a certificate (which certificate may be qualified by Knowledge to the
same extent as the representations and warranties of Camden contained herein are
so qualified) signed on behalf of Camden by the chief executive officer and the
chief financial officer of such party to such effect. This condition shall be
deemed satisfied unless any or all breaches of Camden's representations and
warranties in this
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Agreement (without giving effect to any materiality qualification or limitation)
is reasonably expected to have a Camden Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF CAMDEN. Camden shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and the Company shall
have received a certificate of Camden signed on behalf of such party by the
chief executive officer or the chief financial officer of such party to such
effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
there shall have been no Camden Material Adverse Change and the Company shall
have received a certificate of the chief executive officer or chief financial
officer of Camden certifying to such effect.
(d) OPINION RELATING TO REIT STATUS. The Company shall have
received an opinion of Counsel to Camden dated as of the Closing Date,
reasonably satisfactory to the Company, that, commencing with its taxable year
ended December 31, 1993, Camden was organized and has operated in conformity
with the requirements for qualification as a REIT under the Code and that, after
giving effect to the Merger, Camden's proposed method of operation will enable
it to continue to meet the requirements for qualification and taxation as a REIT
under the Code (with customary exceptions, assumptions and qualifications and
based upon customary representations).
(e) OTHER TAX OPINION. The Company shall have received an opinion
dated as of the Closing Date from Counsel to the Company, based upon
certificates and letters, which letters and certificates are substantially in
the form set forth in EXHIBIT F hereto and dated the Closing Date, to the effect
that the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code.
(f) CONSENTS. All consents and waivers (including, without
limitation, waivers or rights of first refusal) from third parties necessary in
connection with the consummation of the Transactions shall have been obtained,
other than such consents and waivers from third parties, which, if not obtained,
would not have a Camden Material Adverse Effect or a Material Adverse Effect.
(g) THE INVESTMENT COMPANY ACT OPINION. The Company shall have
received a favorable opinion dated as of the Closing Date from Counsel to
Camden, that neither Camden or any Camden Subsidiary is required to be
registered under the Investment Company Act of 1940.
Notwithstanding the foregoing, the Company shall not be obligated
to effect the Merger if the failure of one or more of the conditions set forth
in Sections 6.3(a), 6.3(c) and 6.3(f) to be satisfied, in the aggregate, causes
a Material Adverse Effect.
ARTICLE VII
BOARD ACTIONS
SECTION 7.1 BOARD ACTIONS. Notwithstanding Section 5.7 or any
other provision of this Agreement to the contrary, to the extent required by the
fiduciary obligations of the Board of Directors of the Company, as determined in
good faith after consultation with outside legal counsel, the Company may:
(a) disclose to the shareholders of the Company any information
that, in the opinion of the Board of Directors of the Company after consultation
with outside legal counsel, is required to be disclosed under applicable law;
(b) to the extent applicable, comply with Rule 14e-2(a)
promulgated under the Exchange Act with respect to a Competing Transaction;
(c) in response to an unsolicited request therefor, participate
in discussions or negotiations with, or furnish information with respect to the
Company pursuant to a confidentiality agreement not materially less favorable to
the Company than the Confidentiality Agreement (as determined by the Company's
outside counsel), or
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otherwise respond to or deal with any person in connection with a Competing
Transaction proposed by such person; and
(d) approve or recommend (and in connection therewith withdraw or
modify its approval or recommendation of this Agreement or the Merger) a
Superior Competing Transaction (as defined below) and enter into an agreement
with respect to such Superior Competing Transaction (for purposes of this
Agreement, "SUPERIOR COMPETING TRANSACTION" means a bona fide proposal of a
Competing Transaction made by a third party which has not been solicited or
initiated by the Company in violation of Section 5.7 and which a majority of the
members of Board of Directors of the Company determines in good faith (A) to be
more favorable to the Company's shareholders than the Merger, and (B) is
reasonably capable of being consummated.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and the filing of the Articles of Merger with the
SDAT, whether before or after either of the Shareholder Approvals are obtained:
(a) by mutual written consent duly authorized by the respective
Boards of Directors of Camden and the Company;
(b) by Camden, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b), as the case may be, would be incapable of being satisfied by June 30,
1997 (or as otherwise extended);
(c) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Camden set forth in this
Agreement, or if any representation or warranty of Camden shall have become
untrue, in either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b), as the case may be, would be incapable of being satisfied by
June 30, 1997 (or as otherwise extended);
(d) by either Camden or the Company, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(e) by either Camden or the Company, if the Merger shall not have
been consummated before June 30, 1997; PROVIDED, HOWEVER, that a party that has
willfully and materially breached a representation, warranty or covenant of such
party set forth in this Agreement shall not be entitled to exercise its right to
terminate under this Section 8.1(e);
(f) by either Camden or the Company (unless the Company is in
breach of its obligations under Section 5.1(b)) if, upon a vote at a duly held
Company Shareholders Meeting or any adjournment thereof, the Company Shareholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(g) by either Camden (unless Camden is in breach of its
obligations under 5.1(c)) or the Company if, upon a vote at a duly held Camden
Shareholders Meeting or any adjournment thereof, the Camden Shareholder
Approvals shall not have been obtained as contemplated by Section 5.1;
(h) by either Camden or the Company if the consent of the
partners of the Operating Partnership as contemplated by Section 6.1(h) shall
not have been obtained by March 31, 1997;
(i) by the Company, if prior to the Company Shareholders Meeting,
the Board of Directors of the Company shall have withdrawn or modified in any
manner adverse to Camden its approval or recommendation of the Merger or this
Agreement in connection with, or approved or recommended, a Superior Competing
Transaction; PROVIDED, HOWEVER, that such termination shall not be effective
prior to the payment of the Break-Up Fee to the extent required by Section
8.2(b) hereof;
(j) by Camden, if (i) prior to the Company Shareholders Meeting,
the Board of Directors of the Company shall have withdrawn or modified in any
manner adverse to Camden its approval or recommendation of the Merger or this
Agreement in connection with, or approved or recommended, any Superior Competing
Transaction or (ii) the Company shall have entered into a definitive agreement
with respect to any Competing Transaction;
(k) by the Company at any time during the seven (7) trading day
period following the Pricing Period (as defined below) if the Average Closing
Price (as defined below) shall be less than Twenty-Five Dollars and
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Sixty-Seven Cents ($25.67), subject, however, to the following three sentences.
If the Company elects to exercise its termination right pursuant to this Section
8.1(k), it shall give written notice to Camden (provided that such notice of
election to terminate may be withdrawn at any time within the aforementioned
seven (7) trading day period). During the three (3) trading day period
commencing with its receipt of such notice, Camden shall have the option to
increase the Merger Consideration by adjusting the Exchange Ratio to equal a
number (calculated to the nearest one thousandth (1,000th)) obtained by dividing
(a) Sixteen Dollars and Forty-Three Cents ($16.43) by (b) the Average Closing
Price. If Camden so elects within such three (3) trading day period, it shall
give prompt written notice to the Company of such election and the revised
Exchange Ratio, whereupon no termination shall have occurred pursuant to this
Section 8.1(k) and this Agreement shall remain in effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified). For purposes
of this Section 8.1(k), (i) the term "Average Closing Price" means the average
of the closing prices of Camden Common Stock, on the New York Stock Exchange for
all trading days during the Pricing Period, and (ii) "Pricing Period" means the
period of fifteen (15) consecutive trading days commencing on the twenty-second
(22nd) trading day prior to the date of the Company Shareholders Meeting.
SECTION 8.2 EXPENSES.
(a) Except as otherwise specified in this Section 8.2 or agreed
in writing by the parties, all out-of-pocket costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such cost or expense.
(b) The Company agrees that if this Agreement shall be terminated
(i) pursuant to (x) Section 8.1(b), (f), (i) or (j) and the Company shall have
entered into an agreement to consummate a Competing Transaction described in
Section 5.7(i), (ii), (iv) or (v) hereof or (y) pursuant to Section 8.1(b), (e)
or (f) and within one year from the date of such termination, the Company
consummates such a Competing Transaction or enters into an agreement to
consummate such a Competing Transaction which is subsequently consummated or (z)
pursuant to Section 8.1(h), then the Company will pay (provided that Camden was
not in material breach of any of its representations, warranties, covenants or
agreements hereunder at the time of termination) as directed by Camden a fee in
an amount equal to the Break-Up Fee (as defined below) and (ii) pursuant to
Section 8.1(b) or (f) and no agreement for such a Competing Transaction shall
have been entered into, then the Company will pay, as directed by Camden an
amount equal to the Break-Up Expenses (as defined below). Payment of any of such
amounts shall be made, as directed by Camden, by wire transfer of immediately
available funds promptly, but in no event later than two business days after
such termination. For purposes of subsection 8.2(b)(i)(y) above, a "Competing
Transaction" shall be limited to a Competing Transaction described in Section
5.7(i), (ii), (iv) or (v) hereof with respect to which the Company had
negotiations prior to termination of this Agreement (other than any such
Competing Transaction described on SCHEDULE 8.2(B)). The "BREAK-UP FEE" shall be
an amount equal to the lesser of (i) $10,000,000 (the "BASE AMOUNT") and (ii)
the sum of (A) the maximum amount that can be paid to Camden without causing it
to fail to meet the requirements of Sections 856(c) (2) and (3) of the Code
determined as if the payment of such amount did not constitute income described
in Sections 856(c) (2) (A)-(H) and 856(c) (3) (A)-(I) of the code ("QUALIFYING
INCOME"), as determined by independent accountants to Camden and (B) in the
event Camden receives a letter from outside counsel (the "BREAK-UP FEE TAX
OPINION") indicating that Camden has received a ruling from the IRS holding that
Camden's receipt of the Base Amount would either constitute Qualifying Income or
would be excluded from gross income within the meaning of Sections 856(c) (2)
and (3) of the Code (the "REIT REQUIREMENTS") or that the receipt by Camden of
the remaining balance of the Base Amount following the receipt of and pursuant
to such ruling would not be deemed constructively received prior thereto, the
Base Amount less the amount payable under clause (A) above. The Break-Up Fee
shall be reduced by any amounts previously paid in respect of Break-Up Expenses
(as defined below). The Company's obligation to pay any unpaid portion of the
Break-Up Fee shall terminate three years from the date of this Agreement. In the
event that Camden is not able to receive the full Base Amount, the Company shall
place the unpaid amount in escrow and shall not release any portion thereof to
Camden unless and until the Company receives any one or combination of the
following: (i) a letter from Camden independent accountants indicating the
maximum amount that can be paid at that time to Camden without causing Camden to
fail to meet the REIT Requirements or (ii) a Break-Up Fee Tax Opinion, in which
event the Company shall pay to Camden the lesser of the unpaid Base Amount or
the maximum amount stated in the letter referred to in (i) above. The "BREAK-UP
EXPENSES" shall be an amount equal to the lesser of (i) Camden out-of-pocket
expenses incurred in connection with this Agreement and the Transactions
(including, without limitation, all attorneys', accountants' and investment
bankers' fees and expenses) but in no event in an amount greater than $1,500,000
(the "EXPENSE FEE BASE
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AMOUNT") and (ii) the sum of (A) the maximum amount that can be paid to Camden
without causing it to fail to meet the requirements of Sections 856(c) (2) and
(3) of the Code determined as if the payment of such amount did not constitute
Qualifying Income, as determined by independent accountants to Camden and (B) in
the event Camden receives a Break-Up Fee Tax Opinion indicating that Camden has
received a ruling from the IRS holding that Camden's receipt of the Expense Fee
Base Amount would either constitute Qualifying Income or would be excluded from
gross income within the meaning of the REIT Requirements or that receipt by
Camden of the remaining balance of the Expense Fee Base Amount following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Expense Fee Base Amount less the amount payable
under clause (A) above. The Company's obligation to pay any unpaid portion of
the Break-Up Expenses shall terminate three years from the date of this
Agreement. In the event that Camden is not able to receive the full Expense Fee
Base Amount, the Company shall place the unpaid amount in escrow and shall not
release any portion thereof to Camden unless and until the Company receives any
one or combination of the following: (i) a letter from Camden's independent
accountants indicating the maximum amount that can be paid at that time to
Camden without causing Camden to fail to meet the REIT Requirements or (ii) a
Break-Up Fee Tax Opinion, in which event the Company shall pay to Camden the
lesser of the unpaid Expense Fee Base Amount or the maximum amount stated in the
letter referred to in (i) above.
(c) Camden agrees that if this Agreement shall be terminated
pursuant to Section 8.1(c) or (g), then Camden will pay, as directed by the
Operating Partnership, an amount equal to the Termination Expenses (as defined
below). Payment of any of such amounts shall be made, as directed by the
Operating Partnership, by wire transfer of immediately available funds promptly,
but in no event later than two business days after such termination. The
"TERMINATION EXPENSES" shall be an amount equal to the lesser of (i) the
Company's and the Operating Partnership's out-of-pocket expenses incurred in
connection with this Agreement and the Transactions (including, without
limitation, all attorneys', accountants' and investment bankers' fees and
expenses) but in no event in an amount greater than $1,500,000 (the "TERMINATION
EXPENSE BASE AMOUNT") and (ii) the sum of (A) the maximum amount that can be
paid to the Operating Partnership without causing the Company to fail to meet
the requirements of Sections 856(c) (2) and (3) of the Code determined as if the
payment of such amount did not constitute Qualifying Income, as determined by
independent accountants to the Company and (B) in the event the Company receives
a letter from outside counsel (the "TERMINATION EXPENSE TAX OPINION") indicating
that the Company has received a ruling from the IRS holding that the Operating
Partnership's receipt of the Termination Expense Base Amount would either
constitute Qualifying Income or would be excluded from gross income within the
meaning of the REIT Requirements or that receipt by the Operating Partnership of
the remaining balance of the Termination Expense Base Amount following the
receipt of and pursuant to such ruling would not be deemed constructively
received prior thereto, the Termination Expense Base Amount less the amount
payable under clause (A) above. Camden's obligation to pay any unpaid portion of
the Termination Expenses shall terminate three years from the date of this
Agreement. In the event that the Operating Partnership is not able to receive
the full Termination Expense Base Amount, Camden shall place the unpaid amount
in escrow and shall not release any portion thereof to the Operating Partnership
unless and until Camden receives any one or combination of the following: (i) a
letter from the Company's independent accountants indicating the maximum amount
that can be paid at that time to the Operating Partnership without causing the
Company to fail to meet the REIT Requirements or (ii) a Termination Expense Tax
Opinion, in which event Camden shall pay to the Operating Partnership the lesser
of the unpaid Termination Expense Base Amount or the maximum amount stated in
the letter referred to in (i) above.
SECTION 8.3 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either the Company or Camden as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Camden, or the Company, other than the last
sentence of Section 5.2, Section 8.2, this Section 8.3 and Article IX and except
to the extent that such termination results from a material breach by a party of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
SECTION 8.4 AMENDMENT. This Agreement may be amended by the
parties in writing by action of their respective Boards of Directors at any time
before or after any Shareholder Approvals are obtained and prior to the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and the Articles of Merger with SDAT; PROVIDED, HOWEVER, that, after
the Shareholder Approvals are obtained, no such amendment, modification or
supplement shall alter the amount or change the form of the consideration to be
delivered to the Company's shareholders or alter or change any of the terms or
conditions of this Agreement if such alteration or change would adversely affect
the Company's shareholders or Camden's shareholders.
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<PAGE>
SECTION 8.5 EXTENSION; WAIVER. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement or
in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 8.4, waive compliance with any of the agreements or
conditions of the other party contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. Any waivers pursuant
to clause (c) of the second preceding sentence (i) of the provisions of Section
4.1(e) may be given in writing on behalf of Camden by the Chief Executive
Officer of Camden and (ii) of the provisions of Section 4.2(e) may be given in
writing by or on behalf of the Company by the Chief Executive Officer of the
Company. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None
of the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 9.2 NOTICES. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally, sent by overnight courier (providing proof
of delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to Camden, to
Richard J. Campo
Chairman and Chief Executive Officer
Camden Property Trust
3200 Southwest Freeway, Suite 1500
Houston, Texas 77027
Telecopy: (713) 964-3599
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: Bryan L. Goolsby
Telecopy: (214) 220-4899
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<PAGE>
(b) if to the Company, to
Paragon Group, Inc.
7557 Rambler Road
Suite 1200
Dallas, Texas 75231
Attention: Robert H. Gidel
Telecopy: (214) 891-2019
with a copy to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
Attention: J. Warren Gorrell, Jr.
Telecopy: (202) 637-5910
SECTION 9.3 CERTAIN DEFINITIONS. For purposes of this Agreement:
An "AFFILIATE" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person.
"CAMDEN DISCLOSURE LETTER" means the letter previously delivered
to the Company by Camden disclosing certain information in connection with this
Agreement.
"CAMDEN INTERESTS" means, collectively, the Camden Subsidiaries
and all direct or indirect interests of Camden or any Camden Subsidiary.
"CAMDEN MANAGEMENT COMPANY" means Apartment Connection, Inc., a
Delaware corporation.
"CAMDEN SUBSIDIARY" means Camden Sub, any Subsidiary of the
aforementioned entities and any other entity of which Camden is the direct or
indirect general partner or as to which the Company has the right or power to
elect a majority of the board of directors or other governing body.
"COMPANY DISCLOSURE LETTER" means the letter previously delivered
to each of Camden by the Company disclosing certain information in connection
with this Agreement.
"COMPANY INTERESTS" means, collectively, the Company Subsidiaries
and all direct or indirect interests of the Company or any Company Subsidiary.
"COMPANY SUBSIDIARIES" means, collectively, GP Holdings, LP
Holdings, and Residential Management Corporation, any Subsidiary of any of the
aforementioned entities and any other entity of which the Company is the direct
or indirect general partner or as to which the Company has the right or power to
elect a majority of the board of directors or other governing body.
"GP HOLDINGS" means Paragon Group GP Holdings, Inc., a Delaware
corporation and the general partner of the Operating Partnership.
"LP HOLDINGS" means Paragon Group LP Holdings, Inc., a Delaware
corporation and a limited partner of the Operating Partnership.
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<PAGE>
"KNOWLEDGE" where used herein with respect to the Company shall
mean the actual knowledge of the persons named in SCHEDULE 9.3 to the Company
Disclosure Letter and where used with respect to Camden shall mean the actual
knowledge of the persons named in SCHEDULE 9.3 to the Camden Disclosure Letter.
"OPERATING PARTNERSHIP" means Paragon Group L.P., Inc. a Delaware
limited partnership.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"PARADIM" means Paradim, Inc., a Delaware corporation.
"REQUIRED PARTNERSHIP VOTE" means the unanimous vote of limited
partners of the Operating Partnership required in order to approve the
amendments to the Operating Partnership Agreement substantially in the form
attached hereto as EXHIBIT A.
"RESIDENTIAL MANAGEMENT CORPORATION" means Paragon Residential
Services, Inc., a Delaware corporation.
"SUBSIDIARY" of any person means any corporation, partnership,
limited liability company, joint venture or other legal entity of which such
person (either directly or through or together with another Subsidiary of such
person) owns 20% or more of the capital stock or other equity interests of such
corporation, partnership, limited liability company, joint venture or other
legal entity.
"TPMP" means Texas Paragon Management Partners L.P., a Texas
limited partnership.
SECTION 9.4 INTERPRETATION. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
SECTION 9.5 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, the Confidentiality Agreement and the other agreements entered into
in connection with the Transactions (a) constitute the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement and,
(b) except for the provisions of Article II, Section 5.12(b) and (c) and Section
5.13, are not intended to confer upon any person other than the parties hereto
any rights or remedies.
SECTION 9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF, EXCEPT TO THE EXTENT THAT THE MERGER OR OTHER TRANSACTIONS
CONTEMPLATED HEREBY ARE REQUIRED TO BE GOVERNED BY THE TEXAS STATUTE.
SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned or
delegated, in whole or in part, by operation of law or otherwise by any of the
parties without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
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<PAGE>
SECTION 9.9 ENFORCEMENT. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Texas or in any Texas State court located
in Texas, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself (without making such submission exclusive) to the personal
jurisdiction of any federal court located in the State of Texas or any Texas
State court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement and (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court.
SECTION 9.10 SEVERABILITY. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any current or future law,
and if the rights or obligations of the parties under this Agreement would not
be materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance therefrom. In lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement, a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the parties hereto
request the court or any arbitrator to whom disputes relating to this Agreement
are submitted to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Section 9.10.
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<PAGE>
IN WITNESS WHEREOF, Camden, Camden Sub and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
CAMDEN:
Camden Property Trust
By: /s/ RICHARD J. CAMPO
Name: Richard J. Campo
Title: Chairman of the Board
CAMDEN SUB:
Camden Subsidiary, Inc.
By: /s/ RICHARD J. CAMPO
Name: Richard J. Campo
Title: Chairman of the Board
COMPANY:
Paragon Group, Inc.
By: /s/ WILLIAM R. COOPER
Name: William R. Cooper
Title: Chief Executive Officer
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<PAGE>
ANNEX II-A
[PaineWebber Incorporated]
March 7, 1997
Board of Trust Managers
Camden Property Trust
3200 Southwest Freeway
Suite 1500
Houston, Texas 77027
Gentlemen:
Camden Property Trust (the "Company"), a newly-formed wholly-owned
subsidiary of the Company ("Merger Subsidiary") and Paragon Group, Inc. (the
"Subject Company") propose to enter into an agreement and plan of merger (the
"Merger Agreement"), pursuant to which the Subject Company will, subject to the
terms and conditions therein, merge with and into Merger Subsidiary (the
"Merger"). In the Merger, each share of common stock, par value $.01 per share
(the "Subject Company Shares"), of the Subject Company issued and outstanding
immediately prior to the effectiveness of the Merger (subject to certain
exceptions) will be converted into .64 (the "Exchange Ratio") common shares of
beneficial interest, par value $.01 per share (the "Company Shares"), of the
Company. We understand that the Merger is intended to be accounted for under the
purchase method of accounting and intended to be completed on a tax-free basis.
You have asked us whether or not, in our opinion, the Exchange Ratio is
fair to the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Subject Company's Annual Reports, Forms 10-K and
related financial information for the two fiscal years ended
December 31, 1995, the Subject Company's Form 10-Q and the
related unaudited financial information for the nine months
ended September 30, 1996 and the prospectus, dated July 20,
1994, of the Subject Company relating to the initial public
offering of the
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Subject Company Shares;
(2) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the three fiscal years ended
December 31, 1995, the Company's Form 10-Q and the related
unaudited financial information for the nine months ended
September 30, 1996 and the prospectus, dated July 22, 1993, of
the Company relating to the initial public offering of the
Company Shares;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Subject Company and the Company, furnished to
us by the Subject Company and the Company, respectively;
(4) Conducted discussions with members of senior management of the
Subject Company and the Company concerning their respective
businesses and prospects;
(5) Reviewed the historical market prices and trading activity for
the Subject Company Shares and the Company Shares and compared
them with that of certain publicly traded companies which we
deemed to be reasonably similar to the Subject Company and the
Company, respectively;
(6) Compared the results of operations of the Subject Company and
the Company with that of certain companies which we deemed to
be reasonably similar to the Subject Company and the Company,
respectively;
(7) Compared the proposed financial terms of the transaction
contemplated by the Merger Agreement with the financial terms
of certain other mergers and acquisitions which we deemed to
be relevant;
(8) Considered the pro forma effect of the Merger on the Company's
capitalization ratios, funds from operations and cash flow;
(9) Reviewed the Merger Agreement; and
IIA-2
<PAGE>
(10) Reviewed such other financial studies and analyses and
performed such other investigations and took into account such
other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Subject
Company and the Company, and we have not assumed any responsibility to
independently verify such information. We have not assumed responsibility for
conducting a physical inspection of the properties and facilities of the Subject
Company or the Company or for making or obtaining an independent appraisal of
the assets and liabilities of the Subject Company or the Company. With respect
to the financial forecasts examined by us, we have assumed that they were
reasonably prepared and reflect the best currently available estimates and good
faith judgments of the management of the Company and the Subject Company as to
the future performance of the Company and the Subject Company, respectively, and
their respective properties; and we have assumed that the modifications made by
the Company to the Subject Company financial forecasts were reasonably made on
bases reflecting the best currently available estimates and good faith judgments
of the Company's management as to the future performance of the Subject Company
and its properties. No opinion is expressed herein as to the price at which the
Company Shares to be issued in the Merger to the shareholders of the Subject
Company may trade at any time. Our opinion is based upon regulatory, economic,
monetary and market conditions existing on the date hereof.
Our opinion is directed to the Board of Trust Managers of the Company and
does not constitute a recommendation to any shareholder of the Company as to how
any such shareholder should vote on the Merger. This opinion does not address
the relative merits of the Merger and any other transactions or business
strategies discussed by the Board of Trust Managers of the Company as
alternatives to the Merger or the decision of the Board of Trust Managers to
proceed with the Merger.
This opinion has been prepared for the Board of Trust Managers of the
Company and shall not be reproduced, summarized, described or referred to, or
given to any other person or otherwise made public, without the prior written
consent of PaineWebber Incorporated; provided, however, that this letter may be
reproduced in
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<PAGE>
full in a proxy statement/prospectus relating to the Merger.
As you are aware, PaineWebber Incorporated is currently acting as
financial advisor to the Company and will receive a fee for rendering this
opinion and will receive an additional fee upon consummation of the Merger. We
have provided financial advisory services to, and acted as an underwriter and
placement agent for, the Company in the past and may do so in the future. In the
ordinary course of our business, we may trade the equity and debt securities of
the Company and the Subject Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold long or short positions in
such securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair to the Company from a
financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
By: /s/ DAVID R. JARVIS
David R. Jarvis
Managing Director
IIA-4
<PAGE>
ANNEX II-B
[Merrill Lynch, Pierce Fenner & Smith Incorporated]
March 7, 1997
Board of Directors
Paragon Group, Inc.
7557 Rambler Road
Suite 1200
Dallas, Texas 75231
Gentlemen:
We understand that Paragon Group, Inc., a Maryland corporation (the
"Company"), Camden Property Trust, a Texas real estate investment trust
("Camden"), and Camden Subsidiary, Inc., a Delaware corporation and a direct
wholly-owned subsidiary of Camden ("Camden Sub"), have entered into an agreement
and plan of merger (the "Merger Agreement"), which provides, among other things,
for the merger (the "Merger") of the Company into Camden Sub, with Camden Sub
surviving. Pursuant to the Merger, each outstanding share of the Company's
common stock, par value $.01 per share (the "Company Shares") will be converted
into the right to receive 0.64 shares of common stock of Camden (the "Camden
Shares"). The ratio for the conversion of the Company Shares into a right to
receive the Camden Shares, as the same may be adjusted pursuant to Section
8.1(k) of the Merger Agreement, is referred to as the "Exchange Ratio."
You have asked us whether, in our opinion, the Exchange Ratio is fair to
the holders of the Company Shares from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
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<PAGE>
(1) Reviewed the Company's Annual Report, Form 10-K and related
financial information for the fiscal year ended December 31,
1995 and the Company's Reports on Form 10-Q and the related
unaudited financial information for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996;
(2) Reviewed Camden's Annual Report, Form 10-K and related
financial information for the fiscal year ended December 31,
1995 and Camden's Reports on Form 10-Q and the related
unaudited financial information for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996 as
well as the unaudited financial information for the fiscal
year ended December 31, 1996 publicly released by Camden on
February 5, 1997;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company, as well as the cost savings and
related synergies expected to result from the Merger,
furnished to us by the Company;
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of Camden, furnished to us by Camden;
(5) Conducted discussions with members of senior management of the
Company and Camden, concerning their respective businesses and
prospects;
(6) Reviewed the historical market prices and trading activity for
the Company Shares and the Camden Shares and compared them
with those of certain publicly traded companies which we
deemed to be reasonably similar to the Company and Camden,
respectively;
(7) Considered the pro forma effect of the Merger on the combined
entity's operating results and financial condition, as well as
its pro forma combined capitalization, capitalization ratios
and funds from operations;
(8) Compared the results of operations of the Company and Camden
with those of certain companies which we deemed to be
reasonably similar to the Company and Camden, respectively;
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(9) Compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the financial terms
of certain other mergers and acquisitions which we deemed to
be relevant;
(10) Reviewed the Merger Agreement dated December 16, 1996 and the
exhibits thereto; and
(11) Performed and reviewed such other financial studies and
analyses and performed such other investigations and took into
account such other matters as we deemed necessary.
In preparing our opinion, we have relied with your consent on the accuracy
and completeness in all material respects of all information supplied or
otherwise made available to us by the Company and Camden, and we have not
independently verified such information or undertaken an independent appraisal
of the assets or liabilities of the Company or Camden. With respect to the
financial forecasts furnished by the Company and Camden, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's or Camden's management as to the
expected future financial performance of the Company or Camden and as to the
cost savings and related expenses and synergies expected to result from the
Merger, as the case may be. We have assumed, at the Company's direction, that
the tax effects to the holders of Company Shares resulting from the Merger will
be immaterial. Our opinion is necessarily based upon market, economic, financial
and other conditions as they exist and can be evaluated as of the date hereof.
This opinion addresses the ownership position in the combined company to
be received by the Company's stockholders pursuant to the Merger on the terms
set forth in the Merger Agreement based upon the relative contributions of the
Company and Camden to the combined company and we express no opinion as to
prices at which the Camden Shares will trade following consummation of the
Merger or the prices at which the Company Shares or Camden Shares will trade
between the announcement and consummation of the Merger.
This opinion is addressed to the Board of Directors of the Company and
does not constitute a recommendation to any holder of Company Shares as to how
such holder should vote on the Merger.
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We have, in the past, provided financial advisory and financing services
to the Company and Camden on unrelated matters and have received fees for the
rendering of such services. We will also receive a fee for services in
connection with the Merger or any similar transaction by the Company, if it is
completed. In the ordinary course of our business, we may actively trade in the
Company Shares and the Camden Shares for our own account and for the account of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
On the basis of, and subject to, the foregoing, we are of the opinion that
the Exchange Ratio is fair to the holders of Company Shares from a financial
point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ RICHARD B. SALSTZMAN
Managing Director
Investment Banking Group
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