-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GWjEbiJuDFvIY9dbm7nxYgC3PPgtH6cKWdR6yiW1E8S+qPnU0aAcXFzTtxD4XLZ3 NtSQEFZa4Y8GY8+e2nSP6w== 0000950152-99-002252.txt : 19990325 0000950152-99-002252.hdr.sgml : 19990325 ACCESSION NUMBER: 0000950152-99-002252 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXFORD RESIDENTIAL TRUST /MD/ CENTRAL INDEX KEY: 0001053246 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 314427382 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13951 FILM NUMBER: 99570514 BUSINESS ADDRESS: STREET 1: 41 S HIGH ST STE 2410 STREET 2: 24TH CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142423850 10-K405 1 LEXFORD RESIDENTIAL TRUST 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-13951 ------------------------ LEXFORD RESIDENTIAL TRUST (Exact Name of Registrant as Specified in its Charter) MARYLAND 31-4427382 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6954 AMERICANA PARKWAY COLUMBUS, OHIO 43068 (Address of Principal Executive Offices including Zip Code) (614) 759-1566 (Registrant's Telephone Number, including Area Code)
------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON SHARES OF BENEFICIAL INTEREST, PAR VALUE $.01 PER SHARE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark X whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark X if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X As of March 16, 1999 the aggregate market value of voting stock held by non-affiliates (based on total shares outstanding reduced by the number of shares held by trustees, officers, and other affiliates) of the Registrant was $141,395,643 based on the closing price reported on the New York Stock Exchange. Indicate by check mark X whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No __ As of March 16, 1999 there were 9,551,877 common shares of beneficial interest outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 LEXFORD RESIDENTIAL TRUST FORM 10-K ANNUAL REPORT FISCAL YEAR ENDED DECEMBER 31, 1998
PAGE: ----- PART I: Item 1 Business........................................ 1 Item 2 Properties...................................... 9 Item 3 Legal Proceedings............................... 9 Item 4 Submission of Matters to a Vote of Security Holders......................................... 10 PART II: Item 5 Market for Registrant's Common Equity and Related Shareholder Matters..................... 10 Item 6 Selected Financial Data......................... 11 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations... 12 Item 7(a) Quantitative and Qualitative Disclosure About Market Risk..................................... 23 Item 8 Financial Statements and Supplementary Data..... 24 Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure............. 24 PART III: Item 10 Trustees and Executive Officers of the Registrant....................................... 24 Item 11 Executive Compensation........................... 24 Item 12 Security Ownership of Certain Beneficial Owners and Management................................... 24 Item 13 Certain Relationships and Related Transactions... 24 PART IV: Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 24 Consolidated Financial Statements and Schedules............. F-1
3 PART I This report contains forward-looking statements including, without limitation, statements concerning: prospects for future increases in rental revenues and appreciation in real property market value from investments and improvements; competitive advantages based upon experience and quality of service; potential expense savings from future operating efficiencies; business strategies; sufficiency of cash flows and liquidity to sustain planned capital expenditures, operating and distribution policy requirements; and increases in distributable cash flow available to Lexford Residential Trust as a result of proposed mortgage refinancing transactions and other opportunities. All of the forward-looking statements contained in this report represent management's good faith projections of future results and are based upon existing market, financial and economic conditions known to management. Future changes or developments in national, regional and local economic and market conditions, especially increased competition at any of these levels within the multi-family residential property industry; changing demographics in the specific locations in which apartment communities owned or managed by the Company are located; the discontinuance of the identifiable trend towards consolidation within the multi-family residential property industry generally; increase in interest rates; or increasing inflation all may operate to render the forward-looking statements contained in this report inaccurate. There can be no assurance that any of the forward-looking statements will prove to be correct. Actual results may differ and such differences may be material. ITEM 1. BUSINESS THE COMPANY Lexford Residential Trust, a Maryland real estate investment trust, together with its wholly owned and controlled partnerships, limited liability companies and corporate subsidiaries (the "Company" or "Lexford"), is a fully integrated, self-managed real estate investment trust ("REIT") which owns, manages and invests in direct or indirect ownership interests in multifamily apartment communities. The Company is the sixth largest multifamily REIT in terms of number of units with equity ownership with a strong focus in the value conscious segment of the apartment industry. As of December 31, 1998, the Company had an ownership interest in 511 apartment communities (consisting of an aggregate of 36,333 apartment units) in 16 states (individually a "Property" or "community" and collectively, the "Properties" or the "Portfolio"). At December 31, 1998 the Company owns the entire equity interest in 432 apartment communities (28,857 units) ("Rental Properties") and the Company serves as general partner, and in most cases, also owns some limited partner interest in 79 apartment communities (7,476 units) ("Unconsolidated Partnerships"). The majority of the Portfolio was constructed during the 1980s and is primarily comprised of one story garden style apartment buildings of modular construction. The Portfolio is located in urban, suburban, secondary and tertiary markets in the midwestern and southeastern United States. During 1998, the average economic occupancy of the Portfolio was 92.7% and the average monthly rent collected per occupied unit was $438. In the aggregate, Net Operating Income (before expenditures for major maintenance and replacement items) ("NOI") of the Portfolio increased approximately 4.1% over 1997 for apartment communities owned (in whole or in part) and operated at all times during the years ended December 31, 1998 and 1997 ("Same-Store") due primarily to an increase of approximately 2.9% in Rental Revenue on a Same-Store basis. 1 4 Location of Properties The table below indicates the geographic locations of apartment communities in which the Company had an ownership interest at December 31, 1998:
STATE SITES PROPERTIES UNITS - ------------------- ----- ---------- ------ Alabama 10 10 1,552 Florida 98 126 9,126 Georgia 61 73 5,404 Illinois 4 4 281 Indiana 51 70 4,415 Kentucky 27 33 2,026 Maryland 4 5 413 Michigan 21 25 1,720 North Carolina 1 1 187 Ohio 100 136 8,337 Pennsylvania 7 9 608 South Carolina 3 3 269 Tennessee 5 5 348 Texas 1 1 67 Virginia 4 4 1,211 West Virginia 4 6 369 --- --- ------ 401 511 36,333 === === ======
As of December 31, 1998, the Portfolio consists of 401 geographic sites. The Company's apartment communities average approximately 90 units per site. The difference in the number of apartment communities versus the total number of geographic sites results from separate limited partnerships owning apartment communities constructed on contiguous parcels. As a result of the Company's successful efforts in consolidating the ownership of a number of former syndicated limited partnerships the Company is causing legal entities as to which it has succeeded to the entire ownership interest to consolidate ownership of the apartment communities on contiguous parcels as and when mortgage debt secured by such Rental Properties are refinanced with a single lender. This process has resulted in a reduction in the apartment community count from 515 to 511 in 1998 and the Company anticipates further consolidation of apartment communities in the future. The Company's executive offices are located in Columbus, Ohio at 6954 Americana Parkway, Columbus, Ohio 43068. The Company's main telephone number is (614) 759-1566. On December 31, 1998, the Company employed 170 employees in its executive offices and 1,449 employees at the Properties. Common Shares The Company's common shares of beneficial interest, par value $.01 per share ("Common Shares"), are traded on the New York Stock Exchange ("NYSE") under the trading symbol "LFT". The Common Shares commenced trading on the NYSE on March 19, 1998 following the merger of the Company's predecessor, Lexford, Inc., an Ohio corporation, with and into the Company which was formed as a wholly owned subsidiary of Lexford, Inc. for the purpose of facilitating the Company's reformation as a Maryland real estate investment trust (the "Merger"). The Company became a publicly held company in 1992 as a result of the distribution of common stock to creditors pursuant to the Chapter 11 bankruptcy reorganization of the former Cardinal Industries, Inc. In connection with the bankruptcy reorganization, Cardinal Industries, Inc. changed its name to Cardinal Realty Services, Inc. ("CRSI"). CRSI registered its common stock under the Securities Exchange Act of 1934 in June 1993, pursuant to a Form 10 registration statement. From 1993 through March 1995, CRSI's common stock was traded on the OTC Bulletin Board under the trading symbol "CNRV". In March 1995, CRSI listed its common stock on the National Market Tier of the NASDAQ Stock Market(sm). In October 1997, the shareholders of CRSI approved a change of name from Cardinal Realty Services, Inc. to Lexford, Inc. Prior to the Merger, the common stock traded under the symbol "CRSI". In connection with the Merger, each share of 2 5 Lexford, Inc. common stock was converted into the right to receive two Common Shares and all Common Shares formerly owned by Lexford, Inc. (being the only other Common Shares issued at or prior to the Merger) were canceled. (SEE ITEM 5 -- "MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS"). RECENT EVENTS During calendar year 1997, the Company considered various alternative strategies with respect to its investments in the Properties and with respect to its property management and other services businesses, at the same time soliciting and receiving input from its significant shareholders, industry analysts, investment banking firms and REIT industry contacts. Management also sought the professional advice of its independent accounting firm and outside legal counsel. In August 1997, Lexford Inc.'s Board of Directors met with management and professional advisors to review strategies and the advice and recommendations received from all sources. At the August 1997 meeting of the Board of Directors, management was authorized to proceed with an analysis of electing REIT status for federal income tax purposes and engaging a financial advisor. At its Annual Meeting of Shareholders on October 7, 1997 the Company announced that it was seriously evaluating a REIT election. The Company retained Morgan Stanley & Co., Incorporated as its financial advisor on October 15, 1997. On December 19, 1997 the Company's Board of Directors determined that a REIT election and the merger of Lexford, Inc. into a Maryland real estate investment trust were in the best interests of the Company and its shareholders. Preparatory to the election of REIT status, Lexford Inc. determined in October 1997 to embark upon a program to consolidate ownership of the Unconsolidated Partnerships (the "Consolidation Program"). The Company reported the results of the Consolidation Program on Forms 8-K filed on February 17, 1998, March 2, 1998, and April 20, 1998, respectively. In the first quarter of 1998, pursuant to the Consolidation Program, the Company acquired the entire equity ownership interest in 326 Properties formerly owned by 324 Unconsolidated Partnerships. In order to effect its plan to cause a newly created Maryland real estate investment trust to succeed to the ownership of the Company's assets and the conduct of its business, Lexford Inc. created Lexford Residential Trust, a Maryland real estate investment trust, as its wholly owned subsidiary in January 1998. Lexford, Inc. and Lexford Residential Trust proceeded to file a joint proxy statement/prospectus under cover of a Form S-4 Registration Statement with the U.S. Securities and Exchange Commission ("SEC") in order to solicit proxies for the approval of the proposed Merger as well as register Lexford Residential Trust's common shares of beneficial interest under the Securities Act of 1933. The SEC declared the Form S-4 registration statement effective on January 30, 1998 and, in accordance with the joint proxy statement/prospectus, a Special Meeting of Shareholders was held on March 3, 1998. At the special shareholders meeting, the Company's shareholders approved the Merger. The Merger was effective at the close of business on March 18, 1998 and, accordingly, Lexford Residential Trust has succeeded to the ownership of the assets and the conduct of the business of Lexford, Inc. The Common Shares were listed and admitted for trading on the NYSE on March 19, 1998. Prior to its decision to elect REIT status, and through and including the first quarter of 1998, the Company was also engaged in providing management services to third party owners of multifamily apartment communities (the "Third Party Management Business"). Because of Internal Revenue Code limitations on the nature and amount of non-qualified REIT income, the Company contributed the majority of its assets related to the Third Party Management Business to a newly formed corporation in exchange for all of the preferred stock of such corporation on February 20, 1998. Effective as of April 1, 1998, the Company sold all its preferred equity interest in the Third Party Management Business. The Company has retained certain personnel dedicated to the Company's property management activities, its proprietary interest in property management training programs and systems, and management agreements for the 79 Unconsolidated Partnerships. In connection with the REIT Conversion, the Company announced a strategy to deleverage its balance sheet (i.e. reduce its total mortgage and revolving credit indebtedness, thereby improving the ratio of its total debt to its total capitalization). To implement its deleveraging strategy, the Company registered Common Shares for a secondary public offering; however, in late May 1998, immediately prior to the time the Company's Form S-3 Registration Statement filed in connection with such public offering became effective, trading volume in the 3 6 Company's Common Shares increased dramatically and market prices for the Common Shares declined precipitously. As a result of these factors, the Company's Board of Trustees and executive management determined that pursuing the offering would not be in the best interest of the Company's shareholders because the price at which the Company could issue and sell its Common Shares would be excessively dilutive to the Company's existing shareholders. On June 2, 1998, the Company filed a shelf registration statement with the SEC for the potential offering of up to 12.65 million common shares of beneficial interest. The Company intends to undertake an offering under this shelf registration depending upon market conditions and capital requirements. The costs associated with the proposed offering have been deferred pending potential share issuance under the shelf registration. In October 1997, the Company retained Morgan Stanley & Co., Incorporated ("Morgan Stanley") as its financial advisor in connection with the proposed securities offering. In July 1998, the Company reached an agreement for the termination of the engagement of Morgan Stanley as its managing underwriter for the public offering of equity securities in consideration of Morgan Stanley's exclusive right to act as the Company's financial advisor in connection with any material merger, acquisition or sale transaction involving the Company commenced on or before January 22, 2000. In connection with this termination, Morgan Stanley agreed to waive any claim for any fees or reimbursement of out of pocket costs and expenses from the Company incurred in connection with the terminated secondary public offering. In the opinion of management and the Board of Trustees, the equity capital markets for REITs have not improved such that a public offering of the Company's Common Shares is warranted at this time. For these reasons, the Company has determined to also consider other strategic alternatives to implement its goal of deleveraging its balance sheet, although it will continue to maintain its shelf registration statement in order to facilitate an expeditious offering of Common Shares in the event market conditions so warrant. No firm decision has been made at this time with respect to the advisability or implementation of any of such alternatives. In summary, during 1998 the Company invested approximately $57.0 million in the Portfolio: $34.0 million to acquire the entire equity ownership interest in 326 apartment communities in connection with the Consolidation Program and $23.0 million in major maintenance and improvements. In addition, effective with the third quarter 1998 the Company commenced paying a quarterly dividend which in the aggregate amounted to $8.2 million for 1998. The Company had originally planned to utilize funds from an equity offering as a source of partial funding for the $57.0 million investment in the Portfolio. Although the equity offering was postponed, the Company believes it still has adequate liquidity to meet ongoing operating and dividend funding requirements (SEE ITEM 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES"). THE COMPANY'S BUSINESS AND OPERATING STRATEGIES Operating and Financing Strategies for 1999 The Company's overall business objective is to maximize the total return to its shareholders and co-investors through increases in the value of the Portfolio, cash flows and earnings. The Company believes that this objective is best achieved by pursuing a strategy of being the leading provider of housing to "value-conscious" renters. The Company defines value-conscious renters as those who prefer clean, attractive living accommodations without unnecessary amenities at rental rates below the median rent in the relevant housing market. The Company seeks to serve this segment by maintaining competitively priced rental structures, as represented by its typical monthly rent that currently ranges from $350 to $550 per apartment unit. Lexford's mission is to become the dominant U.S. provider of housing to "value conscious" renters. Lexford's strategies to fulfill this mission and build shareholder value are: X A focus on markets where the Company will maintain substantial market share; X An emphasis on customer service, competitive pricing and operating margins as a low-cost operator; and X A commitment to rewarding employees for ingenuity and productivity. 4 7 Increase Revenues at Existing Properties The Company will seek to increase rental rates by continuing the capital expenditure program that it commenced in 1998 with $23.0 million of major maintenance and improvements on the Portfolio. The Company historically has been able to effectuate meaningful rental rate increases following improvements to modernize or upgrade the quality of individual Properties. For example, the performance of 183 Properties where improvements were effected following mortgage loan refinancings showed revenues from such Properties increasing 16.3% from 1995 through 1997. Following thorough analysis of the Properties and the sensitivities to rent increases in their respective locales, management identified 224 Properties (approximately 15,000 units) for which it believed disciplined capital spending would yield substantial revenue increases and attractive returns on investments. As a result of the significant level of capital expenditures in 1998 ($678 per unit), which were in large part directed toward those revenue enhancing opportunities, the Company expects to moderate expenditures for major maintenance and capital improvements in 1999 to a range of $11.0 to $13.0 million, or $335 to $395 per unit. The Company's capital improvements will be directed primarily to upgrading units as they become available for lease. During 1999, the Company will evaluate the results achieved before setting new investment targets for the year 2000 and future years. The Company believes that it is uniquely positioned to identify required improvements, and achieve favorable pricing on these expenditures, because of the homogeneous nature of the Properties and the Company's extensive database of historical capital improvements. The homogeneity of the Company's apartments enables the Company to accurately estimate useful lives of all major components (i.e. roofs, appliances, exterior paint and siding, asphalt, etc.) and the Company's database of historical capital expenditures by Property, component and year of replacement provides the Company with a useful tool to forecast capital requirements, and thus budget appropriate replacement reserves. Leverage Operating Efficiencies The Company will concentrate on controlling expenses and implementing efficiencies to increase operating margins. The Company emphasizes on-site property management and believes there are significant opportunities to improve the profitability of individual Properties. Particular attention is paid to opportunities to increase rents, raise occupancy rates and control costs, with property managers being rewarded for increases in property level net operating income through rent increases and controlling property operating expenses. The Company believes that the durability and uniformity of its Properties provide for economies and efficiencies in operating and maintenance costs. The Company seeks to manage expenses through a system of detailed management reporting and accountability. The Company also has realized significant expense reductions as a result of the Consolidation Program, which eliminated the costly and cumbersome reporting (both tax and financial), communication and in many instances, cash segregation required to administer over 400 limited partnerships with more than 7,000 third party limited partners. The Company may further seek to control expense through investment in cost-saving initiatives such as national contracting, implementation of improved technology, and the installation of individual apartment unit water and utility meters in certain locations. With its relatively low operating and maintenance costs, the Company believes it can offer competitive rents and still increase its operating margins. In 1998, the Company implemented cost saving initiatives involving the streamlining of its financial and supervisory property management operations. The Company recorded a one-time charge of approximately $1.2 million related to the closing of satellite offices, the consolidation of its two Columbus offices and severance expenses for approximately 23 employees. These cost saving initiatives represent a reduction in annual salary and benefit expense of more than $1.1 million. (SEE NOTE 10 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). Refinancing Opportunities The Company intends to take advantage of the current favorable interest rate environment to opportunistically reduce its overall cost of capital while simultaneously enhancing cash flow. Even though the Company has relatively small amounts of debt maturing in the next two years, the Company expects that it may be able to increase its Funds From Operations ("FFO") and cash flow by refinancing higher cost mortgage indebtedness 5 8 with lower rate, lower constant debt. Based upon the terms of current mortgage debt outstanding the Company believes that it can refinance debt at favorable terms and still maintain an overall prepayable debt profile of approximately 50% throughout 1999. RESULTS OF OPERATIONS Same Store Portfolio Operating Results The following table summarizes the unaudited combined operating results, on a Same Store basis, excluding management fees, other fees and interest charged by the Company, of the 496 Properties (32,898 units) in the Portfolio in which the Company has owned or maintained an ownership interest for the entire two fiscal years presented.
YEAR ENDED 1998 QUARTER ENDED DECEMBER 31, ------------------------------------------- ------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1998 1997 --------- -------- --------- -------- -------- -------- Statistical Information Average Economic Occupancy...... 91.5% 92.5% 93.0% 93.6% 92.7% 92.0% Average Physical Occupancy...... 93.2% 93.8% 94.7% 94.2% 94.0% 92.7% Average Rent/Unit/Month......... $ 440 $ 442 $ 445 $ 449 $ 444 $ 435 Average Rent Collected Per Occupied Unit/Month.......... $ 432 $ 436 $ 437 $ 446 $ 438 $ 432 Financial Information (in thousands) Revenues Rental Income................... $39,779 $40,383 $40,883 $41,442 $162,487 $157,977 Other Property Income........... 1,962 1,931 1,848 1,649 7,390 6,450 ------- ------- ------- ------- -------- -------- Total Revenues.................... 41,741 42,314 42,731 43,091 169,877 164,427 ------- ------- ------- ------- -------- -------- Expenses Property Operating and Maintenance.................. 11,607 12,781 13,098 12,944 50,430 48,485 Real Estate Taxes and Insurance.................... 3,606 3,558 3,620 3,824 14,608 15,239 ------- ------- ------- ------- -------- -------- Operating Expenses........... 15,213 16,339 16,718 16,768 65,038 63,724 ------- ------- ------- ------- -------- -------- Net Operating Income......... 26,528 25,975 26,013 26,323 104,839 100,703 Interest -- Mortgages........... 12,446 12,635 12,436 12,282 49,799 50,810 Major Maintenance & Replacements................. 723 676 1,299 1,560 4,258 4,247 Other........................... 551 158 174 207 1,090 774 ------- ------- ------- ------- -------- -------- Non Operating Expenses....... 13,720 13,469 13,909 14,049 55,147 55,831 ------- ------- ------- ------- -------- -------- Income/(Loss) After Certain expenses........................ $12,808 $12,506 $12,104 $12,274 $ 49,692 $ 44,872 ======= ======= ======= ======= ======== ======== Capital Expenditures.............. $ 2,312 $ 2,697 $ 5,758 $ 7,309 $ 18,076 $ 11,386 ======= ======= ======= ======= ======== ========
For the full year, Total Revenues increased 3.3% in 1998 as compared to 1997. Rental Revenues increased 2.9% in 1998 as compared to 1997 due to an increase in average rent collected per occupied unit, per month from $432 in 1997 to $438 in 1998, combined with an increase in physical occupancy from 92.7% in 1997 to 94.0% in 1998. Other property income increased 14.5% in 1998 as compared to 1997 as a result of increased fee revenue from products and services made available to residents. Other property income is anticipated to stabilize or decline in 1999. Operating expenses increased 2.1% in 1998 as compared to 1997. Property Operating and Maintenance increased 4.0% primarily due to the expensed portion of extensive landscaping, deferred maintenance and improvements completed in 1998. The increase in Property Operating and Maintenance was partially offset by a 4.2% decrease in Real Estate Taxes and Insurance resulting from a decrease in property insurance premiums in 1998. Capital expenditures increased from $11.4 million in 1997 to $18.1 million in 1998 as the Company 6 9 completed deferred maintenance projects and implemented its capital improvement plan to upgrade units to facilitate rent increases. Same Store Portfolio Operating Results -- by Region The Company's 496 Property Same Store Portfolio is located in four regions. In 1999, the Company will re-align the Portfolio as three regions, basically combining the Northeast and Central Regions. The Northeast region is comprised of northern and central Ohio, Pennsylvania, and West Virginia; the Central region is comprised of southern Ohio, Indiana, Kentucky and Michigan; the Mid-Atlantic region is primarily Georgia; and the Southeast region is Florida. The Company maintains ownership interests in two Properties comprised of 115 units that are not managed by the Company and are not included in the following regional information.
QUARTER ENDED YEAR ENDED ------------------------------------------- DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, ------------- 1998 1998 1998 1998 1998 1997 --------- -------- --------- -------- ----- ----- Northeast Region (8,885 units) Average Economic Occupancy.............. 92.1% 93.5% 94.0% 94.0% 93.4% 92.8% Average Physical Occupancy.............. 92.9% 94.2% 94.8% 94.3% 94.1% 93.0% Average rent/unit/month................. $ 444 $ 446 $ 450 $ 453 $ 449 $ 440 Average Rent Collected per Occupied unit/month........................... $ 440 $ 443 $ 447 $ 452 $ 445 $ 439 Central Region (9,268 units) Average Economic Occupancy.............. 92.2% 93.6% 93.5% 94.1% 93.3% 92.8% Average Physical Occupancy.............. 93.7% 94.5% 94.8% 94.7% 94.4% 93.0% Average rent/unit/month................. $ 419 $ 422 $ 425 $ 431 $ 423 $ 416 Average Rent Collected per Occupied unit/month........................... $ 410 $ 418 $ 419 $ 428 $ 419 $ 415 Mid-Atlantic Region (5,056 units) Average Economic Occupancy.............. 91.3% 90.2% 91.6% 93.0% 91.5% 91.4% Average Physical Occupancy.............. 92.7% 92.9% 94.7% 94.4% 93.7% 92.2% Average rent/unit/month................. $ 477 $ 479 $ 483 $ 487 $ 482 $ 469 Average Rent Collected per Occupied unit/month........................... $ 469 $ 465 $ 467 $ 480 $ 470 $ 464 Southeast Region (9,574 units) Average Economic Occupancy.............. 91.0% 91.9% 92.5% 93.1% 92.1% 91.0% Average Physical Occupancy.............. 93.2% 93.2% 94.6% 93.6% 93.6% 92.4% Average rent/unit/month................. $ 439 $ 441 $ 443 $ 446 $ 442 $ 432 Average Rent Collected per Occupied unit/month........................... $ 425 $ 432 $ 430 $ 441 $ 432 $ 422
Unconsolidated Partnerships The Company holds receivables from 64 of the Unconsolidated Partnerships in which the Company had an ownership interest on December 31, 1998, primarily in the form of second mortgages and advances to the Unconsolidated Partnerships. Interest payments on these receivables generate a majority of the interest income recognized by the Company. On December 31, 1998, the contractual obligations of the Unconsolidated Partnerships on account of second mortgages, advances and other payables, including related interest, was $37.5 million while the value of such receivables reflected on the Company's consolidated financial statements was $6.9 million (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The following table reflects interest income from the 64 Unconsolidated Partnerships recognized for the year ending December 31, 1998 and for over 400 Unconsolidated Partnerships for the years ended December 31, 1997 7 10 and 1996, categorized to separately indicate amounts received from operating cash flows and from excess mortgage refinancing proceeds (or release of prior escrows as a result of mortgage refinancings) (in thousands).
1998 1997 1996 ------ ------- ------ Interest Income Recurring........................................ $2,487 $10,681 $6,960 Refinancing...................................... 538 0 1,937 ====== ======= ====== Total......................................... $3,025 $10,681 $8,897 ====== ======= ======
The Company also offers products and services to residents of apartment communities, including renter's insurance, leased apartment furnishings, and on a very limited basis, telecommunications and cable television services. At December 31, 1998, approximately 30% of residents at apartment communities in which the Company has an ownership interest selected renter's insurance. The Company receives commissions from the sale of renter's insurance to residents. In order to ensure its continuing qualification as a REIT for federal income tax purposes, the Company intends (among other REIT qualification tests) to carefully monitor gross revenues derived from each individual Property as well as renter's insurance commission revenues derived from such Property in order to ensure that in no event will "non-qualified income" ever exceed one percent of the total revenues derived from any individual Property. Capitalization of Properties The Company's investment strategy includes obtaining and maintaining the best available financing for the Properties, with the goal of maximizing their operating performance and managing refinancing risk. Over the past five years, the Company has successfully negotiated long-term, non-recourse, fixed interest rate financing for approximately 96.7% of the Properties. For many of the Properties, the Company also negotiated and established escrows for property improvements, real property tax liabilities and working capital in connection with mortgage refinancing transactions. For a discussion of Property mortgage loans refinanced in 1998, SEE ITEM 7 -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES". Competition The Properties are largely comprised of apartment units made of solid, durable modular components manufactured off-site in a quality-controlled environment. The units were manufactured and shipped to be set on foundations constructed on-site at the project's final location. The units generally consist of two, three or four rooms of uniform design and dimension and are small and efficient with low-maintenance finishes. The building exteriors feature a low-pitched asphalt shingle roof, masonite siding and fenced patios. The Company believes the Properties provide a superior residential alternative to most other comparably priced apartments and an attractive residential feel through their low density, mature park-like landscaping, well-maintained lawns and gardens and multiple building single-story layouts. The average age of the apartment units in the Portfolio is 15 years. Lexford's apartment communities generally cater to a "value-conscious" resident seeking clean, attractive living accommodations without unnecessary amenities at rental rates below the median rent in the relevant housing market. The Company seeks to serve this segment by maintaining competitively priced rental rates as represented by its average monthly rents, which currently range from $350 to $550 per apartment unit, which the Company believes is typically 20-25% below the average multifamily rental rates in its markets. The average rental rate per unit for the Portfolio for the year ended December 31, 1998 was $444. The Company's Portfolio is diversified across 79 metropolitan areas throughout the Midwest and Southeast, with concentrations in Florida, Georgia, Ohio, Indiana, Michigan and Kentucky. The Company's Properties tend to be located in suburban, secondary and tertiary markets, where the Company competes locally with other apartment communities. The apartment industry is highly competitive and fragmented with numerous owners and developers competing with the Company on a national, regional and local basis. Competition for residents of apartment communities is subject to the conditions and pricing of individual units, local market conditions, the location of 8 11 the apartment community and other factors. In addition, other forms of housing, including manufactured housing communities and single family homes provide alternatives to potential residents. Nevertheless, the Company believes the geographic distribution of the Portfolio reduces the impact of any one set of local economic conditions on the Company. Environmental Phase I environmental site assessments have been completed within the last 36 months for more than one-half of the Properties in connection with mortgage refinancing transactions. None of the Phase I environmental site assessments revealed any environmental contaminant or condition that the Company believes would have a material adverse effect on the Company or the Properties. Furthermore, the Company is not aware of any such contamination or condition at any of the Properties. Because the majority of the Properties are less than twenty years old, they do not contain lead based paint or friable asbestos. Nevertheless, it is possible that there exists material environmental contamination of which the Company is unaware. Tax Status The Company intends to elect to be taxed as a REIT under section 856(c) of the Internal Revenue Code of 1986, as amended (the "Code") effective for the tax year ending December 31, 1998. As a result, the Company generally will not be subject to Federal income tax to the extent it distributes 100% of its REIT taxable income to its shareholders. REIT's are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any year, any taxable income the Company generates may be subject to income tax at regular corporate rates (including any applicable alternative minimum tax). ITEM 2. PROPERTIES The Company maintains ownership interests in the Rental Properties and the Unconsolidated Partnerships (SEE ITEM 1 -- "BUSINESS"). The Company has executive and administrative offices, financial operations and a portion of property operations located in 36,120 square feet of space within a single-story office building at 6954 Americana Parkway, in Columbus, Ohio. The Company entered into a lease for the building with Americana Investment Company (an entity affiliated with an outside Trustee of the Company who did not participate in the negotiations for the Company's lease -- SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" IN THE COMPANY'S PROXY STATEMENT FOR ITS 1999 ANNUAL SHAREHOLDERS MEETING INCORPORATED IN PART III OF THIS FORM 10-K BY REFERENCE) in late 1992. This lease was amended and restated in February 1998 with provisions for the current premises (representing a reduction in the former leasehold space), a remodeling and rehabilitation allowance and a seven year term beginning September 1, 1998. Management believes that the lease terms are competitive with commercial lease rates in the Columbus market. In December 1998, the Company announced its plans to close all other satellite property management and executive offices. Since December 1998, the Company has successfully terminated its leasehold interest and respective obligations for its former regional property management offices located in Orlando, Florida and San Antonio, and Houston, Texas. Also, in April 1998, the Company entered into an assignment and assumption transaction in connection with the sale of the Third Party Management Business pursuant to which the buyer of the Third Party Management Business assumed the Company's obligations for its leasehold interests in its former property management offices in suburban Dallas, Texas. ITEM 3. LEGAL PROCEEDINGS On March 7, 1996, the Company filed suit against Hartford Fire Insurance Company ("Hartford") in the United States District Court for the Middle District of Florida, in a case captioned Cardinal Realty Services, Inc. v. Hartford Fire Insurance Co., Case No. 96-458-CIV T-24A. In that case, the Company sought to recover excess property damage insurance claims from Hartford, pursuant to an excess property insurance policy issued to the Company by Hartford, for termite-related losses at approximately 150 Properties in which the Company holds (or formerly held) an interest. The termite related losses are the same as those which formed the subject matter of 9 12 prior litigation against the Company's former primary insurance carrier, National Union Fire Insurance Company, in which the Company arrived at a mutual settlement. Hartford's insurance policy provided coverage for such losses to the extent they constituted a "single occurrence" within the meaning of the policy and exceeded $25 million. On October 30, 1998, the Company reached a settlement in its lawsuit against Hartford. Pursuant to the terms of the settlement agreement the Company, in its capacity as general partner of limited partnerships that own Rental Properties and Unconsolidated Partnerships and as agent for parties that have purchased apartment communities formerly owned by Unconsolidated Partnerships, has received a cash payment in the gross amount of $3,075,000 and has paid contingency legal fees of $975,000 from the settlement proceeds. The net proceeds of the settlement have been allocated among the properties (including those owned by third parties) based upon the extent of the termite damage at each such property. The Company's portion of the proceeds from the settlement will be utilized to offset costs incurred or to be incurred for termite repairs. The Company is party to a number of other litigation matters arising in the ordinary course of business, none of which is material or represents any significant potential impact upon the Company or its financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Commencing on March 19, 1998, the Company's Common Shares began trading on the NYSE under the trading symbol "LFT". In 1998 (through March 18), 1997 and 1996, Lexford, Inc.'s common stock traded on the National Market tier of the Nasdaq Stock Market(sm) under the trading symbol "CRSI". On December 31, 1998, there were approximately 1,236 record holders of the Company's Common Shares. The following table sets forth the high and low sale prices of the Common Shares for the periods indicated as adjusted for the two for one share exchange effected in connection with the merger of Lexford, Inc. with and into the Company.
1998 DIVIDENDS 1997 DIVIDENDS --------------- PER --------------- PER HIGH LOW SHARE HIGH LOW SHARE ------ ------ --------- ------ ------ --------- First Quarter............................. $20.63 $16.88 n/a $13.38 $10.25 n/a Second Quarter............................ 23.25 18.44 n/a 13.00 11.63 n/a Third Quarter............................. 20.75 17.38 $0.4325 14.13 10.94 n/a Fourth Quarter............................ 19.75 16.63 $0.4325 17.25 13.57 n/a
The Company's transfer agent is: Fifth Third Bank Fifth Third Center 38 Fountain Square MD 1090D2 Cincinnati, Ohio 45263 In 1998, the Company declared dividends of $0.4325 per share for each of the quarters ending September 30, and December 31, 1998. The Company has instituted a policy of paying a quarterly dividend approximately 15 days after the close of each calendar quarter. The Company's dividend policy is subject to modification by the Company's Board of Trustees. Prior to 1998, the Company had not paid dividends since it became a public reporting company. Until August 1995, the Company's ability to pay dividends was subject to a prohibition contained in its financing arrangements. The terms of the Company's current credit facility provided by The Provident Bank generally does not restrict the payment of dividends. (SEE ITEM 7 -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES.") 10 13 ITEM 6. SELECTED FINANCIAL DATA The information below should be read in conjunction with the CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND ITEM 7 -- "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The unaudited tables set forth below provide a variety of statistical information about the Company. In 1998 the Company completed the acquisition of 326 Rental Properties formerly owned by Unconsolidated Partnerships and intends to elect REIT status (SEE ITEM 1 -- "BUSINESS" - RECENT EVENTS). Based on these events the financial information for the year ended December 31, 1998 is not comparable to prior years. The Company believes that Funds from Operations and earnings before interest, income taxes, depreciation, amortization and extraordinary items ("EBITDA") are significant indicators of the Company's performance. Funds from Operations (or "FFO") is calculated in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 (net income (loss) in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and after similar adjustments for unconsolidated partnerships and joint ventures), further adjusted by the Company to eliminate expenses attributable to certain non-cash Common Share awards and compensation, Loss on the Sale of the Third Party Management Business, Real Estate Impairment Loss and certain non-recurring expenditures. Neither FFO nor EBITDA represents cash flow as defined by GAAP, and neither necessarily represents amounts of cash available to fund the Company's cash requirements. FFO and EBITDA should not be considered as an alternative to net income as an indication of the Company's performance or to cash flow as a measure of liquidity (in thousands, except for per share amounts):
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1998 1997 1996 1995(1) 1994(1) -------- -------- -------- -------- -------- Operating Revenue......................... $146,505 $ 69,049 $ 64,317 $ 23,676 $ 22,600 ======== ======== ======== ======== ======== Inc/(Loss) before Extraordinary Item...... $ (5,532) $ 3,386 $ 5,370 $ 4,293 $ 3,944 Extraordinary Item........................ $ 631 $ (180) $ (1,614) $ 804 $ 3,156 -------- -------- -------- -------- -------- Net Income/(Loss)......................... $ (4,901) $ 3,206 $ 3,756 $ 5,097 $ 7,100 ======== ======== ======== ======== ======== EBITDA(2)................................. $ 58,912 $ 26,529 $ 29,531 $ 24,600 $ 24,752 ======== ======== ======== ======== ======== Funds From Operations..................... $ 28,688 n/a n/a n/a n/a ======== ======== ======== ======== ======== Basic Earnings Per Share Income before Extraordinary Item........ $ (0.60) $ 0.42 $ 0.71 $ 0.59 $ 0.56 Extraordinary Item...................... 0.07 (0.02) (0.21) 0.11 0.45 -------- -------- -------- -------- -------- Net Income/(Loss)....................... $ (0.53) $ 0.40 $ 0.50 $ 0.70 $ 1.01 ======== ======== ======== ======== ======== Diluted Earnings Per Share Income before Extraordinary Item........ $ (0.60) $ 0.41 $ 0.69 $ 0.56 $ 0.52 Extraordinary Item...................... 0.07 (0.02) (0.21) 0.11 0.42 -------- -------- -------- -------- -------- Net Income/(Loss)....................... $ (0.53) $ 0.39 $ 0.48 $ 0.67 $ 0.94 ======== ======== ======== ======== ======== Cash Dividends Declared per Common Share................................... $ 0.87 N/A N/A N/A N/A ======== ======== ======== ======== ======== Balance Sheet Data: (At period end) Total Assets.............................. $628,922 $241,598 $245,368 $239,399 $236,729 Long-Term Debt............................ 527,742 149,999 163,319 170,112 168,159 Shareholders' Equity...................... 59,182 74,847 62,509 51,246 43,248
The earnings per share amounts prior to 1997 have been restated for a two for one share exchange and as required to comply with Statement of Financial Accounting Standards No. 128, Earnings Per Share (SEE NOTE 15 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). 11 14 (1) The Company, during 1995 and prior years, classified the Rental Properties as Held for Sale. While the Rental Properties were Held for Sale, the results of operations from the Rental Properties were credited to the carrying value of the real estate and no revenues, expenses or depreciation were included in the Consolidated Statements of Income. Commencing in 1996, the Company changed the classification of the Rental Properties and fully consolidated the operations of the Rental Properties in the Company's Consolidated Statement of Income. (2) EBITDA for the years ended December 31, 1995 and 1994 includes the funds from operations of the Rental Properties during the period such Properties were Held for Sale. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. (SEE ITEM 1 -- "BUSINESS" AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). RESULTS OF OPERATIONS Comparison of Results of Operations for the Years ended December 31, 1998 and 1997 Rental and Other Property Revenues are derived from the Rental Properties which own and operate apartment communities. Rental and Other Property Revenues increased approximately $96 million, or 230% in 1998 as compared to 1997. The majority of the increase, $95.5 million, is related to the acquisition of 326 Rental Properties formerly owned by 324 Unconsolidated Partnerships in 1998. On a comparable unit basis (111 Rental Properties in operation for both periods), the average monthly rent collected per occupied unit increased from $429 in 1997 to $439 in 1998. Rental Revenues are directly related to the occupancy and level of rents collected at the properties owned by the Company. For the past three years the Company has maintained occupancy, on average, above 90% at the Properties owned by the Company. The Company's ability to obtain rental increases and maintain occupancy are highly dependent upon market conditions, the physical condition of the Properties and the competitive environments affecting such Properties. The Properties are subject to all operating risks common to residential apartments in general. Such risks include, without limitation: competition from other apartments, excessive building of comparable properties or increases in unemployment in the areas where the apartment communities are located, any of which might adversely affect apartment occupancy or rental rates; increases in operating costs due to inflation and other factors, which increases may not necessarily be offset by increased rents; the inability or unwillingness of residents to pay rent increases; and future enactment of rent control laws or other laws regulating multi-family housing, including present and possible future laws relating to access by physically impaired persons. Fee Based Revenues no longer represent a material source of revenues for the Company as a result of the Consolidation Program and the sale of the Third Party Management Business (see the discussion following the tabular presentation below). Fee based revenues are comprised of management services and investment management revenues generated from services provided to Unconsolidated Partnerships, third party owners (for periods through the first quarter of 1998) and residents at the Properties. Management services revenues principally relate to property management and accounting services provided to the Unconsolidated Partnerships and third party property owners (SEE NOTE 6 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The Company also provides ancillary services to the Unconsolidated Partnerships, including a discount group buying program and laundry services. The Company enters into group buying, volume discount contracts with major vendors as agent for the Unconsolidated Partnerships and receives a discount from vendors for every purchase made through the program. The Company has also entered into a master lease agreement with a national operator of laundry rooms whereby the Company receives a rebate from residents' use of laundry equipment. Investment manage- 12 15 ment revenues consist of partnership administration fees as well as fees generated from loan refinancing and restructuring. The following are the major components of management services revenues and investment management fee based revenues for 1998 as compared to 1997. Certain amounts previously reported have been reclassified herein between Property Management Services and Ancillary Services for all periods presented (in thousands):
1998 1997 ------ ------- Management Services: Property Management Services Unconsolidated Partnerships........................... $3,508 $ 9,419 Third Party........................................... 601 4,194 Ancillary Services....................................... 1,036 1,639 ------ ------- Total Management Services Revenues......................... 5,145 15,252 ------ ------- Investment Management: Partnership Administration and Other Fees................ 291 1,134 Loan Refinancing and Restructuring Fees.................. 96 131 ------ ------- Total Investment Management Fee Revenues................... 387 1,265 ------ ------- Total Fee Based Revenues................................... $5,532 $16,517 ====== =======
Fee Based Revenues decreased approximately $11 million, or 67%, in 1998 as compared to 1997. The decrease was primarily due to the elimination of fee based revenues related to the acquisition of the 324 former Unconsolidated Partnerships in 1998, partially offset by management fees generated from management agreements on 14 Unconsolidated Partnerships. The Company originated these management agreements in December 1997. In addition, the sale of the Third Party Management Business resulted in a net decrease in third party management fees of approximately $3.6 million from 1998 to 1997. Ancillary Services revenues decreased approximately $603,000 from 1998 to 1997. The decrease was due to the classification of vendor rebates on purchases made by the 326 Rental Properties formerly owned by Unconsolidated Partnerships from and after the implementation of the Consolidation Plan as an offset to maintenance expense instead of revenues from services provided to Unconsolidated Partnerships. Fee Based Revenues are dependent to a certain extent on the financial condition of the Properties owned and managed by the Company and the Company's ability to retain its ownership interests, typically as managing general partner. Loss of this interest, due to an increase in interest rates or an inability to refinance matured loans, could have an adverse impact on Fee Based Revenues; however, almost all Properties owned by Unconsolidated Partnerships are subject to single asset non recourse mortgage financing. Income from Unconsolidated Partnerships decreased approximately $7.7 million, or 71.7%, in 1998 as compared to 1997. This income is primarily derived from the interest collected or accrued on the recorded value of Investments in and Advances to Unconsolidated Partnerships (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The decrease in Income from Unconsolidated Partnerships was due to the consummation of the Consolidation Program in 1998 and the corresponding reclassification of recorded values of $47.3 million from Investments in and Advances to Unconsolidated Partnerships to Rental Properties (SEE NOTE 2 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). Property Operating and Maintenance expense increased approximately $32.9 million, or 262%, in 1998 as compared to 1997. The majority of the increase is related to the consummation of the Consolidation Program in 1998. On a comparable unit basis, Property Operating and Maintenance expense from the 111 Rental Properties in operation for both periods increased approximately $1.5 million or 11.7%, in 1998 as compared to 1997. Factors contributing to the increase include a write-down of approximately $400,000 in insurance claim receivables in the first quarter of 1998 and an increase in payroll and other operating expenses of approximately $534,000 primarily related to exterior landscaping and maintenance, with the balance related to normal inflationary increases in expenses. 13 16 Real Estate Taxes and Insurance expense increased approximately $7.3 million, or 180%, in 1998 as compared to 1997. The increase was due to the consummation of the Consolidation Program in 1998. Real Estate Taxes and Insurance expense from the 111 Rental Properties in operation for both periods decreased approximately $292,000, or 7.2%, in 1998, as compared to 1997. The decrease resulted from reduced insurance premiums upon the renewal of insurance policies, which also benefited Unconsolidated Partnerships and the newly acquired Rental Properties. Property Management expense decreased approximately $3.4 million, or 21.3%, in 1998 as compared to 1997. Property Management expense decreased primarily due to the sale of the Third Party Management Business effective April 1, 1998 (SEE NOTE 6 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The Company records Property Management expense for all Properties under management, including all Unconsolidated Partnerships and Rental Properties. While there can be no assurance, management anticipates further reduction in Property Management expenses for its 1999 fiscal year as a result of the closing of satellite offices and reduction in total property management supervisory employees effected in connection with the Company's December 1998 cost saving initiative (SEE ITEM 1 "BUSINESS" -- THE COMPANY'S BUSINESS AND OPERATING STRATEGIES -- LEVERAGE OPERATING EFFICIENCIES). Administration expense increased approximately $1.4 million, or 28.4%, in 1998 as compared to 1997. The increase in administration expense was primarily due to the following: an increase of approximately $452,000 in 1998 as compared to 1997 related to the creation of an Acquisition and Disposition Department in 1998; an increase of approximately $563,000 in 1998 as compared to 1997 related to salary, share compensation and relocation for two new executives; an increase of approximately $293,000 in 1998 as compared to 1997 related to facility costs for the Company's separate executive offices opened in September 1997, offset by lower facility costs included in Property Management; and the reclassification of certain continuing employee related expenses from Property Management to Administration expense. Performance Equity Plan expense represents the non-cash charge recorded based upon vesting of the remaining Common Shares awarded under the 1997 Performance Equity Plan, approved by the Company's shareholders at the Company's 1997 Annual Shareholders Meeting. (SEE NOTE 8 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). Non-recurring Costs in 1998 of approximately $2.7 million were up from approximately $828,000 in 1997. Approximately $1.6 million of the 1998 charge related to the Company's Non-Employee Trustee Retirement Plan ("Trustee Retirement Plan") for four non-employee Trustees who retired April 15, 1998. Each retiring Trustee received a package consisting of the right to receive a cash payment of $225,000 (the "Retirement Payment"), vesting of all non-vested Common Share awards and the opportunity to continue participation in the Company's Executive Deferred Compensation Plan and Rabbi Trust for up to five years. The retiring Trustees were also afforded the opportunity to defer receipt of all or any portion of the Retirement Payment and direct that the deferred portion be contributed to the Rabbi Trust and invested in the Company's Common Shares for their benefit. In connection with their participation in the Trustee Retirement Plan, two of the retiring Trustees elected to defer receipt of a total of $400,000 of Retirement Payments in such manner. The remaining $1.1 million of Non-recurring Costs relates to severance costs associated with 23 terminated employees, and costs related to the closing of satellite offices. The positions were eliminated as part of a cost saving initiative implemented in 1998. The majority of the charge was incurred in the fourth quarter of 1998 (SEE ITEM 1 "BUSINESS" -- THE COMPANY'S BUSINESS AND OPERATING STRATEGIES -- LEVERAGE OPERATING EFFICIENCIES). Interest expense for mortgages on the Rental Properties increased approximately $27.5 million in 1998 as compared to 1997. The majority of the increase was due to the consummation of the Consolidation Program in 1998. On a comparable unit basis, Interest Expense from the 111 Rental Properties in operation for both periods remained relatively constant. Interest Expense on the Company's revolving and term credit line increased approximately $1.0 million in 1998 as compared to 1997, due to the increase in the principal amount outstanding, primarily related to the funding of the Consolidation Program. Depreciation and Amortization expense increased approximately $15.0 million in 1998 as compared to 1997. The increase is due to a $300,000 write-off of the value of a land lease and approximately $14.4 million related to depreciation on the Properties acquired pursuant to the Consolidation Program in 1998. 14 17 Real Estate Impairment Loss was approximately $1.0 million in 1998. Based upon management's intent to dispose of a Rental Property, the Company determined that an asset with a carrying value of $1.7 million was impaired and recorded the loss in accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FASB 121"). (SEE NOTE 7 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). In December 1998, the Company consented to an insubstance foreclosure to the mortgagee of this Rental Property and thereupon recorded a $1.0 million extraordinary gain. (SEE "INCOME /(LOSS) BEFORE EXTRAORDINARY ITEM"). Loss on Sale of Third Party Management Business was $6.3 million in 1998. Due to the non-qualifying REIT income generated by the Third Party Management Business, the Company classified this business as Held for Sale in the first quarter of 1998 and closed the sale of the business effective as of April 1, 1998. The Company, however, retained management agreements for 15 apartment communities acquired in December 1997, Lexford Properties, Inc.'s training programs, property management systems and certain of its personnel to facilitate improved management of the Company's Properties. As a result of the decision to sell and in order to facilitate such sale of the Third Party Management Business, the Company took the following actions: The original merger agreement for the acquisition of Lexford Properties, Inc. (the former owner of the Third Party Management Business) included a provision that approximately $9.0 million, or 900,000 Common Shares (valued at the time of acquisition in 1996), of the purchase price was subject to forfeiture in whole or in part in the event the Third Party Management Business did not achieve certain profitability criteria by December 31, 1999. On March 13, 1998, the Company negotiated a settlement with the prior shareholders of Lexford Properties, Inc. whereby 300,000 of the 900,000 Common Shares subject to forfeiture were released in exchange for the forfeiture of the remaining 600,000 Common Shares. The release of the 300,000 Common Shares resulted in a $3.0 million charge in the first quarter of 1998. The Company adjusted the carrying value of goodwill associated with the original acquisition of the Third Party Management Business by writing off $2.0 million of goodwill. Due to the reclassification of the Third Party Management Business as Held for Sale, the Company recorded a $1.3 million reserve for sale/disposal costs associated with this sale. Lexford Properties, Inc. formed a subsidiary, Lexford Property Management, Inc. ("LPM"), and contributed all of its interests in its management contracts for multifamily apartment communities owned entirely by third parties to LPM in exchange for all of LPM's issued and outstanding preferred stock. Effective as of April 1, 1998, the Company sold its entire preferred stock interest in LPM to a company formed to acquire the Third Party Management Business by FSC Realty, LLC, a company affiliated with Stanley R. Fimberg, a consultant to, and Trustee of, the Company at the time of the sale, Ralph V. Williams, a consultant to the Company at the time of the sale and Bruce Woodward, an executive officer of Lexford Properties, Inc. at the time of the sale. As a result of the sale, each of Messrs. Fimberg, Williams and Woodward severed their respective consulting and employment relationships with the Company. Mr. Fimberg remains a Trustee of the Company. Each of Messrs. Fimberg, Williams and Woodward were also former beneficial equity owners of Lexford Properties, Inc. prior to the Company's original acquisition of the Third Party Management Business in August 1996. The Company received a promissory note in the principal amount of $1.8 million payable over a ten year period which bears interest at 6% per annum until April 1, 2000 and 11% per annum thereafter, in exchange for all of the outstanding preferred stock of LPM. Mr. Fimberg did not participate in the Company's decision to sell the Third Party Management Business. Management believes that the terms for the sale of the Third Party Management Business are representative of terms which would have been available from an unrelated purchaser. Gain on Disposal of Assets - Net decreased approximately $1.5 million in 1998 as compared to 1997. This income is derived from the disposition of miscellaneous assets. Gain on Disposal of Assets is not a recurring, long-term source of revenue. Income/(Loss) before Extraordinary Item was a loss of $5.5 million in 1998 as compared to income of $3.4 million in 1997. As a result of the Company's decision to elect REIT status, the consummation of the 15 18 Consolidation Program and the charges incurred with the sale of the Third Party Management Business, Income before Extraordinary Item in 1998 is not comparable to prior years. The extraordinary gain of approximately $631,000 in 1998, was comprised of a $1.0 million extraordinary gain related to the Company consenting to an insubstance foreclosure to the mortgagee on a Rental Property (SEE "REAL ESTATE IMPAIRMENT LOSS"), and mortgage debt refinancings on certain Rental Properties (SEE NOTE 7 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND "LIQUIDITY AND CAPITAL RESOURCES -- FINANCING AND DEBT RESTRUCTURING OF THE PROPERTIES"). The extraordinary charge in 1997 of approximately $180,000, net of income tax benefit was a result of mortgage debt refinancings on certain Rental Properties. Comparison of Results of Operations for the Years ended December 31, 1997 and 1996 Rental and Other Property Revenues increased approximately $574,000, or 1.4%, in 1997 as compared to 1996. The increase was primarily due to the increase in average rent collected from occupied units from $420 in 1996 to $429 in 1997. The average economic occupancy of the 111 Rental Properties in operation at all times during 1996 and 1997 was 92.4% in 1996 compared to 91.6% in 1997. Economic occupancy is defined as the amount of revenue collected from residents as a percentage of the revenue a property could generate if full rents for all units were collected. Fee Based Revenues are comprised of Property Management Services and Investment Management Revenues generated from services provided to Properties and residents at the Properties. In 1997 and 1996 (as reclassified), the Company classified revenues received from the conduct of its group discount buying program (1997), parts sales (1996) and provision of goods and services to residents as "Preferred Resource" revenues. The following are the major components of Management Services Revenues and Investment Management Revenues for 1997 as compared to 1996. Certain amounts previously reported have been reclassified herein between Management Services and Ancillary Services for all periods presented (in thousands):
1997 1996 ------- ------- Management Services: Property Management Services Unconsolidated Partnerships............................ $ 9,419 $ 9,296 Third Party............................................ 4,194 2,135 Ancillary Services........................................ 1,639 828 ------- ------- Total Management Services Revenues.......................... 15,252 12,259 ------- ------- Investment Management: Partnership Administration and Other Fees................. 1,134 1,132 Loan Refinancing and Restructuring Fees................... 131 752 ------- ------- Total Investment Management Fee Revenues.................... 1,265 1,884 ------- ------- Total Fee Based Revenues.................................... $16,517 $14,143 ======= =======
Fee Based Revenues increased approximately $2.4 million, or 16.8%, in 1997 as compared to 1996. The increase was primarily due to the inclusion in 1997 of a full year of revenues from the operations of Lexford Properties, a third party property management company, which was acquired on August 1, 1996. The approximate $160,000 decrease in income derived from Furniture Leasing and Renter's Insurance activities from 1996 to 1997 was more than offset by approximately $303,000 of income generated from the volume discount/rebate program instituted by the Company in 1996 in connection with purchases by the Properties. The substantial completion of major debt refinancing efforts by the Company in 1996 resulted in the decrease of approximately $621,000 in Loan Refinancing and Restructuring Fees. Income from Unconsolidated Partnerships increased $1.8 million, or 20%, in 1997 compared to 1996. This income is primarily derived from the interest collected or accrued on the recorded value of Investments in, and Advances to, Unconsolidated Partnerships. (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). The increase in interest income derived from cash generated by Property operations was approximately 53% over the same periods, as approximately $1.9 million of 1996 interest income was generated from the excess proceeds 16 19 derived from mortgage refinancing transactions effected by Unconsolidated Partnerships. Although the interest income generated from excess refinance proceeds is not recurring, Income from Unconsolidated Partnerships was favorably impacted in 1997, and may be favorably impacted in the future, by the lower debt service as a result of the refinancing transactions completed in 1996 and prior years. The increase in 1997 was a result of improved cash flow due to improved operating performance of the Unconsolidated Partnerships and lower debt service requirements on mortgage debt refinanced in prior years. Gain on Disposal of Assets -- Net increased approximately $1.0 million, or 106.6%, in 1997 as compared to 1996. This income is derived from the net disposition proceeds in excess of the aggregate recorded value of these assets. Additional income from the disposal of assets may be recognized in the future, although it is not a significant long term source of revenue for the Company. Property Operating and Maintenance expense decreased approximately $1.5 million in 1997 as compared to 1996. The majority of the decrease is due to the capitalization of certain furniture and fixture replacements previously expensed. In the third quarter of 1997, management reviewed its replacement maintenance costs and determined that certain expenditures had a longer useful life and did not require as frequent replacement. These items will now and in the future be capitalized and depreciated over an estimated useful life of five years. Management believes that the revised capitalization policy (which by virtue of a third quarter adjustment has been applied effective as of January 1, 1997) is more like that of its industry peers, most of which are REITs. The Company has announced its intention to elect REIT status for federal income tax purposes beginning with its 1998 fiscal year. Real Estate Taxes and Insurance expense remained relatively constant and decreased approximately $88,000, or 2.1%, in 1997 as compared to 1996. Property Management expenses increased approximately $3.6 million in 1997 as compared to 1996. The increase was primarily related to the inclusion in 1997 of a full year of expenses for the Third Party Management Business, which was acquired effective August 1, 1996. Administration expenses decreased approximately $136,000 in 1997 compared to 1996. The decrease relates to expense reductions implemented during 1997 as described in non-recurring costs. Performance Equity Plan expense represents the non-cash charge recorded upon the vesting of 424,000 shares under the 1997 Performance Equity Plan which was approved by the Company's shareholders at the Company's 1997 Annual Shareholders Meeting. An additional 212,000 Common Shares issued under such Plan remained subject to forfeiture at December 31, 1997 pending the satisfaction of vesting criteria at or prior to the end of fiscal year 1999. The Performance Equity Plan vesting criteria has been subsequently satisfied at December 31, 1998. Non-recurring Costs in 1997 of $828,000 were up from $243,000 in 1996. Approximately $400,000 of the charge was due to costs related to the elimination of overlapping functions between Lexford Properties and the Company's previous management services operations. In the second half of 1997 the Company recorded a charge of approximately $428,000 primarily related to costs incurred for the Form S-11 filing for the proposed spin off of the Company's Rental Properties. The Company withdrew this filing as it determined to maintain its ownership interests in the Rental Properties and elect REIT status under the Internal Revenue Code. Interest expense for mortgages on the Rental Properties decreased approximately $362,000 in 1997 as compared to 1996. The decrease in interest expense was due to the refinancing transactions completed in late 1996. Interest expense on the Company's revolving credit and term debt facility decreased approximately $441,000 in 1997 compared to 1996. The decrease was due to lower outstanding balances on the lines: $7.4 million was outstanding at December 31, 1997, compared to $15.3 million at December 31, 1996. Depreciation and Amortization Expense increased approximately $1.0 million in 1997 as compared to 1996. The increase is due to the amortization of goodwill and management contracts associated with the acquisition of the Third Party Management Business and depreciation associated with the items capitalized as discussed above in "Property Operating and Maintenance". In addition, in 1997 the Company recorded a charge of approximately $364,000 as an amortization adjustment to the value assigned to the third party management contracts acquired in 17 20 1996. The adjustment was based upon the significant decline in the number of third party property management contracts. Income before Extraordinary Item decreased from $5.4 million in 1996 to $3.4 million in 1997. The extraordinary charges in 1997 of approximately $180,000, and in 1996 of $1.6 million, net of income tax benefit, were both a result of mortgage debt refinancing on certain Rental Properties (SEE NOTE 7 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). Both Income before Extraordinary Item and Net Income were negatively impacted by the non-cash charge recorded upon the vesting of 424,000 Common Shares under the Company's 1997 Performance Equity Plan, as discussed above under "Performance Equity Plan". Before giving effect to that charge, Net Income for 1997 would have increased 86.9% over 1996. After the charge, 1997 Net Income declined about $550,000, or 14.7%, to $3.2 million, from $3.8 million in 1996. In addition, Earnings Per Share calculations were significantly impacted by the Performance Equity Plan and the vesting of awards of Common Shares under employment agreements and other incentive plans. Before giving effect to the charge for the Performance Equity Plan and the dilutive effect of the associated Common Shares, Basic and Diluted Earnings Per Share would have been $.88 and $.86, respectively, an increase of 76% and 79% over 1996. After the charge and dilutive effect of the Common Shares, Basic and Diluted Earnings Per Share for 1997 declined to $.40 and $.39, respectively, from $.50 and $.48, respectively for 1996. Funds from Operations Funds from Operations ("Funds from Operations" or "FFO") is calculated in accordance with the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 (net income (loss) in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and after similar adjustments for unconsolidated partnerships and joint ventures)), further adjusted by the Company to eliminate expenses attributable to certain non-cash share awards and compensation, Loss on the Sale of the Third Party Management Business, Real Estate Impairment loss and certain non-recurring expenditures. In addition to cash flows and net income, management considers FFO to be an additional measure of the 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 an entity to fund acquisitions and other capital expenditures and to make distributions to shareholders. However, FFO does not measure whether cash flow is sufficient to fund all of an entity's cash needs including principal amortization, capital improvements and distributions to shareholders. FFO does not represent cash actually made available to investors during any particular period. FFO also does not represent cash flows provided by (used in) operating, investing or financing activities as determined in accordance with GAAP. FFO should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flows as a measure of liquidity. Further, FFO as disclosed by other REITs may not be comparable to FFO per the Company's calculation. FFO for the years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996 ------- ------- ------- Net Income / (Loss).............................. $(4,901) $ 3,206 $ 3,756 ------- ------- ------- Real Estate Depreciation....................... 19,688 4,806 4,541 Gain on Disposal of Assets..................... (498) (1,989) (963) Non-Cash Stock Compensation.................... 4,895 7,400 326 Non-Recurring Items............................ 2,033 828 243 Loss on Sale of Third Party Management Business.................................... 6,300 -- -- Reserve for Non-Operating Receivables.......... 400 -- -- Amortization associated with Land Lease and Goodwill.................................... 388 233 208 Real Estate Impairment Loss.................... 1,014 -- -- Extraordinary Item............................. (631) 180 1,614 Provision for Income Taxes..................... -- 2,189 3,416 ------- ------- ------- Funds from Operations....................... $28,688 $16,853 $13,141 ======= ======= =======
18 21 FFO increased approximately $11.8 million, or 70.2% in 1998 as compared to 1997, principally due to the consummation of the Consolidation Program in 1998. Accordingly, management does not consider a comparison of FFO for the year ended December 31, 1998 to prior years to be meaningful. Earnings before Interest, Taxes, Depreciation and Amortization The Company believes that earnings before interest, income taxes, depreciation, amortization and extraordinary items ("EBITDA"), Recurring EBITDA (EBITDA less Loan Fees and as adjusted for Non-recurring items) and Adjusted EBITDA (Recurring EBITDA plus principal payments in respect of receivables received from Unconsolidated Partnerships less interest on Rental Property mortgage debt) are significant indicators of the strength of its results. EBITDA is a measure of a Company's ability to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures, including expenditures for acquisitions. EBITDA does not represent cash flow as defined by GAAP and does not necessarily represent amounts of cash available to fund the Company's cash requirements. EBITDA and the computations of Recurring EBITDA and Adjusted EBITDA for the years ended December 31, 1998, 1997 and 1996 is as follows (in thousands):
1998 1997 1996 ------- ------- ------- EBITDA...................................................... $58,912 $26,529 $29,531 ------- ------- ------- Interest Income derived from refinance proceeds........... 0 0 (1,936) Gain on Disposal of Assets................................ (498) (1,989) (963) Loan Fees................................................. (96) (130) (752) Performance Equity Plan................................... 2,488 6,280 0 Loss on Sale of Third Party Management Business........... 6,300 0 0 Real Estate Impairment Loss............................... 1,014 0 0 Reserve of non-operating Property Receivable.............. 400 0 0 Non-recurring Costs....................................... 2,685 828 243 ------- ------- ------- Recurring EBITDA............................................ 71,205 31,518 26,123 ------- ------- ------- Interest on Rental Property Mortgage debt................. (41,268) (13,770) (14,132) Second Mortgage Principal Amortization.................... 741 972 0 ======= ======= ======= Adjusted EBITDA............................................. $30,678 $18,720 $11,991 ======= ======= =======
EBITDA increased $32.4 million, or 122.1%, and Adjusted EBITDA increased $12.0 million, or 63.9%, in 1998 as compared to 1997. The increases were principally due to the consummation of the Consolidation Program. EBITDA decreased $3.0 million, or 10.2%, and Adjusted EBITDA increased $6.7 million, or 56.1%, in 1997 as compared to 1996. LIQUIDITY AND CAPITAL RESOURCES The principal sources of liquidity for the Company are cash flow from its operations and borrowings available under the Company's credit facility. The Company's Net Cash Provided by Operating Activities has increased significantly over the past three years, from approximately $12.7 million in 1996; to approximately $18.1 million in 1997; to approximately $28.7 million in 1998. The increase in Net Cash Provided by Operating Activities in 1998 as compared to 1997 was primarily due to the consummation of the Consolidation Program in the first quarter of 1998. In addition, the 4.0% increase in net operating income of the Rental Properties in 1998 as compared to 1997 also contributed to an increase in operating cash flow. The other factors impacting the Company's cash flow in 1998, 1997 and 1996 are discussed in "Results of Operations" and "Financing and Debt Restructuring of the Properties". The Company anticipates that cash flow from its operations and borrowing available under the Company's credit facility will be adequate to meet the reasonably foreseeable capital and liquidity needs of the Company. 19 22 The Company may seek additional capital sources through other debt or equity sources for acquisitions or capital expenditures (SEE ITEM 1 -- "BUSINESS"). Shelf Registration The Company had planned a public offering of 11 million Common Shares in the first half of 1998. On May 21, 1998, the Company announced that it had postponed the securities offering it had planned due to the current market conditions for REIT securities. On June 2, 1998, the Company filed a shelf registration statement with the SEC for the potential offering of up to 12.65 million Common Shares. The Company intends to undertake an offering under this shelf registration depending upon market conditions and capital requirements. The costs associated with the proposed offering have been deferred pending potential share issuance under the shelf registration (SEE NOTE 1 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS). Credit Facility On September 30, 1998, the Company entered into a Second Amended and Restated Loan and Security Agreement with The Provident Bank. The amended revolving credit facility ("Facility"), is for $40 million and represents an increase to and replacement of all former revolving credit facilities with The Provident Bank (the "Bank"). The scheduled term of the Facility expires March 30, 2000, although the Company may elect from time to time to convert all or any portion of the principal amount outstanding under the Facility into a five year term loan. Revolving loans outstanding under the Facility bear interest at a variable interest rate equal to the Bank's prime rate of interest, 7.75% at December 31, 1998, minus 1%. As of December 31, 1998 the outstanding balance under the Facility was $29.8 million compared to $2.6 million at December 31, 1997. The increase in borrowings was due to the costs to acquire the 324 former Unconsolidated Partnerships. The Company's term loan matures in March 2001 and has a 7.25% fixed interest rate with monthly installments of principal and interest of $139,435. As of December 31, 1998, the unpaid principal balance outstanding on the term loan was approximately $3.4 million. Capital Expenditures The Company's non-Property related capital expenditures for 1998 amounted to approximately $1.2 million funded from cash flow and borrowings under the Facility. The Company anticipates that its capital needs in the future can be satisfied out of cash flow from operations or the Facility. The Company is continuing to upgrade its software and hardware systems in order to obtain optimal efficiencies from technology. Capital Expenditures, combined with Improvement and Replacement Expense was $17.1 million for the Rental Properties, and $5.2 million for the Unconsolidated Partnerships during 1998. These costs are funded from cash flow and maintenance escrow funds. In 1999 the Company anticipates capital expenditures of $1.0 million for general administrative purposes, approximately $10.0 million for Rental Properties and $2.0 million for Unconsolidated Partnerships. A portion of the capital expenditures is part of a capital improvement program the Company is planning for the entire Portfolio (SEE ITEM 1 "BUSINESS" -- THE COMPANY'S BUSINESS AND OPERATING STRATEGIES). Year 2000 The "Year 2000" problem is due to the fact that many computer systems only use the last two digits to refer to a year. Therefore the computer systems do not properly recognize a year that begins with "20" instead of "19". If not corrected, computer applications could fail or provide erroneous results. Prior to 1998, as part of the Company's normal cycle of enhancing and upgrading hardware and implementing new software, Year 2000 compliance concerns were addressed. As new equipment and software was acquired and installed, testing and warranties as to Year 2000 compliance were obtained. Furthermore, in 1998, due to the magnitude of the Year 2000 issue a formal project team and plan was developed to review, and, where appropriate, identify and test all systems to ensure Year 2000 compliance for all critical systems utilized by the Company. The Year 2000 plan will also assess the risks the Company may have related to vendors' and service suppliers' failures to remediate their own Year 2000 issues. The Company anticipates completing Year 20 23 2000 projects by September 1999, which is in advance of any anticipated impact on its operating systems. The Company has surveyed all critical vendors and service suppliers as to their Year 2000 readiness and is currently evaluating their responses and potential impact to the Company. Contingency plans for Year 2000 failures for both internal and external vendors and service suppliers will also be completed by September 1999. 21 24 The following is the status of the Company's Year 2000 compliance as of December 31, 1998. Systems of a critical nature have either been remedied or a formal plan for resolution is in place. The following table summarizes the status and plans for resolution for these systems. Areas are ordered by level of risk (C = critical, H = high, M = medium, L = low) and compliance status.
COMPLIANCE CATEGORY PLATFORM/APPLICATION RISK STATUS ACTION PLAN DATE - -------------------------------------------------------------------------------------------------------- Hardware AS/400 C Compliant - -------------------------------------------------------------------------------------------------------- Telephone Systems M Compliant - -------------------------------------------------------------------------------------------------------- PCs M Undetermined Currently evaluating. April 1999 30% of systems replaced. - -------------------------------------------------------------------------------------------------------- Servers M Undetermined Currently evaluating. April 1999 - -------------------------------------------------------------------------------------------------------- Operating Systems AS/400 -OS/400 C Compliant - -------------------------------------------------------------------------------------------------------- Network -- Novell 4.1 C Non-Compliant Upgrade software June 1999 - -------------------------------------------------------------------------------------------------------- Servers -- Microsoft N/T C Non-Compliant Upgrade software June 1999 - -------------------------------------------------------------------------------------------------------- Servers -- Citrix C Compliant - -------------------------------------------------------------------------------------------------------- Software Midrange AS/400 -- (General Ledger, C Compliant Accounts Payable) - -------------------------------------------------------------------------------------------------------- AS/400 -- (Rent C Non-Compliant Project in-progress to June 1999 Receivables) upgrade. Formal Plan. - -------------------------------------------------------------------------------------------------------- AS/400 -- (Fixed Assets) C Compliant New system installed December 1998 - -------------------------------------------------------------------------------------------------------- AS/400 -- In-house L Non-Compliant Converting to external April 1999 (Investment Management) tax service - -------------------------------------------------------------------------------------------------------- Software PCs Server -- (Payroll) C Compliant - -------------------------------------------------------------------------------------------------------- Plant Building Security C Compliant - -------------------------------------------------------------------------------------------------------- Air Conditioning M Compliant - --------------------------------------------------------------------------------------------------------
The costs associated with the Year 2000 compliance issue is currently estimated in the range of $200,000 to $300,000 related to internal Year 2000 issues. As of December 31, 1998, the Company has not incurred any material costs specifically related to the Year 2000 issue. Potential costs that may be incurred due to external vendors and service provider Year 2000 failure can not be determined at this time. The Company will fund Year 2000 costs from cash flow from operations or borrowings under the credit Facility which the Company believes is adequate to fund the Year 2000 costs. The success of the Company's business is not closely tied to the operations of any one manufacturer, vendor or supplier with the exception of utilities and lenders as a group. Utilities and lenders could impact the operations of the Company if they encountered significant Year 2000 problems. The Company is awaiting responses from the utilities and lenders to determine their status regarding Year 2000. The Company has been working with its working capital lender in testing system interfaces for Year 2000 compliance. Although the portfolio of Properties is spread across several utilities there is a significant material concentration of Properties in Ohio and Florida such that if the Year 2000 problem interrupted utility service to these Properties it would have a significant impact on the financial condition and results of operations of the Company. If any other manufacturers, vendors or service providers, cease to conduct business due to Year 2000 related problems, the Company expects to be able 22 25 to contract with alternative providers without any material adverse effect on the Company's financial condition or results of operations. Because of the Company's broad resident base, its business success is not closely tied to the collection of rents from any particular resident. Accordingly, management believes that there should not be a material adverse effect on the Company's financial condition and the results of operations if residents became unable to pay rent due to Year 2000 related problems encountered by residents' employers or banking institutions. The Company anticipates completing all Year 2000 projects prior to any anticipated impact on its operating systems and business operations. This assumption is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of third party software and reliance on vendor and service provider assurances of compliance with Year 2000 issues and other factors. There can no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. Quarterly Dividend In 1998, the Company declared its first quarterly dividend, and has paid dividends of $0.4325 per share for each of the quarters ending September 30, 1998 and December 31, 1998. The Company has instituted a policy of paying a quarterly dividend approximately 15 days after the close of each calendar quarter. The Company's dividend policy is subject to modification by the Company's Board of Trustees. Financing and Debt Restructuring of the Properties In December 1998, the Company refinanced mortgages on 25 Rental Properties and eight Unconsolidated Partnerships with non recourse mortgage debt. Mortgage indebtedness on the 25 Rental Properties, with a contractual balance of approximately $38.7 million and a Carrying Value of approximately $37.8 million, was refinanced with mortgages bearing a fixed rate of interest of 7.6%, with 25 year amortization and ten year maturities. The refinanced mortgages had been held pursuant to a mortgage purchase facility with a financial institution wherein the lender agreed to purchase outstanding mortgage notes on certain of the Properties. A net extraordinary gain of approximately $631,000 resulted from the mortgage debt refinancing and an insubstance foreclosure. The net gain is comprised of a $1.0 million gain on the insubstance foreclosure, plus an extraordinary gain of $1.7 million generated from debt discounts received from the prior lenders to Rental Properties whose mortgage debt was refinanced. These gains were offset by a $1.2 million loss due to prepayment penalties paid to the former lenders and a loss of approximately $902,000 that arose from the mortgages repaid from refinance proceeds at the contractual balance which exceeded the Carrying Value of the mortgages. The refinancing of the mortgage debt on eight Unconsolidated Partnerships were on the same terms as the mortgages on the Rental Properties. The Company received approximately $900,000 of excess proceeds from the refinancing as repayment of advances and other amounts due to the Company from the Unconsolidated Partnerships. ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company earnings and cash flow are subject to fluctuations due to changes in interest rates. The Company is exposed to changes in interest rates primarily from its revolving credit facility, $29.8 million outstanding at December 31, 1998, and variable rate mortgage debt aggregating $16.5 million on certain Rental Properties at December 31, 1998. The Company currently does not use interest rate derivative instruments to manage exposure to interest rate changes. Based upon the Company's fixed and variable rate indebtedness and weighted average interest rates at December 31, 1998, a hypothetical ten percent or approximately 80 basis points upward movement in market rates of interest would adversely effect future earnings and cash flows by approximately $371,000. In addition, such hypothetical increase in market rates of interest would result in a decrease of approximately $30.6 million in the fair value of the Company's fixed rate debt at December 31, 1998. 23 26 These amounts were determined by only considering the impact of the hypothetical change in rates of interest on the Company's current indebtedness. Future changes in the capital markets could result in changes in the Company's financial structure which currently are indeterminable. If such changes were currently determinable the effects on the Company's earnings and cash flows could be considerably different then the sensitivity effects described above. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Documents filed as part of this report: Financial Statements: The Audited Consolidated Balance Sheets of the Company and Subsidiaries as of December 31, 1998 and 1997, and the related Consolidated Statements of Income, Shareholders' Equity and Cash Flows of the Company and Subsidiaries for the years ended December 31, 1998, 1997 and 1996. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the heading "Election of Trustees" of the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the heading "Executive Officers and Compensation" of the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the heading "Security Ownership of Certain Persons" of the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the heading "Certain Relationships and Related Transactions" of the Company's Proxy Statement for the 1999 Annual Meeting of Shareholders is incorporated herein by reference PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Documents filed as part of this report: (a) Consolidated Financial Statement Schedules: (See the financial statement schedules listed on Index to Consolidated Financial Statements and Financial Statement Schedules on Page F-1 of this report). (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the fourth quarter of 1998. 24 27 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE --- ----------- --------------- 2.1 Third Amended Disclosure Statement Incorporated by reference to Exhibit 2.1 Pursuant to Section 1125 of Bankruptcy to the Company's Registration Statement Code to Accompany the Plan of on Form 10 filed June, 1993 (the "Form Reorganization of Jay Alix, Chapter 11 10") Trustee for Cardinal Industries, Inc. and its Substantively Consolidated Subsidiaries and Third Amended Plan of Reorganization of Jay Alix, Chapter 11 Trustee, for Cardinal Industries, Inc. and its Substantively Consolidated Subsidiaries 2.2 Findings of Fact, Conclusions of Law and Incorporated by reference to Exhibit 2.2 Order Confirming Third Amended Plan of to the Form 10 Reorganization of Jay Alix, Chapter 11 Trustee, for Cardinal Industries, Inc. and its Substantively Consolidated Subsidiaries 2.3 Representative form of consent Incorporated by reference to Exhibit 2.1 solicitation materials furnished to to the Company's Current Report on Form holders of Outside Partner Interests in 8-K filed February 17, 1998 (the "2/98 connection with the Company's Plan of 8-K") Consolidation of former Syndicated Partnerships 2.4 Representative form of agreement and plan Incorporated by reference to Exhibit 2.2 of merger for acquisition of Outside to the 2/98 8-K Partner Interests in former Syndicated Partnerships 2.5 Representative form of notice of intent Incorporated by reference to Exhibit 2.3 to transfer to holders of Outside Partner to the 2/98 8-K Interests in former Syndicated Partnerships acquired without consent solicitation requirement 3.1 Declaration of Trust ("Declaration") Incorporated by reference to Annex B to the Company's Registration Statement on Form S-4, Registration No. 333-44251 (the "S-4 Registration Statement") 3.2 Articles of Amendment to the Declaration Filed as an Exhibit to this Form 10-K dated January 30, 1998 3.3 Articles of Amendment to the Declaration Incorporated by reference to Exhibit 4.3 dated March 14, 1998 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 (the "First Quarter 1998 10-Q") 3.4 By laws Incorporated by reference to Annex C to S-4 Registration Statement 3.5 Agreement of Limited Partnership of Incorporated by reference to Exhibit 99.1 Lexford Properties, L.P. ("Operating to Amendment No. 1 to the Company's Partnership") Registration Statement on Form S-3, Registration No. 333-49269
25 28
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE --- ----------- --------------- 4.1 Form of Common Share Certificate Incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1997 (the "1997 10-K") 10.1 Second Amended and Restated Loan and Filed as an Exhibit to this Form 10-K Security Agreement, dated September 30, 1998, among The Provident Bank, the Company and certain of the Company's subsidiaries 10.2 Cognovit Promissory Note (Renewal Balance Filed as an Exhibit to this Form 10-K Revolving Line of Credit) dated September 30, 1998 issued by the Company and its material subsidiaries in favor of The Provident Bank 10.3 Cognovit Promissory Note dated August 11, Incorporated by reference to Exhibit 10.4 1995 in the amount of $7,000,000 issued to the Company's Annual Report on Form by the Company and certain of its 10-K for the Year Ended December 31, 1995 subsidiaries in favor of The Provident (the "1995 10-K") Bank 10.4 Form of Management Agreement between Incorporated by reference to Exhibit Lexford Properties, Inc. ("LPI") and 10.15 to the 1997 10-K certain Unconsolidated Partnerships (as revised August 1, 1996) 10.5 Form of Partnership Asset Management Incorporated by reference to Exhibit Agreement, dated January 1, 1995 between 10.16 to the 1997 10-K Cardinal Apartment Management Group, Inc. (which was merged with and into the Company) and certain Unconsolidated Partnerships 10.6 Form of Extended Partnership Incorporated by reference to Exhibit Administration Agreement, dated January 10.17 to the 1997 10-K 1, 1995 between Cardinal Apartment Management Group, Inc. (which was merged with and into the Company) and certain Unconsolidated Partnerships 10.7 Form of Agreement for Tax Appeal Services Incorporated by reference to Exhibit between the Company and certain 10.18 to the 1997 10-K Unconsolidated Partnerships (as revised February 1996) 10.8 Lease, dated February 24, 1998, between Incorporated by reference to Exhibit the Company and Americana Investment 10.19 to the 1997 10-K Company 10.9 Master Equipment Lease, dated September Incorporated by reference to Exhibit 30, 1996, between Alliance Leasing and 10.20 to the 1997 10-K Services Group, Ltd. and the Company 10.10 Agreement and Plan of Merger by and among Incorporated by reference to Exhibit 10.1 the Company, Rexflor Acquisition to the Company's Quarterly Report on From Corporation and LPI and the former 10-Q for the quarterly period ended June shareholders of LPI dated as of July 19, 30, 1996 (the "Second Quarter 1996 Form 1996 10-Q")
26 29
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE --- ----------- --------------- 10.11 Agreement dated February 13, 1998 Filed as an Exhibit to this Form 10-K (regarding vesting and release of contingent shares) among the Company and the former shareholders of LPI 10.12 Corporation Record of Proceedings of the Incorporated by reference to Exhibit 10.3 Incorporator, Shareholders and Directors to the First Quarter 1998 10-Q of Lexford Property Management, Inc. ("LPM"), dated February 20, 1998 10.13 Stock Purchase Agreement, dated as of Incorporated by reference to Exhibit 10.4 April 1, 1998, among the Company, the to the First Quarter 1998 10-Q common shareholders LPM, and the purchasers of all of the common and preferred shares of LPM and their affiliates 10.14 Assignment dated November 30, 1998, from Filed as an Exhibit to this Form 10-K Brentwood-Lexford Partners, LLC, successor-in-interest to LPM, to the Operating Partnership of the entire members' interests in Lexford Guilford GP, LLC and Lexford Guilford LP, LLC 10.15 Agreement of Severance and Mutual Release Incorporated by reference to Exhibit 10.2 dated as of July 1, 1998 between the to the Company's Quarterly Report on Form Company and Patrick M. Holder 10-Q for the quarterly period ending June 30, 1998 (the "Second Quarter 1998 10-Q") 10.16 Agreement of Severance and Mutual Release Filed as an Exhibit to this Form 10-K dated as of January 1, 1999 between the Company and Annette Hoover 10.17 Agreement of Severance and Mutual Release Filed as an Exhibit to this Form 10-K dated as of January 15, 1999 between the Company and Mark Culwell 10.18 Agreement of Severance and Mutual Release Filed as an Exhibit to this Form 10-K dated as of January 1, 1999 between the Company and Peggy Crow Smith 10.19 1997 Performance Equity Plan of the Incorporated by reference to the Company ("Performance Equity Plan") Company's Proxy Statement, dated August 28, 1997, for the Company's 1997 Annual Shareholders Meeting 10.20 First Amendment to Performance Equity Filed as an Exhibit to this Form 10-K Plan 10.21 Second Amendment to Performance Equity Filed as an Exhibit to this Form 10-K Plan 10.22 Amended and Restated 1992 Incentive Incorporated by reference to Exhibit 4.3 Equity Plan of the Company (effective to the Company's Form S-8 Registration November 30, 1995) Statement filed July 8, 1997, Registration No. 333-30849 (the "1997 S-8")
27 30
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE --- ----------- --------------- 10.23 Form of Deferred Shares Agreement for Incorporated by reference to Exhibit Employees of the Company 10.31 to the Form 10 10.24 Form of Restricted Shares Agreement for Incorporated by reference to Exhibit Key Employees of the Company 10.32 to the Form 10 10.25 Form of Restricted Shares Agreement for Incorporated by reference to Exhibit Executive Officers of the Company 10.33 to the Form 10 10.26 Form of Non-Qualified Stock Option Incorporated by reference to Exhibit Agreement for Participants in Trustee's 10.33 to the Form 10 Employee Retention Plan 10.27 Form of Non-Qualified Stock Option Incorporated by reference to Exhibit Agreement for Non-Employee Trustees 10.36 to the Form 10 10.28 Amended and Restated Savings Plan of the Incorporated by reference to Exhibit 4.3 Company to Cardinal Realty Services, Inc. Savings Plan's Annual Report on Form 11-K for the Plan Year Ended December 31, 1997 10.29 Non-Employee Trustee Restricted Stock Incorporated by reference to Exhibit A to Plan the Company's Proxy Statement dated April 16, 1996, for the Company's 1996 Annual Shareholders Meeting 10.30 Non-Employee Trustee Retirement Program Incorporated by reference to Exhibit 10.1 to Second Quarter 1998 10-Q 10.31 Amended and Restated Executive Deferred Filed as an Exhibit to this Form 10-K Compensation Plan of the Company (the "Executive Deferred Compensation Plan") 10.32 First Amendment to Executive Deferred Filed as an Amendment to this Form 10-K Compensation Plan 10.33 Executive Deferred Compensation Rabbi Incorporated by reference to Exhibit 4.6 Trust Agreement, dated November 27, 1996, to the 1997 S-8 between the Company and the Provident Bank, as Trustee (the "Rabbi Trust Agreement") 10.34 First Amendment to Rabbi Trust Agreement Filed as an Exhibit to this Form 10-K 10.35 Employment Agreement dated as of December Incorporated by reference to Exhibit 1, 1995, as amended, between the Company 10.38 to the 1995 Form 10-K and John B. Bartling, President and Chief Executive Officer of the Company ("Bartling Employment Agreement") 10.36 Amendment to Employment and Award Incorporated by reference to Exhibit 4.8 Agreements, dated as of April 18, 1996, to the 1997 S-8 between the Company and John B. Bartling 10.37 Second Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.9 dated as of December 20, 1996, between to the 1997 S-8 the Company and John B. Bartling
28 31
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE --- ----------- --------------- 10.38 Third Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.10 dated as of January 1, 1997, between the to the 1997 S-8 Company and John B. Bartling 10.39 Letter Agreement dated December 1, 1998, Filed as an Exhibit to this Form 10-K between the Company and John B. Bartling extending Bartling Employment Agreement 10.40 Employment Agreement dated as of April 1, Incorporated by reference to Exhibit 4.11 1996, as amended, between the Company and to the 1997 Form S-8 Mark D. Thompson, Executive Vice President and Chief Financial Officer of the Company ("Thompson Employment Agreement") 10.41 Amendment to Employment and Award Incorporated by reference to Exhibit 4.12 Agreements, dated as of April 18, 1996, to the 1997 S-8 between the Company and Mark D. Thompson 10.42 Second Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.13 dated as of December 20, 1996, between to the 1997 S-8 the Company and Mark D. Thompson 10.43 Third Amendment to Employment Agreement, Incorporated by reference to Exhibit 4.14 dated as of January 1, 1997, between the to the 1997 S-8 Company and Mark D. Thompson 10.44 Letter Agreement dated April 1, 1998, Filed as an Exhibit to this Form 10-K between the Company and Mark D. Thompson extending Thompson Employment Agreement 10.45 Employment Agreement dated as of January Filed as an Exhibit to this Form 10-K 1, 1998 between the Company and Bradley A. Van Auken, Senior Vice President, General Counsel and Secretary of the Company 10.46 Employment Agreement dated as of June 1, Incorporated by reference to Exhibit 4.27 1997, between the Company and Leslie B. to the 1997 Form S-8 Fox, Executive Vice President and Chief Operating Officer of the Company 10.47 First Amendment to Employment Agreement, Filed as an Exhibit to this Form 10-K dated January 1, 1998, between the Company and Leslie B. Fox 11.1 Statement re: computation of per share See Index to Financial Information -Note earnings 15 of Notes to Consolidated Financial Statements 21.1 Subsidiaries of the Company Filed as an Exhibit to this Form 10-K 23.1 Consent of Ernst & Young LLP Filed as an Exhibit to this Form 10-K 27.1 Financial Data Schedule Filed as an Exhibit to this Form 10-K
29 32 SIGNATURES Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. LEXFORD RESIDENTIAL TRUST (Registrant) Date: March 23, 1999 By: /s/ JOHN B. BARTLING ------------------------------------ John B. Bartling President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOSEPH E. MADIGAN Chairman of the Board and Trustee March 23, 1999 - ------------------------------------------ Joseph E. Madigan /s/ JOHN B. BARTLING President, Chief Executive Officer March 23, 1999 - ------------------------------------------ and Trustee John B. Bartling /s/ MARK D. THOMPSON Executive Vice President and March 23, 1999 - ------------------------------------------ Chief Financial Officer Mark D. Thompson /s/ RONALD P. KOEGLER Senior Vice President, Controller and March 23, 1999 - ------------------------------------------ Principal Accounting Officer Ronald P. Koegler /s/ GLENN C. POLLACK Trustee March 23, 1999 - ------------------------------------------ Glenn C. Pollack /s/ H. JEFFREY SCHWARTZ Trustee March 23, 1999 - ------------------------------------------ H. Jeffrey Schwartz /s/ ROBERT J. WEILER Trustee March 23, 1999 - ------------------------------------------ Robert J. Weiler /s/ STANLEY R. FIMBERG Trustee March 23, 1999 - ------------------------------------------ Stanley R. Fimberg
30 33 LEXFORD RESIDENTIAL TRUST INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets at December 31, 1998 and 1997... F-3 Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996.......................... F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996.............. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.......................... F-6 - F-7 Notes to Consolidated Financial Statements.................. F-8 - F-30 Consolidated Financial Statement Schedules: Schedule II -- Valuation and Qualifying Accounts....... F-31 Schedule III -- Real Estate and Accumulated Depreciation.......................................... F-32 - F-48
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the information required is included in the Consolidated Financial Statements or notes thereto and therefore have been omitted. F-1 34 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Trustees Lexford Residential Trust We have audited the accompanying consolidated balance sheets of Lexford Residential Trust as of December 31, 1998 and 1997 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lexford Residential Trust at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Columbus, Ohio January 27, 1999 F-2 35 LEXFORD RESIDENTIAL TRUST CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (In Thousands Except Share Data)
1998 1997 -------- -------- ASSETS Rental Properties (Notes 2 and 5): Land...................................................... $ 59,732 $ 23,124 Buildings, Improvements and Fixtures...................... 544,897 138,245 -------- -------- Accumulated Depreciation.................................. (28,564) (9,152) -------- -------- 576,065 152,217 Investments in and Advances to Unconsolidated Partnerships, Net of an allowance of $1,615 and $2,605 at December 31, 1998 and 1997, respectively (Notes 3 and 13).............. 11,173 54,653 Cash........................................................ 495 2,569 Accounts Receivable, Affiliates, Residents, Officers and Others, Net of an allowance of $550 and $942 at December 31, 1998 and 1997, respectively (Note 13)................. 1,920 4,899 Furniture, Fixtures and Other, Net of accumulated depreciation of $3,109 and $2,491 at December 31, 1998 and 1997, respectively........................................ 2,108 1,720 Funds Held in Escrow........................................ 22,747 11,888 Intangible Assets........................................... 6,891 11,659 Prepaids and Other.......................................... 7,523 1,993 -------- -------- $628,922 $241,598 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgages and Revolving/Term Debt Non Recourse Mortgages (Note 5)........................... $494,556 $142,637 Revolving/Term Debt (Note 4).............................. 33,186 7,362 -------- -------- 527,742 149,999 -------- -------- Accounts Payable............................................ 1,389 1,288 Accrued Interest, Real Estate and Other Taxes............... 10,315 3,719 Other Accrued Expenses...................................... 6,196 8,241 Other Liabilities........................................... 7,451 3,504 Dividends Payable........................................... 4,122 -- Deferred Compensation (Note 8).............................. 12,525 -- -------- -------- Total Liabilities...................................... 569,740 166,751 -------- -------- Commitments and Contingencies (Notes 8, 9, 11) Shareholders' Equity (Notes 8 and 15): Preferred Shares, 5,000,000 Shares Authorized, Unissued... -- -- Common Shares, $.01 par value, 50,000,000 Shares Authorized, 9,530,013 and 8,493,648 Shares Issued and Outstanding at December 31, 1998 and 1997, respectively........................................... 95 85 Additional Paid-in Capital.................................. 65,833 54,138 Retained Earnings........................................... 7,482 20,624 Less Cost of Treasury Shares (Note 8)....................... (14,228) -- -------- -------- 59,182 74,847 -------- -------- $628,922 $241,598 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-3 36 LEXFORD RESIDENTIAL TRUST CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands, Except Per Share Data)
1998 1997 1996 -------- ------- ------- Revenues: Rental and Other Property Revenues........................ $137,948 $41,851 $41,277 Fee Based, primarily from Affiliates (Note 13)............ 5,532 16,517 14,143 Income from Unconsolidated Partnerships (Note 13)......... 3,025 10,681 8,897 -------- ------- ------- 146,505 69,049 64,317 -------- ------- ------- Expenses: Property Operating and Maintenance........................ 45,453 12,554 14,064 Real Estate Taxes and Insurance........................... 11,359 4,060 4,148 Property Management....................................... 12,505 15,892 12,263 Administration............................................ 6,287 4,895 5,031 Performance Equity Plan (Note 8).......................... 2,488 6,280 -- Non-recurring Costs (Note 10)............................. 2,685 828 243 Interest -- Non Recourse Mortgages (Note 5)............... 41,268 13,770 14,132 Interest -- Revolving/Term Debt (Note 4).................. 1,656 657 1,098 Depreciation and Amortization............................. 21,520 6,527 5,515 Real Estate Impairment Loss (Note 7)...................... 1,014 -- -- Loss on Sale of Third Party Management Business (Note 6)..................................................... 6,300 -- -- -------- ------- ------- 152,535 65,463 56,494 -------- ------- ------- Income/(Loss) Before Gain on Disposal of Assets, Income Taxes and Extraordinary Item.............................. (6,030) 3,586 7,823 Provision for Income Taxes (Note 9)....................... -- (2,189) (3,416) Gain on Disposal of Assets -- Net......................... 498 1,989 963 -------- ------- ------- Income/(Loss) Before Extraordinary Item................... (5,532) 3,386 5,370 Extraordinary Gain/(Loss), Net of Income Tax Benefit of $115 in 1997 and $1,015 in 1996, respectively (Note 7)..................................................... 631 (180) (1,614) -------- ------- ------- Net Income/(Loss)........................................... $ (4,901) $ 3,206 $ 3,756 ======== ======= ======= Basic Earnings Per Share: Income/(Loss) before Extraordinary Item................... $ (0.60) $ 0.42 $ 0.71 Extraordinary Item........................................ 0.07 (0.02) (0.21) ======== ======= ======= Net Income/(Loss)......................................... $ (0.53) $ 0.40 $ 0.50 ======== ======= ======= Diluted Earnings Per Share: Income/(Loss) before Extraordinary Item................... $ (0.60) $ 0.41 $ 0.69 Extraordinary Item........................................ 0.07 (0.02) (0.21) -------- ------- ------- Net Income/(Loss)......................................... $ (0.53) $ 0.39 $ 0.48 ======== ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 37 LEXFORD RESIDENTIAL TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands, Except Per Share Data)
LESS COMMON SHARES ADDL. COST OF --------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS SHARES TOTAL ------ ------ -------- -------- ------------ ------- Balance, January 1, 1996......................... 7,206 $ 72 $37,512 $13,662 -- $51,246 Shares issued in 1996, in connection with the claims resolution process...................... 13 Shares issued in connection with Lexford Acquisition, Net of Contingent Shares (Note 6)............................................. 500 5 4,995 5,000 Exercise of options under Non-Qualified Stock Option Plan (Note 8)........................... 69 1 61 62 Restricted stock compensation awards and Director Restricted Stock Plan (Note 8)........ 32 325 325 Less: Treasury Shares primarily from the redemption of stock held by Unconsolidated Partnerships.............. (3) (31) (31) Credit from utilization of pre-confirmation tax benefits (Note 9).............................. 2,151 2,151 Net Income for the year ended December 31, 1996........................................... 3,756 3,756 ----- ------ ------- ------- -------- ------- Balance, December 31, 1996....................... 7,817 78 45,013 17,418 62,509 Shares issued in 1997, in connection with the claims resolution process...................... 22 1 1 Exercise of options under Non-Qualified Stock Option Plan (Note 8)........................... 18 37 37 Stock Compensation and Director Restricted Stock Plan, Net of Shares subject to Vesting Restrictions (Note 8).......................... 636 6 7,394 7,400 Credits from utilization of pre-confirmation tax benefits (Note 9).......................... 1,694 1,694 Net Income for the year ended December 31, 1997........................................... 3,206 3,206 ----- ------ ------- ------- -------- ------- Balance, December 31, 1997....................... 8,493 85 54,138 20,624 -- 74,847 Contingent Shares Issued in Connection with Lexford Properties Acquisition Released in Exchange for Forfeiture of Balance of Unvested Shares (Note 6)................................ 300 3 2,997 3,000 Exercise of Options Under Non-Qualified Stock Option Plan.................................... 305 3 1,824 1,827 Retiring Trustees and Employee Net Withdrawal From Rabbi Trust............................... 583 583 Reinvestment of Dividends by Rabbi Trust....... (114) (114) Adjust for Shares Held in Rabbi Trust at December 31, 1997.............................. 276 3 4,168 (12,091) (7,920) 1998 Share Compensation, Primarily Issued to Rabbi Trust (Note 8)........................... 156 1 2,706 (2,606) 101 Dividends to Common Shareholders (Note 15)..... (8,241) (8,241) Net Loss for the year ended December 31, 1998........................................... (4,901) (4,901) ----- ------ ------- ------- -------- ------- Balance, December 31, 1998....................... 9,530 $ 95 $65,833 $ 7,482 $(14,228) $59,182 ===== ====== ======= ======= ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 38 LEXFORD RESIDENTIAL TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands)
1998 1997 1996 -------- -------- -------- Cash flows from Operating activities: Net Income/(Loss)......................................... $ (4,901) $ 3,206 $ 3,756 Adjustments to Reconcile Net Income/(Loss) to Net Cash provided by Operating Activities: Depreciation........................................... 20,146 5,426 5,111 Amortization........................................... 1,374 1,101 403 Provision for Losses on Accounts Receivable............ 1,670 389 503 Loss on Sale of Third Party Management Business........ 6,300 -- -- Real Estate Impairment Loss............................ 1,014 -- -- Gain from Disposal of Assets -- Net.................... (498) (1,989) (963) Extraordinary (Gain)/Loss.............................. (631) 295 2,629 Provision for Income Taxes credited to Additional Paid-in Capital...................................... -- 1,694 2,151 Non-Cash Share Compensation............................ 5,099 7,400 326 Changes in Operating Assets and Liabilities: Investments in and Advances to Unconsolidated Partnerships......................................... 1,278 1,950 (94) Accounts Receivable and Other.......................... (2,704) (339) (4,339) Funds Held in Escrow................................... 6,072 1,832 (4,857) Accounts Payable and Other Liabilities................. (5,474) (2,880) 8,082 -------- -------- -------- Net Cash provided by Operating activities................... 28,745 18,085 12,708 -------- -------- -------- Cash flows from Investing activities: Proceeds from Sale of Assets and Other................. 1,070 3,161 975 Receipts From/(Advances to) Unconsolidated Partnerships -- Net.................................. 128 (992) (2,557) Investments in Unconsolidated Partnerships/Joint Ventures............................................. (3,405) (2,239) -- Purchase of 324 Unconsolidated Partnerships, Net of Cash Acquired........................................ (25,506) -- -- Investment in Management Contracts..................... -- (4,158) -- Capitalized Refinancing Costs.......................... (1,119) -- (1,687) Capital Expenditures -- Real Estate.................... (14,276) (2,386) (682) Capital Expenditures -- Other.......................... (1,209) (1,192) (423) -------- -------- -------- Net Cash used in Investing activities....................... (44,317) (7,806) (4,374) -------- -------- -------- Cash Flows from Financing activities: Proceeds from the exercise of Stock Options............ 1,827 38 61 Redemption of Stock held by Unconsolidated Partnerships......................................... -- -- (31) Proceeds from Revolving Debt -- Net.................... 27,228 -- -- Principal payments on Revolving/Term Debt and Other.... (1,403) (8,036) (7,052) Proceeds from Mortgage Debt............................ 37,930 7,429 47,443 Payments on Mortgages -- principal amortization........ (6,835) (2,125) (2,139) Payments on Mortgages -- lump sum...................... (41,130) (8,609) (45,775) Dividends Paid......................................... (4,119) -- -- -------- -------- -------- Net Cash provided by/(used in) Financing activities......... 13,498 (11,303) (7,493) -------- -------- -------- Increase/(Decrease) in Cash................................. (2,074) (1,024) 841 Cash at Beginning of Year................................... 2,569 3,593 2,752 -------- -------- -------- Cash at End of Year......................................... $ 495 $ 2,569 $ 3,593 ======== ======== ======== Supplemental Disclosure of Cash Flow Information: Cash Payments for Interest............................. $ 42,286 $ 14,173 $ 14,665 ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 39 LEXFORD RESIDENTIAL TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands, Except Per Share Data) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: In 1998, the Company acquired the entire ownership interest in 324 Unconsolidated Partnerships owning 326 apartment communities. Such acquisitions resulted in the following increases (decreases) to the Company's balance sheet (see Note 2): Non-Cash Effects: Investments in and Advances to Unconsolidated Partnerships........................................... $ (47,335) Land and Building......................................... $ 430,981 Accounts Receivable and Other Assets...................... $ 19,409 Mortgages................................................. $ 362,610 Accounts Payable and Other Liabilities.................... $ 14,939 Cash Effects: Cash Paid to Former Partners.............................. $ (33,902) Net Cash Acquired......................................... 8,396 --------- $ (25,506) =========
Effective August 1, 1996, the Company acquired Lexford Properties, Inc. through a merger with a wholly owned subsidiary of the Company. The Company issued 1,400,000 Common Shares (valued at $14 million) in consideration of the acquisition; however, 900,000 of the shares issued (valued at $9 million) were subject to forfeiture, in whole or in part, if the Company's combined property management operations fail to achieve certain profitability criteria on or before the end of the Company's 1999 fiscal year (see Note 6). On March 13, 1998, the Company negotiated a settlement with the former shareholders of Lexford Properties, Inc. whereby 300,000 out of an aggregate of 900,000 of the Company's Common Shares subject to forfeiture, per the terms of the merger agreement dated August 1, 1996 were released to such former shareholders in exchange for the forfeiture of the remaining 600,000 shares (see Note 6). In the fourth quarter of 1998, the Company consented to an insubstance foreclosure to the mortgagee for one Rental Property. The Rental Property had an aggregate carrying value, net of a fourth quarter impairment loss of $1.0 million, of approximately $768,000. A $1.0 million extraordinary gain was recognized on the transaction (see Note 7). In 1996, the Company granted deeds in lieu of foreclosure to the mortgagee for three Rental Properties. The Rental Properties had an aggregate carrying value of $3.9 million. No significant gain or loss was recognized on this transaction because the assets and the non-recourse mortgages on each of these Rental Properties had been recorded in equal amounts. In October 1997, the Company sold two Rental Properties. The buyer assumed the mortgages with a carrying value of $2.3 million. No gain or loss was recognized in this transaction. In 1998, 1997 and 1996, all interest incurred was expensed. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 40 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business In December 1997, Lexford, Inc. announced that it would seek to qualify and elect to be taxed as a real estate investment trust ("REIT") for Federal income tax purposes in 1998. The Company intends to continue to qualify as such, and therefore will distribute at least 95% of its real estate investment trust taxable income to its shareholders. In connection with this decision, Lexford, Inc. established a new entity known as Lexford Residential Trust (the "Company"). On March 3, 1998, the shareholders of Lexford, Inc. approved the merger of Lexford, Inc. with and into the Company. The terms of the merger transaction provided that each share of Lexford, Inc.'s issued and outstanding common stock be canceled and converted to two common shares of beneficial interest in the Company. The merger transaction was consummated on March 18, 1998 and the Company has therefore acquired all of the assets and assumed all of the liabilities of the former Lexford, Inc. The consolidated financial statements include corporations, limited partnerships and other legal entities which own multifamily apartment communities (the "Rental Properties") in which the Company, in turn, owns 100% equity interests. The Company also holds equity ownership as well as, in certain cases, significant economic interests in multifamily apartment communities in its capacity as general partner and property manager, respectively, in various limited partnerships (the "Unconsolidated Partnerships"), which are accounted for by the equity method. The Rental Properties and the Unconsolidated Partnerships are collectively referred to as the "Properties". The Company's general partner interests in the Unconsolidated Partnerships range from a 1.0% to 10.0% undivided equity interest, typically a 9.0% to 10.0% interest. The limited partnership interests in the Unconsolidated Partnerships are substantially all owned by unrelated third party investors. The Company's receivables, typically in the form of second mortgages, from the Unconsolidated Partnerships generate a majority of the Income from Unconsolidated Partnerships recognized by the Company (see Note 13). In 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") which was effective for fiscal years beginning after December 15, 1997. SFAS No. 131 superseded Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of an Enterprise". SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in financial reports. SFAS No. 131 also establishes standards for related disclosure about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position of the Company. The Company has one reportable segment which is the ownership and operation of residential apartment communities. The majority of the Properties are located in the midwest and southeast United States, with the heaviest concentrations in Florida, Ohio, Georgia, Indiana, Michigan and Kentucky. The concentrations of Properties within these states is as follows: Ohio (136 Properties), Florida (126 Properties), Georgia (73 Properties), Indiana (70 Properties), Kentucky (33 Properties) and Michigan (25 Properties). These concentrations of Properties accounted for 22.9%, 25.2%, 15.8%, 13.7%, 5.9%, and 6.1%, respectively, or in the aggregate approximately 90% of the Company's total revenues for the year ended December 31, 1998. The Company is not dependent for its revenues on any particular Property or resident and the loss of any Property would not be material to the Company's financial position. The Company's largest Property accounted for only 1% of the Company's total revenues for the year ended December 31, 1998. The distribution of the F-8 41 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Properties also minimizes the Company's exposure to local economic conditions. The typical Property is comprised of multiple single story buildings with studio, one and two bedroom apartments. Substantially all of the Properties have non-recourse first mortgage indebtedness which is owed to financial institutions or to REMICs or other vehicles holding such indebtedness for the benefit of others. Third Party Management Business In the first quarter of 1998, the Company was also engaged in providing management services to third party owners of multifamily apartment communities (the "Third Party Management Business"). Because of Internal Revenue Code limitations on the nature and amount of non-qualified REIT income, the Company contributed the majority of its assets related to the Third Party Management Business to a newly formed corporation in exchange for all of the preferred stock of such corporation on February 20, 1998. Effective as of April 1, 1998, the Company sold all its preferred equity interest in the Third Party Management Business (see Note 6). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair Value of Financial Instruments The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FASB Statement No. 107, "Disclosure About Fair Value of Financial Instruments". The fair value of Cash and Funds Held in Escrow is equal to their respective carrying amounts. For Investments in and Advances to Unconsolidated Partnerships, the Company applied a capitalization rate to each Property's net operating income, less a major maintenance reserve, to estimate the value at December 31, 1998 and 1997, which value approximated $22.5 million and $140.3 million, respectively. This valuation methodology is generally based on estimates of the fair market value of the apartment communities owned by the Unconsolidated Partnerships, less related indebtedness senior to the Company's investments and advances. The Investments in and Advances to Unconsolidated Partnerships consist substantially of second mortgage loans receivable, whose ultimate repayment is subject to a number of variables, including the performance and value of the underlying real property and the ultimate timing of repayments and receivables. Considerable judgment is required in the interpretation of market data to develop estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts (see Note 3). In 1998, the Company acquired the third party equity interest in 324 former Unconsolidated Partnerships, which resulted in the significant decrease in Investments in and Advances to Unconsolidated Partnerships (see Note 2). The carrying values of the amounts comprising the Company's Revolving/Term Debt as described in Note 4 approximate their fair value based upon the Company's current borrowing rates for similar types of borrowing arrangements. The carrying amount of accrued interest approximates its fair value. F-9 42 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) As further described in Note 5, at December 31, 1998 mortgages on the Company's Rental Properties in the amount of $494.6 million had contractual balances totaling $500.7 million (resulting in an aggregate Mortgage Deficiency of $6.1 million). Interest rates on the mortgages ranged from 6.0% to 10.7% with rates being fixed on approximately $484.2 million of the contractual balances. The fair value of the Company's mortgage debt on Rental Properties as described in Note 5, is estimated at $531.1 million at December 31, 1998. The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based upon the Company's current incremental borrowing rates for similar types of borrowing arrangements. The Carrying amount of mortgages on the Rental Properties as of December 31, 1997 approximated their fair value. Basis of Presentation The consolidated financial statements include the accounts of Lexford Residential Trust and its wholly owned subsidiaries, and all entities in which the Company has majority interest or control. All significant intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain amounts in the 1996 and 1997 Consolidated Financial Statements have been reclassified to conform to the 1998 presentation. Investments in and Advances to Unconsolidated Partnerships Investments in and Advances to Unconsolidated Partnerships represent the Company's general partners' interests in and advances to non-controlled partnerships which own multi-family apartment communities. The Company adopted a method of accounting referred to as fresh start ("Fresh Start") reporting as of September 11, 1992 ("The Effective Date") as a result of the Company's judicial plan of reorganization (the "Plan of Reorganization"). The Company prepared financial statements on the basis that a new reporting entity was created with assets and liabilities recorded at their estimated fair values as of the Effective Date. The carrying value represents the allocation of the estimated fair value of the underlying real estate assets as of the Effective Date or, if later, date of purchase or investment and, as described in Note 3, the contractual amounts of the receivables are significantly more than the recorded amounts. These receivables generally include long-term second mortgages and other receivables. In addition, subsequent to the Effective Date, the Company has made advances to the Unconsolidated Partnerships. These advances primarily relate to operating needs and supplemental funding for refinancing transactions, and bear interest at prime plus one percent. Interest is accrued on the recorded values of the second mortgages and certain of the other receivables based upon contractual interest rates, and allowances are provided for estimated uncollectible interest based upon the underlying Properties' net cash flows. In certain instances, cash flow received in excess of accrued second mortgage interest on the recorded values of the second mortgages is recorded as income. The Company is also entitled to receive incentive management fees and supplemental second mortgage interest based upon certain levels of cash flows of certain of the underlying Properties. Also, in the event the underlying Properties are sold or refinanced, the Company is generally entitled to a participation interest in the net proceeds, as a general partner and/or a second mortgage holder. The realization of the Investments in and Advances to Unconsolidated Partnerships is dependent on the future operating performance of the Unconsolidated Partnerships. F-10 43 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) Prior to November 1, 1997, the Company accounted for its investments by the cost method. Effective November 1, 1997, based on the Company's board of directors' decision to seek to acquire ownership of third party equity interests in substantially all of the Unconsolidated Partnerships (see Note 2), the Company began accounting for its investments by the equity method. The Company's share of net income or loss of the Unconsolidated Partnerships is classified with Income from Unconsolidated Partnerships in the Consolidated Statements of Income (see Notes 3 and 13). Real Estate and Depreciation Ordinary repairs and maintenance costs are expensed as incurred. Significant improvements, renovations and replacements related to the acquisition and improvement of real estate assets are capitalized at cost. Real estate assets are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows: Buildings and Improvements........................ 5 - 34 years Furniture, Fixtures and Equipment................. 3 - 10 years
Management reviews the carrying value of real estate assets using estimated future cash flows, including estimated proceeds from disposition, whenever an event or change in circumstances indicates that the asset value may not be recoverable. Funds Held in Escrow The amounts at December 31, 1998 and 1997 include funds of $22.7 million and $6.7 million, respectively, escrowed by Rental Properties for improvements and deferred maintenance, real estate taxes, insurance, resident security deposits and other funds held by mortgage lenders. In addition, the Company was holding $2.0 million, at December 31, 1997, as funds held primarily for payment of insurance premiums which are collected from the Properties. In the second quarter of 1998, with the completion of the Consolidation Plan, (see Note 2), this voluntarily restricted cash account was closed when the Company revised its cash management system to ensure that all available unrestricted cash is applied to the Company's revolving credit facility. At December 31, 1998 and 1997 the Company's Funds Held in Escrow also includes approximately $58,000 and $3.2 million, respectively, of funds received from the settlement of litigation brought against the Company's former insurance carriers to prosecute policy claims for termite infestation losses at certain of the Properties. As a result of the settlement of such litigation (see Note 11), the majority of the funds have been distributed to the affected Properties and are being used to fund termite repairs. Revenue Recognition Rental revenue is recognized as income in the period earned. Intangible Assets Intangible Assets at December 31, 1998 and 1997 is comprised of approximately $3.0 million and $5.2 million, respectively, of management contracts and approximately $481,000 and $3.6 million, F-11 44 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 1: BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd) respectively, of goodwill related to the trade name, training programs and property management systems retained from the Third Party Management Business (see Note 6). The management contracts and goodwill are amortized on the straight line basis over seven and ten years, respectively, and are net of accumulated amortization of approximately $592,000 and $817,000, at December 31, 1998 and 1997, respectively. Intangible Assets also includes deferred financing costs at December 31, 1998 and 1997 of $3.3 million and $2.5 million, respectively. The costs relate to mortgage refinancings on the Rental Properties and are amortized over the terms of the respective loans. Prepaids and Other Assets Prepaids and Other assets at December 31, 1998 and 1997 is primarily comprised of approximately $3.6 million and $808,000, respectively, of deferred offering costs related to the Company's Form S-3 "shelf" registration statement filed with the SEC , approximately $700,000 of start-up costs related to the Company's conversion to a REIT and a $1.8 million note receivable at December 31, 1998 related to the sale of the Third Party Management Business (see Note 6). In addition, Prepaids and Other assets at December 31, 1998 and 1997 consists of approximately $895,000 and $567,000, respectively, of prepaid rent, insurance and real estate taxes, and approximately $461,000 and $618,000, respectively, of utility deposits and other prepaid expenses. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, Reporting the Costs of Start-up Activities. The SOP is effective beginning on January 1, 1999, and requires that start-up costs capitalized prior to January 1, 1999 be written-off and requires that start-up costs be expensed as incurred. The definition of start-up costs under the SOP includes organizational costs. Historically, the Company capitalized and then amortized these costs over five years. The unamortized balance of organizational costs, approximately $700,000 (as of December 31, 1998), will be written off as a cumulative effect of an accounting change as of January 1, 1999. NOTE 2: PROPERTY ACQUISITIONS In conjunction with its determination to elect REIT status, the Company initiated a consolidation plan, the purpose of which was to minimize third party equity interests in apartment communities owned by Unconsolidated Partnerships ("the Consolidation Plan"). In the first quarter of 1998, the Company acquired the entire equity ownership interest in 287 former Unconsolidated Partnerships. The acquisition of the 287 former Unconsolidated Partnerships was effective as of January 31, 1998. Effective as of April 1, 1998, the Company acquired the entire equity ownership interest in an additional 37 Unconsolidated Partnerships that owned 39 Properties, which were accounted for under the equity method in the first quarter of 1998. In connection with the Consolidation Plan, the Company made cash payments totaling $33.9 million to the former partners of the 324 former Unconsolidated Partnerships, which are now classified as Rental Properties. The acquisition of the 324 former Unconsolidated Partnerships was accounted for under the purchase method. The purchase price of $443.8 million was comprised of $33.9 million to purchase former third party limited partners' equity interests, $47.3 million of carrying value of investments F-12 45 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 2: PROPERTY ACQUISITIONS (cont'd) in and advances to the 324 former Unconsolidated Partnerships and the assumption of $362.6 million of non-recourse mortgage debt on the acquired Rental Properties (see Note 14). NOTE 3: INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS The Company has direct and indirect general and limited partnership interests in, and receivables from, 79 Unconsolidated Partnerships at December 31, 1998 compared with 408 and 406 Unconsolidated Partnerships at December 31, 1997 and 1996, respectively. The decrease in the number of Unconsolidated Partnerships is primarily due to the Company acquiring the entire ownership interest in 324 former Unconsolidated Partnerships that owned 326 Properties (see Note 2). Therefore, financial information pertaining to prior periods is not comparable. Investments in and Advances to Unconsolidated Partnerships, net of allowances of $1.6 million and $2.6 million, at December 31, 1998 and 1997, respectively, are comprised of the following major components (in thousands):
1998 1997 ------- ------- Second Mortgage Notes....................................... $ 4,725 $35,778 Investments in Unconsolidated Partnerships and joint venture................................................... 4,241 937 Other, including advances and accrued interest.............. 2,207 17,938 ------- ------- $11,173 $54,653 ======= =======
The majority of the second mortgage notes bear interest at 6%. Interest income is accrued based upon the Fresh Start value of the second mortgage notes. Advances currently bear interest at prime plus 1%. At December 31, 1998 and 1997, the contractual obligations of the Unconsolidated Partnerships on account of second mortgages, advances and other payables, including related interest, aggregated $37.5 million and $232.5 million, respectively. Amounts due under second mortgages are collaterialized by substantially all the real estate assets of the Unconsolidated Partnerships and are subordinate to the first mortgage debt. There can be no assurance that the Company will collect the full carrying value of, or any additional contractual balances owing under, these receivables. In the first quarter of 1998, the Company invested $3.4 million in a joint venture with a developer for the construction of an apartment community, consisting of 276 units. Such investment is accounted for under the equity method. Neither the joint venture nor the apartment units under construction are included in the numbers reported for Unconsolidated Partnerships and Properties. The community is scheduled to commence leasing in the first quarter of 1999. The following table provides selected combined financial information for the Company's Unconsolidated Partnerships as of and for the years ended December 31, 1998, 1997 and 1996 (in F-13 46 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 3: INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS (cont'd) thousands). The presentation does not include data for 15 Unconsolidated Partnerships for 1997 and 1996 due to the Company making its initial investment in December 1997.
1998 1997 1996 -------- --------- --------- Real Estate Assets, Net....................... $132,562 $ 394,138 $ 413,430 Cash, Funds Held in Escrow and Resident Receivables................................. 7,272 32,117 35,822 Other Assets.................................. 3,915 12,721 14,651 -------- --------- --------- Total Assets............................. $143,749 $ 438,976 $ 463,903 Non Recourse Mortgage Debt.................... $130,829 $ 437,236 $ 456,927 Other Liabilities............................. 6,143 21,614 25,175 Amounts Due to the Company.................... 37,535 232,511 238,677 -------- --------- --------- $174,507 $ 691,361 $ 720,779 -------- --------- --------- Net Deficit................................. $(30,758) $(252,385) $(256,876) ======== ========= ========= Rental and Other Revenues..................... $ 36,117 $ 123,922 $ 122,712 ======== ========= ========= Net Loss...................................... $ (1,445) $ (5,019) $ (13,733) ======== ========= =========
1998 1997 ----- ---- Company's Share of Loss (Equity Method) for the Year Ended December 31, 1998 and the period November 1 through December 31, 1997 (in thousands).......................... $(157) $(81) ===== ====
Prior to November 1, 1997 and during 1996 the Company's share of loss relating to its investment in Unconsolidated Partnerships was not recorded because the Company accounted for the investment under the cost method (see Note 1). NOTE 4: REVOLVING/TERM DEBT Revolving/Term Debt consisted of the following at December 31, 1998 and 1997 (in thousands):
1998 1997 ------- ------ Second Amended and Restated Revolving Credit Facility principal payable March 30, 2000; interest payable monthly in arrears at prime minus 1% (6.75% at December 31, 1998)..................................................... $29,800 $2,572 Acquisition Term Debt -- principal and interest in monthly installments of $139,435 through March 31, 2001; interest at a fixed rate of 7.25%.................................. 3,362 4,733 Other notes payable......................................... 24 57 ------- ------ $33,186 $7,362 ======= ======
On September 30, 1998, the Company entered into the Second Amended and Restated Loan and Security Agreement with The Provident Bank (the "Bank"). The amended revolving credit facility ("Facility") is for $40 million and represents an increase to and replacement of all former revolving credit facilities with the Bank. The scheduled term of the Facility expires March 30, 2000, although the Company may elect from time to time to convert all or any portion of the principal amount outstanding under the Facility into a five year term loan. Revolving loans F-14 47 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 4: REVOLVING/TERM DEBT (cont'd) outstanding under the Facility bear interest at a variable interest rate equal to the Bank's prime rate of interest minus 1%. The Company's loan agreements contain restrictive covenants, including but not limited to, the maintenance of certain net worth, financial ratios, certain restrictions on incurrence of additional debt and certain restrictions on acquisitions. As of December 31, 1998, the Company's annual revolving/term debt maturities are as follows (in thousands): 1999................................................ $ 1,502 2000................................................ 31,389 2001................................................ 295 ------- $33,186 =======
NOTE 5: NON RECOURSE MORTGAGES The Company adopted a method of accounting referred to as Fresh Start reporting as of the Effective Date, as a result of the Company's judicial Plan of Reorganization. The Company prepared financial statements on the basis that a new reporting entity was created with assets and liabilities recorded at the estimated fair values as of the Effective Date. At the Effective Date, to the extent the non-recourse debt secured by a Rental Property exceeded the estimated fair value of such Rental Property, the Company reduced the contractual amount of the related non-recourse mortgage debt by the amount of the deficiency (the "Mortgage Deficiency"). The contractual mortgage balance net of any applicable Mortgage Deficiency, is referred to as the "Carrying Value" of the mortgage. The contractual principal balances of the mortgages on Rental Properties exceed the carrying values by $6.1 million and $7.7 million at December 31, 1998 and 1997, respectively. The mortgages are non recourse, are payable over periods through 2031, and are collaterialized by the Rental Properties, generally on a single Rental Property by Rental Property basis. Although, a portfolio of mortgages on 26 Rental Properties are cross-collateralized and cross-defaulted and another portfolio of 25 Rental Properties are cross-collateralized and cross-defaulted within their respective states, with no more than eight Properties in one state. At December 31, 1998 contractual interest rates ranged from 6.0% to 10.7% with fixed rates on approximately $484.2 million of the outstanding contractual mortgage balances. The weighted average contractual interest rate and term to maturity on the mortgages on Rental Properties, was 8.52% and 5.8 years at December 31, 1998. The annual debt service requirement was $50.3 million at December 31, 1998. In addition, 31 Rental Properties have second mortgage debt totaling $3.2 million at December 31, 1998, that requires the application of all excess cash flow from operations to be applied to the outstanding principal on such debt. F-15 48 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 5: NON RECOURSE MORTGAGES (cont'd) The range of interest rates and related carrying amounts of mortgages payable at December 31, 1998 is as follows (in thousands):
CONTRACTUAL CARRYING CONTRACTUAL RATE BALANCE VALUE ---------------- ----------- -------- Less than 8.0%......................... $ 92,924 $ 91,953 8.01% -- 9.0%.......................... 383,776 379,792 More than 9.01%........................ 23,988 22,811 -------- -------- $500,688 $494,556 ======== ========
At December 31, 1998, seven Rental Properties had first mortgage loans which had matured with an aggregate outstanding balance of $6.9 million. The Mortgage debt on one Rental Property amounting to approximately $562,000 was refinanced in January 1999. The Company anticipates extending or refinancing the balance of the matured mortgages in 1999. At December 31, 1998, 11 Rental Properties acquired as part of the Consolidation Plan had non recourse second mortgages which in the aggregate total $3.1 million, of which $1.0 million had matured. All of the notes bear a fixed rate of interest at 6.0%, do not require any principal amortization and are subordinate to the first mortgage on the Rental Property. The Company anticipates extending the matured second mortgages. Minimum estimated repayment requirements of mortgages for the next five years based upon the contractual principal balances are as follows ( in thousands):
CONTRACTUAL AMOUNT ----------- 1999............................................. $ 36,645 2000............................................. 20,060 2001............................................. 114,054 2002............................................. 13,072 2003............................................. 16,606 Thereafter....................................... 300,251 -------- $500,688 ========
NOTE 6: SALE OF THIRD PARTY MANAGEMENT BUSINESS Due to the non-qualified REIT income generated by the Third Party Management Business, the Company classified this business as Held for Sale in the first quarter of 1998, and closed the sale of the business effective as of April 1, 1998. The Company, however, retained management agreements for all of the Unconsolidated Partnerships, as well as its interest in Lexford Properties, Inc.'s training programs and property management systems and certain personnel to facilitate improved management of the Company's Properties. As a result of the decision to sell and in order to facilitate such sale of the Third Party Management Business, the Company took the following actions in 1998: The merger agreement governing the Company's acquisition of Lexford Properties, Inc. (the former owner of the Third Party Management Business) included a provision that $9.0 million or 900,000 shares (valued at the time of acquisition), of the purchase price was subject to forfeiture in whole or in part in the event the Third Party Management Business did not F-16 49 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 6: SALE OF THIRD PARTY MANAGEMENT BUSINESS (cont'd) achieve certain profitability criteria by December 31, 1999. On March 13, 1998, the Company negotiated a settlement with the former shareholders of Lexford Properties, Inc. whereby 300,000 of the 900,000 shares subject to forfeiture were released in exchange for the forfeiture of the remaining 600,000 shares. The release of the 300,000 shares resulted in a $3.0 million charge in the first quarter of 1998. The Company adjusted the carrying value of goodwill associated with the acquisition of the Third Party Management Business by writing off $2.0 million of goodwill. Due to the reclassification of the Third Party Management Business as Held for Sale, the Company recorded a $1.3 million reserve for sale/disposal costs associated with this sale. The above charges totaling $6.3 million have been classified as Loss on Sale of Third Party Management Business. Lexford Properties, Inc. formed a subsidiary, Lexford Property Management, Inc. ("LPM") and contributed all of its interest in its property management contracts for multifamily apartment communities owned entirely by third parties to LPM in exchange for all of LPM's issued and outstanding preferred stock. Effective as of April 1, 1998, the Company sold its entire preferred stock interest in LPM to a company formed to acquire the Third Party Management Business by FSC Realty, LLC a company affiliated with Stanley R. Fimberg, a consultant to, and Trustee of, the Company at the time of the sale, Ralph V. Williams a consultant to the Company at the time of the sale and Bruce Woodward, an executive officer of the Company at the time of the sale. As a result of the sale, each of Messrs. Fimberg, Williams and Woodward severed their respective consulting and employment relationships with the Company. Mr. Fimberg remains a Trustee of the Company. Each of Messrs. Fimberg, Williams and Woodward were also former beneficial equity owners of Lexford Properties, Inc. prior to the Company's original acquisition of the Third Party Management Business in August, 1996. The Company received a promissory note in the principal amount of $1.8 million payable over a ten year period which bears interest at 6% per annum until April 1, 2000 and 11% per annum thereafter, in exchange for all of the outstanding preferred stock of LPM. Mr. Fimberg did not participate in the Company's decision to sell the Third Party Management Business. Management believes that the terms for the sale of the Third Party Management Business are representative of terms which would have been available from an unrelated purchaser. NOTE 7: EXTRAORDINARY ITEM AND IMPAIRMENT LOSS In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("FASB 121"), the Company records an impairment loss on long lived assets used in operations when events and circumstances indicate that an asset might be impaired and the undiscounted cash flows estimated to be generated by an asset are less than the carrying amounts of the asset. In the fourth quarter of 1998 based upon management's intent to dispose of a Rental Property the Company determined that an asset with a carrying value of $1.7 million was impaired and recorded a real estate impairment loss of $1.0 million to write the asset down to its estimated fair value based upon management's estimate of the net proceeds which would be received upon disposal. In the fourth quarter of 1998, the Company consented to an insubstance foreclosure to the mortgagee of this Rental Property. As a result of this transaction the Company recorded an extraordinary gain of $1.0 million since the mortgage debt exceeded the adjusted carrying value of the asset. F-17 50 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 7: EXTRAORDINARY ITEM AND IMPAIRMENT LOSS (cont'd) In December 1998, the Company also refinanced mortgages on 25 Rental Properties and eight properties owned by Unconsolidated Partnerships. Mortgage indebtedness on the 25 Rental Properties, with a contractual balance of approximately $38.7 million and a Carrying Value of approximately $37.8 million, was refinanced with mortgages bearing a fixed rate of interest of 7.6%, with 25 year amortization and ten year maturities. A net extraordinary gain of approximately $631,000 resulted from the mortgage debt refinancing and the insubstance foreclosure transaction. The net gain is comprised of a $1.0 million gain on the insubstance foreclosure, plus an extraordinary gain of $1.7 million generated from debt discounts received from the prior lenders to Rental Properties whose mortgage debt was refinanced. These gains were offset by a $1.2 million loss due to prepayment penalties paid to the former lenders and a loss of approximately $902,000 that arose from the mortgages being repaid from refinance proceeds at the contractual balance amounts, which exceeded the Carrying Values of the mortgages (see Note 5). The refinancing of the mortgage debt on eight properties owned by Unconsolidated Partnerships were on the same terms as the mortgages on the Rental Properties. The Company received approximately $900,000 of excess proceeds from the refinancing as repayment of advances and other amounts due to the Company from the Unconsolidated Partnerships. During 1997, the Company refinanced mortgages on six Rental Properties. Mortgage indebtedness on these Rental Properties, with a contractual value of approximately $7.4 million and a Carrying Value of approximately $7.1 million, was refinanced with mortgages bearing a fixed rate of interest ranging from 7.45% to 9.03%, with 25 year amortization and ten year maturities. Annual debt service on the affected Rental Properties decreased approximately $18,000. An extraordinary loss of approximately $180,000, net of tax benefits, resulted from the mortgage debt refinancings of the Rental Properties. The loss arose from the mortgages being repaid from refinance proceeds at the contractual balance amounts, which exceeded the Carrying Values of the mortgages (see Note 5). In 1996, the Company completed modification or refinancing transactions on Rental Properties and Unconsolidated Partnerships which resulted in an extraordinary loss of $1.6 million, net of tax benefits in 1996. The loss arose from those mortgages being repaid from refinance proceeds at the contractual balance amounts, which exceeded the Carrying Values of the mortgage (see Note 5). The refinancing of mortgages on the Unconsolidated Partnerships generated loan fee revenue of approximately $96,000 in 1998, $130,000 in 1997 and $752,000 in 1996. The fees were based upon a graduated percentage of the new loan amounts and are classified with Fee Based Revenue in the Consolidated Statements of Income. NOTE 8: SHARE BASED COMPENSATION The Company provides share based compensation to employees and non-employee trustees including share options, share awards and shares in lieu of cash payments under various plans and contractual arrangements. Rabbi Trust The Company established the Rabbi Trust in 1996. The Rabbi Trust was established to permit executive officers and trustees to defer taxes on awards of Company shares. The Rabbi Trust is currently restricted to holding Company shares or cash equivalents. In 1998, the Emerging Issues F-18 51 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 8: SHARE BASED COMPENSATION (cont'd) Task Force of the Financial Accounting Standards Board ("EITF") reached a consensus on Issue No. 97-14, Accounting for Deferred Compensation Arrangements. In accordance with that consensus, the deferred compensation liability represented in the Rabbi Trust and the securities issued to fund such deferred compensation liability must be consolidated by the Company and carried on the Company's balance sheet, and the Company's common shares held in the Rabbi Trust must be accounted for as treasury shares by the Company. The Company has applied EITF No. 97-14 commencing with the first quarter of 1998. Performance Equity Plan In October 1997, the shareholders of the Company approved the Company's 1997 Performance Equity Plan (the "Performance Plan"). The Performance Plan authorized the grant of restricted share awards to certain officers and non-employee trustees. The Performance Plan, as approved, authorized awards which would vest only upon attainment of specified financial or share price targets over a three year term (1997 through 1999), with increasing performance goals associated with each year of the term. A total of 636,000 shares of restricted Common shares was available for grants, and on October 7, 1997 the Compensation Committee of the Company's Board of Directors authorized awards of restricted grants for 636,000 shares. In 1998, the final tranche of 212,000 shares awarded under the Performance Plan vested upon achievement of the performance goals. The vesting of these shares resulted in a non-cash charge in 1998 of approximately $2.5 million. In 1997, 424,000 shares awarded under the Performance Plan vested upon achievement of the performance goals. The vesting of these shares resulted in a non-cash charge in 1997 of approximately $6.3 million. Incentive Equity Plan and Other Share Based Compensation The Company also has an Incentive Equity Plan (the "Incentive Plan"), that was established in 1992 and amended with shareholder approval in 1995, that authorizes the Company's issuance of shares in connection with options and restricted share awards. The Incentive Plan, which benefits officers, key employees and non-employee trustees, authorized approximately 1,182,000 shares for officers and key employees and approximately 280,400 shares for non-employee trustees. At December 31, 1998, approximately 45,000 shares remain available for officers and key employees and approximately 64,400 shares remain available for grants of options to non-employee trustees. The shares available for future options and awards may be granted at the discretion of the Company's Board of Trustees ("Board") or the Compensation Committee of the Board. In 1998, the Company granted to officers and key employees options for the purchase of 116,000 shares and 144,000 restricted shares which vest ratably over time contingent upon continuing service to the Company with terms for acceleration upon a change in control of the Company. In addition, 4,000 restricted shares were granted to the non-employee Chairman of the Board in 1998. Also during 1998, an officer received 1,579 shares in lieu of cash compensation pursuant to the terms of the officer's employment contract requiring shares in lieu of an increase in base salary. In 1997, the Company granted to officers and key employees options for the purchase of 72,550 shares, 15,000 restricted shares, and 18,000 shares originally granted with vesting contingent on certain Company performance criteria which was modified to time vesting in 1998. In addition, options for the purchase of 32,000 shares, and 4,000 restricted shares were granted to non- F-19 52 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 8: SHARE BASED COMPENSATION (cont'd) employee directors in 1997. In addition, certain officers and key employees received 8,620 shares in lieu of cash compensation in 1997 and 150,800 restricted shares were issued under employment agreements. In 1996, the Company granted options for 152,000 shares, including 32,000 to non-employee directors, restricted share awards for 99,000 shares and deferred awards for 76,000 shares. The restricted share awards included up to 35,000 shares as a Company match of shares if purchased by officers by April 1997, and 64,000 shares which vest ratably over time. The deferred share awards vest upon achievement of specified performance criteria. Awards of shares provided for in the Incentive Plan, depending on the nature of the award, may be reflected as compensation over the vesting period. Compensation expense resulting from transactions under this plan and other equity compensation arrangements was $1.6 million, $842,600 and $207,500 for 1998, 1997 and 1996, respectively, in addition to the non cash charge recorded for the Performance Plan. Weighted average per share value at grant date of the restricted and deferred equity awards was $17.42, $14.68 and $9.29 for 1998, 1997 and 1996, respectively. In 1996, the shareholders of the Company approved the Company's Non-Employee Trustee Restricted Stock Plan (the "Trustee Plan") that provides for compensation earned by the trustees to be paid, at the option of the trustees, in whole or in part, in shares in lieu of cash fees. The Trustee Plan authorized 100,000 shares, of which approximately 56,000 shares remain available at December 31, 1998. In 1998, 1997 and 1996 the Company recorded compensation of approximately $204,000, $277,000 and $118,000, respectively, related to the Trustee Plan. Stock Option Valuation The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee and trustee stock options, because the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock Based Compensation," ("FASB 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by FASB 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of the grant using the Black-Scholes option pricing model. The following assumptions were utilized in the pricing model: a weighted average risk free interest rate of 5.22% in 1998, 5.6% in 1997 and 6.5% in 1996; dividend yield of nine percent in 1998 and one percent in 1997 and 1996; volatility factors of the expected market price of the Company's common stock of 0.253 in 1998, 0.248 in 1997 and 0.236 in 1996; and a weighted average expected life of 6 years in 1998, 6.3 years in 1997, and 7 years in 1996. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restriction and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected price volatility of the Company's shares. Because the Company's employee stock options have character- F-20 53 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 8: SHARE BASED COMPENSATION (cont'd) istics significantly different from those of unrestricted, fully transferable options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable measure of the fair value of its outstanding employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options vesting period. The Company's pro forma information follows:
1998 1997 1996 ------- ------ ------ Pro forma net income/(loss) (in thousands)........... $(5,136) $3,027 $3,630 ======= ====== ====== Pro forma basic earnings per share................... $ (0.56) $ 0.37 $ 0.48 ======= ====== ====== Pro forma diluted earnings per share................. $ (0.56) $ 0.36 $ 0.46 ======= ====== ======
The following table summarizes the Company's stock option activity, and related information for the years ended December 31, 1998, 1997 and 1996 (in thousands except for exercise prices):
1998 1997 1996 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVE. AVE. AVE. EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Options outstanding at beginning of year............................. 434 $ 7.20 352 $ 5.45 270 $2.05 ---- ------ --- ------ --- ----- Options granted.................. 116 $18.05 104 $12.27 152 $9.44 Options exercised................ (305) $ 5.99 (18) $ 2.07 (68) $0.90 Options forfeited................ (18) $ 9.95 (4) $ 9.59 (2) $1.31 ---- ------ --- ------ --- ----- Options outstanding at end of year............................. 227 $13.88 434 $ 7.20 352 $5.46 ==== ====== === ====== === ===== Options exercisable at end of year............................. 51 $ 9.57 234 $ 4.17 176 $2.60 ==== ====== === ====== === ===== Weighted Ave. Fair Value of Options Granted during the Year.......... $ 1.54 $ 4.15 $3.19 ====== ====== =====
Options awarded have an exercise price equal to or greater than the market price of the Common Stock at the time of the award, and are subject to vesting schedules as determined by the Company's Board of Trustees or its Compensation Committee. The options granted expire, if not exercised, ten years from the date on which the option was granted (subject to earlier expiration or lapse in the event of termination of employment). Exercise prices for options outstanding as of December 31, 1998 ranged from $0.71 to $19.69 per share with a weighted average remaining term of 8.3 years. At December 31, 1998, there were options outstanding to purchase approximately 14,000 shares at an exercise price less than $9 and approximately 213,000 shares at an exercise price in excess of $9. NOTE 9: INCOME TAXES 1998 The Company intends to elect to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year beginning January 1, 1998. The Company will, and intends to continue to distribute at least 95% of its real estate investment F-21 54 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 9: INCOME TAXES (cont'd) trust taxable income. As a REIT, the Company generally will not be subject to Federal Income Tax on income it distributes to shareholders as long as it distributes 100% of its REIT taxable income. The Company will generally not be subject to state income taxes in the jurisdictions where the Properties are currently located. The Consolidated Statement of Income for the year ended December 31, 1998 does not include a provision for federal or state income taxes. The Company made an election pursuant to Notice 88-19 with the filing of its 1997 corporate income tax return. This election enabled the Company to avoid having to treat the Company's conversion to real estate investment trust status as a taxable disposition of its assets as of December 31, 1997. As a former C corporation the Company potentially remains subject to corporate level taxes for any asset disposition between January 1, 1998 through December 31, 2008. The amount of income potentially subject to corporate level tax is generally equal to the excess of the fair market value of the asset over its adjusted tax basis as of December 31, 1997 or the actual amount of taxable gain, whichever is greater. Any gains recognized during this period of time could be offset by available net operating losses ("NOLs"), passive activity losses ("PALs") and/or business tax credit carry forwards. Prior Years The Company and its subsidiaries filed a consolidated Federal income tax return in 1997 and 1996. For financial reporting purposes, the Company followed FASB Statement No. 109 ("FASB 109"). In accordance with FASB 109, income taxes have been provided at statutory rates in effect during the period. Tax benefits associated with net operating loss carry forwards and other temporary differences that existed at the time Fresh Start reporting was adopted are reflected as an increase to Additional Paid-in Capital in the period in which they were realized. The provision for income taxes in the Consolidated Statements of Income (including amounts applicable to extraordinary items) is as follows (in thousands):
YEARS ENDED ---------------- 1997 1996 ------ ------ Current: Federal................................... $ 0 $ 0 State..................................... 380 250 Amounts Not Payable in Cash................. 1,694 2,151 ------ ------ $2,074 $2,401 ====== ======
The Company's actual income tax payments for the years 1997 and 1996 were significantly less than the total provision for income taxes because of available net operating loss carry forwards and other tax benefits. The amounts included in the provision for taxes for which no amounts were payable in cash are set forth in the table above. F-22 55 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 9: INCOME TAXES (cont'd) The effective income tax rates varied from the federal statutory rate as follows (in thousands):
YEARS ENDED ---------------- 1997 1996 ------ ------ Federal Tax Provision at Statutory Rates.................... $1,787 $2,094 State Income Taxes Net of Federal Income Tax Benefit........ 251 165 Other Permanent Differences................................. 36 142 ------ ------ $2,074 $2,401 ====== ====== Effective Income Tax Rate................................... 39.3% 39.0% ====== ======
Significant components of the Company's deferred tax assets and liabilities are as follows at December 31, 1997 (in thousands):
1997 ------- Deferred Tax Assets and Other: Net Operating Loss Carry Forwards and Other Carry Forwards............................................... $22,000 Suspended Passive Activity Losses......................... 34,000 Tax Basis of Assets in Excess of Fresh Start Estimated Fair Values............................................ 11,000 ------- 67,000 Less: Valuation Allowance................................... (31,000) ------- $36,000 ======= Deferred Tax Liabilities: Negative Capital Accounts................................. $33,000 Tax Basis of Liabilities in Excess of Related Fresh Start Estimated Fair Values.................................. 3,000 ------- $36,000 =======
The valuation reserve against deferred tax assets has been reduced by amounts equivalent to the portions of the tax provisions which are not payable in cash. Corresponding increases have been made to Additional Paid-in Capital. As a result of the uncertainties relating to the ultimate utilization of favorable tax attributes described below, the Company has provided a valuation allowance for the remaining excess of the net deferred tax assets as of December 31, 1997. In addition to regular corporate income tax, corporations are subject to an alternative minimum tax liability to the extent alternative minimum tax exceeds regular tax. The Company will record an alternative minimum tax liability in the year that events and transactions create an alternative minimum tax which is probable of being paid and can be reasonably estimated by the Company. As of December 31, 1998, the Company has estimated that it has NOL carry forwards for tax purposes of approximately $73.0 million which if not utilized, expire in the years 2000 through 2013. In the event that current or future 5% shareholders (as defined by the Internal Revenue Code) acquire or dispose of shares, over a defined time period, representing in the aggregate 50% or more of the Company's outstanding shares, a limitation on the use of NOL carry forwards will occur. The Company has also estimated that it has approximately $103.2 million in suspended PALs which may be available to offset future passive and active income. The tax basis for federal income tax purposes in Rental Properties was approximately $484 million at December 31, 1998. F-23 56 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 9: INCOME TAXES (cont'd) The Company's ability to utilize tax carry forwards will be subject to a variety of factors including the Company's dividend distribution policy. In general, the Company will be entitled to utilize NOLs and business tax credit carry forwards only to the extent that real estate investment trust taxable income exceeds the Company's deduction for dividends paid. NOTE 10: NON-RECURRING COSTS Non-recurring Costs were approximately $2.7 million for the year ended December 31, 1998. Approximately $1.6 million of the charge related to the Retirement Plan ("Trustee Retirement Plan") for four Trustees who retired April 15, 1998. Each retiring Trustee received a package consisting of the right to receive a cash payment of $225,000 (the "Retirement Payment"), vesting of all non-vested common share awards and the opportunity to continue participation in the Company's Executive Deferred Compensation Plan and the Rabbi Trust for up to five years. The retiring Trustees were also afforded the opportunity to defer receipt of all or any portion of the Retirement Payment and direct that the deferred portion be contributed to the Rabbi Trust and invested in the Company's common shares for their benefit. In connection with their participation in the Trustee Retirement Plan, two of the retiring trustees elected to defer receipt of a total of $400,000 of Retirement Payments in such manner. The remaining $1.1 million of Non-recurring Costs relates to severance costs associated with 23 terminated employees, and costs related to the closing of satellite offices. The positions were eliminated as part of a strategic initiative implemented in 1998 to better align its organization and cost structure with planned revenue levels. The majority of the charge was incurred in the fourth quarter of 1998. In 1997, the Company incurred Non-recurring Costs totaling approximately $828,000. Approximately $400,000 of the charge was due to costs related to the elimination of overlapping functions between Lexford Properties, Inc. and the Company's previous management services operations. In the second half of 1997, the Company recorded a charge of approximately $428,000 primarily related to costs incurred for the Form S-11 filing for the proposed spin-off of the Company's Rental Properties. The Company subsequently withdrew this filing as it has determined to maintain its ownership interests in the Rental Properties and seek to qualify as a REIT under the Internal Revenue Code. In 1995, the Company implemented a corporate restructuring plan and initiated further restructuring in 1996. The Company recorded a charge of approximately $243,000 in 1996 related to the costs of the restructuring, principally severance and separation costs. Approximately 26 employees were released as a result of the restructurings in 1995 and 1996. In 1996 the Company paid $1.7 million of costs related to the 1995 and 1996 restructurings. F-24 57 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 11: COMMITMENTS AND CONTINGENCIES Lease Commitments Minimum payments under the terms of all noncancellable operating leases in which the Company is the lessee, principally for office space, at December 31, 1998 are as follows (in thousands): 1999.............................................. $ 808 2000.............................................. 505 2001.............................................. 504 2002.............................................. 517 2003.............................................. 511 Thereafter........................................ 419 ------ $3,264 ======
Litigation The Company is involved in various legal actions arising out of the normal course of its business. Management of the Company, based upon knowledge of facts and the advice of counsel, believes potential exposure to loss from legal actions should not result in a material adverse effect on the Company's consolidated financial position. On October 30, 1998, the Company reached a settlement in its final lawsuit related to claims for termite damage losses. Pursuant to the terms of the settlement agreement, the Company, in its capacity as general partner of limited partnerships that own Rental Properties and Unconsolidated Partnerships and as agent for parties that have purchased apartment communities formerly owned by Unconsolidated Partnerships, has received cash payment in the gross amount of $3,075,000 and has paid contingency legal fees of $975,000 from the settlement proceeds. The net proceeds of the settlement have since been allocated among the properties (including those owned by third parties) based upon the extent of the termite damage at each such property. The Company's portion of the proceeds from the settlements will be utilized to offset costs to be incurred for termite repairs and has been included in Other Liabilities in the amount of approximately $1.1 million and $1.9 million at December 31, 1998 and 1997, respectively. NOTE 12: RETIREMENT PLAN The Company maintains the Lexford Residential Trust Savings Plan (the "Savings Plan") under section 401(k) of the Internal Revenue Code (the "Code"), to which participants may contribute a percentage of their base pay and overtime earnings up to limits established by the Code. The Savings Plan was amended and restated, effective January 1, 1999, to provide for a seven year graduated vesting schedule for Company matching contributions. Any participant who was 100% vested prior to the effective date will remain 100% vested. Effective July 1, 1996, the Savings Plan was amended to include employees at the Properties as participants and increase the Company match. The Company matching contribution amounts to 1% of wages for every 2% of wages contributed by a participant up to a maximum of the lesser of 3% of wages or $2,000 per year. In 1998, 1997 and 1996, the Company's cash contributions amounted to approximately $197,100, $126,400, and $134,000, respectively. F-25 58 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 13: RELATED PARTY TRANSACTIONS The Company is the sole beneficial equity owner of all Rental Properties and is a general partner in the Unconsolidated Partnerships. The Company also serves as the management company for substantially all of the Properties and provides various ancillary services, including a Preferred Resource purchasing program to the Properties and renter's insurance to residents. The Company's fee based revenue, and interest income are derived from Unconsolidated Partnerships. Approximately $429,000 and $2.0 million of the Company's accounts receivables, net of an allowance of approximately $196,000 and $942,000, are due from the Unconsolidated Partnerships as of December 31, 1998 and 1997, respectively. In 1998, the Company received a net repayment of advances from Unconsolidated Partnerships of approximately $128,000, and in 1997 and 1996 the Company advanced to Unconsolidated Partnerships, net of amounts repaid, approximately $992,000 and $2.6 million, respectively. The majority of the advances relate to operating needs and advances to facilitate the refinancing of the mortgages on the Properties as described in Note 5. The interest rate on these advances is currently prime plus one percent. This interest rate may be adjusted in the future based on prevailing market rates. During the fourth quarter of 1998, the Company loaned approximately $352,000 to certain key officers. The majority of the loans bear interest at the rate of 1% in excess of the prime rate of the Bank and are due in three years. The loans were made to fund the personal income tax obligations arising from the tax effect of the exercise of non-qualified stock options. At December 31, 1998, the amount of loans and related interest outstanding amounted to approximately $355,000. An independent trustee of the Company is a partner in the law firm which serves as outside general counsel to the Company. Legal fees paid related to services provided to the Company by this law firm were approximately $1.1 million in 1998, $981,000 in 1997, and $286,000 in 1996. The Company had accrued expenses of $75,000 and $176,000 to this law firm at December 31, 1998 and 1997, respectively. In addition, legal fees paid related to debt restructuring and refinancing services provided by this law firm to the Rental Properties and Unconsolidated Partnerships were approximately $118,000 in 1998, $99,000 in 1997 and $523,000 in 1996. Another independent trustee of the Company has a minority interest in the lessor of the office facility that houses the Company's operations. NOTE 14: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS The following unaudited pro forma condensed consolidated income statements for the years ended December 31, 1998 and 1997 assume that all 324 former Unconsolidated Partnerships acquired in 1998 were purchased as of January 1, 1998 and 1997, respectively. The unaudited pro forma condensed consolidated income statements do not purport to present what the Company's results of operations would actually have been had such events in fact occurred on the date or at the beginning F-26 59 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 14: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS (cont'd) of the periods indicated above or to project the Company's results of operations for any future date or period.
YEARS ENDED DECEMBER 31 ------------------------ 1998 1997 ---------- ---------- PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS UNAUDITED UNAUDITED -------------------------------------------------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues: Rental and Other Property Revenues....................... $148,857 $144,657 Fee Based and Income from Unconsolidated Partnerships (a)................................................... 7,451 10,035 -------- -------- $156,308 $154,692 -------- -------- Expenses: Property Operating and Maintenance....................... 48,733 45,150 Real Estate Taxes and Insurance.......................... 12,239 13,066 Property Management (a).................................. 12,506 15,340 Administration........................................... 6,287 5,194 Non-recurring Costs/Performance Equity Plan (b).......... 5,173 6,681 Interest................................................. 46,569 47,745 Depreciation and Amortization............................ 23,274 21,545 Real Estate Impairment Loss (b).......................... 1,014 -- Loss on Sale of Third Party Management Business (c)...... 6,300 -- -------- -------- 162,095 154,721 -------- -------- Income/(Loss) before Gain on Disposal of Assets, Income Taxes and Extraordinary Items............................ (5,787) (29) Provision for Income Taxes............................... -- (768) Extraordinary Gain/(Loss)................................ 631 (180) Gain on Disposal of Assets -- Net........................ 499 1,989 -------- -------- Net Income/(Loss).......................................... $ (4,657) $ 1,012 ======== ======== Basic Earnings/(Loss) Per Share............................ $ (.51) $ .13 ======== ======== Diluted Earnings/(Loss) Per Share.......................... $ (.50) $ .12 ======== ========
------------------------- (a) Includes management fees received and expenses incurred in conjunction with the operation of the Company's Third Party Management Business during 1997 and the first quarter of 1998. (See Note 6 -- "Sale of Third Party Management Business"). The decline in Fee Based revenues is primarily attributable to the sale described therein. (b) See Note 10 -- "Non-recurring Costs" , Note 8 -- "Performance Equity Plan" and Note 7 -- "Extraordinary Item and Impairment Loss" (c) See Note 6 -- "Sale of Third Party Management Business" F-27 60 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 15: EARNINGS AND DIVIDENDS PER SHARE Earnings Per Share The following table shows the amounts used in computing basic and diluted earnings per share as well as weighted average numbers of shares outstanding and the effect on income of restricted common shares and stock options with dilutive potential (in thousands except per share amounts):
1998 1997 1996 ------- ------ ------ Numerator for Basic and Diluted Earnings Per Share: Income before Extraordinary Items.................. $(5,532) $3,386 $5,370 Extraordinary Item................................. 631 (180) (1,614) ------- ------ ------ Net Income/(Loss).................................. $(4,901) $3,206 $3,756 ======= ====== ====== Denominators: Denominator for Basic Earnings Per Share -- Weighted Average Shares............................ 9,211 8,072 7,538 Effect of Dilutive Securities: Stock Options (1)............................... -- 172 192 Time Vesting Restricted Share Awards............ 28 70 95 ------- ------ ------ Dilutive Potential Common Shares................... 28 242 287 ------- ------ ------ Denominator for Diluted Earnings Per Share -- Adjusted Weighted Average Shares................... 9,239 8,314 7,825 ======= ====== ====== Basic Earnings Per Share: Income/(Loss)Before Extraordinary Item............. $ (0.60) $ 0.42 $ 0.71 Extraordinary Item................................. 0.07 (0.02) (0.21) ------- ------ ------ Net Income/(Loss).................................. $ (0.53) $ 0.40 $ 0.50 ======= ====== ====== Diluted Earnings Per Share: Income/(Loss) Before Extraordinary Item............ $ (0.60) $ 0.41 $ 0.69 Extraordinary Item................................. 0.07 (0.02) (0.21) ------- ------ ------ Net Income/(Loss).................................. $ (0.53) $ 0.39 $ 0.48 ======= ====== ======
------------------------- (1) Options to purchase 62,877 shares were excluded from diluted earnings per share for the year ended December 31, 1998 because including the shares in the denominator for diluted earnings per share would be anti-dilutive as a result of the Net Loss the Company recognized for the year ended December 31, 1998. Weighted average shares outstanding, for diluted earnings per share, excludes options to purchase 15,000 and 8,000 shares in 1998 and 1997, respectively, because the exercise price exceeded the average share price. For additional disclosures regarding outstanding employee stock options see Note 8. In August 1996, the Company issued 1.4 million common shares in connection with its acquisition by merger of Lexford Properties, Inc. (the original owner of the Third Party Management Business), 900,000 shares of which were subject to forfeiture in whole or in part. The 900,000 contingent shares were excluded from the weighted average shares outstanding in 1997 and 1996. On March 13, 1998, the Company negotiated a settlement with the holders of the contingent shares whereby 300,000 of the contingent shares were released in exchange for the forfeiture and cancellation of the remaining 600,000 shares. The 300,000 shares released are included in the weighted average shares outstanding in 1998 (see Note 6). F-28 61 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 15: EARNINGS AND DIVIDENDS PER SHARE (cont'd) Dividends Per Share In order to qualify as a real estate investment trust, the Company must, among other requirements, distribute at least 95% of its real estate investment trust taxable income (exclusive of capital gains) to its shareholders. Per share dividend payments by the Company were characterized in the following manner for income tax purposes:
1998 ----- Ordinary Income....................................... $0.88 Capital Gain Income................................... 0.00 Return of Capital..................................... 0.00 ----- Total Dividends.................................. $0.88 =====
Current federal tax rules generally require that dividends declared during October, November and December of the Company's calendar year and paid prior to January 31st of the following year be included in the income of the Company's shareholders in the year that they are declared. NOTE 16: QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized unaudited consolidated quarterly information for 1998 and 1997 is provided below (amounts in thousands, except per share amounts).
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenues 1998....................................... $29,198 $38,387 $39,192 $39,728 1997....................................... $16,833 $17,025 $17,666 $17,525 Income/(Loss) before Extraordinary Item 1998....................................... $(6,888) $ 1,068 $ 757 $ (469) 1997....................................... $ 1,276 $ 1,655 $ 1,841 $(1,386) Extraordinary Item, net of Income Taxes 1998....................................... $ 0 $ 0 $ 0 $ 631 1997....................................... $ 0 $ (180) $ 0 $ 0 Net Income/(Loss) 1998....................................... $(6,888) $ 1,068 $ 757 $ 162 1997....................................... $ 1,276 $ 1,475 $ 1,841 $(1,386) Earnings per share: Basic Income/(Loss) before Extraordinary Item 1998.................................... $ (0.80) $ 0.12 $ 0.08 $ (0.05) 1997.................................... $ 0.16 $ 0.21 $ 0.23 $ (0.16) Extraordinary Item 1998.................................... $ 0.00 $ 0.00 $ 0.00 $ 0.07 1997.................................... $ 0.00 $ (0.02) $ 0.00 $ 0.00 Net Income/(Loss) 1998.................................... $ (0.80) $ 0.12 $ 0.08 $ 0.02 1997.................................... $ 0.16 $ 0.19 $ 0.23 $ (0.16)
F-29 62 LEXFORD RESIDENTIAL TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTE 16: QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (cont'd)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Diluted Income/(Loss) before Extraordinary Item 1998.................................... $ (0.80) $ 0.11 $ 0.08 $ (0.05) 1997.................................... $ 0.16 $ 0.20 $ 0.22 $ (0.16) Extraordinary Item 1998.................................... $ 0.00 $ 0.00 $ 0.00 $ 0.07 1997.................................... $ 0.00 $ (0.02) $ 0.00 $ 0.00 Net Income/(Loss) 1998.................................... $ (0.80) $ 0.11 $ 0.08 $ 0.02 1997.................................... $ 0.16 $ 0.18 $ 0.22 $ (0.16)
F-30 63 SCHEDULE II LEXFORD RESIDENTIAL TRUST VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS -------------------------------- 1998 1997 1996 -------- -------- -------- Balance at Beginning of Period.............................. $3,547 $3,691 $3,415 Add: Charged to Costs and Expenses: Recovery of Allowances................................. -- (300) Other Allowances....................................... 1,670 389 803 Less: Account Charge Offs................................. (3,052) (533) (227) ------ ------ ------ Balance at End of Period.................................... $2,165 $3,547 $3,691 ====== ====== ======
F-31 64
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- GLENVIEW.................. AL 1,682 1,682 178 1,785 35 -- WOODVALLEY................ AL 1,418 1,418 77 1,416 6 -- AMBERWOOD I............... FL 404 404 18 478 15 -- APPLEWOOD I & II.......... FL 2,220 2,220 292 3,523 822 -- BAYSIDE................... FL 653 653 85 684 39 -- BEL AIRE I................ FL 1,418 1,418 241 1,232 11 -- BEL AIRE II............... FL 1,132 436 81 287 17 -- BERRY PINES............... FL 1,008 1,008 44 1,030 36 -- BLUEBERRY HILL I.......... FL 751 751 64 363 409 -- BRANCHWOOD................ FL 2,303 2,303 188 2,345 33 -- BRANDYWINE E.............. FL 525 525 64 526 17 -- CALIFORNIA GARDENS........ FL 1,139 581 96 521 20 -- CANDLELIGHT I............. FL 606 606 69 664 17 -- CANDLELIGHT II............ FL 601 601 76 635 28 -- CANTERBURY CROSSINGS...... FL 1,281 675 78 386 51 -- CEDARWOOD I............... FL 753 753 63 804 15 -- CEDARWOOD II.............. FL 575 575 46 484 16 -- CENTRE LAKE III........... FL 4,821 4,821 1,211 3,117 121 -- CLEARLAKE PINES II........ FL 1,045 1,045 113 1,033 17 -- COUNTRYSIDE I............. FL 862 862 146 842 21 -- COUNTRYSIDE II............ FL 1,502 1,502 79 1,862 21 -- CYPRESS................... FL 1,014 1,014 58 1,025 41 -- DEERWOOD.................. FL 682 682 67 650 68 -- DRIFTWOOD................. FL 682 682 80 1,130 22 -- ELMWOOD I................. FL 1,358 1,358 298 1,284 182 -- ELMWOOD II................ FL 1,343 1,343 341 1,228 127 -- FOREST GLEN............... FL 1,099 1,099 229 995 86 -- GARDEN TERRACE I.......... FL 604 604 89 801 121 -- GARDEN TERRACE II......... FL 690 690 9 903 31 -- HERON POINTE.............. FL 1,624 1,624 368 1,441 272 -- HICKORY PLACE............. FL 1,339 1,339 191 1,622 17 -- HIDDEN ACRES.............. FL 1,661 1,661 388 1,136 66 -- HIDDEN PINES.............. FL 887 887 59 1,017 21 -- HIGH POINTS............... FL 1,077 1,077 129 918 20 -- HILLCREST VILLAS.......... FL 980 980 79 880 29 -- HILLSIDE TRACE............ FL 1,074 1,074 197 833 19 -- HOLLY RIDGE............... FL 2,366 2,366 625 1,906 11 -- HOLLY SANDS I............. FL 1,395 1,395 229 1,142 55 -- HOLLY SANDS II............ FL 1,047 1,047 232 943 113 -- JEFFERSON WAY I........... FL 1,038 1,038 116 1,063 48 -- JUPITER COVE I............ FL 1,246 1,122 220 805 25 -- JUPITER COVE III.......... FL 1,308 1,308 286 1,026 27 -- MARK LANDING I............ FL 1,319 1,319 251 1,482 82 -- MEADOWOOD II.............. FL 836 836 56 1,039 14 -- MIGUEL PLACE.............. FL 1,482 1,482 237 1,125 38 -- MORNINGSIDE............... FL 1,124 1,124 64 1,269 131 -- MOSSWOOD I................ FL 798 798 54 768 19 -- MOSSWOOD II............... FL 1,534 1,534 64 1,583 37 -- NOVA GLEN I............... FL 896 896 90 930 13 -- NOVA GLEN II.............. FL 1,309 1,309 123 1,316 17 -- NOVAWOOD I................ FL 944 944 88 1,001 28 -- NOVAWOOD II............... FL 835 835 78 945 21 -- OAK GARDENS............... FL 2,574 1,845 582 1,759 18 -- OAK RIDGE................. FL 1,218 1,218 144 1,070 19 -- OAK SHADE................. FL 1,496 1,496 139 1,332 28 -- OAKWOOD MANOR............. FL 1,531 1,531 278 1,365 231 --
F-32 65
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- OAKWOOD VILLAGE........... FL 735 314 103 566 65 -- OLD ARCHER COURT.......... FL 1,007 1,007 104 1,140 19 -- PALATKA OAKS I............ FL 192 192 10 218 6 -- PALATKA OAKS II........... FL 211 211 16 221 6 -- PALM PLACE................ FL 1,379 1,379 231 1,385 18 -- PELICAN POINTE I.......... FL 1,318 1,318 221 1,205 48 -- PELICAN POINTE II......... FL 1,007 1,007 158 1,191 53 -- PINE BARRENS.............. FL 1,515 1,515 302 1,405 104 -- PINE LAKE................. FL 298 298 59 325 9 -- PINE MEADOWS I............ FL 1,083 1,083 197 998 23 -- PINE TERRACE I............ FL 2,193 2,193 246 2,422 79 -- PINELLAS PINES............ FL 1,564 1,564 202 1,369 62 -- RANCHSIDE................. FL 700 700 131 579 16 -- RIVERS END I.............. FL 1,293 1,293 140 1,229 26 -- RIVERS END II............. FL 1,145 1,145 161 937 40 -- SANDPIPER II.............. FL 1,054 1,054 96 1,021 18 -- SANFORD COURT............. FL 1,782 1,782 86 2,056 45 -- SHADOW BAY I.............. FL 1,100 1,100 119 1,160 159 -- SHADOW BAY II............. FL 991 991 74 941 174 -- SHADOW RIDGE.............. FL 1,034 1,034 90 1,601 40 -- SHADOWOOD I............... FL 1,432 1,432 159 1,355 29 -- SHADOWOOD II.............. FL 1,935 1,935 155 1,651 36 -- SILVER FOREST............. FL 859 859 115 893 18 -- SKY PINES I............... FL 1,472 1,472 311 1,226 36 -- SKY PINES II.............. FL 898 898 266 676 91 -- SPRING GATE............... FL 990 990 52 1,036 48 -- STRAWBERRY PLACE.......... FL 791 791 49 770 33 -- SUGARTREE I............... FL 999 999 88 938 19 -- SUNSET WAY I.............. FL 1,643 1,643 621 1,354 62 -- SUNSET WAY II............. FL 2,666 2,117 649 1,678 45 -- SUTTON PLACE.............. FL 868 868 146 715 21 -- TERRACE TRACE............. FL 1,134 1,134 177 1,087 59 -- THE LANDINGS.............. FL 728 728 68 723 46 -- THYMEWOOD II.............. FL 1,586 835 429 732 37 -- TURKSCAP I................ FL 570 570 55 557 35 -- TURKSCAP III.............. FL 769 769 85 658 37 -- UNIVERSITY SQUARE I....... FL 932 932 127 1,053 18 -- WESTCREEK................. FL 1,498 1,498 167 1,426 20 -- WHISPERING PINES II....... FL 587 587 71 505 18 -- WINDWOOD I................ FL 536 536 25 457 78 -- WINDWOOD II............... FL 711 711 34 781 19 -- WINGWOOD.................. FL 1,520 1,520 90 1,761 61 -- WINTER WOODS I............ FL 966 966 134 833 201 -- WOODLAND I................ FL 1,426 1,426 175 1,681 51 -- WOODLAND II............... FL 1,335 1,335 91 1,330 34 -- AUTUMN COVE............... GA 766 766 115 1,002 15 -- BARRINGTON................ GA 1,020 1,020 118 1,095 25 -- CAMDEN WAY I.............. GA 935 935 61 1,202 12 -- CAMDEN WAY II............. GA 774 774 37 839 7 -- CARRIAGE HILL............. GA 720 720 76 763 11 -- CEDARGATE................. GA 901 901 129 1,462 25 -- COUNTRYSIDE MANOR......... GA 1,216 1,216 80 1,470 28 -- ELMWOOD................... GA 863 863 181 893 11 -- FOREST VILLAGE............ GA 1,315 1,315 156 1,588 18 -- GENTIAN OAKS.............. GA 1,233 1,233 165 1,257 10 -- GLEN ARM MANOR............ GA 1,184 1,184 149 1,274 106 --
F-33 66
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- GLENWOOD VILLAGE.......... GA 1,110 1,110 156 1,000 18 -- GREENBRIAR GLEN........... GA 1,561 1,561 274 1,556 34 -- HARBINWOOD................ GA 1,653 1,653 228 1,444 20 -- HATCHERWAY................ GA 754 754 111 1,103 41 -- HILLSIDE MANOR............ GA 637 637 33 631 19 -- HOLLY PARK................ GA 812 812 55 963 5 -- INDIAN LAKE I............. GA 4,390 4,390 898 5,263 83 -- IRIS GLEN................. GA 1,785 1,785 266 1,712 111 -- KINGS COLONY.............. GA 2,089 1,495 238 1,723 45 -- LAKESHORE I............... GA 1,247 1,247 46 995 51 -- LAUREL GLEN............... GA 1,717 1,717 266 1,628 82 -- LINK TERRACE.............. GA 913 913 101 966 14 -- MARSH LANDING I........... GA 814 814 28 1,222 14 -- MARSH LANDING II.......... GA 963 916 30 918 29 -- MEADOWLAND................ GA 1,002 1,002 85 997 316 -- MEADOWOOD I............... GA 1,027 1,027 182 1,802 26 -- MEADOWOOD II.............. GA 943 943 105 908 16 -- MILL RUN.................. GA 1,538 1,538 189 1,260 120 -- MORGAN TRACE.............. GA 1,461 1,461 96 1,330 13 -- NORTHRIDGE................ GA 1,003 1,003 113 1,058 19 -- OAKLEY WOODS.............. GA 1,145 1,145 77 1,049 11 -- OAKWOOD VILLAGE........... GA 1,096 1,096 115 1,602 7 -- PINE KNOLL................ GA 723 723 144 925 23 -- QUAIL CALL................ GA 725 725 77 857 22 -- RAMBLEWOOD I.............. GA 991 991 68 944 17 -- RAMBLEWOOD II............. GA 1,807 1,807 264 1,906 33 -- RAMBLEWOOD II............. GA 491 491 36 463 14 -- REDAN VILLAGE I........... GA 1,246 1,246 129 1,367 126 -- REDAN VILLAGE II.......... GA 1,110 1,110 122 1,320 16 -- RIDGEWOOD I............... GA 1,438 1,438 97 1,691 28 -- RIDGEWOOD II.............. GA 1,023 1,023 88 1,027 15 -- SHADOW TRACE.............. GA 2,032 2,032 417 2,189 49 -- SKY RIDGE................. GA 1,930 1,930 313 3,429 28 -- STEWART WAY I & II........ GA 2,225 2,225 477 3,083 203 -- STILLWATER................ GA 956 956 139 1,173 19 -- STRATFORD LANE I.......... GA 935 935 76 923 10 -- SUNNYSIDE................. GA 1,093 1,093 208 1,221 16 -- TIMBERWOOD................ GA 570 570 42 615 12 -- VALLEYBROOK............... GA 1,548 1,548 129 1,354 58 -- VALLEYFIELD I............. GA 1,652 1,652 202 1,685 117 -- VALLEYFIELD II............ GA 1,054 1,054 166 1,438 143 -- WATERBURY................. GA 675 675 47 867 142 -- WESTWAY................... GA 920 920 57 854 27 -- WHISPERWOOD............... GA 579 579 99 591 15 -- WILCREST WOODS............ GA 1,365 1,365 247 1,189 101 -- WILLOW CREEK I............ GA 846 846 84 744 11 -- WILLOW RUN................ GA 1,731 1,731 194 1,876 136 -- WILLOWOOD................. GA 1,173 1,173 68 1,305 6 -- WOODCLIFF I............... GA 1,226 1,226 119 1,264 18 -- WOODCLIFF II.............. GA 1,683 1,683 273 1,384 15 -- WOODCREST I............... GA 1,174 1,174 122 1,139 26 -- WOODTRAIL................. GA 1,043 1,043 100 1,601 15 -- ANSLEY OAKS............... IL 1,386 1,386 69 1,431 8 -- BRADFORD PLACE............ IL 1,112 1,112 216 719 16 -- BRUNSWICK................. IL 1,413 1,413 54 1,645 41 -- HUNTER GLEN............... IL 991 991 257 1,462 16 --
F-34 67
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- ACADIA COURT.............. IN 2,118 2,118 234 1,887 18 -- ACADIA COURT II........... IN 1,836 1,836 398 1,669 36 -- ANNHURST.................. IN 1,275 1,275 34 1,313 15 -- APPLEGATE................. IN 974 974 153 1,513 10 -- APPLEGATE I............... IN 926 926 99 1,246 8 -- APPLEGATE II.............. IN 1,247 1,247 163 1,815 40 -- ARAGON WOODS.............. IN 1,121 1,121 298 1,249 66 -- ASHGROVE.................. IN 894 894 57 1,366 19 -- BECKFORD PLACE............ IN 717 717 77 947 6 -- BRANDON COURT............. IN 1,451 1,451 113 1,500 26 -- CAMBRIDGE COMMONS I....... IN 911 911 44 1,037 19 -- CAMBRIDGE COMMONS II...... IN 902 902 53 1,334 18 -- CAMBRIDGE COMMONS III..... IN -- -- 1 1,306 89 -- CEDARGATE................. IN 799 799 18 1,063 15 -- CEDARGATE I............... IN 1,159 1,159 122 1,648 11 -- CEDARGATE II.............. IN 1,124 1,124 98 1,115 13 -- CEDARWOOD I............... IN 658 658 40 918 6 -- CEDARWOOD II.............. IN 927 927 33 894 7 -- CHERRY GLEN I............. IN 1,343 1,343 204 1,465 30 -- CHERRY GLENN II........... IN 1,091 1,091 4 1,731 33 -- CLEARVIEW I............... IN 1,153 1,153 113 1,589 17 -- CLEARVIEW II.............. IN 1,310 1,310 118 1,810 15 -- CONCORD SQUARE............ IN 751 751 54 988 32 -- CONCORD SQUARE............ IN 783 783 83 1,186 8 -- DOGWOOD GLEN I............ IN 1,766 1,766 248 1,427 51 -- DOGWOOD GLEN II........... IN 1,385 1,385 145 1,547 13 -- ELMTREE PARK I............ IN 1,177 1,177 208 1,308 75 -- ELMTREE PARK II........... IN 947 947 46 1,108 52 -- HAMPSHIRE COURT........... IN -- -- 30 681 36 -- HARTWICK.................. IN 752 752 61 890 2 -- HEATHMOORE................ IN 1,173 1,173 82 1,148 35 -- HEATHMOORE I.............. IN 1,230 1,230 95 1,336 16 -- MARABOU MILLS I........... IN 1,433 1,433 180 1,570 39 -- MARABOU MILLS II.......... IN 985 985 85 1,190 18 -- MARABOU MILLS III......... IN 1,187 1,187 75 1,099 41 -- MEADOWOOD................. IN 1,037 1,037 119 1,407 15 -- MEADOWOOD................. IN 1,113 1,113 60 1,382 24 -- MEADOWOOD................. IN 648 648 43 755 26 -- MEADOWOOD................. IN 993 993 114 1,197 104 -- MEADOWOOD II.............. IN 727 727 62 1,193 37 -- OLIVEWOOD I............... IN 957 957 102 1,496 18 -- OLIVEWOOD II.............. IN 1,292 1,292 82 1,371 33 -- PARKVILLE................. IN 746 746 46 1,091 13 -- PLUMWOOD.................. IN 467 467 41 672 3 -- PLUMWOOD.................. IN 620 620 34 672 12 -- PRINCETON COURT........... IN 917 917 59 908 15 -- RIDGEWOOD I............... IN 851 851 87 879 11 -- RIDGEWOOD I............... IN 1,190 1,190 100 1,320 22 -- RIDGEWOOD II.............. IN 883 883 95 830 8 -- RIDGEWOOD II.............. IN 1,332 1,332 101 1,565 40 -- ROSEWOOD COMMONS I........ IN 1,887 1,887 196 1,790 44 -- ROSEWOOD COMMONS II....... IN 1,239 1,239 121 1,173 45 -- SHERBROOK................. IN 1,179 1,179 142 1,254 140 -- SLATE RUN................. IN 2,030 2,030 169 2,233 17 --
F-35 68
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- SLATE RUN................. IN 1,233 1,233 71 1,367 8 -- SPICEWOOD................. IN 1,021 1,021 91 1,025 45 -- SPRINGWOOD................ IN 786 786 99 978 32 -- STONEHENGE................ IN 1,200 1,200 71 1,568 21 -- STONEHENGE................ IN 446 446 73 470 6 -- STONEHENGE I.............. IN 1,124 1,124 122 1,358 23 -- WATERBURY................. IN 825 825 93 924 19 -- WESTWOOD.................. IN 714 714 29 696 8 -- WILLOW RUN................ IN 1,132 1,132 199 1,136 44 -- WILLOWOOD EAST II......... IN 800 800 20 848 18 -- WILLOWOOD I............... IN 1,140 1,140 106 1,252 7 -- WILLOWOOD II.............. IN 1,149 1,149 150 1,310 79 -- ASHGROVE.................. KY 1,067 1,067 133 1,259 31 -- CAMELLIA COURT............ KY 622 622 56 976 8 -- CEDARGATE................. KY 1,224 1,224 123 1,555 29 -- CEDARGATE I............... KY 884 884 85 1,359 11 -- CEDARGATE II.............. KY 1,160 1,160 123 966 37 -- CEDARWOOD I............... KY 748 748 143 966 13 -- CEDARWOOD II.............. KY 1,005 1,005 174 913 47 -- CEDARWOOD III............. KY 865 865 123 967 46 -- FORSYTHIA COURT........... KY 1,950 1,950 103 1,599 33 -- HAYFIELD PARK............. KY 1,591 1,591 342 1,681 103 -- HEATHMOORE................ KY 942 942 85 922 30 -- LONGWOOD.................. KY 958 958 161 1,030 11 -- MEADOWOOD................. KY 863 863 80 1,006 17 -- MEADOWOOD................. KY 1,403 1,403 153 1,598 26 -- RIDGEWOOD................. KY 887 887 175 1,162 15 -- RIDGEWOOD................. KY 763 763 85 940 10 -- RIDGEWOOD I............... KY 1,073 1,073 261 1,557 8 -- ROSEWOOD.................. KY 1,634 1,634 248 1,565 27 -- SLATE RUN................. KY 923 923 90 1,061 44 -- SLATE RUN................. KY 778 778 39 808 29 -- SLATE RUN I............... KY 902 902 102 932 29 -- SLATE RUN II.............. KY 1,168 1,168 139 1,025 16 -- SPRINGWOOD................ KY 815 815 86 844 47 -- STONEHENGE................ KY 790 790 71 1,042 10 -- VALLEYFIELD............... KY 1,837 1,837 285 2,039 8 -- WILLOW RUN................ KY 1,129 1,129 94 1,424 34 -- WILLOWOOD................. KY 776 776 48 778 72 -- WILLOWOOD I............... KY 1,016 1,016 127 1,168 22 -- WILLOWOOD II.............. KY 865 865 98 764 15 -- WINTHROP COURT............ KY 1,222 1,222 180 1,142 26 -- WOODLANDS................. KY 736 736 53 849 9 -- CHERRY TREE............... MD 2,085 2,085 623 2,711 65 -- FORSYTHIA CT I............ MD 2,088 2,088 214 1,919 27 -- FORSYTHIA CT II........... MD 2,352 1,769 285 1,598 44 -- MERRIFIELD................ MD 2,076 2,076 211 2,272 53 -- AMBERIDGE................. MI 945 945 75 891 20 -- APPLE RUN................. MI 515 515 76 757 8 -- ASHGROVE.................. MI 840 840 37 936 28 -- ASHGROVE I................ MI 3,324 3,324 120 2,541 34 -- ASHGROVE II............... MI 2,302 2,302 95 2,258 20 -- FOXTON.................... MI 912 912 124 1,056 28 -- GARDEN COURT.............. MI 2,150 2,150 128 2,247 63 -- HEATHMOORE................ MI 1,746 1,746 82 1,605 34 -- HEATHMOORE I.............. MI 1,578 1,578 129 1,330 35 --
F-36 69
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- HEATHMOORE II............. MI 956 956 86 1,519 13 -- LAUREL BAY................ MI 882 882 164 1,160 45 -- MEADOWOOD................. MI 1,340 1,340 74 1,455 24 -- MEADOWOOD I............... MI 944 944 15 1,131 34 -- MONTGOMERY COURT I........ MI 1,228 1,228 70 1,039 17 -- NEWBERRY I................ MI 1,163 1,163 77 1,099 6 -- NEWBERRY II............... MI 1,274 724 91 716 17 -- OLIVEWOOD................. MI 3,421 3,421 304 4,298 72 -- RIDGEWOOD................. MI 1,200 1,200 77 1,209 19 -- ROANOKE................... MI 2,071 2,071 360 2,652 79 -- STONEHENGE................ MI 1,071 1,071 19 1,147 27 -- WATERBURY................. MI 2,141 2,141 257 2,216 25 -- WENTWORTH................. MI 1,868 1,868 100 1,872 37 -- AMBERWOOD................. OH 896 896 172 1,003 31 -- AMESBURY I................ OH 1,239 1,239 136 1,133 59 -- AMESBURY II............... OH 1,295 1,295 169 1,621 56 -- AMHURST................... OH 826 826 174 980 12 -- AMHURST I................. OH 927 927 60 978 12 -- AMHURST II................ OH 960 960 67 1,192 14 -- ANDOVER COURT............. OH 743 743 62 996 15 -- ANNHURST II............... OH 1,084 1,160 123 1,007 124 -- ANNHURST III.............. OH 902 902 70 1,004 154 -- APPLE RIDGE I............. OH 1,046 1,046 214 913 49 -- APPLE RIDGE III........... OH 541 541 38 648 2 -- APPLE RUN II.............. OH 461 461 21 502 31 -- APPLEGATE................. OH 530 530 36 546 34 -- APPLEGATE................. OH 527 527 84 737 5 -- APPLERUN.................. OH 688 688 86 870 9 -- ASHFORD HILL.............. OH 1,400 1,400 360 1,261 97 -- ASHGROVE.................. OH 1,262 1,262 108 1,276 20 -- BECKFORD PLACE............ OH 625 625 49 692 11 -- BECKFORD PLACE............ OH 1,041 1,041 41 1,471 25 -- BECKFORD PLACE I.......... OH 1,181 1,181 218 1,274 20 -- BECKFORD PLACE II......... OH 1,249 1,249 175 1,206 21 -- CAMELLIA COURT............ OH 575 575 40 616 11 -- CAMELLIA COURT I.......... OH 1,097 1,097 21 1,179 24 -- CAMELLIA COURT I.......... OH 1,052 1,052 136 1,431 14 -- CAMELLIA COURT II......... OH 801 801 43 815 8 -- CAMELLIA COURT II......... OH 946 946 107 928 9 -- CEDARGATE I............... OH 2,264 2,264 187 2,202 137 -- CEDARGATE I............... OH 1,237 1,237 85 1,275 12 -- CEDARGATE II.............. OH 709 709 132 777 27 -- CEDARWOOD................. OH 436 436 37 522 42 -- CEDARWOOD I............... OH 627 627 52 784 5 -- CHARING CROSS............. OH 817 817 111 1,073 21 -- CHELSEA COURT............. OH 703 703 113 1,124 22 -- CLEARWATER................ OH 1,046 1,046 132 1,045 67 -- CONCORD SQUARE I.......... OH 660 660 38 678 11 -- CONCORD SQUARE II......... OH 562 562 29 643 7 -- DANIEL COURT.............. OH 2,342 2,342 225 2,105 17 -- DARTMOUTH PLACE I......... OH 1,052 1,052 89 1,359 34 -- DARTMOUTH PLACE II........ OH 858 858 114 1,135 31 -- DOVER PLACE I............. OH 1,157 1,157 148 2,004 36 -- DOVER PLACE II............ OH 1,625 1,625 127 1,810 34 -- DOVER PLACE III........... OH 770 770 70 890 14 -- DOVER PLACE IV............ OH 1,870 1,870 237 2,022 36 --
F-37 70
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- FOXHAVEN.................. OH 1,845 1,845 403 1,657 37 -- FOXTON II................. OH 1,403 1,403 70 1,752 24 -- GREENGLEN................. OH 1,172 1,172 100 1,404 37 -- GREENGLEN II.............. OH 893 893 89 948 23 -- GREENGLEN II.............. OH 827 827 23 1,017 13 -- HAMPSHIRE II.............. OH 860 860 98 957 13 -- HARVEST GROVE I........... OH 1,349 1,349 225 1,276 40 -- HARVEST GROVE II.......... OH 1,093 1,093 252 1,201 32 -- HICKORY MILL.............. OH 1,074 1,074 119 1,359 26 -- INDEPENDENCE VILLAGE...... OH 2,068 2,068 189 2,026 182 -- KETWOOD................... OH 1,648 1,648 164 2,161 24 -- LAMPLIGHT COURT........... OH 98 98 40 727 19 -- LARKSPUR I................ OH 460 460 36 585 12 -- LARKSPUR I................ OH 1,038 1,038 87 1,439 8 -- LARKSPUR II............... OH 221 221 24 246 6 -- LAUREL COURT.............. OH 1,128 1,128 174 1,209 31 -- LINDENDALE................ OH 1,403 1,403 189 1,717 63 -- MEADOWOOD................. OH 430 430 51 574 17 -- MEADOWOOD................. OH 1,833 1,833 316 2,644 15 -- MEADOWOOD................. OH 1,307 1,307 136 1,448 47 -- MEADOWOOD APTS............ OH 994 994 71 985 14 -- MEADOWOOD I............... OH 1,053 1,053 120 1,330 20 -- MEADOWOOD II.............. OH 485 485 70 532 11 -- MELDON PLACE.............. OH 1,881 1,881 331 1,552 51 -- MILLBURN.................. OH 1,241 1,241 135 1,474 10 -- MILLBURN COURT II......... OH 910 910 137 1,138 26 -- MILLSTON I................ OH 451 451 31 466 13 -- MILLSTON II............... OH 336 336 7 446 9 -- MONTGOMERY COURT I........ OH 1,282 1,282 246 1,401 25 -- MONTGOMERY COURT II....... OH 842 842 121 661 23 -- MONTROSE SQUARE........... OH 1,741 1,741 569 2,185 102 -- PARKVILLE................. OH 1,757 1,757 222 1,581 120 -- PARKVILLE................. OH 604 604 76 935 18 -- PLUMWOOD I................ OH 1,731 1,731 169 2,204 29 -- PLUMWOOD II............... OH 456 456 38 801 3 -- RED DEER I................ OH 1,328 1,328 183 1,751 24 -- RED DEER II............... OH 1,206 1,206 235 1,475 30 -- RIDGEWOOD I............... OH 1,200 1,200 85 1,142 21 -- RIDGEWOOD II.............. OH 1,160 1,160 70 1,047 23 -- RIVER GLEN I.............. OH 1,030 1,030 146 1,287 26 -- RIVER GLEN II............. OH 1,167 1,167 179 1,230 10 -- RIVERVIEW ESTATES......... OH 1,104 1,104 74 1,609 133 -- ROSEWOOD.................. OH 1,314 1,314 139 1,452 54 -- SANDALWOOD................ OH 1,105 1,105 179 970 34 -- SHERBROOK................. OH 1,100 1,100 147 1,249 4 -- SLATE RUN................. OH 875 875 118 1,012 7 -- SPRINGWOOD................ OH 1,096 1,096 130 1,310 22 -- SPRINGWOOD II............. OH 591 591 52 840 17 -- STONEHENGE................ OH 567 567 30 734 9 -- STONEHENGE................ OH 634 634 40 670 31 -- STONEHENGE................ OH 1,201 1,201 72 1,341 19 -- SUFFOLK GROVE I........... OH 1,223 1,223 124 1,262 8 -- SUFFOLK GROVE II.......... OH 1,067 1,067 154 1,248 20 -- TABOR RIDGE............... OH 1,742 1,742 194 1,806 19 -- THE BIRCHES............... OH 980 980 70 1,004 19 -- THE MEADOWS I............. OH 798 798 83 1,014 27 --
F-38 71
- ------------------------------------------------------------------------------------------------------------- LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D - ------------------------------------------------------------------------------------------------------------- DESCRIPTION INITIAL COST COSTS CAPITALIZED (GARDEN APARTMENTS) ENCUMBRANCES TO THE COMPANY SUBSEQUENT TO ACQUISITION - ------------------------------------------------------------------------------------------------------------- AT AT STATED BUILDINGS CONTRACTUAL CARRYING and CARRYING PROPERTY NAME ST VALUE VALUE LAND IMPROVEMENTS IMPROVEMENTS COSTS - ------------------------------------------------------------------------------------------------------------- THE MEADOWS II............ OH 1,168 1,168 151 1,200 34 -- THE WILLOWS I............. OH 576 576 158 762 76 -- THE WILLOWS II............ OH 650 650 34 865 21 -- THE WILLOWS III........... OH 871 871 45 871 21 -- TIMBERCREEK............... OH 1,561 1,561 159 1,681 18 -- WATERBURY................. OH 1,161 1,161 186 998 10 -- WEST OF EASTLAND.......... OH 2,025 2,025 154 2,552 45 -- WESTWOOD.................. OH 96 96 17 104 4 -- WILLOW RUN................ OH 865 865 56 1,015 10 -- WILLOWOOD I............... OH 764 764 90 927 11 -- WILLOWOOD I............... OH 948 948 91 1,114 11 -- WILLOWOOD II.............. OH 553 553 42 574 5 -- WILLOWOOD II.............. OH 869 869 71 824 17 -- WILLOWOOD II.............. OH 930 930 36 622 27 -- WINTHROP COURT II......... OH 749 749 146 825 29 -- WOODBINE.................. OH 638 638 66 698 8 -- WOODBINE.................. OH 1,063 1,063 122 1,659 9 -- WOODLANDS I............... OH 1,824 1,824 181 1,957 146 -- WOODLANDS I............... OH 1,460 1,460 103 1,839 24 -- WOODLANDS II.............. OH 1,319 1,319 112 1,413 146 -- WOODLANDS II.............. OH 1,590 1,590 98 1,837 50 -- WOODLANDS III............. OH 1,939 1,939 159 2,019 32 -- ANNHURST.................. PA 1,985 1,985 77 2,004 37 -- BRUNSWICK I............... PA 1,720 1,720 126 2,077 134 -- CARLETON COURT............ PA 1,112 1,112 143 1,226 22 -- NORTHRUP COURT I.......... PA 1,377 1,377 154 1,482 28 -- NORTHRUP COURT II......... PA 902 902 88 858 80 -- VALLEYFIELD............... PA 2,046 2,046 257 1,748 42 -- WOODLANDS I............... PA 1,041 1,041 113 1,179 8 -- WOODLANDS II.............. PA 1,146 1,146 118 1,347 43 -- RAVENWOOD................. SC 1,623 1,623 170 1,508 48 -- SPRINGBROOK............... SC 1,717 1,717 120 1,762 124 -- WILLOW LAKES.............. SC 2,068 2,068 189 1,738 68 -- CEDAR HILL................ TN 1,465 1,465 235 1,331 61 -- KNOX LANDING.............. TN 1,576 1,576 90 1,497 33 -- WATERBURY................. TN 963 963 101 1,078 13 -- WYCLIFFE COURT............ TN 1,160 1,160 124 1,206 21 -- WALKER PLACE.............. TX 1,165 1,165 270 1,196 -- -- BRUNSWICK II.............. WV 1,304 1,304 105 1,696 135 -- CARLETON COURT............ WV 1,365 1,365 308 1,656 13 -- HICKORY MILL I............ WV 935 935 85 958 14 -- PARKVILLE................. WV 781 781 70 883 4 -- SHERBROOK................. WV 1,322 1,322 355 1,492 39 -- -------------------------------------------------------------------------- $500,688 $494,556 $59,755 $536,290 $17,380 $-- -------------------------------------------------------------------------- --------------------------------------------------------------------------
F-39 72
- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ GLENVIEW................... AL 178 1,631 1,809 163 08/01/86 N/A 5-31 WOODVALLEY................. AL 77 1,422 1,499 46 03/03/86 01/31/98 5-28 AMBERWOOD I................ FL 18 493 511 21 11/01/81 01/31/98 5-24 APPLEWOOD I & II........... FL 292 4,344 4,636 158 05/01/82 01/31/98 5-24 BAYSIDE.................... FL 85 723 808 27 05/01/82 01/31/98 5-24 BEL AIRE I................. FL 241 1,243 1,484 41 08/14/85 01/31/98 5-28 BEL AIRE II................ FL 81 413 494 41 01/01/86 N/A 5-30 BERRY PINES................ FL 44 1,066 1,110 37 04/01/85 01/31/98 5-27 BLUEBERRY HILL I........... FL 64 771 835 50 12/01/86 N/A 5-31 BRANCHWOOD................. FL 188 2,378 2,566 94 04/01/81 01/31/98 5-23 BRANDYWINE E............... FL 64 544 608 21 09/01/81 01/31/98 5-24 CALIFORNIA GARDENS......... FL 96 416 512 42 07/01/87 N/A 5-32 CANDLELIGHT I.............. FL 69 681 750 28 10/01/82 01/31/98 5-25 CANDLELIGHT II............. FL 76 662 738 25 05/27/85 01/31/98 5-27 CANTERBURY CROSSINGS....... FL 78 597 675 64 12/01/83 N/A 5-28 CEDARWOOD I................ FL 63 819 882 40 03/01/78 01/31/98 5-20 CEDARWOOD II............... FL 46 501 547 23 04/01/80 01/31/98 5-22 CENTRE LAKE III............ FL 1,211 3,224 4,435 334 06/01/86 N/A 5-30 CLEARLAKE PINES II......... FL 113 1,050 1,163 37 07/01/85 01/31/98 5-27 COUNTRYSIDE I.............. FL 146 862 1,008 36 04/01/82 01/31/98 5-24 COUNTRYSIDE II............. FL 79 1,883 1,962 74 04/01/82 01/31/98 5-24 CYPRESS.................... FL 58 1,066 1,124 39 03/01/85 01/31/98 5-27 DEERWOOD................... FL 67 718 785 29 08/01/82 01/31/98 5-25 DRIFTWOOD.................. FL 80 1,151 1,231 42 05/15/85 01/31/98 5-27 ELMWOOD I.................. FL 298 1,466 1,764 47 03/01/84 01/31/98 5-26 ELMWOOD II................. FL 341 1,354 1,695 45 10/01/84 01/31/98 5-27 FOREST GLEN................ FL 229 989 1,218 100 01/01/86 N/A 5-30 GARDEN TERRACE I........... FL 89 921 1,010 115 09/01/81 N/A 5-26 GARDEN TERRACE II.......... FL 9 934 943 37 10/01/82 01/31/98 5-25 HERON POINTE............... FL 368 1,670 2,038 162 01/01/86 N/A 5-30 HICKORY PLACE.............. FL 191 1,639 1,830 60 08/01/83 01/31/98 5-26 HIDDEN ACRES............... FL 388 503 891 55 01/01/87 N/A 5-31 HIDDEN PINES............... FL 59 1,038 1,097 43 07/01/81 01/31/98 5-23 HIGH POINTS................ FL 129 937 1,066 35 04/01/86 01/31/98 5-28 HILLCREST VILLAS........... FL 79 909 988 34 04/22/85 01/31/98 5-27 HILLSIDE TRACE............. FL 197 851 1,048 82 09/01/87 N/A 5-32 HOLLY RIDGE................ FL 625 1,917 2,542 63 01/01/86 01/31/98 5-28 HOLLY SANDS I.............. FL 229 1,197 1,426 44 04/01/85 01/31/98 5-27 HOLLY SANDS II............. FL 232 1,035 1,267 119 06/01/86 N/A 5-30 JEFFERSON WAY I............ FL 116 1,089 1,205 106 08/01/87 N/A 5-32 JUPITER COVE I............. FL 220 903 1,123 88 09/01/87 N/A 5-32 JUPITER COVE III........... FL 286 1,052 1,338 102 09/01/87 N/A 5-32 MARK LANDING I............. FL 251 1,561 1,812 169 11/01/87 N/A 5-32 MEADOWOOD II............... FL 56 1,052 1,108 35 11/01/80 04/01/98 5-23 MIGUEL PLACE............... FL 237 1,121 1,358 109 10/01/87 N/A 5-32 MORNINGSIDE................ FL 64 1,400 1,464 55 01/01/84 01/31/98 5-26 MOSSWOOD I................. FL 54 787 841 32 08/01/81 01/31/98 5-24 MOSSWOOD II................ FL 64 1,620 1,684 63 05/01/82 01/31/98 5-24 NOVA GLEN I................ FL 90 943 1,033 34 06/08/84 01/31/98 5-26 NOVA GLEN II............... FL 123 1,332 1,455 46 01/01/86 01/31/98 5-28 NOVAWOOD I................. FL 88 1,029 1,117 44 05/01/80 01/31/98 5-22 NOVAWOOD II................ FL 78 966 1,044 41 09/01/80 01/31/98 5-23 OAK GARDENS................ FL 582 1,267 1,849 123 01/01/88 N/A 5-32 OAK RIDGE.................. FL 144 1,089 1,233 39 05/17/85 01/31/98 5-27 OAK SHADE.................. FL 139 1,359 1,498 48 04/01/85 01/31/98 5-27
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- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ OAKWOOD MANOR.............. FL 278 1,596 1,874 52 04/01/86 01/31/98 5-28 OAKWOOD VILLAGE............ FL 103 275 378 31 01/01/86 N/A 5-30 OLD ARCHER COURT........... FL 104 1,160 1,264 46 08/01/77 04/01/98 5-19 PALATKA OAKS I............. FL 10 224 234 12 08/01/77 01/31/98 5-20 PALATKA OAKS II............ FL 16 227 243 10 08/01/80 01/31/98 5-23 PALM PLACE................. FL 231 1,403 1,634 53 01/01/84 01/31/98 5-26 PELICAN POINTE I........... FL 221 1,250 1,471 122 11/01/87 N/A 5-32 PELICAN POINTE II.......... FL 158 1,164 1,322 114 11/01/87 N/A 5-32 PINE BARRENS............... FL 302 1,507 1,809 158 06/01/86 N/A 5-30 PINE LAKE.................. FL 59 334 393 14 10/01/82 01/31/98 5-25 PINE MEADOWS I............. FL 197 1,020 1,217 37 02/01/85 01/31/98 5-27 PINE TERRACE I............. FL 246 2,501 2,747 89 08/01/83 01/31/98 5-26 PINELLAS PINES............. FL 202 1,431 1,633 51 12/01/83 01/31/98 5-26 RANCHSIDE.................. FL 131 594 725 24 08/01/85 01/31/98 5-28 RIVERS END I............... FL 140 1,255 1,395 43 02/01/86 01/31/98 5-28 RIVERS END II.............. FL 161 949 1,110 98 01/01/86 N/A 5-30 SANDPIPER II............... FL 96 1,039 1,135 39 09/01/82 01/31/98 5-25 SANFORD COURT.............. FL 86 2,101 2,187 104 11/01/76 01/31/98 5-19 SHADOW BAY I............... FL 119 1,320 1,439 45 04/01/84 01/31/98 5-26 SHADOW BAY II.............. FL 74 1,114 1,188 39 08/01/85 01/31/98 5-28 SHADOW RIDGE............... FL 90 1,641 1,731 61 10/01/83 01/31/98 5-26 SHADOWOOD I................ FL 159 1,384 1,543 56 01/01/82 01/31/98 5-24 SHADOWOOD II............... FL 155 1,687 1,842 60 05/01/83 01/31/98 5-25 SILVER FOREST.............. FL 115 911 1,026 34 02/01/85 01/31/98 5-27 SKY PINES I................ FL 311 1,262 1,573 44 01/01/86 01/31/98 5-28 SKY PINES II............... FL 266 766 1,032 94 06/01/86 N/A 5-30 SPRING GATE................ FL 52 1,084 1,136 40 11/01/83 01/31/98 5-26 STRAWBERRY PLACE........... FL 49 803 852 31 06/01/82 01/31/98 5-24 SUGARTREE I................ FL 76 957 1,033 35 06/01/84 01/31/98 5-26 SUNSET WAY I............... FL 621 1,414 2,035 140 08/01/87 N/A 5-32 SUNSET WAY II.............. FL 649 1,520 2,169 147 04/27/88 N/A 5-32 SUTTON PLACE............... FL 146 737 883 28 07/01/84 01/31/98 5-26 TERRACE TRACE.............. FL 177 1,146 1,323 42 05/01/85 01/31/98 5-27 THE LANDINGS............... FL 68 769 837 31 04/01/84 01/31/98 5-26 THYMEWOOD II............... FL 429 400 829 43 01/01/86 N/A 5-30 TURKSCAP I................. FL 55 591 646 29 12/01/77 01/31/98 5-20 TURKSCAP III............... FL 85 695 780 27 11/01/82 01/31/98 5-25 UNIVERSITY SQUARE I........ FL 127 1,070 1,197 39 07/01/79 04/01/98 5-21 WESTCREEK.................. FL 167 1,446 1,613 48 01/01/86 01/31/98 5-28 WHISPERING PINES II........ FL 71 523 594 54 03/31/86 N/A 5-30 WINDWOOD I................. FL 25 535 560 55 05/01/88 N/A 5-32 WINDWOOD II................ FL 34 800 834 29 12/31/87 01/31/98 5-30 WINGWOOD................... FL 90 1,822 1,912 65 11/01/80 04/01/98 5-23 WINTER WOODS I............. FL 134 1,033 1,167 31 07/01/85 01/31/98 5-27 WOODLAND I................. FL 175 1,732 1,907 64 07/01/84 01/31/98 5-26 WOODLAND II................ FL 91 1,363 1,454 48 08/01/85 01/31/98 5-28 AUTUMN COVE................ GA 115 1,017 1,132 34 06/26/85 01/31/98 5-27 BARRINGTON................. GA 118 1,120 1,238 39 11/26/84 01/31/98 5-27 CAMDEN WAY I............... GA 61 1,214 1,275 42 02/01/85 01/31/98 5-27 CAMDEN WAY II.............. GA 37 846 883 29 02/01/86 01/31/98 5-28 CARRIAGE HILL.............. GA 76 774 850 28 04/29/85 01/31/98 5-27 CEDARGATE.................. GA 129 1,487 1,616 45 03/01/83 04/01/98 5-25 COUNTRYSIDE MANOR.......... GA 80 1,499 1,579 53 02/22/85 01/31/98 5-27 ELMWOOD.................... GA 181 904 1,085 32 09/07/84 01/31/98 5-27 FOREST VILLAGE............. GA 156 1,606 1,762 59 10/21/83 01/31/98 5-26
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- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ GENTIAN OAKS............... GA 165 1,267 1,432 43 05/10/85 01/31/98 5-27 GLEN ARM MANOR............. GA 149 1,245 1,394 148 01/01/86 N/A 5-30 GLENWOOD VILLAGE........... GA 156 674 830 68 12/01/86 N/A 5-31 GREENBRIAR GLEN............ GA 274 1,536 1,810 143 03/28/88 N/A 5-32 HARBINWOOD................. GA 228 1,464 1,692 52 08/15/85 01/31/98 5-28 HATCHERWAY................. GA 111 1,112 1,223 78 01/01/86 N/A 5-30 HILLSIDE MANOR............. GA 33 649 682 26 08/26/85 01/31/98 5-28 HOLLY PARK................. GA 55 968 1,023 32 12/06/85 01/31/98 5-28 INDIAN LAKE I.............. GA 898 4,957 5,855 480 08/11/87 N/A 5-32 IRIS GLEN.................. GA 266 1,823 2,089 62 03/09/84 01/31/98 5-26 KINGS COLONY............... GA 238 1,272 1,510 124 11/15/87 N/A 5-32 LAKESHORE I................ GA 46 945 991 101 06/20/86 N/A 5-31 LAUREL GLEN................ GA 266 1,707 1,973 177 04/04/86 N/A 5-30 LINK TERRACE............... GA 101 980 1,081 35 08/01/84 01/31/98 5-27 MARSH LANDING I............ GA 28 1,236 1,264 45 07/01/84 01/31/98 5-26 MARSHLANDING II............ GA 30 908 938 91 12/31/86 N/A 5-31 MEADOWLAND................. GA 85 1,313 1,398 38 06/11/84 01/31/98 5-26 MEADOWOOD I................ GA 182 1,828 2,010 57 11/01/82 04/01/98 5-25 MEADOWOOD II............... GA 105 924 1,029 34 04/02/84 01/31/98 5-26 MILL RUN................... GA 189 1,379 1,568 150 04/14/86 N/A 5-30 MORGAN TRACE............... GA 96 1,344 1,440 45 05/16/86 01/31/98 5-28 NORTHRIDGE................. GA 113 1,077 1,190 37 08/22/85 01/31/98 5-28 OAKLEY WOODS............... GA 77 1,060 1,137 37 10/15/84 01/31/98 5-27 OAKWOOD VILLAGE............ GA 115 1,609 1,724 52 11/30/85 01/31/98 5-28 PINE KNOLL................. GA 144 948 1,092 33 04/12/85 01/31/98 5-27 QUAIL CALL................. GA 77 879 956 32 10/01/84 01/31/98 5-27 RAMBLEWOOD I............... GA 68 961 1,029 37 02/01/83 01/31/98 5-25 RAMBLEWOOD II.............. GA 264 1,797 2,061 177 10/01/86 N/A 5-31 RAMBLEWOOD II.............. GA 36 477 513 18 10/01/83 01/31/98 5-26 REDAN VILLAGE I............ GA 129 1,493 1,622 49 10/19/84 01/31/98 5-27 REDAN VILLAGE II........... GA 122 1,336 1,458 45 02/17/86 01/31/98 5-28 RIDGEWOOD I................ GA 97 1,719 1,816 50 03/04/84 04/01/98 5-26 RIDGEWOOD II............... GA 88 1,043 1,131 35 03/03/86 01/31/98 5-28 SHADOW TRACE............... GA 417 2,238 2,655 79 07/13/84 01/31/98 5-26 SKY RIDGE.................. GA 313 3,457 3,770 93 05/11/87 04/01/98 5-29 STEWART WAY I & II......... GA 477 3,269 3,746 349 01/01/86 N/A 5-30 STILLWATER................. GA 139 1,192 1,331 43 05/01/83 01/31/98 5-25 STRATFORD LANE I........... GA 76 933 1,009 33 12/31/84 01/31/98 5-27 SUNNYSIDE.................. GA 208 1,237 1,445 45 06/01/84 01/31/98 5-26 TIMBERWOOD................. GA 42 627 669 23 05/25/85 01/31/98 5-27 VALLEYBROOK................ GA 129 1,409 1,538 148 10/15/86 N/A 5-31 VALLEYFIELD I.............. GA 202 1,802 2,004 60 05/18/84 01/31/98 5-26 VALLEYFIELD II............. GA 166 1,580 1,746 49 09/30/85 01/31/98 5-28 WATERBURY.................. GA 47 1,008 1,055 30 06/12/85 01/31/98 5-27 WESTWAY.................... GA 57 880 937 32 12/01/84 01/31/98 5-27 WHISPERWOOD................ GA 99 605 704 24 07/15/85 01/31/98 5-27 WILCREST WOODS............. GA 247 1,257 1,504 136 12/31/86 N/A 5-31 WILLOW CREEK I............. GA 84 754 838 27 05/08/85 01/31/98 5-27 WILLOW RUN................. GA 194 2,012 2,206 59 08/22/83 04/01/98 5-25 WILLOWOOD.................. GA 68 1,311 1,379 46 04/07/84 01/31/98 5-26 WOODCLIFF I................ GA 119 1,282 1,401 45 12/31/84 01/31/98 5-27 WOODCLIFF II............... GA 273 1,399 1,672 46 01/13/86 01/31/98 5-28 WOODCREST I................ GA 122 1,166 1,288 42 12/31/84 01/31/98 5-27 WOODTRAIL.................. GA 100 1,616 1,716 55 10/15/84 01/31/98 5-27 ANSLEY OAKS................ IL 69 1,439 1,508 47 05/01/86 01/31/98 5-28
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- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ BRADFORD PLACE............. IL 216 632 848 65 07/23/86 N/A 5-31 BRUNSWICK.................. IL 54 1,648 1,702 167 04/01/86 N/A 5-30 HUNTER GLEN................ IL 257 1,331 1,588 131 03/01/87 N/A 5-31 ACADIA COURT............... IN 234 1,905 2,139 65 08/19/85 01/31/98 5-28 ACADIA COURT II............ IN 398 1,637 2,035 165 06/06/86 N/A 5-30 ANNHURST................... IN 34 1,328 1,362 49 02/15/85 01/31/98 5-27 APPLEGATE.................. IN 153 1,522 1,675 46 09/11/82 04/01/98 5-24 APPLEGATE I................ IN 99 1,254 1,353 44 03/01/84 01/31/98 5-26 APPLEGATE II............... IN 163 1,852 2,015 183 06/01/87 N/A 5-31 ARAGON WOODS............... IN 298 1,238 1,536 119 12/26/86 N/A 5-31 ASHGROVE................... IN 57 1,385 1,442 51 08/01/83 01/31/98 5-26 BECKFORD PLACE............. IN 77 953 1,030 33 06/13/84 01/31/98 5-26 BRANDON COURT.............. IN 113 1,526 1,639 54 10/01/84 01/31/98 5-27 CAMBRIDGE COMMONS I........ IN 44 1,056 1,100 37 05/01/86 01/31/98 5-28 CAMBRIDGE COMMONS II....... IN 53 1,351 1,404 47 03/07/87 01/31/98 5-29 CAMBRIDGE COMMONS III...... IN 1 1,261 1,262 122 01/29/88 N/A 5-32 CEDARGATE.................. IN 18 1,078 1,096 38 11/01/83 01/31/98 5-26 CEDARGATE I................ IN 122 1,659 1,781 50 11/01/83 04/01/98 5-26 CEDARGATE II............... IN 98 1,128 1,226 39 06/01/85 01/31/98 5-27 CEDARWOOD I................ IN 40 924 964 27 03/11/83 04/01/98 5-25 CEDARWOOD II............... IN 33 901 934 25 08/03/84 04/01/98 5-26 CHERRY GLEN I.............. IN 204 1,480 1,684 149 07/10/86 N/A 5-31 CHERRY GLENN II............ IN 4 1,714 1,718 169 04/01/87 N/A 5-31 CLEARVIEW I................ IN 113 1,606 1,719 53 06/19/86 01/31/98 5-28 CLEARVIEW II............... IN 118 1,825 1,943 58 02/01/87 01/31/98 5-29 CONCORD SQUARE............. IN 54 1,020 1,074 43 05/04/82 01/31/98 5-24 CONCORD SQUARE............. IN 83 1,194 1,277 43 06/01/83 01/31/98 5-25 DOGWOOD GLEN I............. IN 248 1,335 1,583 130 07/18/86 N/A 5-31 DOGWOOD GLEN II............ IN 145 1,560 1,705 49 04/13/87 01/31/98 5-29 ELMTREE PARK I............. IN 208 1,247 1,455 121 06/08/86 N/A 5-30 ELMTREE PARK II............ IN 46 1,157 1,203 111 05/01/87 N/A 5-31 HAMPSHIRE COURT............ IN 30 717 747 29 04/04/82 01/31/98 5-24 HARTWICK................... IN 61 892 953 33 10/18/82 01/31/98 5-25 HEATHMOORE................. IN 82 1,183 1,265 45 08/03/84 01/31/98 5-27 HEATHMOORE I............... IN 95 1,353 1,448 49 08/01/83 01/31/98 5-26 MARABOU MILLS I............ IN 180 1,607 1,787 167 06/23/86 N/A 5-31 MARABOU MILLS II........... IN 85 1,162 1,247 108 N/A 10/29/93 5-33 MARABOU MILLS III.......... IN 75 1,139 1,214 113 12/01/87 N/A 5-32 MEADOWOOD.................. IN 119 1,421 1,540 52 04/04/83 01/31/98 5-25 MEADOWOOD.................. IN 60 1,406 1,466 53 04/03/83 01/31/98 5-25 MEADOWOOD.................. IN 43 781 824 28 07/02/84 01/31/98 5-26 MEADOWOOD.................. IN 114 1,301 1,415 48 04/07/84 01/31/98 5-26 MEADOWOOD II............... IN 62 1,077 1,139 111 05/30/86 N/A 5-30 OLIVEWOOD I................ IN 102 1,514 1,616 53 05/09/85 01/31/98 5-27 OLIVEWOOD II............... IN 82 1,404 1,486 48 02/18/86 01/31/98 5-28 PARKVILLE.................. IN 46 1,105 1,151 41 11/01/82 01/31/98 5-25 PLUMWOOD................... IN 41 675 716 27 11/25/80 01/31/98 5-23 PLUMWOOD................... IN 34 684 718 28 05/15/81 01/31/98 5-23 PRINCETON COURT............ IN 59 923 982 32 06/07/85 01/31/98 5-27 RIDGEWOOD I................ IN 87 891 978 31 07/02/84 01/31/98 5-26 RIDGEWOOD I................ IN 100 1,342 1,442 110 N/A 08/01/96 5-30 RIDGEWOOD II............... IN 95 838 933 28 02/26/86 01/31/98 5-28 RIDGEWOOD II............... IN 101 1,455 1,556 148 03/01/86 N/A 5-30 ROSEWOOD COMMONS I......... IN 196 1,833 2,029 66 01/11/86 01/31/98 5-28 ROSEWOOD COMMONS II........ IN 121 1,216 1,337 121 06/01/87 N/A 5-31
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- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ SHERBROOK.................. IN 142 1,342 1,484 132 06/16/86 N/A 5-31 SLATE RUN.................. IN 169 2,250 2,419 66 01/25/84 04/01/98 5-26 SLATE RUN.................. IN 71 1,374 1,445 47 07/13/84 01/31/98 5-26 SPICEWOOD.................. IN 91 1,026 1,117 107 03/16/86 N/A 5-30 SPRINGWOOD................. IN 99 1,010 1,109 39 10/01/81 01/31/98 5-24 STONEHENGE................. IN 71 1,589 1,660 54 06/25/84 01/31/98 5-26 STONEHENGE................. IN 73 476 549 17 04/22/85 01/31/98 5-27 STONEHENGE I............... IN 122 1,380 1,502 49 06/30/84 01/31/98 5-26 WATERBURY.................. IN 93 942 1,035 35 05/31/84 01/31/98 5-26 WESTWOOD................... IN 29 703 732 26 05/03/84 01/31/98 5-26 WILLOW RUN................. IN 199 1,180 1,379 46 07/01/84 01/31/98 5-26 WILLOWOOD EAST II.......... IN 20 865 885 29 07/08/85 01/31/98 5-27 WILLOWOOD I................ IN 106 1,259 1,365 38 07/05/83 04/01/98 5-25 WILLOWOOD II............... IN 150 1,280 1,430 128 06/01/87 N/A 5-31 ASHGROVE................... KY 133 1,290 1,423 46 08/01/84 01/31/98 5-27 CAMELLIA COURT............. KY 56 984 1,040 36 11/15/82 01/31/98 5-25 CEDARGATE.................. KY 123 1,583 1,706 56 07/01/84 01/31/98 5-26 CEDARGATE I................ KY 85 1,370 1,455 50 07/23/83 01/31/98 5-26 CEDARGATE II............... KY 123 905 1,028 94 06/01/86 N/A 5-30 CEDARWOOD I................ KY 143 979 1,122 35 06/22/84 01/31/98 5-26 CEDARWOOD II............... KY 174 929 1,103 98 01/01/86 N/A 5-30 CEDARWOOD III.............. KY 123 1,011 1,134 108 05/20/86 N/A 5-30 FORSYTHIA COURT............ KY 103 1,632 1,735 58 06/07/85 01/31/98 5-27 HAYFIELD PARK.............. KY 342 1,608 1,950 163 07/17/86 N/A 5-31 HEATHMOORE................. KY 85 952 1,037 38 09/21/83 01/31/98 5-26 LONGWOOD................... KY 161 1,041 1,202 38 08/10/85 01/31/98 5-28 MEADOWOOD.................. KY 80 1,023 1,103 37 06/01/83 01/31/98 5-25 MEADOWOOD.................. KY 153 1,624 1,777 58 11/28/83 01/31/98 5-26 RIDGEWOOD.................. KY 175 1,177 1,352 42 05/21/84 01/31/98 5-26 RIDGEWOOD.................. KY 85 950 1,035 34 06/01/84 01/31/98 5-26 RIDGEWOOD I................ KY 261 1,565 1,826 44 07/19/84 04/01/98 5-26 ROSEWOOD................... KY 248 1,592 1,840 55 09/28/84 01/31/98 5-27 SLATE RUN.................. KY 90 1,105 1,195 41 07/02/84 01/31/98 5-26 SLATE RUN.................. KY 39 836 875 30 07/19/84 01/31/98 5-26 SLATE RUN I................ KY 102 961 1,063 35 07/02/84 01/31/98 5-26 SLATE RUN II............... KY 139 1,041 1,180 38 04/29/85 01/31/98 5-27 SPRINGWOOD................. KY 86 890 976 93 01/01/86 N/A 5-30 STONEHENGE................. KY 71 1,052 1,123 39 08/01/83 01/31/98 5-26 VALLEYFIELD................ KY 285 2,047 2,332 69 08/01/85 01/31/98 5-28 WILLOW RUN................. KY 94 1,458 1,552 54 09/18/84 01/31/98 5-27 WILLOWOOD.................. KY 48 849 897 30 09/24/84 01/31/98 5-27 WILLOWOOD I................ KY 127 1,189 1,316 42 08/20/84 01/31/98 5-27 WILLOWOOD II............... KY 98 778 876 27 11/06/85 01/31/98 5-28 WINTHROP COURT............. KY 180 1,169 1,349 42 06/07/85 01/31/98 5-27 WOODLANDS.................. KY 53 858 911 32 07/01/83 01/31/98 5-25 CHERRY TREE................ MD 623 2,492 3,115 249 09/01/86 N/A 5-31 FORSYTHIA CT I............. MD 214 1,946 2,160 65 02/28/86 01/31/98 5-28 FORSYTHIA CT II............ MD 285 1,515 1,800 146 06/01/87 N/A 5-31 MERRIFIELD................. MD 211 2,250 2,461 214 01/11/88 N/A 5-32 AMBERIDGE.................. MI 75 911 986 30 12/02/85 01/31/98 5-28 APPLE RUN.................. MI 76 765 841 29 12/27/82 01/31/98 5-25 ASHGROVE................... MI 37 963 1,000 37 08/15/83 01/31/98 5-26 ASHGROVE I................. MI 120 2,575 2,695 88 11/15/85 01/31/98 5-28 ASHGROVE II................ MI 95 2,278 2,373 73 01/09/87 01/31/98 5-29 FOXTON..................... MI 124 1,084 1,208 40 08/22/83 01/31/98 5-26
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- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ GARDEN COURT............... MI 128 2,223 2,351 210 04/22/88 N/A 5-32 HEATHMOORE................. MI 82 1,639 1,721 60 11/23/83 01/31/98 5-26 HEATHMOORE I............... MI 129 1,226 1,355 124 07/31/86 N/A 5-31 HEATHMOORE II.............. MI 86 1,532 1,618 49 12/12/86 01/31/98 5-29 LAUREL BAY................. MI 164 1,116 1,280 100 10/01/89 N/A 5-34 MEADOWOOD.................. MI 74 1,479 1,553 51 09/24/84 01/31/98 5-27 MEADOWOOD I................ MI 15 1,166 1,181 36 01/17/83 04/01/98 5-25 MONTGOMERY COURT I......... MI 70 1,056 1,126 39 11/26/84 01/31/98 5-27 NEWBERRY I................. MI 77 1,106 1,183 38 01/15/85 01/31/98 5-27 NEWBERRY II................ MI 91 643 734 64 12/26/86 N/A 5-31 OLIVEWOOD.................. MI 304 4,370 4,674 142 12/03/86 01/31/98 5-29 RIDGEWOOD.................. MI 77 1,228 1,305 38 11/01/83 04/01/98 5-26 ROANOKE.................... MI 360 2,731 3,091 92 01/03/85 01/31/98 5-27 STONEHENGE................. MI 19 1,174 1,193 39 08/20/84 01/31/98 5-27 WATERBURY.................. MI 257 2,242 2,499 76 11/21/85 01/31/98 5-28 WENTWORTH.................. MI 100 1,908 2,008 64 09/13/85 01/31/98 5-28 AMBERWOOD.................. OH 172 1,033 1,205 99 10/01/87 N/A 5-32 AMESBURY I................. OH 136 1,077 1,213 115 02/17/86 N/A 5-30 AMESBURY II................ OH 169 1,676 1,845 174 N/A 09/26/95 5-30 AMHURST.................... OH 174 992 1,166 30 03/28/83 04/01/98 5-25 AMHURST I.................. OH 60 989 1,049 36 08/24/79 04/01/98 5-21 AMHURST II................. OH 67 1,205 1,272 42 02/03/81 04/01/98 5-23 ANDOVER COURT.............. OH 62 1,011 1,073 38 02/02/82 01/31/98 5-24 ANNHURST II................ OH 123 1,253 1,376 126 07/01/86 N/A 5-31 ANNHURST III............... OH 70 1,133 1,203 108 05/05/88 N/A 5-32 APPLE RIDGE I.............. OH 214 759 973 86 01/01/87 N/A 5-28 APPLE RIDGE III............ OH 38 650 688 24 10/16/82 01/31/98 5-25 APPLE RUN II............... OH 21 533 554 24 09/26/80 01/31/98 5-23 APPLEGATE.................. OH 84 742 826 28 05/24/82 01/31/98 5-24 APPLEGATE.................. OH 36 580 616 26 09/10/81 01/31/98 5-24 APPLERUN................... OH 86 879 965 32 08/05/83 01/31/98 5-26 ASHFORD HILL............... OH 360 1,022 1,382 108 06/23/86 N/A 5-31 ASHGROVE................... OH 108 1,296 1,404 48 01/24/83 01/31/98 5-25 BECKFORD PLACE............. OH 49 703 752 28 09/29/81 01/31/98 5-24 BECKFORD PLACE............. OH 41 1,497 1,538 46 12/21/82 04/01/98 5-25 BECKFORD PLACE I........... OH 218 1,294 1,512 38 04/15/83 04/01/98 5-25 BECKFORD PLACE II.......... OH 175 1,226 1,401 40 05/24/85 01/31/98 5-27 CAMELLIA COURT............. OH 40 627 667 26 05/14/81 01/31/98 5-23 CAMELLIA COURT I........... OH 21 1,203 1,224 50 07/22/81 01/31/98 5-24 CAMELLIA COURT I........... OH 136 1,445 1,581 46 12/28/81 04/01/98 5-24 CAMELLIA COURT II.......... OH 43 823 866 34 09/20/82 01/31/98 5-25 CAMELLIA COURT II.......... OH 107 937 1,044 33 04/14/84 01/31/98 5-26 CEDARGATE I................ OH 187 2,339 2,526 103 01/01/82 01/31/98 5-24 CEDARGATE I................ OH 85 1,287 1,372 44 06/25/84 01/31/98 5-26 CEDARGATE II............... OH 132 805 937 30 12/01/83 01/31/98 5-26 CEDARWOOD.................. OH 37 565 602 24 03/12/82 01/31/98 5-24 CEDARWOOD I................ OH 52 789 841 31 09/26/80 01/31/98 5-23 CHARING CROSS.............. OH 111 1,094 1,205 49 07/22/78 01/31/98 5-20 CHELSEA COURT.............. OH 113 1,146 1,259 39 05/15/81 04/01/98 5-23 CLEARWATER................. OH 132 1,020 1,152 109 11/01/86 N/A 5-31 CONCORD SQUARE I........... OH 38 689 727 27 08/10/81 01/31/98 5-24 CONCORD SQUARE II.......... OH 29 649 678 24 02/08/83 01/31/98 5-25 DANIEL COURT............... OH 225 2,122 2,347 73 02/01/85 01/31/98 5-27 DARTMOUTH PLACE I.......... OH 89 1,393 1,482 52 08/03/82 01/31/98 5-25 DARTMOUTH PLACE II......... OH 114 1,110 1,224 112 07/18/86 N/A 5-31
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- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ DOVER PLACE I.............. OH 148 2,041 2,189 62 10/04/82 04/01/98 5-25 DOVER PLACE II............. OH 127 1,845 1,972 54 11/01/83 04/01/98 5-26 DOVER PLACE III............ OH 70 905 975 26 11/23/83 04/01/98 5-26 DOVER PLACE IV............. OH 237 2,058 2,295 66 11/25/86 01/31/98 5-29 FOXHAVEN................... OH 403 1,600 2,003 162 08/18/86 N/A 5-31 FOXTON II.................. OH 70 1,776 1,846 66 02/11/83 01/31/98 5-25 GREENGLEN.................. OH 100 1,442 1,542 54 08/29/83 01/31/98 5-26 GREENGLEN II............... OH 89 971 1,060 37 12/04/81 01/31/98 5-24 GREENGLEN II............... OH 23 1,031 1,054 40 06/05/82 01/31/98 5-24 HAMPSHIRE II............... OH 98 970 1,068 39 03/15/81 01/31/98 5-23 HARVEST GROVE I............ OH 225 1,198 1,423 118 09/08/86 N/A 5-31 HARVEST GROVE II........... OH 252 1,232 1,484 125 N/A 09/26/95 5-30 HICKORY MILL............... OH 119 1,385 1,504 48 05/02/80 04/01/98 5-22 INDEPENDENCE VILLAGE....... OH 189 2,208 2,397 107 10/18/78 01/31/98 5-21 KETWOOD.................... OH 164 2,185 2,349 74 12/29/79 04/01/98 5-22 LAMPLIGHT COURT............ OH 40 746 786 48 10/31/72 01/31/98 5-15 LARKSPUR I................. OH 36 597 633 24 01/08/82 01/31/98 5-24 LARKSPUR I................. OH 87 1,447 1,534 45 02/11/83 04/01/98 5-25 LARKSPUR II................ OH 24 251 275 9 08/10/84 01/31/98 5-27 LAUREL COURT............... OH 174 1,240 1,414 55 08/15/78 01/31/98 5-21 LINDENDALE................. OH 189 1,696 1,885 168 03/01/87 N/A 5-31 MEADOWOOD.................. OH 51 590 641 60 01/01/86 N/A 5-30 MEADOWOOD.................. OH 316 2,659 2,975 73 08/26/85 04/01/98 5-27 MEADOWOOD.................. OH 136 1,495 1,631 51 04/08/85 01/31/98 5-27 MEADOWOOD APTS............. OH 71 999 1,070 36 04/04/83 01/31/98 5-25 MEADOWOOD I................ OH 115 1,350 1,465 48 06/01/84 01/31/98 5-26 MEADOWOOD II............... OH 64 544 608 20 04/01/85 01/31/98 5-27 MELDON PLACE............... OH 331 1,604 1,935 74 01/02/78 01/31/98 5-20 MILLBURN................... OH 135 1,484 1,619 51 08/06/84 01/31/98 5-27 MILLBURN COURT II.......... OH 137 1,164 1,301 46 07/27/81 01/31/98 5-24 MILLSTON I................. OH 31 479 510 21 05/18/81 01/31/98 5-23 MILLSTON II................ OH 7 455 462 18 01/29/82 01/31/98 5-24 MONTGOMERY COURT I......... OH 246 1,426 1,672 49 07/01/85 01/31/98 5-27 MONTGOMERY COURT II........ OH 121 684 805 24 03/03/86 01/31/98 5-28 MONTROSE SQUARE............ OH 569 2,262 2,831 240 01/01/87 N/A 5-30 PARKVILLE.................. OH 222 1,701 1,923 75 07/23/78 01/31/98 5-21 PARKVILLE.................. OH 76 952 1,028 30 02/11/82 04/01/98 5-24 PLUMWOOD I................. OH 169 2,233 2,402 87 04/01/78 04/01/98 5-20 PLUMWOOD II................ OH 38 804 842 25 04/18/83 04/01/98 5-25 RED DEER I................. OH 183 1,775 1,958 58 06/16/86 01/31/98 5-28 RED DEER II................ OH 235 1,411 1,646 137 08/01/87 N/A 5-32 RIDGEWOOD I................ OH 85 1,163 1,248 41 01/06/84 01/31/98 5-26 RIDGEWOOD II............... OH 70 1,071 1,141 38 03/18/85 01/31/98 5-27 RIVER GLEN I............... OH 146 1,271 1,417 125 04/01/87 N/A 5-31 RIVER GLEN II.............. OH 179 1,206 1,385 115 11/01/87 N/A 5-32 RIVERVIEW ESTATES.......... OH 74 1,555 1,629 175 01/01/87 N/A 5-28 ROSEWOOD................... OH 139 1,505 1,644 54 05/28/85 01/31/98 5-27 SANDALWOOD................. OH 179 1,003 1,182 36 02/24/84 01/31/98 5-26 SHERBROOK.................. OH 147 1,253 1,400 40 07/29/85 01/31/98 5-28 SLATE RUN.................. OH 118 1,020 1,138 36 05/13/85 01/31/98 5-27 SPRINGWOOD................. OH 130 1,332 1,462 39 03/14/83 04/01/98 5-25 SPRINGWOOD II.............. OH 52 857 909 32 10/04/82 01/31/98 5-25 STONEHENGE................. OH 30 743 773 27 08/08/83 01/31/98 5-26 STONEHENGE................. OH 40 701 741 25 04/01/84 01/31/98 5-26 STONEHENGE................. OH 72 1,360 1,432 46 10/26/85 01/31/98 5-28
F-46 79
- ------------------------------------------------------------------------------------------------------------------------ LEXFORD RESIDENTIAL TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION -- Schedule III DECEMBER 31, 1998 (In Thousands) - ------------------------------------------------------------------------------------------------------------------------ COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION GROSS AMOUNT AT WHICH CARRIED (GARDEN APARTMENTS) AT CLOSE OF PERIOD, DECEMBER 31, 1998 (Notes 1 & 2) - ---------------------------------- --------------------------------- LIFE ON BUILDINGS WHICH and ACCUM DATE DATE DEPREC. PROPERTY NAME ST LAND IMPROVEMENTS TOTAL DEPREC. BUILT ACQUIRED COMPUTED - ------------------------------------------------------------------------------------------------------------------------ SUFFOLK GROVE I............ OH 124 1,271 1,395 42 12/06/85 01/31/98 5-28 SUFFOLK GROVE II........... OH 154 1,209 1,363 118 06/01/87 N/A 5-31 TABOR RIDGE................ OH 194 1,825 2,019 52 02/24/86 04/01/98 5-28 THE BIRCHES................ OH 70 1,024 1,094 49 04/16/77 01/31/98 5-19 THE MEADOWS I.............. OH 83 1,041 1,124 36 08/12/85 01/31/98 5-28 THE MEADOWS II............. OH 151 1,233 1,384 124 N/A 03/29/95 5-30 THE WILLOWS I.............. OH 158 816 974 97 01/01/87 N/A 5-28 THE WILLOWS II............. OH 34 886 920 36 10/28/81 01/31/98 5-24 THE WILLOWS III............ OH 45 855 900 85 07/01/87 N/A 5-32 TIMBERCREEK................ OH 159 1,699 1,858 53 06/29/87 01/31/98 5-29 WATERBURY.................. OH 186 1,008 1,194 36 09/13/85 01/31/98 5-28 WEST OF EASTLAND........... OH 154 2,597 2,751 125 03/31/77 01/31/98 5-19 WESTWOOD................... OH 17 108 125 4 11/19/80 01/31/98 5-23 WILLOW RUN................. OH 56 1,025 1,081 37 07/01/83 01/31/98 5-25 WILLOWOOD I................ OH 90 938 1,028 34 06/01/84 01/31/98 5-26 WILLOWOOD I................ OH 91 1,125 1,216 39 05/01/84 01/31/98 5-26 WILLOWOOD II............... OH 42 579 621 20 06/21/85 01/31/98 5-27 WILLOWOOD II............... OH 71 841 912 32 02/25/86 01/31/98 5-28 WILLOWOOD II............... OH 36 624 660 63 06/01/87 N/A 5-31 WINTHROP COURT II.......... OH 146 852 998 89 02/25/86 N/A 5-30 WOODBINE................... OH 66 706 772 28 02/23/81 01/31/98 5-23 WOODBINE................... OH 122 1,668 1,790 51 05/24/82 04/01/98 5-24 WOODLANDS I................ OH 181 2,104 2,285 79 05/23/83 01/31/98 5-25 WOODLANDS I................ OH 103 1,863 1,966 64 10/01/84 01/31/98 5-27 WOODLANDS II............... OH 112 1,559 1,671 57 09/30/84 01/31/98 5-27 WOODLANDS II............... OH 98 1,887 1,985 64 11/18/85 01/31/98 5-28 WOODLANDS III.............. OH 159 2,051 2,210 67 06/12/87 01/31/98 5-29 ANNHURST................... PA 77 2,041 2,118 70 11/26/84 01/31/98 5-27 BRUNSWICK I................ PA 126 2,211 2,337 73 05/12/86 01/31/98 5-28 CARLETON COURT............. PA 143 1,248 1,391 41 11/08/85 01/31/98 5-28 NORTHRUP COURT I........... PA 154 1,511 1,665 52 06/24/85 01/31/98 5-27 NORTHRUP COURT II.......... PA 88 937 1,025 30 10/15/85 01/31/98 5-28 VALLEYFIELD................ PA 257 1,790 2,047 63 10/15/85 01/31/98 5-28 WOODLANDS I................ PA 113 1,187 1,300 35 11/01/83 04/01/98 5-26 WOODLANDS II............... PA 118 1,325 1,443 132 03/01/87 N/A 5-31 RAVENWOOD.................. SC 170 1,553 1,723 149 05/07/87 N/A 5-31 SPRINGBROOK................ SC 120 1,816 1,936 195 06/13/86 N/A 5-30 WILLOW LAKES............... SC 189 1,822 2,011 177 12/12/86 N/A 5-31 CEDAR HILL................. TN 235 1,287 1,522 128 05/30/86 N/A 5-30 KNOX LANDING............... TN 90 1,529 1,619 50 04/04/86 01/31/98 5-28 WATERBURY.................. TN 101 1,092 1,193 36 07/05/85 01/31/98 5-27 WYCLIFFE COURT............. TN 124 1,226 1,350 44 07/29/85 01/31/98 5-28 WALKER PLACE............... TX 270 1,194 1,464 112 01/25/88 N/A 5-32 BRUNSWICK II............... WV 105 1,830 1,935 178 N/A 09/26/95 5-30 CARLETON COURT............. WV 308 1,669 1,977 57 03/21/85 01/31/98 5-27 HICKORY MILL I............. WV 85 972 1,057 36 04/15/83 01/31/98 5-25 PARKVILLE.................. WV 70 887 957 33 10/10/82 01/31/98 5-25 SHERBROOK.................. WV 355 1,467 1,822 145 12/20/86 N/A 5-31 ---------------------------------------------------------------------------------- $59,732 $544,897 $604,629 $28,564 ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------
F-47 80 LEXFORD RESIDENTIAL TRUST NOTES TO SCHEDULE III FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In Thousands) The following shows the changes in the total amounts at which Real Estate was carried during the periods:
1998 1997 1996 -------- -------- -------- Note (1) Schedule III Reconciliation: Balance as of beginning of year............................ $161,369 $161,570 $164,334 Additions during the year: Acquisitions of Property.............................. 430,981 0 1,421 Costs Capitalized..................................... 14,276 2,355 702 Deductions during the year: Disposals............................................. (1,997) (2,556) (4,887) Balance Rental Properties -------- -------- -------- December 31, 1998, 1997, 1996, respectively........... $604,629 $161,369 $161,570 ======== ======== ========
The following shows changes in accumulated depreciation during the periods: Balance as of beginning of year.................... $ 9,152 $ 4,478 $ 0 Depreciation during the period................... 19,475 4,807 4,541 Deductions for Disposals......................... (63) (133) (63) -------- -------- -------- Balance Rental Properties December 31, 1998, 1997, 1996, respectively...... $ 28,564 $ 9,152 $ 4,478 ======== ======== ========
Note (2): Tax basis of assets: The tax basis for federal income tax purposes in Rental Properties was approximately $484 million at December 31, 1998 F-48 EX-3.2 2 EXHIBIT 3.2 1 Exhibit 3.2 LEXFORD RESIDENTIAL TRUST ARTICLES OF AMENDMENT Lexford Residential Trust, a Maryland real estate investment trust (the "Trust"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Declaration of Trust of the Trust is hereby amended by striking out "Section 6.1 (G). Remedies Not Limited" and inserting in lieu thereof the following: G. REMEDIES NOT LIMITED. Subject to Section 6.6, nothing contained in this Article VI shall limit the authority of the Board of Trustees to take such other action as it deems necessary or advisable to protect the Trust and the interests of its Shareholders by preservation of the Trust's status as a REIT." SECOND: The amendment to the Declaration of the Trust of the Trust as hereinabove set forth has been duly advised by the board of trustees and approved by the sole shareholder of the Trust. IN WITNESS WHEREOF: Lexford Residential Trust, has caused these Articles of Amendment to be signed in its name and on its behalf by its Executive Vice President and attested by its Secretary on January 30, 1998. THE UNDERSIGNED, Executive Vice President of Lexford Residential Trust, who executed on behalf of said Trust the foregoing Articles of Amendment of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said Trust, the foregoing Articles of Amendment to be the act of said Trust and further certifies that, to the best of his knowledge, information, and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury. ATTEST: LEXFORD RESIDENTIAL TRUST: /s/ Bradley A. Van Auken /s/ Mark D. Thompson - --------------------------- ----------------------------- Bradley A. Van Auken Mark D. Thompson Senior Vice President, Executive Vice President General Counsel & Secretary EX-10.1 3 EXHIBIT 10.1 1 Exhibit 10.1 SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Second Amended and Restated Loan and Security Agreement (this "Agreement") is entered into to be effective the 30 day of September, 1998, among The Provident Bank (the "Bank") and Lexford Residential Trust, f/k/a/ Lexford, Inc., f/k/a Cardinal Realty Services, Inc., Cardinal GP VIII Corporation, Cardinal GP X Corporation, Cardinal Apartment Services, Inc., Cardinal GP XII Corporation, Cardinal Industries Development Corporation, Cardinal Ancillary Insurance Agency, Inc., an Ohio corporation, Cardinal Ancillary Insurance Agency, Inc., a Delaware corporation, Cardinal Industries of Florida Services Corporation, Cardinal Industries of Georgia Services Corporation, Cardinal Industries of Texas, Inc., Cardinal Industries Services Corporation, Cardinal Realty Company, Cardinal Regulatory of Kentucky, Inc., Cardinal Regulatory of West Virginia, Inc., CII of Pennsylvania, Inc., R/E Management Services, Inc., Walker Place Limited Liability Company, Cardinal GP XIII Corporation, Cardinal GP XIV Corporation, Cardinal GP XV Corporation, Cardinal GP XVI Corporation, Cardinal GP XVIII Corporation, Cardinal LP XIX Corporation, fka Cardinal GP XIX Corporation, and Lexford Properties, Inc., jointly and severally (herein each a "Company" or collectively, the "Companies"). R E C I T A L S: I. Some of the Companies and the Bank entered into a Loan and Security Agreement dated August 11, 1995 (the "Loan Agreement") and various loan documents executed in connection therewith (the "Loan Documents"); and II. Lexford Properties, Inc. ("Lexford") acquired all or substantially all of the management agreements held by the Companies at the time Lexford became an affiliate of Cardinal Realty Services, Inc. and therefore by a First Assumption of Loan and Security Agreement dated February 26, 1997, Lexford assumed joint and several liability with the other Companies for all repayment obligations on the Loan Agreement, which Assumption Agreement shall be included in any reference hereafter to the Loan Agreement; and III. Lexford Residential Trust organized on January 16, 1998 and merged with Lexford, Inc. on March 3, 1998; and IV. The Companies and the Bank desire to ratify the current credit facility and amend and restate the Loan Agreement by increasing the Revolving Line resulting in an aggregate sum available for loans and advances of $40,000,000 to be evidenced by a Cognovit Promissory Note (Revolving Line of Credit) together with certain changes to the financial covenants of the Loan Agreement and certain other changes as have been agreed to by the parties hereto. The original Loan Agreement dated August 11, 1995, as heretofore superseded and replaced in its entirety by that certain Amended and Restated 2 Loan and Security Agreement dated as of September 30, 1997 is superseded and replaced in its entirety by this Agreement. NOW, THEREFORE the Loan Agreement is amended and restated as follows: 1. Revolving Lines of Credit. 1.1. Loans. The Bank, subject to the terms and conditions hereof, will make loans and advances to the Companies on a revolving basis up to the aggregate sum of $40,000,000.00 for the uses and purposes specified in subsection 2.2 hereof (the "Revolving Line of Credit"). The Bank shall have no obligation to advance or re-advance any sums pursuant to the Revolving Line of Credit at any time when a set of facts or circumstances exists, which, by themselves, upon the giving of notice, the lapse of time, or any one or more of the foregoing would constitute an Event of Default under this Agreement. The proceeds of the Revolving Line of Credit may be advanced, repaid, and readvanced, prior to maturity and otherwise subject to the terms and provisions of the Note, as hereinafter defined. Each of the loans or advances under the Revolving Line of Credit shall be secured by the security interests hereinafter provided in this Agreement or any other security agreements, pledge agreements or other security instruments executed prior to the date hereof or in connection with this Agreement or executed after the date hereof among the Bank and the Companies. 1.2. Letters of Credit. On or after the date hereof through and including the maturity date of the Note, provided there has been no Event of Default hereunder which has occurred and is continuing, the Bank shall, upon the request of the Companies and subject to the terms and conditions of this Agreement, issue one (1) or more irrevocable standby or trade letters of credit for the account of one or more of the Companies up to the maximum aggregate principal amount available under the Revolving Line of Credit and subject to the use limitations of subsection 2.2 of this Agreement, and each having an expiration date not later than the maturity date of the Note (herein each a "Letter of Credit" or collectively the "Letters of Credit"). Application for a Letter of Credit shall be made on the form of the Bank customarily used for similar letters of credit. One or more of the Companies shall provide the application not less than three (3) days prior to the required date of issuance of the Letter of Credit. Amounts paid by the Bank to cover any draws under the Letters of Credit as from time to time amended or modified, shall be deemed to have been advancements made under the Note, as hereinafter defined, for the Revolving Line of Credit. Prior to any draws for Letters of Credit under the Revolving Line of Credit, the maximum principal balance of the Note, available for advances, shall be reduced by the principal (face) amount of all outstanding Letters of Credit, the principal (face) amount of all pending applications for Bank's issuance of Letters of Credit, and amounts previously drawn under the Revolving Line of Credit which remain outstanding and unpaid. The Companies shall pay to the Bank on the date a Letter of Credit is issued and on each anniversary thereof until such Letter of Credit expires a fee equal to one percent (1%) per annum of the undrawn amount available to be drawn under such Letter of Credit. Such fees shall be earned when paid and shall not be subject to 3 rebate or refund by the Bank in the event that any Letter of Credit is terminated or reduced. The fee for the Letter of Credit shall be calculated on the basis of a three hundred sixty (360) day year factor applied to the actual number of days elapsed or that will elapse. 2. Terms and Uses of Loan. 2.1. Interest Rates; Fees; Terms; Costs. The Companies agree to pay the Bank monthly interest on the unpaid balance of the Revolving Line of Credit at the rate of interest set forth in the Note, refinancings, renewals, extensions, modifications, or amendments thereto or substitutions or replacements therefor in substantially the form set forth in Exhibit A attached hereto (herein "Note"). The basic terms of the Revolving Line of Credit, as reflected in the Note, are as follows: Original principal balance available of $40,000,000.00. Interest to accrue at The Provident Bank Prime Rate minus one percent (P-l%). Interest only monthly unless the Companies elect to term out all or any portion of the outstanding principal balance, which election may be made one or more times at the Companies' discretion. In the event of an election to term out, the then outstanding principal balance to be termed out and accrued interest thereon will be amortized over sixty (60) months at a fixed interest rate equal to two percent (2%) over the then five (5) year Treasury Constant Maturity Security in equal monthly payments of principal and interest. Repayment of the Revolving Line of Credit shall be made, and the maturity date thereof shall be determined, in accordance with the terms of the Note. The Companies shall pay all reasonable costs and expenses incidental to the Revolving Line of Credit or the enforcement of the Bank's rights in connection therewith. Such costs shall include, but not be limited to, reasonable fees and out-of-pocket expenses of the Bank's counsel, audit fees, search fees, recording fees, inspection fees, documentary stamps, revenue stamps, note and mortgage taxes. To the extent any such costs are incurred by Bank, Bank may elect, following notice to the Companies, to charge such costs to the Revolving Line of Credit without further authorization of the Companies. 2.2. Use of Proceeds. The Revolving Line of Credit shall be used for, and only used for the following purposes: To fund the month end cash balances on deposit accounts of the Companies maintained at the Bank, to fund short term working capital for daily operating needs including (a) Letters of Credit, and (b) to fund the Companies' equity capital contributions to entities formed to purchase multi-family properties, payment of dividends, purchase of multi-family management contracts, purchase mortgage servicing contracts or engage in the commercial mortgage banking industry. Any funding under clause (b) is preapproved by the Bank, so long as any purchase does not cause on a proforma basis a negative impact on the prior four quarters cumulative EBITDA of the Companies and the proforma on any such acquisition is received by the Bank bearing the 4 written approval of any two officers of the Company as designated in subsection 2.3 to be received by the Bank within fifteen (15) days of such approval. 2.3. Draw Requests. Draw requests on behalf of the Companies shall be requested by any two of the following: the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, the Senior Vice President and Controller, the Senior Vice President and Treasurer of Lexford Residential Trust, or any other officer acceptable to the Bank and designated in writing by the Companies. Such officer(s) shall only make a draw request if conditions exist such that (a) no event, fact, or circumstance has occurred since the closing of the Loans, which, taken together or by itself, upon the giving of notice, lapse of time or otherwise, has had a materially adverse effect on the Companies' ability to perform their obligations under this Agreement except as set forth in any documentation presented to the Bank and accepted by the Bank in its sole discretion; (b) there has been no Event of Default hereunder or no event has occurred and is continuing which, upon the giving of notice, lapse of time or otherwise, would constitute an Event of Default hereunder; and (c) the requested advance is otherwise in accordance with the purpose limitations in subsection 2.2 hereof. Unless specifically requested by the Bank written certification of the foregoing is waived. Each such request shall be made in person, by phone, or by modem according to the Bank's procedures and shall be deposited to the general demand deposit account of Lexford Residential Trust with the exception of draws to fund month end cash balances on deposit accounts of the Companies maintained at the Bank which shall be deposited into special cash balance accounts. 2.4. Prepayment. The Companies shall pay to the Bank a prepayment premium in the amount of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) with respect to any prepayment of principal of the Loan which occurs before August, 1998 resulting from the Companies' decision to refinance all or any material portion of the indebtedness evidenced by the Note. 2.5. Unused Line Fee. Effective December 31, 1997, and on each three (3) month anniversary from that date, if the Companies have not drawn on the Note an average daily balance of at least $15,000,000 for the preceding Three (3) month period, then the Company shall pay the Bank an unused line fee equal to one eighth of one percent (1/8%) of the difference between the average daily balance and $40,000,000 (($40,000,000 minus average daily balance) times 0.125% = unused line fee). 3. Security Interest. 3.1. Grant of Security Interest. The Companies, jointly and severally, hereby grant, pledge, and assign to the Bank a security interest in all of the Companies' personal property assets, including without limitation, all of the Companies' right, title, and interest in and to the following property, whether the Companies' interest therein is as owner, co-owner, lessee, consignee, general partner, limited partner, secured party, or otherwise, be it now owned or existing or hereafter arising or acquired, and wherever 5 located, together with all substitutions, replacements, additions, and accessions therefor or thereto: (a) all of the Companies' inventory including, but not limited to, all goods, merchandise, and other personal property furnished under any contract of service or intended for sale or lease, all parts, supplies, raw materials, work in process, finished goods, materials used or consumed in the Companies' businesses, and repossessed and returned goods (herein the "Inventory"); (b) all of the Companies' machinery, equipment, tools, furniture, furnishings, and computing and data processing systems (herein the "Equipment"); (c) all of the Companies' accounts, accounts receivable, management contracts, drafts, acceptances, and other forms of obligations, all books, records, ledger cards, computer programs, and other documents, or property at anytime evidencing or relating to the Company's accounts, including but not limited to, those arising from or in connection with (i) a Company's sale, lease, or other disposition of Collateral or sale of services, (ii) rights pursuant to all property management contracts and franchise agreements, and rights under the assignments or other dispositions thereof, (iii) rights pursuant to all mortgage servicing agreements, and (iv) loans or advances to or for the benefit of partnerships, corporations or other business entities in which the Companies have an ownership interest which are not evidenced by an instrument (herein the "Accounts"); (d) all of the Companies' general intangibles, contract rights, income tax refunds, bond refunds, security deposit refunds, utilities deposit refunds, preference recoveries, or other claims in respect of any transfers of any kind, including, but not limited to, (i) settlements of pending or threatened litigation or asserted claims, (ii) obligations of purchasers of general partner interests, (iii) rights under insurance policies, (iv) loans and advances to the Companies' senior and executive management not evidence by an instrument, (v) any and all claims or offsets against various Affiliated Entities, as hereinafter defined, (vi) rights to cash payments and other distributions pursuant to plans of reorganization confirmed in bankruptcy proceedings, and (vii) general and limited partnership interests (herein the "Intangibles"); (e) all of the Companies' instruments, notes, notes receivable, certificates of deposit, and other writings evidencing a right to payment of money, whether negotiable or non-negotiable, including, but not limited to, (i) obligations of limited partnerships to the Companies pursuant to promissory notes secured by mortgages, (ii) obligations of limited partnerships to the Companies pursuant to various mortgage differential promissory notes, (iii) mortgage obligations or participation or other interests therein held by the Companies, (iv) loans and advances to executive and senior management evidenced by instruments, (v) subscription promissory notes executed and delivered by various limited partners to certain limited partnerships and subsequently assigned to the Companies, (vi) promissory notes arising out of the sale of general partner interests, (vii) promissory notes and other instruments executed pursuant to plans of reorganization confirmed in bankruptcy proceedings, and (viii) instruments evidencing loans or advances to or for the benefit of partnerships, corporations, or other business entities in which the Companies have an ownership interest (herein the "Instruments"); (f) all documents, negotiable documents, documents of title, warehouse receipts, storage receipts, dock warrants, express bills, freight bills, airbills, bills of lading, and other documents relating thereto, all cash and non-cash proceeds thereof including, but not limited to, notes, drafts, checks, instruments, insurance proceeds, indemnity proceeds, assignment or other contractual 6 proceeds, warranty and guaranty proceeds (herein the "Documents"); (g) all of the Companies' chattel paper, including without limitation furniture and equipment leases (herein the "Chattel Paper"); (h) trade names, trademarks, trademark applications, trade secrets, service marks, data bases, software and software systems, information systems, discs, tapes, goodwill, patents, patent applications, copyrights, copyright applications, licenses and franchises (herein the "Intellectual Property"); (i) all deposit accounts, wherever located, whether general, special, time, demand, provisional, or final, all cash or monies wherever located, any and all deposits or other sums at any time credited by or due from the Bank to the Companies, any and all policies, certificates of insurance, securities, goods, cash and property owned by the Companies or in which any of the Companies has an interest, which now or hereafter are at any time in the possession or control of the Bank or in transit by mail or carrier to or from the Bank, or in the possession of any third party acting on the Bank's behalf, without regard to whether the Bank received the same in pledge for safekeeping, as agent for collection or transmission, or otherwise, or whether the Bank has conditionally released the same (herein the "Deposits"); and (j) all of the Companies' stock in any corporation (herein the "Stock") (all of the Inventory, the Equipment, the Accounts, the Stock, the Intangibles, the Instruments, the Chattel Paper, the Documents, the Intellectual Property, the Deposits herein, collectively, the "Personal Property Collateral"); Subject to terms of prior mortgages, if any, the Companies agree that to further secure the indebtedness evidenced by the Note, the Companies shall, at the Bank's request, also grant to the Bank a mortgage lien on the real property owned by one or more of the Companies (the "Real Estate Collateral") (the Personal Property Collateral and the Real Estate Collateral herein collectively, the "Collateral"). The security interests hereby granted are to secure the prompt and full payment and complete performance of all Obligations of the Companies to the Bank. The word "Obligations" is used in its most comprehensive sense and includes, without limitation, all indebtedness, debts, and liabilities (including principal, interest, late charges, collection costs, attorneys' fees and the like) of the Companies to the Bank, whether now existing or hereafter arising, either created by the Companies alone or together with another or others, primary or secondary, secured or unsecured, absolute or contingent, liquidated or unliquidated, direct or indirect, whether evidenced by note, draft, application for letter of credit, or otherwise, and any and all renewals of or substitutes therefor, including all indebtedness owed by the Companies to the Bank in connection with the Loan. It is the Companies' express intention that the continuing security interest granted hereby, shall extend to all present and future obligations of the Companies to the Bank arising under this Agreement, including, but not limited to, the Note or the renewals, refinancing, or replacements thereof, whether or not such Obligations are reduced or extinguished and thereafter increased or reincurred and whether or not such Obligations are specifically contemplated as of the date hereof. The absence of any reference to this Agreement in any documents, instruments, or agreements evidencing or relating to any 7 obligation secured hereby shall not limit or be construed to limit the scope or applicability of this Agreement. The Companies have cooperated in the refinance of a number of first mortgages by the limited partnerships in which the Companies hold general and/or limited partnership interests, which refinances have been funded by affiliates or securitized offerings of PaineWebber. The Bank approved the refinancings which required execution by the Companies of subordination agreements related to obligations owed by the limited partnerships and included in the Collateral pledged to the Bank. In particular subordination agreements concerning the lender's rights under the management contracts held by both the Companies and Lexford, whether as the Companies successor or as a direct obligation to Lexford, were approved in writing by the Bank (all subordinations approved in writing by the Bank are hereafter referred to as the "PaineWebber Subordinations"). The Bank hereby agrees that in the event of additional refinancings by any limited partnership, the Bank hereby approves any subordination of any Company's interest in or claims against the limited partnership so long as the same are consistent with or no less favorable than the terms of the PaineWebber Subordinations. Upon the Company's request, the Bank will confirm its approval of such subordination to any refinancing lender. Lexford as security for repayment of its obligations under the Loan Agreement does hereby grant, assign and transfer to the Bank all of its right, title and interest in any and all of its management contracts, as that term is defined in the this Agreement and subject to any PaineWebber Subordination consented to in writing by the Bank. Provided further, Lexford represents that there is no existing security interest in Lexford's rights in and to any of its management contracts and Lexford further agrees it shall not grant any security interest in any management contract, now existing or hereafter entered into with a Third Party Property Owner, except the security interest in favor of Bank created hereunder. 3.2. Setoff. The Companies, jointly and severally, authorize the Bank, upon the occurrence and continuation of any fact, event, circumstance, individually or taken together which constitute an Event of Default or would constitute an Event of Default but for the lapse of any applicable notice or cure period and without regard to whether the Bank has exercised any right of acceleration and at any time, thereafter, without notice, to appropriate and apply any balances, credits, deposits, accounts, or money of any of the Companies in the Bank's possession, custody, or control to be applied in such order of preference as the Bank may determine to the payment of any of the Obligations whether or not the Obligations are due or matured. Provided further that Bank shall not appropriate any account of an Affiliated Entity as that term is defined in subsection 4.1 below, Bank shall have the right to place a ten (10) day hold on the account of any Affiliated Entity as that term is defined in subsection 4.1 below and to the extent any of the Companies advanced funds to the Affiliated Entities within ninety (90) days of the 8 commencement of the hold, the Companies agree for themselves and on behalf of the Affiliated Entities that such funds are held in trust for the Companies and the Bank is hereby authorized to appropriate such funds from the account of each Affiliated Entity up to the lesser of the account balance or the aggregate total of all such advances during the ninety (90) day period. Notwithstanding the provisions above to the contrary, nothing herein shall prevent the Affiliated Entities from having access to the funds in such accounts during such ten (10) day hold for the limited purpose of paying their obligations to creditors, provided that such obligations are routine and incurred in the ordinary course of the business of the Affiliated Entities. 3.3. Representations and Covenants Regarding the Collateral. The Companies represent, warrant, and covenant to the best of their knowledge and in good faith as follows: (a) except for the security interests and liens granted hereby, and subject to the provisions of subsections 5.5 and 3.1 hereof or as otherwise approved by the Bank with respect to specific items of Collateral (e.g., for rights of first refusal, put and call options and similar interests) one or more of the Companies are, or as to Collateral arising or to be acquired after the date hereof, shall be, the sole and exclusive owner of the Collateral, and the Collateral is and shall remain free from any and all liens, security interests, encumbrances, claims, and interests, and no security agreement, financing statement, equivalent security, or lien instrument, or continuation statement covering any of the Collateral is on file or of record in any public office, (b) the Companies shall not create, permit, or suffer to exist, and shall take such action as is necessary to remove, any claim to or interest in, or lien or encumbrance upon the Collateral except the security interests granted hereby and subject to the provisions of subsection 5.5 hereof, and shall defend the right, title, and interest of the Bank in and to the Collateral against all claims and demands of all persons and entities at any time claiming the same or any interest therein; (c) the Companies' principal place of business and chief executive office is located at the address set forth in subsection 9.3 of this Agreement; the Collateral, to the extent possible, and the records concerning the Collateral shall be kept at that address unless the Bank shall give its prior written consent otherwise; and the Companies have no other places of business or place where the Collateral is located except 6954 Americana Parkway, Reynoldsburg, Ohio 43068 and Freeport Parkway, Suite 200, Irving, Texas 75063, and the Huntington Center, 41 South High Street, Suite 2410, Columbus, Ohio 43215; (d) from time to time and in no event less frequently than annually the Companies shall provide the Bank with an updated report disclosing the location(s) of the Collateral and of any records pertaining thereto; (e) at least thirty (30) days prior to the occurrence of any of the following events, the Companies shall deliver to the loan officer who is handling the Companies' Obligations on behalf of the Bank written notice of such impending events: (i) a change in and of the Companies' principal place of business or chief executive office; (ii) the opening or closing of any place of the Companies' name, identity or corporate structure; (f) each of the Accounts is based on an actual and bona fide sale and delivery of goods or services or extension of credit, and the Companies believe that the Companies' Account Debtors have accepted the goods or services, owe and are obligated to pay the full amounts reflected in the invoices, according to the terms 9 thereof; and (g) any and all taxes and fees relating to the Companies' businesses shall be the Companies' sole responsibility, the Companies shall pay the same when due, and none of said taxes and fees represent a lien on or claim against the Accounts, other than taxes which are not then due or which are being contested in good faith and for which adequate reserves have been allocated in accordance with generally accepted accounting principles consistently applied. 3.4. Application of Proceeds from Collection of Accounts; Government Accounts; Perfection. All amounts received by the Bank representing payment of Accounts or proceeds from the sale of Inventory or of the other Collateral may be applied by the Bank to the payment of the Obligations in such order of preference as the Bank may determine. If any material portion of the Companies' accounts arise out of contracts with or orders from the United States or any department, agency, or instrumentality thereof, the Companies shall immediately (i) notify the Bank thereof in writing and (ii) execute any instrument and take any steps which the Bank deems necessary pursuant to the Federal Assignment of Claims Act of 1940, as amended (41 USC Section 15) in order that all money due and to become due under such contract or order shall be assigned to the Bank. The Companies agree to execute, deliver, file, and record all such notices, affidavits, assignments, financing statements, and other instruments as shall in the reasonable judgment of the Bank be necessary or desirable to evidence, validate, and perfect the security interests of the Bank in the Accounts. 3.5. Books and Records. The Companies shall at all times keep accurate and complete records of the Collateral, and at all reasonable times and from time to time, shall allow the Bank, by or through any of its officers, agents, attorneys, or accountants, to examine, inspect and, if applicable, make copies of, the Collateral wherever located. In addition, upon request of the Bank, the Companies shall provide the Bank with copies of any agreements and such other documentation and information relating to the Collateral as the Bank may reasonably require. 3.6. Preservation and Disposition of Collateral. (a) Prior to the subsequent placement of any Collateral in or upon any real property which any of the Companies has leased or mortgaged, the Companies shall at the Bank's request obtain a waiver from the lessor and/or the mortgagee, as the case may be, with respect to the rights (whether present or future) of the lessor or mortgagee with respect to that Collateral. At all times subsequent to the date of this Agreement, the Companies shall advise the Bank promptly, in writing and in reasonable detail of, (i) any material encumbrance or claim asserted against any of the Collateral; (ii) any material change in the composition of the Collateral; and (iii) the occurrence of any other event that would have a material adverse effect upon the aggregate value of the Collateral or upon the security interests of the Bank; (b) the Companies shall not sell or otherwise dispose of the Collateral, except that the Companies may (i) sell or otherwise dispose of the Inventory in the ordinary course of their businesses; (ii) may sell Equipment in a commercially reasonably manner for consideration fairly reflecting prevailing market values for property of like nature, (iii) may replace Equipment with newer equipment of like kind and replacement value, and 10 (iv) collect their Accounts and notes receivable in the ordinary course of their businesses and in connection therewith, grant releases to the obligors thereunder; (c) the Companies shall keep the Collateral in good condition and shall not misuse, abuse, secrete, waste, or destroy any of the same; (d) the Companies shall not use the Collateral in violation of any statute, ordinance, regulation, rule, decree, or order; (e) the Companies shall pay promptly when due all taxes, assessments, charges, or levies upon the Collateral or in respect to the income or profits therefrom, other than taxes being contested in good faith and for which adequate reserves have been allocated in accordance with generally accepted accounting principles consistently applied; and (f) at its option following notice to the Companies and the Companies' failure to discharge, maintain, or perform, the Bank may discharge delinquent taxes or liens, security interests, or other encumbrances not permitted under subsection 5.5 of this Agreement at any time levied or placed on the Collateral and may pay for the maintenance and preservation of the Collateral. The Companies agree to reimburse the Bank upon demand for any payment made or any expense incurred (including reasonable attorneys' fees) by the Bank pursuant to the foregoing authorization. Prior to an Event of Default, any payments under subsection 3.6(f) shall be treated as an advance under the Note. Should the Companies fail to pay said sum to the Bank upon demand, interest shall accrue thereon, from the date of demand until paid in full, at the highest rate set forth in any document or instrument evidencing any of the Obligations. 3.7. Extensions and Compromises. With respect to any Obligations secured by any of the Collateral, the Companies assent to all extensions or postponements of the time of payment of such Obligations or any other indulgence in connection with such Obligations, to each substitution, exchange or release of Collateral, to the addition or release of any party primarily or secondarily liable thereon, to the acceptance of partial payments on such Obligations and to the settlement, compromise or adjustment of such Obligations, all in such manner and at such time or times as the Bank may deem advisable. The Bank shall have no duty as to the collection or protection of Collateral or any income therefrom, nor as to the preservation of any right pertaining thereto, beyond the safe custody of Collateral in the possession of the Bank. The foregoing sentence is not intended to modify in any respect, the Bank's obligation as a depository with respect to the deposits of the Companies held by the Bank. 3.8. Financing-Statements; Lien Notation. The Companies agree to execute, deliver, file, and record all such notices, affidavits, assignments, financing statements, and other instruments as shall in the reasonable judgment of the Bank be necessary or desirable to evidence, validate, and perfect the security interests of the Bank in any portion of the Collateral. At the request of the Bank, the Companies shall join with the Bank in executing, delivering, and filing one or more financing statements in a form satisfactory to the Bank, and shall pay the costs of filing the same in all public offices wherever filing is reasonably deemed by the Bank to be necessary or desirable. A carbon, photographic, or other reproduction of this Agreement or of a financing statement shall be sufficient as a financing statement. If certificates of title are issued or outstanding with respect to any Collateral, the Companies shall cause the interest of the Bank to be properly noted thereon at the Companies' expense. 11 3.9. Bank's Appointment as Attorney-in-Fact. The Companies, jointly and severally, hereby irrevocably constitute and appoint the Bank and any officer or agent thereof, with full power of substitution, as the Companies, true and lawful attorney-in-fact with full irrevocable power and authority in their place and stead and in their names or in the Bank's own name, from time to time in the Bank's discretion, for the sole purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby grants to the Bank the power and right, on behalf of the Companies, without notice to or assent from the Companies: (a) to execute, file, and record all such financing statements, certificates of title, and other certificates of registration and operation and similar documents and instruments as the Bank may reasonably deem necessary or desirable to protect, perfect, and validate the Bank's security interests in the collateral; (b) upon the occurrence and continuation of an Event of Default, to receive, collect, take, endorse, sign, compromise, assign, and deliver in any of the Companies' or the Bank's name, any and all checks, notes, drafts, or other documents or instruments relating to the Collateral; and (c) upon the occurrence and during the continuance of an Event of Default, (i) to notify postal authorities to change the address for delivery of the Companies' mail to an address designated by the Bank (the Bank shall exercise the same degree of care when dealing with any of the Companies' mail received by it as the Bank exercises in connection with its own mail), (ii) to open such mail delivered to the designated address, (iii) to sign and indorse any invoices, freight or express bills, bills of lading, storage, or warehouse receipts, drafts against debtors, assignments, verifications, and notices in connection with accounts and other documents relating to the Collateral; (iv) to commence and prosecute any suits, actions, or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (v) to defend any suit, action or proceeding brought with respect to any Collateral; (vi) to negotiate, settle, compromise, or adjust any account, suit, action, or proceeding described above and, in connection therewith, to give such discharges or releases as the Bank may deem appropriate; and (vii) generally, to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Bank were the absolute owner thereof for all purposes, and to do, at the Bank's option and the Companies' expense, at any time or from time to time, all acts and things which the Bank reasonably deems necessary to protect, preserve or realize upon the Collateral and the Bank's security interests therein, in order to effect the purposes of this Agreement. The Companies hereby ratify all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. The powers conferred upon the Bank hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon the Bank to exercise any such powers. The Bank shall be accountable only for amounts that the Bank actually receives as a result of the exercise of such powers and neither the Bank nor any of its officers, directors, employees or agents shall be responsible to any of the Companies for 12 any act or failure to act, except for the Bank's own gross negligence or willful misconduct. 3.10. Upon repayment of all indebtedness or upon sale of assets in subsection 5.4, the Bank will take such action as may be necessary to evidence the release of the Bank's lien on such assets. 4. Warranties and Representations. Each of the Companies warrants and represents to the Bank: 4.1. Corporate Organization and Authority. Each Company (a) is a corporation, real estate investment trust or limited liability company duly organized, validly existing and in good standing under the laws of the State of its incorporation or organization; (b) has a principal place of business in Columbus, Ohio (c) has all requisite corporate or limited liability company power, and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the lack of authority to obtain such licenses and permits would not have a material adverse effect on the business operations or financial condition of said Company; (d) is not doing business or conducting any activity in any jurisdiction in which it has not duly qualified and become authorized to do business, except where the failure to qualify to do business has not or would not have a material adverse effect on the business, operations, or financial condition of each Company, and (e) to the extent that each Company, or any of the limited partnerships or other entities of which each Company is a partner, shareholder, or member, (each an "Affiliated Entity" and collectively with each Affiliated Entity of all of the Companies the "Affiliated Entities"), is doing business in any jurisdiction in which it has not duly qualified and is not authorized to do business or has not obtained all necessary licenses and permits to own and operate its properties and to carry on its business, said Company or said Affiliated Entity is and will continue to work diligently to cure and correct such lack of qualification or authorization to do business and obtain such licenses and permits. 4.2. Borrowing is Legal and Authorized. (a) The Board of Directors, or other equivalent body, of each Company has duly authorized the execution and delivery of this Agreement and of the notes and documents contemplated herein; (b) this Agreement, the notes and other documents executed in connection with this Agreement will constitute valid and binding obligations of each Company enforceable in accordance with their respective terms; (c) the execution of this Agreement and related notes and documents and the compliance by each Company with all the provisions of this Agreement (i) are within the legal and organizational powers of each Company; and (ii) are legal and will not conflict with, result in any breach in any provision of, constitute a default under, or result in the creation of any lien or encumbrance upon any property of each Company (other than in favor of the Bank) under the provisions of, any agreement, charter instrument, bylaw, or other instrument to which said Company is a party or by which it may be bound; and (d) there are no limitations in any indenture, contract, agreement, mortgage, deed of trust, or other agreement or instrument to which each Company is now 13 a party or by which each Company may be bound with respect to the payment of principal or interest on any indebtedness, or each Company's ability to incur indebtedness, including the Note to be executed in connection with this Agreement. 4.3. Taxes. All tax returns required to be filed by each Company in any jurisdiction have in fact been filed, and there are no material taxes, assessments, fees, and other governmental charges upon said Company, or upon any of its properties, which are due and payable which have not been paid except to the extent being contested in good faith pursuant to appropriate proceedings sufficient to stay execution. Each Company does not know of any material proposed additional tax assessment against it. The provisions for taxes on the books of each Company for its current fiscal period are adequate. 4.4. Compliance with Law. Each Company (a) is not in violation of any laws, ordinances, governmental rules, or regulations to which it is subject, including without limitation any laws, rulings, or regulations relating to the Employee Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue Code and (b) has not failed to obtain any licenses, permits, franchises, or other governmental or environmental authorizations necessary to the ownership of its properties or to the conduct of its business, which violation or failure in either subsection (a) or subsection (b) of this section might materially and adversely affect the business, prospects, profits, properties, or condition (financial or otherwise) of each Company. 4.5. Financial Statements; Full Disclosure. The Companies' consolidated financial statements for the fiscal year ending December 31, 1994, December 31, 1995, and December 31, 1996, which have been supplied to the Bank have been prepared in accordance with generally accepted accounting principles consistently applied and fairly represent the Company's consolidated financial condition as of such dates. No material adverse change in each Company's financial condition has occurred since the date of the latest financial statement. The financial statements referred to in this paragraph do not, nor does this Agreement or any written statement furnished by each Company to the Bank in connection with obtaining the Revolving Line of Credit, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. Each Company has disclosed to the Bank in writing all facts which materially affect the properties, business, prospects, profits or condition (financial or otherwise) of each Company or the ability of each Company to perform this Agreement. 4.6. No Insolvency. On the date of each Company's entering into the Revolving Line of Credit and after giving effect to all indebtedness of each Company (excluding inter-company obligations and, except in the case of Lexford Residential Trust, the Revolving Line of Credit), (a) each Company will be able to pay its obligations as they become due and payable; (b) the present fair saleable value of each Company's assets exceeds the amount that will be required to pay its probable liability on its obligations as the same become absolute and matured; (c) the sum of each Company's property at a fair valuation exceeds each Company's indebtedness; (d) each Company will have sufficient capital to 14 engage in each Company's business. Each Company's grant of Collateral for the Loan constitutes fair consideration and reasonably equivalent value because of the receipt of the proceeds of the Loan or other benefits from the extension of credit to the Companies. 4.7. Government Consent. Neither the nature of each Company or of its business or properties, nor any relationship between each Company and any other entity or person, nor any circumstance in connection with the execution of this Agreement, is such as to require a consent, approval, or authorization of, or filing, registration, or qualification with, any governmental authority on the part of each Company as a condition to the execution and delivery of this Agreement and the notes and documents contemplated herein, provided, however, that the Bank acknowledges that the execution of this Agreement constitutes a material transaction for each Company which will be reported in compliance with federal securities law. 4.8. Title to Collateral. Each Company has good title to all the Collateral which is owned by it, free from any liens and encumbrances, except as referenced in subsection 3.3. 4.9. No Defaults. No event has occurred and no condition exists which would constitute an Event of Default pursuant to this Agreement. Each Company is not in violation in any material respect of any term of any agreement, charter instrument, bylaw, or other instrument to which it is a party or by which it may be bound. 4.10. Environmental Protection. Each Company (a) has no actual knowledge of the permanent placement, burial, or disposal of any Hazardous Substances (as hereinafter defined) on any real property owned (whether now owned or hereafter acquired), leased, or used by each Company or any of the other Companies (the "Premises"), of any spills, releases, discharges, leaks, or disposal of Hazardous Substances that have occurred or are presently occurring on, under, or onto the Premises, or of any spills, releases, discharges, leaks, or disposal of Hazardous substances that have occurred or are occurring off the Premises as a result of each Company's or the other Companies' improvement, operation, or use of the Premises which would result in noncompliance with any of the Environmental Laws (as hereinafter defined); (b) is and has been in compliance with all applicable Environmental Laws; (c) knows of no pending or threatened environmental, civil, criminal, or administrative proceedings against any Company or the other companies relating to Hazardous Substances; (d) knows of no facts or circumstances that would give rise to any future civil, criminal, or administrative proceeding against any Company or the other Companies relating to Hazardous Substances; and (e) will not permit any of its, or any of the other Companies' employees, agents, contractors, subcontractors, or any other person occupying or present on the Premises to generate, manufacture, store, dispose, or release on, about, or under the Premises any Hazardous Substances which would result in the Premises not complying with the Environmental Laws. 15 As used herein, "Hazardous Substances" shall mean and include all hazardous and toxic substances, wastes, materials, compounds, pollutants, and contaminants (including, without limitation, asbestos (excluding non-friable asbestos), polychlorinated biphenyls, and petroleum products) which are included under or regulated by the Comprehensive Environmental Response, compensation and Liability Act, as amended, 42 U.S.C. Section 9601, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Water Quality Act of 1987, 33 U.S.C. Section 1251, et seq., and the Clean Air Act, 42 U.S.C. Section 7401, et seq., and any state or local statute, ordinance, law, code, rule, regulation, or order regulating or imposing liability (including strict liability) or standards of conduct regarding Hazardous Substances (hereinafter the "Environmental Laws"), but does not include such substances as are permanently incorporated into a structure or any part thereof in such a way as to preclude their subsequent release into the environment, or the permanent or temporary storage or disposal of household hazardous substances by tenants, and which are thereby exempt from or do not give rise to any violation of the aforementioned Environmental Laws. 4.11. Assignability and Transferability of Interests. Not less seventy-five percent (75%) of the management contracts, notes, partnership interests, and interests in other Collateral are assignable and transferable to the Bank, except that with respect to personal service contracts only the right to receive payments and distributions may be assigned to the Bank and the Bank may not be substituted for any Company as the party responsible for performing such services. 4.12. Regulation U. None of the transactions contemplated in this Agreement will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II, except to the extent, if any, that shares of the common stock of Lexford Residential Trust held by one or more of the Companies constitutes a "margin security". The Companies do not own or intend to carry or purchase any "margin security" within the meaning of said Regulation U. 4.13. Reaffirmation of Warranties and Representations. On the date of each advance pursuant to the Revolving Line of Credit, and as a condition for any advance, the warranties and representations set forth in this entire Section 4 shall be true and correct on and as of such date with the same effect as though such warranties and representations had been made on and as of such date, except to the extent that such warranties and representations expressly relate to an earlier date. The Bank may require a written affidavit to memorialize the fact that all warranties and representations are in fact true and correct on and as of such date. 5. Company Business Covenants. Each of the Companies covenants that on and after the date of this Agreement until terminated pursuant to the terms of this Agreement, or so long as any of the indebtedness provided for herein remains unpaid: 16 5.1. Payment of Taxes and Claims. Each Company will pay before they become delinquent (a) all taxes, assessments and governmental charges or levies imposed upon it or its property; and (b) all claims or demands of materialmen, mechanics, carriers, warehousemen, landlords, bailees, and other like persons which, if unpaid, might result in the creation of a lien or encumbrance upon its property provided that the Company may contest any item described in clauses (a) and (b) of this subsection 5.1 in good faith as long as adequate resources are maintained in accordance with generally accepted accounting principles consistently applied. 5.2. Maintenance of Properties and Corporate Existence. Each Company shall (a) maintain the property owned by each Affiliated Entity and all of that Company's other property in good condition and make all renewals, replacements, additions, betterments, and improvements thereto including the ability to sell assets, dissolve or withdraw Companies which are deemed necessary by that Company to be in the best interests of the Company; (b) keep true books of records and accounts in which full and correct entries will be made of all its business transactions, including, without limitation, any transaction with any Affiliated Entity, and reflect in its financial statements adequate accruals and appropriations to reserves; (c) do or cause to be done all things necessary (i) except as contemplated by clause (a), to preserve and keep in full force and effect its existence, general partnership rights, contractual management rights, franchises, and other rights, (ii) except as contemplated by clause (a), to maintain its status as a corporation or limited liability company duly organized and existing and in good standing under the laws of the state of its incorporation or organization, (iii) except as contemplated by clause (a), to maintain where necessary its status as a corporation licensed to do business as a foreign corporation in any state in which it is presently so qualified, and (iv) except as contemplated by clause (a), to maintain on behalf of each Affiliated Entity its status as a business entity qualified to do business in the state in which each such Affiliated Entity does business; (d) not acquire, incur, or assume directly or indirectly, any material contingent liability in connection with the release of any Hazardous Substances into the Environment, or dispose of, or allow to be disposed of, or otherwise release Hazardous Substances or solid waste on or onto said Company's Premises; (e) not be in violation of any laws, ordinances, or governmental rules and regulations or fail to obtain any licenses, permits, franchises, or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business, which violation or failure to obtain might materially and adversely affect the business, prospects, profits, properties, or condition (financial or otherwise) of said Company, and (f) notify the Bank immediately upon any change in the status of its continued existence as (i) a corporation or limited liability company under the laws of the State of its incorporation or organization, (ii) a general or limited partner in any partnership in which it holds such an interest as of the date of this Agreement, or (iii) a management company as it pertains to the material loss of any partnerships for which it performs such function as of the date of this Agreement. 5.3. Insurance. The Companies shall have and maintain insurance at all times (a) insuring against risks of fire (including so-called extended coverage), explosion, theft, 17 sprinkler leakage, and such other casualties, and (b) insuring against liability for personal injury and property damage in such amounts that are maintained by similar businesses and as may be required by applicable law with reputable and financially sound insurance companies. The Company will provide, at the request of the Bank, a detailed list of the insurance then in effect, stating names of insurance companies, the amounts and rate of insurance, dates of expiration thereof and the properties and risks covered thereby. All policies of insurance shall provide for twenty (20) days' written minimum cancellation notice to the Bank and, at request of the Bank, shall be delivered to and held by it. From and after the occurrence and during the continuance of an Event of Default, the Bank may act as attorney for the Companies in obtaining, adjusting, settling, and canceling such insurance and endorsing any drafts. In the event of failure to provide insurance as herein provided, the Bank may, at its option following notice to the Companies, provide such insurance, and the Companies shall pay to the Bank, upon demand, the cost thereof. Should the Companies fail to pay said sum to the Bank upon demand, interest shall accrue thereon from the date of demand until paid in full at the highest rate set forth in any document or instrument evidencing any of the Obligations. The Companies shall notify Bank in writing within ten (10) days of the occurrence of any damage resulting in an uninsured claim for the sum of $100,000 or greater made by any Company. The Companies shall maintain adequate insurance at the Affiliated Entity level. The Bank shall be listed as an additional insured on all insurance policies maintained by the Companies at either the Company or Affiliated Entity level. 5.4. Sale of Assets; Merger; Subsidiaries; Tradenames. Said Company will not sell, lease, transfer, or otherwise dispose of any of its material assets other than real estate assets sold in the normal course of business or cause any Affiliated Entity to sell, lease, transfer, or otherwise dispose of, any of such Affiliated Entity's material assets. Except as in the normal course of business, said Company shall not without the prior written consent of the Bank consolidate with or merge into any other entity, or permit any other entity to consolidate with or merge into it. Except for acquisition of additional Affiliated Entities from the proceeds of the Revolving Line of Credit in accordance herewith, said Company shall comply with subsection 2.2 when acquiring all or substantially all of the assets or business of any other company, person, or entity by means other than proceeds of the Revolving Line of Credit. The Company has no subsidiaries or affiliates except for (a) other Companies, (b) the partnership in which it is a general or limited partner and (c) one or more SPV subsidiaries. Said Company conducts business only in the name of said Company or in the registered trade names of said Company. Except as otherwise permitted by subsection 2.2 or this subsection 5.4, said Company shall not create or acquire any subsidiaries or conduct business under any other trade names without the prior written consent of the Bank. 5.5. Negative Pledge. The Companies shall not cause, permit, agree, consent to cause or permit in the future (upon the happening of a contingency or otherwise), any of its property or any of the real or personal property of any Affiliated Entity, whether now owned or hereafter acquired, to become subject to a lien or encumbrance; except: (a) liens in connection with the deposits required by worker's compensation, unemployment 18 insurance, social security, and other like laws; (b) taxes, assessments, reservations, exceptions, encroachments, easements rights of way, covenants, conditions, restrictions, leases, and other similar title exceptions or encumbrances affecting real property, provided they do not in the aggregate materially detract from the value of said property or materially interfere with its use in the ordinary conduct of said Company's or said Affiliated Entity's business; (c) inchoate liens arising under ERISA to secure the contingent liability of said Company; (d) liens in place as of the date of signing of this Agreement; (e) liens on the real property owned by an Affiliated Entity which said Company has disclosed to the Bank in writing on or before the date of this Agreement as they currently exist or are refinanced on terms no less favorable except market interest rate increases and similar changes in market terms to said Affiliated Entity than the existing terms; (f) purchase money security interests entered in the ordinary course of business; and (g) rights of first refusal, call and put options or other similar arrangements entered into with co-owners of equity interests in Affiliated Entities. 5.6. Permitted Indebtedness; Other Borrowings in the Ordinary Course of Business. Said Company shall not (a) create or incur any indebtedness for borrowed money or advances, except for the Revolving Line of Credit, or (b) guarantee, endorse, or otherwise become surety for or upon the obligations of others, except: (i) by endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (ii) non-recourse indebtedness which is exculpatory to said Company for a monetary liability; (iii) indebtedness to trade creditors no more than sixty (60) days past the date such indebtedness was originally incurred except contested liabilities as described in subsection 5.1; (iv) for obligations as a general partner incurred in the ordinary course of the partnership's business; (v) purchase money obligations and other indebtedness incurred in the ordinary course of said Company's business; and (vi) existing indebtedness guaranteed by Lexford Residential Trust as of the date of signing of this Agreement. 5.7. Minimum Security. Said Company shall maintain, in conjunction with the other Companies, as minimum security for the Revolving Line of Credit, Collateral having an aggregate resale value at least equal to the outstanding principal balance of the Note and any interest accrued thereon. "Aggregate Resale Value" shall mean the fair market value of the Collateral, in the aggregate, in an arms length transaction between parties of substantially equal bargaining position given a reasonable period of time for negotiation and sale. 5.8. Sale of Accounts; No Consignment. Except as outlined in subsection 5.3, said Company shall not sell, assign, or encumber, except to the Bank, any of its Accounts or notes receivable. Said Company shall not permit any of its Inventory to be sold or transferred on consignment or acquire or possess any of its Inventory on consignment. 5.9. Ownership. None of the Companies shall permit any material change in its ownership, without the prior written consent of the Bank. 19 5.10. Maintenance of Intercorporate Funds Agreement. No Company shall materially amend, modify, restate, or otherwise change any of the terms, provisions, and conditions set forth in the Intercorporate Funds Agreement dated August 11, 1995, and shall notify the Bank immediately upon termination of such Intercorporate Funds Agreement by any party thereto. 5.11. Trade Accounts Payable. No Company shall permit its trade accounts payable to be past due for more than sixty (60) days unless being contested in good faith and for which adequate reserves are maintained in accordance with generally accepted accounting principles, consistently applied. 5.12. Net Worth. The Companies shall maintain at all times a Net Worth, as determined on a quarterly basis and calculated in accordance with generally accepted accounting principles and "equity method" accounting principles, consistently applied, of not less than $60,000,000. "Net Worth" shall mean the consolidated shareholder's equity of the Companies increased by consolidated liabilities for deferred compensation and the cost of treasury shares. 5.13. Ratio of Total Liabilities to Net Worth. The Companies shall maintain an aggregate ratio of total liabilities excluding non-recourse debt to Net Worth, calculated in accordance with generally accepted accounting principles consistently applied, of not greater than 1.5 to 1.0. 5.14. Ratio of Net Operating Cash Flow to Debt Service. The Companies shall maintain an aggregate calendar year to date ratio of Net Operating Cash Flow as reported in the Companies' public financial statements to required contractual payments of principal and interest to the Bank on the Loan pursuant to this Agreement of not less than to 2.0 to 1.0. 5.15. Recurring Cash Flow. The Companies shall maintain annual recurring EBITDA (earnings before interest and non-recurring noncash items (excluding interest on wholly owned properties), taxes, depreciation, and amortization) of not less than $15,000,000. 5.16. Environmental Compliance and Indemnification. The Companies hereby indemnify the Bank and hold the Bank harmless from and against any loss, damage, cost, expense, or liability (including strict liability) directly or indirectly arising from or attributable to the generation, storage, release, threatened release, discharge, disposal, or presence (whether by one or more of the Companies or any employees, agents, contractor, or subcontractors of one or more of the Companies or any predecessor in title or any third persons occupying or present on the Premises), or the breach of any of the representations and warranties regarding the Premises, including, without limitation: (a) those damages or expenses arising under the Environmental Laws; (b) the costs of any repair, cleanup, or detoxification of the Premises, including the soil and ground water thereof, and the preparation and implementation of any closure, remedial, or other required plans; (c) damage to any natural resources; and (d) all reasonable costs and expenses incurred by 20 the Bank in connection with clauses (a), (b) and (c) including, but not limited to reasonable attorney's fees. The indemnification provided for herein shall not apply to any losses, liabilities, damages, injuries, expenses or costs which: (i) arise from the gross negligence or willful misconduct of the Bank, or (ii) relate to Hazardous Substances placed or disposed of on the premises after the Bank acquires title to the Premises through foreclosure or otherwise. 5.17. Maintenance of Accounts. Said Company shall maintain all of its primary operating and deposit accounts and all deposit accounts for the Affiliated Entities at the Bank, unless required by the respective first mortgage holders of the Affiliated Entities or regulatory authorities to be maintained elsewhere. 5.18. Change in Management Agreements. Except for subordinations permitted by subsection 3.2 of this Agreement, said Company shall not change any terms of the property management agreements which are part of the Collateral without the prior written consent of the Bank, which consent shall not be unreasonably withheld. 6. Financial Information and Reporting. The Companies shall provide to the Bank the following documentation and information and deliver the following on a consolidated basis (except as specified below) within forty-five (45) days after the end of the first three quarters of each calendar year: (a) financial statements, including a balance sheet, statements of income and surplus and cash flow reports for the Companies, certified by the President and Chief Executive Officer, or the Executive Vice President and Chief Financial Officer or the Senior Vice President and Controller or the Senior Vice President and Treasurer of Lexford Residential Trust, as fairly representing the Companies' financial condition using accounting principles consistently applied as of the end of such period; (b) statements signed by the President and Chief Executive Officer, or the Executive Vice President and Chief Financial Officer or the Senior Vice President and Controller or the Senior Vice President and Treasurer of Lexford Residential Trust, setting forth and certifying the compliance of the Companies with the terms of this Agreement; (c) a report in the event one or more of the Companies has become aware of its termination as (i) a general partner of (ii) an owner of, or (iii) the property management company of any Affiliated Entity and an analysis of the financial impact of such termination; (e) immediately upon becoming aware of the existence of any set of facts or circumstances which, by themselves, upon the giving of notice, the lapse of time, or any one or more of the foregoing, would constitute a breach of any of the terms or conditions of this Agreement or an Event of Default under this Agreement, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; and (f) at the request of the Bank, such other information as the Bank may from time to time reasonably require. 6.1. Periodic Disclosure and Reporting. The Companies shall provide to the Bank the following documentation and information: (a) within fifteen (15) days after filing, copies 21 of any and all materials filed by the Companies with the Securities and Exchange Commission, regardless of whether the Companies have filed such materials on their own behalf, in their capacity as a general partner, or otherwise; (b) at the request of the Bank, filing copies of any and all federal corporate income tax returns, together with any amendments, exhibits, or supplements thereto, and any related documentation filed with the Internal Revenue Service; (c) immediately upon becoming aware of the existence of any set of facts or circumstances which, by themselves, upon the giving of notice, the lapse of time, or any one or more of the foregoing, would constitute a breach of any of the terms or conditions of this Agreement or an Event of Default under this Agreement, a written notice specifying the nature and period of existence thereof and what action the Companies are taking or propose to take with respect thereto; and (d) at the request of the Bank, such other information as the Bank may from time to time reasonably require. 6.2. Annual Financial Statements. The Companies shall deliver to the Bank within ninety (90) days of the end of each fiscal year: (a) consolidated audited financial statements, which have been prepared in accordance with generally accepted accounting principles consistently applied and certified by independent certified public accountants reasonably satisfactory to the Bank, containing a balance sheet, statements of income and shareholder's equity, statements of cash flows, followed by any management letters written by such accountants; (b) at the request of the Bank, consolidated unaudited financial statements prepared by the Companies in accordance with "equity method" accounting principles consistently applied, containing a balance sheet, statements of income and shareholder's equity, and statements of cash flows; (c) at request of the Bank a report signed by the President and Chief Executive Officer, or the Executive Vice President and Chief Financial Officer or the Senior Vice President and Controller, or the Senior Vice President and Treasurer of Lexford Residential Trust setting forth a detailed analysis of each of the Affiliated Entities' financial condition including financial statements reflecting (i) net cash flow, occupancy percent, gross revenue, operating expenses (which includes fees and payments to the Companies), maintenance, and repair expense, net operating income, mortgage payments not due to the Companies and net cash flows; (ii) any advances from the Companies to, or notes due to the Companies from (balance due and estimated value), the Affiliated Entities, (iii) all fees, advances, interest, and principal payments paid to Companies by the Affiliated Entities, and (iv) lender, mortgage balance, payment amount, and status of each mortgage encumbering all property owned by an Affiliated Entity; (d) financial statements, including balance sheet and income statement of each Affiliated Entity, and (e) the unaudited actual cash flow statements of the Affiliated Entities, all of which may be presented in a computer disk format reasonably acceptable to the Bank. 7. Default. 7.1. Events of Default. An "Event of Default" shall exist if any of the following occurs and is continuing: (a) the Companies fail to make any payment of principal or interest on any note executed in connection with this Agreement on or within fifteen (15) days of the date such payment is due; (b) the Companies fail to perform or observe any 22 covenant contained in subsections 3.3, 4.1 through 5.18, inclusive, of this Agreement and such failure continues for more than thirty (30) days after such failure shall first occur; (c) the Companies fail to perform or observe any other covenant contained in this Agreement and such failure continues for more than seven (7) days after such failure shall first occur, (d) the Companies fail to comply with any other provision of this Agreement, and such failure continues for more than thirty (30) days after discovery of such failure by any of the parties to this Agreement; (e) any warranty, representation, or other statement by or on behalf of the Companies contained in this Agreement or in any instrument furnished in compliance with or in reference to this Agreement is false or misleading in any material respect, or the Companies fail to perform or observe any covenant contained in any mortgages, security agreement or other agreement in favor of the Bank and such failure continues for more than thirty (30) days from the date after discovery of such failure by any of the parties to this Agreement; (f) one or more of the Companies fails to perform or observe any covenant contained in any security agreement, or other agreement in favor of the Bank and such failure continues for more than thirty (30) days from the date after discovery of such failure by any of the parties to this Agreement; (g) one or more of the Companies makes an assignment for the benefit of creditors, or consents to or suffers the appointment of a trustee, receiver, or liquidator; (h) bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings are instituted by one or more of the Companies and such proceeding is not dismissed or staged within 90 days of the commencement thereof; (i) bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings are instituted against one or more of the Companies and such proceeding Is not dismissed or stayed within 90 days of the commencement thereof; (j) failure to give the Bank notice that an Affiliated Entity is involved in any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings; (k) an uninsured final judgment or judgments for the payment of money aggregating in excess of $100,000 is or are outstanding against one or more of the Companies and any such judgment or judgments have not been discharged in full or stayed; (l) the occurrence of any event which allows the acceleration of the maturity of any indebtedness of the Companies to the Bank or any of the Affiliated Entities to the Bank under any indenture, agreement, or undertaking other than this Agreement which evidences an obligation or obligations at one or more of the Companies aggregating $100,000 or more and more than thirty (30) days have passed since the occurrence of such acceleration event without such acceleration having been rescinded or the obligations accelerated having been discharged; (m) the occurrence of any event which allows the acceleration of the maturity of any material indebtedness of the Companies to any other person, corporation, or entity under any indenture, agreement, or undertaking and the failure of the Companies to cure any resulting default within the longer of thirty (30) days from such occurrence or the period provided in any applicable documentation governing such indebtedness; (n) the loss by the Companies of the ability to manage other than by sale of properties at least eighty percent (80%) of the Affiliated Entities existing on August 11, 1995, provided, such loss causes an event which materially impairs the prospect of payment or performance by the Companies in accordance with this Agreement; or (o) an event occurs which materially impairs the prospect of payment or performance by the Companies in accordance with 23 this Agreement and more than five (5) days have passed since notice was given to the Companies of such event without cure of such default. 8. Remedies on Default. 8.1. Legal and Contractual Remedies. Upon the occurrence of an Event of Default and for so long thereafter as such Even of Default continues, the Bank shall have the rights and remedies of a Secured Party under this Agreement, under any other instrument or agreement securing, evidencing, or relating to the Obligations and under the law of the State of Ohio, or any other applicable state law, and the Bank may exercise any right, power, or remedy permitted to the Bank by law or any provision of this Agreement. Without limiting the generality of the foregoing, upon the occurrence or continuation of an Event of Default, the Bank shall have the right without further notice or demand to the Companies (a) to declare the entire principal and all interest accrued on the Obligations to be forthwith due and payable, without any presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived by the Companies, and (b) to take possession of the Collateral and all books and records relating to the Collateral and for that purpose the Bank may enter upon any premises on which the Collateral or books and records relating to the Collateral or any part thereof may be situated and remove the same therefrom. The Companies expressly agree that the Bank, without demand of performance or other demand, advertisement, or notice of any kind (except the notices specified below of time and place of public sale or disposition or time after which a private sale or disposition is to occur) to or upon the Companies or any other person or entity (all and each of which demands, advertisements, and/or notices are hereby expressly waived), may forthwith in a commercially reasonable manner consistent with applicable economic, industry, and market conditions for property or collateral of like nature, collect, receive, appropriate, and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase or sell or otherwise dispose of and deliver the Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any of the Bank's offices or elsewhere at such prices as the Bank may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Bank shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption. The Companies further agree, at the Bank's request, to assemble the Collateral and to make it available to the Bank at such places as the Bank may reasonably select. The Companies further agree to allow the Bank to use or occupy the Companies' premises, without charge, for the purpose of effecting the Bank's remedies in respect of the Collateral. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any or all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorneys' fees and legal expenses, to the payment in whole or in part of the Obligations, in such order as the Bank may elect, and only after so paying over such net proceeds and after the payment by the Bank of any other amount 24 required by any provision of law, need the Bank account for the surplus, if any. To the extent permitted by applicable law, the Companies waive all claims, damages and demands against the Bank arising out of the repossession, retention, sale or disposition of the Collateral. The Companies agree that the Bank need not give more than ten (10) days' notice (which notification shall be deemed given when mailed, postage prepaid, addressed to one or more of the Companies at its address set forth in this Agreement, or when telecopied or telegraphed to that address or when telephoned or otherwise communicated orally to one or more of the Companies or any of their agents at that address) of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. The Companies shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which the Bank is entitled. The Companies shall also be liable for the costs of collecting any of the Obligations or otherwise enforcing the terms thereof or of this Agreement, including reasonable attorneys' fees. Upon the occurrence of any Event of Default, in addition to all other remedies set forth above, any and all funds due and owing to the Bank, whether before or after any acceleration of the amount due to the Bank, shall bear interest at the prime rate (as that term is defined in the Note) plus two percent. 8.2. Appointment of Receiver. In addition to any remedy herein before provided and not in limitation thereof, upon the occurrence and continuation of any Event of Default, and at any time prior to or after the institution of any enforcement proceeding, the Bank shall have the right to make application to a court of competent jurisdiction for appointment of a receiver for all or any part of the Collateral and the businesses of the Companies without regard to the adequacy of the Collateral for the repayment of the indebtedness secured by the Collateral or the solvency of the Companies or any person or persons liable for the payment of the Obligations, and the Companies do hereby irrevocably consent to such appointment, waive any and all defenses to such appointment and agree not to oppose any application therefor by the Bank, but nothing herein is to be construed to deprive the Companies of any right, remedy or privilege the Companies may now have under the law to have a receiver appointed, provided, however, that the appointment of such receiver, trustee or other appointee by virtue of any court order, statute, or regulation shall not impair or in any manner prejudice the rights of the Bank to receive payment of the income and proceeds of the Collateral pursuant to other terms and provisions hereof. Any such receiver shall have all of the usual power to hold, develop, rent, lease, manage, maintain, operate, contract, and otherwise use or permit the use of the Collateral upon such terms and conditions as said receiver may deem to be prudent and reasonable under the circumstances. Such receivership shall, at the option of the Bank, continue until full payment of all of the Obligations or until title to all of the Collateral shall have passed to the Bank pursuant to an enforcement proceeding. 9. Miscellaneous. 9.1. Limited Appointment of Lexford Residential Trust as Attorney-in-Fact. Each of the Companies hereby irrevocably constitutes and appoints Lexford Residential Trust and 25 any officer or agent thereof, with full power of substitution, as said Company's true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of each of the corporations and limited liability companies constituting the Companies and in their names as set forth above in the preamble to this Agreement, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or desirable to accomplish the purposes of this Agreement and without limiting the generality of the foregoing hereby grants to Lexford Residential Trust the power and right, on behalf of any one or more of the Companies, without notice or assent: (a) to execute and deliver to the Bank such contracts, instruments, release, and other agreements or documents as the Bank shall reasonably deem necessary to evidence the terms and conditions of this Agreement; (b) to certify or attest to the execution, delivery, filing, or recording of such contracts, instruments, releases, and other documents described in subsection (a) above; (c) to execute, file, and record all such financing statements, certificates of title, mortgages, security agreements, assignments, deeds of trust, and other certificates of registration and operation and similar documents and instruments as the Bank may deem necessary or desirable to grant, protect, perfect, and validate the Bank's security interests, mortgages, or other liens in or on the Collateral, or any portion thereof; and (d) to provide the financial and other information and disclosures to the Bank required pursuant to this Agreement. The Companies hereby ratify all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. 9.2. Assumption by New Entities. Upon the creation of a new entity which would have been one of the Companies if in existence as of the date of this Agreement, the Companies shall cause such new entity to assume any indebtedness evidenced by the Note, pledge all of its assets to secure such indebtedness, cause all of its stock to be pledged to secure such indebtedness, and otherwise be bound by the covenants and agreements of this Agreement. 9.3. Notices. (a) All communications under the default (including, without limitation, the exercise of remedies available due to a default or an Event of Default) provisions of this Agreement shall be by certified mail, return receipt requested. All other communications under this Agreement or under the notes executed pursuant thereto shall be in writing, by fax, by overnight delivery or shall be mailed by first class mail, postage prepaid, (1) if to the Bank, at the following address, or at such other address as may have been furnished in writing to the Companies by the Bank: The Provident Bank 10 West Broad Street Columbus, Ohio 43215 Attn: William R. McNamara, Vice President Fax Number: (614) 221-0875 26 (2) if to the Companies, at the following address, or at such other address as may have been furnished in writing to the Bank by the Companies: Lexford Residential Trust The Huntington Center, 41 South High Street Columbus, OH 43215 Attn: Mark D. Thompson, Executive Vice President and Chief Financial Officer Michael F. Sosh, Senior Vice President and Treasurer Fax Number: (614) 225-1100 (b) any notice so addressed and mailed by registered or certified mail shall be deemed to be given two (2) business days following the date when so mailed. 9.4. Reproduction of Documents. This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers, and modifications which may hereafter be executed, (b) documents received by the Bank at the closing or otherwise, and (c) financial statements, certificates, and other information previously or hereafter furnished to the Bank, may be reproduced by the Bank by any photographic, photostatic, microfilm, microcard, miniature photographic, or other similar process and the Bank may destroy any original document so reproduced. The Companies agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Bank in the regular course of business) and that any enlargement, facsimile, or further reproduction of such reproduction shall likewise be admissible in evidence. 9.5. Survival, Successors, and Assigns. All warranties, representations, and covenants made by the Companies herein or on any certificate or other instrument delivered by it or on its behalf under this Agreement shall be considered to have been relied upon by the Bank and shall survive the closing of the Revolving Line of Credit regardless of any investigation made by the Bank on its behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by the Companies. This Agreement shall inure to the benefit of and be binding upon the heirs, successors and assigns of each of the parties. 9.6. Amendment and Waiver, Duplicate originals. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Companies and the Bank; provided however that nothing herein shall change the Bank's sole discretion (as set forth elsewhere in this Agreement) to make advances, determinations, decisions, or to take or refrain from taking other actions. No delay or failure or other course of conduct by the Bank in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right. Two or more duplicate originals of this Agreement may be signed by the parties, each of 27 which shall be an original but all of which together shall constitute one and the same instrument. 9.7. Uniform Commercial Code and Generally Accepted Accounting Principles. Unless the context otherwise requires, all terms used herein which are defined in the Uniform Commercial Code as enacted in Ohio shall have the meaning stated therein, and all accounting terms shall be determined in accordance with generally accepted accounting principles, consistently applied. 9.8. Enforceability and Governing Law. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction, as to such jurisdiction, shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. All of the Bank's rights and remedies, whether evidenced hereby or by any other agreement or instruments, shall be cumulative and may be exercised singularly or concurrently. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. The Companies agree that any legal suit, action or proceeding arising out of or relating to this Agreement may be instituted in a state or federal court of appropriate subject matter jurisdiction in the State of Ohio; waive any objection which they may have now or hereafter to the venue of any suit, action, or proceeding in any such court; and irrevocably submit to the jurisdiction of any such court in any such suit, action, or proceeding. 9.9. Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (1) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 28 9.10. Advertising. The Companies agree that the Bank may advertise or otherwise disclose for marketing purposes the extent and nature of the credit extended or to be extended and other services provided to the Companies by the Bank in connection with or relating in any way to the Loan. The Companies have the right of advance inspection and approval of all advertising (using their name) not to be unreasonably withheld or delayed. 9.11. Term of Agreement. The term of this Agreement shall commence with the date hereof and end on the date when, after written notice from either party to the other that no further loans are to be made hereunder, the Companies pay in full the Loan and all other obligations of the Companies to the Bank which are secured hereby, and the Bank has no further obligations of any type to the Companies. 9.12. Singular and Plural; Joint and Several Liability. As used in this Agreement, the singular shall include the plural, the plural the singular and the use of masculine, feminine, or neuter gender shall include all genders, as the context may require. Reference in this Agreement to any one or more of the Companies shall mean all of the Companies, jointly and severally; therefore the obligations of the Companies in this Agreement shall be the joint and several liability of each such Company. 9.13. Definitions. As used in this Agreement, the meanings assigned to defined terms are set forth in the appropriate sections of this Agreement. 9.14. Warrant of Attorney. With full knowledge of all constitutional rights, if any payment under the Note is not received by the Bank on or before the date when due, or should default be made in the performance or observance of the covenants and agreements of this Agreement or any of the other loan documents evidencing the Loan, after any applicable notice or period of grace, the Companies hereby authorize and empower any attorney of any court of record within the United States of America or elsewhere to appear for the Companies and, with or without complaint filed, confess judgment or a series of judgments against the Companies in favor of the Bank as of any time, present, or future, for the then due and unpaid balance or balances of the principal, interest, late charges, and collections expenses evidenced by the Note, or any part thereof, together with the costs of the suit, and to waive and release all errors in said proceedings and petitions in error and the right to appeal from the judgment rendered, on which judgment or judgments one or more executions may issue forthwith; and for so doing this Agreement or a copy thereof verified by affidavit shall be a sufficient warrant. The foregoing warrant of attorney shall survive any judgment rendered pursuant to the Note, and if any such judgment be vacated for any reason, the Bank nevertheless may thereafter use the foregoing warrant of attorney to obtain an additional judgment or judgments against the Companies. 29 SIGNED AND ACKNOWLEDGED: WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.). Lexford Residential Trust By: /s/ John B. Bartling ------------------------ John B. Bartling, Its: Chief Executive Officer Provident Bank By: /s/ William R. McNamara ------------------------ William R. McNamara Its: Vice President EX-10.2 4 EXHIBIT 10.2 1 Exhibit 10.2 COGNOVIT PROMISSORY NOTE (RENEWAL BALANCE REVOLVING LINE OF CREDIT) $40,000,000.00 Effective September 30,1998 Columbus, Ohio FOR VALUE RECEIVED, the undersigned promise to pay to the order of THE PROVIDENT BANK, a state banking corporation ("Bank" which term shall include subsequent holders hereof), with a place of business at 10 West Broad Street, Columbus, Ohio, or at such other place as the Bank may, from time to time, designate in writing, the principal sum of Forty Million and 00/100 Dollars ($40,000,000.00), or so much thereof as may be advanced to the undersigned in accordance with the terms of this Note and subject to that certain Second Amended and Restated Loan and Security Agreement among the undersigned, others and the Bank as of September 30, 1998, as from time to time amended (the "Loan Agreement"), together with interest on the unpaid principal balance from the date the funds are advanced under this Note, until paid, at the rate and in the manner set forth below. This Note is a revolving credit subject to the terms of this paragraph. Subject to the conditions and limitations hereof and of the Loan Agreement and prior to March 30, 2000, the undersigned may borrow and reborrow from the Bank and the Bank may lend and relend to the undersigned such amounts not to exceed an aggregate unpaid principal amount outstanding at any time of $40,000,000.00 as the undersigned may at any time and from time to time request upon satisfactory notice to the Bank in compliance with the Loan Agreement. INTEREST Commencing on the date of the first advance of funds under this Note and excluding any Term Out Indebtedness as hereinafter defined, interest hereon shall be payable at the rate of one percent (1%) per annum below the "prime rate" of interest, as hereinafter defined, from time to time in effect. The rate of interest shall be adjusted upward or downward without notice immediately upon any change in the prime rate. Interest shall be computed at all times on the basis of a three hundred sixty (360) day year and the actual number of days elapsed. Any reference in this Note to the "prime rate" of interest is hereby defined to mean that interest charged by The Provident Bank from time to time as its prime rate whether or not it is publicly announced, and which provides a base to which loan rates may be referenced. The prime rate may not be the lowest interest rate The Provident Bank charges for commercial or other extensions of credit. 2 Page 2 of 6 At the election(s) of the undersigned from time to time, upon seven days prior written notice to the Bank, all of any portion of the principal balance of this Note may be termed out over a sixty month period (in each case, the "Term Out Indebtedness"). Commencing on the first day of the first calendar month following the date upon which the undersigned gives notice of the amount of the Term Out Indebtedness (the "Term Out Rate Change Date"), the yearly interest on the Term Out Indebtedness shall be payable at the rate of two percent (2%) per annum, rounded up to the nearest one eighth of one percent (1/8%), above the weekly average yield (expressed as a percent per annum) for United States Treasury Securities adjusted to constant maturities of five (5) years as published by the Federal Reserve Board in its statistical release of selected interest rates number H.15(519) for the most recent published average weekly yield prior to the Term Out Rate Change Date, which shall be the interest rate on the Term Out Indebtedness until this Note is paid in full. Any remaining principal balance not included in the Term Out Indebtedness shall continue to bear interest at a fluctuating interest rate as provided herein. Upon the occurrence of an Event of Default, as defined in the Loan Agreement, any and all funds due and owing to the Bank, whether before or after any acceleration of the amount due to the Bank, shall bear interest at the "Default Rate" per annum of the prime rate, as announced from time to time by the Bank, plus two percent. The Default Rate shall remain in effect for so long as the Event of Default is continuing. TERM The entire unpaid principal balance, excluding any Term Out Indebtedness, together with accrued and unpaid interest thereon, and all other obligations hereunder, if not sooner paid shall be due and payable on September 30, 2000 ("Maturity Date"), provided however on September 15 of each year commencing on September 15, 1999, the Bank shall review this credit and give written notice to the undersigned in the event the Bank elects to extend the Maturity Date by an additional Twelve (12) months. The entire unpaid principal balance of any Term Out Indebtedness, together with accrued and unpaid interest thereon, if not sooner paid, shall be due and payable on a date which is Sixty (60) months after the first day of the first month following the Term Out Rate Change Date (the "Term Out Maturity Date"). PAYMENTS Interest only shall be payable in consecutive monthly installments effectively beginning October 1, 1998, and continuing on the first day of each month thereafter. 3 Page 3 of 6 On the first day of the first month following any Term Out Rate Change Date (the "Commencement of Amortization Date") principal and interest on such Term Out Indebtedness shall be payable in consecutive monthly installments in an amount equal to the sum of (i) accrued interest on account of such Term Out Indebtedness for the immediately preceding month, plus (ii) one sixtieth (1/60th) of the original principal amount of such Term Out Indebtedness or, at Borrower's option level payments of principal and interest combined. Monthly installments as provided in this paragraph shall commence on the Commencement of Amortization Date and shall continue on the first day of each month thereafter until the entire Term Out Indebtedness evidenced by this Note is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable in full on the Maturity Date. If any payment of principal or interest is specified to be made on a day on which commercial banks in Columbus, Ohio are authorized by law to close, it shall be made on the next succeeding day which constitutes a regular business day for commercial banks in Columbus, Ohio, and any such extension of time shall in all cases be included when computing interest. PURPOSE The use of the indebtedness evidenced by this Note is described in subsection 2.2 use of proceeds in the Loan Agreement. DEFAULT RATE If any payment under this Note is not received by the Bank on or before the date the installment is due or if the undersigned shall otherwise be in default in the performance of its obligations hereunder or under the Loan Agreement, the undersigned shall pay to the Bank a default rate of .01% of the unpaid principal balance of this Note at the time of such delinquency for each such delinquency to cover the extra expense incident to handling delinquent accounts, or, at the option of Bank, interest on the dollar amount of any unpaid amounts so long as they remain past due and payable at a rate which is three (3) percentage points greater than the rate which would otherwise be in effect (the "Default Rate"). The Bank may charge interest at the rate provided herein on all interest and dollar amounts owing hereunder which are not paid when due. ACCELERATION If any Event of Default has occurred and is continuing the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the Bank. The Bank may exercise this option to accelerate during the continuance any Event of Default by the undersigned regardless of any prior forbearance. Reference is made to the Loan Agreement for rights as to acceleration of the indebtedness evidenced by this Note. 4 Page 4 of 6 ADDITIONAL REMEDIES Upon and during the continuance of an Event of Default, the Bank shall be entitled to recover judgment against the undersigned for the amount due under this Note, either before or after or during the pendency of any proceeding for the enforcement of any security for this Note, and, in the event of realization of any funds from any security and application thereof to the payment of the amount due under this Note, the Bank shall be entitled to enforce payment of and recover judgment for all amounts then remaining due and unpaid upon the Note, whether for principal, interest or premium. The Bank may proceed to protect and enforce its rights by suit in equity, action at law and/or by any other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note, in aid of the exercise of any power granted in this Note, or may proceed to enforce payment of this Note, or to enforce any other legal or equitable right. REMEDIES SEPARATE The Bank may pursue any rights or remedies as the Bank under this Note or under the Loan Agreement independently or concurrently. All rights, remedies, or powers herein conferred upon the Bank shall, to the extent not prohibited by law, be deemed cumulative and not exclusive of any other thereof, or of any other rights, remedies or power available to the Bank. No delay or omission of the Bank to exercise any right, remedy or power shall impair the same or be construed to be a waiver of any default or an acquiescence thereto. No waiver of any default shall extend to or affect any subsequent default nor shall it impair any rights, remedies or power available to the Bank. No single or partial exercise of any right, remedy or power shall preclude other or further exercise thereof by the Bank. WAIVER OF PRESENTMENT, ETC. The undersigned, together with all sureties, endorsers, and guarantors of the Note hereby: (a) except as expressly provided herein, waive demand, presentment for payment, notice of nonpayment, protest, and all other notices, filing of suit or diligence in collecting this Note, and enforcing any of the security rights of or in proceeding against any of the Property; (b) agree that the Bank shall not be required first to institute any suit, or to exhaust its remedies against the undersigned or any other person or party in order to enforce payment of this Note; (c) consent to any extension, renewal or postponement of time of payment of this Note; and 5 Page 5 of 6 (d) agree that, notwithstanding the occurrence of any of the foregoing, except as to any such person expressly released in writing by the Bank, they each shall be and remain jointly and severally, directly and primarily, liable for all sums due under this Note. COST OF COLLECTION The undersigned hereby unconditionally agree to pay the cost of collection of this Note, including, but not limited to, reasonable attorney fees incurred by the Bank. USURY It is the intention of the Bank, which is signified by acceptance of this Note, that this Note shall comply with the usury laws applicable under the laws of the State of Ohio now or hereafter in effect. Accordingly, to the extent that any rate of interest stated in this Note exceeds the maximum rate of interest which may be charged on loans of the type and nature evidenced by this Note under the laws of the State of Ohio, then said interest shall be abated and reduced to the extent necessary to conform with the maximum permissible rate. GOVERNING LAW This Note shall be governed by and construed under the laws of the State of Ohio. CONFESSION OF JUDGMENT With full knowledge of all constitutional rights, if any payment under this Note is not received by the Bank on or before the date when due, or should default be made in the performance or observance of the covenants and agreements of the Loan Documents securing this Note, after any applicable notice or period of grace, the undersigned hereby authorize and empower any attorney of any court of record within the United States of America or elsewhere to appear for the undersigned and, with or without complaint filed, confess judgment or a series of judgments against the undersigned in favor of the Bank as of any time, present or future, for the then due and unpaid balance or balances of the principal, interest, and collection expenses evidenced by this Note, or any part thereof, together with the costs of the suit, and to waive and release all errors in said proceedings and petitions in error and the right to appeal from the judgment rendered, on which judgment or judgments one or more executions may issue forthwith; and for so doing this Note or a copy hereof verified by affidavit shall be a sufficient warrant. The foregoing warrant of attorney shall survive any judgment rendered pursuant to this Note, and if any such judgment be vacated for any reason, the Bank nevertheless may thereafter use the foregoing warrant of attorney to obtain an additional judgment or judgments against the undersigned. The foregoing warrant of attorney may be exercised, and judgment may be taken thereby as many times as the Bank may determine in its sole discretion and may be exercised separately with respect to each payment and other obligation evidenced by this Note or from time to time with respect to such payments and obligations evidenced by this Note, as the Bank may determine in its sole discretion. 6 Page 6 of 6 THE UNDERSIGNED HEREBY, AND ANY HOLDER HEREOF BY ITS ACCEPTANCE HEREOF, EACH WAIVES THE RIGHT OF A JURY TRIAL IN EACH AND EVERY ACTION ON THIS PROMISSORY NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, IT BEING ACKNOWLEDGED AND AGREED THAT ANY ISSUES OF FACT IN ANY SUCH ACTION ARE MORE APPROPRIATELY DETERMINED BY THE COURTS; FURTHER THE UNDERSIGNED HEREBY CONSENT AND SUBJECT THEMSELVES TO THE JURISDICTION OF COURTS OF THE STATE OF OHIO AND, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TO THE VENUE OF SUCH COURTS IN FRANKLIN COUNTY. SIGNED AND ACKNOWLEDGED: WARNING--BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR, WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. (SEC. 2323.13, O.R.C.). Lexford Residential Trust By: /s/ JOHN B. BARTLING ---------------------------- John B. Bartling, Its: Chief Executive Officer EX-10.11 5 EXHIBIT 10.11 1 Exhibit 10.11 AGREEMENT This Agreement is made this 13th day of February, 1998 among Lexford, Inc., an Ohio corporation formerly known as Cardinal Realty Services, Inc. (the "Company"), Stanley R. Fimberg ("Fimberg"), and each of FSC Realty, L.L.C. ("FSC"), Pat Holder ("Holder"), Ralph V. Williams ("Williams"), Annette Hoover ("Hoover"), Bruce Woodward ("Woodward"), Eric Madsen ("Madsen"), and Peggy Crow Smith ("Smith" and together with FSC, Holder, Williams, Hoover, Woodward and Madsen, the "Old Lexford Shareholders"). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement (the "Merger Agreement") dated as of July 19, 1996 among the Company, Rexflor Acquisition Corporation, an Ohio corporation ("Rexflor"), Lexford Properties, Inc., a Texas corporation ("Lexford properties"), Fimberg and the Old Lexford Shareholders. WHEREAS, pursuant to the terms of the Merger Agreement, Lexford Properties was merged with and into Rexflor with Lexford Properties surviving the merger (the "Merger") and each of the Old Lexford Shareholders became entitled to receive the Merger Consideration; WHEREAS, the Merger Consideration consisted of shares of common stock, no par value, of the Company (the "Company Common Stock"), certain portions of which were designated as Escrow Shares, Group 1 Forfeitable Shares and Group 2 Forfeitable Shares; WHEREAS, the Escrow Shares have been issued to the Old Lexford Shareholders and held by the Company to secure certain indemnification obligations of the Old Lexford Shareholders pursuant to the terms of the Merger Agreement; WHEREAS, the Group 1 Forfeitable Shares and Group 2 Forfeitable Shares have been issued to the Old Lexford Shareholders and held by the Company subject to forfeiture, each in whole or in part, based on the performance of Lexford Properties during the three full fiscal years beginning after the Effective Time as more particularly described in the Merger Agreement; WHEREAS, in connection with the Merger and pursuant to a Registration Rights Agreement (the "Registration Rights Agreement") dated August 1, 1996 between the Company and the Old Lexford Shareholders, the Company granted to the Old Lexford Shareholders certain registration rights with respect to certain of the shares of Company Common Stock received in the Merger; WHEREAS, in connection with the Merger, Lexford Properties entered into Consulting Agreements dated as of August 1, 1997 with each of Fimberg and Williams (the "Consulting Agreements"); and WHEREAS, the Company is contemplating a restructuring of its business, including the business being conducted by Lexford Properties and, in connection with such restructuring, the parties hereto desire to memorialize their agreements with respect to the release and forfeiture of 2 the Escrow Shares, Group 1 Forfeitable Shares and Group 2 Forfeitable Shares, and certain of the rights granted under the Registration Rights Agreement, Employment Agreements and the Consulting Agreements, all as more particularly set forth below. NOW, THEREFORE, in consideration of the above premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows. 1. Escrow Shares. Notwithstanding anything to the contrary contained in the Merger Agreement, the Company, as Exchange/Escrow Agent under the Merger Agreement hereby agrees to release all of the 50,000 Escrow Shares to the Old Lexford Shareholders (in accordance with Schedule I to the Merger Agreement attached hereto for convenience as Exhibit A ("Schedule I")). As soon as practicable after the effectiveness of this Agreement, the Company will deliver or cause its transfer agent to deliver, as the case may be, to the Old Lexford Shareholders the share certificates representing the Escrow Shares. 2. Group 1 Forfeitable Shares. Notwithstanding anything to the contrary contained in the Merger Agreement, the Company, as Exchange/Escrow Agent under the Merger Agreement hereby agrees to release all of the 150,000 Group 1 Forfeitable Shares to the Old Lexford Shareholders (in accordance with Schedule I). As soon as practicable after the effectiveness of this Agreement, the Company will deliver or cause its transfer agent to deliver, as the case may be, to the Old Lexford Shareholders the share certificates representing the Group 1 Forfeitable Shares. From and after the effectiveness of this Agreement, the Group 1 Forfeitable Shares will be deemed to be Non-Forfeited Shares and no longer subject to forfeiture under the Merger Agreement. 3. Group 2 Forfeitable Shares. Notwithstanding anything to the contrary contained in the Merger Agreement, the Old Lexford Shareholders hereby agree to forfeit to the Company all of the 300,000 Group 2 Forfeitable Shares. From and after the effectiveness of this Agreement, the Old Lexford Shareholders will have no rights whatsoever with respect to the Group 2 Forfeitable Shares notwithstanding the provisions of Sections 2.2(d)(ii)(B) and 2.2(e) of the Merger Agreement. 4. Registration Rights. The Company and each of the Old Lexford Shareholders hereby agree to terminate the Registration Rights Agreement. From and after the effectiveness of this Agreement, the Registration Rights Agreement shall be deemed null and void, with no further force or effect. 5. Consulting Agreements. Each of Fimberg and Williams hereby irrevocably waives the Company's compliance with its obligations under Section 5 of his Consulting Agreement. 6. Holdback Agreements. In the event that the Company determines to register any of its shares of Company Common Stock in an underwritten public offering in a registration statement filed under the Securities Act of 1933 (the "Act") covering the sale of Company Common Stock to the public, and the managing or lead underwriter thereof requests that the Old Lexford Shareholders agree not to effect any public sale or distribution (including sales pursuant 3 to Rule 144 promulgated under the Act) of equity securities of the Company or any securities convertible into or exchangeable or exercisable for such equity securities during a period of time beginning on the date of the initial filing of the registration statement and ending on a date not more than one year after the date such registration statement is declared effective (the "Holdback Period"), the Old Lexford Shareholders will agree to comply with such request and will execute any and all documents reasonably required by the underwriters evidencing the same. Provided, however, that in the event that any of the members of management (including directors) of the Company are permitted by the underwriters to agree to a shorter Holdback Period than one (1) year, then the Holdback Period provided herein shall be shortened to such shorter period. Notwithstanding the foregoing, the holdback agreement with Ralph Williams shall provide that Mr. Williams may sell up to 25,000 shares during the Holdback Period provided that in no single month shall Mr. Williams sell more than 8,334 shares. 7. Proxy. Each of the Old Lexford Shareholders agrees to execute and deliver to the Company, or its designees, a duly executed proxy to vote all shares of Company Common Stock ("Shares") owned by such Old Lexford Shareholder at the Special Meeting of the Company's Shareholders to be held on March 3, 1998 and at any adjournments thereof. Each of the Old Lexford Shareholders acknowledges receipt of the Proxy Statement/Prospectus of the Company and Lexford Residential Trust dated February 2, 1998 relating to such special meeting. All such proxies will be voted in favor of the merger described in such Proxy Statement/Prospectus. No Old Lexford Shareholder will take any further action to revoke any such proxy or otherwise vote his or her Shares at such Special Meeting. In addition, each of the Old Lexford Shareholders agrees to execute and deliver to the Company, or its designees, a duly executed irrevocable proxy to vote the 50,000 Escrow Shares and the 150,000 Group 1 Forfeitable Shares released hereby at any meeting of the Company's shareholders held at any time during the Holdback Period. 8. No Claims. Each of the Old Lexford Shareholders and Fimberg hereby acknowledges and represents that he or she does not have any claim against the Company or Lexford Properties as of the date of this Agreement arising out of the Merger Agreement or the Consulting Agreements, as applicable, or arising out of any other conduct of the Company or Lexford Properties. 9. Releases. The Company on the one hand and Old Lexford Shareholders on the other, on behalf of themselves and their heirs, assigns and successors, do hereby release and forever discharge each other of and from any and all claims, demands, liabilities, obligations, losses or expenses of any nature whatsoever, whether existing at law, in equity or otherwise and whether known or unknown, foreseen or unforeseen, that either of them have or may hereafter claim to have had against each other relating to any provisions, terms, conditions, covenants or representations of the Merger Agreement or any agreements executed in connection therewith, provided, however, that nothing contained in this Agreement shall release either party from any of their obligations under either this Agreement, or from any claims for indemnification under applicable law in connection with serving as an officer or director of the Company. 10. Effect of this Agreement. Except as required by this Agreement, the terms of the Merger Agreement and the Consulting Agreements shall remain unaffected by this Agreement. 3 4 11. Further Assurances. Each of the parties hereto agrees to execute and deliver all documents and take all such other actions as may be reasonably required to give effect to the agreements contained herein. 12. Counterparts. This Agreement may be executed in multiple counterparts, all of which when taken together shall constitute one and the same agreement. This Agreement shall be effective when signed by all the parties hereto. 13. Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall not otherwise be affected, impaired or invalidated. 14. Governing Law. This Agreement shall be governed by and construed in accordance with, the internal laws of the State of Ohio without giving effect to the principles of conflicts of law thereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. LEXFORD, INC. By: /s/ JOHN B. BARTLING ----------------------- Name: John B. Bartling Title: President & CEO /s/ PAT HOLDER - ------------------------------ Pat Holder /s/ STANLEY R. FIMBERG - ------------------------------ Stanley R. Fimberg /s/ RALPH V. WILLIAMS - ------------------------------ Ralph V. Williams /s/ ANNETTE HOOVER - ------------------------------ Annette Hoover /s/ BRUCE WOODWARD - ------------------------------ Bruce Woodward /s/ ERIC MADSEN - ------------------------------ Eric Madsen /s/ PEGGY CROW SMITH - ------------------------------ Peggy Crow Smith FSC REALTY, L.L.C. By: /s/ STANLEY R. FIMBERG --------------------------- Stanley R. Fimberg, Manager 4 EX-10.14 6 EXHIBIT 10.14 1 Exhibit 10.14 ASSIGNMENT The undersigned, Brentwood-Lexford Partners, LLC, successor-in-interest to Lexford Property Management, Inc., hereby assigns its entire right, title and members' interests in and to Lexford Guilford LP LLC, an Ohio limited liability company, and Lexford Guilford GP LLC, an Ohio limited liability company, to Lexford Properties, LP. IN WITNESS WHEREOF, the undersigned has caused this Assignment to be executed by its duly authorized officer effective as of the 30th day of November, 1998. BRENTWOOD-LEXFORD PARTNERS, LLC By: FSC Realty, LLC its managing member By: /s/ Stanley R. Fimberg -------------------------- Stanley R. Fimberg Managing Member EX-10.16 7 EXHIBIT 10.16 1 Exhibit 10.16 AGREEMENT OF SEVERANCE AND MUTUAL RELEASE This Agreement of Severance and Mutual Release ("Agreement") is made effective as of the 1st day of January, 1999 between Annette Hoover ("Hoover") and Lexford Residential Trust, a Maryland real estate investment trust (together with its predecessor by merger, Lexford, Inc., formerly known as Cardinal Realty Services, Inc., "Lexford Trust"). WITNESSETH: WHEREAS, Hoover and Lexford each desire to amicably agree to the terms of Hoover's resignation from all positions including, without limitation, as an employee or officer with Lexford Trust or any of its subsidiaries, affiliates or partnerships (collectively with Lexford Trust, "Lexford"). NOW, THEREFORE, in consideration of the covenants and agreements set forth in this Agreement, and other good and valuable consideration exchanged by the parties hereto, the sufficiency of which to support each and every covenant herein is expressly acknowledged by the parties hereto, the parties agree as follows: 1. Resignation. Hoover, simultaneous with, and by means of the execution and delivery hereof, hereby tenders her resignation, effective January 1, 1999, as Senior Vice President of Property Operations of Lexford Trust and as an employee of Lexford Properties, Inc. ("LPI") in which status she has heretofore served pursuant to that certain Employment Agreement between Hoover and LPI dated August 1, 1996 (the "Employment Agreement"), which resignation Lexford and LPI have accepted. To the extent not covered by the aforementioned resignation, this Agreement shall serve as Hoover's resignation from all positions with Lexford. Accordingly, the term of the Employment Agreement is hereby deemed terminated and the terms and provisions thereof, solely except those contained in Paragraph 8 which will remain in full force and effect, are of no further force and effect. 2. Final Compensation. Lexford will pay to Hoover, as severance compensation and in full consideration of Hoover's release and covenants contained herein: (a) the aggregate sum of One Hundred Eighty-seven Thousand Five Hundred Dollars ($187,500), payable in full seven (7) days following the execution and delivery hereof. Hoover acknowledges that such payment to be made to her in accordance with this Paragraph 2 will be made net of applicable employee payroll withholding and other employment taxes. Hoover acknowledges and agrees that the payment to be made to her 2 pursuant to this Paragraph 2 will be made in full satisfaction of any and all obligations and liabilities which Lexford, LPI or any of their respective affiliates owes, or may owe, to Hoover in respect of the Employment Agreement or any other agreements, documents, instruments or arrangements (whether written or verbal) existing between Hoover and any of them. Such obligations satisfied hereby include, by way of example and not by way of limitation: (i) Lexford's prior obligations under the Employment Agreement to furnish Hoover with any health and dental insurance, life insurance, disability insurance, retirement or other employee benefits of any kind, nature or description, it being understood and agreed that upon the execution and delivery of this Agreement all such obligations shall cease immediately and be of no further force and effect; provided, however, that nothing herein shall impact statutory obligations imposed by the Comprehensive Omnibus Budget Reconciliation Act; and (ii) the obligations of Lexford Trust and LPI (as successor by merger to Rexflor Acquisition Corporation), if any, remaining under that certain Merger Agreement dated August 1, 1996, by and among Lexford Trust, Rexflor Acquisition Corporation, LPI and LPI's former shareholders, including Hoover (the "Merger Agreement"). (b) Ownership, possession and use of that certain desktop computer terminal which Hoover has used during her employment with Lexford. (c) Payment of attorneys' fees and disbursements incurred by Hoover, as well as Peggy Crow Smith, in the negotiation, preparation, review and execution of this Agreement, as well as that certain Severance Agreement and General Release of even date herewith between Lexford Trust and Peggy Crow Smith, in an aggregate amount not to exceed $2,500. Lexford's obligations under this Paragraph 2(c) will be satisfied by direct payment of such attorneys' fees and disbursements in an aggregate amount not to exceed $2,500 to the law firm of Michener, Larimore et. al., of Fort Worth, Texas. (d) Any vested benefits, pursuant to the provisions of the Company's 401(k) Savings Plan. 3. Return of Equipment. As provided in Paragraph 2(b) above, Hoover may keep the desktop personal computer terminal she used during her employment with Lexford; however, she must return all other equipment owned by Lexford, including, but not limited to, dictation equipment, and will remove such retained computer terminal as well as all personal effects from the office space she has occupied at Lexford's offices in San Antonio, Texas. 2 3 4. Release by Employee. (a) Hoover, for herself and her dependents, successors, assigns, heirs, representatives, attorneys, executors and administrators (and her and their legal representatives of every kind), hereby completely and irrevocably discharges and releases Lexford and LPI, their respective officers, trustees, directors, employees, agents, shareholders, affiliates, subsidiaries, related entities, successors and assigns from any and all claims, demands, actions, causes of action and/or liability whatsoever involving any matter arising out of or in any way related, directly or indirectly, to (i) Hoover's employment with Lexford and LPI, including any positions with subsidiary or affiliate entities, compensation therefor, or the termination thereof, including, but not limited to, any claim for employment discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, et seq., the Americans with Disabilities Act, 42 U.S.C. Section 12101, et seq., Ohio Revised Code Section 4112, Ohio Revised Code Section 4101 and any other federal, state or municipal fair employment practice or discrimination laws, statutes or ordinances, (ii) the Merger Agreement; and (iii) any and all other matters, rights, claims, actions, suits, liens, debts, dues, damages or demands of every kind, whether or not referred to in this Agreement, arising, occurring, accruing or in existence on, or prior to, the date hereof. Hoover agrees that she will not seek reinstatement or reemployment with Lexford or any affiliate thereof at any time in the future. (b) Hoover further agrees and acknowledges that she (i) has been advised by Lexford to consult with legal counsel prior to executing this Agreement and the release provided for in this Paragraph 4; (ii) has had an opportunity to consult with and has been advised by legal counsel of her choice; (iii) fully understands the terms of this Agreement; and (iv) enters into this Agreement freely and voluntarily and intending to be bound. 5. Release by Lexford. Except as provided in the immediately succeeding sentence Lexford Trust, on behalf of itself and its affiliated, related and subsidiary entities, successors and assigns (herein the "Lexford Releasors"), hereby completely and irrevocably releases and forever discharges Hoover, her successors, assigns, heirs, representatives, attorneys, executors and administrators from any and all claims, demands, damages, actions and/or causes of action of any kind and every description, which the Lexford Releasors now have or may have had for, upon, or by reasons of any cause whatsoever, against Hoover. This release shall not, however, apply to the obligations of Hoover, arising under or evidenced by this Agreement or under Paragraph 8 of the Employment Agreement. 3 4 6. Continued Availability and Cooperation. (a) Hoover shall cooperate fully with Lexford and with Lexford's counsel in connection with any future actual or threatened litigation or administrative proceeding involving Lexford, its affiliated, related or subsidiary entities, its officers, directors, shareholders, employees, agents and representatives, and its successors or assigns that relates to events, occurrences or conduct occurring (or claimed to have occurred) during the period of Hoover's employment by Lexford and LPI (or any of its predecessors-in-interest). (b) Hoover shall be reimbursed by Lexford for reasonable travel, lodging, telephone and similar expenses incurred in connection with any such cooperation required under Paragraph 6(a) above, which Lexford shall reasonably endeavor to schedule at times not conflicting with the reasonable requirements of any third party with whom Hoover has a business relationship that provides remuneration to Hoover. Hoover shall not unreasonably withhold her availability for such cooperation. (c) To the extent that Hoover executes and delivers this Agreement on, or before, December 31, 1998, Hoover will continue to perform such duties as are incidental to her continued employment in accordance with the terms of the Employment Agreement through the close of business on December 31, 1998 (subject to her use of earned "paid time off" pursuant to Lexford Trust's "PTO" program). Such duties will include, by way of illustration and not by way of limitation, Hoover's cooperation with LPI and LPI's efforts to terminate the leasehold for its San Antonio office space at the lowest obtainable termination costs. 7. Successors and Binding Agreement. (a) This Agreement shall be binding upon and inure to the benefit of Lexford and any successor of or to Lexford, including, without limitation, any persons acquiring directly or indirectly all or substantially all of the business and/or assets of Lexford whether by purchase, merger, consolidation, reorganization or otherwise be assignable or delegable by Lexford. (b) This Agreement shall inure to the benefit of and be enforceable by Hoover, her personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other parties, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Paragraphs 7(a) and 7(b) of this Agreement. 4 5 (d) This Agreement is intended to be for the exclusive benefit of the parties hereto, and except as provided in Paragraph 7(a) of this Agreement, no third party shall have any rights hereunder. 8. Confidentiality and Statements to Third Parties. (a) Except as otherwise required by law and except to the extent, and only to the extent, that Lexford has, publicly disclosed, or will publicly disclose the terms of this Agreement due to its status as a reporting company under the Securities Exchange Act of 1934 and Hoover's prior affiliate status, Hoover will not disclose the terms of this Agreement to anyone other than members of her immediate family, her accountants, or her legal advisors, as necessary, and Hoover will require that they and their agents take all reasonable steps to maintain the confidentiality hereof, except as otherwise required by law, and Lexford will further disclose the terms of this Agreement only to those persons (including employees of Lexford) with a genuine business interest in learning such information. (b) Neither Hoover nor Lexford shall, directly or indirectly, make or cause to be made any statements to any third parties criticizing or disparaging the other or commenting adversely on the character or business reputation of the other, but this provision shall not limit the ability or responsibility of either party to respond to the best of its knowledge to administrative or regulatory inquiries or to testify to the best of its knowledge in legal proceedings. (c) Hoover agrees not to disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, Lexford or any of Lexford's subsidiaries, affiliates or related entities, customer lists, product research, pricing information, Lexford's trade secrets or any other information that would provide Lexford's competitors with information about Lexford's methods, goals, or customers, it being acknowledged by Hoover that all such information regarding Lexford's business and Lexford's subsidiaries, affiliates and related entities compiled or obtained by, or furnished to, Hoover while Hoover was employed by or associated with Lexford is confidential information and Lexford's exclusive property. 9. Notices. For all purposes of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered, addressed (a) to Lexford (to the attention of its General Counsel) at its principal executive offices located at The Huntington Center, 41 South High Street, Suite 2410, Columbus, Ohio 43215, and (b) to Hoover at her principal residence, or to such other address as either 5 6 party may have furnished to the other in writing and in accordance herewith. Notices of change of address shall be effective only upon receipt. 10. Governing Law. The validity, interpretation, construction and performance of this Agreement (and every other issue arising hereunder) shall be governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state. 11. Miscellaneous. Lexford and Hoover hereby acknowledge and understand that: (a) Each has been afforded the opportunity to review and consider the terms of this Agreement for a period of forty-five (45) days and any waiver of such opportunity has been effected knowingly and voluntarily with the benefit of legal counsel; (b) Each has availed herself or itself of the opportunity to receive counsel regarding their respective rights, obligations and liabilities; (c) Nothing in this Agreement is or shall be construed as an admission by Lexford of any breach of any agreement or any intentional or unintentional wrongdoing of any nature; (d) Neither Hoover nor Lexford have made any representations concerning the terms or effects of this Agreement other than those contained in this Agreement and this Agreement may not be modified or terminated orally; (e) The terms of this Agreement are not effective or enforceable until seven (7) days after its execution, during which period Hoover may revoke this Agreement; (f) The benefits provided Hoover herein are in excess of the benefits as to which she would otherwise be entitled; (g) The death or disability of Hoover following the execution of this Agreement shall not affect or revoke this Agreement or any of the obligations of the parties hereto. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Hoover and Lexford. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been 6 7 made by any of the parties that are not set forth expressly in this Agreement and every one of them (if, in fact, there have been any) is hereby terminated without liability or any other legal effect whatsoever; and (h) Except as provided for in this Agreement, all compensation and other payments due Hoover as a result of her employment with Lexford have been paid in full and Hoover is not entitled to any additional salary, bonus or other payments whatsoever. (i) Hoover hereby represents and warrants to Lexford that she is an unmarried individual. 12. Entire Agreement. This Agreement (together with the other documents and supporting information delivered simultaneously herewith) shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof and shall supercede all prior verbal or written agreements, covenants, communications, understandings, commitments, representations or warranties, whether oral or written, by any party hereto or any of its representatives pertaining to such subject matter. 13. Validity. The validity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall nevertheless remain in full force and effect. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement. 15. Captions and Sections Headings. Captions and section headings used herein are for convenience and are not part of this Agreement and shall not be used in construing it. 16. Further Assurances. Each party hereto shall execute such additional documents and do such additional things, as may reasonably be requested by the other party to effectuate the purposes and provisions of the Agreement. 7 8 IN WITNESS WHEREOF, the undersigned parties have hereunto executed this Severance Agreement and Mutual Release as of the day and date first above written. WITNESSES: LEXFORD RESIDENTIAL TRUST /s/ Cynthia A. Wolfe By: /s/ Bradley A. Van Auken - ------------------------- --------------------------- Bradley A. Van Auken /s/ Christine Gallion Senior Vice President - ------------------------- /s/ Susan D. Krumlauf /s/ Annette Hoover - ------------------------- --------------------------- ANNETTE HOOVER 8 9 STATE OF OHIO ) ) SS: COUNTY OF FRANKLIN ) BEFORE ME, a Notary Public in and for said County and State, personally appeared Bradley A. Van Auken, known to me to be the Senior Vice President of Lexford Residential Trust; he did acknowledge that he executed the foregoing Agreement of said Maryland real estate investment trust and that the same was his free act and deed and the free act and deed of said Maryland real estate investment trust. /s/ Mark D. Thompson ---------------------------- Notary Public STATE OF TEXAS ) ) SS: COUNTY OF BEXAR ) BEFORE ME, a Notary Public in and for said County and State, personally appeared Annette Hoover, and she did acknowledge that she executed the foregoing Agreement and that the same was her free act and deed. /s/ Allison Hockersmith ---------------------------- Notary Public 9 EX-10.17 8 EXHIBIT 10.17 1 Exhibit 10.17 SEVERANCE AGREEMENT AND GENERAL RELEASE This Severance Agreement and General Release ("Agreement") is entered into this 15th day of January, 1998, by and between Mark M. Culwell ("Employee") and Lexford Residential Trust (the "Company"). WHEREAS, Employee is currently employed by the Company as Senior Vice President of Asset Management; and WHEREAS, Employee's position is being eliminated as a result of the reorganization of the Company's Asset Management department; and WHEREAS, both Employee and the Company desire to resolve any differences and disputes now pending, or which may arise in the future with respect to Employee's employment, compensation therefor, and termination thereof. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and the Company hereby acknowledge and voluntarily agree as follows: 1. Termination of Employment; Resignation. Employee's employment with the Company will terminate on January 15, 1999. Employee, simultaneous with, and by means of the execution and delivery hereof, hereby tenders his resignation, effective January 15, 1999, as Senior Vice President of Asset Management of the Company, which resignation the Company has accepted. To the extent not covered by the aforementioned resignation, this Agreement shall serve as Employee's resignation from all positions with any of the Company's subsidiaries or affiliated partnerships. 2. Severance Pay and Benefits. The Company will provide Employee the following: (a) Nine (9) months (the "Severance Period") of compensation at Employee's base rate of salary, less applicable taxes and withholding, which the Company will pay in roughly equal installments on the Company's regularly occurring paydays; provided, however, that the Company will commence paying such installments no earlier than the later of: (i) seven (7) days after Employee signs this Agreement; or (ii) Employee's last day of employment with the Company. (b) Payment for any earned and unused Paid Time Off (PTO), pursuant to the Company's PTO policy; provided, however, that the Company will pay such amount to Employee in a lump sum no earlier than the later of: (i) seven (7) days after Employee signs this Agreement; or (ii) Employee's last day of employment with the Company. (c) Health care and dental coverage under the Company's group health and dental insurance program, under the same terms and conditions as such benefits are 1 2 provided to other employees of the Company, through January 15, 1999. Any continuation of group insurance beyond January 15, 1999 will be in accordance with the Consolidated Omnibus Budget Reconciliation Act (COBRA). If Employee elects coverage under COBRA, the Company will reimburse Employee for the employer portion of the monthly premium during the Severance Period. After the Severance Period, there will be no reimbursement for such coverage. (d) Three (3) months outplacement services through Right Associates. Such services will include, but are not limited to, career assessment, determination of career objectives, career transition campaign design, career transition campaign execution, financial consulting, and support services. (e) Any vested 401(k) benefits, pursuant to the provisions of the Company's 401(k) Savings Plan. (f) The right to exercise any vested options to purchase the Company's common shares; provided, that such options must be exercised by Employee on or before January 15, 1999. 3. Employee's Release of the Company. In consideration of the mutual agreements and covenants set forth herein, Employee hereby completely and irrevocably discharges and releases the Company, its officers, trustees, employees, agents, shareholders, subsidiaries, affiliates, or related entities, predecessors, successors, and assigns from any and all claims, demands, actions, charges, causes of action and/or liabilities whatsoever involving any matter arising out of or in any way related, directly or indirectly, to Employee's employment with the Company, compensation therefor or the termination thereof, including, but not limited to, any claim of unpaid compensation, emotional distress, wrongful discharge, breach of contract, and employment discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. 621 et seq., the Americans with Disabilities Act, 42 U.S.C. 12101 et seq., [Ohio Revised Code Chapter 4112], and any other federal, state or municipal fair employment practice or discrimination laws, statutes or ordinances, arising at any time prior to and including the effective date of this Agreement, including without limitation, any claim, demand, action, charge, cause of action and/or liability whatsoever for or on account of any and all matters that are or might have been the subject matter of or that are or might have been referred to, or in any way involved with the facts, recitals and circumstances incorporated by reference in this Agreement. Further, Employee hereby waives any claim against the Company for attorneys fees, expenses and costs related to the claims, demands, actions, charges, causes of action and/or liabilities set forth in this Paragraph. Specifically excepted from this release, however, are the rights and obligations of Employee and the Company expressly set forth in this Agreement. 4. Full Compensation. Employee and the Company agree that except as provided for in this Agreement, all compensation and other payments due as a result of Employee's employment with the Company have been paid in full and that Employee is not entitled to any additional salary, bonus, or other payments whatsoever. 2 3 5. Miscellaneous. Employee and the Company hereby further acknowledge: (a) That each has been afforded the opportunity to review and consider the terms of this Agreement, for a period of at least twenty-one (21) days; (b) That each understands, and has had the opportunity to receive counsel regarding, their respective rights, obligations, and liabilities; (c) To the extent Employee has taken less than twenty-one (21) days to consider this Agreement, Employee acknowledges that Employee has had sufficient time to consider this Agreement and to consult with counsel and that Employee does not desire additional time; (d) That nothing in this Agreement is or will be construed as an admission by Employee or the Company of any breach of agreement or any intentional or unintentional wrongdoing of any nature; (e) That neither Employee nor the Company has made any representations concerning the terms or effects of this Agreement other than those contained in this Agreement, it being clearly understood that this Agreement may not be modified or terminated orally; (f) That the terms of this Agreement are not effective or enforceable until seven (7) days after its execution, during which period Employee may revoke this Agreement; and (g) That the benefits provided Employee herein are in excess of the benefits that Employee would otherwise be entitled to receive. 6. Acceptance of Agreement. Upon signing this Agreement, Employee will immediately deliver a signed original of this Agreement and all Company property currently in Employee's possession to Leslie Fox at Lexford Residential Trust at 6954 Americana Parkway, Reynoldsburg, Ohio 43068. 7. Continued Availability and Cooperation. (a) Employee shall cooperate fully with Company by way of providing factual information and data relevant to matters he worked on as an employee of Company as well as with Company's counsel in connection with any future actual or threatened litigation or administrative proceeding involving Company, its affiliated, related or subsidiary entities, its officers, directors, shareholders, employees, agents and representatives, and its successors or assigns that relates to events, occurrences or conduct occurring (or claimed to have occurred) during the period of Employee's employment by Company (or any of its predecessors-in-interest). 3 4 (b) Employee shall be reimbursed by Company for reasonable travel, lodging, telephone and similar expenses incurred in connection with any such cooperation required under Section 7(a) above, which Company shall reasonably endeavor to schedule at times not conflicting with the reasonable requirements of any third party with whom Employee has a business relationship that provides remuneration to Employee. Employee shall not unreasonably withhold his availability for such cooperation. 8. Nondisparagement and Confidentiality. (a) Employee agrees not to disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, the Company or any of the Company's subsidiaries, affiliates or related entities, the Company's customer lists, product research, pricing information, trade secrets, or any other information that would provide the Company's competitors with information about the Company's methods, goals, or customers, it being acknowledged by Employee that all such information regarding the Company's business and the Company's subsidiaries, affiliates, and related entities compiled by or obtained by, or furnished to, Employee while Employee was employed by or associated with the Company, is confidential, proprietary information and the Company's exclusive property. (b) Employee will not, directly or indirectly, make or cause to be made any statements to any third parties criticizing or disparaging the Company or commenting adversely on the character or business reputation of the Company, except as required by law. 9. Notices. For all purposes of this Agreement except Paragraph 6 of this Agreement, all communications provided for herein will be in writing and will be deemed to have been duly given when delivered, addressed (a) to the Company (to the attention of Senior Vice President, General Counsel) at its principal executive offices located at 41 South High Street, Suite 2410, Columbus, Ohio 43215, and (b) to Employee, at Employee's last known principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith. Notices of change of address will be effective only upon receipt. 10. Construction. This Agreement is governed by and will be construed in accordance with the laws of the State of Ohio. 11. Breach. Employee agrees that if Employee violates any part of this Agreement, Employee will be responsible for all costs incurred by the Company that flow from that violation, including the Company's legal fees and other costs associated with any legal action that arises from that violation. Employee also agrees that if Employee violates any part of this Agreement, Employee would not be entitled to the severance benefits provided for herein and will immediately repay to the Company the severance benefits previously paid by the Company to Employee under this Agreement. 5 5 12. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and will supersede all prior verbal or written agreements, covenants, communications, understandings, commitments, representations, or warranties, whether oral or written, by any party hereto of a party's representatives pertaining to such subject matter. 13. Validity. The invalidity or unenforceability of any provision of this Agreement will not affect the validity and enforceability of any other provisions of this Agreement, which will remain in full force and effect. 5 6 IN WITNESS WHEREOF, the parties have executed multiple copies of this Agreement, each of which shall constitute an original, but all of which, when taken together, will constitute the same document. /s/ MARK M. CULWELL ------------------------- Mark M. Culwell Date: January 21, 1999 LEXFORD RESIDENTIAL TRUST By: /s/ LESLIE B. FOX ------------------------ Leslie B. Fox Executive Vice President Date: January 13, 1999 6 EX-10.18 9 EXHIBIT 10.18 1 Exhibit 10.18 AGREEMENT OF SEVERANCE AND MUTUAL RELEASE ----------------------------------------- This Agreement of Severance and Mutual Release ("Agreement") is made effective as of the 1st day of January, 1999 between Peggy Crow Smith ("Smith") and Lexford Residential Trust, a Maryland real estate investment trust (together with its predecessor by merger, Lexford, Inc., formerly known as Cardinal Realty Services, Inc., "Lexford Trust"). WITNESSETH: ----------- WHEREAS, Smith and Lexford each desire to amicably agree to the terms of Smith's resignation from all positions including, without limitation, as an employee or officer with Lexford Trust or any of its subsidiaries, affiliates or partnerships (collectively with Lexford Trust, "Lexford"); subject, however, to the provisions for Smith's continuing services for Lexford's benefit as set forth in this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements set forth in this Agreement, and other good and valuable consideration exchanged by the parties hereto, the sufficiency of which to support each and every covenant herein is expressly acknowledged by the parties hereto, the parties agree as follows: 1. Resignation. ------------ Smith, simultaneous with, and by means of the execution and delivery hereof, hereby tenders her resignations, to become effective on the Termination Date (as defined below), as Vice President of Human Resources of Lexford Trust and as Vice President and Assistant Secretary of Lexford Properties, Inc. ("LPI") in which status she has heretofore served pursuant to that certain Employment Agreement between Smith and LPI dated August 1, 1996 (the "Employment Agreement"). Lexford and LPI hereby accept such resignations, to be effective on the Termination Date. To the extent not covered by the aforementioned resignations, this Agreement shall serve as Smith's resignation from all positions with Lexford. For purposes of this Agreement the "Termination Date" means the date on which Lexford Trust completes its planned relocation of its Human Resources department and employees from its current location in Irving, Texas to its proposed new location in Reynoldsburg, Ohio. At the time this Agreement is being executed by Smith and Lexford Trust, the parties intend that the Termination Date will occur on, or about, January 31, 1999. Between the date of this Agreement and the Termination Date, Smith will continue as an employee of Lexford Trust and LPI pursuant to the terms of the Employment Agreement at the compensation provided for therein. Lexford Trust covenants to use its reasonably commercial efforts to effect the events prerequisite to the Termination Date as soon as reasonably practicable. Smith will cooperate with Lexford Trust in assisting Lexford Trust to attain this stated objective prerequisite to the occurrence of the Termination Date. Accordingly, the term of the Employment Agreement will, upon the Termination Date, be deemed terminated 1 2 without further action by Smith or Lexford and the terms and provisions thereof, solely except those contained in Paragraph 8 (with the exception of subparagraph (a)(i) of said Paragraph 8 which is subject to the release set forth herein) which will remain in full force and effect, will be of no further force and effect. 2. Continuing Service Following Termination Date. ---------------------------------------------- From and after the Termination Date, Smith will continue to provide services for the benefit of Lexford Trust in the capacity of Human Resources Director of Brentwood-Lexford Partners, LLC ("BLP"). Smith acknowledges and agrees that she has been providing human resource support services through her own efforts and those of the staff she currently supervises in her current employment capacity with Lexford Trust and LPI. Smith and her staff have been providing these services in furtherance of the terms of that certain Stock Purchase Agreement dated as of April 1, 1998, by and between LPI and BLP (the "Stock Purchase Agreement"). Smith acknowledges and agrees that she is familiar with the relevant terms and provisions (specifically, Sections 5.3 and 5.4) of the Agreement. Smith further acknowledges and understands that from and after the Termination Date through and including the Service Completion Date (as defined below) her personal duties to BLP will increase from a limited time basis to a full-time basis as its Human Resources Director. Smith will provide the services contemplated by this Paragraph 2 beginning on the first business day following the Termination Date through, and including, the earlier of (i) November 30, 1999; or (ii) the date upon which Smith shall obtain a full release for her benefit and the benefit of LPI, duly executed and delivered by BLP, stating that BLP has released Smith, LPI and each of their respective affiliates, successors and legal representatives from any and all duties for provision of human resource services which might otherwise be devoted by one full-time employee for the benefit of BLP pursuant to the terms of the Stock Purchase Agreement (the "Service Completion Date"). Any such release will be, in form and substance, reasonably satisfactory to LPI and will be obtained at no cost or expense to LPI (it being understood that, for purposes of this Paragraph 2, "cost" will be deemed to include, without limitation, any incremental increase to LPI in continuing to discharge its obligations to BLP under the Stock Purchase Agreement which would result following a proposed release of Smith). The period of time which will transpire between the Termination Date and the Service Completion Date is hereinafter referred to as the "Service Continuation Period". Smith agrees to devote her full-time and best efforts to the diligent performance of her duties as the Human Resources Director, of BLP during the Service Continuation Period. 3. Final Compensation. ------------------- Following the Termination Date, Lexford will pay to Smith, as ongoing compensation, severance compensation and in full consideration of Smith's release and covenants contained herein: (a) During the Service Continuation Period and in consideration of the services Smith will provide to BLP for the account and benefit of Lexford Trust and LPI, compensation of One Hundred Twenty-five Thousand 2 3 Dollars ($125,000) per annum, payable in regular bi-monthly installments, subject to all applicable employee payroll, withholding and other employment taxes. In addition, during the Service Continuation Period, Lexford Trust will provide continuation of healthcare, dental, life and disability insurance coverage in accordance with the terms of Lexford Trust's group insurance programs and Smith may remain an active participant in Lexford Trust's 401(k) Savings Plan. (b) Not later than seven days following the Service Completion Date, a lump sum payment to Smith in an amount determined by multiplying the sum of One Hundred Twenty-five Thousand Dollars ($125,000) by a fraction, the numerator of which will equal the number of days which will transpire from the first business day following the Service Completion Date, through and including July 31, 2000, and the denominator of which will equal 365. Smith acknowledges that such payment to be made to her in accordance with this Paragraph 3(b) will be made net of applicable employee payroll withholding and other employment taxes. (c) Ownership, possession and use of that certain desktop computer terminal which Smith has used during her employment with Lexford. (d) Payment of attorneys' fees and disbursements incurred by Smith, as well as Annette Hoover, in the negotiation, preparation, review and execution of this Agreement, as well as that certain Agreement of Severance and Mutual Release of even date herewith between Lexford Trust and Annette Hoover, in an aggregate amount not to exceed $2,500. Lexford's obligations under this Paragraph 2(d) will be satisfied by direct payment of such attorneys' fees and disbursements in an aggregate amount not to exceed $2,500 to the law firm of Michener, Larimore et. al., of Fort Worth, Texas. (e) Any vested benefits, pursuant to the provisions of the Company's 401(k) Savings Plan. (f) Commencing on the first business day following the Service Completion Date, three (3) months outplacement services through Right Associates. Such services will include, but are not limited to, career assessment, determination of career objectives, career transition campaign design, career transition campaign execution, financial consulting, and support services. (g) Smith acknowledges and agrees that the considerations to be given to her pursuant to this Paragraph 3 will be made in full satisfaction of any and all obligations and liabilities which Lexford, LPI or any of their respective affiliates owes, or may owe, to Smith in respect of the Employment 3 4 Agreement or any other agreements, documents, instruments or arrangements (whether written or verbal) existing between Smith and any of them. Such obligations satisfied hereby include, by way of example and not by way of limitation: (i) Lexford's prior obligations under the Employment Agreement to furnish Smith with any health and dental insurance, life insurance, disability insurance, retirement or other employee benefits of any kind, nature or description, it being understood and agreed that, from and after the Service Completion Date, all such obligations shall cease immediately and be of no further force and effect; provided, however, that nothing herein shall impact statutory obligations imposed by the Comprehensive Omnibus Budget Reconciliation Act; and (ii) the obligations of Lexford Trust and LPI (as successor by merger to Rexflor Acquisition Corporation), if any, remaining under that certain Merger Agreement dated August 1, 1996, by and among Lexford Trust, Rexflor Acquisition Corporation, LPI and LPI's former shareholders, including Smith (the "Merger Agreement"). 4. Return of Equipment. -------------------- As provided in Paragraph 3(b) above, Smith may keep the desktop personal computer terminal she used during her employment with Lexford; however, promptly following the Service Completion Date she must return all other equipment owned by Lexford, including, but not limited to, dictation equipment, and will remove such retained computer terminal as well as all personal effects from the office space she has occupied at Lexford's offices in Irving, Texas. 5. Release by Employee. -------------------- (a) Smith, for herself and her dependents, successors, assigns, heirs, representatives, attorneys, executors and administrators (and her and their legal representatives of every kind), hereby completely and irrevocably discharges and releases Lexford and LPI, their respective officers, trustees, directors, employees, agents, shareholders, affiliates, subsidiaries, related entities, successors and assigns from any and all claims, demands, actions, causes of action and/or liability whatsoever involving any matter arising out of or in any way related, directly or indirectly, to (i) Smith's employment with Lexford and LPI, including any positions with subsidiary or affiliate entities, compensation therefor, or the termination thereof, including, but not limited to, any claim for employment discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e, et seq., the Age Discrimination in Employment Act, 29 U.S.C. Section 621, et seq., the Americans with Disabilities Act, 42 U.S.C. Section 12101, et seq., Ohio Revised Code Section 4112, Ohio Revised Code Section 4101 and any other federal, state or municipal fair employment practice or discrimination laws, statutes or ordinances, (ii) the Merger Agreement; and (iii) any and all other matters, rights, claims, actions, suits, liens, 4 5 debts, dues, damages or demands of every kind, whether or not referred to in this Agreement, arising, occurring, accruing or in existence on, or prior to, the date hereof. Smith agrees that she will not seek reinstatement or reemployment with Lexford or any affiliate thereof at any time in the future. (b) Smith further agrees and acknowledges that she (i) has been advised by Lexford to consult with legal counsel prior to executing this Agreement and the release provided for in this Paragraph 4; (ii) has had an opportunity to consult with and has been advised by legal counsel of her choice; (iii) fully understands the terms of this Agreement; and (iv) enters into this Agreement freely and voluntarily and intending to be bound. 6. Release by Lexford. ------------------- Except as provided in the immediately succeeding sentence Lexford Trust, on behalf of itself and its affiliated, related and subsidiary entities, successors and assigns (herein the "Lexford Releasors"), hereby completely and irrevocably releases and forever discharges Smith, her successors, assigns, heirs, representatives, attorneys, executors and administrators from any and all claims, demands, damages, actions and/or causes of action of any kind and every description, which the Lexford Releasors now have or may have had for, upon, or by reasons of any cause whatsoever, against Smith. This release shall not, however, apply to the obligations of Smith, arising under or evidenced by this Agreement or under Paragraph 8 of the Employment Agreement (with the exception of subparagraph (a)(i) of said Paragraph 8 which is subject to the release set forth herein). 7. Continued Availability and Cooperation. --------------------------------------- (a) From and after the Termination Date, Smith shall cooperate fully with Lexford and with Lexford's counsel in connection with any future actual or threatened litigation or administrative proceeding involving Lexford, its affiliated, related or subsidiary entities, its officers, directors, shareholders, employees, agents and representatives, and its successors or assigns that relates to events, occurrences or conduct occurring (or claimed to have occurred) during the period of Smith's employment by Lexford and LPI (or any of its predecessors-in-interest). (b) Smith shall be reimbursed by Lexford for reasonable travel, lodging, telephone and similar expenses incurred in connection with any such cooperation required under Paragraph 7(a) above, which Lexford shall reasonably endeavor to schedule at times not conflicting with the reasonable requirements of any third party with whom Smith has a business relationship that provides remuneration to Smith. Smith shall not unreasonably withhold her availability for such cooperation. 5 6 8. Successors and Binding Agreement. --------------------------------- (a) This Agreement shall be binding upon and inure to the benefit of Lexford and any successor of or to Lexford, including, without limitation, any persons acquiring directly or indirectly all or substantially all of the business and/or assets of Lexford whether by purchase, merger, consolidation, reorganization or otherwise be assignable or delegable by Lexford. (b) This Agreement shall inure to the benefit of and be enforceable by Smith, her personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and none of the parties hereto shall, without the consent of the other parties, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Paragraphs 8(a) and 8(b) of this Agreement. (d) This Agreement is intended to be for the exclusive benefit of the parties hereto, and except as provided in Paragraph 8(a) of this Agreement, no third party shall have any rights hereunder. 9. Confidentiality and Statements to Third Parties. ------------------------------------------------ (a) Except as otherwise required by law and except to the extent, and only to the extent, that Lexford has, publicly disclosed, or will publicly disclose the terms of this Agreement due to its status as a reporting company under the Securities Exchange Act of 1934 and Smith's prior affiliate status, Smith will not disclose the terms of this Agreement to anyone other than members of her immediate family, her accountants, or her legal advisors, as necessary, and Smith will require that they and their agents take all reasonable steps to maintain the confidentiality hereof, except as otherwise required by law, and Lexford will further disclose the terms of this Agreement only to those persons (including employees of Lexford) with a genuine business interest in learning such information. (b) Neither Smith nor Lexford shall, directly or indirectly, make or cause to be made any statements to any third parties criticizing or disparaging the other or commenting adversely on the character or business reputation of the other, but this provision shall not limit the ability or responsibility of either party to respond to the best of its knowledge to administrative or regulatory inquiries or to testify to the best of its knowledge in legal proceedings. 6 7 (c) Smith agrees not to disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, Lexford or any of Lexford's subsidiaries, affiliates or related entities, customer lists, product research, pricing information, Lexford's trade secrets or any other information that would provide Lexford's competitors with information about Lexford's methods, goals, or customers, it being acknowledged by Smith that all such information regarding Lexford's business and Lexford's subsidiaries, affiliates and related entities compiled or obtained by, or furnished to, Smith while Smith was employed by or associated with Lexford is confidential information and Lexford's exclusive property. 10. Notices. -------- For all purposes of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered, addressed (a) to Lexford (to the attention of its General Counsel) at its principal executive offices located at The Huntington Center, 41 South High Street, Suite 2410, Columbus, Ohio 43215, and (b) to Smith at her principal residence, or to such other address as either party may have furnished to the other in writing and in accordance herewith. Notices of change of address shall be effective only upon receipt. 11. Governing Law. -------------- The validity, interpretation, construction and performance of this Agreement (and every other issue arising hereunder) shall be governed by the laws of the State of Ohio, without giving effect to the principles of conflict of laws of such state. 12. Miscellaneous. -------------- Lexford and Smith hereby acknowledge and understand that: (a) Each has been afforded the opportunity to review and consider the terms of this Agreement for a period of forty-five (45) days and any waiver of such opportunity has been effected knowingly and voluntarily with the benefit of legal counsel; (b) Each has availed herself or itself of the opportunity to receive counsel regarding their respective rights, obligations and liabilities; (c) Nothing in this Agreement is or shall be construed as an admission by Lexford of any breach of any agreement or any intentional or unintentional wrongdoing of any nature; (d) Neither Smith nor Lexford have made any representations concerning the terms or effects of this Agreement other than those contained in this Agreement and this Agreement may not be modified or terminated orally; 7 8 (e) The terms of this Agreement are not effective or enforceable until seven (7) days after its execution, during which period Smith may revoke this Agreement; (f) The benefits provided Smith herein are in excess of the benefits as to which she would otherwise be entitled; (g) The death or disability of Smith following the Service Completion Date Agreement shall not affect or revoke this Agreement or any of the obligations of the parties hereto. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by Smith and Lexford. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied, with respect to the subject matter hereof have been made by any of the parties that are not set forth expressly in this Agreement and every one of them (if, in fact, there have been any) is hereby terminated without liability or any other legal effect whatsoever; and (h) Except as provided for in this Agreement, all compensation and other payments due Smith as a result of her employment with Lexford have been paid in full and Smith is not entitled to any additional salary, bonus or other payments whatsoever. (i) Smith hereby represents and warrants to Lexford that she is an unmarried individual. 13. Entire Agreement. ----------------- This Agreement (together with the other documents and supporting information delivered simultaneously herewith) shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof and shall supercede all prior verbal or written agreements, covenants, communications, understandings, commitments, representations or warranties, whether oral or written, by any party hereto or any of its representatives pertaining to such subject matter. 14. Validity. --------- The validity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall nevertheless remain in full force and effect. 8 9 15. Counterparts. ------------- This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement. 16. Captions and Sections Headings. ------------------------------- Captions and section headings used herein are for convenience and are not part of this Agreement and shall not be used in construing it. 17. Further Assurances. ------------------- Each party hereto shall execute such additional documents and do such additional things, as may reasonably be requested by the other party to effectuate the purposes and provisions of the Agreement. IN WITNESS WHEREOF, the undersigned parties have hereunto executed this Severance Agreement and Mutual Release as of the day and date first above written. WITNESSES: LEXFORD RESIDENTIAL TRUST /s/ Susan D. Krumlauf By: /s/ BRADLEY A. VAN AUKEN - ------------------------ ------------------------ Bradley A. Van Auken /s/ Christine Gallion Senior Vice President - ------------------------ /s/ Teresa Johnson /s/ PEGGY CROW SMITH - ------------------------ ------------------------ Peggy Crow Smith /s/ Lauri Danlizo - ------------------------ 9 10 STATE OF OHIO ) ) SS: COUNTY OF FRANKLIN ) BEFORE ME, a Notary Public in and for said County and State, personally appeared Bradley A. Van Auken, known to me to be the Senior Vice President of Lexford Residential Trust; he did acknowledge that he executed the foregoing Agreement of said Maryland real estate investment trust and that the same was his free act and deed and the free act and deed of said Maryland real estate investment trust. /s/ Mark D. Thompson ------------------------- Notary Public STATE OF TEXAS ) ) SS: COUNTY OF DALLAS ) BEFORE ME, a Notary Public in and for said County and State, personally appeared Peggy Crow Smith, and she did acknowledge that she executed the foregoing Agreement and that the same was her free act and deed. /s/ Barbara L. Lewis ------------------------- Notary Public 10 EX-10.20 10 EXHIBIT 10.20 1 Exhibit 10.20 FIRST AMENDMENT TO 1997 PERFORMANCE EQUITY PLAN OF CARDINAL REALTY SERVICES, INC. WHEREAS, Lexford, Inc., formerly Cardinal Realty Services, Inc. (the "Company"), established the 1997 Performance Equity Plan of Cardinal Realty Services, Inc. (the "Plan") effective as of May 14, 1997; and WHEREAS, Section 16 of the Plan provides that the Plan may be amended at any time and from time to time by the Board of Directors of the Company (the "Board"). NOW, THEREFORE, the Plan is amended effective as of October 15, 1997 as set forth below. 1. The name of the Plan shall be changed to: "1997 Performance Equity Plan of Lexford, Inc." 2. Section 2.3 shall be changed to read as follows: "Board" means the Board of Directors of Lexford, Inc. 3. Section 2.8 shall be changed to read as follows: "Company" means Lexford, Inc. 4. Section 2.19 shall be changed to read as follows: "Plan" means the 1997 Performance Equity Plan of Lexford, Inc. 5. Section 2.20 shall be changed to read as follows: "Rabbi Trust" means the Lexford, Inc. executive Deferred Compensation Rabbi Trust. 6. The last sentence of Section 8. Shall be replaced with the following: "In addition, a Participant may make a written election to defer receipt of any or all dividends paid with respect to any Shares subject to a deferral election as described in this Section 8. until the time at which the Shares in respect of such dividends are payable become taxable to the individual. In order to be effective with respect to any dividend 9 2 payable, such election must be made at least ten (10) days prior to the date that such dividend is declared by the Board. A Participant may elect to defer a percentage of any dividends payable, and to receive the remainder, provided that any such election shall be made in increments of ten percent (10%). To the extent that a Participant does not elect to defer any portion of cash dividends payable with respect to any Shares, such dividends shall be paid to the Participant when such Shares vest under the terms of this Plan or, if previously vested, when such cash dividends are paid with respect to such Shares. Prior to the time the Participant vests in Shares, cash dividends payable with respect to such Shares shall be automatically deferred into the Rabbi Trust, invested under the terms thereof, and to the extent not forfeited under the terms of this Plan, distributed in accordance with the foregoing." 7. All references to the Plan to "Lexreit" and to "Lexreit Shares" shall be deleted. 2 EX-10.21 11 EXHIBIT 10.21 1 Exhibit 10.21 SECOND AMENDMENT TO 1997 PERFORMANCE EQUITY PLAN OF LEXFORD, INC. WHEREAS, Lexford, Inc., predecessor by merger to Lexford Residential Trust, a Maryland real estate investment trust ("Lexford"), established the 1997 Performance Equity Plan (the "Plan") effective as of May 14, 1997; WHEREAS, Section 16 of the Plan provides that the Plan may be amended by the Lexford Board of Directors; and WHEREAS, the Special Committee of the Board has instituted the 1998 Non-Employee Trustee Retirement Program (as hereinafter defined); NOW, THEREFORE, the Plan is amended as set forth below effective as of April 16, 1998. 1. The name of the Plan shall be changed to: "1997 Performance Equity Plan of Lexford Residential Trust". 2. Section 2.3 shall be changed to read as follows: "Board" means the Board of Trustees of Lexford Residential Trust. 3. Section 2.8 shall be changed to read as follows: "Company" means Lexford Residential Trust. 4. Section 2.9 shall be changed to read as follows: "Company Shares" means common shares of beneficial interest, par value $.01 per share, of the Company. 5. The following Section 2.18A is hereby added to the Plan: 2.18A "Permanent Disability" means (i) ninety (90) consecutive days, or (ii) one hundred eighty days cumulatively in any twelve (12) month period, during which Participant is unable to engage in his customary occupational or business activities due to sickness or injury. 6. Section 2.19 shall be changed to read as follows: "Plan" means the 1997 Performance Equity Plan of Lexford Residential Trust. 7. Section 2.20 shall be changed to read as follows: "Rabbi Trust" means the Lexford Residential Trust Executive Deferred Compensation Rabbi Trust. 2 8. The following Section 2.27 is hereby added to the Plan: 2.27 "1998 Non-Employee Trustee Retirement Program" means that certain Non-Employee Trustee Retirement Program instituted by the Special Independent Committee of the Board, which Committee, in turn, was established by the resolution adopted by the full Board at its meeting held on March 26, 1998. 9. Section 6.3(b)(ii) of the Plan is amended to read as follows: (ii) if the Participant is a non-employee trustee and ceases to be a trustee, the Shares shall forfeit as provided in the Participant's Restricted Stock Award Agreement; unless the Participant resigns as a trustee pursuant to, and in accordance with the terms of, the 1998 Non-Employee Trustee Retirement Program as described in Section 8(d), in which event the Participant Shares shall be fully vested upon the acceptance of his resignation from the Board; and 10. Section 6.4 of the Plan is amended by adding the following paragraph (c) at the end of such Section: (c) Notwithstanding anything herein to the contrary, a non-employee trustee who resigns as a trustee and participates in the 1998 Non-Employee Trustee Retirement Program will become fully vested as of April 15, 1998 in all of his non-vested Shares (being 11,000 Shares not theretofore vested at such date) originally awarded under this Plan. 11. Section 8 of the Plan is amended to read as follows: 8. Deferral of Shares into Rabbi Trust. (a) Within ten (10) days of the approval of this Plan by the shareholders of the Company and prior to the issuance of any Shares under the Plan, each Participant may make a written election to defer the Shares that would otherwise be transferred to him or her upon the vesting of such Shares pursuant to Section 6 and/or Section 7 of the Plan. Such election shall be binding upon such Participant with respect to all Shares he or she would be entitled to receive upon attainment of the Performance Goals as described in Sections 6 and 7 except that any election to receive Shares is subject to the provisions of Section 9. If the Participant elects to defer receipt of Shares, such Shares will be contributed to the Rabbi Trust and held for his or her benefit (subject to forfeiture under Section 6.3(b)) under the terms of the Rabbi Trust until the latest of: (i) the Participant's termination of employment with the Company, (ii) the cessation of the Participant's non-employee trusteeship, or (iii) if the Participant has elected to defer receipt of such Shares in accordance with the terms of the 1998 Non-Employee Trustee Retirement Program as described in paragraph (d) below and as specified in such deferral election and the 1998 Non-Employee Trustee Retirement Program. (b) A Participant may make a written election to defer receipt of any or all dividends paid with respect to any Shares subject to a deferral election as described in this Section 8 until the time at which the Shares in respect of which such dividends are 2 3 payable become taxable to the individual. In order to become effective with respect to any dividend payable, such election must be made at least ten (10) days prior to the date that such dividend is declared by the Board. A written election to defer receipt of dividends made pursuant to this Section 8(b) shall remain in effect and shall apply to any and all dividends declared from and after the date of such election unless and until a Participant shall determine to modify, suspend, revoke or amend such prior election and make a subsequent written election which shall apply prospectively to any and all dividends declared more than nine (9) days following the date of such subsequent written election. A Participant may not amend, modify, suspend, revoke or otherwise alter a prior written election made under this Section 8(b) more than once per calendar year. Any Participant written election in effect from time to time under this Section 8(b) shall conform in all respects to any and all other written elections made with respect to dividends payable on Company Shares which are held for the benefit of such Participant in the Rabbi Trust, but not otherwise issued pursuant to the terms of this Plan. A Participant may elect to defer a percentage of any dividends payable in respect of vested Shares held in the Rabbi Trust for his or her benefit, and to receive the remainder, provided that any such election shall be made in increments of ten percent (10%). (c) To the extent that a Participant does not elect to defer any portion of cash dividends payable with respect to any Shares, such dividends shall be paid to the Participant when such Shares vest under the terms of this Plan or, if previously vested, when such cash dividends are paid with respect to such Shares. Prior to the time the Participant vests in Shares, cash dividends payable with respect to such Shares shall be automatically deferred into the Rabbi Trust, invested under the terms thereof and, to the extent not forfeited under the terms of this Plan, distributed in accordance with the foregoing. At such time as any Shares shall become vested under this Plan, dividends paid prior to the date of vesting and accumulated in the Rabbi Trust, together with any earnings thereon, shall thereupon be paid to the Participant in accordance with the terms of the Participant's written election made pursuant to Section 8(b) above, as then in effect. For example: in the event that the Participant shall have a total of $1,000 in dividends and earnings thereon accumulated with respect to non-vested Shares issued under this Plan which shall become vested and the Participant shall have a written election in effect pursuant to the provisions in Section 8(b) hereof which shall specify payment on a current basis to the Participant of forty percent (40%) of all dividends paid in respect of vested Shares, then, as soon as practicable following the date of vesting, the Company will cause the Participant to receive payment in the amount of $400 in accumulated dividends together with earnings thereon as a result of the vesting of Shares which had previously been non-vested. (d) A Participant who resigns as a non-employee trustee and who participates in the 1998 Non-Employee Trustee Retirement Program may make an irrevocable election, prior to the effective date of his resignation, to continue to defer the receipt of all or a portion of his Shares awarded under this Plan for a maximum period of five (5) years from the effective date of his resignation. Payment will be made to such Participant at the end of such deferral period in the form of a lump sum or annual installments. Dividends declared and paid on account of Shares held in the Rabbi Trust for the benefit of retiring non-employee trustee Participants who participate in the 1998 Non-Employee Trustee 3 4 Retirement Program will be paid to such Participants in accordance with the terms of the Participants' affirmative written dividend deferral elections made in accordance with the provisions of Section 8 (c). In the absence of such an election made under Section 8 (c), then dividends declared and paid on account of Shares held in the Rabbi Trust for the benefit of retiring non-employee trustee Participants who participate in the 1998 Non-Employee Trustee Retirement Program will be paid to such Participants at such time as the deferred Company Shares are distributed to the Participant pursuant to the terms of his irrevocable election made in accordance with the provisions of this Section 8(d). For example, if the Participant elects to defer receipt of his Shares hereunder for a period of five (5) years, distributable in five equal annual installments, but does not make an affirmative written dividend deferral election in accordance with the provisions of Section 8 (c) then distribution of the Shares shall be made to the Participant in five proportionate annual installments and dividends which may have accumulated on such Shares, together with earnings thereon, will be paid to the Participant at the time of each such installment in accordance with the following distribution schedule: Anniversary Amount of of Election Distribution ------------ ------------ 1 20% of accumulated dividends and earnings 2 25% of accumulated dividends and earnings 3 33 1/3% of accumulated dividends and earnings 4 50% of accumulated dividends and earnings 5 remaining balance of accumulated dividends and earnings Notwithstanding any of the foregoing provisions of this Section 8(d), in the event of the Participant's death or Permanent Disability the Participants or his legal representative, as the case may be, shall become entitled to distribution of all of the Shares issued to the Participant hereunder, together with all dividends accumulated as well as earnings thereon in one lump sum distribution and payment. 4 EX-10.31 12 EXHIBIT 10.31 1 Exhibit 10.31 AMENDMENT AND RESTATEMENT OF THE CARDINAL REALTY SERVICES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN WHEREAS, Lexford, Inc., formerly Cardinal Realty Services, Inc., (the "Company") established the Cardinal Realty Services, Inc. Deferred Compensation Plan (the "Plan") effective as of April 18, 1996; and WHEREAS, the Board of Directors of the Company (the "Board") has determined that the Plan should be amended and restated to ratify all prior actions taken with respect to the Plan and to make certain additional changes to the Plan. NOW, THEREFORE, the Plan is amended and restated in its entirety effective as of October 15, 1997 as set forth below. ARTICLE I PURPOSE The purpose of this Plan is to provide certain key employees and non-employee directors with a deferred compensation benefit measured by the bookkeeping accounts established and maintained hereunder. ARTICLE II DEFINITIONS 2.1 "Allocation Date" means each day as of which investment earnings or losses are allocated pursuant to the terms of the Trust. 2.2 "Beneficiary" means the executor or administrator of the estate of the deceased Participant. 2.3 "Benefit Amount" means the account balance of the Participant's Participant Account, determined at the time of distribution. 2.4 "Board" means the Board of Directors of the Company. 2 2.5 "Bonus Stock" means the shares of Company Stock that would otherwise be payable to a Participant as a bonus pursuant to the terms of the Participant's employment agreement with the Company or otherwise in accordance with the Company's incentive compensation plan in effect from time to time. 2.6 "Closing Price" means the closing price of the Company Stock on the Nasdaq National Market System, or if the Company Stock is not listed or admitted in such system, the principal securities exchange on which the Company Stock is listed or admitted to trading, on the last trading day preceding the Payment Event. 2.7 "Committee" means The Compensation Committee of the Board. 2.8 "Company" means Lexford, Inc., an Ohio corporation. 2.9 "Company Stock" means shares of the Company's common stock. 2.10 "Effective Date" means April 18, 1996, the date as of which this Plan was originally approved by the Board. 2.11 "Election Date" means the applicable election deadline established pursuant to Section 4.3. 2.12 "Election Form" means the form completed by a Participant and submitted to the Company reflecting the Participant's deferral election pursuant to Section 4.2. 2.13 "Elective Deferral Credits" means the amount credited to a Participant Account from time to time pursuant to Section 4.2. 2.14 "Investment Credits" means the amount added to or subtracted from a Participant Account from time to time pursuant to Section 4.4. 2.15 "Market Capitalization Restricted Stock" means the shares of restricted Company Stock that: (a) would otherwise be provided to the Participant under the Participant's employment agreement with the Company; and (b) vests based upon "Market Capitalization" as defined therein. 2.16 "Matching Stock" means the shares of Company Stock that would otherwise be payable to a Participant as a match to the Participant's purchase of Company Stock, as determined pursuant to the terms of the Participant's employment agreement with the Company. 2.17 "Other Restricted Stock" means the shares of restricted Company Stock that would otherwise be provided to the Participant under the Participant's employment agreement with the Company, other than Market Capitalization Restricted Stock. 2 3 2.18 "Participant" means each key employee and each non-employee director of the Company who is eligible to participate in this Plan pursuant to Article III and who makes an election to participate pursuant to Section 4.2. 2.19 "Participant Account" means the bookkeeping account established and maintained for a Participant pursuant to Section 4.1. 2.20 "Payment Event" means the first to occur of the payment events described in clauses (a) through (d) of the first sentence of Section 7.1. 2.21 "Plan" means this Lexford, Inc. Executive Deferred Compensation Plan. 2.22 "Trust" means the Lexford, Inc. Executive Deferred Compensation Rabbi Trust Agreement. 2.23 "Trustee" means The Provident Bank, a state chartered bank, or its successor pursuant to the terms of the Trust. ARTICLE III ELIGIBILITY TO PARTICIPATE 3.1 Eligibility. As of the Effective Date, each of Company's key executives listed on Exhibit A shall be eligible to participate in this Plan. Thereafter, the Committee, in its sole discretion, may name additional key employees, as well as non-employee directors of the Company, as eligible for participation. 3.2 Cessation of Participation. The Committee may terminate the participation of any Participant if the Committee, in its sole discretion, determines that: (a) such person is no longer a member of "a select group of management or highly compensated employees" of the Company, within the meaning of the Employee Retirement Income Security Act of 1974, as amended; or (b) this Plan or the related Trust results in Federal income tax consequences different from those anticipated by the Company. A Participant who has terminated employment with the Company shall cease to be a Participant at the time the Benefit Amount is paid to the Participant or the Participant's Beneficiary. A Participant who is a non-employee director and who ceases to be a director, shall cease to be a Participant at the time the Benefit Amount is paid to the Participant or the Participant's beneficiary. If this Plan is terminated pursuant to Section 8.2, a Participant shall cease to be a Participant at the time the Benefit Amount is paid to the Participant or the Participant's Beneficiary. 3 4 ARTICLE IV PARTICIPATION AND ACCOUNT CREDITS 4.1 Establishment of Accounts. A Participant Account shall be established and maintained for each Participant. Each Participant Account shall be a bookkeeping account reflecting the Elective Deferral Credits and Investment Credits allocable with respect to a Participant pursuant to this Article. The balance of each Participant Account as of the last day of each calendar year shall be communicated in writing to the Participant on or before March 31 of the following year or on a more frequent basis as may be determined by the Committee. 4.2 Elective Deferral Credits. (a) A Participant may elect to defer the receipt of any or all of his or her Bonus Stock, Matching Stock, Market Capitalization Restricted Stock, Other Restricted Stock, or any other type of Company Stock to be paid to the Participant by the Company under any other plan or arrangement sponsored by the Company which provides for the payment of compensation in the form of Company Stock by so indicating on the Election Form. In addition, a Participant may elect, by indicating on the Election Form, to defer receipt of any or all dividends paid with respect to shares of Company Stock subject to a deferral election under the preceding sentence until the time at which the shares in respect of which such dividends are payable become taxable to the individual. To the extent that a Participant does not elect to defer any portion of cash dividends payable with respect to any shares of Company Stock, such dividends shall be paid to the Participant when such shares vest under the terms of the plan or arrangement sponsored by the Company or, if previously vested, when such cash dividends are paid with respect to such shares. Prior to the time the Participant vests in Company Stock, cash dividends payable with respect to such Stock shall be automatically deferred into the Rabbi Trust, invested under the terms thereof, and to the extent not forfeited under the terms of the Company's plan or arrangement, distributed in accordance with the foregoing. (b) In order to be effective, a Participant's completed Election Form must be submitted to the Company prior to the applicable Election Date and must relate only to Company Stock to be paid and/or cash dividends to be declared after the Election Date. A Participant's election hereunder shall become irrevocable on the applicable Election Date. A Participant's election hereunder as to Bonus Stock shall remain in effect indefinitely, unless modified by a subsequent election made in accordance with the foregoing. Any election made by a Participant hereunder shall supersede any prior elections, provided however, that any such election shall only apply to compensation earned or dividends declared after such new election. All amounts deferred by a Participant hereunder shall be credited to the Participant's Participant Account as Elective Deferral Credits on, or as 4 5 soon as is reasonably practicable after, the date the Company Stock would otherwise be paid to the Participant. 4.3 Deadline for Making Elections. The Election Date applicable to a Participant's Market Capitalization Restricted Stock, Other Restricted Stock, and any other Company Stock other than Matching Stock and Bonus Stock shall be the day such shares are granted. The Election Date applicable to a Participant's Matching Stock shall be the day prior to the date the Participant purchases the shares of Company Stock used as the basis for payment of the Matching Stock. The Election Date applicable to a Participant's Bonus Stock for a given fiscal year of the Company shall be the last day of the third quarter of such fiscal year. The Election Date applicable to cash dividends payable with respect to any Company Stock shall be the date ten (10) days prior to the date the Board declares the cash dividend payable with respect to such shares. 4.4 Investment Credits. As of each Allocation Date, each Participant Account shall be adjusted, positively or negatively, to reflect the deemed investment performance of the Participant Account since the preceding Allocation Date. Such investment performance shall be measured by the actual performance of the Trust investments made with respect to the Participant Account as described in Article V. ARTICLE V INVESTMENT This Article V describes the general investment mechanics under the Trust which defines the actual measure of the value of each Participant Account. Each Participant Account shall be deemed invested in the shares of Company Stock that would otherwise be paid to the Participant in the absence of an election under Section 4.2. For such purposes, the number of shares credited as the deemed investment shall be the gross number of shares payable as Company Stock without reduction for any income taxes or income tax withholding that would otherwise apply. Each Participant Account shall be credited with dividends as if the account were actually invested in Company Stock. Further, dividends credited to a Participant Account shall be deemed invested in the investment vehicles as may be selected by the Company with respect to such Participant Account, including Company Stock, provided, however, that if the Company does not provide any investment selection with respect to such Participant Account, any dividends credited to such Participant Account shall be deemed reinvested in Company Stock to the extent practicable under the dividend reinvestment program established pursuant to the terms of the Trust. Dividends not deemed reinvested under the preceding sentence shall be credited and deemed invested in the manner determined under the Trust. In the event that the Company substitutes the assets of the Trust pursuant to Section 5(b) thereof, this Plan shall automatically terminate. 6 ARTICLE VI TRUST ACCUMULATION AND FUNDING STATUS Subject to the other terms of this Plan and the terms of the Trust, the Company shall make contributions to the Trust of an amount equal to the amount of the aggregate Elective Deferral Credits for the relevant period. Such contributions shall be made at the time such Credits are credited to the respective Participant Accounts, or as soon as is reasonably practicable thereafter. By electing to participate hereunder, each Participant accepts the terms of this Plan and the Trust. Nothing contained in this Plan or the Trust shall vest in any Participant or any Beneficiary any right, title or interest in or to any assets of the Trust and the assets of the Trust shall at all times remain subject to the claims of the Company's general creditors. As such, the obligations of the Trustee and the Company hereunder are not funded or secured in any way that gives Participant or a Beneficiary any rights greater than that of a general creditor of the Company. ARTICLE VII PAYMENT OF BENEFITS 7.1 Benefit Amount. A Participant's Benefit Amount, to the extent vested under Section 7.2, shall be paid to the Participant within Ten (10) days after the earliest to occur of the following: (a) the date of the Participant's termination of employment with the Company; (b) the date a Participant who is a non-employee director ceases to be a director; (c) the date the Plan is terminated pursuant to Section 8.2; and (d) the date as of which the Board determines that the participation of the Participant shall terminate pursuant to clause (a) of the first sentence of Section 3.2. If the Company is notified of a Participant's death prior to payment of the vested Benefit Amount, such payment shall be made to the Participant's Beneficiary. Payment of a Participant's vested Benefit Amount shall be made by the Trustee from the Trust fund, to the extent the account can and is used to make such payment. If the account maintained by the Trustee for the Participant is not used to pay a Participant's full vested Benefit Amount, the Company shall make the balance of such payment hereunder. A Participant's vested Benefit Amount shall be paid in a single payment in the form of Company Stock; provided, however, that: (a) any amount representing a fractional interest in a share of Company Stock shall be paid in cash; (b) a Participant or Beneficiary may elect to have the full vested Benefit Amount paid in cash, net of any and all expenses incurred to effect such cash distribution; and (c) any portion of a vested Benefit Amount not deemed invested in Company Stock under Article V shall be paid in cash. A Participant's or Beneficiary's election to receive a cash distribution as described in clause (b) of the preceding sentence shall not be effective unless made in writing and submitted to the Committee no more than five (5) days after the Payment Event. The amount of any cash distribution made pursuant to clause (b) above shall be determined using the Closing Price as the measure of the value of the Common Stock. The amount of any cash distribution made pursuant to clause (c) shall be determined using the closing price of the investment vehicles on the principal securities exchange on which the investment vehicle is listed or admitted to trading, on the last trading day preceding the Payment Event. Notwithstanding the foregoing provisions of this Section 7.1, the form and timing of distribution of a Participant's interest under this Plan 6 7 shall at all times be subject to all restrictions and limitations imposed by applicable state and federal securities laws and regulations. 7.2 Vesting. The portion of a Participant's Benefit Amount attributable to Bonus Stock or Matching Stock shall be fully vested at all times. The portion of a Participant's Benefit Amount attributable to Market Capitalization Restricted Stock or Other Restricted Stock shall vest in the manner determined under the Participant's employment agreement with the Company. The portion of a Participant's Benefit Amount attributable to any other type of Company Stock or cash dividend deferred under the terms of this Plan shall vest in accordance with the terms of the plan or arrangement sponsored by the Company which provides for the payment of such compensation. 7.3 Taxes and Withholding. If a Participant (or Beneficiary) becomes entitled to receive cash or recognizes other taxable income under this Plan, the Company shall have the right to withhold taxes from the Participant's (or Beneficiary's) payment hereunder or may deduct such taxes from any other amounts payable to the Participant (or Beneficiary) at any time thereafter in cash or otherwise. In the event all cash payments due a Participant (or Beneficiary) are insufficient to provide the required amount of withholding taxes, the Participant (or Beneficiary) shall be required to pay to the Company the amount of required withholding in excess of all cash payments due. The Company shall bear no responsibility whatsoever for the taxes or tax effects resulting under this Plan or the Trust as to any Participant or Beneficiary. ARTICLE VIII AMENDMENT AND TERMINATION 8.1 Amendment. The Board, in its sole discretion, may amend this Plan at any time; provided, however, that any amendment that could adversely affect a Participant's rights and interests hereunder (excluding the right to make future deferrals) will be effective as to such Participant only if the Participant consents in writing to the amendment. 8.2 Termination. The Board, in its sole discretion, may terminate this Plan at any time. In addition, this Plan shall automatically terminate as described in Article V. ARTICLE IX MISCELLANEOUS 9.1 Claims Procedure. 7 8 (a) Claim. A Participant or other person who believes that he or she is being denied a claim to which he is entitled (hereinafter referred to as "Claimant") may file a written request for such benefit with the Company setting forth the claim. Upon receipt of a claim, the Company shall advise the Claimant that a reply will be forthcoming within Thirty (30) days and shall, in fact, deliver such reply within such period. However, the Company may extend the reply period for an additional Fifteen (15) days for reasonable cause. If the claim is denied in whole or in part, the Company will adopt a written statement using language calculated to be understood by the Claimant setting forth: (i) the specific reason or reasons for denial; (ii) the specific references to pertinent Plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for review under Subsection (b), below. (b) Review. Within Sixty (60) days after the receipt by the Claimant of the written statement described above, the Claimant may request in writing that the Board review the previous determination. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Board. Within Thirty (30) days after the Board's receipt of a request for review, it will review the previous determination. After considering all materials presented by the Claimant, the Board will render a written statement, written in a manner calculated to be understood by the Claimant setting forth the specific reasons for the decision and containing specific references to the pertinent Plan provisions on which the decision is based. If special circumstances require that the Thirty (30) day time period be extended, the Board will so notify the Claimant and will render the decision as soon as possible but not later than Sixty (60) days after receipt of the request for review. 9.2 No Beneficial Interest. No person or entity shall acquire any beneficial interest in an amount under this Plan prior to the date on which the amount becomes payable. 9.3 Spendthrift Clause. No amount provided under this Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, either voluntary or involuntary, and any attempt to so alienate, anticipate, sell, transfer, assign, pledge, encumber or charge the same shall be null and void. No such amount shall be liable for 8 9 or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such amount is or may be payable, except as required under applicable law. 9.4 Employment Contract and Other Arrangements. The adoption and maintenance of this Plan shall neither be deemed to nor shall it be an employment agreement between Company and the Participant. 9.5 Titles and Headings. The titles or headings of the Articles and Sections hereof are included solely for convenience and reference and, in the event of any conflict between such titles or headings and the text, the text shall control. 9.6 Parties to Agreement. This Plan shall be binding upon and shall operate for the benefit of the Company, its successors and assigns, and the Participant and his or her heirs, estate and personal representatives. 9.7 Governing Law. This Plan shall be governed and construed in accordance with the laws of the State of Ohio, without giving effect to the principles of conflicts of laws thereof, but subject to preemption of Federal law. 9.8 Gender. Where necessary or appropriate to the meaning hereof, the singular, plural, masculine, feminine and neuter shall be deemed to include each other. 9.9 Interpretation of Agreement. The Committee shall have full authority, in its sole discretion, to interpret this Plan and to determine any and all matters whatsoever relating to the administration of this Plan. 9 10 EXHIBIT A PARTICIPANTS John Bram Bartling, Jr. Mark D. Thompson Paul R. Selid EX-10.32 13 EXHIBIT 10.32 1 Exhibit 10.32 FIRST AMENDMENT TO THE LEXFORD, INC. EXECUTIVE DEFERRED COMPENSATION PLAN WHEREAS, Lexford Residential Trust, formerly Lexford, Inc. and Cardinal Realty Services, Inc. (the "Company"), established the Lexford, Inc. Executive Deferred Compensation Plan (the "Plan") effective as of April 18, 1996; and WHEREAS, terms used in this First Amendment (including, without limitation, these recitals) without definition have the meanings given to them in the Plan, as amended hereby; and WHEREAS, the Plan was amended and restated to ratify all prior actions taken with respect to the Plan and to make certain additional changes to the Plan effective as of October 15, 1997; and WHEREAS, Section 8.1 of the Plan provides that the Plan may be amended by the Board. NOW, THEREFORE, the Plan is amended as set forth below effective as of April 16, 1998. 1. Article II of the Plan is amended to add or restate the following defined terms: 2.4 "Board" means the Board of Trustees of the Company. 2.6 "Closing Price" means the closing price of the Company Stock on the New York Stock Exchange, or if the Company Stock is not listed or admitted for trading on such exchange, the principal securities exchange on which the Company Stock is listed or admitted to trading, on the last trading day preceding the Payment Event. 2.8 "Company" means Lexford Residential Trust, a Maryland real estate investment trust. 2.9 "Company Stock" means the Company's common shares of beneficial interest, par value $.01 per share. 2.9 A "Deferral Shares" means the shares of Company Stock purchased for the account of a Participant and held in the Trust pursuant to the terms of a Salary Deferral Arrangement. 2 2.9 B "Dividend Deferral Election Date" means the applicable election deadline for submission of Dividend Deferral Election Forms established pursuant to Section 4.5. 2.9 C "Dividend Deferral Election Form" means each form completed by a Participant and submitted to the Company from time to time pursuant to Section 4.5. 2.16 A "1998 Non-Employee Trustee Retirement Program" means that certain Non-Employee Trustee Retirement Program instituted by the Special Independent Committee of the Board, which Committee, in turn, was established by the resolution of the Board at its meeting held on March 26, 1998. 2.20 A "Permanent Disability" means (i) ninety (90) consecutive days, or (ii) one hundred eighty days cumulatively in any twelve (12) month period, during which Participant is unable to engage in his customary occupational or business activities due to sickness or injury. 2.21 "Payment Event" means (a) the first to occur of the events described in clauses (a) through (d) of the first sentence of Section 7.1; or (b) with respect to a Participant who was formerly a non-employee trustee and has retired in connection with the 1998 Non-Employee Trustee Retirement Program, the first to occur of the events described in Section 7.4 2.21 A "Salary Deferral Arrangement" means an arrangement authorized by the Committee and entered into between the Company and a Participant pursuant to which a Participant may elect to specify a reduction in his or her base compensation, the amount of which reduction will be invested in Deferral Shares. 2.22 "Trust" means the Lexford Residential Trust Executive Deferred Compensation Rabbi Trust Agreement, as amended. 2.24 "trustee" substituted for "director". The term "non-employee trustee" is hereby substituted for the term "non-employee director" wherever such term appears in the Plan. 3. The following Section 4.5 is hereby added to the Plan: 4.5 Dividend Deferral Elections. To the extent a Participant has timely completed and submitted an Election Form with respect to Company Stock and, accordingly, such Company Stock is held for Participant's benefit in the Trust pursuant to the provisions of Section 4.2 of this Plan, Participant may make a further election to defer receipt of all or a portion of cash dividends declared and paid on shares of Company Stock. The Participant will make such election by completing and submitting a Dividend Deferral Election Form indicating the percentage amount of cash dividends (in increments of ten percent) as to which the Participant elects to defer receipt. A 2 3 Participant's election to defer receipt of cash dividends shall apply solely to cash dividends declared and paid on shares of Company Stock as to which the Participant would otherwise be entitled to receive on a current basis (if Participant had not originally elected to defer receipt of such shares of Company Stock pursuant to the terms of this Plan) pursuant to the terms of the grant or award pursuant to which such shares of Company Stock were originally issued (the "Subject Grant"). To the extent the Participant is not entitled to receive cash dividends declared and paid on shares of Company Stock on a current basis pursuant to the terms of the Subject Grant, cash dividends declared and paid on such nonvested shares of Company Stock will be accumulated and invested (irrespective of the Participant's Dividend Deferral Election Form then in effect, if any) and thereafter, upon vesting of such shares, shall be distributed together with all earnings, thereon, to the Participant to the extent that the Participant's Dividend Deferral Election Form then in effect shall so specify with respect to current receipt of cash dividends. Any election made under this Section 4.5 shall be effective with respect to all cash dividends originally declared more than nine (9) days following the Participants submission of his Dividend Deferral Election Form (the "Dividend Deferral Election Date"). A Participant's election made under this Section 4.5 shall remain in effect indefinitely with respect to cash dividends declared and paid on Company Stock held for the benefit of Participants in the Trust unless modified by a subsequent election made in accordance with the foregoing provisions of this Section 4.5. A Participant may not modify a previously submitted election under this Section 4.5 more than once during any calendar year. Any such subsequently modified election shall be effective only as to cash dividends declared on shares of Company Stock on or after the applicable Dividend Deferral Election Date applying to such subsequent election. The Dividend Deferral Election Form attached hereto as Exhibit "B", taken together with each Participant's directions properly completed thereon, shall govern and control the manner and method by which cash dividends are either deferred and invested pursuant to the provisions of the Trust and this Plan or distributed to Participants. In the event a Participant fails to complete and submit a Dividend Deferral Election Form, cash dividends declared and paid on shares of Company Stock held for the benefit of such Participant in the Trust will be accumulated and reinvested and, subject to the terms and provisions of this Plan and the Trust, will be distributed to the Participant, together with earnings thereon and the Company Stock, upon the Payment Event applicable to such Participant. 4. Clause (b) of Section 7.1(b) is amended to read as follows: (b) the date a Participant who is a non-employee trustee ceases to be a trustee unless such Participant has made an election to defer payment of such Benefit Amount in connection with his participation in the 1998 Non-Employee Trustee Retirement Program as described in Section 7.4. 3 4 5. Article VII of the Plan is amended by adding the following as Section 7.4: 7.4 Deferral of Payment of Benefit Amount. Notwithstanding anything herein to the contrary, a Participant who is a non-employee trustee and who retires under the terms of the 1998 Non-Employee Trustee Retirement Program may: (a) make an irrevocable election to defer payment of any Benefit Amount attributable to the lump sum amount awarded upon his resignation under the terms of the 1998 Non-Employee Trustee Retirement Program for a period or periods designated by the participant of not more than five (5) years from the effective date of such Participant's resignation; and (b) make an irrevocable election to defer payment of any Benefit Amount other than the amount described in (a) above for a period or periods designated by the Participant of not more than five (5) years from the effective date of such Participant's resignation; and (c) make an irrevocable election to defer receipt of any or all cash dividends declared and paid on shares of Company Stock comprising his Benefit Amount until the Payment Event applicable to such shares by completing and submitting a Dividend Deferral Election Form (which election, including Participant's ability to effect subsequent modifications thereto, will be governed by the provisions of Section 4.5 of this Plan). In order to be effective, a Participant's deferral election as described in (a) and (b) above must be made prior to the effective date of his resignation under the terms of the 1998 Non-Employee Trustee Retirement Program. Payment of such Participant's Benefit Amount shall be made after the deferral period in the form of one lump sum payment or in annual installments in percentage amounts specified by the Participant in his election under this Section 7.4; provided, however, the Payment Event relating to such Benefit Amount will be accelerated upon the Participant's death or Permanent Disability. 4 EX-10.34 14 EXHIBIT 10.34 1 Exhibit 10.34 FIRST AMENDMENT TO CARDINAL REALTY SERVICES, INC. EXECUTIVE DEFERRED COMPENSATION RABBI TRUST AGREEMENT WHEREAS, Lexford Residential Trust, formerly known as Cardinal Realty Services, Inc. (the "Company") established the Cardinal Realty Services, Inc. Executive Deferred Compensation Rabbi Trust (the "Trust") effective as of November 21, 1996; and WHEREAS, the Company appointed The Provident Bank to serve as Trustee of the Trust (the "Trustee"); and WHEREAS, Section 12(a) of the Trust provides that the Trust may be amended by a written instrument executed by the Company and the Trustee; and WHEREAS, the Company desires to amend the Trust. NOW, THEREFORE, the Trust is amended effective April 16, 1998 as follows: 1. Clause (b) of the preamble to the Trust shall be amended by inserting "(the "Plan")" at the end of the sentence. 2. The name of the Trust shall be changed to the "Lexford Residential Trust Executive Deferred Compensation Rabbi Trust Agreement". 3. Section 5(a) of the Trust shall be changed to read as follows: "(a) All rights associated with assets of the Trust shall be exercised by the Trustee, and shall in no event be exercisable by or rest with Plan participants. Except as required under clause (b) below and as otherwise provided in this clause (a), the Trustee shall invest in common shares of beneficial interest, $.01 par value per share, of the Company (the "Common Shares"). Any cash received by the Trustee, including amounts received as dividends on Common Shares, may be invested in other investment vehicles in accordance with the terms of the Plan, provided, however, that if the Trustee receives no investment direction from the Company with respect to a Participant Account as defined in clause (c) below, the account shall be invested in Common Shares. Any amounts held pending investment shall be invested in an investment vehicle selected by Trustee. Notwithstanding the foregoing provisions of this clause (a), Trustee shall have no obligation or authority with respect to engaging in a transaction in Common Shares that would violate any restriction or limitation imposed by applicable state or federal securities laws and regulations." 2 4. Section 5(c) of the Trust shall be changed to read as follows: "(c) Trustee shall maintain bookkeeping accounts for each Plan participant (a "Participant Account") representing his or her interests under the Plan. All Participant Accounts established and maintained hereunder shall be credited with contributions and earnings or losses so as to reflect a Plan participant's interest for calculation and recordkeeping purposes only, and the Trust assets reflected in such Accounts shall at all time remain subject to the claims of the Company's general creditors." 5. Section 6 of the Trust shall be changed to read as follows: SECTION 6. DISPOSITION OF INCOME. Subject in all events to the terms of Section 3, during the term of this Trust, the Trustee shall receive and distribute in part to Plan participants or their beneficiaries and accumulate and reinvest in part (pursuant to the provisions of Section 5 of this Agreement) dividends declared and paid on account of Common Shares held in the Trust pursuant to the written instructions of the Company from time to time. All other income received by the Trust, net of expenses and taxes not otherwise funded by the Company, will be accumulated, reinvested and allocated to Participant accounts (pursuant to the provisions of Section 5 (c) of this Agreement) pending future distribution in accordance with the terms thereof. 6. Section 14 of the Trust is amended to correct a typographical error in the effective date to read as follows: "The effective date of this Trust Agreement shall be November 27, 1996." LEXFORD RESIDENTIAL TRUST By: /s/ BRADLEY A. VAN AUKEN -------------------------------- Name: Bradley A. Van Auken Title: Senior Vice President, General Counsel & Secretary THE PROVIDENT BANK, TRUSTEE By: /s/ WILLIAM A. HARDING -------------------------------- Name: William A. Harding Title: Vice President EX-10.39 15 EXHIBIT 10.39 1 Exhibit 10.39 December 1, 1998 John B. Bartling 333 North Parkview Avenue Bexley, Ohio 43209 Re: Employment Agreement dated as of December 1, 1995, as amended Dear John: Reference is made to the above captioned Employment Agreement between yourself and Lexford Residential Trust, as successor by merger to Lexford, Inc. f/k/a Cardinal Realty Services, Inc., as amended as of April 18, 1996, December 20, 1996 and January 1, 1997 (the "Employment Agreement"). The Compensation Committee of the Board of Trustees of Lexford Residential Trust (the "Company") has authorized the Company to enter into a renewal term of the Employment Agreement covering the period from December 1, 1998, through and including November 30, 1999. Your signature below will evidence your agreement to the renewal term and, as so renewed, the Employment Agreement will remain in full force and effect. Very truly yours, LEXFORD RESIDENTIAL TRUST By: /s/ BRADLEY A. VAN AUKEN ----------------------------- Bradley A. Van Auken Senior Vice President ACKNOWLEDGED AND AGREED /s/ JOHN B. BARTLING ----------------------------- John B. Bartling EX-10.44 16 EXHIBIT 10.44 1 Exhibit 10.44 April 1, 1998 Mark D. Thompson 682 Laurel Ridge Drive Gahanna, Ohio 43230 Re: Employment Agreement dated as of April 1, 1996, as amended Dear Mark: Reference is made to the above captioned Employment Agreement between yourself and Lexford Residential Trust, as successor by merger to Lexford, Inc. f/k/a Cardinal Realty Services, Inc., as amended as of April 18, 1996, and January 1, 1997 (the "Employment Agreement"). The Compensation Committee of the Board of Trustees of Lexford Residential Trust (the "Company") has authorized the Company to enter into a renewal term of the Employment Agreement covering the period from April 1, 1998, through and including March 31, 1999. Your signature below will evidence your agreement to the renewal term and, as so renewed, the Employment Agreement will remain in full force and effect. Very truly yours, LEXFORD RESIDENTIAL TRUST By: /s/ BRADLEY A. VAN AUKEN ----------------------------- Bradley A. Van Auken Senior Vice President ACKNOWLEDGED AND AGREED /s/ MARK D. THOMPSON ----------------------------- Mark D. Thompson EX-10.45 17 EXHIBIT 10.45 1 Exhibit 10.45 EMPLOYMENT AGREEMENT LEXFORD, INC. AND BRADLEY A. VAN AUKEN 2 TABLE OF CONTENTS Page ---- 1. Employment...........................................................1 2. Term and Positions...................................................2 3. Compensation.........................................................2 4. Insurance and Other Benefits.........................................8 5. Payment in the Event of Death or Permanent Disability...............10 6. Termination and Further Compensation................................11 7. Reimbursement.......................................................13 8. Covenants and Confidential Information..............................13 9. Withholding Taxes...................................................15 10. No Conflicting Agreement............................................15 11. Severable Provisions................................................15 12. Binding Agreement...................................................15 13. Arbitration.........................................................15 14. Notices.............................................................16 15. Waiver..............................................................16 16. Miscellaneous.......................................................16 17. Governing Law.......................................................16 18. Captions and Section Headings.......................................16 19. Miscellaneous.......................................................17 2 3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of the 1st day of January, 1998, between Lexford, Inc., an Ohio corporation ("Employer"), and Bradley A. Van Auken ("Employee"). WITNESSETH: WHEREAS, Employer and Employee desire to enter into this Agreement to assure Employer of the services of Employee, and Employee's employment for the term set forth herein, and to set forth the rights and duties of the parties hereto. NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties agree as follows: 1. Employment. (a) Employer hereby employs Employee, and Employee hereby accepts such employment, upon the terms and conditions hereinafter set forth. (b) During the term of this Agreement, or any renewal or extension hereof (for purposes hereof, all references herein to the term of this Agreement shall be deemed to include references to the period of renewal or extension hereof, if any), Employee shall devote his full time to his employment and perform with reasonable diligence such duties as are customarily performed by the Senior Vice President and General Counsel or similar senior executive officer charged with primary responsibility for legal, tax and related matters for a company having the size and structure of Employer and its subsidiaries, together with such other duties as may be reasonably requested from time to time by the Board of Directors of Employer (the "Board"), which duties shall be consistent with the further covenants set forth in Section 2 of this Agreement. (c) Employee shall not, without the prior written consent of Employer, directly or indirectly, during the term of this Employment Agreement, other than in the performance of duties naturally inherent in the businesses of Employer or any subsidiary of Employer and in furtherance thereof, render services of a business, professional or commercial nature to any other person or firm, for compensation; provided, however, that so long as it does not interfere with his full-time employment hereunder, Employee may attend to his personal outside investments, serve as a director of a corporation which does not compete with Employer (as provided in Section 8 hereof), and serve as director, trustee or officer of or otherwise participate in educational, welfare, social, religious and civic organizations. Employee may complete the performance of his professional engagements as legal counsel which are pending on the date of this Agreement; provided that any such performance does not interfere with the performance of his employment duties hereunder. For purposes of this Agreement, all references herein to subsidiaries and affiliates of Employer shall be deemed to include subsidiaries and affiliates now or hereafter existing. 1 4 2. Term and Positions. (a) Subject to the provisions for termination as hereinafter provided, the term of this Agreement shall begin on January 1, 1998 and shall continue through December 31, 1998 (the "Original Term"). The Original Term may be extended for additional terms of one year each (each, a "Renewal Term") upon the mutual agreement of Employer and Employee. (b) Employee shall, without any compensation in addition to that which is specifically provided in this Agreement, serve as Senior Vice President and General Counsel of Employer, and a member of the board of directors and in such other offices or positions with any subsidiary or affiliate of Employer as shall, from time to time, be assigned reasonably by the Board (but such office or positions shall be consistent with the duties, offices or positions hereinbefore named). It is agreed that in addition to the provisions of Section 4(e) of this Agreement and any other obligations due him hereunder, Employee shall be entitled to the protection of the applicable indemnification provisions of the Articles of Incorporation and Code of Regulations of Employer and the corporate or partnership organizational documents of any such subsidiary or affiliate. Employer will use all commercially reasonable efforts to maintain its directors and officers liability insurance for the benefit of, among others, Employee. For purposes of this Agreement, the term: (i) "affiliate," when used with reference to Employer, means any entity which, directly or indirectly through one or more intermediaries, is controlled by, under common control with, or which controls, Employer; (ii) "control" means (A) the power to direct the management and policies of the entity in question, directly or indirectly, whether through ownership of voting securities, by contract or otherwise and (B) "controlled" and "controlling" have meanings correlative to the foregoing; and (iii) "subsidiary" means, with reference to Employer, any corporation, general or limited partnership, limited liability company, association or other business entity (A) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partners interests are, at the time any determination is being made, owned, controlled or held by Employer or (B) that, at the time any determination is being made, is otherwise controlled, by Employer or one or more subsidiaries of Employer or by Employer and one or more subsidiaries of Employer. 3. Compensation. (a) For all services he may render to Employer (and any subsidiary or affiliate) during the term of this Agreement, Employer shall pay to Employee base compensation ("Base Compensation") on the following terms: (i) For the Original Term and any Renewal Term, Fourteen Thousand Five Hundred Eighty-three and 33/100 Dollars ($14,583.33) per month. (ii) Base Compensation payable to Employee under this Section 3(a) shall be payable in semi-monthly installments. (iii) Commencing January 1, 1999, Base Compensation may be increased each fiscal year upon appropriate action by the Board. If increased, such increased dollar amount shall thereafter constitute "Base Compensation" for all purposes under this Agreement. 2 5 (b) Employer shall pay to Employee bonus compensation during the term of this Agreement as follows: (i) For Employer's 1998 fiscal year, and for each fiscal year thereafter during which this Employment Agreement remains in effect, Employer will pay to Employee a cash bonus ("Cash Bonus") determined on the basis of the increase, if any, of Employer's "Adjusted EBITDA" (as defined in Employer's Annual Report on Form 10-K) when compared to Employer's Adjusted EBITDA for fiscal year 1997, as reported in Employer's Annual Report on Form 10-K to be filed with the Securities and Exchange Commission ("Comparison EBITDA") and measured as a percentage of Comparison EBITDA, as follows:
Adjusted EBITDA expressed as Cash Bonus Expressed as Percentage of Comparison EBITDA Percentage as Base Compensation ------------------------------- ------------------------------- up to 103% 0 greater than 103% up to 110% Percentage Increase in Comparison EBITDA multiplied by 1.5; plus, if applicable greater than 110% up Additional Percentage Increase in to 120% Comparison EBITDA (above 110%) multiplied by 2; plus, if applicable greater than 120% Additional Percentage Increase in Comparison EBITDA (above 120%) multiplied by 2.5, but not to exceed 60% of Base Compensation
(ii) For purposes of determining the Cash Bonus, if any, payable to Employee on account of Employer's 1998 fiscal year, Employee and Employer acknowledge and agree that Employee's 1998 Base Compensation will equal One Hundred Seventy Five Thousand Dollars ($175,000), and the maximum Cash Bonus payable to Employee on account of Employer's 1998 fiscal year equals One Hundred Five Thousand Dollars ($105,000). (iii) Employee's Cash Bonus due under subsections (i) and (ii) above shall be paid within thirty (30) days after Adjusted EBITDA is calculated from the applicable final audited year end income statements of Employer. 3 6 (iv) In addition to the Cash Bonus, for Employer's 1998 fiscal year, and for each fiscal year thereafter during which this Employment Agreement remains in effect, Employer shall, and hereby does, grant to Employee a stock bonus ("Stock Bonus"; and, together with the Cash Bonus, the "Bonus") payable in shares of Employer's common stock, without par value (the "Common Stock"), in accordance with and subject to a Deferred Shares Award Agreement (the "Deferred Shares Agreement") to be entered into between Employer and Employee in customary form reasonably acceptable to Employer and Employee. The dollar amount of the Stock Bonus will be determined on the same basis as the Cash Bonus (including the limitations set forth in Section 3(b)(ii) and the partial-year provision set forth in Section 6(c)), except that the dollar value of the Stock Bonus as a percentage of Base Compensation will be as follows:
Dollar Value of Stock Bonus Adjusted EBITDA expressed as Expressed as Percentage of Base Percentage of Comparison EBITDA Compensation ------------------------------- ------------ up to 103% 0 greater than 103% up to 105% Equivalent to Percentage Increase in Comparison EBITDA; plus, if applicable greater than 105% up to 110% Additional Percentage Increase in Comparison EBITDA (above 105%) multiplied by 2; plus, if applicable greater than 110% Additional Percentage Increase in Comparison EBITDA (Above 110%) multiplied by 3, but not to exceed 30% of Base Compensation
(v) The number of shares constituting the Stock Bonus payable to Employee will be determined by dividing (A) the dollar value of the Stock Bonus determined in accordance with the table above by (B) the closing price of Employer's Common Stock on the Nasdaq National Market System, or if Employer's Common Stock is not listed or admitted to trading in such system, the principal securities exchange on which Employer's Common Stock is listed or admitted to trading on the last trading date in the period for which the Stock Bonus is calculated (i.e. December 31, or the last closing price for the Common Stock immediately preceding the date Employee ceases employment with Employer). Any Stock Bonus which Employee is entitled to receive from Employer shall be issued on the same date as the Cash Bonus for the same period. No fractional share shall be payable to Employee in connection with the Stock Bonus, but Employee will be entitled to a cash payment equal to the dollar value of any fractional share to which he would otherwise be entitled under the Stock Bonus, to be paid to Employee together with the payment of Employee's Cash Bonus hereunder. 4 7 (c) As additional inducement to Employee to enter into this Agreement, Employer shall issue to The Provident Bank, a state chartered bank, in its capacity as Trustee under that certain Executive Deferred Compensation Rabbi Trust Agreement dated as of April 18, 1996 (the `Trust Agreement"), or any successor trustee thereunder ("Trustee"), for the benefit of Employee, at no additional consideration or cost to Employee, up to two thousand five hundred (2,500) shares of the Common Stock for each share of Common Stock of Employer purchased by Employee from the date of this Agreement through and including December 31, 1998 (the "Matching Stock"). Any Matching Stock which Trustee is entitled to receive from Employer shall be issued to Trustee within thirty (30) days of Employee's purchase of any shares of Common Stock and shall be subject to all restrictions and limitations imposed by applicable state and federal securities laws and regulations. (d) Further, Employer shall, and hereby does, grant to Employee rights to receive additional shares of Common Stock pursuant and subject to the terms and conditions of that certain Restricted Shares Agreement (the "Restricted Shares Agreement") to be entered into between Employer and Employee, in customary form reasonably acceptable to Employer and Employee (such Common Stock to be referred to herein as "Restricted Stock") as follows: (i) sixteen thousand five hundred (16,500) shares of Restricted Stock, one-third of which shall vest on each of January 1, 1998, January 1, 1999, and January 1, 2000 if the performance criteria as defined, and more particularly set forth, in the applicable Restricted Shares Agreement have been satisfied, which issuance of shares shall be made effective on January 1, 1998. As used hereunder, the term "vest" shall mean that Employee shall own the Restricted Shares free from any restriction, encumbrance, or limitation, except for any such restriction or limitation imposed by applicable state and federal securities laws and regulations and except for the terms of Employer's Executive Deferred Compensation Plan and the terms of the Trust Agreement; (ii) Notwithstanding the foregoing, the vesting of all Restricted Stock and Stock Options (as defined hereinbelow) granted under this Agreement shall be accelerated in the event of any of the following: (A) Employer shall merge or be merged or consolidated with, another corporation and as a result of such merger or consolidation less than seventy percent (70%) of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of Employer as the same shall have existed immediately prior to such merger or consolidation; (B) Employer shall sell or transfer to one or more persons, corporations or entities, in a single transaction or a series of related transactions, more than one-half of the assets of Employer unless by an affirmative vote of two-thirds of the members of the Board, the transaction or transactions are exempted from the operation of this provision based on a good faith finding that the transaction or transactions are not within the intended scope of this definition for purposes of this Agreement; 5 8 (C) a person, within the meaning of Section 3(a)(9) or Section 13(d)(3) of the Securities Exchange Act of 1934, as amended and as in effect on the date hereof the "Exchange Act"), shall become the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of thirty percent (30%) or more of the outstanding voting securities of Employer; or (D) any shareholder of Employer shall nominate a person to the Board, which nominee shall be elected to the Board without receiving the prior endorsement of the Board or its Nominating Committee. (e) Employer shall grant to Employee options to purchase two thousand five hundred (2,500) shares of Employer's Common Stock ("Stock Options") in accordance with, and subject to, the Employer's Amended and Restated 1992 Incentive Equity Plan, and an Incentive Stock Option Agreement to be entered into between Employer and Employee, in customary form reasonably acceptable to Employer and Employee (the "Option Award Agreement" and, together with the Deferred Shares Agreement and the Restricted Shares Agreements, the "Award Agreements"). The Stock Options shall have an exercise price equal to the closing price of Employer's Common Stock on the NASDAQ National Market System on December 31, 1997, one-fifth of which shall vest on the first, second, third, fourth and fifth anniversaries of the date of such grant, which grant shall be made pursuant to the Option Award Agreement. (f) Employee shall be entitled to participate in any pension or profit-sharing plan covering highly compensated salaried employees which the Employer may have in effect or hereafter adopt during the term of this Employment Agreement. (g) Employer represents and warrants to Employee that unless Employee makes an election pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), Employee shall not have any taxable income solely by reason of the grants described in Sections 3(c), (d) and (e) hereof. Employee understands that he will have taxable income upon the vesting of Restricted Stock, the exercise of the Stock Options, the disposition of the rights granted in Sections 3(c), (d) and (e) hereof, or other similar event. (h) If Employee makes an election pursuant to Section 83(b) of the Code in connection with Restricted Stock acquired by Employee pursuant to Section 3(d) hereof, Employer shall make a loan to Employee in an amount equal to forty-eight percent (48%) (subject to appropriate adjustment if the combined effective federal, state, and local income tax rate on compensation income changes in 1996) or any subsequent year in which income may be recognized) of the compensation income recognized by Employee for federal income tax purposes in connection with such election. The loan shall (i) bear interest at a rate per annum equal to that charged from time to time to Employer under Employer's senior secured credit facility (which credit facility, as of the date of this Agreement is provided to Employer by The Provident Bank) plus two percent (2%), (ii) be 6 9 secured by a pledge of the Restricted Stock, (iii) be due upon the earliest of three (3) years from the date of the loan, the sale of the Restricted Stock (to the extent of the proceeds of such sale with any remaining balance being thereafter due as originally scheduled), or one (1) year after Employee's termination of employment with Employer, and (iv) be evidenced by a promissory note and a pledge agreement in customary form reasonably acceptable to Employer and Employee. (i) With respect to the Restricted Stock, if Employee does not make an election pursuant to Section 83(b) of the Code as described in Section 3(g) of this Agreement, and with respect to the Stock Options, upon each occasion Employee recognizes compensation income, as a result of the vesting of the Restricted Stock or the exercise of the Stock Options, Employee may borrow from Employer an amount equal to forty-eight percent (48%) (subject to adjustment as described in Section 3(h) of this Agreement) of the compensation income so recognized by Employee, provided that Employee is still employed by Employer. The loan shall have the same terms and conditions described in Section 3(h) of this Agreement. 4. Insurance and Other Benefits. (a) Employee shall be entitled to such medical, hospitalization, health, accident, life and disability insurance and pension plan benefits and such other similar employment privileges and benefits as are afforded generally from time to time to other executive officers of Employer, or subsidiaries of Employer, and in no event shall Employee be provided benefits at a level less generous than those benefits provided to any other officer or employee of Employer, or any subsidiary of Employer. Further, with respect to medical coverage, Employer shall provide medical coverage for Employee and his dependents at least equal to the value of coverage afforded Employee on the effective date of this Agreement if such coverage is available on commercially reasonable terms. (b) Employee shall be entitled to periods of vacation and sick leave allowance each year, which shall be the same as provided under Employer's vacation and sick leave policy for executive officers, but in no event shall Employee be entitled to, with full pay and benefits, less than four (4) weeks paid vacation and customary holidays. (c) In the event that Employee moves his principal residence to the Columbus, Ohio area on or before December 31, 1998, Employer will pay Employee a lump sum of Sixty Thousand Dollars ($60,000), "grossed up" for federal, state and local taxes, for relocation expenses. Payment to Employee, if any, due under this Section 4(c) will be payable on or before ten (10) days following the date upon which Employee acquires title to his new principal residence in the Columbus, Ohio area or enters into a binding lease agreement for a principal residence in the Columbus, Ohio area. Employee shall bear sole responsibility for documenting the deductibility of amounts paid pursuant to this subsection if so required by the Internal Revenue Service, but shall not be required to provide such documentation to Employer unless Employer is required to produce same in connection with an audit. 7 10 (d) Employer shall indemnify, to the full extent then permitted by law, Employee if he was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a member of the Board or an officer or agent of Employer, or is or was serving at the request of Employer as a director, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Employer shall pay expenses, including reasonable attorney's fees, incurred by Employee in defending any such action, suit or proceeding as they are incurred, in advance of the final disposition thereof, and may pay, in the same manner and to the full extent then permitted by law, such expenses incurred by any other person. The indemnification and payment of expenses provided hereby shall not be exclusive of, and shall be in addition to, any other rights granted to Employee seeking indemnification under any law, the Articles of Incorporation of Employer, any agreement, vote of shareholders or disinterested members of the Board, or otherwise, both as to action in official capacities and as to action in another capacity while he is a member of the Board, officer, employee or agent of Employer, and shall continue as to Employee after he has ceased to be a member of the Board, trustee, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of Employee. 5. Payment in the Event of Death or Permanent Disability. (a) In the event of Employee's death or Permanent Disability (as defined hereinbelow) during the term of this Agreement, Employee or his estate, as the case may be, shall be entitled to receive (i) an amount equal to (A) the lesser of (x) any remaining Base Compensation for the Original Term or any then current Renewal Term or (y) one year of Base Compensation reduced by (B) any and all payments made to Employee pursuant to any disability insurance policy maintained by Employer for Employee's benefit pursuant to Section 4(a) of this Agreement or otherwise (the "Disability Policy"), (ii) a pro rata portion of the Bonus, if any, applicable to the fiscal year in which such death or Permanent Disability occurs, as such bonuses are determined under Section 3(b) of this Agreement, and (iii) any shares of Restricted Stock and Stock Options that have vested in accordance with the provisions of the Award Agreements. Such pro rata portion of the Bonus shall be determined by a multiplying a fraction (the numerator of which shall be the number of days in the applicable fiscal year elapsed prior to the date of death or Permanent Disability, as the case may be, and the denominator of which shall be three hundred sixty-five (365)) by the amount of the Bonus that would have been payable, if any, pursuant to such Section 3(b), if Employee had remained employed under this Agreement for the entire applicable fiscal year. (b) Upon death or Permanent Disability of Employee, the Bonus, if any, shall be paid when and as provided in Section 3(b) of this Agreement. The other compensation to be paid pursuant to this Section 5 shall be paid, at the election of Employee or Employee's designated beneficiary either (i) in two (2) equal annual installments paid within the two (2) year period beginning on the date of such death or Permanent Disability, as the case may be, or (ii) in one (1) lump sum paid within ninety (90) days after the date of such death or Permanent Disability, as the case may be. 8 11 (c) Employee shall be entitled to no further compensation or other benefits under this Agreement, except as to that portion of any benefits accrued and earned by him hereunder up to and including the date of such death or Permanent Disability. (d) For purposes of this Section 5, Employee's Permanent Disability shall be deemed to occur on the date after the first to occur of (i) ninety (90) consecutive days, or (ii) one hundred eighty (180) days cumulatively in any twelve (12) month period, of Employee's inability to provide the services required hereunder of him due to sickness or injury ("Permanent Disability"). 6. Termination and Further Compensation. (a) The employment of Employee under this Agreement, and the term hereof, subject to Employee's rights set forth elsewhere herein, may be terminated by Employer: (i) on death or Permanent Disability of Employee, or (ii) for cause at any time by action of the Board. For purposes hereof, the term "cause" shall mean: A. an intentional act of fraud, embezzlement, theft or any other material violation of law in connection with Employee's duties or in the course of his employment with Employer; B. intentional wrongful damage to material assets of Employer; C. intentional wrongful disclosure of material confidential information of Employer; D. intentional wrongful engagement in any competitive activity which would constitute a material breach of the duty of loyalty; or E. breach of any material term of this Agreement. No act, or failure, to act, on the part of Employee shall be deemed "intentional", or provide the basis for termination for cause, if it was due primarily to an error in judgment or negligence without bad faith or reckless disregard, but shall be deemed "intentional" only if done, or omitted to be done, by Employee not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interest of Employer. Failure to meet performance standards or objectives of Employer shall not constitute cause for purposes hereof. Further, in the event Employer terminates Employee for "cause", Employer shall give Employee written notice as to the specific circumstances giving rise to its decision to terminate Employee for cause ("Notice"), and, Employee shall be given the opportunity to respond, with counsel, to Employer's decision and Employer's articulated circumstances, such responses shall be before the Board of Directors of Employer and shall take place within fourteen (14) days of Employer's Notice. Any termination by reason of the foregoing shall not be in limitation of any other right 9 12 or remedy Employer may have under this Agreement or otherwise. On any termination of this Agreement, Employee shall be deemed to have resigned from all offices and directorships held by Employee in Employer and any subsidiaries and affiliates of Employer. (b) In the event of termination of this Agreement for any of the reasons set forth in Section 6(a)(ii) hereof, Employee shall be entitled to no further compensation or other benefits under this Agreement, except as to (i) that portion of any unpaid Base Compensation reduced by any and all payments made, or to be made, to Employee pursuant to the Disability Policy and other benefits accrued and earned by him hereunder up to and including the effective date of such termination; and (ii) any of his shares of Restricted Stock and Stock Options that have vested in accordance with the provisions of Section 3(c) of this Agreement. (c) In the event that Employee's employment is terminated without cause during the Original Term of this Agreement or in the event that the Original Term of this Agreement shall have expired and shall not have been renewed and Employee thereupon ceases to be employed by Employer, Employee shall be entitled to receive: (i) an amount equal to his Base Compensation, and any other benefits due Employee under Section 4 of this Agreement, payable for the then unexpired portion of the Original Term, if any, plus the immediately succeeding nine (9) months; (ii) the Bonus, if any, applicable to the fiscal year in which such cessation of employment occurs, as such Bonus is determined under Section 3(b) of this Agreement but on a prorated basis calculated in the manner contemplated by Section 5(a) of this Agreement; and (iii) all of his shares of Restricted Stock awarded pursuant to Section 3(d)(i) of this Agreement (but not, however, any shares of Restricted Stock awarded pursuant to Section 3(d)(ii) of this Agreement which have not theretofore vested) and Stock Options immediately fully vested, and otherwise free of any forfeiture provisions or other restrictions imposed under the Award Agreements except for any restrictions or limitations imposed by applicable state and federal securities laws and regulations. In the event that Employee's employment is terminated without cause during a Renewal Term, Employee will be entitled to receive all of the compensation and benefits provided for in the immediately preceding sentence; except that Employee's Base Compensation will continue solely for the nine (9) month period immediately following such termination, irrespective of the originally scheduled duration of the then current Renewal Term. Upon any such termination by Employer, other than for "cause", Employee's obligations to Employer hereunder shall terminate. 7. Reimbursement. Employer shall reimburse Employee or provide him with an expense allowance during the term of this Agreement, for travel, entertainment and other expenses reasonably and necessarily incurred by Employee in performing services hereunder or, generally, the promotion of Employer's business. Employee shall furnish such documentation with respect to reimbursement to be paid under this Section 7 as Employer shall reasonably request. 10 13 8. Covenants and Confidential Information. (a) Employee acknowledges Employer's reliance and expectation of Employee's continued commitment of performance of his duties and responsibilities during the term of this Agreement. In light of such reliance and expectation on the part of Employer, Employee agrees that during the period beginning on the effective date of this Agreement and ending eighteen (18) months after the termination of Employee's employment for cause or Employee's resignation from employment with Employer, he shall not, directly or indirectly, do or suffer any of the following: (i) own, manage, control or participate in the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or associated as a consultant, independent contractor or otherwise with, any other corporation, partnership, proprietorship, firm, association, or other business entity, or otherwise engage in any business, which directly of indirectly acquires, or solicits to acquire, property management agreements or any other service agreement directly relating to any property with respect to which Employer or any of its subsidiaries or affiliates has contracted to provide (or is actively negotiating to provide) similar services on the date that Employee's employment relationship with Employer is terminated hereunder; provided, however, that the ownership of not more than one percent (1%) of the stock of any publicly-traded corporation shall not be deemed a violation of this covenant; (ii) employ, assist in employing, or solicit for employment any employee or officer of Employer or any of Employer's affiliates or subsidiaries who was employed or retained at any time during the one (1) year period preceding the date on which Employee's employment with Employer is terminated; (iii) induce any person who is an employee or officer of Employer or any of Employer's affiliates or subsidiaries to terminate said relationship in such a manner which is not in furtherance of Employer's interest; or (iv) except in performing services hereunder, disclose, divulge, discuss, copy or otherwise use or suffer to be used in any manner, in competition with, or contrary to the interests of, Employer or any of Employer's affiliates or subsidiaries entities, the proprietary customer lists, limited partner lists, research or data or other trade secrets of Employer or any of Employer's affiliates or subsidiaries, it being acknowledged by Employee that any such proprietary information regarding the business of Employer and Employer's affiliates or subsidiaries entities compiled or obtained by, or furnished to, Employee while Employee shall have been employed by or associated with Employer, and which has not been publicly disclosed by Employer or which is otherwise not available in the public domain, is confidential information and Employer's property. (b) Employee expressly agrees and understands that the remedy at law for any breach by him of this Section 8 will be inadequate and that the damages flowing from such breach are not readily susceptible to being measured in monetary terms. Accordingly, it is acknowledged that upon adequate proof of Employee's violation of any legally enforceable 11 14 provision of this Section 8, Employer shall be entitled to immediate injunctive relief and may obtain a temporary order restraining any threatened or further breach. Nothing in this Section 8 shall be deemed to limit Employer's remedies at law or in equity for any breach by Employee of any of the provisions of this Section 8 which may he pursued or availed of by Employer. (c) Employee has carefully considered the nature and extent of the restrictions upon him and the rights and remedies conferred upon Employer under this Section 8, and hereby acknowledges and agrees that the same are reasonable in time and territory, are designed to eliminate competition which otherwise would be unfair to Employer, do not stifle the inherent skill and experience of Employee, would not operate as a bar to Employee's sole means of support, are fully required to protect the legitimate interests of Employer and do not confer a benefit upon Employer disproportionate to the detriment to Employee. 9. Withholding Taxes. All payments to Employee shall be subject to withholding on account of federal, state and local taxes as required by law. Any amounts remitted by Employer to the appropriate taxing authorities as taxes withheld by Employer from Employee on income realized by Employee with respect to the vesting of his shares of Restricted Stock shall reduce the amounts payable by Employer to Employee by way of compensation or otherwise. If any particular payment required hereunder is insufficient to provide the amount of such taxes required to be withheld, Employer may withhold such taxes from any other payment due Employee. In the event all cash payments due Employee are insufficient to provide the required amount of such withholding taxes, Employee, within thirty (30) days of written notice from Employer, shall pay to Employer the amount of such withholding taxes in excess of all cash payments due Employee at the time such withholding is required to be made by Employer, provided, however, the foregoing shall not be deemed to limit Employee's right to receive loans from Employer to fund income tax obligations as set forth in Section 3 of this Agreement. 10. No Conflicting Agreement. The parties hereto represent and warrant to each other that they are not a party to any agreement, contract or understanding, whether employment or otherwise, which would restrict or would prohibit them from undertaking or performing in accordance with the terms and conditions of this Agreement. Employer represents and covenants that its entering into this Agreement has been duly authorized and ratified, and that it has full authority to consummate the undertakings set forth herein including, without limitation, the grant of the Restricted Stock and Stock Options to Employee. 11. Severable Provisions. The provisions of this Agreement are severable and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions and any partially unenforceable provision to the extent enforceable in any jurisdiction shall, nevertheless, be binding and enforceable. 12. Binding Agreement. The rights and obligations of Employer under this Agreement shall inure to the benefit of, and shall be binding upon, Employer and its successors and assigns, and the rights and obligations (other than obligations to perform services) of Employee under this Agreement shall inure to the benefit of, and shall be binding upon, Employee and his heirs, personal representatives and estate. Employer agrees and acknowledges that the services Employee is providing Employer are personal to Employer, and Employer shall not have the right to assign this Agreement without Employee's written consent. 12 15 13. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association then pertaining in the City of Columbus, Ohio, and judgment upon the award rendered by the Arbitrator or Arbitrators may be entered in any Court having jurisdiction thereof. The Arbitrator or Arbitrators shall be deemed to possess the powers to issue mandatory orders and restraining orders in connection with such arbitration; provided, however, that nothing in this Section 13 shall be construed so as to deny Employer the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach of Employee of any of his covenants contained in Section 8(a) of this Agreement. 14. Notices. Any notice to be given under this Agreement shall be personally delivered in writing or shall have been deemed duly given when received after it is posted in the United States mail, postage prepaid, registered or certified, return receipt requested, and if mailed to Employer, shall be addressed to its principal place of business, attention: Chief Financial Officer, and if mailed to Employee, shall be addressed to him at his home address last known on the records of Employer, or at such other address or addresses as either Employer or Employee may hereafter designate in writing to the other. 15. Waiver. The failure of either party to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions as to any future violations thereof, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted the parties herein are cumulative and the waiver of any single remedy shall not constitute a waiver of such party's right to assert all other legal remedies available to it under the circumstances. 16. Miscellaneous. This Agreement supersedes all prior agreements and understandings between the parties and may not be modified or terminated orally. No modification, termination or attempted waiver shall be valid unless in writing and signed by the party against whom the same it is sought to be enforced. 17. Governing Law. This Agreement shall be governed by and construed according to the laws of the State of Ohio. 18. Captions and Section Headings. Captions and section headings used herein are for convenience and are not a part of this Agreement and shall not be used in construing it. 19. Miscellaneous. Where necessary or appropriate to the meaning hereof, the singular and plural shall be deemed to include each other, and the masculine and neuter shall be deemed to include each other. 13 16 IN WITNESS WHEREOF, the parties have executed this Employment Agreement on the day and year first set forth above. "EMPLOYER" ATTEST: LEXFORD, INC. /s/ Susan D. Krumlauf By: /s/ MARK D. THOMPSON - ----------------------------- ------------------------------ Mark D. Thompson Executive Vice President and /s/ Christine Gallion Chief Financial Officer - ----------------------------- "EMPLOYEE" /s/ Susan D. Krumlauf /s/ BRADLEY A. VAN AUKEN - ----------------------------- ------------------------------ Bradley A. Van Auken /s/ Christine Gallion - ------------------------------ EX-10.47 18 EXHIBIT 10.47 1 Exhibit 10.47 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement (this "First Amendment") is entered into as of January 1, 1998 by and between Leslie B. Fox ("Employee") and LEAF Asset Management, Inc., an Ohio corporation ("LEAF") and Lexford, Inc. (formerly known as Cardinal Realty Services, Inc.) ("Employer"). RECITALS: A. Employee, Employer and LEAF are a party to that certain Employment Agreement dated as of June 1, 1997 (the "Employment Agreement"). B. Terms which are used but not otherwise defined in this First Amendment have the meanings given them in the Employment Agreement. The Employer desires to change Employee's employment from LEAF to Employer, to increase the Base Compensation of Employee for the remainder of the term, to modify the provisions relating to the Stock Bonus and Cash Bonus and provide other equity incentives. NOW THEREFORE, Employer and Employee agree to amend the Employment Agreement as provided in this First Amendment: 1. Amendments to Employment Agreement. (a) From and after the date of this First Amendment, all references to "Employer" in the Employment Agreement shall refer to Lexford, Inc. and not LEAF. (b) From and after the date of this First Amendment, all references to "CRSI" are deleted and replaced with "Employer." (c) Section 1(b) of the Employment Agreement is hereby amended by deleting the term "Executive Vice President of Investment Management" and replacing it with "Executive Vice President and Chief Operating Officer." (d) Section 1(b)(ii) of the Employment Agreement is hereby amended by deleting the term "Chief Investment Officer" and replacing it with "Chief Operating Officer." (e) Sections 1(b) and 1(c) of the Employment Agreement are hereby amended by deleting the phrase "(including Employer)" in both sections. (f) Section 1(c) of the Employment Agreement is further amended by deleting the phrase "or CRSI" in the second sentence of section 1(c). 2 (g) Section 2(b) of the Employment Agreement is hereby amended by deleting the clause "the limited liability company organizational documents of Employer" near the end of the second sentence and replacing it with "or other organizational documents of Employer." (h) Section 3(a) of the Employment Agreement is amended by adding the following paragraphs: (v) Notwithstanding the foregoing, the Employee's Base Compensation from and after January 1, 1998 shall be Two Hundred Thirty Thousand ($230,000) annually payable in equal bi-monthly installments. (vi) Employee's Base Compensation for fiscal 1998 shall be paid in equal bi-monthly installments of cash and quarterly installments of shares of Common Stock as follows: (A) Two Hundred Thousand Dollars ($200,000) in cash, and (B) Thirty Thousand Dollars ($30,000) in shares of Common Stock of Employer valued at "Fair Market Value" (as defined below) on the date of issuance (i.e., the last day of each calendar quarter in which Employer's Common Stock is traded). (vii) For purposes of this Employment Agreement "Fair Market Value" shall mean the closing price of Employer's Common Stock on the NASDAQ National Market System on the date of issuance, or if Employer's Common Stock is not listed or admitted to trading in such system, the principal securities exchange on which Employer's Common Stock is listed or admitted to trading. (i) Section 3(b) of the Employment Agreement is hereby deleted in its entirety, and the following section is substituted therefor: (b) From and after January 1, 1998 and for so long as this Employment Agreement remains in effect, Employer shall pay to Employee bonus compensation as follows: (i) For Employer's 1998 fiscal year, and for each fiscal year thereafter during which this Employment Agreement remains in effect, Employer will pay to Employee a cash bonus ("Cash Bonus") determined on the basis of the increase, if any, of Employer's "Adjusted EBITDA" (as defined in Employer's Annual Report on Form 10-K) when compared to Employer's Adjusted EBITDA for its 2 3 immediately preceding fiscal year, as reported in Employer's Annual Report on Form 10-K to be filed with the Securities and Exchange Commission ("Comparison EBITDA") and measured as a percentage of Comparison EBITDA, as follows:
Adjusted EBITDA expressed Cash Bonus Expressed as Percentage of Comparison Percentage of Base EBITDA Compensation --------------------------- -------------------- Up to 103% 0 Greater than 103% up to 110% Percentage Increase in Comparison EBITDA (above 103%) multiplied by 1.5; plus, if applicable Greater than 110% up to 120% Additional Percentage Increase in Comparison EBITDA (above 110%) multiplied by 2; plus if applicable Greater than 120% Additional Percentage Increase in Comparison EBITDA (above 120%) multiplied by 2.5, but not to exceed 60% of Base Compensation
(ii) For purposes of determining the Cash Bonus, if any, payable to Employee on account of Employer's 1998 fiscal year, Employee and Employer agree that Employee's 1998 Base Compensation will equal Two Hundred and Thirty Thousand Dollars ($230,000) and the maximum Cash Bonus payable to Employee on account of Employer's 1998 fiscal year equals One Hundred Forty-Four Thousand Dollars ($144,000). (iii) Employee's Cash Bonus, if any, due under this Section 3(b) shall be paid within thirty (30) days after Adjusted EBITDA is calculated from the applicable final audited year end income statements of Employer. (iv) In addition to the Cash Bonus, for Employer's 1998 fiscal year, and for each fiscal year thereafter during which this Agreement remains 3 4 in effect, Employer shall, and hereby does grant to Employee a stock bonus ("Stock Bonus"; and together with the Cash Bonus, the "Bonus") payable in shares of Employer's Common Stock (the "Common Stock"), in accordance with and subject to a Deferred Shares Award Agreement (the "Deferred Shares Agreement") to be entered into between Employer and Employee in customary form reasonably acceptable to Employer and Employee. The dollar amount of the Stock Bonus will be determined on the same basis as the Cash Bonus (including the limitations set forth in Section 3(b)(ii) and the partial-year provision set forth in Section 6(c)), except that the dollar value of the Stock Bonus as a percentage of Base Compensation will be as follows:
Adjusted EBITDA expressed Dollar Value of Stock as a Percentage of Bonus Expressed as Comparison EBITDA Percentage of Base Compensation ------------------------- --------------------------------- Up to 103% 0 Greater than 103% up to 105% Equivalent to Percentage Increase in Comparison EBITDA; plus if applicable Greater than 105% up to 110% Additional percentage increase in Comparison EBITDA multiplied by 2, plus if applicable Greater that 110% Additional Percentage Increase in Comparison EBITDA multiplied by 3, but not to exceed 30% of Base Compensation
(v) The number of shares constituting the Stock Bonus payable to Employee will be determined by dividing (A) the dollar value of the Stock Bonus determined in accordance with the table above by (B) the closing price of Employer's Common Stock on the NASDAQ National Market System, or if Employer's Common Stock is not listed or admitted to trading in such system, the principal securities exchange on which Employer's Common Stock is listed or admitted to trading on the last trading date in the period for which the Stock Bonus is calculated (i.e. December 31, or the last closing price for the Common Stock immediately preceding the date Employee ceases employment with Employer). Any stock Bonus which Employee is entitled to receive from Employer shall be issued on the same date as the Cash Bonus for the same period. 4 5 No fractional share shall be payable to Employee in connection with the Stock Bonus, but Employee will be entitled to a cash payment equal to the dollar value of any fractional share to which she would otherwise be entitled under the Stock Bonus, to be paid to Employee together with the payment of Employee's Cash Bonus hereunder. (j) Section 3(c)(ii) of the Employment Agreement is hereby amended by deleting subclauses A, B and C in their entirety and replacing them with the following: (A) One-half on January 1, 1998, (B) One-quarter on January 1, 1999, and (c) One-quarter on January 1, 2000. (k) Section 3(c) of the Employment Agreement is hereby amended by deleting Section 3(c)(iii) in its entirety and renumbering Section 3(c)(iv) to Section 3(c)(iii). (l) Section 3(f) of the Employment Agreement is hereby amended by deleting the phrase "(ii) be due and payable upon the earliest of each sale of any shares of the Common Stock so pledged (to the extent of the net proceeds of such sale with any balance remaining being thereafter due as otherwise provided under this Section 3(f))" and replacing it with the following: (iii) be due upon the earliest of three (3) years from the date of the loan (to the extent of the proceeds of such sale with any remaining balance being thereafter due as originally scheduled) (m) Section 3 of the Employment Agreement is hereby further amended by adding the following: (g) Further, Employer shall, and hereby does, grant to Employee a right to receive forty-eight thousand (48,000) shares of Common Stock (the "Performance Equity Shares"), subject to the vesting requirements set forth in that certain Restricted Shares Agreement dated January 1, 1998 to be entered into between Employer and Employee, in customary form reasonably acceptable to Employer and Employee. Such Restricted Shares Agreement will provide that the Performance Equity Shares will vest in three tranches subject to the later of: (i) Employer's attaining the "Performance Goals" (as that term is defined in Employer's 1997 Performance Equity Plan); and (ii) Employee's continuing employment with 5 6 Employer or a subsidiary of Employer on January 1, 1998 (as to a maximum of one-third of the Performance Equity Shares), January 1, 1999 (as to a maximum of two-thirds of the Performance Equity Shares) and January 1, 2000 (with respect to up to all of the Performance Equity Shares). (h) Employer shall issue to The Provident Bank, a state chartered bank, in its capacity as Trustee under that certain Executive Deferred Compensation Rabbi Trust Agreement dated as of April 18, 1996 (the "Trust Agreement"), or any successor trustee thereunder ("Trustee"), for the benefit of Employee, at no additional consideration or cost to Employee, up to five thousand (5,000) shares of the Common Stock for each share of Common Stock of Employer purchased by Employee from the date of this Agreement through and including March 31, 1999 (the "Matching Stock"). Any Matching Stock which Trustee is entitled to receive from Employer shall be issued to Trustee within thirty (30) days of Employee's purchase of any shares of Common Stock and shall be subject to all restrictions and limitations imposed by applicable state and federal securities laws and regulations. Notwithstanding the provisions of Section 3(b)(iv) of this Agreement, in the event that Employee shall be entitled to the payment of a Cash Bonus on account of Employer's 1998 fiscal year, then, in such event, on or before March 31, 1999 Employee may furnish Employer with her written election to receive shares of Common Stock having a fair market value (such fair market value to be determined in the same manner as shares of Common Stock issuable to the Trustee for the benefit of Employee on account of Employee's Stock Bonus for Employer's 1998 fiscal year) in an amount specified by Employee in such written election in lieu of such Cash Bonus. Employee may make such an election only on account of Employer's 1998 fiscal year. Any shares of Common Stock so issued to the Trustee for the benefit of Employee on account of such written election will, in turn, qualify under this Section 3(h) as shares of Common Stock purchased by Employee and, accordingly, the Trustee will be entitled to receive one share of Matching Stock on account of each share of Common Stock issued to Trustee for the benefit of Employee in lieu of Employee's Cash Bonus in accordance with the provisions of this Section 3(h). (n) Section 4(c) of the Employment Agreement is hereby amended by deleting the clause "(including Employer)" in the first and second sentences of such Section. (o) Section 6(a)(i) of the Employment Agreement is hereby deleted. 6 7 (p) Section 6(c) of the Employment Agreement is hereby amended by deleting the clause "(iii) all of her shares of Restricted Stock and future right to receive the Fund Incentive Payment awarded pursuant to Section 3(c)(iii) of this Employment Agreement" and replace it with the following: (iii) all of her shares of Restricted Stock and Performance Equity Shares (;provided, however, that with respect to shares of Restricted Stock and Performance Equity Shares awarded pursuant to Section 3(c)(ii) and 3(g) Employee's vested right to such shares shall be limited solely to those shares which have vested prior to the date of termination together with those shares which would have otherwise vested on or before the January 1 following the date of termination had Employee remained employed with Employer). (q) Section 6(d) of the Employment Agreement is hereby amended by adding the following clause at the end of such Section: Notwithstanding anything contained herein to the contrary, in the event Employee's Employment Agreement is terminated by Employee prior to May 31, 2000, then Employee shall be entitled to only those shares of Restricted Stock and Performance Equity Shares awarded pursuant to Section 3(c)(ii) and 3(g) that have vested on or before the January 1 immediately preceding the date of termination. (r) Section 6(d) of the Employment Agreement is hereby further amended by deleting "(c)" in the last line of Section 6(d). 2. Miscellaneous. (a) Effect of Amendment. Except as specifically provided herein, this First Amendment does not in any way waive, amend, modify, affect or impair the terms and conditions of the Employment Agreement, and all terms and conditions of the Employment Agreement are to remain in full force and effect unless otherwise specifically amended, waived or changed pursuant hereto. On and after the date of this First Amendment, each reference in the Employment Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Employment Agreement shall mean and be a reference to the Employment Agreement as heretofore amended and as further amended by this First Amendment. This First Amendment constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, representations or other arrangements, whether express or 7 8 implied, written or oral, of the parties in connection therewith except to the extent expressly incorporated or specifically referred to herein. (b) Counterparts. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. (c) Governing Law. This First Amendment shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of Ohio, without regard to conflicts of laws principles. IN WITNESS WHEREOF, Employer and Employee have signed this First Amendment so as of the date hereinabove provided. LEAF ASSET MANAGEMENT, INC. Attest: /s/ Christine Gallion By: /s/ John B. Bartling, Jr. - ---------------------------- -------------------------------------- John B. Bartling, Jr., President and /s/ Bradley A. Van Auken Chief Executive Officer - ---------------------------- /s/ Christine Gallion LEXFORD, INC. - ---------------------------- /s/ Bradley A. Van Auken - ---------------------------- By: /s/ John B. Bartling, Jr. ------------------------------------- John B. Bartling, Jr. President and Chief Executive Officer /s/ Christine Gallion /s/ Leslie B. Fox - ---------------------------- -------------------------------------- LESLIE B. FOX /s/ Bradley A. Van Auken - ---------------------------- 8 EX-21.1 19 EXHIBIT 21.1 1 Exhibit 21.1 Cardinal Ancillary Insurance Agency, Inc. Cardinal Ancillary Insurance Agency, Inc., a Delaware corporation Cardinal Apartment Management Group, Inc. Cardinal Apartment Services, Inc. Cardinal GP VIII Corporation Cardinal GP X Corporation Cardinal GP XII Corporation Cardinal GP XIII Corporation Cardinal GP XIV Corporation Cardinal GP XV Corporation Cardinal GP XVI Corporation Cardinal GP XVII Corporation Cardinal GP XVIII Corporation Cardinal LP XIX Corporation Cardinal Industries Development Corporation Cardinal Industries of Florida Services Corporation Cardinal Industries of Georgia Services Corporation Cardinal Industries of Texas, Inc. Cardinal Industries Services Corporation CRC LLC Cardinal Regulatory of Kentucky, Inc. Cardinal Regulatory of West Virginia, Inc. CRSI SPV 2, INC. CRSI SPV 3, INC. CRSI SPV 4, INC. CRSI SPV 5, INC. CRSI SVP 6, INC. CRSI SPV 7, INC. CRSI SPV 8, INC. CRSI SPV 9, INC. CRSI SPV 10, INC. CRSI SPV 11, INC. CRSI SPV 12, INC. CRSI SPV 13, INC. CRSI SPV 14, INC. CRSI SPV 15, INC. CRSI SPV 16, INC. CRSI SPV 17, INC. CRSI SPV 18, INC. CRSI SPV 19, INC. CRSI SPV 20, INC. CRSI SPV 21, INC. CRSI SPV 22, INC. CRSI SPV 23, INC. CRSI SPV 24, INC. CRSI SPV 25, INC. CRSI SPV 26, INC. CRSI SPV 27, INC. CRSI SPV 28, INC. CRSI SPV 29, INC. CRSI SPV 30, INC. CRSI SPV 31, INC. CRSI SPV 32, INC. CRSI SPV 33, INC. CRSI SPV 34, INC. CRSI SPV 35, INC. CRSI SPV 36, INC. CRSI SPV 37, INC. CRSI SPV 38, INC. CRSI SPV 39, INC. CRSI SPV 40, INC. CRSI SPV 42, INC. CRSI SPV 43, INC. CRSI SPV 44, INC. CRSI SPV 46, INC. CRSI SPV 47, INC. CRSI SPV 48, INC. CRSI SPV 49, INC. 2 CRSI SPV 50, INC. CRSI SPV 51, INC. CRSI SPV 52, INC. CRSI SPV 53, INC. CRSI SPV 55, INC. CRSI SPV 56, INC. CRSI SPV 57, INC. CRSI SPV 58, INC. CRSI SPV 59, INC. CRSI SPV 60, INC. CRSI SPV 61, INC. CRSI SPV 62, INC. CRSI SPV 63, INC. CRSI SPV 64, INC. CRSI SPV 65, INC. CRSI SPV 66, INC. CRSI SPV 67, INC. CRSI SPV 68, INC. CRSI SPV 69, INC. CRSI SPV 71, INC. CRSI SPV 72, INC. CRSI SPV 74, INC. CRSI SPV 75, INC. CRSI SPV 76, INC. CRSI SPV 77, INC. CRSI SPV 78, INC. CRSI SPV 79, INC. CRSI SPV 80, INC. CRSI SPV 81, INC. CRSI SPV 82, INC. CRSI SPV 83, INC. CRSI SPV 84, INC. CRSI SPV 85, INC. CRSI SPV 86, INC. CRSI SPV 87, INC. CRSI SPV 88, INC. CRSI SPV 90, INC. CRSI SPV 91, INC. CRSI SPV 92, INC. CRSI SPV 93, INC. CRSI SPV 94, INC. CRSI SPV 95, INC. CRSI SPV 96, INC. CRSI SPV 98, INC. CRSI SPV 99, INC. CRSI SPV 100, INC. CRSI SPV 101, INC. CRSI SPV 102, INC. CRSI SPV 103, INC. CRSI SPV 10327, INC. CRSI SPV 10375, INC. CRSI SPV 10437, INC. CRSI SPV 10455, INC. CRSI SPV 10491, INC. CRSI SPV 10512, INC. CRSI SPV 10523, INC. CRSI SPV 10524, INC. CRSI SPV 10542, INC. CRSI SPV 10563, INC. CRSI SPV 10585, INC. CRSI SPV 10600, INC. CRSI SPV 10604, INC. CRSI SPV 10606, INC. CRSI SPV 10642, INC. CRSI SPV 10648, INC. CRSI SPV 10658, INC. CRSI SPV 10664, INC. CRSI SPV 10672, INC. CRSI SPV 10674, INC. CRSI SPV 10683, INC. CRSI SPV 10691, INC. 3 CRSI SPV 10714, INC. CRSI SPV 10724, INC. CRSI SPV 10725, INC. CRSI SPV 10726, INC. CRSI SPV 10727, INC. CRSI SPV 10729, INC. CRSI SPV 10752, INC. CRSI SPV 10758, INC. CRSI SPV 10773, INC. CRSI SPV 10790, INC. CRSI SPV 10810, INC. CRSI SPV 10816, INC. CRSI SPV 10841, INC. CRSI SPV 10853, INC. CRSI SPV 10936, INC. CRSI SPV 1996 PW1, INC. CRSI SPV 1996 PW2, INC. CRSI SPV 1996 PW3, INC. CRSI SPV 1996 PW4, INC. CRSI SPV 20115, INC. CRSI SPV 20129, INC. CRSI SPV 20164, INC. CRSI SPV 20190, INC. CRSI SPV 20199, INC. CRSI SPV 20208, INC. CRSI SPV 20212, INC. CRSI SPV 20218, INC. CRSI SPV 20224, INC. CRSI SPV 20230, INC. CRSI SPV 20246, INC. CRSI SPV 20284, INC. CRSI SPV 20309, INC. CRSI SPV 20314, INC. CRSI SPV 20405, INC. CRSI SPV 20442, INC. CRSI SPV 20449, INC. CRSI SPV 20471, INC. CRSI SPV 20487, INC. CRSI SPV 20519, INC. CRSI SPV 20521, INC. CRSI SPV 20530, INC. CRSI SPV 20535, INC. CRSI SPV 20546, INC. CRSI SPV 30109, INC. CRSI SPV 30114, INC. CRSI SPV 30130, INC. CRSI SPV 30138, INC. CRSI SPV 30149, INC. CRSI SPV 30150, INC. CRSI SPV 30168, INC. CRSI SPV 30176, INC. CRSI SPV 30184, INC. CRSI SPV 30197, INC. CRSI SPV 30231, INC. CRSI SPV 30269, INC. CRSI SPV 30353, INC. CRSI SPV 30358, INC. CRSI SPV 40101, INC. CRSI SPV 50903, INC. CRSI SPV 50906, INC. CRSI SPV 50951, INC. Jupiter Cove Apartments, LLC Jupiter Cove Apartments III, LLC LEAF Asset Management, INC. Lexford Evergreen LLC Lexford GAKB LLC Lexford GAKB II LLC Lexford Guilford GP LLC Lexford Guilford LP LLC Lexford Hidden Pointe GP LLC Lexford Hidden Pointe LP LLC Lexford Properties, I LexOhio, L.P. R/E Management Services, INC. R.E.I. Equities, INC. Walker Place Apartments Limited Liability Company Whispering Pines II, LLC EX-23.1 20 EXHIBIT 23.1 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-30849) dated July 8, 1997 pertaining to 1992 Incentive Equity Plan of Cardinal Realty Services, Inc. and related Plans and Employment Agreements; in the Registration Statement (Form S-8 No. 33-92508) dated May 19, 1995 pertaining to Cardinal Realty Services, Inc. Savings Plan; and in Post-Effective Amendment No. 1 to the Registration Statement (Form S-3 No. 333-49269) dated June 2, 1998 of Lexford Residential Trust of our report dated January 27, 1999 with respect to the consolidated financial statements and schedules of Lexford Residential Trust included in the Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ ERNST & YOUNG LLP ----------------------------------- Ernst & Young LLP Columbus, Ohio March 23, 1999 EX-27 21 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND THE STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 495 0 2,470 550 0 0 604,629 28,564 628,922 0 527,742 0 0 95 59,087 628,922 498 146,505 0 0 109,611 0 42,924 (5,532) 0 (5,532) 0 631 0 (4,901) (0.53) (0.53) THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
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