UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Act of 1934
Date of Report: September 29, 2006
(Date of earliest event reported)
Paragon Real Estate Equity and Investment Trust
(Exact name of registrant as specified in its charter)
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Maryland
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0-25074
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39-6594066
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification Number)
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1240 Huron Road, Cleveland, Ohio 44115
(Address of principal executive offices including zip code)
(216) 430-2700
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Three independent trustees of Paragon Real Estate Equity and Investment Trust (“Paragon”) signed a
Preferred Stock Subscription Agreement (the “Trustee Subscription Agreement”) whereby each will
contribute cash and will receive Class C Convertible Preferred Shares (“Class C Preferred Shares”).
Daniel D. DeVos and Paul T. Lambert each will contribute $200,000 for 50,000 Class C Preferred
Shares, and Daryl J. Carter will contribute $100,000 for 25,000 Class C Preferred Shares. The
Class C Preferred Shares were issued effective September 29, 2006.
In addition, on September 29, 2006, James C. Mastandrea, Chairman of the Board, Chief Executive
Officer and President of Paragon, signed a Subscription Agreement (the “Mastandrea Subscription
Agreement”) whereby he will purchase 44,444 restricted shares of Class C Preferred Shares. The
consideration for the purchase will be Mr. Mastandrea’s services as an officer of Paragon for the
period beginning September 29, 2006 and ending September 29, 2008.
The Class C Preferred Shares are subject to forfeiture and restricted from being sold by
Mr. Mastandrea until the later to occur of a public offering by Paragon sufficient to liquidate
the Class C Preferred Shares, an exchange of Paragon’s existing shares for new shares, or September
29, 2008.
Each of the trustees of Paragon, namely Daryl J. Carter, John J. Dee, Daniel G. DeVos, Paul T.
Lambert, James C. Mastandrea and Michael T. Oliver, signed a Restricted Share Agreement with
Paragon, dated September 29, 2006, to receive a total of 12,500 restricted Class C Preferred Shares
as of the date of the Restricted Share Agreement in lieu of receiving fees in cash for service as a
trustee for the two years ending September 29, 2008. The restrictions on the Class C Preferred
Shares will be removed upon the latest to occur of a public offering by Paragon sufficient to
liquidate the Class C Preferred Shares, an exchange of Paragon’s existing shares for new shares, or
September 29, 2008.
On September 29, 2006, Paragon amended the Additional Contribution Agreement for James C.
Mastandrea and John J. Dee, approved by the shareholders of Paragon in June 2003. The parties to
the Amendment are Paragon, the members of the Board of Trustees and each of the individual
trustees, presently Daryl J. Carter, John J. Dee, Daniel G. DeVos, Paul T. Lambert, James C.
Mastandrea and Michel T. Oliver, and Paragon Real Estate Development, LLC. The Amendment adds each
of the trustees to the Additional Contribution Agreement so that if a trustee brings a new deal to
Paragon, he would receive additional common shares of Paragon in accordance with formula in the
Additional Contribution Agreement.
The foregoing descriptions of the form of the Trustee Subscription Agreement, the Mastandrea
Subscription Agreement, the form of Restricted Share Agreement and the Amendment to the Additional
Contribution Agreement are not complete and are qualified in their entirety by reference to the
full and complete terms of such agreements, which are attached to this current report on Form 8-K
as Exhibits 10.1, 10.2, 10.3 and 2.1, respectively.
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Item 3.02 Unregistered Sales of Equity Securities.
The Class C Preferred Shares issued to Mr. DeVos, Mr. Lambert and Mr. Carter pursuant to the
Trustee Subscription Agreements, to Mr. Mastandrea pursuant to the Mastandrea Subscription
Agreement, and to all trustees pursuant to the Restricted Share Agreements, each as disclosed in
Item 1.01 of this report, which Item 1.01 is incorporated herein by reference, were not registered
under the Securities Act of 1933, as amended (the “Act”), in reliance on the exemption from
registration provided by Section 4(2) of the Act.
Item 5.03. Amendment to Articles of Incorporation or Bylaws; Change in Fiscal Year.
Effective September 29, 2006, Paragon Real Estate Equity and Investment Trust (“Paragon”) filed
Articles Supplementary to its Declaration of Trust, as amended, restated and supplemented (the
“Supplement”), with the State Department of Assessment and Taxation of Maryland designating 300,000
Class C Preferred Shares. Dividends for the holders of the Class C Preferred Shares are at the
discretion of the trustees. The Class C Preferred Shares have voting rights equal to the number of
common shares into which they are convertible. The Class C Preferred Shares are convertible into
common shares by dividing the sum of $10.00 and any accrued but unpaid dividends on the Class C
Preferred Shares by the conversion price of $1.00. The Class C Preferred Shares have a liquidation
preference of $10.00 per share, plus any accrued but unpaid dividends, and can be redeemed by the
Board of Trustees at any time, with notice, at the same price per share.
The foregoing description of the Supplement is not complete and is qualified in its entirety by
reference to the full and complete terms of the Supplement, which is attached to this report as
Exhibit 3.1.
Item 9.01. Financial Statements and Exhibits.
(d)
Exhibits
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2.1
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Amendment to Additional Contribution Agreement
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3.1
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Articles Supplementary to Paragon’s Declaration of Trust, as
amended, restated and supplemented
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10.1
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Form of Trustee Subscription Agreement
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10.2
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Mastandrea Subscription Agreement
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10.3
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Form of Trustee Restricted Share Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: September 29, 2006
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Paragon Real Estate Equity and Investment Trust
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By:
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/s/ John J. Dee
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John J. Dee
Senior Vice President and Chief Financial Officer
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4
EXHIBIT INDEX
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Exhibit Number
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Description
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2.1
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Amendment to Additional Contribution Agreement
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3.1
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Articles Supplementary to Paragon’s Declaration of Trust, as amended, restated
and supplemented
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10.1
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Form of Trustee Subscription Agreement
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10.2
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Mastandrea Subscription Agreement
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10.3
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Form of Trustee Restricted Share Agreement
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5
Exhibit 2.1
AMENDMENT
TO
ADDITIONAL CONTRIBUTION AGREEMENT
BETWEEN
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
AND
MEMBERS OF THE BOARD OF TRUSTEES
The parties, Paragon Real Estate Equity and Investment Trust, a Maryland business trust (formerly,
Stonehaven Realty Trust, the “Trust”); the members of the Board of Trustees (the “Trustees”), and
each of the individual Trustees (a “Trustee”) presently Daryl J. Carter (“Carter”), John J. Dee
(“Dee”), Daniel G. DeVos (“DeVos”), Paul T. Lambert (“Lambert”), James C. Mastandrea
(“Mastandrea”), and Michael T. Oliver (“Oliver”); and Paragon Real Estate Development, LLC
(“Paragon Development”); agree to amend the Additional Contribution Agreement dated March
4
th
, 2003 (“Agreement”), made at Cleveland, Ohio, this 29
th
day of September,
2006 (“Amendment”), between and the Trust and the Trustees.
WITNESSETH:
WHEREAS:
The Trust is a public traded real estate company;
WHEREAS:
The Trust desires to substantially grow the asset base, net operating income, funds
from operation, net value, and the share value of the Trust;
WHEREAS:
The Trust seeks to continue the leadership experience, talent, and relationships of
the Trustees;
WHEREAS:
The Trustees intend to find deals to contribute to the Trust;
WHEREAS:
The Trust, the Trustees, Mastandrea and Dee individually and as Trustees, and
Paragon Development desire to amend this Agreement; and
WHEREAS:
Capitalized terms not otherwise defined in this Amendment will have meanings
assigned to them in the Agreement;
NOW, THEREFOR
E
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the Trust, the Trustees, Mastandrea and Dee individually and as Trustees, and
Paragon Development have agreed to be bound by the following amendments to the terms and conditions
of the Agreement:
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1)
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PARTICIPATION BY TRUSTEES IN THE AGREEMENT.
The Trustees will
participate in the Sponsor’s Equity and the Common Shares will be allocated to
the individual Trustee who procures a Real Estate Transaction for the Trust.
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2)
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MASTANDREA AND DEE.
Mastandrea and Dee will continue to
participate in the Sponsor’s Equity and the Common Shares will be
allocated to Paragon Development only if Mastandrea and Dee, either as
officers of the Trust or as Trustees of the Trust, procure a Real Estate
Transaction for the Trust. Mastandrea and Dee will not receive any
Sponsor’s Equity or Common Shares for a Real Estate Transaction procured by
another Trustee.
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3)
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ALLOCATION AND FORMULA FOR EARNING COMMON SHARES.
The
following phrase will be added to the Agreement, at the end of the first
paragraph of the first numbered section for clarification:
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“(iii) and then, from the result, deducting the acquisition price of the
Real Estate Transaction.”
IN WITNESS WHEREOF,
this Agreement has been signed by the parties, as of the date first above
written.
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
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By:
Title:
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/s/ James C. Mastandrea
JAMES C. MASTANDREA,
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Chairman of the Board of Trustees
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/s/ Daryl J. Carter
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DARYL J. CARTER, Trustee
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/s/ John J. Dee
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JOHN J. DEE, Individually, and as a Trustee, and for
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PARAGON REAL ESTATE DEVELOPMENT, LLC
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/s/ Daniel G. DeVos
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DANIEL G. DEVOS, Trustee
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/s/ Paul T. Lambert
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PAUL T. LAMBERT, Trustee
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/s/ James C. Mastandrea
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JAMES C. MASTANDREA, Individually, as a Trustee, and for
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PARAGON REAL ESTATE DEVELOPMENT, LLC
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/s/ Michael T. Oliver
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MICHAEL T. OLIVER, Trustee
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- 2 -
Exhibit 3.1
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
ARTICLES SUPPLEMENTARY TO THE
DECLARATION OF TRUST
Paragon Real Estate Equity and Investment Trust, a Maryland real estate investment trust (the
“Trust”), hereby certifies to the State Department of Assessments and Taxation of Maryland:
FIRST:
On September 29, 2006, the Board of Trustees of the Trust, by their unanimous written
consent, pursuant to the authority contained in the Trust’s Declaration of Trust, as amended,
restated and supplemented, duly adopted resolutions designating 300,000 of the Trust’s undesignated
preferred shares as Class C Convertible Preferred Shares, par value $0.01 per share (the “Class C
Preferred Shares”).
SECOND:
Such Class C Preferred Shares shall have the designations, preferences, limitations
and relative rights as set forth below, which provisions shall constitute new Section 5.11:
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5.11
Class C Convertible Preferred Shares
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5.11.1 Designation.
The Trust is authorized to issue a class of Preferred Shares that is
designated the Class C Convertible Preferred Shares (the “Class C Preferred Shares”). The number
of Class C Preferred Shares shall be limited to 300,000.
5.11.2 Dividends.
The Board of Trustees may from time to time declare and pay to holders of
the Class C Preferred Shares such dividends or distributions in cash, property or other assets of
the Trust or in Securities of the Trust or from any other sources as the Trustees in their
discretion shall determine.
5.11.3 Voting Rights.
(a) Except as otherwise provided herein, the holders of the Class C Preferred Shares
shall be entitled to vote on each matter submitted to a vote of shareholders of the Trust,
voting together with holders of every other class or series of shares of the Trust as a
single class. Each Class C Preferred Share shall entitle its holder to the number of votes
equal to the number of Common Shares into which such Class C Preferred Share is convertible
on the applicable record date.
(b) So long as any Class C Preferred Shares remain outstanding, the approval of the
holders of the Class C Preferred Shares, voting as a single class shall be required to
approve any amendment of the Declaration of Trust that would curtail or diminish the rights
or preferences of the holders of the Class C Preferred Shares as provided herein.
5.11.4 Liquidation Preference
. Subject to the rights of any class or series of Preferred
Shares ranking senior to the Class C Preferred Shares upon liquidation, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Trust, the
holders of the Class C Preferred Shares then outstanding shall be entitled to be paid, out of the
assets of the Trust available for distribution to its shareholders, an amount in cash equal to
$10.00, plus an amount equal to all dividends on such Class C Preferred Shares accrued but unpaid
on the date fixed for liquidation, dissolution or winding up, before any payment shall be made or
any assets distributed to the holders of any other class or series of the Trust’s shares. After
such payment, the holders of Class C Preferred Shares shall be entitled to no other payments in
respect of their Class C Preferred Shares. If the assets of the Trust are not sufficient to pay in
full the liquidation payments due to the holders of the Class C Preferred Shares hereunder, the
holders of all Class C Preferred Shares shall share ratably in such distribution of assets in
proportion to the amount that would be payable on such distribution if the amounts to which the
holders of outstanding Class C Preferred Shares are entitled were paid in full. For the purposes of
this Section 5.11.4, a consolidation or merger of the Trust with or into any other entity or a
sale, lease or other conveyance, whether for cash, securities or other property, of all or any part
of the assets of the Trust shall not be deemed or construed to be a liquidation, dissolution or
winding up of the Trust.
5.11.5 Conversion
.
(a) Each Class C Preferred Share shall be convertible, at the option of the holder
thereof, at any time after the date of issuance thereof and without the payment of any
additional consideration therefor, into that number of Common Shares as is determined by
dividing the sum of $10.00 and any dividends then accrued but unpaid on the Class C
Preferred Shares by a conversion price (the “Class C Conversion Price”) in effect at the
time of conversion. The Class C Conversion Price shall initially be $1.00.
(b) In the event that, at any time after September 29, 2006, the Trust shall pay any
dividend or make any other distribution on the Common Shares payable in Common Shares
(other than pursuant to a dividend reinvestment plan), or effect a subdivision of the
Common Shares, then the Class C Conversion Price shall be proportionately decreased.
Likewise, in the event that the outstanding Common Shares shall be combined or
consolidated, then the Class C Conversion Price shall be proportionately increased.
(c) Before any holder of Class C Preferred Shares shall be entitled to convert the
same into Common Shares, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the principal office of the Trust or the transfer agent for the
Class C Preferred Shares, and shall give written notice to the Trust at its principal
office that such holder elects to convert the same and shall state therein such holder’s
name or the name or names of the nominees of such holder in which such holder wishes the
certificate or certificates for Common Shares to be issued, together with applicable
federal tax identification numbers. The Trust shall, as soon as practicable thereafter,
issue and deliver at such office, to such holder or its nominee or nominees, a certificate
or certificates representing the number of Common Shares to which such holder or
nominee(s) is entitled.
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(d) The Trust shall, at all times when any of the Class C Preferred Shares are
outstanding, reserve such number of its Common Shares as shall from time to time be
sufficient to effect the conversion of all outstanding Class C Preferred Shares and
Class C Preferred Shares subject to outstanding purchase rights.
(e) All Class C Preferred Shares that shall have been surrendered for conversion as
provided herein shall no longer be deemed to be outstanding and all rights with respect to
such shares shall immediately be terminated, except the right to receive Common Shares in
exchange therefor. Any Class C Preferred Shares so converted shall be retired and shall
not be reissued. The Trust may, from time to time, take appropriate action to reduce the
number of Class C Preferred Shares that the Trust is authorized to issue.
5.11.6 Redemption.
At any time, the Trust may, at the option of the Board of Trustees, redeem
the Class C Preferred Shares at a per-share price equal to $10.00, plus any dividends on the Class
C Preferred Shares then accrued but unpaid; provided, however, that the Trust must first give the
registered holders of the Class C Preferred Shares written notice of its intent to redeem the Class
C Preferred Shares no less than 30 days prior to the scheduled date of the redemption. All Class C
Preferred Shares that have been redeemed as provided herein shall no longer be deemed to be
outstanding and all rights with respect to such shares shall immediately be terminated, except the
right to receive the cash redemption price in exchange therefore. Any Class C Preferred Shares so
redeemed shall be retired and shall not be reissued.”
IN WITNESS WHEREOF,
the Corporation has caused these Articles Supplementary to be signed by
its duly elected officer as of the 29
th
day of September, 2006.
Paragon Real Estate Equity and Investment Trust
By: James C. Mastandrea
Its: President and Chief Executive Officer
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WITNESS:
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By:
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John J. Dee
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Its:
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Senior Vice President and
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Chief Financial Officer
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3
Exhibit 10.1
Stock Subscription Agreement
This Stock Subscription Agreement
(this “Agreement”) is entered into by and between
(“Investor”) and Paragon Real Estate Equity and Investment Trust, a Maryland
trust (the “Company”), as of September 29, 2006.
1.
Sale and Purchase of Shares
. Subject to the terms and conditions set forth in this
Agreement, the Company hereby sells to Investor, and Investor hereby purchases from the Company for
investment,
shares of the Company’s Class C convertible preferred shares of beneficial
interest, $0.01 par value per share (“Stock”), issuable upon the Company’s receipt of the signed
Agreement. As consideration for the purchase of Stock, Investor hereby agrees to pay to the
Company the sum of $
(the “Purchase Price”) in equal quarterly installments on the
first day of each quarter, beginning September 1, 2006. The shares of Stock being purchased by
Investor are referred to as the “Subscription Shares.”
2.
Representation and Warranty of the Company
. The Company represents and warrants to
Investor that the Subscription Shares, when issued, will be duly authorized and validly issued by
the Company, but not fully paid and nonassessable until the Company receives the Purchase Price
from Investor.
3.
Representations and Warranties of Investor
. Investor understands that the sale of
Subscription Shares is intended to be exempt from registration under the Securities Act of 1933, as
amended (the “Securities Act”), by virtue of Sections 3(b) and 4(2) of the Securities Act, and
Investor represents and warrants that:
(a) Investor has been advised that the Subscription Shares have not been registered under the
Securities Act and, therefore, cannot be resold unless they are registered under the Securities Act
or unless an exemption from registration is available and the certificates representing the
subscription shares will be legended accordingly. Investor is aware that there is a limited market
for the resale of the Subscription Shares, and that he may be required to hold the Subscription
Shares indefinitely. Investor is purchasing the Subscription Shares for his own account for
investment and not with a view to, or for resale in connection with, the distribution thereof, and
Investor has no present intention of distributing or reselling the Subscription Shares. Investor
represents and warrants that he has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of such investment and is able to bear the
economic risk of such investment.
(b) In addition to any other legends required by any agreement or otherwise, the certificates
representing Subscription Shares shall be conspicuously endorsed in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A PRIVATE
PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”). NO TRANSFER OF SUCH SECURITIES MAY BE MADE ON THE BOOKS OF THE
ISSUER, UNLESS ACCOMPANIED BY AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER, THAT SUCH TRANSFER MAY PROPERLY BE MADE WITHOUT REGISTRATION UNDER
THE ACT OR THAT SUCH SECURITIES HAVE BEEN SO REGISTERED UNDER A REGISTRATION
STATEMENT WHICH IS IN EFFECT AT THE DATE OF SUCH TRANSFER. IN ADDITION, THE
SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER
PURSUANT TO A SUBSCRIPTION AGREEMENT DATED
SEPTEMBER 29, 2006.
(c) Investor is an “accredited investor” as such term is defined in Rule 501(a) of
Regulation D of the Securities Act.
(d) This Stock Subscription Agreement has been duly executed and delivered by Investor and
constitutes Investor’s legal, valid and binding obligation, enforceable in accordance with its
terms. If Investor does not make a quarterly payment of the Purchase Price, Investor will return a
proportionate number of Subscription Shares.
(e) Investor is a member of the board of trustees of the Company, has made a complete and
thorough investigation of the affairs and prospects of the Company and has had a reasonable
opportunity to ask questions of and receive answers from a person or persons acting on behalf of
the Company concerning this investment, and all such questions have been answered to the full
satisfaction of Investor.
(f) Investor acknowledges that the Company is entering into this Agreement in reliance upon
Investor’s representations and warranties in this Agreement.
4.
Covenants and Representations to Survive Delivery; Assignment
. All covenants, agreements,
representations and warranties made in this Agreement will survive the delivery to Investor of the
Subscription Shares and payment therefore and, notwithstanding any investigation previously or in
the future made by Investor or on Investor’s behalf, shall continue in full force and effect.
Investor may not assign any of his rights hereunder. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the heirs, successors and
permitted assigns of such party, and all covenants, promises and agreements in this Agreement by or
on behalf of the Company, or by or on behalf of Investor, shall bind and inure to the benefit of
the heirs, successors and permitted assigns of such party hereto.
5.
Governing Law; Amendments
. This Stock Subscription Agreement shall be construed and
enforced in accordance with the domestic substantive laws of the State of Ohio
without
giving effect to any choice or conflict of laws provision or rule that would cause the application
of the domestic substantive laws of any other state. This Agreement cannot be changed orally, and
can be changed only by an instrument in writing signed by the party against whom enforcement of
such change is sought.
I
n
W
itness
W
hereof
, the parties have executed this Agreement as of the
date written above.
Paragon Real Estate Equity and Investment Trust
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/s/ James C. Mastandrea
By James C. Mastandrea, President and CEO
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By Investor:
2
Exhibit 10.2
Stock Subscription Agreement
This Stock Subscription Agreement
(this “Agreement”) is entered into by and between
James C. Mastandrea (“Investor”) and Paragon Real Estate Equity and Investment Trust, a Maryland
trust (the “Company”), as of September 29, 2006.
1.
Sale and Purchase of Shares
. Subject to the terms and conditions set forth in this
Agreement, the Company hereby sells to Investor, and Investor hereby purchases from the Company for
investment, 44,444 shares of the Company’s Class C convertible preferred shares of beneficial
interest, $0.01 par value per share (“Stock”), issuable upon the Company’s receipt of the signed
Agreement. As consideration for the purchase of Stock, Investor hereby agrees to pay to the
Company the sum of $200,000 (the “Purchase Price”) in the form of services as an officer for the
two-year period beginning September 29, 2006 and ending September 29, 2008. The shares of Stock
being purchased by Investor are referred to as the “Subscription Shares.” The Subscription Shares
will be subject to forfeiture and restricted from being sold by Investor until the later to occur
of:
(i) a public offering by the Company sufficient to liquidate the Subscription Shares,
(ii) an exchange of the Company’s existing shares for new shares, and
(iii) September 29, 2008.
2.
Representation and Warranty of the Company
. The Company represents and warrants to
Investor that the Subscription Shares, when issued, will be duly authorized and validly issued by
the Company, but not fully paid and nonassessable until the Company receives the Purchase Price
from Investor in the form of services as an officer for the two-year period.
3.
Representations and Warranties of Investor
. Investor understands that the sale of
Subscription Shares is intended to be exempt from registration under the Securities Act of 1933, as
amended (the “Securities Act”), by virtue of Sections 3(b) and 4(2) of the Securities Act, and
Investor represents and warrants that:
(a) Investor has been advised that the Subscription Shares have not been registered under the
Securities Act and, therefore, cannot be resold unless they are registered under the Securities Act
or unless an exemption from registration is available and the certificates representing the
subscription shares will be legended accordingly. Investor is aware that there is a limited market
for the resale of the Subscription Shares, and that he may be required to hold the Subscription
Shares indefinitely. Investor is purchasing the Subscription Shares for his own account for
investment and not with a view to, or for resale in connection with, the distribution thereof, and
Investor has no present intention of distributing or reselling the Subscription Shares. Investor
represents and warrants that he has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of such investment and is able to bear the
economic risk of such investment.
(b) In addition to any other legends required by any agreement or otherwise, the certificates
representing Subscription Shares shall be conspicuously endorsed in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A PRIVATE
PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”). NO TRANSFER OF SUCH SECURITIES MAY BE MADE ON THE BOOKS OF THE
ISSUER, UNLESS ACCOMPANIED BY AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER, THAT SUCH TRANSFER MAY PROPERLY BE MADE WITHOUT REGISTRATION UNDER
THE ACT OR THAT SUCH SECURITIES HAVE BEEN SO REGISTERED UNDER A REGISTRATION
STATEMENT WHICH IS IN EFFECT AT THE DATE OF SUCH TRANSFER. IN ADDITION, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER PURSUANT TO A SUBSCRIPTION AGREEMENT DATED
SEPTEMBER 29, 2006.
(c) Investor is an “accredited investor” as such term is defined in Rule 501(a) of
Regulation D of the Securities Act.
(d) This Stock Subscription Agreement has been duly executed and delivered by Investor and
constitutes Investor’s legal, valid and binding obligation, enforceable in accordance with its
terms. If Investor is terminated prior to August 31, 2008, Investor will return a proportionate
number of Subscription Shares. If Investor dies prior to August 31, 2008, the Investor’s estate
will not be required to return any Subscription Shares and the restrictions will no longer apply.
(e) Investor is a member of the board of trustees of the Company, has made a complete and
thorough investigation of the affairs and prospects of the Company and has had a reasonable
opportunity to ask questions of and receive answers from a person or persons acting on behalf of
the Company concerning this investment, and all such questions have been answered to the full
satisfaction of Investor.
(f) Investor acknowledges that the Company is entering into this Agreement in reliance upon
Investor’s representations and warranties in this Agreement.
4.
Covenants and Representations to Survive Delivery; Assignment
. All covenants, agreements,
representations and warranties made in this Agreement will survive the delivery to Investor of the
Subscription Shares and payment therefore and, notwithstanding any investigation previously or in
the future made by Investor or on Investor’s behalf, shall continue in full force and effect.
Investor may not assign any of his rights hereunder. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the heirs, successors and
permitted assigns of such party, and all covenants, promises and agreements in this Agreement by or
on behalf of the Company, or by or on behalf of Investor, shall bind and inure to the benefit of
the heirs, successors and permitted assigns of such party hereto.
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5.
Governing Law; Amendments
. This Stock Subscription Agreement shall be construed and
enforced in accordance with the domestic substantive laws of the State of Ohio
without
giving effect to any choice or conflict of laws provision or rule that would cause the application
of the domestic substantive laws of any other state. This Agreement cannot be changed orally, and
can be changed only by an instrument in writing signed by the party against whom enforcement of
such change is sought.
I
n
W
itness
W
hereof
, the parties have executed this Agreement as of the
date written above.
Paragon Real Estate Equity and Investment Trust
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Signed:
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/s/ Daryl J. Carter
By Daryl J. Carter, Chairman of Management,
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Organization and Compensation Committee
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Signed:
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/s/ James C. Mastandrea
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By James C. Mastandrea
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Exhibit 10.3
RESTRICTED SHARE AGREEMENT
The parties, PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST, a Maryland real estate investment
trust (the “Trust”), and
(“Trustee”) agree to enter into this restricted share
agreement (“Agreement”), made at Cleveland, Ohio, this 29
th
day of September, 2006.
WITNESSETH:
WHEREAS:
The Trust is a publicly traded real estate company;
WHEREAS:
The Trust desires to substantially grow the asset base, net operating income, funds
from operations, net value, and share value of the Trust;
WHEREAS:
The Trust seeks to retain the leadership experience, talent, and relationship of the
Trustee;
WHEREAS:
The Trustee is a trustee of the Trust and intends to remain as a trustee until not
re-elected;
WHEREAS:
The Trust and the Trustee desire to enter into this Agreement;
NOW, THEREFORE,
the Trust and the Trustee have agreed to be bound by the terms and conditions
of this Agreement:
1) GRANTING OF RESTRICTED SHARES
. The Trust will issue to the Trustee a total of 12,500 restricted
shares of the Trust’s Class C Convertible Preferred Shares (“Restricted Shares”) for his services
as a trustee of the Trust for the period beginning as of the date of this Agreement through
September 29, 2008.
2) RESTRICTIONS ON THE SHARES
. In accordance with the terms of the certificate of designation of
the Restricted Shares, the holder of any Restricted Shares will at all times be entitled to vote
the Restricted Shares and to receive any dividends declared on the Trust’s Class C Convertible
Preferred Shares. In addition, the holder of any Restricted Shares may transfer the shares to any
affiliate of the Trustee subject to the forfeiture and other provisions of this Agreement.
However, the holder of any Restricted Shares may not otherwise transfer, sell, assign or dispose of
any of the Restricted Shares until they have vested as provided for in this Agreement; provided
further, that notwithstanding whether or not some or all of the Restricted Shares have vested as
provided for in this Agreement, the holder of any Restricted Shares may not transfer or sell any of
the Restricted Shares until the second anniversary of the date of this Agreement. The term
“affiliate” shall have the meaning ascribed to it in Rule 12b-2 promulgated by the Securities and
Exchange Commission.
3) VESTING OF RESTRICTED SHARES
. The Restricted Shares will vest upon the latest to occur of:
(a) a public offering by the Company sufficient to liquidate the Restricted Shares,
(b) an exchange of the Company’s existing shares for new shares, and
(c) September 29, 2008.
The vesting schedule shall not be affected if the Trustee dies. The holder of the Restricted
Shares will automatically and without notice be forfeited and cease to have any right, title or
interest to any of the Restricted Shares that remain subject to forfeiture immediately if the
Trustee resigns from being a member of the Board of Trustees of the Trust prior to
September 29, 2008.
4) TAXES
. Under the general rule of Section 83 of the Internal Revenue Code (the “Code”), the
Trustee will not be treated as receiving the Restricted Shares until such time as he becomes
substantially vested in the Restricted Shares. The Trustee will become substantially vested in the
Restricted Shares upon the occurrence of the latest event described in Section 3 above. At that
time, he will be taxed on the value of the Restricted Shares as ordinary compensation income. As
an exception to this rule, Section 83 of the Code permits the Trustee to elect to be taxed on the
value of the Restricted Shares as of the date of the grant of the Restricted Shares. The §83(b)
election must be filed by the Trustee within 30 days of the grant of the Restricted Shares. The
filing must be made with the Internal Revenue Service Center with which the Trustee files his
federal income tax returns and a copy of the election must be submitted with his income tax return
for the taxable year in which he receives the Restricted Shares and to the Trust.
5) REPRESENTATIONS OF THE TRUSTEE
. The Trustee understands that the issuance of the Restricted
Shares is intended to be exempt from registration under the Securities Act by virtue of §4(2) and
represents and warrants that: (i) he is aware that the Restricted Shares are not registered under
the Securities Act or the securities or “blue sky” laws of any state or jurisdiction; (ii) he
understands that the Restricted Shares cannot be resold unless they are registered under the
Securities Act or unless an exemption from registration is available and represents that he is
acquiring the Restricted Shares for investment and not for immediate resale; and (iii) he
acknowledges that the Restricted Shares will be treated as taxable income to him under the Code.
7) MISCELLANEOUS
. This Agreement may only be modified, waived, or discharged if approved by the
Board and agreed to in writing and signed by the Trustee and the Trust. This Agreement shall inure
to the benefit of the Trustee and his heirs and legal representatives. No waiver by any party
hereto at any time of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same time or at any prior or subsequent time. No
agreement or representation, oral or otherwise, expressed or implied,
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with respect to the subject
matter hereof, has been made by any of the parties which is not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with the laws of the
State of Ohio. In the event legal action is instituted to enforce any provision of this Agreement,
each party shall pay its own cost and expense thereof. This Agreement constitutes the entire
agreement between the parties with the subject matter hereof
and all prior negotiations, discussions, and agreements on that subject matter are hereby
superseded. This Agreement may be executed in one or more counterparts, any one of which need not
contain the signatures of more than one party, but all such counterparts taken together, when
executed and delivered, will constitute one and the same instrument.
8) NO PERSONAL LIABILITY
. Notwithstanding anything herein to the contrary, this Agreement is made
and executed on behalf of the Trust, a real estate investment trust organized under the laws of the
State of Maryland, by its officers thereof on behalf of the trustees thereof, and none of the
trustees or any additional or successor trustees hereinafter appointed, nor any beneficiary,
officer, employee or agent of the Trust will have any liability hereunder in his personal or
individual capacity, but, instead, all parties will look solely to the property and assets of the
Trust for satisfaction of claims of any nature arising under or in connection with this Agreement.
IN WITNESS WHEREOF,
this Agreement has been signed by the Trust and the Trustee as of the date
first above written.
PARAGON REAL ESTATE EQUITY AND INVESTMENT TRUST
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By:
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/s/ James C. Mastandrea
James C. Mastandrea, Chairman of
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The Board of Trustees
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