<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22725
CRESCENT OPERATING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 75-701931
(STATE OF OTHER INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
306 WEST 7TH STREET
SUITE 1025
FORT WORTH, TEXAS 76102
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (817) 339-1020
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
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 [ ]
THE NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING ON SEPTEMBER
30, 1997 WAS 11,041,475.
<PAGE> 2
CRESCENT OPERATING, INC.
FORM 10-Q
INDEX
Part I: Financial Information Page
----
Item 1: Financial Statements
Crescent Operating, Inc. Consolidated Balance Sheet at
September 30, 1997 (unaudited) and Carter Crowley Asset
Group Combined Balance Sheet at December 31, 1996 (audited)...... 2
Crescent Operating, Inc. Consolidated Statement of Operations
for the three months ended September 30, 1997 (unaudited) and
Carter Crowley Asset Group Statement of Operations for the
three months ended September 30, 1996 (unaudited)................ 3
Crescent Operating, Inc. Consolidated Statement of Operations
for the period from May 9, 1997 to September 30, 1997 (unaudited)
and Carter Crowley Asset Group Statements of Operations for the
period January 1, 1997 to May 8, 1997 and for the nine months
ended September 30, 1996 (unaudited)............................. 4
Crescent Operating, Inc. Consolidated Statement of Cash Flows
for the period from May 9, 1997 to September 30, 1997 (unaudited)
and Carter Crowley Asset Group Statements of Cash Flows for the
period January 1, 1997 to May 8, 1997 and for the nine months
ended September 30, 1996 (unaudited)............................. 5
Crescent Operating, Inc. Notes to Consolidated Financial
Statements (unaudited)........................................... 6
Part II: Other Information
Item 1. Legal Proceedings................................................ 15
Item 2. Changes in Securities............................................ 15
Item 3. Defaults Upon Senior Securities.................................. 15
Item 4. Submission of Matters to a Vote of Security Holders.............. 15
Item 5. Other Information................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................. 15
<PAGE> 3
CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1997 AND
CARTER CROWLEY ASSET GROUP
COMBINED BALANCE SHEET AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
CRESCENT CARTER CROWLEY
OPERATING, ASSET GROUP
INC. (Predecessor)
--------------- ---------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 17,706,170 $ 22,335
Accounts receivable, net of allowance for doubtful
accounts of $126,719 and $30,645 in 1997 and 1996, respectively 12,513,424 1,202,585
Inventories 7,191,397 1,612,952
Notes receivable 4,411,570 --
Prepaid expenses and other current assets 1,680,082 249,189
------------- -------------
Total current assets 43,502,643 3,087,061
------------- -------------
Property and equipment, net 83,251,501 6,683,458
------------- -------------
Investments
Investment in Hicks Muse Tate & Furst Equity Fund II L.P. 10,358,864 7,593,493
Investment in The Woodlands Operating Company, L.P. 1,051,032 --
Investment in The Woodlands Land Development Company, L.P. 38,308,180 --
Investment in Magellan Health Services, Inc. warrants 12,500,000 --
Investment in and advances to Charter Behavioral Health
Systems, L.L.C. 16,878,000 --
------------- -------------
Total investments 79,096,076 7,593,493
------------- -------------
Other assets
Real estate 131,316,296 --
Notes receivable 23,611,198 --
Goodwill, net 42,069,078 --
Organizational costs, net 681,754 --
Other assets 1,485,654 118,721
------------- -------------
Total other assets 199,163,970 118,721
------------- -------------
Total assets $ 405,014,190 $ 17,482,733
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 32,436,669 $ 782,567
Current portion of long term debt 28,983,116 2,205,742
Deferred revenue 12,946,232 --
------------- -------------
Total current liabilities 74,366,017 2,988,309
------------- -------------
Long-term debt, net of current portion 224,678,006 3,199,607
Other liabilities 2,487,566 369,806
------------- -------------
Total liabilities 301,531,589 6,557,722
------------- -------------
Minority interest 99,792,456 --
------------- -------------
Commitments and contingencies (see note 8)
Shareholders' equity
Common stock, $0.01 par value; authorized 22,500,000 shares;
outstanding 11,041,475 at September 30, 1997 110,414 --
Paid in capital 11,625,354 10,925,011
Retained deficit (8,045,623) --
------------- -------------
Total shareholders' equity 3,690,145 10,925,011
------------- -------------
Total shareholders' equity and liabilities $ 405,014,190 $ 17,482,733
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated
and combined financial information.
2
<PAGE> 4
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND
CARTER CROWLEY ASSET GROUP
STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Crescent Carter Crowley
Operating, Inc. Asset Group
(Predecessor)
------------- -------------
For the For the
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Equipment sales and service $ 3,211,858 $ 3,146,097
Hotel revenue 28,141,332 --
------------- ------------
Total revenues 31,353,190 3,146,097
------------- ------------
Operating expenses:
Equipment sales and service 2,600,789 2,674,224
Direct hotel expenses 21,435,847 --
Hotel rent 5,947,112 --
General and administrative expenses 1,345,673 431,050
------------- ------------
Total operating expenses 31,329,421 3,105,274
------------- ------------
Income from operations 23,769 40,823
------------- ------------
Investment (income) loss
Equity in loss of Charter Behavioral Health
Systems, LLC 7,723,000 --
Equity in income of The Woodlands Operating
Company, L.P. ( 614,545) --
Investment income ( 217,633) --
------------- ------------
Total investment (income) loss 6,890,822 --
------------- ------------
Other (income) expense:
Interest expense 1,177,081 103,662
Interest income ( 280,956) (12,633)
Other 20,467 (4,943)
------------ ------------
Total other (income) expense 916,592 86,086
------------ ------------
Loss before income taxes ( 7,783,645) (45,263)
Income tax benefit -- 14,698
------------ ------------
Net loss $ (7,783,645) $ (30,565)
============ ============
Net loss per share $ (.71) --
Weighted average shares outstanding 11,037,489 --
</TABLE>
The accompanying notes are an integral part of the consolidated
and combined financial information.
3
<PAGE> 5
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 9, 1997 TO SEPTEMBER 30, 1997 AND
CARTER CROWLEY ASSET GROUP
STATEMENTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1997 TO MAY 8, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Crescent Operating, Inc. Carter Crowley Asset Group (Predecessor)
---------------------- -------------------------------------------
For the Period from For the Period from For the
May 9, 1997 to January 1, 1997 to Nine Months Ended
September 30, 1997 May 8, 1997 September 30, 1996
--------------------- --------------------- ------------------
<S> <C> <C> <C>
Revenues:
Equipment sales and service $ 4,919,438 $ 4,189,717 $ 8,172,793
Hotel revenue 28,141,332 -- --
--------------------- ---------------------- -------------------
Total revenues 33,060,770 4,189,717 8,172,793
--------------------- ---------------------- -------------------
Operating expenses:
Equipment sales and service 3,590,344 3,393,144 6,814,548
Direct hotel expenses 21,435,847 -- --
Hotel rent 5,947,112 -- --
General and administrative expenses 1,781,000 635,993 1,295,450
--------------------- ---------------------- -------------------
Total operating expenses 32,754,303 4,029,137 8,109,998
--------------------- ---------------------- -------------------
Income from operations 306,467 160,580 62,795
--------------------- ---------------------- -------------------
Investment (income) loss
Equity in loss of Charter Behavioral Health
Systems, LLC 8,122,000 -- --
Equity in income of The Woodlands Operating
Company, L.P. ( 614,545) -- --
Investment income ( 217,633) -- --
-------------------- ---------------------- ------------------
Total investment (income) loss 7,289,822 -- --
-------------------- ---------------------- ------------------
Other (income) expense:
Interest expense 1,485,906 135,369 239,355
Interest income ( 284,844) ( 12,884) ( 40,411)
Other ( 138,794) ( 996) ( 4,456)
--------------------- ---------------------- -------------------
Total other (income) expense 1,062,268 121,489 194,488
--------------------- ---------------------- -------------------
Income (loss) before income taxes ( 8,045,623) 39,091 ( 131,693)
Income tax (provision) benefit -- ( 13,681) 44,951
--------------------- ---------------------- -------------------
Net income (loss) $ ( 8,045,623) $ 25,410 $ ( 86,742)
===================== ====================== ===================
Net income (loss) per share $ (0.73) -- --
Weighted average shares outstanding 11,035,445 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated
and combined financial information.
4
<PAGE> 6
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 9, 1997 TO SEPTEMBER 30, 1997 AND
CARTER CROWLEY ASSET GROUP
STATEMENTS OF CASH FLOWS FOR THE PERIOD JANUARY 1, 1997 TO MAY 8, 1997 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Crescent
Operating, Inc. Carter Crowley Asset Group (Predecessor)
------------------- ---------------------------------------------
For the Period from For the Period from For the
May 9, 1997 to January 1, 1997 to Nine Months Ended
September 30, 1997 May 8, 1997 September 30, 1996
------------------- ------------------- --------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ ( 8,045,623) $ 25,410 $ ( 86,742)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
net of effect of acquisitions:
Depreciation and amortization 1,059,006 747,503 1,271,661
Equity in loss of Charter Behavioral Health
Systems, LLC 8,122,000 -- --
Equity in income of The Woodlands Operating
Company, Inc. ( 614,545) -- --
Gain on sale of partnership ( 110,252) -- --
Gain on sale of property and equipment ( 82,193) ( 133,607) ( 96,135)
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable ( 443,409) 152,231 ( 181,267)
Inventories ( 1,971,822) 115,403 ( 764,420)
Prepaid expenses and current assets ( 422,314) ( 125,205) ( 6,560)
Accounts payable and accrued expenses 4,161,933 197,384 578,451
-------------------- ------------------- ----------------
Cash provided by operating activities 1,652,781 979,119 714,988
-------------------- ------------------- ----------------
Investing activities:
Purchases of property and equipment ( 3,597,150) -- ( 3,615,041)
Proceeds from sale of property and equipment 440,856 309,890 350,078
Proceeds from sale of partnership 12,550,000 -- --
Net contributions to Hicks Muse Tate and Furst Equity
Fund II L.P. ( 858,864) ( 1,870,636) ( 1,820,526)
Investment in The Woodlands Land Company, Inc. ( 1,915,409) -- --
Investment in Desert Mountain Development Corporation,
net of cash received 2,297,892 -- --
Investment in RoseStar Management LLC, net of
cash received 8,946,951 -- --
Investment in Houston Center Athletic Club Venture ( 1,000,000) -- --
Investment in Houston Center Athletic Club Venture
note receivable ( 1,400,000) -- --
Investment in Four Seasons Hotel, net of cash received 812,218 -- --
Investment in Magellan Health Services, Inc. warrants ( 12,500,000) -- --
Investment in and advances to Charter Behavioral Health
Systems, LLC ( 25,000,000) -- --
Investment in The Woodlands Operating Company, Inc. ( 436,487) -- --
Changes in other assets ( 681,324) -- 211,338
-------------------- -------------------- ----------------
Cash used in investing activities (22,341,317) ( 1,560,746) ( 4,874,151)
-------------------- -------------------- ----------------
Financing Activities:
Proceeds of long term debt 54,729,040 408,320 3,681,993
Payments on long term debt (15,635,787) ( 848,310) ( 1,406,832)
Capital contributions received 1,500,000 1,164,967 1,820,526
Dividends paid ( 2,380,000) -- --
Cash received on stock options exercised 15,768 -- --
-------------------- -------------------- ----------------
Cash provided by financing activities 38,229,021 724,977 4,095,687
-------------------- -------------------- ----------------
Net increase (decrease) in cash and
cash equivalents 17,540,485 143,350 ( 63,476)
Cash and cash equivalents,
beginning of period 165,685 22,335 352,577
-------------------- -------------------- ----------------
Cash and cash equivalents,
end of period $ 17,706,170 $ 165,685 $ 289,101
==================== =================== ================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 1,175,625 $ 135,369 $ 239,355
</TABLE>
The accompanying notes are an integral part of the consolidated
and combined financial information.
5
<PAGE> 7
CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Crescent Operating, Inc. ("Crescent" or the "Company") was formed on
April 1, 1997, by Crescent Real Estate Equities Limited Partnership
("Crescent Operating Partnership") and Crescent Real Estate Equities
Company ("Crescent REIT") to become a lessee and operator of various
assets owned by Crescent REIT and perform an agreement ("Intercompany
Agreement") between Crescent and Crescent Operating Partnership, a
wholly owned partnership of Crescent REIT, pursuant to which each has
agreed to provide the other with rights to participate in certain
transactions. On June 12, 1997, the Company distributed shares of its
common stock to shareholders of Crescent REIT and unit holders of
Crescent Operating Partnership of record on May 30, 1997. Each holder
of 10 shares of common stock of Crescent REIT received one share of
Crescent common stock and each holder of five units (or equivalent
partnership interest) of Crescent Operating Partnership received one
share of Crescent common stock.
On June 12, 1997, Crescent's registration statement was declared
effective and Crescent became a public company. Crescent common stock
was accepted for quotation on the OTC Bulletin Board and began trading
on a when-issued basis on June 13, 1997. On September 8, 1997, the
Company was listed on the Nasdaq National Market under the symbol
"COPI".
As of September 30, 1997, the majority of the Company's results of
operations were comprised of equipment sales and leasing and the
operations of full-service hotels and luxury health resorts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation And Principles Of Consolidation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In
management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the
unaudited interim financial statements have been included and all
significant intercompany balances and transactions have been
eliminated. Operating results for interim periods reflected are not
necessarily indicative of the results that may be expected for a full
fiscal year.
Moody-Day Inc. ("Moody-Day"), RoseStar Management LLC ("RoseStar"),
COI Hotel Group, Inc., and WOCOI Investment Company, which are
wholly-owned subsidiaries of Crescent, are consolidated. The Company
owns 5% of both the Woodlands Land Company, Inc. ("Land Co") and Desert
Mountain Development Corporation ("Desert Mountain Development").
These 5% interests represent 100% of the voting stock of these
entities and therefore are consolidated into Crescent. The Company's
1.21% investment in Hicks Muse Tate & Furst Equity Fund II, L.P.
("Hicks-Muse") is shown at cost and the 50% interest in Charter
Behavioral Health Systems, LLC ("CBHS") is shown on the equity
method of accounting.
The financial statements were prepared on the basis that the
"Predecessor" is a combination of Moody-Day and Hicks-Muse
(collectively, the "Carter Crowley Asset Group"). As the Company did
not have any activities until May 9, 1997, the comparative data
relating to 1996 and the period in 1997 prior to May 9, is only with
regard to the Predecessor. The assets of Carter Crowley Asset Group
were adjusted at May 9, 1997 to reflect the purchase price allocation.
USE OF ESTIMATES
The financial statements include estimates and assumptions made by
management that affect the carrying amounts of assets and liabilities,
reported amounts of revenues and expenses and the disclosure of
contingent assets and liabilities. Actual results may differ from these
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
INVENTORIES
Inventories consist of new equipment held for sale, construction
accessories, equipment parts, food, beverages and supplies and are
stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
The Company uses straight-line and accelerated methods of depreciation
for financial statement purposes. The estimated useful lives used in
computing depreciation are as follows:
<TABLE>
<S> <C>
Rental equipment................................. 2-7 years
Building and improvements........................ 30 years
Transportation equipment......................... 3-5 years
Furniture, fixtures, and other equipment......... 5-10 years
</TABLE>
6
<PAGE> 8
Expenditures for maintenance and repairs are charged to expense as
incurred. Expenditures for renewals or betterments are capitalized. The
cost of property replaced, retired, or otherwise disposed of is removed
from the asset account along with the related accumulated depreciation.
Gains or losses on the disposal of property and equipment are recorded
in the year of disposal.
REAL ESTATE
Real estate represents raw land, developed land, homes constructed or
under construction, repurchased lots, applicable capitalized interest,
and applicable capitalized general and administrative costs. Raw land,
developed land, homes constructed or under construction and repurchased
lots are recorded at the lower of cost or net realizable value.
Interest is capitalized based on the average yearly interest percentage
applied to cumulative capital expenditures for property under
development. General and administrative ("G&A") expenses are
capitalized based on payroll and related costs associated with the
development of a specific subdivision of land. Once sales of property
begin in a specific subdivision, both capitalized interest and
capitalized G&A are expensed as cost of sales.
GOODWILL
Goodwill represents the excess of the acquisition costs over the fair
value of net identifiable assets of businesses acquired and is
amortized on a straight-line basis over 10-20 years. The realizability
of goodwill is evaluated periodically as events or circumstances
indicate a possible inability to recover its carrying amount. Such
evaluation is based on various analyses, including cash flow and
profitability projections that incorporate, as applicable, the impact
on existing company operations. The analyses involve significant
management judgment to evaluate the capacity of an acquired operation
to perform within projections. Management believes that no significant
impairment of goodwill and other intangible assets has occurred.
REVENUE RECOGNITION
Revenues from equipment rentals under operating leases are recognized
as the revenue becomes receivable according to the provisions of the
lease. Revenues from equipment rentals under sales-type lease
agreements are capitalized and recognized over the life of the
contract. Revenues from full-service hotels, apartments and luxury
health resorts ("Hotel Revenue") are recognized as earned. Club
initiation fees and membership conversion fees at Desert Mountain
Properties Limited Partnership, are recorded as deferred revenue and
recognized as revenue on a straight line basis over a twenty-year
period. Deposits for future services are also considered deferred
revenue and are recognized as revenue in the period services are
provided.
FINANCIAL INSTRUMENTS
At inception, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosures About Fair Value of Financial
Instruments." This statement requires disclosure of the fair value of
financial instruments for which it is practicable to estimate as well
as the methods and significant assumptions used to estimate that value.
The carrying amounts of cash and cash equivalents and accounts
receivable approximate fair value due to the short maturity of those
instruments.
LONG-LIVED ASSETS
At inception, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," which establishes methods of valuation for the impairment
of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used. The adoption of this
statement had no material impact on the accompanying financial
statements.
RECLASSIFICATIONS
Certain predecessor information has been reclassified to conform to
current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
Effective December 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 introduces the concept of basic earnings
per share, which represents net income divided by the weighted average
common shares outstanding -- without the dilutive effects of common
stock equivalents (options, warrants, etc.). Diluted earnings per
share, giving effect to common stock equivalents, will be reported when
SFAS 128 is adopted in the fourth quarter of 1997.
Effective December 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129"). SFAS 129 requires
that all entities disclose in summary form within the financial
statements the pertinent rights and privileges of the various
securities outstanding. An entity is to disclose within the financial
statements the number of shares issued upon conversion, exercise, or
satisfaction of required conditions during at least the most recent
annual fiscal period and any subsequent interim period presented. Other
special provisions apply to preferred and redeemable stock. The Company
will adopt SFAS 129 in the fourth quarter of 1997.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting and display of comprehensive income and its components. The
components of comprehensive income refer to revenues, expenses, gains
and losses that are excluded from net income under current accounting
standards, including foreign currency translation items, minimum
pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. SFAS 130 requires
that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed in equal prominence with other financial statements; the
total of other comprehensive income for a period is required to be
transferred to a component of equity that is separately displayed in a
statement of financial position at the end of an accounting period.
SFAS 130 is effective for both interim and annual periods beginning
after December 15, 1997.
In June, 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes standards for
the way public enterprises are to report information about operating
segments in annual financial statements and requires the reporting of
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, and major customers.
SFAS 131 is effective for periods beginning after December 15, 1997.
3. ACQUISITION
On May 9, 1997, Crescent acquired (i) all of the stock of Moody-Day, a
construction equipment sales, leasing and servicing company, (ii) a
1.21% interest in Hicks-Muse, a private venture capital fund and (iii)
a 12.38% interest in Dallas Basketball Limited, a partnership that
holds the National Basketball Association franchise for the Dallas
Mavericks. The purchase price was approximately $4.1 million for
Moody-Day, approximately $9.6 million for the Hicks-Muse interest and
approximately $12.4 million for the interest in the Dallas Basketball
partnership. The interest in the Dallas Basketball partnership was
subsequently sold for approximately $12.5 million.
7
<PAGE> 9
On June 17, 1997, Crescent acquired, for $7.5 million, a 50% member
interest in CBHS and issued warrants to acquire 282,508 shares of
Crescent common stock with an exercise price of $18.29 per share to
Magellan Health Services, Inc. ("Magellan"). CBHS is a newly formed
limited liability company which operates 91 behavioral healthcare
facilities. Crescent also purchased as part of this acquisition
warrants to acquire 1,283,311 shares of Magellan common stock for
$12.5 million. The exercise price of the Magellan warrants is $30 per
share, exercisable in varying increments beginning on May 31, 1998
and ending on May 31, 2009. In August and September of 1997, Crescent
advanced a total of $17.5 million to CBHS, pursuant to its agreement
to provide working capital.
On July 31, 1997, the Company, through its newly-formed subsidiary,
WOCOI Investment Company, acquired for $436,487, a 42.5% general
partner interest in The Woodlands Operating Company, L.P. ("TWOC").
TWOC was formed to provide management, advisory, landscaping and
maintenance services to entities affiliated with the Company and
Crescent REIT. TWOC is reimbursed for its costs incurred plus a 3% or
5% management fee, depending on the type of service provided. The
acquisition of TWOC was part of a larger transaction pursuant to which
Crescent REIT and Crescent Operating Partnership, together with
certain Morgan Stanley funds, acquired The Woodlands Corporation. The
Woodlands Corporation is the principal owner, developer and operator
of The Woodlands, an approximately 27,000 acre master-planned
residential and commercial community located approximately 27 miles
north of Houston, Texas. The Woodlands includes a shopping mall,
retail centers, office buildings, conference center and country club
and other amenities. The purchase price of the Company's interest in
TWOC was determined by mutual agreement of the parties to the
transaction. WOCOI Investment Company will serve as the managing
general partner of TWOC.
On September 29, 1997, the Company acquired 100% of the voting stock,
representing a 5% equity interest, of The Woodlands Land Company,
Inc.("LandCo"), for $1.9 million. LandCo is a newly-formed residential
development corporation which was owned by Crescent REIT. LandCo holds
a 42.5% general partner interest in, and is the managing general
partner of, The Woodlands Land Development Company, L.P. ("Landevco"),
which owns approximately 9,000 acres for commercial and residential
development, a realty office, an athletic center, and interests in a
title company and a mortgage company.
On August 31, 1997, effective as of July 31, 1997, the Company
acquired for $2.0 million in cash the following assets: (i) 100% of
the membership interests in RoseStar and (ii) all of the common stock,
$.01 par value, of each of RSSW Corp. and RSCR Arizona Corp.,
affiliates of RoseStar. RoseStar and its subsidiaries are the lessees
of 6 hotels owned by Crescent REIT or its affiliates. These hotels
are the Denver Marriott City Center and the Hyatt Regency Beaver Creek
in Colorado, the Hyatt Regency in Albuquerque, New Mexico, Canyon
Ranch in Tucson, Arizona, Canyon Ranch in Lennox, Massachusetts and
The Sonoma Mission Inn & Spa in California.
On September 22, 1997, COI Hotel Group, Inc., became the lessee of the
Four Seasons Hotel in Houston, Texas, which is owned by Crescent REIT,
and acquired for $2.4 million a two-thirds interest in the Houston
Center Athletic Club Venture ("HCAC"), a joint venture that owns the
Houston Center Athletic Club and a $5.0 million note executed by the
Houston Center Athletic Club Venture. The note bears interest at LIBOR
plus one percent and interest is payable in arrears at the end of each
twenty-eight (28) day period. The Company partially financed these
transactions with proceeds of $1.8 million in loans from Crescent
Operating Partnership.
On September 29, 1997, the Company acquired 100% of the voting stock,
representing a 5% equity interest, of Desert Mountain Development
Corporation ("Desert Mountain Development") for $2.2 million. Desert
Mountain Development is the sole general partner of Desert Mountain
Properties Limited Partnership. Desert Mountain Properties Limited
Partnership owns Desert Mountain, a master planned, luxury residential
and recreational community in northern Scottsdale, Arizona. Desert
Mountain Properties Limited Partnership also owns and operates The
Desert Mountain Club that offers four Jack Nicklaus signature 18 hole
golf courses, including Cochise, site of the Senior PGA Tour's The
Tradition tournament. Desert Mountain was acquired in August 1997, by
Crescent REIT for approximately $235.0 million from Mobil Land
Development Corporation and a company owned by Lyle Anderson. Mr.
Anderson serves as the development and operations manager of Desert
Mountain Development.
4. PRO FORMA INFORMATION
For financial reporting purposes the (i) capitalization of the
Company, (ii) acquisition of the Carter Crowley Asset Group, (iii)
investment in CBHS, (iv) acquisition of TWOC and LandCo, and (v)
acquisition of RoseStar are considered to be material business
combinations. In accordance with regulation S-X, the Company is
providing the following pro forma information which assumes the above
mentioned transactions occurred on the first day of the period
presented.
<TABLE>
<CAPTION>
Nine Months Ended September, 30
(000's)
-------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Revenues............................... $ 132,622 $ 122,910
Equity in loss of CBHS................. $ (11,599) $ (6,645)
Equity in income of TWOC and LandCo.... $ (5,666) $ 8,424
Net loss............................... $ (6,595) $ (5,863)
Net loss per share..................... $ (.60) $ (.53)
</TABLE>
8
<PAGE> 10
5. LONG TERM DEBT
Crescent Operating Partnership agreed to lend Crescent approximately
$35.9 million pursuant to a five-year term loan ("Term Loan"). At
September 30, 1997, the Company had drawn $35.8 million against this
Term Loan and repaid $9.9 million. The Term Loan is a recourse loan
that is secured, to the extent not prohibited by pre-existing
arrangements, by a first lien on the assets owned by Crescent as of
June 30, 1997. The Term Loan bears interest at the rate of 12% per
annum, compounded annually, and is payable quarterly in an amount
equal to the lesser of (i) the net cash flow for the preceding quarter
and (ii) the quarterly amount of principal due, together with interest
accrued on the Term Loan. Net cash flow will be computed by
subtracting the total costs incurred by Crescent from its gross
receipts. The Term Loan will mature on May 8, 2002. The Company also
has obtained from Crescent Operating Partnership a $20.4 million line
of credit ("Line of Credit") which bears interest at the same rate as
the Term Loan. The Line of Credit is payable on an interest-only basis
during its term, which expires on the later of (i) May 21, 2002 or
(ii) five years after the last draw under the Line of Credit. Draws
may be made under the Line of Credit until June 22, 2002. The Line of
Credit is a recourse obligation and amounts outstanding thereunder are
collateralized, to the extent not prohibited by pre-existing
arrangements, by a first lien on the assets owned by Crescent as of
June 30, 1997. As of September 30, 1997, $8.1 million was outstanding
under the Line of Credit.
The Company obtained a $15.0 million unsecured line of credit from
NationsBank of Texas, N.A. ("NationsBank"). The NationsBank line of
credit, which was obtained in August 1997, has a one-year term (subject
to the Company's right to renew the term for an additional one-year
period) and bears interest at the LIBOR rate plus 1%. As of September
30, 1997, $15.0 million was outstanding under the NationsBank Line of
Credit.
As a part of the acquisition of a two-thirds interest in HCAC and the
related $5.0 million note, the Company borrowed $1.8 million
in the form of two notes (one for $1.0 million and the other for $.8
million) from Crescent Operating Partnership at 8.5% interest. The
$1.0 million note is secured by the $5.0 million note the Company
purchased as part of the transaction and matures September 21, 1998,
with interest payable monthly commencing in October 1997. The $.8
million note is secured by the two-thirds interest in HCAC and
matures September 22, 2002. An interest-only payment on the $.8
million loan became due in October 1997. Monthly principal and
interest payments on the $.8 million loan commenced in November 1997.
Desert Mountain Development has entered into a $7.6 million revolving
credit agreement with Crescent Operating Partnership. The agreement
expires in March of 1998 at which time the outstanding principal
balance and accrued interest at 10% are due. As of September 30, 1997,
$4.0 million was outstanding under this revolving credit agreement. In
connection with this agreement, Desert Mountain Properties Limited
Partnership has entered into an $8.0 million revolving credit
agreement with Desert Mountain Development. This agreement expires in
March 1998 at which time the outstanding principal balance and
accrued interest at the Wall Street Journal prime rate plus 1% are
due. As of September 30, 1997, $4.0 million was outstanding under the
Desert Mountain Properties Limited Partnership revolving credit
agreement.
Desert Mountain Properties Limited Partnership has a credit agreement
with Crescent Operating Partnership, pursuant to which Crescent
Operating Partnership has advanced money to Desert Mountain Properties
Limited Partnership through a "Junior Note", a "Senior Note" and a "Lot
Sales Note". The Junior Note evidences a $60.0 million advance from
Crescent Operating Partnership to Desert Mountain Properties Limited
Partnership and accrues interest at 14%. The Senior Note evidences a
$110.0 million advance from Crescent Operating Partnership to Desert
Mountain Properties Limited Partnership and accrues interest at 10%.
The principal and interest on both the Junior Note and the Senior Note
are payable in quarterly installments, based on proceeds from the
operations of Desert Mountain Properties Limited Partnership The Lot
Sales Note bears interest at the Wall Street Journal prime rate plus 1%
and is payable in monthly installments based on the previous month's
proceeds from other land note receivables. As of September 30, 1997,
the outstanding balance on the Lot Sales Note was $22.2 million.
6. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company's authorized capital stock consists of 10 million shares of
preferred stock, par value $.01 per share and 22.5 million shares of
common stock, par value $.01 per share. At September 30, 1997, there
were 11,041,475 shares of Common Stock outstanding.
PREFERRED SHARE PURCHASE RIGHTS
The Board of Directors has adopted a rights plan that provides that
each holder of Crescent common stock also receives a right to purchase
from the Company one-hundredth of a share of Series A Junior Preferred
Stock, par value $.01, of the Company at a price of $5 per share,
subject to adjustment. These rights can only be exercised in certain
events and are intended to provide the Company certain anti-takeover
protection. The Company had reserved 225,000 shares of series A junior
preferred stock for this plan.
STOCK OPTION PLANS
The Company has adopted a stock incentive plan pursuant to which
grants of options to purchase 883,567 shares, at an exercise price of
$.99 per share, of Crescent common stock and shares of restricted
stock in Crescent were made on May 13, 1997, based on the fair value
on the date of grant. The options were granted in order to provide
each holder of shares of restricted stock in Crescent REIT or options
in Crescent REIT or Crescent Operating Partnership with an equivalent
number of shares of restricted stock or options in Crescent, based on
a ratio of one share of Restricted Stock or Option to purchase
Crescent common stock for each 10 shares of restricted stock in
Crescent REIT or options for Crescent common shares, and one option
to purchase Crescent common stock for each 5 options for units. Under
the stock incentive plan, options and restricted stock relating to
1,000,000 shares of Crescent common stock are authorized for issuance.
As of September 30, 1997, options and restricted stock relating to
15,928 shares had been issued under this stock incentive plan. The
stock incentive plan expires on May 7, 2007.
The Company adopted a second stock incentive plan in October 1997,
pursuant to which grants of options to purchase up to one million
shares of Crescent common stock can be made to employees, officers and
directors. The price at which shares can be purchased under this plan
upon exercise of options is the fair market value of those shares as
of the date of grant.
WARRANTS
The Company, in conjunction with the acquisition of a 50% member
interest in CBHS, issued warrants to acquire 282,508 shares of Crescent
common stock at an exercise price of $18.29 per share to Magellan.
CBHS is a newly formed limited liability company which operates 91
behavioral healthcare facilities. Crescent also purchased, as part of
this acquisition, warrants to acquire 1,283,311 shares of Magellan
common stock for $12.5 million. The exercise price of the Magellan
warrants is $30 per share, exercisable in varying increments
beginning on May 31, 1998 and ending on May 31, 2009.
9
<PAGE> 11
7. INVESTMENT IN CBHS
The Company owned a 50% member interest in CBHS at September 30, 1997.
The Company accounts for its investment in CBHS using the equity
method. A summary of financial information for the Company's
Investment in CBHS is as follows.
<TABLE>
<CAPTION>
(in thousands)
106 DAYS ENDED
SEPTEMBER 30, 1997
----------------------
<S> <C>
Net revenue $ 213,730
----------------------
Operating expenses (A) $ 228,382
Interest, net 1,592
----------------------
Net loss $ (16,244)
======================
Cash used in operating activities $ (69,714)
======================
Crescent equity in loss $ (8,122)
======================
</TABLE>
(A) Includes salaries, supplies and other operating expenses, bad debt
expense, depreciation and amortization.
8. COMMITMENTS AND CONTINGENCIES
The Hicks-Muse interest includes a commitment that the Company invest
an additional $1.1 million in the fund, which amount is required to
be paid by the Company when called.
10
<PAGE> 12
CRESCENT OPERATING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
As of September 30, 1997 the assets of Crescent Operating, Inc.
("Crescent" or the "Company") consisted of (i) Moody-Day, Inc.,
("Moody-Day"), a construction equipment sales, leasing and service
company, (ii) a 1.21% limited partner interest in Hicks Muse Tate &
Furst Equity Fund II, LP ("Hicks-Muse"), a private venture capital fund
(together with Moody-Day, the "Carter Crowley Asset Group"), (iii) a
50% member interest in Charter Behavioral Health Systems, LLC ("CBHS"),
a limited liability company which operates 91 healthcare facilities,
(iv) a 42.5% general partner interest in The Woodlands Operating
Company, L.P. ("TWOC"), which provides management, advisory,
landscaping and maintenance services to entities affiliated with the
Company and Crescent REIT, (v) 100% of the voting stock, representing
a 5% interest, of The Woodlands Land Company, Inc. ("Landco"), which
holds a 42.5% general partner interest in The Woodlands Land
Development L.P. ("Landevco"), which owns approximately 9,000 acres
for commercial and residential development as well as a realty office,
an athletic center, and interests in both a title company and a
mortgage company, (vi) RoseStar Management LLC ("Rosestar"), which,
directly or indirectly through its subsidiaries, is the lessee of the
Denver Marriott City Center, the Hyatt Regency Beaver Creek, the Hyatt
Regency Albuquerque, Canyon Ranch - Tucson, Canyon Ranch - Berkshires
and the Sonoma Mission Inn and Spa, (vii) 100% of the voting stock,
representing a 5% interest, of Desert Mountain Development Corporation
("Desert Mountain Development"), which is the sole general partner of
Desert Mountain Properties Limited Partnership, which owns Desert
Mountain, a master planned, luxury residential and recreational
community in northern Scottsdale, Arizona and (viii) COI Hotel Group,
Inc. ("COI Hotel"), which is the lessee of the Four Seasons Hotel in
Houston, Texas and has a two-thirds interest in the Houston Athletic
Center Venture (collectively, the "Assets"). Crescent intends to
manage its Assets, enter into certain of the businesses to which the
Assets relate and pursue additional opportunities. Crescent believes
that it has, or will have access to, sufficient liquidity and
management expertise to manage Crescent successfully.
STRATEGY
Crescent's investment and operating strategies are to acquire and
operate a complementary group of businesses which are aligned with
certain of the investments and businesses of Crescent Real Estate
Equities Company ("Crescent REIT"). To pursue additional opportunities,
Crescent plans to capitalize on its relationship with Crescent REIT and
Crescent REIT's ability to structure transactions creatively. Crescent
also plans to determine whether it could provide to Crescent REIT
certain additional lessee and operator functions currently provided by
others to Crescent REIT. Crescent intends to pursue additional and
similar opportunities with Crescent REIT and others in the future.
The additional opportunities Crescent may pursue are expected to be
varied and may be unrelated to any business in which Crescent is
engaged. Crescent also expects that, in the future, it may sell
existing assets that are inconsistent with its long-term strategies. To
the extent any such sales are made at a time when Crescent has
outstanding indebtedness, Crescent anticipates that it will use the
proceeds of any such sales of assets to reduce the amount of any such
indebtedness.
THE INTERCOMPANY AGREEMENT
Crescent and Crescent Real Estate Equities Limited Partnership
("Crescent Operating Partnership"), a wholly-owned partnership of
Crescent REIT, have entered into the Intercompany Agreement to provide
each other with rights to participate in certain transactions. The
Intercompany Agreement provides, subject to certain terms, that
Crescent Operating Partnership will provide Crescent with a right of
first refusal to become the lessee of any real property acquired by
Crescent Operating Partnership if Crescent Operating Partnership
determines that, consistent with Crescent REIT's status as a REIT, it
is required to enter into a "master" lease arrangement, provided that
Crescent and Crescent Operating Partnership negotiate a mutually
satisfactory lease arrangement and Crescent Operating Partnership
determines, in its sole discretion, that Crescent is qualified to be
the lessee. For example, Crescent REIT generally would be required,
consistent with its status as a REIT, to enter into a master lease
arrangement as to hotels and behavioral healthcare facilities. In
general, a master lease arrangement is an arrangement pursuant to
which an entire property or project (or a group of related properties
or projects) is leased to a single lessee. As to opportunities for
Crescent to become the lessee of any assets under a master lease
arrangement, the Intercompany Agreement provides that Crescent
Operating Partnership must provide Crescent with written notice of the
lessee opportunity. During the 30 days following such notice, Crescent
has a right of first refusal with regard to the offer to become a
lessee and the right to negotiate with Crescent Operating Partnership
on an exclusive basis regarding the terms and conditions of the lease.
If a mutually satisfactory agreement cannot be reached within the
30-day period (or such longer period to which Crescent and Crescent
Operating Partnership may agree), Crescent Operating Partnership may
offer the opportunity to others for a period of one year thereafter
before it must again offer the opportunity to Crescent, in accordance
with the procedures specified above. Crescent Operating Partnership
may, in its discretion, offer any investment opportunity other than a
lessee opportunity to Crescent, upon such notice and other terms as
Crescent Operating Partnership may determine.
Under the Intercompany Agreement, Crescent has agreed not to acquire or
make (i) investments in real estate which, for purposes of the
Intercompany Agreement, includes the provision of services related to
real estate and investment in hotel properties, real
11
<PAGE> 13
estate mortgages, real estate derivatives or entities that invest in
real estate assets or (ii) any other investments that may be
structured in a manner that qualifies under the federal income tax
requirements applicable to REITs, unless it has provided written notice
to Crescent Operating Partnership of the material terms and conditions
of the acquisition or investment opportunity, and Crescent Operating
Partnership has determined not to pursue such acquisitions or
investments either by providing written notice to Crescent rejecting
the opportunity within 10 days from the date of receipt of notice of
the opportunity or by allowing such 10-day period to lapse. Crescent
also has agreed to assist Crescent Operating Partnership in
structuring and consummating any such acquisitions or investments
which Crescent Operating Partnership elects to pursue, on terms
determined by Crescent Operating Partnership. In addition, Crescent
has agreed to notify Crescent Operating Partnership of, and make
available to Crescent Operating Partnership, investment opportunities
developed by Crescent, or of which Crescent becomes aware but is unable
or unwilling to pursue.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993 and Section 21E of the
Securities Exchange Act of 1934. Although the Company believes that the
expectations reflected in such forward-looking statements are based
upon reasonable assumptions, the Company's actual results could differ
materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include the
following: real estate investment considerations, such as the effect of
economic, demographic, competitive and other conditions in the market
area on cash flows and values, and the relatively high levels of debt
maintained by the Company and its ability to generate revenues
sufficient to meet debt service payments and other operating expenses;
financing risks, such as the continued availability of equity and debt
financing that may be necessary or desirable for expansion or continued
operations of the Company and its Assets, the Company's ability to
service existing debt, the possibility that the Company's outstanding
debt may be refinanced at higher interest rates or otherwise on terms
less favorable to the Company; and investment risks, including the
underperformance or non-performance of its existing investments and the
inability of the Company to identify or pursue suitable investment
opportunities.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. These financial
statements include all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results for
the interim periods presented, and all such adjustments are of a
normal and recurring nature.
HISTORICAL RESULTS OF OPERATIONS
On May 9, 1997, the Company acquired the Carter Crowley Asset Group.
The Company's financial statements have been prepared on the basis
that the "Predecessor" consists of the Carter Crowley Asset Group. As
the Company did not have any activities until May 9, 1997, the
comparative data relating to 1996 and the period in 1997 prior to
May 9, is only with regard to the Predecessor.
THREE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenues of the Company increased approximately $28.2 million to
$31.4 million for the three months ended September 30, 1997, compared
with $3.1 million for the three months ended September 30, 1996. The
increase was the result of new hotel revenues generated by RoseStar and
COI Hotel in the amount $28.1 million.
Equipment sales and service operating expenses decreased $.1 million
to $2.6 million for the three months ended September 30, 1997 as
compared to $2.7 million for the three months ended September 30,
1996. This 3% decrease in operating expenses represents a 4% increase
in operating margin on the Moody-Day business. The improvement in
profit margin can be attributed to efficient operations as well as
reduced depreciation expense resulting from the purchase price
allocation.
Direct hotel expenses, which represent costs incurred at the
full-service hotels, apartments and luxury health resorts, and hotel
rent, which represents rental payments made to Crescent Operating
Partnership, are new expenses for the three months ended September 30,
1997, as these costs are attributable to the acquisition and operation
of RoseStar and the operations of COI Hotel.
General and administrative expenses increased $.9 million or 212% to
$1.3 million for the three months ended September 30, 1997 as compared
to $.4 million for the three months ended September 30, 1996. The
acquisition of RoseStar increased general and administrative expenses
by $.4 million and an additional $.4 million of corporate overhead was
incurred by the Company for expenses such as officer insurance, legal
and accounting fees and management costs, which were not incurred by
the Predecessor. The remaining $.1 million of the increase relates to
additional expenses incurred by Moody-Day as a result of its increased
sales volume.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenues of the Company increased approximately $29.1 million or
356%, to $37.3 million for the nine months ended September 30, 1997,
compared with $8.2 million for the nine months ended September 30,
1996. The increase is primarily the result of new hotel revenue
generated by RoseStar and COI Hotel of $28.1 million. Equipment sales
and service revenue also increased 11% or $.9 million to $9.1 million
for the nine months ended September 30, 1997 as compared to $8.2
million for the nine months ended September 30, 1996. The increase in
equipment sales and service revenue is due to an increase in customer
construction projects and a corresponding increase in demand for
Moody-Day's equipment and services, an increase in the amount of
equipment Moody-Day had available to meet sales and rental demand and
the favorable introduction by Moody-Day of new lines of equipment
available for sale and rental.
Equipment sales and service operating expenses increased $.2 million
to $7 million for the nine months ended September 30, 1997 as compared
to $6.8 million for the nine months ended September 30, 1996. This 2%
increase in operating expenses represents a 6.7% increase in profit
margin on the Moody-Day business. The improvement in profit margin can
be attributed to efficient operations as well as reduced depreciation
expense caused by the purchase price allocation.
Direct hotel expenses, which represent costs incurred at the
full-service hotels, apartments or luxury health resorts, and hotel
rent which represents rental payments made to Crescent Operating
Partnership, are new expenses for the nine months ended September 30,
1997, as these costs were not incurred prior to the acquisition of
RoseStar and the formation of COI Hotel.
General and administrative expenses increased $1.1 million or 87% to
$2.4 million for the nine months ended September 30, 1997, as compared
to $1.3 million for the nine months ended September 30, 1996. The
acquisition of RoseStar increased general and administrative expenses
by $.4 million and an additional $.5 million of corporate overhead was
incurred by the Company for expenses such as officer insurance, legal
and accounting fees and management costs. The remaining $.2 million of
the increase relates to additional expenses incurred by Moody-Day as a
result of its increased sales volume.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of Crescent,
Crescent received approximately $14.1 million in cash from Crescent
Operating Partnership and Crescent Operating Partnership lent
Crescent approximately $35.9 million pursuant to a five-year term loan
of which $26.0 million was outstanding as of September 30, 1997. The
loan is a recourse loan that is collateralized, to the extent not
prohibited by pre-existing arrangements, by a first lien on the assets
owned by Crescent as of June 30, 1997. The loan bears interest at the
rate of 12% per annum, compounded annually, and is payable quarterly
in an amount equal to the lesser of (i) the net cash flow for the
preceding quarter and (ii) the quarterly amount of principal due,
together with interest accrued on the loan. Net cash flow is computed
by subtracting the total costs incurred by Crescent from its gross
receipts. The loan will mature on May 8, 2002. The Company also
obtained a $20.4 million line of credit from Crescent Operating
Partnership in connection with its formation and capitalization.
Advances under the line of credit bear interest
12
<PAGE> 14
at the same rate as the term loan. The line of credit is payable on an
interest-only basis during its term, which expires on the later of (i)
May 31, 2002 or (ii) five years after the last draw under the line of
credit. Draws may be made under the line of credit until June 22,
2002. The line of credit is a recourse obligation and amounts
outstanding thereunder are collateralized, to the extent not prohibited
by pre-existing arrangements, by a first lien on the assets owned by
Crescent as of June 30, 1997. As of September 30, 1997, $8.1 million
was outstanding under the line of credit.
Approximately $12.6 million in cash and the proceeds of approximately
$15.3 million of loans were used to acquire the Carter-Crowley Assets
and the 12.38% limited partner interest in the partnership that owns
the Dallas Mavericks. The remaining approximately $1.5 million
previously funded in the form of cash, together with the remaining
approximately $20.6 million advanced in the form of loans, were used
both to acquire, and make an additional contribution relating to, the
CBHS Interest and to acquire the warrants to acquire shares of
Magellan common stock for an aggregate of approximately $20.0 million,
and to fund an obligation of Moody-Day to purchase construction
equipment for approximately $2.1 million. The line of credit will be
used to support funding obligations associated with these investments
(consisting of approximately $2.1 million relating to Crescent's
investment in Hicks-Muse and approximately $17.5 million relating to
the CBHS Interest) and other cash requirements.
The Company obtained a $15.0 million short-term unsecured bank line of
credit from NationsBank of Texas N.A. ("NationsBank"). The line of
credit, which was obtained in August 1997, has a one-year term
(subject to the Company's right to renew the term for an additional
one-year period) and bears interest at the LIBOR rate plus 1%. The
$15.0 million available under the line of credit from NationsBank was
fully drawn as of September 30, 1997, and was used to acquire the
RoseStar interest and reduce the line of credit with Crescent
Operating Partnership.
The primary source of repayment of the NationsBank Line of Credit is
anticipated to be a future equity offering, which the Company has
agreed to use its best efforts to complete prior to maturity of the
loan in 1998 or 1999. The Company has obtained an agreement from
Richard Rainwater, Gerald Haddock and John Goff (each a stockholder,
director and/or officer of the Company) which provides that, if the
Company does not raise from an equity offering funds sufficient to pay
the NationsBank Line of Credit when due (a "Successful Offering"),
each of Messrs. Rainwater, Haddock and Goff jointly and severally
agree to purchase the number of additional shares of the Company's
Common Stock necessary to fund repayment of the NationsBank line of
credit. The Company has agreed to sell such additional shares of
common stock to Messrs. Rainwater, Haddock, and Goff at a price equal
to the average closing bid price of the Company's common stock during
the 10 days immediately preceding the date NationsBank notifies
Messrs. Rainwater, Haddock and Goff that the Company has not completed
a Successful Offering prior to maturity of the NationsBank line of
credit.
As a part of the acquisition of a two-thirds interest in the Houston
Center Athletic Club Venture and the related $5.0 million note, the
Company borrowed $1.8 million in the form of two notes (one for $1.0
million and the other for $.8 million) from Crescent Operating
Partnership at 8.5% interest. The $1.0 million note, which is secured
by the $5.0 million note it purchased as part of the transaction,
matures September 21, 1998, with interest payable monthly commencing
in October 1997. The $.8 million note is collateralized by the
two-thirds interest in the HCAC and matures September 22, 2002. An
interest only payment became due in October 1997. Monthly principal
and interest payments on the $.8 million loan commenced in November
1997.
Desert Mountain Development has entered into a $7.6 million revolving
credit agreement with Crescent Operating Partnership which bears
interest at the rate of 10% per annum on amounts outstanding under the
line of credit. The agreement expires in March of 1998 at which time
the outstanding principal balance and accrued interest at 10% is due.
As of September 30, 1997, $4.0 million was outstanding under this
revolving credit agreement. In connection with this agreement, Desert
Mountain Properties Limited Partnership has entered into an $8.0
million revolving credit agreement with Desert Mountain Development
which bears interest at an annual rate equal to the Wall Street Journal
prime rate plus 1% on amounts outstanding thereunder. This agreement
expires in March 1998 at which time the outstanding principal balance
and accrued interest at an annual rate equal to the Wall Street Journal
prime rate plus 1% is due. As of September 30, 1997, $4.0 million was
outstanding under this revolving credit agreement.
Desert Mountain Properties Limited Partnership also has a credit
agreement with Crescent Operating Partnership pursuant to which
Crescent Operating Partnership has advanced money to Desert Mountain
Properties Limited Partnership through a "Junior Note", a "Senior Note"
and a "Lot Sales Note". The Junior Note evidences a $60.0 million
advance from Crescent Operating Partnership to Desert Mountain
Properties Limited Partnership and accrues interest at 14% per annum.
The Senior Note evidences a $110.0 million advance from Crescent
Operating Partnership to Desert Mountain Properties Limited Partnership
and accrues interest at 10% per annum. The principal and interest on
both the Junior Note and the Senior Note are payable in quarterly
installments, based on proceeds from the operations of Desert Mountain
Properties Limited Partnership. The Lot Sales Note bears interest at an
annual rate equal to the Wall Street Journal prime rate plus 1%, and is
payable in monthly installments based on the previous month's proceeds
obtained by Desert Mountain Properties Limited Partnership from other
land note receivables. As of September 30, 1997, the outstanding
balance on the Lot Sales Note was $22.2 million.
PRO FORMA CAPITAL RESOURCES
Crescent has no external sources of financing except as described above
in "Liquidity and Capital Resources." The purchase of additional assets
will be contingent upon securing adequate funding on terms acceptable
to the Company. The Company is not aware of any material unfavorable
trends in either capital resources or the outlook for long-term cash
generation, nor does it expect any material change in the availability
and relative cost of such capital resources.
CHARTER BEHAVIOR HEALTH SYSTEMS, LLC
The Company acquired its 50% member interest in CBHS on June 17, 1997.
Summarized below are operating statistics for the quarter ended
September 30, 1997.
<TABLE>
<S> <C>
Facilities in Operation 91
Patient Days 326,372
Equivalent Patient Days 367,394
Admissions 29,691
Average Length of Stay 11.1
</TABLE>
The Facilities' hospital business is seasonal in nature, with a
reduced demand for certain services generally occurring in the fourth
quarter around major holidays such as Thanksgiving and Christmas, and
during the summer months. Accordingly, the results of
operations for the interim periods are not necessarily indicative of
the actual results expected for the year.
The Facilities provide inpatient and outpatient behavioral healthcare
services. The inpatient treatment includes acute and residential
programs serving adults, adolescents and children. Third party payers
include governmental, commercial, managed care and private payers. The
Facilities are experiencing a shift in payer mix to managed care
payers from other payers. The Company, as of September 30, 1997, has
advanced CBHS $17.5 million pursuant to its agreement to provide
working capital. The Company has no further obligation to make
additional capital contributions or to provide funding to CBHS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------ -----------
<S> <C>
a. Exhibits
3.1* -- First Amended and Restated Certificate of Incorporation
3.2* -- First Amended and Restated Bylaws
4.1* -- Specimen stock certificate
4.2* -- Preferred Share Purchase Rights Plan
10.1* -- Amended Stock Incentive Plan
10.5 -- Amended and Restated Credit and Security Agreement, dated as of May 30, 1997, between Crescent Operating
Partnership and Crescent, together with related Note
10.6 -- Line of Credit and Security Agreement, dated as of May 21, 1997, between Crescent Operating Partnership and
Crescent, together with related Line of Credit Note
10.9 -- 1997 Crescent Operating, Inc. Second Stock Incentive Plan
10.10 -- Security Agreement dated September 22, 1997 between COI Hotel Group, Inc., as debtor, and Crescent
Operating Partnership, as lender, together with related $1 million promissory note
10.11 -- Security Agreement dated September 22, 1997 between COI Hotel Group, Inc., as debtor, and Crescent
Operating Partnership, as lender, together with related $800,000 promissory note
10.12 -- Amended and Restated Asset Management Agreement dated August 31, 1997, to be effective July 31, 1997,
between Wine Country Hotel, LLC and The Varma Group, Inc.
10.13 -- Amended and Restated Asset Management Agreement dated August 31, 1997, to be effective July 31, 1997, between
RoseStar Southwest, LLC and The Varma Group, Inc.
10.14 -- Amended and Restated Asset Management Agreement dated August 31, 1997, to be effective July 31, 1997,
between RoseStar Management LLC and The Varma Group, Inc.
10.15 -- Agreement for Financial Services dated July 1, 1997, between Crescent and Petroleum Financial, Inc.
10.16 -- Credit Agreement dated August 27, 1997, between Crescent Operating, Inc. and NationsBank of Texas, N.A.
together with related $15.0 million promissory note
10.17 -- Support Agreement dated August 27, 1997, between Richard E. Rainwater, John Goff and Gerald Haddock
in favor of Crescent and NationsBank of Texas, N.A.
27 -- Financial Data Schedule
* -- Incorporated by Reference to the Company's registration statement on Form S-1 dated July 12, 1997
</TABLE>
b. -- Reports on Forms 8-K.
The Company's Current Report on Form 8-K dated June 13, 1997, as amended on July
30, 1997, describing the Magellan transaction, the trading and distribution of
the Company's common stock and certain financial information and pro forma
disclosure relating to the Magellan transaction.
The Company's Current Report on Form 8-K dated July 31, 1997, as amended on
October 14, 1997, describing the Woodlands Operating transaction, the Company's
investment in The Woodlands Land Company, Inc. and certain financial information
and pro forma disclosure relating thereto.
The Company's Current Report on Form 8-K dated July 31, 1997 and filed on
September 15, 1997, describing the RoseStar transactions.
The Company's Current Report on Form 8-K dated September 29, 1997 and filed on
October 10, 1997, describing the acquisition of the Company's interest in Desert
Mountain Development Corporation.
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 thereunto duly authorized.
CRESCENT OPERATING, INC.
(Registrant)
By: /s/ JEFFREY L. STEVENS
Jeffrey L. Stevens
Treasurer and Chief Financial Officer
Date: November 14, 1997
14
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------ -----------
<S> <C>
a. Exhibits
3.1* -- First Amended and Restated Certificate of Incorporation
3.2* -- First Amended and Restated Bylaws
4.1* -- Specimen stock certificate
4.2* -- Preferred Share Purchase Rights Plan
10.1* -- Amended Stock Incentive Plan
10.5 -- Amended and Restated Credit and Security Agreement, dated as of May 30, 1997, between Crescent Operating
Partnership and Crescent, together with related Note
10.6 -- Line of Credit and Security Agreement, dated as of May 21, 1997, between Crescent Operating Partnership and
Crescent, together with related Line of Credit Note
10.9 -- 1997 Crescent Operating, Inc. Second Stock Incentive Plan
10.10 -- Security Agreement dated September 22, 1997 between COI Hotel Group, Inc., as debtor, and Crescent
Operating Partnership, as lender, together with related $1 million promissory note
10.11 -- Security Agreement dated September 22, 1997 between COI Hotel Group, Inc., as debtor, and Crescent
Operating Partnership, as lender, together with related $800,000 promissory note
10.12 -- Amended and Restated Asset Management Agreement dated August 31, 1997, to be effective July 31, 1997,
between Wine Country Hotel, LLC and The Varma Group, Inc.
10.13 -- Amended and Restated Asset Management Agreement dated August 31, 1997, to be effective July 31, 1997, between
RoseStar Southwest, LLC and The Varma Group, Inc.
10.14 -- Amended and Restated Asset Management Agreement dated August 31, 1997, to be effective July 31, 1997,
between RoseStar Management LLC and The Varma Group, Inc.
10.15 -- Agreement for Financial Services dated July 1, 1997, between Crescent and Petroleum Financial, Inc.
10.16 -- Credit Agreement dated August 27, 1997, between Crescent Operating, Inc. and NationsBank of Texas, N.A.
together with related $15.0 million promissory note
10.17 -- Support Agreement dated August 27, 1997, between Richard E. Rainwater, John Goff and Gerald Haddock
in favor of Crescent and NationsBank of Texas, N.A.
27 -- Financial Data Schedule
* -- Incorporated by Reference to the Company's registration statement on Form S-1 dated July 12, 1997
</TABLE>
<PAGE> 1
EXHIBIT 10.5
Execution Copy
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT (as it may be
modified, supplemented or amended from time to time, this "Agreement") is made
and entered into as of May 21, 1997 between CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership (the "Lender"), and CRESCENT
OPERATING, INC., a Delaware corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower requested that the Lender extend a credit facility (the
"Loan") in the original maximum aggregate principal amount of $30,400,000 for
the purpose of permitting the Borrower to make certain investments identified
herein;
WHEREAS, the parties entered into that Credit and Security Agreement dated as
of May 8, 1997 (the "Original Agreement");
WHEREAS, the parties desire to amend and restate the Original Agreement in
its entirety to increase the maximum aggregate principal amount of the Loan to
Thirty-Five Million Nine Hundred Thousand Dollars ($35,900,000) and to modify
certain of the terms and provisions thereof;
WHEREAS, the Lender is willing to extend and modify the Loan for such purpose
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the agreements,
covenants and conditions contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
(a) The following terms which are defined in the Uniform Commercial Code
in effect in the State of Texas on the date hereof are used herein as
so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, General Intangibles, Instruments, Inventory and Proceeds.
(b) The following terms, as used herein, have the following meanings:
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<PAGE> 2
"Agreement" has the meaning set forth in the initial paragraph hereof.
"Application for Advance" has the meaning set forth in Section 2.1(a)
hereof.
"Bankruptcy Event of Default" has the meaning set forth in Section 7.1.
"Borrower" means Crescent Operating, Inc., and its permitted successors
and assigns.
"Business Day" means any day except a Saturday, Sunday, or other day on
which commercial banks in Texas are authorized by law to close.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank or investment bank satisfying the requirements of clause (b) of
this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States Government
or any agency thereof, (d) commercial paper issued in the United States which is
rated at least A-2 by Standard and Poor's Services or P-2 by Moody's Investors
Service, (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government are rated at least A by Standard and
Poor's Services or A by Moody's Investors Service, (f) securities with
maturities of one year or less from the date of acquisition backed by standby
letters of credit issued by any commercial bank satisfying the requirements of
clause (b) of this definition, or (g) shares of money market mutual or similar
funds which invest substantially exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"Closing Date" means the date this Agreement becomes effective in
accordance with Section 3.1, and each other date on which an advance is made by
the Lender to the Borrower.
"Code" means the Uniform Commercial Code as from time to time in effect
in the State of Texas.
"Collateral" has the meaning set forth in Section 4.1.
"Collateral Account" has the meaning set forth in Section 4.2.
"Consolidated Net Income" or "Consolidated Net Loss" for any fiscal
period, means the amount which, in conformity with GAAP, would be set forth
opposite the caption "net income" (or any like caption), as the case may be, on
a consolidated statement of earnings of the Borrower and its Subsidiaries, if
any, for such fiscal period.
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<PAGE> 3
"Debt" of any Person means at any date, (i) all obligations of such
Person which in accordance with GAAP would be classified on a balance sheet of
such Person as liabilities of such Person ("debt"), (ii) all debt of others
secured by a Lien on any asset of such Person, whether or not such debt is
assumed by such Person, and (iii) all debt of others guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.3(b).
"EBITDA" means for any fiscal period, the Consolidated Net Income or
Consolidated Net Loss, as the case may be, for such fiscal period, after
restoring thereto amounts deducted for (a) extraordinary losses (or deducting
therefrom any amounts included therein on account of extraordinary gains) and
special charges, (b) depreciation and amortization (including write-offs or
write-downs) and special charges, (c) the amount of interest expense of the
Borrower and its Subsidiaries, if any, determined on a consolidated basis in
accordance with GAAP, for such period on the aggregate principal amount of their
consolidated indebtedness, (d) the amount of tax expense of the Borrower and its
Subsidiaries, if any, determined on a consolidated basis in accordance with
GAAP, for such period and (e) the aggregate amount of fixed and contingent
rentals payable by the Borrower and its Subsidiaries, if any, determined on a
consolidated basis in accordance with GAAP, for such period with respect to
leases of real and personal property.
"Event of Default" has the meaning set forth in Section 7.1.
"GAAP" means generally accepted accounting principles in effect from
time to time.
"Interest Rate" has the meaning set forth in Section 2.3(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Lender" means Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership, and its successors and assigns.
"Lien" means, with respect to any asset, any mortgage, deed of trust,
lien pledge, charge, security interest, or encumbrance of any kind in respect of
such asset.
"Line of Credit Credit Agreement" means the Line of Credit Credit and
Security Agreement between the Borrower and the Lender of even date herewith
relating to the loan evidenced by the Line of Credit Note.
-3-
<PAGE> 4
"Line of Credit Note" means the Line of Credit Note from the Borrower
to the Lender of even date herewith in the maximum principal amount of Twenty
Million Dollars ($20,000,000.00).
"Loan" has the meaning set forth in the recitals hereto.
"Loan Commitment" has the meaning set forth in Section 2.1.
"Loan Documents" means this Agreement, the Note, the Pledge Agreement
and all other documents, agreements, and instruments referred to in or required
to be delivered or actually delivered in connection herewith or therewith, as
any of them may be modified, supplemented, or amended from time to time.
"Material Debt" means Debt (other than the Note) of the Borrower,
arising in one or more related or unrelated transactions, in an aggregate
principal amount exceeding $50,000.
"Maturity Date" means May 21, 2002.
"Note" means the amended and restated promissory note of the Borrower
payable to the order of the Lender under the terms of this Agreement dated as of
May 21, 1997, as the same may be modified, supplemented, or amended from time to
time, and any note or notes issued in substitution or replacement therefor or in
addition thereto, substantially in the form of Exhibit B hereto, in the maximum
principal amount from time to time outstanding of up to Thirty-Five Million Nine
Hundred Thousand Dollars ($35,900,000.00), evidencing the obligation of the
Borrower to repay the Loan, as modified, supplemented or amended from time to
time.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement to be executed and
delivered by the Borrower, substantially in the form of Exhibit C hereto, as the
same may be amended, supplemented or otherwise modified from time to time.
"Secured Obligations" means the collective reference to the unpaid
principal of and interest on the Note, the Line of Credit Note and all other
obligations and liabilities of the Borrower to the Lender whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, the Line of Credit Credit Agreement, the Note, the Line of Credit
Note, the Pledge Agreement or any other document, made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise.
-4-
<PAGE> 5
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which such Person owns
directly or indirectly through one or more intermediaries 50% or more of the
voting stock, partnership interests or other interests thereof or which is
controlled or capable of being controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Termination Date" shall mean the date 95 days from the date upon which
the Loan has been satisfied in full.
SECTION 1.2 Rules of Construction.
(a) Words of the masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders. Unless the
context shall otherwise indicate, words importing the singular number
shall include the plural and vice versa.
(b) Reference to a section number, such as this Section 1.2, shall mean
and include all provisions within that section of this Agreement,
unless a particular subsection, paragraph or subparagraph is
specified.
(c) Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder
shall be prepared in accordance with GAAP as in effect from time to
time, except as otherwise specified herein, applied on a basis
consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited
consolidated financial statements of the Borrower delivered to the
Lender.
ARTICLE II
COMMITMENT, ADVANCE PROCEDURE, AND NOTES
SECTION 2.1 Commitment and Advance Procedure.
(a) The Lender agrees, on and subject to the terms and conditions set
forth in this Agreement, to make advances to the Borrower during the
term hereof (each, an "Advance") in up to five installments (not more
often than once per month), up to an aggregate amount of Thirty-Five
Million Nine Hundred Thousand Dollars ($35,900,000.00) (the "Loan
Commitment"), following the Lender's receipt of a written request from
the Borrower made to the Lender in the form set forth in Exhibit A
hereto (an "Application for Advance"), and delivered in accordance
with this Section 2.1 and Section 8.1 hereof.
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<PAGE> 6
(b) On the date that this Agreement becomes effective in accordance with
Section 3.1, the Lender shall advance to the Borrower the principal
amount of Fifteen Million Four Hundred Thousand Dollars
($15,400,000.00).
(c) Other than the advance provided for in (b) of this Section 2.1, the
Borrower shall provide the Lender with an Application for Advance,
specifying (i) the amount of the Advance requested, and (ii) the
requested date of such Advance (which shall be at least that number of
Business Days after delivery of such Application for Advance as
specified in (e) below).
(d) Notwithstanding any provision hereof to the contrary, the Lender shall
have no obligation at any time to make any Advances to the Borrower
hereunder unless, on the date of the Lender's receipt of a properly
completed and executed Application for Advance, the Borrower shall
have certified to the Lender in writing that the Borrower is not in
Default hereunder.
(e) The Lender shall have the obligation to make an advance in accordance
with the provisions hereof, including the provisions of this Section
2.1, within five (5) Business Days after its receipt of a properly
completed and executed Application for Advance that, together with all
other advances and Applications for Advance, requests advances
totaling no more than the Loan Commitment.
SECTION 2.2 The Note.
(a) The Loan will be evidenced by the Note. The outstanding principal
amount of the Loan shall be payable as follows: twenty consecutive
quarterly installments of principal, each consisting of the
Amortization Amount (as defined below) and payable on the first
Business Day of August 1997 and on the first Business Day of each
November, February, May and August thereafter. The "Amortization
Amount" shall be determined by dividing the outstanding principal
amount of the loan on the payment date in question by the number of
payment dates occurring prior to the Maturity Date. The Amortization
Amount shall be recalculated each time an advance of the Loan is made,
but not when accrued but unpaid interest is added to principal as
provided herein.
(b) Notwithstanding Section 2.2(a), if the amount of principal and
interest to be paid by the Borrower to the Lender exceeds the amount
of EBITDA of the Borrower for the immediately preceding calendar
quarter (ending the last day of September, December, March, or June),
the Borrower shall not be obligated to repay the amount of principal
and interest in excess of EBITDA of the Borrower for such period. Any
such amount of principal shall continue to be outstanding principal
and accrue interest
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<PAGE> 7
thereon; any such amount of unpaid interest shall be added to
principal and shall accrue interest thereon. Payments under the Note
shall be applied first to any fees, costs or expenses due under the
Note or hereunder, then to interest, and then to principal.
(c) Notwithstanding any other provision of this Section 2.2, all
outstanding principal and interest of the Loan and all other amounts
payable hereunder, if not sooner paid, shall be due and payable on the
Maturity Date.
SECTION 2.3 Interest Rate and Payments.
(a) Unless an Event of Default shall have occurred and be continuing, the
Loan shall bear interest on the outstanding principal amount thereof
until paid in full, at a rate per annum equal to Twelve Percent (12%)
(the "Interest Rate").
(b) Upon and after an Event of Default, the Loan shall accrue interest on
the outstanding principal balance of the Loan and, to the extent
permitted by applicable law, on the unpaid interest, at a rate per
annum equal to the Interest Rate plus an additional 5.0% per annum
(the "Default Rate"), provided that in no event shall the Default Rate
exceed the maximum rate of interest permitted by applicable law.
(c) Subject to the provisions of Section 2.2(b), interest shall be due
during the term hereof on the first Business Day of each August,
November, February and May, or such other date as the Borrower and the
Lender may mutually agree in writing.
(d) Accrued interest not paid when due shall be compounded quarterly and
added to the outstanding principal amount of the Loan.
(e) On the Maturity Date, the Borrower shall repay in full all accrued but
unpaid interest and the entire unpaid principal amount of the Loan.
SECTION 2.4 General Provisions as to Payments.
The Borrower shall make each payment of principal of, and interest on, the
Loan not later than 11:00 A.M. Fort Worth, Texas time on the date when due, to
the Lender at the Lender's office at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 in same day or other immediately available funds. Whenever any
payment of principal of, or interest on, any Loan shall be due on a day which is
not a Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest thereon shall be payable for such
extended time. All such payments shall be made without setoff or counterclaim
and without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government
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<PAGE> 8
or political subdivision or taking authority thereof (but excluding any taxes
imposed on or measured by the overall net income of the Lender).
SECTION 2.5 Computation of Interest.
All interest shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day, but excluding
the last day).
SECTION 2.6 Use of Proceeds.
The proceeds of the Loan shall be used solely to enable the Borrower to
invest in (i) Moody-Day, Inc., (ii) Dallas Basketball, Ltd, (iii) Hicks Muse
Tate & Furst Equity Fund II, LP, (iv) Charter Behavioral Health Systems, LLC and
(v) such other investments as the Lender may consent to in writing, which
consent may be withheld in the Lender's sole discretion.
SECTION 2.7 Evidence of Debt.
(a) The Lender shall record (i) the amount of each advance made hereunder,
(ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to the Lender hereunder and
(iii) the amount of any sum received by the Lender hereunder from the
Borrower.
(b) The entries recorded by the Lender shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts
of the obligations of the Borrower therein recorded; provided,
however, that the failure of the Lender to record or any error in any
record shall not in any manner affect the obligation of the Borrower
to repay (with applicable interest) the Loans made to such Borrower in
accordance with the terms of this Agreement.
ARTICLE III
CONDITIONS TO BORROWING
SECTION 3.1 Conditions to Effectiveness and Further Borrowings.
(a) This Agreement shall become effective on the date that each of the
conditions set forth below shall have been satisfied (or waived in
accordance with Section 8.3):
(i) The Lender shall have received this Agreement, duly executed by
the Borrower;
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<PAGE> 9
(ii) The Lender shall have received from the Borrower a certificate
that each of the representations and warranties of the Borrower
contained in this Agreement is true, correct, and complete as of
the Closing Date;
(iii) The Lender shall have received a duly executed Note dated as of
the Closing Date;
(iv) The Lender shall have received a duly executed Pledge Agreement
dated as of the Closing Date and such other documents relating
to the Pledge Agreement as reasonably required by the Lender;
(v) The Lender shall have received proper financing statements
(Forms UCC-1 or the appropriate equivalent) necessary to perfect
the security interest in the Borrower's interest in the
Collateral (or such part thereof in which a security interest
can be perfected thereby);
(vi) The Lender shall have received the following: (A) the articles
of incorporation of the Borrower as in effect on the Closing
Date, certified as of a recent date by the Secretary of State of
Delaware, (B) the bylaws of the Borrower as in effect on the
Closing Date, certified as of a recent date by the Secretary of
the Borrower, (C) resolutions of the board of directors of the
Borrower authorizing the execution, delivery and performance of
this Agreement, certified as of the Closing Date by its
corporate secretary, (D) certificates as to the incumbency of
the officers of the Borrower, certified by its corporate
secretary, and (E) certificates of good standing of the Borrower
issued as of a recent date by the Secretary of State of
Delaware; and
(vii) No event, which, after execution of this Agreement, would
constitute an Event of Default hereunder shall have occurred and
be continuing.
(b) As of any other Closing Date, each of the conditions set forth below
shall have been satisfied (or waived in accordance with Section 8.3):
(i) The Lender shall have received from the Borrower a certificate
that each of the representations and warranties of the Borrower
contained in this Agreement is true, correct and complete as of
the Closing Date;
(ii) The Lender shall have received a certificate in the form of
Exhibit D hereto enclosing the following: (A) a representation
that there has been no change in the articles of incorporation
of the Borrower since the Closing Date, or if changes have
occurred since the Closing Date, the articles of incorporation
of the Borrower as in effect, certified as of a recent date by
the Secretary of State of Delaware, (B) a representation that
there has been no change in the bylaws of the Borrower since the
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<PAGE> 10
Closing Date, or if changes have occurred since the Closing
Date, the bylaws of the Borrower as in effect, certified as of
a recent date by the Secretary of the Borrower, (C) resolutions
of the board of directors of the Borrower authorizing the
execution, delivery and performance of the Application for
Advance, certified as of the Closing Date by its corporate
secretary, (D) certificates as to the incumbency of the officers
of the Borrower, certified by its corporate secretary, and (E)
certificates of good standing of the Borrower issued as of a
recent date by the Secretary of State of Delaware; and
(iii) No event which constitutes an Event of Default hereunder shall
have occurred and be continuing.
ARTICLE IV
SECURITY INTEREST
SECTION 4.1 Grant of Security Interest.
(a) As security for the prompt payment, performance, and observance in
full of the Loan, the Borrower hereby pledges and assigns to the
Lender, and grants to the Lender a continuing security interest in and
lien on all of the following property now owned or at any time
hereafter acquired by the Borrower or in which the Borrower now has or
at any time in the future may acquire any right, title or interest
(the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Documents;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Inventory;
(viii) all books and recordings pertaining to the Collateral; and
(ix) to the extent not otherwise included, all Proceeds and products
of any of the foregoing, in any form (whether cash or non-cash)
and all collateral security and guarantees given by any Person
with respect to any of the foregoing.
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<PAGE> 11
SECTION 4.2 Collateral Account
(a) Establishment of Collateral Account. Upon the execution hereof, there
shall be established and at all times thereafter there shall be
maintained by the Borrower, a non-interest bearing cash collateral
account with a financial institution approved by the Lender (the
"Collateral Account") subject to the terms of this Agreement.
(b) Rights, Title and Interest of Collateral Account. All right, title and
interest in and to the Collateral Account shall vest exclusively in
the Lender. The Borrower shall have no rights with respect to the
Collateral Account and the Lender shall have sole dominion and control
over the Collateral Account and the monies deposited therein. Monies
deposited in the Collateral Account shall constitute security for the
Secured Obligations. The Borrower hereby pledges and assigns to the
Lender and hereby grants to the Lender a security interest in, all
right, title or interest (if any) which the Borrower now has or may
hereafter have or purport or claim to have in or to the Collateral
Account and all monies held therein, any investments made with such
monies and any and all certificates or instruments from time to time
representing or evidencing such investments (and all proceeds
thereof).
(c) Maintaining the Collateral Account. Until the Termination Date of this
Agreement:
(i) The Borrower will maintain the Collateral Account with a
financial institution approved by the Lender.
(ii) All monies received by the Lender while a Default or an Event of
Default has occurred and is continuing, and any monies received
as a result of investments made as contemplated by subsection
4.2(c)(iii) hereof, shall be deposited in the Collateral
Account.
(iii) Pending the disbursement thereof pursuant to the terms of this
Agreement, all monies in the Collateral Account shall (to the
extent it is practical to do so) be invested by the Lender in
Cash Equivalents. All such investments shall be evidenced either
(a) by negotiable certificates or instruments which are held by
or for the account of the Lender or (b) by book entries
maintained in a State in which the Lender may be granted by book
entries a security interest in the securities relating thereto.
In the absence of its gross negligence or willful misconduct,
the Lender shall not have any liability out of or in connection
with any investment made in accordance with the provisions
herein or for any loss or decline in value of any investment or
from any loss resulting
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directly or indirectly from any investment made pursuant to and
in accordance with the provisions hereof.
SECTION 4.3 Remedies.
(a) Proceeds to be Turned Over To the Lender. When a Default or an Event
of Default has occurred and is continuing all Proceeds (as defined in
the Code) received by the Borrower consisting of cash, checks and
other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall,
forthwith upon receipt by the Borrower, be turned over to the Lender
in the exact form received by the Borrower (duly indorsed by the
Borrower to the Lender, if required) and held by the Lender in the
Collateral Account. All Proceeds while held by the Lender in the
Collateral Account (or by the Borrower in trust for the Lender) shall
continue to be held as collateral security for all the Secured
Obligations and shall not constitute payment thereof until applied as
provided in subsection 4.3(b).
(b) Application of Proceeds. At such intervals as may be agreed upon by
the Borrower and the Lender, or, if an Event of Default has occurred
and is continuing at any time at the Lender's election, the Lender may
apply all or any part of Proceeds held in any Collateral Account in
payment of the Secured Obligations in such order as the Lender may
elect, and any part of such funds which the Lender elects not so to
apply and deems not required as collateral security for the Secured
Obligations shall be paid over from time to time by the Lender to the
Borrower or to whomsoever may be lawfully entitled to receive the
same. Any balance of such Proceeds remaining after the Secured
Obligations shall have been paid in full and the Commitment shall have
expired or otherwise been terminated shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the
same.
(c) Code Remedies. If an Event of Default has occurred and is continuing,
the Lender may exercise, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations,
all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Lender, without demand
of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to
below) to or upon the Borrower or any other Person (all and each of
which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith 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 otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more
parcels at public or private sale or sales,
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at any exchange, broker's board or office of the Lender or elsewhere
upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future
delivery without assumption of any credit risk. The Lender 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 in the Borrower, which right or equity is hereby
waived or released. The Borrower further agrees, at the Lender's
request, to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at
the Borrower's premises or elsewhere. To the extent permitted by
applicable law, the Borrower waives all claims, damages and demands it
may acquire against the Lender arising out of the exercise by them of
any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall
be deemed reasonable and proper if given at least 10 days before such
sale or other disposition.
(d) The exercise by the Lender of or failure or refusal to so exercise any
right, remedy or power granted under this Agreement or available to
the Lender at law or in equity or under statute shall in no manner
affect the Borrower's liability to the Lender, and the Lender shall be
under no obligation or duty to exercise any of the rights, remedies or
powers conferred upon it hereby or by applicable law, and it shall
incur no liability for any act or failure to act in connection with
the collection of, or the preservation of any rights under, any of the
Collateral.
SECTION 4.4 Lender Appointment as Attorney-in-Fact; Lender Performance of
Borrower's Obligations.
(a) Powers. The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Borrower
and in the name of the Borrower or in its own name, 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 which may be necessary or desirable to accomplish the
purposes of this Agreement, and, without limiting the generality of
the foregoing, the Borrower hereby gives the Lender the power and
right, on behalf of the Borrower, without notice to or assent by the
Borrower, to do any or all of the following:
(i) at any time when an Event of Default has occurred and is
continuing in the name of the Borrower or its own name, or
otherwise, take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for the
payment of moneys due with
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<PAGE> 14
respect to any Collateral and file any claim or take any other
action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Lender for the purpose of collecting
any and all such moneys due with respect to any Collateral
whenever payable;
(ii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any
insurance called for by the terms of this Agreement and pay all
or any part of the premiums therefor and the costs thereof;
(iii) execute, in connection with any sale provided for in subsection
4.3(c), any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(iv) at any time when an Event of Default has occurred and is
continuing (1) direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due
or to become due thereunder directly to the Lender or as the
Lender shall direct; (2) ask or demand for, collect, receive
payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of
or arising out of any Collateral; (3) sign and indorse any
invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with
any of the Collateral; (4) 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 thereof
and to enforce any other right in respect of any Collateral;
(5) defend any suit, action or proceeding brought against the
Borrower with respect to any Collateral (other than any such
suit, action or proceeding brought by the Lender); (6) settle,
compromise or adjust any such suit, action or proceeding
(other than any such suit, action or proceeding brought by the
Lender) and, in connection therewith, to give such discharges
or releases as the Lender may deem appropriate; (7) generally,
sell, transfer, pledge and make any agreement with respect to
or otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof
for all purposes, and do, at the Lender's option and the
Borrower's expense, at any time, or from time to time, all acts
and things which the Lender deems necessary to protect,
preserve or realize upon the Collateral and the Lender's
security interests therein and to effect the intent of this
Agreement, all as fully and effectively as the Borrower might
do.
(b) Ratification; Power Coupled With An Interest. The Borrower hereby
ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof in
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<PAGE> 15
accordance with the terms of this Agreement, absent gross negligence
or willful misconduct on the part of the Lender. All powers,
authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is
terminated and the security interests created hereby are released.
SECTION 4.5 Performance by Lender of Borrower's Obligations.
If the Borrower fails to perform or comply with any of its agreements
contained in this Article IV, the Lender, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.
SECTION 4.6 Borrower's Reimbursement Obligation.
The expenses of the Lender incurred in connection with actions undertaken as
provided in this Article IV, together with interest thereon at a rate equal to
the rate per annum at which interest would then be payable on past due Loans
under this Agreement, from the date of payment by the Lender to the date
reimbursed by the Borrower, shall be payable by the Borrower to the Lender on
demand.
SECTION 4.7 Duty of the Lender.
The Lender's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the
Code or otherwise, shall be to deal with it in the same manner as the Lender
deals with similar property for its own account. Neither the Lender, nor any of
its respective officers, directors, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Lender hereunder are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that its actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
SECTION 4.8 Execution of Financing Statements.
Pursuant to Section 9-402 of the Code, the Borrower authorizes the Lender to
file financing statements with respect to the Collateral without the signature
of the Borrower in such form and in such filing offices as the Lender reasonably
determines appropriate to perfect the security interests of the Lender under
this Agreement. The Lender shall provide the Borrower with copies of any such
financing statements. A carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
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SECTION 4.9 The Pledge Agreement.
In addition to the security interest granted hereunder, the Borrower shall
grant to the Lender a security interest in the Pledged Partnership Interests and
the Pledged Stock (as those terms are defined in the Pledge Agreement) pursuant
to the Pledge Agreement.
SECTION 4.10 Pledged Notes.
With respect to any promissory notes now or hereinafter owned or owing to the
Borrower, including, without limitation, the promissory note from Charter
Behavioral Health Systems, LLC, such notes shall be promptly endorsed in blank
and delivered to the Lender.
SECTION 4.11 Release of Collateral.
In the event that the Borrower desires to have any Collateral released in
connection with the sale, assignment, transfer or other conveyance of such
Collateral (including the release of any promissory note in connection with the
repayment thereof), the Borrower shall obtain the prior written consent of the
Lender to the release of such Collateral and the repayment of the portion of the
Loan which is allocable to such Collateral, which consent (of both the release
and the amount to be repaid) may be withheld in the Lender's sole and absolute
discretion. Any request by the Borrower for release of Collateral shall be in
writing and shall state that portion of the Loan which is allocable to such
Collateral. Provided that the Lender consents to any such release, the Lender
agrees to release such Collateral promptly following receipt by the Lender of
the allocable portion of the Loan attributable to such Collateral.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.1 Existence and Power.
The Borrower is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and has all corporate power
and authority, and all material governmental licenses, authorizations, consents,
and approvals required to carry on its business as now conducted.
SECTION 5.2 Corporate and Government Authorization; No Contravention.
The execution, delivery, and performance by the Borrower of this Agreement,
the Pledge Agreement and the Note are within the scope of the Borrower's power
and authority, have been duly authorized by all necessary corporate action of
the Borrower, require no action by or in respect of, or filing with any
governmental body, agency, or official and do
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<PAGE> 17
not contravene, or constitute a default under, the Certificate of Incorporation
or By-Laws of the Borrower or under any provision of applicable law or
regulation to which the Borrower is subject, or of any judgment, injunction,
order, or decree, binding upon the Borrower, except for such contraventions as
will not, singly or in the aggregate, have a material adverse effect on the
ability of the Borrower to perform its obligations under this Agreement, the
Pledge Agreement or the Note.
SECTION 5.3 Binding Effect.
This Agreement constitutes the legal, valid, binding, and enforceable
agreement of the Borrower, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
SECTION 5.4 Litigation.
There is no action, suit or proceeding pending against, or to the knowledge
of the Borrower, threatened against or affecting the Borrower before any court
or arbitrator or any governmental body, agency or official which could
materially adversely affect the business, financial position, results of
operations, or prospects of the Borrower or which could materially adversely
affect the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note or which in any manner draws into
question the validity of this Agreement, the Pledge Agreement or the Note.
SECTION 5.5 Taxes.
The Borrower has filed all material tax returns and reports required by law
to have been filed and has paid all taxes and governmental charges thereby shown
to be due and payable.
SECTION 5.6 Debt.
Except as set forth in the financial statements delivered to the Lender
pursuant to Section 5.10, the Borrower has and will have no Debt outstanding on
a Closing Date other than (i) the Debt outstanding hereunder, (ii) Debt that has
previously been disclosed to the Lender in writing, and (iii) Debt that will
not, in the aggregate, have a material adverse effect on the business,
operations, or prospects of the Borrower.
SECTION 5.7 Title to Assets.
(a) The Borrower has legal title to or a legal and valid leasehold
interest in all property and assets owned by it on the date hereof,
and will have legal title to all property and assets acquired by it at
any time subsequent to the date hereof, free and clear of all Liens,
except Liens in favor of the Lender.
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(b) Except for the security interest granted to the Lender pursuant to
this Agreement, the Borrower owns each item of the Collateral free and
clear of any and all Liens or claims of others. No financing statement
or other public notice with respect to all or any part of the
Collateral is on file or of record in any public office, except such
as have been filed in favor of the Lender pursuant to this Agreement
or the Pledge Agreement.
SECTION 5.8 Perfected First Priority Liens.
The security interests granted pursuant to this Agreement (a) constitute
perfected security interests in the Collateral in favor of the Lender, as
collateral security for the Secured Obligations and (b) are prior to all other
Liens on the Collateral in existence on the date hereof.
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SECTION 5.9 Inventory and Equipment.
The Inventory and the Equipment are kept at the locations listed on
Schedule 1.
SECTION 5.10 Chief Executive Office.
The Borrower's chief executive office is located at 777 Main St., Fort Worth,
Texas 76102.
SECTION 5.11 Farm Products.
None of the Collateral constitutes, or is the Proceeds of, Farm Products.
SECTION 5.12 No Subsidiaries.
The Borrower has no Subsidiaries on the date hereof.
SECTION 5.13 Financial Information.
All financial information which has been or shall hereafter be furnished by
or on behalf of the Borrower or by any other Person at the Borrower's direction
to the Lender for the purposes of or in connection with this Agreement present
fairly the financial condition as at the dates thereof (subject to normal year
end adjustments in the case of unaudited financial statements).
SECTION 5.14 No Material Adverse Change.
There has been no material adverse change in the business, financial
condition, operations, assets, revenues, properties, or prospects of the
Borrower taken as a whole from the financial information previously provided to
Lender.
ARTICLE VI
COVENANTS
The Borrower agrees that, so long as any amount payable hereunder remains
unpaid:
SECTION 6.1 Conduct of Business and Maintenance of Existence.
The Borrower will perform an intercompany agreement to be entered into
between the Lender and the Borrower and such activities as are necessary or
incidental thereto, and will preserve, renew and keep in full force and effect
its existence.
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SECTION 6.2 Financial Information.
The Borrower will deliver to the Lender:
(a) as soon as available, but in no event more than one hundred twenty
(120) days after the end of each fiscal year of the Borrower,
financial statements of the Borrower containing a balance sheet and
the related statements of operations and cash flows, showing the
financial condition of the Borrower at the close of and for such year;
and
(b) as soon as available, but in no event more than sixty (60) days after
the end of each of the first three quarters of each fiscal year of the
Borrower, financial statements of the Borrower, containing a balance
sheet and the related statements of income prepared or a cash basis,
showing the financial condition of the Borrower at the close of and
for such period.
The financial statements delivered pursuant to subsections (a) and (b) of
this Section 6.2 shall be certified by the president or chief financial officer
of the Borrower as true, complete, and correct and, as to the financial
statements delivered pursuant to subsection (a) of this Section 6.2, as having
been prepared in accordance with GAAP.
SECTION 6.3 Compliance with Laws.
The Borrower will comply with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply therewith will not materially
adversely affect the business, operations, or financial condition of the
Borrower or the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note.
SECTION 6.4 Incurrence of Debt.
The Borrower will not issue, assume, guarantee, incur, or otherwise be or
become liable in respect of Debt, other than (i) Debt expressly approved by the
Lender in writing, which approval may be withheld in the Lender's sole
discretion, or (ii) non-recourse Debt financing secured by property of the
Borrower not constituting Collateral prior to or as of June 30, 1997 (the Lender
hereby agreeing to cooperate with the Borrower to subordinate or release its
Lien on such property to permit any lender of such financing to obtain a first
lien thereon).
SECTION 6.5 Limitation on Liens.
The Borrower will not create, incur, assume or suffer to exist any Lien upon
or with respect to any of its assets, whether now or hereafter acquired, or
assign or otherwise convey any right to receive income, except (i) Liens in
favor of the Lender; (ii) Liens expressly
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approved by the Lender, which approval shall not be unreasonably withheld; (iii)
Liens imposed by any governmental authority for taxes, assessments or charges
not yet due or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Borrower in accordance with GAAP, and (iv) Liens disclosed to the
Lender on or before the Closing Date that would not, in the aggregate, have a
material adverse effect on the business, operations, or prospects of the
Borrower.
SECTION 6.6 Consolidations, Mergers, and Sales of Assets.
The Borrower will not wind up, liquidate or dissolve its affairs or convey,
sell, lease or otherwise dispose of (or agree to do any of the foregoing at any
future time), whether in one or a series of transactions, all or any substantial
part of its assets, unless such transaction or series of transactions are
expressly approved by the Lender, which approval shall not be unreasonably
withheld.
SECTION 6.7 Books and Records.
The Borrower will keep books and records which accurately reflect all of its
business affairs and transactions in all material respects. The Borrower will
permit the Lender at reasonable times and intervals during normal business hours
to examine and photocopy extracts from any of its books or other corporate
records.
SECTION 6.8 Lien on Collateral.
The Borrower shall, at its sole cost and expense, perform all acts and
execute all documents requested by the Lender at any time to evidence, perfect,
maintain and enforce the Lender's security interest and the first priority
thereof in the Collateral. Upon the Lender's request, at any time and from time
to time, the Borrower shall, at its sole cost and expense, execute and deliver
to the Lender one or more financing statements (in form and substance
satisfactory to the Lender) pursuant to the Code and, where permitted by law,
the Borrower hereby authorizes the Lender to execute and file one or more
financing statements signed only by the Lender or to file a copy of this
Agreement as a financing statement.
SECTION 6.9 Restriction on Dividends.
The Borrower will not make dividend distributions to its shareholders at any
time when there exists an outstanding balance on the Loan.
SECTION 6.10 Restriction on Certain Amendments.
The Borrower will not amend its organizational documents without the prior
written consent of the Lender, which consent shall not be unreasonably withheld.
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SECTION 6.11 Delivery of Instruments and Chattel Paper.
If any amount payable under or in connection with any of the Collateral shall
be or become evidenced by any Instrument or Chattel Paper, such Instrument or
Chattel Paper shall be immediately delivered to the Lender, duly indorsed in a
manner satisfactory to the Lender, to be held as Collateral pursuant to this
Agreement.
SECTION 6.12 Maintenance of Insurance.
The Borrower will maintain, with financially sound and reputable companies,
insurance policies (1) insuring the Inventory and Equipment against loss by
fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Lender, such policies to be in such form and amounts and
having such coverage as may be reasonably satisfactory to the Lender, with
losses payable to the Borrower and the Lender as their respective interests may
appear.
(a) All such insurance shall (1) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Lender of
written notice thereof, (2) name the Lender as an insured party and
(3) be reasonably satisfactory in all other respects to the Lender.
(b) The Borrower shall deliver to the Lender a report of a reputable
insurance broker with respect to such insurance in each calendar year
and such supplemental reports with respect thereto as the Lender may
from time to time reasonably request.
SECTION 6.13 Changes in Locations, Name, etc.
The Borrower will not unless it shall have given the Lender at least 30 days
prior written notice of such change (or, in the case of Inventory and Equipment,
at least 10 days prior written notice, to the extent that the Borrower has taken
such action as reasonably may be required of it to maintain the continuous
perfection of the Lender's security interest in such Inventory or Equipment, as
the case may be):
(a) permit any of the Inventory (other than goods-in-transit and
immaterial amounts of goods in temporary locations in the ordinary
course of business) or Equipment to be kept at a location other than
those listed on Schedule 1;
(b) change the location of its chief executive office from that specified
in subsection 5.10; or
(c) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Lender in connection with
this Agreement would become seriously misleading.
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SECTION 6.14 Further Identification of Collateral.
The Borrower will furnish to the Lender from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail.
SECTION 6.15 Notices.
The Borrower will advise the Lender promptly, in reasonable detail, of (a)
any Lien (other than security interests created hereby or Liens permitted under
this Agreement) on any of the Collateral and (b) the occurrence of any other
event which could reasonably be expected to have a material adverse effect on
the aggregate value of the Collateral or on the security interests created
hereby.
SECTION 6.16 Additional Collateral.
With respect to any Person other than Charter Behavioral Health Systems, LLC
(being specifically excluded) that, subsequent to the Closing Date, becomes a
Subsidiary, the Borrower will promptly cause such new Subsidiary to (i) execute
and deliver to the Lender a guaranty of the Loan in form and substance
satisfactory to the Lender, and a new pledge agreement or such amendments to the
existing Pledge Agreement as the Lender shall deem necessary or reasonably
advisable to grant to the Lender, for the benefit of the Lender, a Lien on the
capital stock of such Subsidiary which is owned by the Borrower or any of its
Subsidiaries, (ii) deliver to the Lender the certificates representing such
capital stock, together with undated stock powers executed and delivered in
blank by a duly authorized officer of the Borrower or such Subsidiary, as the
case may be, (iii) take all actions necessary or advisable to grant a security
interest to the Lender in the property and assets of such Subsidiary, including,
without limitation, the filing of financing statements in such jurisdictions as
may be requested by the Lender and the execution and delivery by such Subsidiary
of a security agreement in a form acceptable to the Lender.
ARTICLE VII
DEFAULTS
SECTION 7.1 Events of Default.
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
(a) except as permitted pursuant to Section 2.2(b), the Borrower shall
fail to pay within five Business Days of the due date any principal or
interest on the Loan;
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(b) any representation or warranty made by the Borrower hereunder or in
any certificate furnished by or on behalf of the Borrower shall be
incorrect when made in any material respect;
(c) the Borrower shall fail to observe or perform the provisions of
Section 6.9 hereof for five Business Days;
(d) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement, the Pledge Agreement, the Note
(other than those covered by clause (a), (b) or (c) above), or any
other Loan Document for 30 days (or, with respect to Section 6.2 of
this Agreement, for 30 days after written notice thereof has been
given to the Borrower by the Lender); provided however, if such
default is capable of cure and the Borrower is diligently proceeding
to cure such default, the cure period in this subsection (d) shall be
extended for such additional time, not to exceed 30 days, as is
reasonably necessary to complete such cure;
(e) the Borrower shall fail to make any payment in respect of any Material
Debt other than the Debt of the Borrower under this Agreement and the
Note when due or within any applicable grace period;
(f) the Borrower shall commence a voluntary case or other proceeding
seeking liquidation, reorganization, or other relief with respect to
itself or its debts under any bankruptcy, insolvency, or other similar
law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of
it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due, or shall
take any action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced against the
Borrower seeking liquidation, reorganization, rehabilitation,
conservation, or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian, rehabilitator, conservator, or other similar official of it
or any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of
120 days; or an order for relief shall be entered against the Borrower
under the federal bankruptcy laws or any state insolvency laws as now
or hereafter in effect;
(h) a judgment or order for the payment of money in excess of $500,000
shall be rendered against the Borrower and such judgment or order
shall continue
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<PAGE> 25
unsatisfied, unstayed and unbonded for a period of 30 days; provided,
however that a judgment or order fully covered by insurance, which
coverage has not been disputed by the insurer, shall not be considered
a Default;
then, and in every such event, the Lender may, by notice to the Borrower
declare the Note (together with accrued interest thereon) to be, and the
Note shall thereupon become, immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
hereby waived by the Borrower; provided that in the case of any of the
Events of Default specified in clause (f) or (g) above (each, a "Bankruptcy
Event of Default"), without any notice to the Borrower or any other act by
the Lender, the Note (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices.
All notices, requests and other communications to any party hereunder shall
be in writing (including bank wire, telex, facsimile transmission or similar
writing) and shall be given to such party: (i) in the case of the Borrower or
the Lender at their respective addresses, telex numbers or facsimile numbers set
forth on the signature pages hereof or (ii) in the case of any party, such other
address, telex number or facsimile number as such party may hereafter specify
for the purpose by notice to the other party in accordance with this Section.
All notices shall be effective when received.
SECTION 8.2 Expenses; Indemnification.
(a) The Borrower shall pay (i) all out-of-pocket expenses reasonably
incurred by the Lender, including reasonable fees and disbursements of
counsel in connection with any waiver or consent hereunder or any
amendment hereof or any Default or alleged Default hereunder, and (ii)
if an Event of Default occurs, all out-of-pocket expenses incurred by
the Lender, including reasonable fees and disbursements of counsel in
connection with such Event of Default and collection, bankruptcy,
insolvency, and other enforcement proceedings resulting therefrom. The
Borrower shall indemnify the Lender against any transfer taxes,
documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement,
the Pledge Agreement or the Note.
(b) The Borrower agrees to indemnify the Lender and hold the Lender
harmless from and against any and all liabilities, losses, damages,
costs and expenses of
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<PAGE> 26
any kind (other than general overhead and administrative expenses),
including, without limitation, the reasonable fees and disbursements
of counsel, which may be incurred by the Lender in connection with any
investigative, administrative, or judicial proceeding (whether or not
the Lender shall be designated a party thereto) relating to or arising
out of this Agreement, the Pledge Agreement or the Note or any actual
or proposed use of proceeds of the Loan hereunder; provided that the
Lender shall not have the right to be indemnified hereunder for (i)
any proceeding against the Lender by any governmental authority
charged with the supervision of the Lender or (ii) its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
SECTION 8.3 Amendments and Waivers.
Any provision of this Agreement, the Pledge Agreement, the Note or any other
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and is signed by the Lender and the Borrower.
SECTION 8.4 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of the Lender. The
purchaser, assignee, transferee, or pledgee of any of the Lender's rights under
the Lender's security interest hereunder shall forthwith become vested with and
entitled to exercise all the rights, powers, and remedies given under this
Agreement to the Lender, as if said purchaser, assignee, transferee, or pledgee
were originally named as secured party herein.
SECTION 8.5 Governing Law; Submission to Jurisdiction.
THIS AGREEMENT, THE PLEDGE AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF TEXAS WITHOUT
GIVING EFFECT TO THE CHOICE OF LAW RULES THEREOF. The Borrower hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Northern District of Texas and of any Texas state court for purposes of all
legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Borrower irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
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<PAGE> 27
SECTION 8.6 Counterparts; Integration.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement constitutes the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.
SECTION 8.7 WAIVER OF JURY TRIAL.
THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. This waiver of right to a
trial by jury is separately given, knowingly and voluntarily, by the Borrower
and the Lender, and this waiver is intended to encompass individually each
instance and each issue as to which the right to a trial by jury would otherwise
accrue. The Borrower and the Lender are hereby authorized and requested to
submit this Agreement to any court having jurisdiction over the subject matters
and the parties hereto, so as to serve as conclusive evidence of the parties'
herein contained waiver of the right to trial by jury. Further, the Borrower and
the Lender hereby certify that no representative, attorney or agent of any other
party has represented, expressly or otherwise, to the Borrower, or the Lender
that any other party will not seek to enforce this waiver of right to trial by
jury provision.
SECTION 8.8 Termination; Release.
Until the Termination Date, this Agreement shall be a continuing agreement,
shall remain in full force and effect. After the Termination Date, this
Agreement shall terminate, and the Lender, at the request and expense of the
Borrower, will execute and deliver to Borrower a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Borrower (without recourse and
without any representation or warranty) at the expense of the Lender the
Collateral if in the possession of the Lender or its agents and not theretofore
sold or otherwise applied or released pursuant to this Agreement.
SECTION 8.9 Effect of Headings.
The Article and Section headings herein are for convenience of reference only
and shall not affect the construction hereof.
SECTION 8.10 Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall not invalidate the remaining provisions hereof or affect the
validity or enforceability of such provisions in any other jurisdiction.
SECTION 8.11 Application of Proceeds.
The parties agree that the Lender shall have the right to apply the proceeds
of any Collateral under this Agreement or the Line of Credit Credit Agreement,
in its sole discretion, against the Secured Obligations under this Agreement or
the Secured Obligations under the Line of Credit Credit Agreement.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
CRESCENT OPERATING, INC.
By:
------------------------------------
Name:
Title:
Notice Address:
----------------------------------------
----------------------------------------
----------------------------------------
Facsimile:
------------------------------
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
its general partner
By:
------------------------------------
Name:
Title:
Notice Address:
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
<PAGE> 29
Exhibits and Schedules:
Exhibit A: Application for Advance
Exhibit B: Note
Exhibit C: Pledge Agreement
Exhibit D: Certificate
Schedule 1: Location of the Inventory and Equipment
<PAGE> 30
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to Crescent Real
Estate Equities Limited Partnership (the "Lender") pursuant to that certain
Amended and Restated Credit and Security Agreement, dated as of May 21, 1997,
between the Lender and the undersigned (the "Credit Agreement"). Each
capitalized term used herein and not otherwise defined shall have the respective
meaning ascribed to such term in the Credit Agreement.
1. The undersigned hereby requests an Advance under the Credit Agreement in
the amount of: ($________________.00).
2. The undersigned hereby requests that such Advance be made on:
_______________, 199_.
3. The undersigned hereby represents and warrants to the Lender as follows:
(a) The undersigned is not in Default under the Credit Agreement.
(b) No Event of Default has occurred or is continuing.
(c) Both before and after giving effect to the advance requested hereby,
the representations and warranties set forth in Section 3.1(b) of the
Credit Agreement are true and correct, with the same effect as if
made on the date hereof.
Unless the undersigned has otherwise notified the Lender in writing prior to
the Closing Date and the making of the advance requested hereby, each of such
representations and warranties is true and correct as of the date hereof and as
of the Closing Date.
CRESCENT OPERATING, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 31
EXHIBIT D
FORM OF CLOSING DATE CERTIFICATE
The undersigned, _______________, ______________ of CRESCENT OPERATING,
INC., a Delaware corporation, (the "Borrower"), hereby certifies to the best of
his knowledge that:
1. Select either a or b:
__ a. Since the previous Closing Date, there have been no changes
to the articles of incorporation of the Borrower.
__ b. A certified copy of the articles of incorporation of the
Borrower, as amended to the date hereof, is attached hereto as Exhibit A.
2. Select either a or b:
__ a. Since the previous Closing Date, there have been no changes
to the bylaws of the Borrower.
__ b. A certified copy of the bylaws of the Borrower, as amended
to the date hereof, is attached hereto as Exhibit B.
3. Attached hereto as Exhibit C is a copy of the resolutions of the
board of directors of the Borrower authorizing the execution, delivery and
performance of the Application for Advance, certified as of the Closing Date by
its corporate secretary.
4. Attached hereto as Exhibit D is a certificate of incumbency of the
officers of the Borrower, certificated by its corporate secretary.
5. Attached hereto as Exhibit E is a certificate of good standing of
the borrower issued as of a recent date by the Secretary of State of Delaware.
IN WITNESS WHEREOF, I have hereto set my hand this __ day of
__________.
-------------------------
Name:
Title:
<PAGE> 32
May 21, 1997
AMENDED AND RESTATED
NOTE
$35,900,000.00
FOR VALUE RECEIVED, CRESCENT OPERATING, INC., a Delaware corporation
("Borrower") promises to pay to CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102, the principal sum of Thirty-Five Million
Nine Hundred Thousand and No/100 Dollars ($35,900,000.00), with interest on the
principal balance from time to time remaining unpaid at the rates hereinafter
provided.
The Borrower promises to pay interest on the unpaid principal balance
hereof from the date hereof until paid in full pursuant to the Amended and
Restated Credit and Security Agreement, dated as of May 21, 1997, between the
Borrower and the Lender (as the same may be amended, modified or supplemented
from time to time, the "Credit Agreement"). The Borrower promises to pay the
aggregate outstanding principal amount of the Loan together with interest
thereon, on the dates, in the amounts and at the rate or rates provided in the
Credit Agreement; provided that the interest payable shall not exceed the
maximum rate permitted by applicable law (the "Maximum Rate"). Interest on the
principal hereof from time to time remaining unpaid and, to the extent
permitted by applicable law, interest on the unpaid interest, shall bear
interest from and after an Event of Default at the Default Rate provided that
in no event shall the Default Rate be more than the Maximum Rate.
This Note amends and restates, and supersedes, in its entirety, that
Note dated May 8, 1997, from Borrower to Lender in the maximum aggregate
principal amount of Thirty Million Four Hundred Thousand Dollars ($30,400,000).
This note is the Note referred to in the Credit Agreement. This Note and the
holder hereof are entitled to all of the benefits provided for thereby or
referred to therein. Reference is hereby made to the Credit Agreement for a
statement of such benefits. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof.
This Note shall be payable as provided in the Credit Agreement.
Upon the occurrence of any Event of Default (after the giving of any
notice required in the Credit Agreement and the expiration of any applicable
grace periods provided for in the Credit Agreement), all amounts then remaining
unpaid on this Note shall become immediately due and payable, and the holder
hereof shall have all rights and remedies of Lender under the Credit Agreement
and other Loan Documents. The failure to exercise the option to accelerate the
maturity of this Note upon the happening of any one or more of the Events of
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<PAGE> 33
Default hereunder shall not constitute a waiver of the right with respect to
such uncured default or any other event of uncured default hereunder or under
any other of the Loan Documents. The remedies of the holder hereof, as
provided in the Note and in any other of the Loan Documents, shall be
cumulative and concurrent and may be pursued separately, successively or
together, as often as occasion therefor shall arise, at the sole discretion of
the holder. The acceptance by the holder hereof of any payment under this Note
which is less than payment in full of all amounts due and payable at the time
of such shall not constitute a waiver of or impair, reduce, release, or
extinguish any of the rights or remedies of the holder hereof to exercise the
foregoing option or any other option granted to the holder in this Note or in
any other of the Loan Documents, at that time or at any subsequent time, or
nullify any prior exercise of any such option.
The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, surety, or otherwise, except as provided
in the Credit Agreement, severally waive demand, presentment, notice of
dishonor, notice of intention to accelerate the indebtedness evidenced hereby,
notice of the acceleration of the maturity hereof, diligence in collecting,
grace, notice and protest, and consent to all extensions which from time to
time may be granted by the holder hereof and to all partial payments hereon,
whether before or after maturity.
If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy, or other court,
whether before or after maturity, the undersigned agrees to pay all costs of
collection, including, but not limited to, reasonable attorneys' fees and
expenses incurred by the holder hereof.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid, or agreed to be paid to the holder hereof exceed the maximum
amount permissible under applicable law. If from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excess interest
shall be applied to the reduction of the principal hereof and not to the
payment of interest, or if such excess interest exceeds the unpaid balance of
principal hereof, such excess shall be refunded to the undersigned. All
interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full period until payment in full of the principal so that the
interest hereon for such full period shall not exceed the maximum amount
permitted by applicable law. This paragraph shall control all agreements
between the undersigned and the holder hereof.
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 of the Texas Credit Code (Title 79, Revised Civil
Statutes of Texas, 1925, as amended).
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<PAGE> 34
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.
CRESCENT OPERATING, INC.
By:
----------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.6
Execution Copy
LINE OF CREDIT
CREDIT AND SECURITY AGREEMENT
THIS LINE OF CREDIT CREDIT AND SECURITY AGREEMENT (as it may be modified,
supplemented or amended from time to time, this "Agreement") is made and
entered into as of May 21, 1997 between CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Lender"), and CRESCENT
OPERATING, INC., a Delaware corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower has requested that the Lender extend a credit
facility (the "Loan") in the maximum aggregate principal amount of $20,400,000
for the purpose of permitting the Borrower to make certain investments
identified herein;
WHEREAS, the Lender is willing to extend the Loan for such purpose on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the agreements,
covenants and conditions contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
(a) The following terms which are defined in the Uniform Commercial
Code in effect in the State of Texas on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents,
Equipment, Farm Products, General Intangibles, Instruments,
Inventory and Proceeds.
(b) The following terms, as used herein, have the following meanings:
"Agreement" has the meaning set forth in the initial paragraph hereof.
"Application for Advance" has the meaning set forth in Section 2.1(a)
hereof.
"Bankruptcy Event of Default" has the meaning set forth in Section 7.1.
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<PAGE> 2
"Borrower" means Crescent Operating, Inc., and its permitted successors
and assigns.
"Business Day" means any day except a Saturday, Sunday, or other day on
which commercial banks in Texas are authorized by law to close.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank or investment bank satisfying the requirements of clause (b) of
this definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
Government or any agency thereof, (d) commercial paper issued in the United
States which is rated at least A-2 by Standard and Poor's Services or P-2 by
Moody's Investors Service, (e) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government are rated at least A by
Standard and Poor's Services or A by Moody's Investors Service, (f) securities
with maturities of one year or less from the date of acquisition backed by
standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition, or (g) shares of money market
mutual or similar funds which invest substantially exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"Closing Date" means the date this Agreement becomes effective in
accordance with Section 3.1, and each other date on which an advance is made by
the Lender to the Borrower.
"Code" means the Uniform Commercial Code as from time to time in effect in
the State of Texas.
"Collateral" has the meaning set forth in Section 4.1.
"Collateral Account" has the meaning set forth in Section 4.2.
"Consolidated Net Income" or "Consolidated Net Loss" for any fiscal
period, means the amount which, in conformity with GAAP, would be set forth
opposite the caption "net income" (or any like caption), as the case may be, on
a consolidated statement of earnings of the Borrower and its Subsidiaries, if
any, for such fiscal period.
"Debt" of any Person means at any date, (i) all obligations of such Person
which in accordance with GAAP would be classified on a balance sheet of such
Person as liabilities of such Person ("debt"), (ii) all debt of others secured
by a Lien on any asset of such Person, whether or not such debt is assumed by
such Person, and (iii) all debt of others guaranteed by such Person.
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<PAGE> 3
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.3(b).
"EBITDA" means for any fiscal period, the Consolidated Net Income or
Consolidated Net Loss, as the case may be, for such fiscal period, after
restoring thereto amounts deducted for (a) extraordinary losses (or deducting
therefrom any amounts included therein on account of extraordinary gains) and
special charges, (b) depreciation and amortization (including write-offs or
write-downs) and special charges, (c) the amount of interest expense of the
Borrower and its Subsidiaries, if any, determined on a consolidated basis in
accordance with GAAP, for such period on the aggregate principal amount of
their consolidated indebtedness, (d) the amount of tax expense of the Borrower
and its Subsidiaries, if any, determined on a consolidated basis in accordance
with GAAP, for such period and (e) the aggregate amount of fixed and contingent
rentals payable by the Borrower and its Subsidiaries, if any, determined on a
consolidated basis in accordance with GAAP, for such period with respect to
leases of real and personal property.
"Event of Default" has the meaning set forth in Section 7.1.
"GAAP" means generally accepted accounting principles in effect from time
to time.
"Interest Rate" has the meaning set forth in Section 2.3(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Lender" means Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership, and its successors and assigns.
"Lien" means, with respect to any asset, any mortgage, deed of trust, lien
pledge, charge, security interest, or encumbrance of any kind in respect of
such asset.
"Loan" has the meaning set forth in the recitals hereto.
"Loan Commitment" has the meaning set forth in Section 2.1.
"Loan Documents" means this Agreement, the Note, the Pledge Agreement and
all other documents, agreements, and instruments referred to in or required to
be delivered or actually delivered in connection herewith or therewith, as any
of them may be modified, supplemented, or amended from time to time.
"Material Debt" means Debt (other than the Note) of the Borrower, arising
in one or more related or unrelated transactions, in an aggregate principal
amount exceeding $50,000.
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<PAGE> 4
"Maturity Date" means the later to occur of (a) May 21, 2002 or (b) the
fifth anniversary of the date of the last Application for Advance funded by the
Lender hereunder; provided, however, that in no event shall the Maturity Date
be later than June 22, 2007.
"Note" means the promissory note of the Borrower payable to the order of
the Lender under the terms of this Agreement, as the same may be modified,
supplemented, or amended from time to time, and any note or notes issued in
substitution or replacement therefor or in addition thereto, substantially in
the form of Exhibit B hereto, in the maximum principal amount from time to time
outstanding of up to Twenty Million Four Hundred Thousand Dollars
($20,400,000.00), evidencing the obligation of the Borrower to repay the Loan,
as modified, supplemented or amended from time to time.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement dated May 8, 1997 executed
and delivered by the Borrower, as the same may be amended, supplemented or
otherwise modified from time to time.
"Secured Obligations" means the collective reference to the unpaid
principal of and interest on the Note and all other obligations and liabilities
of the Borrower to the Lender whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, this Agreement, the Note, the
Pledge Agreement or any other document, made, delivered or given in connection
therewith, in each case whether on account of principal, interest reimbursement
obligations, fees, indemnities, costs, expenses or otherwise.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which such Person owns
directly or indirectly through one or more intermediaries 50% or more of the
voting stock, partnership interests or other interests thereof or which is
controlled or capable of being controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"Term Loan Credit and Security Agreement" means the Credit and Security
Agreement dated as of May 8, 1997 between the Borrower and the Lender, as such
agreement may be amended, supplemented or otherwise modified from time to time.
"Termination Date" shall mean the date 95 days from the date upon which
the Loan has been satisfied in full.
SECTION 1.2 Rules of Construction.
(a) Words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders.
Unless the context
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<PAGE> 5
shall otherwise indicate, words importing the singular number shall
include the plural and vice versa.
(b) Reference to a section number, such as this Section 1.2, shall mean
and include all provisions within that section of this Agreement,
unless a particular subsection, paragraph or subparagraph is
specified.
(c) Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall
be made, and all financial statements required to be delivered
hereunder shall be prepared in accordance with GAAP as in effect
from time to time, except as otherwise specified herein, applied on
a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent
audited consolidated financial statements of the Borrower delivered
to the Lender.
ARTICLE II
COMMITMENT, ADVANCE PROCEDURE, AND NOTES
SECTION 2.1 Commitment and Advance Procedure.
(a) The Lender agrees, on and subject to the terms and conditions set
forth in this Agreement, to make advances to the Borrower during
the term hereof ((each, an "Advance") each such Advance to be a
minimum amount of $1,000,000.00), not more than once per month, up
to an aggregate amount of Twenty Million Four Hundred Thousand
Dollars ($20,400,000.00) (the "Loan Commitment"), following the
Lender's receipt of a written request from the Borrower made to the
Lender in the form set forth in Exhibit A hereto (an "Application
for Advance"), and delivered in accordance with this Section 2.1
and Section 8.1 hereof.
(b) Within the limits of this Section 2.1, during the term hereof, the
Borrower may borrow, repay, and reborrow in accordance with the
terms and conditions of this Agreement.
(c) For each Advance, the Borrower shall provide the Lender with an
Application for Advance, specifying (i) the amount of the Advance
requested, and (ii) the requested date of such Advance (which shall
be at least that number of Business Days after delivery of such
Application for Advance as specified in (e) below).
(d) Notwithstanding any provision hereof to the contrary, the Lender
shall have no obligation at any time to make any Advances to the
Borrower hereunder unless, on the date of the Lender's receipt of a
properly completed and
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<PAGE> 6
executed Application for Advance, the Borrower shall have certified
to the Lender in writing that the Borrower is not in Default
hereunder.
(e) The Lender shall have the obligation to make an advance in
accordance with the provisions hereof, including the provisions of
this Section 2.1, within five (5) Business Days after its receipt
of a properly completed and executed Application for Advance that,
together with all other advances and Applications for Advance,
requests advances totaling no more than the Loan Commitment.
(f) The Borrower shall have the right to make requests for Advances
during the period beginning on the date hereof and continuing
through June 15, 2002. The Lender shall have no obligation to fund
any Applications for Advance submitted after such date.
SECTION 2.2 The Note.
(a) The Loan will be evidenced by the Note. Payments under the Note
shall be applied first to any fees, costs or expenses due under the
Note or hereunder, then to interest, and then to principal.
(b) Notwithstanding any other provision of this Agreement, all
outstanding principal and interest of the Loan and all other
amounts payable hereunder, if not sooner paid, shall be due and
payable on the Maturity Date.
SECTION 2.3 Interest Rate and Payments.
(a) Unless an Event of Default shall have occurred and be continuing,
the Loan shall bear interest on the outstanding principal amount
thereof until paid in full, at a rate per annum equal to Twelve
Percent (12%) (the "Interest Rate").
(b) Upon and after an Event of Default, the Loan shall accrue interest
on the outstanding principal balance of the Loan and, to the extent
permitted by applicable law, on the unpaid interest, at a rate per
annum equal to the Interest Rate plus an additional 5.0% per annum
(the "Default Rate"), provided that in no event shall the Default
Rate exceed the maximum rate of interest permitted by applicable
law.
(c) Interest shall be due during the term hereof on the first Business
Day of each August, November, February and May, or such other date
as the Borrower and the Lender may mutually agree in writing.
(d) Notwithstanding Section 2.3(c), if the sum of (i) the amount of
interest to be paid by the Borrower to the Lender pursuant to this
Agreement and (ii) the amount of principal and interest to be paid
by the Borrower to the Lender
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pursuant to the Term Loan Credit and Security Agreement, exceeds
the amount of EBITDA of the Borrower for the immediately preceding
calendar quarter (ending the last day of September, December,
March, or June), the Borrower shall not be obligated to repay the
amount of interest otherwise due pursuant to the terms hereof in
excess of the amount of EBITDA of the Borrower for the immediately
preceding calendar quarter.
(e) Accrued interest not paid when due shall be compounded quarterly
and added to the outstanding principal amount of the Loan.
(f) On the Maturity Date, the Borrower shall repay in full all accrued
but unpaid interest and the entire unpaid principal amount of the
Loan.
SECTION 2.4 General Provisions as to Payments.
The Borrower shall make each payment of principal of, and interest on, the
Loan not later than 11:00 A.M. Fort Worth, Texas time on the date when due, to
the Lender at the Lender's office at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 in same day or other immediately available funds. Whenever any
payment of principal of, or interest on, any Loan shall be due on a day which
is not a Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon shall be payable
for such extended time. All such payments shall be made without setoff or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or political
subdivision or taking authority thereof (but excluding any taxes imposed on or
measured by the overall net income of the Lender).
SECTION 2.5 Computation of Interest.
All interest shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day, but excluding
the last day).
SECTION 2.6 Use of Proceeds.
The proceeds of the Loan shall be used solely to enable the Borrower to
invest in (i) Moody-Day, Inc., Dallas Basketball, Ltd, Hicks Muse Tate & Furst
Equity Fund II, LP, Charter Behavioral Health Systems, LLC (including the
satisfaction of obligations to make ongoing investments in such entities), and
(ii) such other investments as the Lender may consent to in writing, which
consent may be withheld in the Lender's sole discretion.
SECTION 2.7 Evidence of Debt.
(a) The Lender shall record (i) the amount of each Advance made
hereunder, (ii) the amount of any principal or interest due and
payable or to become due
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and payable from the Borrower to the Lender hereunder and (iii) the
amount of any sum received by the Lender hereunder from the
Borrower.
(b) The entries recorded by the Lender shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded;
provided, however, that the failure of the Lender to record or any
error in any record shall not in any manner affect the obligation
of the Borrower to repay (with applicable interest) the Loans made
to such Borrower in accordance with the terms of this Agreement.
ARTICLE III
CONDITIONS TO BORROWING
SECTION 3.1 Conditions to Effectiveness and Further Borrowings.
(a) This Agreement shall become effective on the date that each of the
conditions set forth below shall have been satisfied (or waived in
accordance with Section 8.3):
(i) The Lender shall have received this Agreement, duly executed
by the Borrower;
(ii) The Lender shall have received from the Borrower a certificate
that each of the representations and warranties of the
Borrower contained in this Agreement is true, correct, and
complete as of the Closing Date;
(iii) The Lender shall have received a duly executed Note dated as
of the Closing Date;
(iv) The Lender shall have received a duly executed Pledge
Agreement dated as of the Closing Date and such other
documents relating to the Pledge Agreement as reasonably
required by the Lender;
(v) The Lender shall have received proper financing statements
(Forms UCC-1 or the appropriate equivalent) necessary to
perfect the security interest in the Borrower's interest in
the Collateral (or such part thereof in which a security
interest can be perfected thereby);
(vi) The Lender shall have received the following: (A) the
articles of incorporation of the Borrower as in effect on the
Closing Date, certified as of a recent date by the Secretary
of State of Delaware, (B) the bylaws of the Borrower as in
effect on the Closing Date, certified as of a recent date by
the Secretary of the Borrower, (C) resolutions of the board of
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directors of the Borrower authorizing the execution, delivery
and performance of this Agreement, certified as of the Closing
Date by its corporate secretary, (D) certificates as to the
incumbency of the officers of the Borrower, certified by its
corporate secretary, and (E) certificates of good standing of
the Borrower issued as of a recent date by the Secretary of
State of Delaware; and
(vii) No event, which, after execution of this Agreement, would
constitute an Event of Default hereunder shall have occurred
and be continuing.
(b) As of any other Closing Date, each of the conditions set forth
below shall have been satisfied (or waived in accordance with
Section 8.3):
(i) The Lender shall have received from the Borrower a certificate
that each of the representations and warranties of the
Borrower contained in this Agreement is true, correct and
complete as of the Closing Date;
(ii) The Lender shall have received a certificate in the form of
Exhibit C hereto enclosing the following: (A) a representation
that there has been no change in the articles of incorporation
of the Borrower since the Closing Date, or if changes have
occurred since the Closing Date, the articles of incorporation
of the Borrower as in effect, certified as of a recent date by
the Secretary of State of Delaware, (B) a representation that
there has been no change in the bylaws of the Borrower since
the Closing Date, or if changes have occurred since the
Closing Date, the bylaws of the Borrower as in effect,
certified as of a recent date by the Secretary of the
Borrower, (C) resolutions of the board of directors of the
Borrower authorizing the execution, delivery and performance
of the Application for Advance, certified as of the Closing
Date by its corporate secretary, (D) certificates as to the
incumbency of the officers of the Borrower, certified by its
corporate secretary, and (E) certificates of good standing of
the Borrower issued as of a recent date by the Secretary of
State of Delaware; and
(iii) No event which constitutes an Event of Default hereunder
shall have occurred and be continuing.
ARTICLE IV
SECURITY INTEREST
SECTION 4.1 Grant of Security Interest.
(a) As security for the prompt payment, performance, and observance in
full of the Loan, the Borrower hereby pledges and assigns to the
Lender, and grants
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to the Lender a continuing security interest in and lien on all of
the following property now owned or at any time hereafter acquired
by the Borrower or in which the Borrower now has or at any time in
the future may acquire any right, title or interest (the
"Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Documents;
(iv) all Equipment;
(v) all General Intangibles;
(vi) all Instruments;
(vii) all Inventory;
(viii) all books and recordings pertaining to the Collateral;
and
(ix) to the extent not otherwise included, all Proceeds and
products of any of the foregoing, in any form (whether
cash or non-cash) and all collateral security and
guarantees given by any Person with respect to any of
the foregoing.
SECTION 4.2 Collateral Account
(a) Establishment of Collateral Account. Upon the execution hereof,
there shall be established and at all times thereafter there shall
be maintained by the Borrower, a non-interest bearing cash
collateral account with a financial institution approved by the
Lender (the "Collateral Account") subject to the terms of this
Agreement.
(b) Rights, Title and Interest of Collateral Account. All right, title
and interest in and to the Collateral Account shall vest
exclusively in the Lender. The Borrower shall have no rights with
respect to the Collateral Account and the Lender shall have sole
dominion and control over the Collateral Account and the monies
deposited therein. Monies deposited in the Collateral Account
shall constitute security for the Secured Obligations. The
Borrower hereby pledges and assigns to the Lender and hereby grants
to the Lender a security interest in, all right, title or interest
(if any) which the Borrower now has or may hereafter have or
purport or claim to have in or to the Collateral Account and all
monies held therein, any investments made with such
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monies and any and all certificates or instruments from time to
time representing or evidencing such investments (and all proceeds
thereof).
(c) Maintaining the Collateral Account. Until the Termination Date of
this Agreement:
(i) The Borrower will maintain the Collateral Account with
a financial institution approved by the Lender.
(ii) All monies received by the Lender while a Default or an
Event of Default has occurred and is continuing, and
any monies received as a result of investments made as
contemplated by subsection 4.2(c)(iii) hereof, shall be
deposited in the Collateral Account.
(iii) Pending the disbursement thereof pursuant to the terms
of this Agreement, all monies in the Collateral Account
shall (to the extent it is practical to do so) be
invested by the Lender in Cash Equivalents. All such
investments shall be evidenced either (a) by negotiable
certificates or instruments which are held by or for
the account of the Lender or (b) by book entries
maintained in a State in which the Lender may be
granted by book entries a security interest in the
securities relating thereto. In the absence of its
gross negligence or willful misconduct, the Lender
shall not have any liability out of or in connection
with any investment made in accordance with the
provisions herein or for any loss or decline in value
of any investment or from any loss resulting directly
or indirectly from any investment made pursuant to and
in accordance with the provisions hereof.
SECTION 4.3 Remedies.
(a) Proceeds to be Turned Over To the Lender. When a Default or an
Event of Default has occurred and is continuing all Proceeds (as
defined in the Code) received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in
trust for the Lender, segregated from other funds of the Borrower,
and shall, forthwith upon receipt by the Borrower, be turned over
to the Lender in the exact form received by the Borrower (duly
endorsed by the Borrower to the Lender, if required) and held by
the Lender in the Collateral Account. All Proceeds while held by
the Lender in the Collateral Account (or by the Borrower in trust
for the Lender) shall continue to be held as collateral security
for all the Secured Obligations and shall not constitute payment
thereof until applied as provided in subsection 4.3(b).
(b) Application of Proceeds. At such intervals as may be agreed upon
by the Borrower and the Lender, or, if an Event of Default has
occurred and is
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continuing at any time at the Lender's election, the Lender may
apply all or any part of Proceeds held in any Collateral Account in
payment of the Secured Obligations in such order as the Lender may
elect, and any part of such funds which the Lender elects not so to
apply and deems not required as collateral security for the Secured
Obligations shall be paid over from time to time by the Lender to
the Borrower or to whomsoever may be lawfully entitled to receive
the same. Any balance of such Proceeds remaining after the Secured
Obligations shall have been paid in full and the Commitment shall
have expired or otherwise been terminated shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the
same.
(c) Code Remedies. If an Event of Default has occurred and is
continuing, the Lender may exercise, in addition to all other
rights and remedies granted to it in this Agreement and in any
other instrument or agreement securing, evidencing or relating to
the Secured Obligations, all rights and remedies of a secured party
under the Code. Without limiting the generality of the foregoing,
the Lender, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon the
Borrower or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith 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 otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more
parcels at public or private sale or sales, at any exchange,
broker's board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Lender 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 in the Borrower, which right or equity is hereby waived
or released. The Borrower further agrees, at the Lender's request,
to assemble the Collateral and make it available to the Lender at
places which the Lender shall reasonably select, whether at the
Borrower's premises or elsewhere. To the extent permitted by
applicable law, the Borrower waives all claims, damages and demands
it may acquire against the Lender arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10
days before such sale or other disposition.
(d) The exercise by the Lender of or failure or refusal to so exercise
any right, remedy or power granted under this Agreement or
available to the Lender at law or in equity or under statute shall
in no manner affect the Borrower's
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liability to the Lender, and the Lender shall be under no
obligation or duty to exercise any of the rights, remedies or
powers conferred upon it hereby or by applicable law, and it shall
incur no liability for any act or failure to act in connection with
the collection of, or the preservation of any rights under, any of
the Collateral.
SECTION 4.4 Lender Appointment as Attorney-in-Fact; Lender Performance of
Borrower's Obligations.
(a) Powers. The Borrower hereby irrevocably constitutes and appoints
the Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the
Borrower and in the name of the Borrower or in its own name, 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 which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the
generality of the foregoing, the Borrower hereby gives the Lender
the power and right, on behalf of the Borrower, without notice to
or assent by the Borrower, to do any or all of the following:
(i) at any time when an Event of Default has occurred and
is continuing in the name of the Borrower or its own
name, or otherwise, take possession of and indorse and
collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due with respect
to any Collateral and file any claim or take any other
action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Lender for the
purpose of collecting any and all such moneys due with
respect to any Collateral whenever payable;
(ii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs
or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums
therefor and the costs thereof;
(iii) execute, in connection with any sale provided for in
subsection 4.3(c), any endorsements, assignments or
other instruments of conveyance or transfer with
respect to the Collateral; and
(iv) at any time when an Event of Default has occurred and
is continuing (1) direct any party liable for any
payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder
directly to the Lender or as the Lender shall direct;
(2) ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other
amounts due or to become due at any time
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in respect of or arising out of any Collateral; (3)
sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications,
notices and other documents in connection with any of
the Collateral; (4) 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 thereof and to enforce any other right in respect
of any Collateral; (5) defend any suit, action or
proceeding brought against the Borrower with respect to
any Collateral (other than any such suit, action or
proceeding brought by the Lender); (6) settle,
compromise or adjust any such suit, action or
proceeding (other than any such suit, action or
proceeding brought by the Lender) and, in connection
therewith, to give such discharges or releases as the
Lender may deem appropriate; (7) generally, sell,
transfer, pledge and make any agreement with respect to
or otherwise deal with any of the Collateral as fully
and completely as though the Lender were the absolute
owner thereof for all purposes, and do, at the Lender's
option and the Borrower's expense, at any time, or from
time to time, all acts and things which the Lender
deems necessary to protect, preserve or realize upon
the Collateral and the Lender's security interests
therein and to effect the intent of this Agreement, all
as fully and effectively as the Borrower might do.
(b) Ratification; Power Coupled With An Interest. The Borrower hereby
ratifies all that said attorneys shall lawfully do or cause to be
done by virtue hereof in accordance with the terms of this
Agreement, absent gross negligence or willful misconduct on the
part of the Lender. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security
interests created hereby are released.
SECTION 4.5 Performance by Lender of Borrower's Obligations.
If the Borrower fails to perform or comply with any of its agreements
contained in this Article IV, the Lender, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.
SECTION 4.6 Borrower's Reimbursement Obligation.
The expenses of the Lender incurred in connection with actions undertaken
as provided in this Article IV, together with interest thereon at a rate equal
to the rate per annum at which interest would then be payable on past due Loans
under this Agreement, from the date of payment by the Lender to the date
reimbursed by the Borrower, shall be payable by the Borrower to the Lender on
demand.
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SECTION 4.7 Duty of the Lender.
The Lender's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender,
nor any of its respective officers, directors, employees or agents shall be
liable for failure to demand, collect or realize upon any of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Borrower or any other Person
or to take any other action whatsoever with regard to the Collateral or any
part thereof. The powers conferred on the Lender hereunder are solely to
protect the Lender's interests in the Collateral and shall not impose any duty
upon the Lender to exercise any such powers. The Lender shall be accountable
only for amounts that its actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Borrower for any act or failure to act hereunder,
except for their own gross negligence or willful misconduct.
SECTION 4.8 Execution of Financing Statements.
Pursuant to Section 9-402 of the Code, the Borrower authorizes the Lender
to file financing statements with respect to the Collateral without the
signature of the Borrower in such form and in such filing offices as the Lender
reasonably determines appropriate to perfect the security interests of the
Lender under this Agreement. The Lender shall provide the Borrower with copies
of any such financing statements. A carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.
SECTION 4.9 The Pledge Agreement.
In addition to the security interest granted hereunder, the Borrower shall
grant to the Lender a security interest in the Pledged Partnership Interests
and the Pledged Stock (as those terms are defined in the Pledge Agreement)
pursuant to the Pledge Agreement.
SECTION 4.10 Pledged Notes.
With respect to any promissory notes now or hereinafter owned or owing to
the Borrower, including, without limitation, the promissory note from Charter
Behavioral Health Systems, LLC, such notes shall be promptly endorsed in blank
and delivered to the Lender.
SECTION 4.11 Release of Collateral.
In the event that the Borrower desires to have any Collateral released in
connection with the sale, assignment, transfer or other conveyance of such
Collateral (including the release of any promissory note in connection with the
repayment thereof), the Borrower shall
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obtain the prior written consent of the Lender to the release of such
Collateral and the repayment of the portion of the Loan which is allocable to
such Collateral, which consent (of both the release and the amount to be
repaid) may be withheld in the Lender's sole and absolute discretion. Any
request by the Borrower for release of Collateral shall be in writing and shall
state that portion of the Loan which is allocable to such Collateral. Provided
that the Lender consents to any such release, the Lender agrees to release such
Collateral promptly following receipt by the Lender of the allocable portion of
the Loan attributable to such Collateral.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 5.1 Existence and Power.
The Borrower is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has all corporate
power and authority, and all material governmental licenses, authorizations,
consents, and approvals required to carry on its business as now conducted.
SECTION 5.2 Corporate and Government Authorization; No Contravention.
The execution, delivery, and performance by the Borrower of this
Agreement, the Pledge Agreement and the Note are within the scope of the
Borrower's power and authority, have been duly authorized by all necessary
corporate action of the Borrower, require no action by or in respect of, or
filing with any governmental body, agency, or official and do not contravene,
or constitute a default under, the Certificate of Incorporation or By-Laws of
the Borrower or under any provision of applicable law or regulation to which
the Borrower is subject, or of any judgment, injunction, order, or decree,
binding upon the Borrower, except for such contraventions as will not, singly
or in the aggregate, have a material adverse effect on the ability of the
Borrower to perform its obligations under this Agreement, the Pledge Agreement
or the Note.
SECTION 5.3 Binding Effect.
This Agreement constitutes the legal, valid, binding, and enforceable
agreement of the Borrower, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
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SECTION 5.4 Litigation.
There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower, threatened against or affecting the Borrower before
any court or arbitrator or any governmental body, agency or official which
could materially adversely affect the business, financial position, results of
operations, or prospects of the Borrower or which could materially adversely
affect the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note or which in any manner draws into
question the validity of this Agreement, the Pledge Agreement or the Note.
SECTION 5.5 Taxes.
The Borrower has filed all material tax returns and reports required by
law to have been filed and has paid all taxes and governmental charges thereby
shown to be due and payable.
SECTION 5.6 Debt.
Except as set forth in the financial statements delivered to the Lender
pursuant to Section 5.10, the Borrower has and will have no Debt outstanding on
a Closing Date other than (i) the Debt outstanding hereunder, (ii) Debt that
has previously been disclosed to the Lender in writing, and (iii) Debt that
will not, in the aggregate, have a material adverse effect on the business,
operations, or prospects of the Borrower.
SECTION 5.7 Title to Assets.
(a) The Borrower has legal title to or a legal and valid leasehold
interest in all property and assets owned by it on the date hereof,
and will have legal title to all property and assets acquired by it
at any time subsequent to the date hereof, free and clear of all
Liens, except Liens in favor of the Lender.
(b) Except for the security interest granted to the Lender pursuant to
this Agreement, the Borrower owns each item of the Collateral free
and clear of any and all Liens or claims of others. No financing
statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except
such as have been filed in favor of the Lender pursuant to this
Agreement or the Pledge Agreement.
SECTION 5.8 Perfected First Priority Liens.
The security interests granted pursuant to this Agreement (a) constitute
perfected security interests in the Collateral in favor of the Lender, as
collateral security for the Secured Obligations and (b) are prior to all other
Liens on the Collateral in existence on the date hereof.
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SECTION 5.9 Inventory and Equipment.
The Inventory and the Equipment are kept at the locations listed on
Schedule 1.
SECTION 5.10 Chief Executive Office.
The Borrower's chief executive office is located at 777 Main St., Fort
Worth, Texas 76102.
SECTION 5.11 Farm Products.
None of the Collateral constitutes, or is the Proceeds of, Farm Products.
SECTION 5.12 No Subsidiaries.
The Borrower has no Subsidiaries on the date hereof.
SECTION 5.13 Financial Information.
All financial information which has been or shall hereafter be furnished
by or on behalf of the Borrower or by any other Person at the Borrower's
direction to the Lender for the purposes of or in connection with this
Agreement present fairly the financial condition as at the dates thereof
(subject to normal year end adjustments in the case of unaudited financial
statements).
SECTION 5.14 No Material Adverse Change.
There has been no material adverse change in the business, financial
condition, operations, assets, revenues, properties, or prospects of the
Borrower taken as a whole from the financial information previously provided to
Lender.
ARTICLE VI
COVENANTS
The Borrower agrees that, so long as any amount payable hereunder remains
unpaid:
SECTION 6.1 Conduct of Business and Maintenance of Existence.
The Borrower will perform an intercompany agreement to be entered into
between the Lender and the Borrower and such activities as are necessary or
incidental thereto, and will preserve, renew and keep in full force and effect
its existence.
SECTION 6.2 Financial Information.
The Borrower will deliver to the Lender:
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(a) as soon as available, but in no event more than one hundred twenty
(120) days after the end of each fiscal year of the Borrower,
financial statements of the Borrower containing a balance sheet and
the related statements of operations and cash flows, showing the
financial condition of the Borrower at the close of and for such
year; and
(b) as soon as available, but in no event more than sixty (60) days
after the end of each of the first three quarters of each fiscal
year of the Borrower, financial statements of the Borrower,
containing a balance sheet and the related statements of income
prepared or a cash basis, showing the financial condition of the
Borrower at the close of and for such period.
The financial statements delivered pursuant to subsections (a) and (b) of
this Section 6.2 shall be certified by the president or chief financial officer
of the Borrower as true, complete, and correct and, as to the financial
statements delivered pursuant to subsection (a) of this Section 6.2, as having
been prepared in accordance with GAAP.
SECTION 6.3 Compliance with Laws.
The Borrower will comply with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply therewith will not materially
adversely affect the business, operations, or financial condition of the
Borrower or the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note.
SECTION 6.4 Incurrence of Debt.
The Borrower will not issue, assume, guarantee, incur, or otherwise be or
become liable in respect of Debt, other than (i) Debt expressly approved by the
Lender in writing, which approval may be withheld in the Lender's sole
discretion, or (ii) non-recourse Debt financing secured by property of the
Borrower not constituting Collateral prior to or as of June 30, 1997 (the
Lender hereby agreeing to cooperate with the Borrower to subordinate or release
its Lien on such property to permit any lender of such financing to obtain a
first lien thereon).
SECTION 6.5 Limitation on Liens.
The Borrower will not create, incur, assume or suffer to exist any Lien
upon or with respect to any of its assets, whether now or hereafter acquired,
or assign or otherwise convey any right to receive income, except (i) Liens in
favor of the Lender; (ii) Liens expressly approved by the Lender, which
approval shall not be unreasonably withheld; (iii) Liens imposed by any
governmental authority for taxes, assessments or charges not yet due or which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Borrower in
accordance with GAAP,
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<PAGE> 20
and (iv) Liens disclosed to the Lender on or before the Closing Date that would
not, in the aggregate, have a material adverse effect on the business,
operations, or prospects of the Borrower.
SECTION 6.6 Consolidations, Mergers, and Sales of Assets.
The Borrower will not wind up, liquidate or dissolve its affairs or
convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any future time), whether in one or a series of transactions, all
or any substantial part of its assets, unless such transaction or series of
transactions are expressly approved by the Lender, which approval shall not be
unreasonably withheld.
SECTION 6.7 Books and Records.
The Borrower will keep books and records which accurately reflect all of
its business affairs and transactions in all material respects. The Borrower
will permit the Lender at reasonable times and intervals during normal business
hours to examine and photocopy extracts from any of its books or other
corporate records.
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SECTION 6.8 Lien on Collateral.
The Borrower shall, at its sole cost and expense, perform all acts and
execute all documents requested by the Lender at any time to evidence, perfect,
maintain and enforce the Lender's security interest and the first priority
thereof in the Collateral. Upon the Lender's request, at any time and from
time to time, the Borrower shall, at its sole cost and expense, execute and
deliver to the Lender one or more financing statements (in form and substance
satisfactory to the Lender) pursuant to the Code and, where permitted by law,
the Borrower hereby authorizes the Lender to execute and file one or more
financing statements signed only by the Lender or to file a copy of this
Agreement as a financing statement.
SECTION 6.9 Restriction on Dividends.
The Borrower will not make dividend distributions to its shareholders at
any time when there exists an outstanding balance on the Loan.
SECTION 6.10 Restriction on Certain Amendments.
The Borrower will not amend its organizational documents without the prior
written consent of the Lender, which consent shall not be unreasonably
withheld.
SECTION 6.11 Delivery of Instruments and Chattel Paper.
If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any Instrument or Chattel Paper, such
Instrument or Chattel Paper shall be immediately delivered to the Lender, duly
indorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Agreement.
SECTION 6.12 Maintenance of Insurance.
The Borrower will maintain, with financially sound and reputable
companies, insurance policies (1) insuring the Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Lender, such policies to be in such form and amounts and
having such coverage as may be reasonably satisfactory to the Lender, with
losses payable to the Borrower and the Lender as their respective interests may
appear.
(a) All such insurance shall (1) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Lender of
written notice thereof, (2) name the Lender as an insured party and
(3) be reasonably satisfactory in all other respects to the Lender.
(b) The Borrower shall deliver to the Lender a report of a reputable
insurance broker with respect to such insurance in each calendar
year and such
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<PAGE> 22
supplemental reports with respect thereto as the Lender may from
time to time reasonably request.
SECTION 6.13 Changes in Locations, Name, etc.
The Borrower will not unless it shall have given the Lender at least 30
days prior written notice of such change (or, in the case of Inventory and
Equipment, at least 10 days prior written notice, to the extent that the
Borrower has taken such action as reasonably may be required of it to maintain
the continuous perfection of the Lender's security interest in such Inventory
or Equipment, as the case may be):
(a) permit any of the Inventory (other than goods-in-transit and
immaterial amounts of goods in temporary locations in the ordinary
course of business) or Equipment to be kept at a location other
than those listed on Schedule 1;
(b) change the location of its chief executive office from that
specified in subsection 5.10; or
(c) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Lender in connection with
this Agreement would become seriously misleading.
SECTION 6.14 Further Identification of Collateral.
The Borrower will furnish to the Lender from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail.
SECTION 6.15 Notices.
The Borrower will advise the Lender promptly, in reasonable detail, of
(a) any Lien (other than security interests created hereby or Liens permitted
under this Agreement) on any of the Collateral and (b) the occurrence of any
other event which could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the security interests
created hereby.
SECTION 6.16 Additional Collateral.
With respect to any Person other than Charter Behavioral Health Systems,
LLC (being specifically excluded) that, subsequent to the Closing Date, becomes
a Subsidiary, the Borrower will promptly cause such new Subsidiary to (i)
execute and deliver to the Lender a guaranty of the Loan in form and substance
satisfactory to the Lender, and a new pledge agreement or such amendments to
the existing Pledge Agreement as the Lender shall deem necessary or reasonably
advisable to grant to the Lender, for the benefit of the Lender, a Lien on the
capital stock of such Subsidiary which is owned by the Borrower or any of its
Subsidiaries,
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<PAGE> 23
(ii) deliver to the Lender the certificates representing such capital stock,
together with undated stock powers executed and delivered in blank by a duly
authorized officer of the Borrower or such Subsidiary, as the case may be,
(iii) take all actions necessary or advisable to grant a security interest to
the Lender in the property and assets of such Subsidiary, including, without
limitation, the filing of financing statements in such jurisdictions as may be
requested by the Lender and the execution and delivery by such Subsidiary of a
security agreement in a form acceptable to the Lender.
ARTICLE VII
DEFAULTS
SECTION 7.1 Events of Default.
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
(a) except as permitted pursuant to Section 2.2(b), the Borrower shall
fail to pay within five Business Days of the due date any principal
or interest on the Loan;
(b) any representation or warranty made by the Borrower hereunder or in
any certificate furnished by or on behalf of the Borrower shall be
incorrect when made in any material respect;
(c) the Borrower shall fail to observe or perform the provisions of
Section 6.9 hereof for five Business Days;
(d) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement, the Pledge Agreement, the
Note (other than those covered by clause (a), (b) or (c) above), or
any other Loan Document for 30 days (or, with respect to Section
6.2 of this Agreement, for 30 days after written notice thereof has
been given to the Borrower by the Lender); provided however, if
such default is capable of cure and the Borrower is diligently
proceeding to cure such default, the cure period in this subsection
(d) shall be extended for such additional time, not to exceed 30
days, as is reasonably necessary to complete such cure;
(e) the Borrower shall fail to make any payment in respect of any
Material Debt other than the Debt of the Borrower under this
Agreement and the Note when due or within any applicable grace
period;
(f) any Default or Event of Default shall have occurred and be
continuing under the Term Loan Credit and Security Agreement.
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<PAGE> 24
(g) the Borrower shall commence a voluntary case or other proceeding
seeking liquidation, reorganization, or other relief with respect
to itself or its debts under any bankruptcy, insolvency, or other
similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian, or other similar
official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action to authorize any
of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against
the Borrower seeking liquidation, reorganization, rehabilitation,
conservation, or other relief with respect to it or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, rehabilitator, conservator, or other similar
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 120 days; or an order for relief shall be
entered against the Borrower under the federal bankruptcy laws or
any state insolvency laws as now or hereafter in effect;
(i) a judgment or order for the payment of money in excess of $500,000
shall be rendered against the Borrower and such judgment or order
shall continue unsatisfied, unstayed and unbonded for a period of
30 days; provided, however that a judgment or order fully covered
by insurance, which coverage has not been disputed by the insurer,
shall not be considered a Default;
then, and in every such event, the Lender may, by notice to the Borrower
declare the Note (together with accrued interest thereon) to be, and the Note
shall thereupon become, immediately due and payable without presentment,
demand, protest, or other notice of any kind, all of which are hereby waived by
the Borrower; provided that in the case of any of the Events of Default
specified in clause (g) or (h) above (each, a "Bankruptcy Event of Default"),
without any notice to the Borrower or any other act by the Lender, the Note
(together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest, or other notice of any kind, all
of which are hereby waived by the Borrower.
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<PAGE> 25
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Notices.
All notices, requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party: (i) in the case of the
Borrower or the Lender at their respective addresses, telex numbers or
facsimile numbers set forth on the signature pages hereof or (ii) in the case
of any party, such other address, telex number or facsimile number as such
party may hereafter specify for the purpose by notice to the other party in
accordance with this Section. All notices shall be effective when received.
SECTION 8.2 Expenses; Indemnification.
(a) The Borrower shall pay (i) all out-of-pocket expenses reasonably
incurred by the Lender, including reasonable fees and disbursements
of counsel in connection with any waiver or consent hereunder or
any amendment hereof or any Default or alleged Default hereunder,
and (ii) if an Event of Default occurs, all out-of-pocket expenses
incurred by the Lender, including reasonable fees and disbursements
of counsel in connection with such Event of Default and collection,
bankruptcy, insolvency, and other enforcement proceedings resulting
therefrom. The Borrower shall indemnify the Lender against any
transfer taxes, documentary taxes, assessments or charges made by
any governmental authority by reason of the execution and delivery
of this Agreement, the Pledge Agreement or the Note.
(b) The Borrower agrees to indemnify the Lender and hold the Lender
harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind (other than general overhead and
administrative expenses), including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred
by the Lender in connection with any investigative, administrative,
or judicial proceeding (whether or not the Lender shall be
designated a party thereto) relating to or arising out of this
Agreement, the Pledge Agreement or the Note or any actual or
proposed use of proceeds of the Loan hereunder; provided that the
Lender shall not have the right to be indemnified hereunder for (i)
any proceeding against the Lender by any governmental authority
charged with the supervision of the Lender or (ii) its own gross
negligence or willful misconduct as determined by a court of
competent jurisdiction.
SECTION 8.3 Amendments and Waivers.
Any provision of this Agreement, the Pledge Agreement, the Note or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Lender and the Borrower.
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<PAGE> 26
SECTION 8.4 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of the Lender. The
purchaser, assignee, transferee, or pledgee of any of the Lender's rights under
the Lender's security interest hereunder shall forthwith become vested with and
entitled to exercise all the rights, powers, and remedies given under this
Agreement to the Lender, as if said purchaser, assignee, transferee, or pledgee
were originally named as secured party herein.
SECTION 8.5 Governing Law; Submission to Jurisdiction.
THIS AGREEMENT, THE PLEDGE AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
TEXAS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW RULES THEREOF. The Borrower
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Northern District of Texas and of any Texas state court for
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Borrower irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 8.6 Counterparts; Integration.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement constitutes the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.
SECTION 8.7 WAIVER OF JURY TRIAL.
THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. This waiver of right to a
trial by jury is separately given, knowingly and voluntarily, by the Borrower
and the Lender, and this waiver is intended to encompass individually each
instance and each issue as to which the right to a trial by jury would
otherwise accrue. The Borrower and the Lender are hereby authorized and
requested to submit this Agreement to any court having jurisdiction over the
subject matters and the parties hereto, so as to serve as conclusive evidence
of the parties' herein contained waiver of the right to trial by jury.
Further, the Borrower and the Lender hereby certify that no representative,
attorney or agent of any other party has represented, expressly or otherwise,
to the Borrower, or the Lender that any other party will not seek to enforce
this waiver of right to trial by jury provision.
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<PAGE> 27
SECTION 8.8 Termination; Release.
Until the Termination Date, this Agreement shall be a continuing
agreement, shall remain in full force and effect. After the Termination Date,
this Agreement shall terminate, and the Lender, at the request and expense of
the Borrower, will execute and deliver to Borrower a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Borrower (without recourse
and without any representation or warranty) at the expense of the Lender the
Collateral if in the possession of the Lender or its agents and not theretofore
sold or otherwise applied or released pursuant to this Agreement.
SECTION 8.9 Effect of Headings.
The Article and Section headings herein are for convenience of reference
only and shall not affect the construction hereof.
SECTION 8.10 Severability of Provisions.
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions hereof or affect
the validity or enforceability of such provisions in any other jurisdiction.
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<PAGE> 28
SECTION 8.11 Application of Proceeds.
The parties agree that the Lender shall have the right to apply the
proceeds of any Collateral under this Agreement or the Term Loan Credit and
Security Agreement, in its sole discretion, against the Secured Obligations
under the Term Loan Credit and Security Agreement or the Secured Obligations
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CRESCENT OPERATING, INC.
By:
--------------------------
Name:
Title:
Notice Address:
-----------------------------
-----------------------------
-----------------------------
Facsimile:
-------------------
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<PAGE> 29
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities,
Ltd., its general partner
By:
--------------------------
Name:
Title:
Notice Address:
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
Exhibits and Schedules:
Exhibit A: Application for Advance
Exhibit B: Note
Exhibit C: Certificate
Schedule 1: Location of the Inventory and Equipment
<PAGE> 30
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to Crescent
Real Estate Equities Limited Partnership (the "Lender") pursuant to that
certain Line of Credit Credit and Security Agreement, dated as of May 21, 1997,
between the Lender and the undersigned (the "Credit Agreement"). Each
capitalized term used herein and not otherwise defined shall have the
respective meaning ascribed to such term in the Credit Agreement.
1. The undersigned hereby requests an Advance under the Credit
Agreement in the amount of: ($________________.00).
2. The undersigned hereby requests that such Advance be made on:
_______________, 199_.
3. The undersigned hereby represents and warrants to the Lender as
follows:
(a) The undersigned is not in Default under the Credit Agreement.
(b) No Event of Default has occurred or is continuing.
(c) Both before and after giving effect to the advance requested
hereby, the representations and warranties set forth in Section
3.1(b) of the Credit Agreement are true and correct, with the
same effect as if made on the date hereof.
Unless the undersigned has otherwise notified the Lender in writing prior
to the Closing Date and the making of the advance requested hereby, each of
such representations and warranties is true and correct as of the date hereof
and as of the Closing Date.
CRESCENT OPERATING, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 31
EXHIBIT C
FORM OF CLOSING DATE CERTIFICATE
The undersigned, _______________, ______________ of CRESCENT OPERATING,
INC., a Delaware corporation, (the "Borrower"), hereby certifies to the best of
his knowledge that:
1. Select either a or b:
__ a. Since the previous Closing Date, there have been no changes
to the articles of incorporation of the Borrower.
__ b. A certified copy of the articles of incorporation of the
Borrower, as amended to the date hereof, is attached hereto as Exhibit A.
2. Select either a or b:
__ a. Since the previous Closing Date, there have been no changes
to the bylaws of the Borrower.
__ b. A certified copy of the bylaws of the Borrower, as amended
to the date hereof, is attached hereto as Exhibit B.
3. Attached hereto as Exhibit C is a copy of the resolutions of the board
of directors of the Borrower authorizing the execution, delivery and
performance of the Application for Advance, certified as of the Closing Date by
its corporate secretary.
4. Attached hereto as Exhibit D is a certificate of incumbency of the
officers of the Borrower, certificated by its corporate secretary.
5. Attached hereto as Exhibit E is a certificate of good standing of the
borrower issued as of a recent date by the Secretary of State of Delaware.
IN WITNESS WHEREOF, I have hereto set my hand this __ day of __________.
-------------------------
Name:
Title:
<PAGE> 32
May 21, 1997
LINE OF CREDIT NOTE
$20,400,000.00
FOR VALUE RECEIVED, CRESCENT OPERATING, INC., a Delaware corporation
("Borrower") promises to pay to CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102, the principal sum of Twenty Million Four
Hundred Thousand and No/100 Dollars ($20,400,000.00), with interest on the
principal balance from time to time remaining unpaid at the rates hereinafter
provided.
The Borrower promises to pay interest on the unpaid principal balance
hereof from the date hereof until paid in full pursuant to the Line of Credit
Credit and Security Agreement, dated as of May 21, 1997, between the Borrower
and the Lender (as the same may be amended, modified or supplemented from time
to time, the "Credit Agreement"). The Borrower promises to pay the aggregate
outstanding principal amount of the Loan together with interest thereon, on the
dates, in the amounts and at the rate or rates provided in the Credit
Agreement; provided that the interest payable shall not exceed the maximum rate
permitted by applicable law (the "Maximum Rate"). Interest on the principal
hereof from time to time remaining unpaid and, to the extent permitted by
applicable law, interest on the unpaid interest, shall bear interest from and
after an Event of Default at the Default Rate provided that in no event shall
the Default Rate be more than the Maximum Rate.
This note is the Note referred to in the Credit Agreement. This Note
and the holder hereof are entitled to all of the benefits provided for thereby
or referred to therein. Reference is hereby made to the Credit Agreement for a
statement of such benefits. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof.
This Note shall be payable as provided in the Credit Agreement.
Upon the occurrence of any Event of Default (after the giving of any
notice required in the Credit Agreement and the expiration of any applicable
grace periods provided for in the Credit Agreement), all amounts then remaining
unpaid on this Note shall become immediately due and payable, and the holder
hereof shall have all rights and remedies of Lender under the Credit Agreement
and other Loan Documents. The failure to exercise the option to accelerate the
maturity of this Note upon the happening of any one or more of the Events of
Default hereunder shall not constitute a waiver of the right with respect to
such uncured default or any other event of uncured default hereunder or under
any other of the Loan Documents. The remedies of the holder hereof, as
provided in the Note and in any other of the Loan Documents, shall be
cumulative and concurrent and may be pursued separately,
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<PAGE> 33
successively or together, as often as occasion therefor shall arise, at the
sole discretion of the holder. The acceptance by the holder hereof of any
payment under this Note which is less than payment in full of all amounts due
and payable at the time of such shall not constitute a waiver of or impair,
reduce, release, or extinguish any of the rights or remedies of the holder
hereof to exercise the foregoing option or any other option granted to the
holder in this Note or in any other of the Loan Documents, at that time or at
any subsequent time, or nullify any prior exercise of any such option.
The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, surety, or otherwise, except as provided
in the Credit Agreement, severally waive demand, presentment, notice of
dishonor, notice of intention to accelerate the indebtedness evidenced hereby,
notice of the acceleration of the maturity hereof, diligence in collecting,
grace, notice and protest, and consent to all extensions which from time to
time may be granted by the holder hereof and to all partial payments hereon,
whether before or after maturity.
If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy, or other court,
whether before or after maturity, the undersigned agrees to pay all costs of
collection, including, but not limited to, reasonable attorneys' fees and
expenses incurred by the holder hereof.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid, or agreed to be paid to the holder hereof exceed the maximum
amount permissible under applicable law. If from any circumstance the holder
hereof shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excess interest
shall be applied to the reduction of the principal hereof and not to the
payment of interest, or if such excess interest exceeds the unpaid balance of
principal hereof, such excess shall be refunded to the undersigned. All
interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full period until payment in full of the principal so that the
interest hereon for such full period shall not exceed the maximum amount
permitted by applicable law. This paragraph shall control all agreements
between the undersigned and the holder hereof.
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 of the Texas Credit Code (Title 79, Revised Civil
Statutes of Texas, 1925, as amended).
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<PAGE> 34
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.
CRESCENT OPERATING, INC.
By:
------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.9
1997 CRESCENT OPERATING, INC.
SECOND STOCK INCENTIVE PLAN
ARTICLE I
THE PLAN
1.1 NAME. This plan will be known as the "1997 Crescent Operating,
Inc. Second Stock Incentive Plan." Capitalized terms used herein are defined
in Article X hereof.
1.2 PURPOSE. The purpose of the Plan is to promote the growth and
general prosperity of the Company by permitting the Company and its
Subsidiaries to grant Options to their Employees, Outside Directors and
Advisors and Restricted Stock to their Employees and Advisors. The Plan is
designed to help the Company and its Subsidiaries attract and retain superior
personnel for positions of substantial responsibility and to provide Employees
(including officers), Outside Directors and Advisors with an additional
incentive to contribute to the success of the Company and its Subsidiaries.
The Company intends that Incentive Stock Options granted pursuant to Article IV
will qualify as "incentive stock options" within the meaning of Section 422 of
the Code. Subject to Article VII, Outside Directors of the Company may elect
to receive Common Stock in lieu of Director's Fees. With respect to Reporting
Participants, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act.
To the extent that any provision of the Plan or action by the Board or the
Committee fails to so comply, it will be deemed null and void to the extent
permitted by law and deemed advisable by the Committee.
1.3 EFFECTIVE DATE. The Plan will become effective upon the
Effective Date.
1.4 ELIGIBILITY TO PARTICIPATE. Any Employee, Outside Director or
Advisor will be eligible to participate in the Plan; provided that Incentive
Stock Options may be granted only to persons who are Employees of the Company
and its Subsidiaries. The Board or the Committee may grant Options to
Employees, Outside Directors and Advisors in accordance with such
determinations as the Board or the Committee from time to time in its sole
discretion may make.
1.5 MAXIMUM NUMBER OF SHARES OF COMMON STOCK SUBJECT TO AWARDS. The
shares of Common Stock subject to Awards pursuant to the Plan may be either
authorized and unissued shares or shares issued and thereafter acquired by the
Company. Subject to adjustment pursuant to the provisions of Section 8.2, and
subject to any additional restrictions elsewhere in the Plan, the maximum
aggregate number of shares of Common Stock that may be issued from time to time
pursuant to the Plan shall be one million (1,000,000) shares. The maximum
number of shares of Common Stock with respect to which Awards may be granted to
any Reporting Participant during any calendar year shall be five hundred
thousand (500,000) shares. The maximum number of shares of Common Stock which
may be subject to Incentive Stock Options during the life of the Plan shall be
fifty thousand (50,000) shares. If shares of Restricted Stock
<PAGE> 2
are reacquired by the Company pursuant to the provisions of Section 6.1 of the
Plan or if an Option expires or terminates for any reason without having been
exercised in full, the reacquired shares and/or the shares not purchased or
distributed will again be available for issuance under the Plan.
.6 CONDITIONS PRECEDENT. The Company will not issue or deliver any
certificate for Plan Shares pursuant to the Plan prior to fulfillment of all of
the following conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the Board or
the Committee determines in its sole discretion that such listing is
neither necessary nor advisable;
(b) The completion of any registration or other qualification
of the sale of the Plan Shares under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or
any other governmental regulatory body that the Board or the Committee
in its sole discretion deems necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Board or the Committee in
its sole discretion determines to be necessary or advisable.
.7 RESERVATION OF SHARES OF COMMON STOCK. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as may be necessary to satisfy the requirements of the
Plan as to the number of Plan Shares. In addition, the Company will from time
to time, as is necessary to accomplish the purposes of the Plan, use its best
efforts to obtain from any regulatory agency having jurisdiction any requisite
authority necessary to issue Plan Shares hereunder. The inability of the
Company to obtain from any regulatory agency having jurisdiction the authority
deemed by the Company's counsel to be necessary for the lawful issuance of any
Plan Shares will relieve the Company of any liability in respect of the
nonissuance of Plan Shares as to which the requisite authority has not been
obtained.
.8 TAX WITHHOLDING.
(a) Condition Precedent. The issuances of Plan Shares
pursuant to Awards under the Plan are subject to the condition that if
at any time the Board or the Committee determines, in its discretion,
that the satisfaction of withholding tax or other withholding
liabilities under any federal, state or local law is necessary or
desirable as a condition of, or in connection with such issuances, then
the issuances will not be effective unless the withholding has been
effected or obtained in a manner acceptable to the Board or the
Committee. Each Option granted to a Reporting Participant shall contain
a provision in the related Option Agreement making any required
withholding tax or other withholding liability mandatory, and specifying
that the Company withhold a portion of the Plan Shares as specified in
clause (iv) of paragraph (b) below.
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(b) Manner of Satisfying Withholding Obligation. When a
Participant is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with an Award,
such payment may be made (i) in cash, (ii) by check, (iii) by delivery
to the Company of shares of Common Stock already owned by the
Participant having a Fair Market Value on the date the amount of tax to
be withheld is to be determined (the "Tax Date") equal to the amount
required to be withheld, (iv) with respect to Options, through the
withholding by the Company ("Company Withholding") of a portion of the
Plan Shares acquired upon the exercise of the Options (provided that,
with respect to any Option held by a Reporting Participant, at least six
months has elapsed between the grant of such Option and the exercise
involving tax withholding) having a Fair Market Value on the Tax Date
equal to the amount required to be withheld or (v) in any other form of
valid consideration, as permitted by the Committee in its discretion.
(c) Notice of Disposition of Stock Acquired Pursuant to
Incentive Stock Options. The Company may require as a condition to the
issuance of Plan Shares covered by any Incentive Stock Option that the
party exercising such Option give a written representation to the
Company, which is satisfactory in form and substance to its counsel and
upon which the Company may reasonably rely, that he will report to the
Company any disposition of such shares prior to the expiration of the
holding periods specified by Section 422(a)(1) of the Code. If and to
the extent that the realization of income in such a disposition imposes
upon the Company federal, state or local withholding tax requirements,
or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company will have the right to
require that the recipient remit to the Company an amount sufficient to
satisfy those requirements; and the Company may require as a condition
to the issuance of Plan Shares covered by an Incentive Stock Option that
the party exercising such Option give a satisfactory written
representation promising to make such a remittance.
1.9 ACCELERATION IN CERTAIN EVENTS. The Board or the Committee may
accelerate the exercisability of any Option or waive any restrictions with
respect to shares of Restricted Stock in whole or in part at any time.
Notwithstanding the provisions of any Option Agreement or Restricted Stock
Agreement, the following provisions will apply:
(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, any Option will become
immediately exercisable with respect to the full number of shares
subject to that Option and all restrictions will lapse with respect to
an Award of Restricted Stock during the period commencing as of the date
of the agreement to dispose of all or substantially all of the assets of
the Company and ending when the disposition of assets contemplated by
that agreement is consummated or the Award is otherwise terminated in
accordance with its provisions or the provisions of the Plan, whichever
occurs first; provided that no Reporting Participant may exercise an
Option and no restrictions will lapse with respect to an
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Award of Restricted Stock to a Reporting Participant unless at least six
months have elapsed since the grant of such Option or Award; provided,
further, that no Option will be immediately exercisable and no
restrictions will lapse with respect to an Award of Restricted Stock
under this Section on account of any agreement of merger or other
reorganization when the shareholders of the Company immediately before
the consummation of the transaction will own at least fifty percent of
the total combined voting power of all classes of stock entitled to vote
of the surviving entity immediately after the consummation of the
transaction. An Option will not become immediately exercisable and no
restrictions will lapse with respect to an Award of Restricted Stock if
the transaction contemplated in the agreement is a merger or
reorganization in which the Company will survive.
(b) Change in Control. In the event of a change in control or
threatened change in control of the Company, all Options granted prior
to the change in control or threatened change in control will become
immediately exercisable, and all restrictions will lapse with respect to
awards of Restricted Stock granted prior to the change in control or
threatened change in control, provided that no Reporting Participant may
exercise an Option and no restriction will lapse with respect to an
Award of Restricted Stock to a Reporting Participant unless at least six
months have elapsed since the grant of such Option or Award. The term
"change in control" for purposes of this Section refers to the
acquisition of 15% or more of the voting securities of the Company by
any person or by persons acting as a group within the meaning of Section
13(d)(3) of the Exchange Act (other than an acquisition by (i) a person
or group meeting the requirements of clauses (i) and (ii) of Rule
13d-l(b)(1) promulgated under the Exchange Act, (ii) or any employee
pension benefit plan (within the meaning of Section 3(2) of ERISA) of
the Company or of its Subsidiaries, including a trust established
pursuant to such plan); provided that no change in control or threatened
change in control will be deemed to have occurred (i) if prior to the
acquisition of, or offer to acquire, 15% or more of the voting
securities of the Company, the full Board has adopted by not less than
two-thirds vote a resolution specifically approving such acquisition or
offer or (ii) from (A) a transfer of the Company's voting securities by
Richard E. Rainwater ("Rainwater") to (i) a member of Rainwater's
immediate family (within the meaning of Rule 16a-1(e) of the Exchange
Act) either during Rainwater's lifetime or by will or the laws of
descent and distribution; (ii) any trust as to which Rainwater or a
member (or members) of his immediate family (within the meaning of Rule
16a-1(e) of the Exchange Act) is the beneficiary; (iii) any trust as to
which Rainwater is the settlor with sole power to revoke; (iv) any
entity over which Rainwater has the power, directly or indirectly, to
direct or cause the direction of the management and policies of the
entity, whether through the ownership of voting securities, by contract
or otherwise; or (v) any charitable trust, foundation or corporation
under Section 501(c)(3) of the Code that is funded by Rainwater; or (B)
the acquisition of voting securities of the Corporation by either (i)
Rainwater or (ii) a person, trust or other entity described in the
foregoing clauses (A)(i)-(v) of this subsection. The term "person" for
purposes of this Section refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization
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or any other form of entity not specifically listed herein. Whether a
change in control is threatened will be determined solely by the
Committee.
1.10 COMPLIANCE WITH SECURITIES LAWS. Plan Shares will not be issued
with respect to any Award unless the issuance and delivery of the Plan Shares
(and the exercise of an Option, if applicable) complies with all relevant
provisions of federal and state law, including without limitation the
Securities Act, the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the Plan Shares may then be
listed, and will be further subject to the approval of counsel for the Company
with respect to such compliance. The Board or the Committee may also require a
Participant to furnish evidence satisfactory to the Company, including, without
limitation, a written and signed representation letter and consent to be bound
by any transfer restrictions imposed by law, legend, condition or otherwise,
and a representation that the Plan Shares are being acquired only for
investment and without any present intention to sell or distribute the shares
in violation of any federal or state law, rule or regulation. Further, each
Participant will consent to the imposition of a legend on the certificate
representing the Plan Shares issued pursuant to an Award restricting their
transferability as required by law or by this Section.
1.11 EMPLOYMENT OF PARTICIPANT. Nothing in the Plan or in any Award
granted hereunder will confer upon any Participant any right to continued
employment by the Company or any of its Subsidiaries or to continued service as
a Director or Advisor or limit in any way the right of the Company or any
Subsidiary at any time to terminate or alter the terms of that employment or
services as a Director or Advisor.
1.12 INFORMATION TO PARTICIPANTS. The Company will furnish to each
Participant copies of annual reports, proxy statements and all other reports
sent to the Company's shareholders. Upon written request, the Company will
furnish to each Participant a copy of its most recent Annual Report on Form
10-K and each quarterly report to shareholders issued since the end of the
Company's most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 COMMITTEE. The Plan will be administered by the Board or by a
Committee of not fewer than two directors appointed by the Board. As used
herein, if the Company has any class of common equity securities required to be
registered under Section 12 of the Exchange Act, as to any Award to a Covered
Employee, "Committee" shall mean a committee consisting of two or more
Directors, each of whom shall be an "outside director" as defined in Section
162(m) of the Code. Subject to the provisions of the Plan, the Board or
Committee will have the sole discretion and authority to determine from time to
time the Employees and Advisors to whom Awards will be granted and the number
of Plan Shares subject to each Award, to interpret the Plan, to prescribe,
amend and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, to determine and interpret the details and
provisions of each Option Agreement and Restricted Stock Agreement, to modify
or amend any Option Agreement or Restricted Stock Agreement or waive any
conditions or restrictions applicable to any Option (or
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the exercise thereof) or to any shares of Restricted Stock, and to make all
other determinations or advisable for the administration of the Plan. The
Committee shall be solely responsible for the grant and administration of
Awards to Covered Employees. With respect to any provision of the Plan
granting the Board or the Committee the right to agree, in its sole discretion,
to further extend the term of any Award hereunder, the Board or the Committee
may exercise such right at the time of grant, in the Option Agreement relating
to such Award, or at any time or from time-to-time after the grant of any Award
hereunder.
2.2 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the
members of the Board or the Committee will constitute a quorum, and any action
taken by a majority present at a meeting at which a quorum is present or any
action taken without a meeting evidenced by a writing executed by all members
of the Board or the Committee will constitute the action of the Board or the
Committee. Meetings of the Committee may take place by telephone conference
call.
2.3 COMPANY ASSISTANCE. The Company will supply full and timely
information to the Board or the Committee on all matters relating to Employees,
Outside Directors and Advisors, their employment, death, Retirement, Disability
or other termination of employment, and such other pertinent facts as the Board
or the Committee may require. The Company will furnish the Board or the
Committee with such clerical and other assistance as is necessary to the
performance of its duties.
ARTICLE III
OPTIONS
3.1 METHOD OF EXERCISE. Each Option will be exercisable at any time
and from time in whole or in part in accordance with the terms of the Option
Agreement pursuant to which the Option was granted. No Option may be exercised
for a fraction of a Plan Share.
3.2 PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares
purchased will be paid at the time of exercise of the Option either (i) in
cash, (ii) by certified or cashier's check, (iii) by shares of Common Stock, if
permitted by the Committee, (iv) as to Outside Directors, by cash or certified
or cashier's check for the par value of the Plan Shares plus a recourse
promissory note for the balance of the purchase price, such note to provide for
the right to repay the note partially or wholly with Common Stock and with an
interest rate based on the current dividend yield of the Common Stock, (v) as
to Employees and Advisors, by cash or certified or cashier's check for the par
value of the Plan Shares plus a promissory note for the balance of the purchase
price, which note will contain such terms and provisions as the Board or the
Committee may approve, including without limitation the right to repay the note
partially or wholly with Common Stock and to base the interest rate on the
current dividend yield of the Common Stock, (vi) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the Plan Shares upon exercise of
the Option or to pledge them as collateral for a loan and promptly deliver to
the Company the amount of sale or loan proceeds necessary to pay such purchase
price or (vii) as to Employees and Advisors, in any other form of valid
consideration, as permitted by the Board or the
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Committee in its discretion. If any portion of the purchase price or a note
given at the time of exercise is paid in shares of Common Stock, those shares
will be valued at the then Fair Market Value.
3.3 WRITTEN NOTICE REQUIRED. Any Option will be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.2.
3.4 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE.
(a) In the event an Optionee ceases to be an Employee and
Advisor, and does not continue to be a Director, for any reason other than
death, Retirement, Disability or for Cause, (i) the Board or the Committee
shall have the ability to accelerate the vesting of the Optionee's Option in
its sole discretion, and (ii) such Optionee's Option shall be exercisable (to
the extent exercisable on the date of termination of employment or service as
an Employee or Advisor, or, if the Committee, in its discretion, has
accelerated the vesting of such Option, to the extent exercisable following
such acceleration) (a) if such Option is an Incentive Stock Option, at any time
within three months after the date of termination of employment with the
Company or any Subsidiary, unless by its terms the Option expires earlier; or
(b) if such Option is a Nonqualified Stock Option, at any time within one year
after the date of termination of employment or service as an Employee or
Advisor, unless by its terms the Option expires earlier or unless the Committee
agrees, in its sole discretion, to further extend the term of such Nonqualified
Stock Option; provided that the term of any such Nonqualified Stock Option
shall not be extended beyond its initial term. An Employee or Advisor who
continues to be a Director shall not be deemed to have terminated employment
or service as to any Nonqualified Stock Option.
(b) In addition, unless the Board or the Committee agrees, in
its sole discretion, to extend the term of a Nonqualified Stock Option granted
to an Employee or Advisor (provided that the term of any such Option shall not
be extended beyond its initial term), an Optionee's Option may be exercised as
follows in the event such Optionee ceases to serve as an Employee, Outside
Director or Advisor due to death, Disability, Retirement or for Cause:
(i) Death. If an Optionee dies while serving as an Employee,
Outside Director or Advisor, or within three months after ceasing to be
an Employee, Outside Director or Advisor, his option shall become fully
exercisable on the date of his death and shall expire 12 months
thereafter, unless by its terms it expires sooner. During such period,
the Option may be fully exercised, to the extent that it remains
unexercised on the date of death, by the Optionee's personal
representative or by the distributees to whom the Optionee's rights
under the Option shall pass by will or by the laws of descent and
distribution.
(ii) Retirement. If an Optionee ceases to serve as an
Employee, Outside Director or Advisor as a result of Retirement, his
Option shall become fully exercisable on the date of his Retirement and
(a) if such Option is an Incentive Stock Option, such Option
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will be exercisable at any time within three months after the effective
date of such Retirement, unless by its terms the Option expires earlier,
and (b) if such Option is a Nonqualified Stock Option, such Option will
be exercisable at any time within one year after the effective date of
such Retirement, unless by its terms the Option expires sooner.
(iii) Disability. If an Optionee ceases to serve as an
Employee, Outside Director or Advisor as a result of Disability, the
Optionee's Option shall become fully exercisable and shall expire 12
months thereafter, unless by its terms it expires sooner.
(iv) Cause. If an Optionee ceases to serve as an Employee,
Outside Director or Advisor, because the Optionee is terminated for
Cause, the Optionee's Option shall automatically expire. If any facts
that would constitute Cause for termination or removal of an Employee or
Advisor are discovered after the Optionee's relationship with the
Company has ended, any Options then held by the Optionee may be
immediately terminated by the Committee. Notwithstanding the foregoing,
if an Optionee is an Employee employed pursuant to a written employment
agreement, or is an Advisor retained pursuant to a written agreement,
the Optionee's relationship with the Company will be deemed terminated
for 'Cause' for purposes of the Plan only if the Optionee is considered
under the circumstances to have been terminated for cause for purposes
of such written agreement.
3.5 TRANSFERABILITY OF OPTIONS. Options shall not be transferable
other than pursuant to a qualified domestic relations order, by will or by the
laws of descent and distribution and, with respect to an Incentive Stock
Option, may be exercised during the lifetime of an Optionee only by that
Optionee or by his legally authorized representative.
3.6 OPTIONS SUBJECT TO SHAREHOLDERS APPROVAL. Options granted to
Covered Employees and Incentive Stock Options granted prior to the date on
which shareholder approval of the Plan is obtained shall be subject to and
conditioned upon shareholder approval of the Plan in accordance with Section
162(m) and 422 of the Code.
ARTICLE IV
INCENTIVE STOCK OPTIONS
4.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Board or the
Committee may, in its discretion, determine, as long as all Options granted
under this Article satisfy the requirements of this Article.
4.2 DURATION OF OPTIONS. Each Option granted under this Article will
expire on the date determined by the Board or Committee, but in no event will
any Option granted under this Article expire earlier than one year or later
than ten years after the date on which the Option is granted. In addition,
each Option will be subject to early termination as provided elsewhere in the
Plan.
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4.3 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under this
Article will not be less than the Fair Market Value of the Plan Shares at the
time of the grant of the Option.
4.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR.
The maximum aggregate Fair Market Value of Plan Shares (determined at the time
the Option is granted) with respect to which Options issued under this Article
are exercisable for the first time by any Employee during any calendar year
under all incentive stock option plans of the Company and its Subsidiaries and
affiliates may not exceed $100,000. Any portion of an Option granted under the
Plan and first exercisable in excess of the foregoing limitations will be
considered granted under Article V.
4.5 REQUIREMENTS AS TO CERTAIN OPTIONS. In the event of the grant of
any Option to an individual who, at the time the Option is granted, owns shares
of stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries or affiliates
within the meaning of Section 422 of the Code, the purchase price for the Plan
Shares subject to that Option must be at least 110% of the Fair Market Value of
those Plan Shares at the time the Option is granted, and the Option must not be
exercisable after the expiration of five years from the date of its grant.
4.6 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options
under this Article will be required to enter into a written Option Agreement
with the Company. In such Option Agreement, the Employee will agree to be
bound by the terms and conditions of the Plan and such other matters as the
Committee deems appropriate.
ARTICLE V
NONQUALIFIED STOCK OPTIONS
5.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Board or
Committee may, in its discretion, determine, as long as all Options granted
under this Article satisfy the requirements of this Article.
5.2 DURATION OF OPTIONS. Each Option granted to an Employee, Outside
Director or Advisor under this Article and all rights thereunder will expire on
the date determined by the Board or Committee, but in no event will any Option
granted under this Article expire later than ten years after the date on which
the Option is granted. In addition, each Option will be subject to early
termination as provided elsewhere in the Plan.
5.3 PURCHASE PRICE. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option granted under this
Article shall be not less than the Fair Market Value of the Plan Shares at the
time of the grant of the Option.
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5.4 INDIVIDUAL OPTION AGREEMENTS. Each Employee, Outside Director or
Advisor receiving Options under this Article will be required to enter into a
written Option Agreement with the Company. In such Option Agreement, the
Employee, Outside Director or Advisor will agree to be bound by the terms and
conditions of the Plan and such other matters as the Board or Committee deems
appropriate.
ARTICLE VI
RESTRICTED STOCK
6.1 TERMS AND CONDITIONS. Each Restricted Stock Grant confers upon
the recipient thereof the right to receive a specified number of shares of
Common Stock of the Company in accordance with the terms and conditions of each
Participant's individual written agreement as set forth in Section 6.2. The
general terms and conditions of the Restricted Stock awards shall be as
follows:
(a) Any shares of Common Stock awarded hereunder to a
Participant shall be restricted for a period of time to be determined by
the Committee for each participant at the time of the Award, which
period shall be not less than one year or more than ten years. The
restrictions shall prohibit the sale, assignment, transfer, pledge or
other encumbrance of such shares, and will provide for possible
reversion thereof to the Company in accordance with subparagraph (b)
during the period of restriction.
(b) All Restricted Stock awarded under this Plan to a
Participant shall be forfeited and returned to the Company in the event
the Participant ceases to be employed by, serve as a Director of, or
serve as an Advisor to the Company, one of its Subsidiaries, or any
Affiliated Company prior to the expiration of the period of restriction,
unless the Participant's termination of employment is due to his or her
death, Disability or Retirement. An Employee or Advisor who continues
to be a Director shall not be deemed to have terminated employment or
service.
(c) In the event of a Participant's death or Disability, the
restrictions under subparagraph (a) will lapse with respect to all
Restricted Stock awarded to the Participant under this Plan prior to any
such event, and the shares of Common Stock involved shall cease to be
Restricted Stock within the meaning of this Plan and shall no longer be
subject to forfeiture to the Company pursuant to subparagraph (b).
(d) In the event of a Participant's Retirement, the
restrictions under subparagraph (a) shall continue to apply unless the
Board or the Committee in its discretion shall shorten the restriction
period.
(e) Stock certificates issued with respect to awards of
Restricted Stock made under this Plan shall be registered in the name of
the Participant, but shall be delivered by him or her to the Company
together with a stock power endorsed in blank. Each such certificate
shall bear the following legend:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER
TERMS AND CONDITIONS SET FORTH IN THE 1997 CRESCENT
OPERATING, INC. SECOND STOCK INCENTIVE PLAN AND THE
AGREEMENT BETWEEN THE REGISTERED OWNER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND CRESCENT OPERATING,
INC. ENTERED INTO PURSUANT TO SUCH PLAN."
(f) Upon the lapse of a restriction period as determined
pursuant to subparagraph (a), the Company will return the stock
certificates representing the shares with respect to which the
restriction has lapsed to the Participant or his or her legal
representative, and pursuant to the instruction of the Participant or
his or her legal representative will issue a certificate for such shares
which does not bear the legend set forth in subparagraph (e).
(g) Any other securities or assets (other than ordinary cash
dividends) which are received by a Participant with respect to
Restricted Stock awarded to him, which is still subject to restrictions
provided for in subparagraph (a), will be subject to the same
restrictions and shall be delivered by the Participant to the Company as
provided in subparagraph (e).
(h) From the time of grant of the Restricted Stock Award, the
Participant shall be entitled to exercise all rights attributable to the
Restricted Stock, subject to forfeiture of such rights and the stock as
provided in subparagraph (b).
6.2 INDIVIDUAL AGREEMENTS. Each Participant receiving an Award of
Restricted Stock under this Article will be required to enter into a written
Restricted Stock Agreement with the Company. In such Restricted Stock
Agreement, the Participant will agree to be bound by the terms and conditions
of the Plan and such other matters as the Board or the Committee deems
appropriate.
ARTICLE VII
OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTIONS
7.1 OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTION. Each Outside Director
of the Company shall be permitted to receive Director's Fees in the form of
Common Stock rather than cash in accordance with the following provisions:
(a) Each Outside Director shall have the right to elect to
receive one-half or all of such Outside Director's Fees in the form of
Common Stock rather than cash by tendering an irrevocable written
election to the Secretary of the Company pursuant to which all
Director's Fees otherwise payable to the Outside Director shall be paid
in the form of
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Common Stock as provided in (b) below. Such election shall become
effective six (6) months after its delivery to the Secretary of the
Company by the Outside Director. Such election shall remain in effect
until the earlier of (i) the date six (6) months after such Outside
Director shall have delivered to the Secretary of the Company
irrevocable written notice that his or her election to receive Common
Stock shall cease as of the date six months following delivery of the
notice, or (ii) the date on which such Outside Director terminates as a
member of the Board of Directors by reason of resignation,
non-reelection, death, or disability. Any Outside Director who having
terminated an election to receive Common Stock or having failed to elect
to receive Common Stock rather than cash may elect to receive Director's
Fees in the form of Common Stock as of the date six (6) months following
delivery of irrevocable written notice of such election to the Secretary
of the Company. An Outside Director who does not elect to have
Director's Fees paid in Common Stock shall receive his or her
remuneration in cash at such times that such remuneration is otherwise
due.
(b) If an Outside Director elects to receive payment of
Director's Fees in the form of Common Stock, such Common Stock shall be
issued as soon as practicable after the annual meeting of shareholders
or meeting of the Board or Committee of the Board to which such
remuneration relates. The number of shares of Common Stock to be issued
to such Outside Director shall be determined by dividing:
(i) the remuneration otherwise payable to the Outside
Director, by
(ii) ninety percent (90%) of the Fair Market Value of the
Company's Common Stock on the determination date on the rounding up or
down of any fractional share to the nearest whole share.
The determination date shall be the date that the relevant payment of
Director's Fees is payable.
(c) Shares of Common Stock issued under this Article VII shall
be free of any restrictions except for restrictions applicable under the
Exchange Act.
7.2 INCOME TAX. Each Outside Director who elects to receive
Director's Fees in the form of Common Stock rather than cash shall be
responsible for payment of federal, state, and local income taxes on the Fair
Market Value of such Common Stock.
ARTICLE VIII
TERMINATION, AMENDMENT AND ADJUSTMENT
8.1 TERMINATION AND AMENDMENT. The Plan will terminate on August __,
2007. No Awards will be granted under the Plan after that date of termination,
although Awards granted prior to such date shall remain outstanding in
accordance with their terms. Subject to the limitations contained in this
Section 8.1, the Board or the Committee may at any time amend or revise the
terms of the Plan, including the form and substance of the Option Agreements
and Restricted Stock Agreements to be used in connection herewith; provided
that, without
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shareholder approval, no amendment or revision may (i) increase the maximum
aggregate number of Plan Shares, except as permitted Section 8.2, (ii) change
the minimum purchase price for shares under Article IV or Article V or (iii)
permit the granting of an Award to anyone other than as provided in the Plan.
No amendment, suspension or termination of the Plan may, without the consent of
the Optionee who has received an Award hereunder, alter or impair any of that
Participant's rights or obligations under any Award granted under the Plan
prior to that amendment, suspension or termination.
8.2 ADJUSTMENT. If the outstanding Common Stock is increased,
decreased, changed into or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split or reverse stock split, an appropriate and proportionate adjustment will
be made in the maximum number and kind of Plan Shares as to which Awards may be
granted under the Plan. A corresponding adjustment will be made in the number
or kind of shares allocated to and purchasable under unexercised Options or
shares of Restricted Stock with respect to which restrictions have not yet
lapsed prior to any such change. Any such adjustment in outstanding Options
will be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share purchasable under the Option. Any new or additional or
different class of securities that are distributed to a Participant in his
capacity as the owner of Restricted Stock as granted hereunder shall be
considered to be Restricted Stock and shall be subject to all of the conditions
and restrictions provided herein applicable to Restricted Stock. The foregoing
adjustments and the manner of application of the foregoing provisions will be
determined solely by the Board or the Committee, and any such adjustment may
provide for the elimination of fractional share interests.
ARTICLE IX
MISCELLANEOUS
9.1 OTHER COMPENSATION PLANS. The adoption of the Plan will not
affect any other stock option or incentive or other compensation plans in
effect for the Company or any of its Subsidiaries, nor will the Plan preclude
the Company or any of its Subsidiaries, from establishing any other forms of
incentive or other compensation for Employees.
9.2 PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company and any of its Subsidiaries that adopt
the Plan.
9.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular
will include the plural where appropriate, and the masculine pronoun will
include the feminine gender.
9.4 HEADINGS. Headings of articles and sections hereof are inserted
for convenience of reference and constitute no part of the Plan.
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<PAGE> 14
ARTICLE X
DEFINITIONS
As used herein with initial capital letters, the following terms have
the meanings set forth unless the context clearly indicates to the contrary:
10.1 "Advisor" means any person performing advisory or consulting
services for the Company or Subsidiary of the Company, with or without
compensation, to whom the Company chooses to grant Options in accordance with
the Plan, provided that bona fide services must be rendered by such person and
such services shall not be rendered in connection with the offer or sale of
securities in a capital raising transaction.
10.2 "Award" means a grant of Options under Articles IV and V of the
Plan or an Award of Restricted Stock under Article VI of the Plan.
10.3 "Board" means the Board of Directors of the Company, provided
that, if the Board delegates all or any part of its authority to a committee
composed of one or more directors, then the term "Board" shall be deemed to
refer to such committee to the extent of such delegation.
10.4 "Cause" will mean an act or acts involving a felony, fraud,
willful misconduct, commission of any act that causes or reasonably may be
expected to cause substantial injury to the Company or other good cause. The
term "other good cause" as used in this Section will include, but shall not be
limited to, habitual impertinence, a pattern of conduct that tends to hold the
Company up to ridicule in the community, conduct disloyal to the Company,
conviction of any crime of moral turpitude and substantial dependence, as
judged by the Committee, on alcohol or any controlled substance. "Controlled
substance" means a drug, immediate precursor or other substance listed in
Schedules I-V of the Federal Comprehensive Drug Abuse Prevention Control Act of
1970, as amended.
10.5 "Code" means the Internal Revenue Code of 1986, as amended.
10.6 "Committee" shall have the meaning set forth in Section 2.1.
10.7 "Common Stock" means the Common Stock, par value $.01 per share,
of the Company or, in the event that the outstanding shares of such Common
Stock are hereafter changed into or exchanged for shares of a different stock
or security of the Company or some other corporation, such other stock or
security.
10.8 "Company" means Crescent Operating, Inc., a Delaware corporation.
10.9 "Covered Employee" means any individual who is the chief
executive officer or is acting in such capacity, or is among the four highest
compensated officers (other than the chief executive officer) of the Company or
of any Subsidiary.
10.10 "Director" means a member of the Board of Directors of the
Company.
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10.11 "Director's Fees" means the remuneration otherwise payable to an
Outside Director of the Company as an annual retainer and for attending
meetings of the Board and meetings of the committees of the Board.
10.12 "Disability" of a Participant shall be deemed to occur whenever a
Participant is rendered unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for
a continuing period of not less than 12 months.
10.13 "Effective Date" means August __, 1997.
10.14 "Employee" means an employee (as defined under Section 3401(c) of
the Code and the regulations thereunder) of the Company (including an officer),
or an officer or other employee of any of the Subsidiaries of the Company.
10.15 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
10.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
10.17 "Fair Market Value" means such value as will be determined by the
Board or the Committee on the basis of such factors as it deems appropriate;
provided that if the Common Stock is traded on a national securities exchange,
such value will be determined by the Board or the Committee on the basis of the
closing price for the Common Stock on the date for which such determination is
relevant, as reported on the exchange and further provided that if there should
be no sales on such date, such value shall be deemed equal to the closing price
on the last preceding date on which sales of Common Stock were reported. If
the Common Stock is traded on more than one exchange, such value will be
determined on the basis of the exchange trading the greatest volume of shares
on such date. In no event shall "Fair Market Value" be less than the par value
of the Common Stock.
10.18 "Incentive Stock Option" means an Option granted under Article
IV.
10.19 "Nonqualified Stock Option" means an Option granted under Article
V.
10.20 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted under the Plan.
10.21 "Option Agreement" means an agreement between the Company and a
Participant with respect to one or more Options.
10.22 "Outside Director" means a Director who is not an Employee of the
Company or of any Subsidiary.
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10.23 "Participant" means an Employee, Director or Advisor to whom an
Award has been granted hereunder.
10.24 "Plan" means the 1997 Crescent Operating, Inc. Amended Stock
Incentive Plan, as amended from time to time.
10.25 "Plan Shares" means shares of Common Stock issuable pursuant to
the Plan.
10.26 "Restricted Stock" means an Award of Common Stock granted under
Article VI.
10.27 "Restricted Stock Agreement" means an agreement between the
Company and a Participant with respect to an Award of Restricted Stock.
10.28 "Retirement" means termination of employment or service as a
Director on or after the date on which a Participant attains age 70.
10.29 "Securities Act" means the Securities Act of 1933, as amended.
10.30 "Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
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EXHIBIT 10.10
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated as of September 22, 1997,
is by and between COI HOTEL GROUP, INC., a Texas corporation (the "Debtor") and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Secured Party").
R E C I T A L S:
A. Debtor has executed a Promissory Note dated of even date
herewith payable to the order of Secured Party in the principal amount of
$800,000.00 (such promissory note, as the same may be amended or modified from
time to time, shall be hereinafter referred to as the "Note").
B. Secured Party has conditioned its obligations under the Note
upon, among other things, the execution and delivery of this Agreement by
Debtor.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SECURITY INTEREST
1.1. Security Interest. Debtor hereby grants to Secured Party a
security interest in the property set forth on Exhibit 1.1 hereto (such
property being hereinafter sometimes called the "Collateral").
1.2. Obligations. The Collateral shall secure the following
obligations ("Obligations"):
(i) all obligations and indebtedness of Debtor to
Secured Party evidenced by the Note;
(ii) all costs and expenses, including, without
limitation, all attorneys' fees and legal expenses, incurred
by Secured Party to preserve and maintain the Collateral,
collect the obligations herein described, and enforce this
Agreement; and
(iii) all extensions, renewals, and modifications
of any of the foregoing.
<PAGE> 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
To induce Secured Party to enter into this Agreement, Debtor
represents and warrants to Secured Party that:
2.1. Title. Except for the security interest granted herein, Debtor
owns, and with respect to Collateral acquired after the date hereof Debtor will
own, the Collateral free and clear of any lien, security interest, or other
encumbrance.
2.2. Financing Statements. No financing statement, security
agreement, or other lien instrument covering all or any part of the Collateral
is on file in any public office, except as may have been filed in favor of
Secured Party.
2.3. Organization and Authority. Debtor is a corporation duly
organized, validly existing, and in good standing under the laws of the state
of Delaware. Debtor has the corporate power and authority to execute, deliver
and perform this Agreement, and the execution, delivery, and performance of
this Agreement by Debtor has been authorized by all necessary corporate action
on the part of Debtor and does not and will not violate any law, rule or
regulation or the Articles of Incorporation or Bylaws of Debtor and does not
and will not conflict with, result in a breach of, or constitute a default
under the provisions of any indenture, mortgage, deed of trust, security
agreement, or other instrument or agreement pursuant to which Debtor or any of
its property is bound.
2.4. Location of Collateral. All Collateral of Debtor is located at
306 W. Seventh, Suite 1025, Fort Worth, Texas 76102.
ARTICLE III
COVENANTS
Debtor covenants and agrees with Secured Party that until the
Obligations are paid and performed in full:
3.1. Encumbrances. Debtor shall not create, permit or suffer to
exist, and shall defend the Collateral against, any lien, security interest, or
other encumbrance on the Collateral except the security interest of Secured
Party hereunder, and shall defend Debtor's rights in the Collateral and Secured
Party's security interest in the Collateral against the claims of all persons
and entities.
3.2. Modification of Collateral. Debtor shall do nothing to impair
the rights of Secured Party in the Collateral.
3.3. Further Assurances. Any time and from time to time, upon the
request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly execute and deliver all such further instruments and documents and
take such further action as
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<PAGE> 3
Secured Party may deem necessary or desirable to preserve and perfect its
security interest in the Collateral and carry out the provisions and purposes
of this Agreement, including, without limitation, the execution and filing of
such financing statements as Secured Party may require. A carbon,
photographic, or other reproduction of this Agreement or of any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement and may be filed as a financing statement. Debtor shall
promptly endorse and deliver to Secured Party all documents, instruments, and
chattel paper that it now owns or may hereafter acquire.
3.4. Inspection Rights. Debtor shall permit Secured Party and its
representatives to examine, inspect, and copy Debtor's books and records at any
reasonable time and as often as Secured Party may desire during normal business
hours.
3.5. Notification. Debtor shall promptly notify Secured Party of (i)
any lien, security interest, encumbrance, or claim made or threatened against
the Collateral, and (ii) any material change in the Collateral, including,
without limitation, any material damage to or loss of the Collateral.
3.6. Corporate Changes. Debtor shall not change its name, identity,
or corporate structure in any manner that might make any financing statement
filed in connection with this Agreement seriously misleading unless Debtor
shall have given Secured Party thirty (30) days prior written notice thereof
and shall have taken all action deemed necessary or desirable by Secured Party
to make each financing statement not seriously misleading. Debtor shall not
change its principal place of business, chief executive office, or the place
where it keeps its books and records unless it shall have given Secured Party
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or desirable by Secured Party to cause its security interest
in the Collateral to be perfected with the priority required by this Agreement.
3.7. Books and Records; Information. Debtor shall keep accurate and
complete books and records of the Collateral. Debtor shall from time to time
at the request of Secured Party deliver to Secured Party such information
regarding the Collateral and Debtor as Secured Party may request, including,
without limitation, lists and descriptions of the Collateral and evidence of
the identity and existence of the Collateral. Debtor shall mark its books and
records to reflect the security interest of Secured Party under this Agreement.
ARTICLE IV
RIGHTS OF SECURED PARTY
4.1. Power of Attorney. Debtor hereby irrevocably constitutes and
appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take, after
the occurrence of an Event of Default (hereinafter defined), and after the
expiration of ten (10) days after Secured Party has
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<PAGE> 4
given Debtor notice of its intent to exercise its rights granted under this
Section 4.1 if such Event of Default remains uncured, any and all action and to
execute any and all documents and instruments which Secured Party at any time
and from time to time deems necessary or desirable to accomplish the purposes
of this Agreement and, without limiting the generality of the foregoing, Debtor
hereby gives Secured Party the power and right on behalf of Debtor and in its
own name to do any of the following, without notice to or the consent of
Debtor:
(a) to pay or discharge taxes, liens, security interests,
or other encumbrances levied or placed on or threatened against the
Collateral;
(b) (i) to commence and prosecute any suit, action, or
proceeding 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; (ii) to defend any suit, action,
or proceeding brought against Debtor with respect to any Collateral;
(iii) to settle, compromise, or adjust any suit, action, or proceeding
described above and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate; (iv) to exchange
any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization, or other readjustment
of the issuer thereof and, in connection therewith, deposit any of the
Collateral with any committee, depositary or other designated agency
upon such terms as Secured Party may determine; (v) to renew, extend,
or otherwise change the terms and conditions of any of the Collateral
or obligations; (vii) to insure, and to make, settle, compromise, or
adjust claims under any insurance policy covering, any of the
Collateral; and (viii) to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner thereof
for all purposes, and to do, at Secured Party's option and Debtor's
expense, at any time, or from time to time, all acts and things which
Secured Party deems necessary to protect, preserve, or realize upon
the Collateral and Secured Party's security interest therein.
This power of attorney is a power coupled with an interest and shall
be irrevocable. Secured Party shall be under no duty to exercise or withhold
the exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be liable
for any failure to do so or any delay in doing so. Secured Party shall not be
liable for any act or omission or for any error of judgment or any mistake of
fact or law in its individual capacity or in its capacity as attorney-in-fact
except acts or omissions resulting from its gross negligence and willful
misconduct. This power of attorney is conferred on Secured Party solely to
protect, preserve, and realize upon its security interest in the Collateral.
Secured Party shall not be responsible for any decline in the value of the
Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve rights against prior parties or
to protect, preserve, or maintain any security interest or lien given to secure
the Collateral.
4.2. Performance by Secured Party. If Debtor fails to perform or
comply with any of its agreements contained herein, Secured Party itself may,
at its sole discretion,
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cause or attempt to cause performance or compliance with such agreement and the
expenses of Secured Party, together with interest thereon at the maximum
nonusurious per annum rate permitted by applicable law, shall be payable by
Debtor to Secured Party on demand and shall constitute Obligations secured by
this Agreement. Notwithstanding the foregoing, it is expressly agreed that
Secured Party shall not have any liability or responsibility for the
performance of any obligation of Debtor under this Agreement.
4.3. Assignment by Secured Party. Secured Party may from time to
time assign the obligations and any portion thereof and the Collateral and any
portion thereof, and the assignee shall be entitled to all of the rights and
remedies of Secured Party under this Agreement in relation thereto.
ARTICLE V
DEFAULT
5.1. Events of Default. The Debtor will be in default under this
Agreement upon the happening of any condition or event stated below (herein
called an "Event of Default"):
a) The Debtor defaults in the punctual performance of
any obligation, covenant, term, or provision contained or referred to
in this Agreement or in the Note secured hereby and such default
continues for a period of ten (10) days after written notice from
Secured Party;
b) Any warranty, representation, or statement contained
in this Agreement or made or furnished to the Secured Party by or on
behalf of the Debtor in connection with this Agreement or to induce
the Secured Party to make a loan to the Debtor proves to have been
false in any material respect when made or furnished;
c) There occurs any loss (except loss of Collateral by
Secured Party), theft, substantial damage, destruction, sale (except
as authorized in this Agreement), or encumbrance (except as authorized
in this Agreement) to or of any material portion of the Collateral or
the making of any levy, seizure, or attachment thereof or thereon; or
d) The dissolution, termination of the existence,
insolvency or business failure of the Debtor; the appointment of a
receiver of all or any part of the property of Debtor; an assignment
for the benefit of creditors of the Debtor; or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against the
Debtor or any guarantor or surety for the Debtor.
e) Any statement of the financial condition of the
Debtor of any liability of the Debtor to the Secured Party submitted
to the Secured Party by the Debtor proves to be false or misleading in
any respect.
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5.2. Default and Remedies. Upon the occurrence of an Event of
Default, Secured Party shall have the following rights and remedies:
(a) Secured Party may declare the Obligations or any part
thereof immediately due and payable, without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, notice of intent to demand, protest, or other
formalities of any kind, all of which are hereby expressly waived by
Debtor.
(b) In addition to all other rights and remedies granted
to Secured Party in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations or any
part thereof, Secured Party shall have all of the rights and remedies
of a secured party under the Uniform Commercial Code as adopted by the
State of Texas. Without limiting the generality of the foregoing,
Secured Party may (i) without demand or notice to Debtor, collect,
receive, or take possession of the Collateral or any part thereof and
for that purpose Secured Party may enter upon any premises on which
the Collateral is located and remove the Collateral therefrom or
render it inoperable, and/or (ii) sell, lease, or otherwise dispose of
the Collateral, or any part thereof, in one or more parcels at public
or private sale or sales, at Secured Party's offices or elsewhere, for
cash, on credit, or for future delivery. Upon the request of Secured
Party, Debtor shall assemble the Collateral and make it available to
Secured Party at any place designated by Secured Party that is
reasonably convenient to Debtor and Secured Party. Debtor agrees that
Secured Party shall not be obligated to give more than fifteen (15)
days written notice of the time and place of any public sale or of the
time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. Debtor shall be
liable for all expenses of retaking, holding, preparing for sale, or
the like, and all attorneys' fees, legal expenses, and all other costs
and expenses incurred by Secured Party in connection with the
collection of the Obligations and the enforcement of Secured Party's
rights under this Agreement. Secured Party may apply the Collateral
against the obligations in such order and manner as Secured Party may
elect in its sole discretion. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations in full. Debtor
waives all rights of marshalling in respect of the Collateral.
(c) Secured Party may cause any or all of the Collateral
held by it to be transferred into the name of Secured Party or the
name or names of Secured Party's nominee or nominees.
ARTICLE VI
MISCELLANEOUS
6.1. Expenses. Debtor agrees to pay on demand all costs and expenses
incurred by Secured Party in connection with the preparation, negotiation,
execution and
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enforcement of this Agreement and any and all amendments, modifications, and
supplements hereto; provided, however, such costs and expenses shall not exceed
the Debtor's prorata portion of the total costs and expenses incurred by
Secured Party in connection with the closing of the transaction contemplated in
the Purchase and Sale Contract dated as of August 3, 1997, by and between
JMB/Houston Center Partners Limited Partnership and Secured Party, as same may
have been amended.
6.2. No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are expressly subject to the
non-recourse provisions of the Note.
6.3. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of Debtor and Secured Party and their respective
successors, and assigns, except that Debtor may not assign any of its rights or
obligations under this Agreement without the prior written consent of Secured
Party.
6.4. Notices. All notices and other communications provided for in
this Agreement must be in writing and delivered in person or mailed by
registered or certified mail, return receipt requested, postage prepaid to the
addresses set forth on the signature page hereto. Any such notice, consent or
other communication shall be deemed given when delivered in person or, if
mailed, when duly deposited in the mail.
6.5. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
6.6. Headings. The headings, captions, and arrangements used in this
Agreement are for convenience only and shall not affect the interpretation of
this Agreement.
6.7. Survival of Representations and Warranties. All representations
and warranties made in this Agreement or in any certificate delivered pursuant
hereto shall survive the execution and delivery of this Agreement, and no
investigation by Secured Party shall affect the representations and warranties
or the right of Secured Party to rely upon them.
6.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9. Waiver of Bond. In the event Secured Party seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as
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an incident to such possession, and waives any demand for possession prior to
the commencement of any such suit or action.
6.10 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
6.11. Obligations Absolute. The obligations of Debtor under this
Agreement shall be absolute and unconditional and shall not be released,
discharged, reduced, or in any way impaired by any circumstance whatsoever,
including, without limitation, any amendment, modification, extension, or
renewal of this Agreement, the Obligations, or any document or instrument
evidencing, securing, or otherwise relating to the Obligations, or any release
or subordination of collateral, or any waiver, consent, extension, indulgence,
compromise, settlement, or other action or inaction in respect of this
Agreement, the Obligations, or any document or instrument evidencing, securing,
or otherwise relating to the Obligations, or any exercise or failure to
exercise any right, remedy, power, or privilege in respect of the Obligations.
6.12. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or
waived only by an instrument in writing signed by the parties hereto.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
COI HOTEL GROUP, INC., a Texas
corporation
By:
---------------------------------
Name: Jeffrey L. Stevens
Title: President
Address for Notices:
306 W. Seventh, Suite 1025
Fort Worth, Texas 76102
Facsimile: (817) 339-1001
Telephone No.:
------------------------
Attention: Jeffrey L. Stevens
SECURED PARTY:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware
limited partnership
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation,
its sole general partner
By:
---------------------------------
Name: William D. Miller
Title: Senior Vice President,
Administration
Address for Notices:
306 W. Seventh, Suite 1025
Fort Worth, Texas 76102
Facsimile: (817) 339-1001
Telephone No.: (817) 877-0477
Attention: William D. Miller
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EXHIBIT 1.1
COLLATERAL
Debtor's interest in that certain joint venture known as THE HOUSTON
CENTER ATHLETIC CLUB VENTURE, a Texas joint venture (the "Venture") organized
and existing pursuant to the terms of the Joint Venture Agreement, effective
February 13, 1981, by and among The HCV-II Venture, a Texas joint venture
comprised of CFHC-2 Texas, Inc. and HCC Dev, Inc., and UIDC of Texas, Inc.,
Debtor's interest in the Venture having been transferred and assigned to Debtor
by Assignment and Conveyance of even date herewith executed by JMB/Houston
Center Partners Limited Partnership, an Illinois limited partnership.
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PROMISSORY NOTE
September 22, 1997 $1,000,000.00
FOR VALUE RECEIVED, the undersigned COI HOTEL GROUP, INC., a Texas
corporation, promises to pay to the order of CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership, at 777 Main Street, Suite
2100, Fort Worth, Texas 76102, or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of One Million and
No/100 Dollars ($1,000,000.00), with interest thereon from the date hereof at
the rate of eight and one-half percent (8.5%) per annum, to be paid in lawful
money of the United States of America as follows: Interest only on the unpaid
principal balance shall be payable at the end of each twenty-eight (28) day
period ("Interest Period"), such Interest Period beginning on September 25,
1997, and continuing thereafter until September 21, 1998, when the unpaid
principal balance of this Note, together with all accrued and unpaid interest
thereon, shall be paid in full. Interest shall be calculated on the basis of a
360-day year.
The undersigned shall have the right to prepay the whole, or a part, of
the principal sum hereof and all accrued, unpaid interest at any time without
premium or penalty.
At the option of the holder hereof, if any payment of principal or
interest shall not be made as the same becomes due and payable, interest shall
be payable on the principal portion of such defaulted payment and, to the
extent permitted by law, on the interest portion of such defaulted payment, at
a rate which is the lesser of eighteen percent (18%) per annum or the Maximum
Rate (as hereinafter defined). The undersigned shall be liable for all costs
(including specifically, without limitation, reasonable attorneys' fees)
incurred by the holder hereof in collecting or enforcing payment hereof.
As to this Note, the undersigned and all endorsers severally waive all
applicable exemption rights, whether under the state Constitution, homestead
laws or otherwise, and also severally waive valuation and appraisement,
presentment, protest and demand, notice of intent to accelerate, notice of
acceleration, notice of protest, demand and dishonor and nonpayment of this
Note, and expressly agree that the maturity of this Note, or any payment
hereunder, may be extended from time to time without in any way affecting the
liability of the undersigned or said endorsers.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, or otherwise, shall the amount paid or
agreed to be paid to the holder hereof for the use, forbearance or detention of
the money to be loaned hereunder or otherwise or for the performance or payment
of any covenant or obligation contained herein or in any other document
evidencing, securing or pertaining to the indebtedness evidenced hereby, exceed
the Maximum Rate. The term "Maximum Rate" shall mean a rate of interest equal
to the highest rate of interest permitted by applicable state or federal law,
whichever law allows the greater rate of interest. If from any circumstances
whatsoever fulfillment of any provision hereof or
PROMISSORY NOTE - Page 1
<PAGE> 12
of any such other document, at the time performance of such provision shall be
due, shall involve transcending the limit of validity prescribed by law, then,
ipso facto, the obligation to be fulfilled shall be reduced to the limit of
such validity, and if from any such circumstance the holder hereof shall ever
receive anything of value deemed interest by applicable law which would exceed
the Maximum Rate, an amount equal to any excessive interest shall be applied to
the reduction of the principal amount owing hereunder or on account of any
other principal indebtedness of the undersigned to the holder hereof, and not
to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof and such other indebtedness, such excess shall be
refunded to the undersigned. In determining if from any such specific
circumstance the holder hereof shall have received anything of value deemed
interest by applicable law which would exceed the Maximum Rate, the undersigned
and the holder hereof shall, to the maximum extent permissible under applicable
law, (a) characterize any non-principal payment as an expense fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate and spread all sums paid or agreed
to be paid throughout the full term of such indebtedness until payment in full
so that the rate of interest on account of such indebtedness is uniform
throughout the term thereof; provided, however, that if such indebtedness is
paid and performed in full prior to the end of the full contemplated term
thereof, and the holder hereof shall have received anything of value deemed
interest by applicable law which would exceed the Maximum Rate for the actual
period of such indebtedness, the holder hereof shall apply such amounts as
hereinabove provided, and, in such event, the holder hereof shall not be
subject to any penalty for contracting for, charging or receiving interest in
excess of the Maximum Rate. The terms and provisions of this paragraph shall
control and supersede every other provision of all agreements between the
undersigned and the holder hereof.
Payment of this Note is secured by a security interest in the property
described in a Security Agreement (the "Security Agreement") of even date
herewith from Maker to holder.
Except as provided below, the liability of Maker for payment of the
indebtedness evidenced by this Note shall be limited to the Collateral, (as
that term is defined in the Security Agreement). The holder agrees not to seek
or obtain any deficiency or personal judgment against Maker except such
judgment or decree as may be necessary to obtain Maker's interest in the
Collateral. The foregoing limitation of Maker's liability shall not apply to,
and regardless of the sale or other disposition of the Collateral, Maker shall
remain personally liable for any loss, damage or expense, including reasonable
attorney's fees, suffered by the holder as a result of any of the following
(collectively, the "Recourse Obligations"):
(a) any waste or intentional or willful destruction of any of the
Collateral by Maker or its agents and contractors; or
(b) any fraud or intentional or willful misrepresentation, by any
party (other than the holder) executing this Note or the Security Agreement
(even if other than Maker) or any successor or permitted assign thereof; or
(c) any misapplication of the gross proceeds from any of the
Collateral.
The provisions of this Note shall be construed in accordance with the
laws of the State of Texas.
PROMISSORY NOTE - Page 2
<PAGE> 13
IN WITNESS WHEREOF, this instrument has been duly executed by the
undersigned as of the date set forth above.
COI HOTEL GROUP, INC.,
a Texas corporation
By:
--------------------------------
Name: Jeffrey L. Stevens
-----------------------------
Title: President
-----------------------------
PROMISSORY NOTE - Page 3
<PAGE> 1
EXHIBIT 10.11
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") dated as of September 22, 1997,
is by and between COI HOTEL GROUP, INC., a Texas corporation (the "Debtor") and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Secured Party").
R E C I T A L S:
A. Debtor has executed a Promissory Note dated of even date
herewith payable to the order of Secured Party in the principal amount of
$1,000,000.00 (such promissory note, as the same may be amended or modified
from time to time, shall be hereinafter referred to as the "Note").
B. Secured Party has conditioned its obligations under the Note
upon, among other things, the execution and delivery of this Agreement by
Debtor.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SECURITY INTEREST
1.1. Security Interest. Debtor hereby grants to Secured Party a
security interest in the instrument set forth on Exhibit 1.1 hereto (such
property being hereinafter sometimes called the "Collateral").
1.2. Obligations. The Collateral shall secure the following
obligations ("Obligations"):
(i) all obligations and indebtedness of Debtor
to Secured Party evidenced by the Note;
(ii) all costs and expenses, including, without
limitation, all attorneys' fees and legal expenses, incurred
by Secured Party to preserve and maintain the Collateral,
collect the obligations herein described, and enforce this
Agreement; and
(iii) all extensions, renewals, and modifications
of any of the foregoing.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
To induce Secured Party to enter into this Agreement, Debtor
represents and warrants to Secured Party that:
2.1. Title. Except for the security interest granted herein, Debtor
owns, and with respect to Collateral acquired after the date hereof Debtor will
own, the Collateral free and clear of any lien, security interest, or other
encumbrance.
2.2. Financing Statements. No financing statement, security
agreement, or other lien instrument covering all or any part of the Collateral
is on file in any public office, except as may have been filed in favor of
Secured Party.
2.3. Organization and Authority. Debtor is a corporation duly
organized, validly existing, and in good standing under the laws of the state
of Delaware. Debtor has the corporate power and authority to execute, deliver
and perform this Agreement, and the execution, delivery, and performance of
this Agreement by Debtor has been authorized by all necessary corporate action
on the part of Debtor and does not and will not violate any law, rule or
regulation or the Articles of Incorporation or Bylaws of Debtor and does not
and will not conflict with, result in a breach of, or constitute a default
under the provisions of any indenture, mortgage, deed of trust, security
agreement, or other instrument or agreement pursuant to which Debtor or any of
its property is bound.
2.4. Location of Collateral. All Collateral of Debtor is located at
306 W. Seventh, Suite 1025, Fort Worth, Texas 76102.
ARTICLE III
COVENANTS
Debtor covenants and agrees with Secured Party that until the
Obligations are paid and performed in full:
3.1. Encumbrances. Debtor shall not create, permit or suffer to
exist, and shall defend the Collateral against, any lien, security interest, or
other encumbrance on the Collateral except the security interest of Secured
Party hereunder, and shall defend Debtor's rights in the Collateral and Secured
Party's security interest in the Collateral against the claims of all persons
and entities.
3.2. Modification of Collateral. Debtor shall do nothing to impair
the rights of Secured Party in the Collateral.
3.3. Further Assurances. Any time and from time to time, upon the
request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly execute and deliver all such further instruments and documents and
take such further action as Secured Party may deem necessary or desirable to
preserve and perfect its security
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<PAGE> 3
interest in the Collateral and carry out the provisions and purposes of this
Agreement, including, without limitation, the execution and filing of such
financing statements as Secured Party may require. A carbon, photographic, or
other reproduction of this Agreement or of any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement and
may be filed as a financing statement. Debtor shall promptly endorse and
deliver to Secured Party all documents, instruments, and chattel paper that it
now owns or may hereafter acquire.
3.4. Inspection Rights. Debtor shall permit Secured Party and its
representatives to examine, inspect, and copy Debtor's books and records at any
reasonable time and as often as Secured Party may desire during normal business
hours.
3.5. Notification. Debtor shall promptly notify Secured Party of (i)
any lien, security interest, encumbrance, or claim made or threatened against
the Collateral, and (ii) any material change in the Collateral, including,
without limitation, any material damage to or loss of the Collateral.
3.6. Corporate Changes. Debtor shall not change its name, identity,
or corporate structure in any manner that might make any financing statement
filed in connection with this Agreement seriously misleading unless Debtor
shall have given Secured Party thirty (30) days prior written notice thereof
and shall have taken all action deemed necessary or desirable by Secured Party
to make each financing statement not seriously misleading. Debtor shall not
change its principal place of business, chief executive office, or the place
where it keeps its books and records unless it shall have given Secured Party
thirty (30) days prior written notice thereof and shall have taken all action
deemed necessary or desirable by Secured Party to cause its security interest
in the Collateral to be perfected with the priority required by this Agreement.
3.7. Books and Records; Information. Debtor shall keep accurate and
complete books and records of the Collateral. Debtor shall from time to time
at the request of Secured Party deliver to Secured Party such information
regarding the Collateral and Debtor as Secured Party may request, including,
without limitation, lists and descriptions of the Collateral and evidence of
the identity and existence of the Collateral. Debtor shall mark its books and
records to reflect the security interest of Secured Party under this Agreement.
ARTICLE IV
RIGHTS OF SECURED PARTY
4.1. Power of Attorney. Debtor hereby irrevocably constitutes and
appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take, after
the occurrence of an Event of Default (hereinafter defined), and after the
expiration of ten (10) days after Secured Party has given Debtor notice of its
intent to exercise its rights granted under this Section 4.1 if such Event of
Default remains uncured, any and all action and to execute any and all
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<PAGE> 4
documents and instruments which Secured Party at any time and from time to time
deems necessary or desirable to accomplish the purposes of this Agreement and,
without limiting the generality of the foregoing, Debtor hereby gives Secured
Party the power and right on behalf of Debtor and in its own name to do any of
the following, without notice to or the consent of Debtor:
(a) to pay or discharge taxes, liens, security interests,
or other encumbrances levied or placed on or threatened against the
Collateral;
(b) (i) to commence and prosecute any suit, action, or
proceeding 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; (ii) to defend any suit, action,
or proceeding brought against Debtor with respect to any Collateral;
(iii) to settle, compromise, or adjust any suit, action, or proceeding
described above and, in connection therewith, to give such discharges
or releases as Secured Party may deem appropriate; (iv) to exchange
any of the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization, or other readjustment
of the issuer thereof and, in connection therewith, deposit any of the
Collateral with any committee, depositary or other designated agency
upon such terms as Secured Party may determine; (v) to renew, extend,
or otherwise change the terms and conditions of any of the Collateral
or obligations; (vii) to insure, and to make, settle, compromise, or
adjust claims under any insurance policy covering, any of the
Collateral; and (viii) to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner thereof
for all purposes, and to do, at Secured Party's option and Debtor's
expense, at any time, or from time to time, all acts and things which
Secured Party deems necessary to protect, preserve, or realize upon
the Collateral and Secured Party's security interest therein.
This power of attorney is a power coupled with an interest and shall
be irrevocable. Secured Party shall be under no duty to exercise or withhold
the exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Secured Party in this Agreement, and shall not be liable
for any failure to do so or any delay in doing so. Secured Party shall not be
liable for any act or omission or for any error of judgment or any mistake of
fact or law in its individual capacity or in its capacity as attorney-in-fact
except acts or omissions resulting from its gross negligence and willful
misconduct. This power of attorney is conferred on Secured Party solely to
protect, preserve, and realize upon its security interest in the Collateral.
Secured Party shall not be responsible for any decline in the value of the
Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve rights against prior parties or
to protect, preserve, or maintain any security interest or lien given to secure
the Collateral.
4.2. Performance by Secured Party. If Debtor fails to perform or
comply with any of its agreements contained herein, Secured Party itself may,
at its sole discretion, cause or attempt to cause performance or compliance
with such agreement and the expenses of Secured Party, together with interest
thereon at the maximum nonusurious per annum rate permitted by applicable law,
shall be payable by Debtor to Secured
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<PAGE> 5
Party on demand and shall constitute Obligations secured by this Agreement.
Notwithstanding the foregoing, it is expressly agreed that Secured Party shall
not have any liability or responsibility for the performance of any obligation
of Debtor under this Agreement.
4.3. Assignment by Secured Party. Secured Party may from time to
time assign the obligations and any portion thereof and the Collateral and any
portion thereof, and the assignee shall be entitled to all of the rights and
remedies of Secured Party under this Agreement in relation thereto.
ARTICLE V
DEFAULT
5.1. Events of Default. The Debtor will be in default under this
Agreement upon the happening of any condition or event stated below (herein
called an "Event of Default"):
a) The Debtor defaults in the punctual performance of
any obligation, covenant, term, or provision contained or referred to
in this Agreement or in the Note secured hereby and such default
continues for a period of ten (10) days after written notice from
Secured Party;
b) Any warranty, representation, or statement contained
in this Agreement or made or furnished to the Secured Party by or on
behalf of the Debtor in connection with this Agreement or to induce
the Secured Party to make a loan to the Debtor proves to have been
false in any material respect when made or furnished;
c) There occurs any loss (except loss of Collateral by
Secured Party), theft, substantial damage, destruction, sale (except
as authorized in this Agreement), or encumbrance (except as authorized
in this Agreement) to or of any material portion of the Collateral or
the making of any levy, seizure, or attachment thereof or thereon; or
d) The dissolution, termination of the existence,
insolvency or business failure of the Debtor; the appointment of a
receiver of all or any part of the property of Debtor; an assignment
for the benefit of creditors of the Debtor; or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against the
Debtor or any guarantor or surety for the Debtor.
e) Any statement of the financial condition of the
Debtor of any liability of the Debtor to the Secured Party submitted
to the Secured Party by the Debtor proves to be false or misleading in
any respect.
5.2. Default and Remedies. Upon the occurrence of an Event of
Default, Secured Party shall have the following rights and remedies:
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(a) Secured Party may declare the Obligations or any part
thereof immediately due and payable, without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, notice of intent to demand, protest, or other
formalities of any kind, all of which are hereby expressly waived by
Debtor.
(b) In addition to all other rights and remedies granted
to Secured Party in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the Obligations or any
part thereof, Secured Party shall have all of the rights and remedies
of a secured party under the Uniform Commercial Code as adopted by the
State of Texas. Without limiting the generality of the foregoing,
Secured Party may (i) without demand or notice to Debtor, collect,
receive, or take possession of the Collateral or any part thereof and
for that purpose Secured Party may enter upon any premises on which
the Collateral is located and remove the Collateral therefrom or
render it inoperable, and/or (ii) sell, lease, or otherwise dispose of
the Collateral, or any part thereof, in one or more parcels at public
or private sale or sales, at Secured Party's offices or elsewhere, for
cash, on credit, or for future delivery. Upon the request of Secured
Party, Debtor shall assemble the Collateral and make it available to
Secured Party at any place designated by Secured Party that is
reasonably convenient to Debtor and Secured Party. Debtor agrees that
Secured Party shall not be obligated to give more than fifteen (15)
days written notice of the time and place of any public sale or of the
time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. Debtor shall be
liable for all expenses of retaking, holding, preparing for sale, or
the like, and all attorneys' fees, legal expenses, and all other costs
and expenses incurred by Secured Party in connection with the
collection of the Obligations and the enforcement of Secured Party's
rights under this Agreement. Secured Party may apply the Collateral
against the obligations in such order and manner as Secured Party may
elect in its sole discretion. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay the Obligations in full. Debtor
waives all rights of marshalling in respect of the Collateral.
(c) Secured Party may cause any or all of the Collateral
held by it to be transferred into the name of Secured Party or the
name or names of Secured Party's nominee or nominees.
ARTICLE VI
MISCELLANEOUS
6.1. Expenses. Debtor agrees to pay on demand all costs and expenses
incurred by Secured Party in connection with the preparation, negotiation,
execution and enforcement of this Agreement and any and all amendments,
modifications, and supplements hereto; provided, however, such costs and
expenses shall not exceed the Debtor's prorata portion of the total costs and
expenses incurred by Secured Party in connection with the closing of the
transaction contemplated in the Purchase and Sale
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Contract dated as of August 3, 1997, by and between JMB/Houston Center Partners
Limited Partnership and Secured Party, as same may have been amended.
6.2. No Waiver; Cumulative Remedies. No failure on the part of
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power, or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
rights and remedies provided for in this Agreement are expressly subject to the
non-recourse provisions of the Note.
6.3. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of Debtor and Secured Party and their respective
successors, and assigns, except that Debtor may not assign any of its rights or
obligations under this Agreement without the prior written consent of Secured
Party.
6.4. Notices. All notices and other communications provided for in
this Agreement must be in writing and delivered in person or mailed by
registered or certified mail, return receipt requested, postage prepaid to the
addresses set forth on the signature page hereto. Any such notice, consent or
other communication shall be deemed given when delivered in person or, if
mailed, when duly deposited in the mail.
6.5. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA.
6.6. Headings. The headings, captions, and arrangements used in this
Agreement are for convenience only and shall not affect the interpretation of
this Agreement.
6.7. Survival of Representations and Warranties. All representations
and warranties made in this Agreement or in any certificate delivered pursuant
hereto shall survive the execution and delivery of this Agreement, and no
investigation by Secured Party shall affect the representations and warranties
or the right of Secured Party to rely upon them.
6.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9. Waiver of Bond. In the event Secured Party seeks to take
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
6.10 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining
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provisions of this Agreement, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
6.11. Obligations Absolute. The obligations of Debtor under this
Agreement shall be absolute and unconditional and shall not be released,
discharged, reduced, or in any way impaired by any circumstance whatsoever,
including, without limitation, any amendment, modification, extension, or
renewal of this Agreement, the Obligations, or any document or instrument
evidencing, securing, or otherwise relating to the Obligations, or any release
or subordination of collateral, or any waiver, consent, extension, indulgence,
compromise, settlement, or other action or inaction in respect of this
Agreement, the Obligations, or any document or instrument evidencing, securing,
or otherwise relating to the Obligations, or any exercise or failure to
exercise any right, remedy, power, or privilege in respect of the Obligations.
6.12. AMENDMENT; ENTIRE AGREEMENT. THIS AGREEMENT EMBODIES THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
AMONG THE PARTIES HERETO. The provisions of this Agreement may be amended or
waived only by an instrument in writing signed by the parties hereto.
[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first written above.
DEBTOR:
COI HOTEL GROUP, INC., a Texas
corporation
By:
----------------------------
Name: Jeffrey L. Stevens
Title: President
Address for Notices:
306 W. Seventh, Suite 1025
Fort Worth, Texas 76102
Fax No.: (817) 339-1001
Telephone No.: (817) ________
Attention: Jeffrey L. Stevens
SECURED PARTY:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities,
Ltd., a Delaware corporation,
its sole general partner
By:
----------------------------
Name: William D. Miller
Title: Senior Vice President,
Administration
Address for Notices:
306 W. Seventh, Suite 1025
Fort Worth, Texas 76102
Fax No.: (817) 878-0429
Telephone No.: (817) 877-0477
Attention: William D. Miller
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EXHIBIT 1.1
COLLATERAL
Promissory Note dated as of September 22, 1997 in the principal
amount of $5,000,000 from THE HOUSTON CENTER ATHLETIC CLUB VENTURE, a Texas
joint venture ("HCAC"), payable to the order of JMB/HOUSTON CENTER PARTNERS
LIMITED PARTNERSHIP, an Illinois limited partnership ("JMB"), said note being
hereinafter referred to as the "HCAC Note". The HCAC Note was transferred by
JMB to Debtor by assignment dated of even date herewith and it replaces that
certain promissory note dated December 28, 1989 from HCAC payable to the order
of JMB which has been lost and cannot be located.
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PROMISSORY NOTE
September 22, 1997 $800,000.00
FOR VALUE RECEIVED, the undersigned COI HOTEL GROUP, INC., a Texas
corporation, promises to pay to the order of CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership, at 777 Main Street, Suite
2100, Fort Worth, Texas 76102, or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of Eight Hundred
Thousand and No/100 Dollars ($800,000.00), with interest thereon from the date
hereof at the rate of eight and one-half percent (8.5%) per annum, to be paid
in lawful money of the United States of America as follows:
A payment of interest only on the unpaid principal balance of this Note
shall be due and payable on October 1, 1997. Thereafter, monthly installments
of principal and interest in the amount of $16,413.24 each shall be payable
commencing on the first day of November, 1997, and continuing on the first day
of each calendar month thereafter until September 22, 2002, when the unpaid
principal balance of this Note and all accrued but unpaid interest shall be
finally due and payable.
The undersigned shall have the right to prepay the whole, or a part, of
the principal sum hereof and all accrued, unpaid interest at any time without
premium or penalty.
At the option of the holder hereof, if any payment of principal or
interest shall not be made as the same becomes due and payable, interest shall
be payable on the principal portion of such defaulted payment and, to the
extent permitted by law, on the interest portion of such defaulted payment, at
a rate which is the lesser of eighteen percent (18%) per annum or the Maximum
Rate (as hereinafter defined). The undersigned shall be liable for all costs
(including specifically, without limitation, reasonable attorneys' fees)
incurred by the holder hereof in collecting or enforcing payment hereof.
As to this Note, the undersigned and all endorsers severally waive all
applicable exemption rights, whether under the state Constitution, homestead
laws or otherwise, and also severally waive valuation and appraisement,
presentment, protest and demand, notice of intent to accelerate, notice of
acceleration, notice of protest, demand and dishonor and nonpayment of this
Note, and expressly agree that the maturity of this Note, or any payment
hereunder, may be extended from time to time without in any way affecting the
liability of the undersigned or said endorsers.
All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, or otherwise, shall the amount paid or
agreed to be paid to the holder hereof for the use, forbearance or detention of
the money to be loaned hereunder or otherwise or for the performance or payment
of any covenant or obligation contained herein or in any other document
evidencing, securing or pertaining to the indebtedness evidenced hereby, exceed
the
PROMISSORY NOTE - Page 1
<PAGE> 12
Maximum Rate. The term "Maximum Rate" shall mean a rate of interest equal to
the highest rate of interest permitted by applicable state or federal law,
whichever law allows the greater rate of interest. If from any circumstances
whatsoever fulfillment of any provision hereof or of any such other document,
at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then, ipso facto, the
obligation to be fulfilled shall be reduced to the limit of such validity, and
if from any such circumstance the holder hereof shall ever receive anything of
value deemed interest by applicable law which would exceed the Maximum Rate, an
amount equal to any excessive interest shall be applied to the reduction of the
principal amount owing hereunder or on account of any other principal
indebtedness of the undersigned to the holder hereof, and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
hereof and such other indebtedness, such excess shall be refunded to the
undersigned. In determining if from any such specific circumstance the holder
hereof shall have received anything of value deemed interest by applicable law
which would exceed the Maximum Rate, the undersigned and the holder hereof
shall, to the maximum extent permissible under applicable law, (a) characterize
any non-principal payment as an expense fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate and spread all sums paid or agreed to be paid throughout the
full term of such indebtedness until payment in full so that the rate of
interest on account of such indebtedness is uniform throughout the term
thereof; provided, however, that if such indebtedness is paid and performed in
full prior to the end of the full contemplated term thereof, and the holder
hereof shall have received anything of value deemed interest by applicable law
which would exceed the Maximum Rate for the actual period of such indebtedness,
the holder hereof shall apply such amounts as hereinabove provided, and, in
such event, the holder hereof shall not be subject to any penalty for
contracting for, charging or receiving interest in excess of the Maximum Rate.
The terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between the undersigned and the holder
hereof.
Payment of this Note is secured by a security interest in the property
described in a Security Agreement (the "Security Agreement") of even date
herewith from Maker to holder.
Except as provided below, the liability of Maker for payment of the
indebtedness evidenced by this Note shall be limited to the Collateral, (as
that term is defined in the Security Agreement). The holder agrees not to seek
or obtain any deficiency or personal judgment against Maker except such
judgment or decree as may be necessary to obtain Maker's interest in the
Collateral. The foregoing limitation of Maker's liability shall not apply to,
and regardless of the sale or other disposition of the Collateral, Maker shall
remain personally liable for any loss, damage or expense, including reasonable
attorney's fees, suffered by the holder as a result of any of the following
(collectively, the "Recourse Obligations"):
(a) any waste or intentional or willful destruction of any of the
Collateral by Maker or its agents and contractors; or
(b) any fraud or intentional or willful misrepresentation, by any
party (other than the holder) executing this Note or the Security Agreement
(even if other than Maker) or any successor or permitted assign thereof; or
(c) any misapplication of the gross proceeds from any of the
Collateral.
PROMISSORY NOTE - Page 2
<PAGE> 13
The provisions of this Note shall be construed in accordance with the
laws of the State of Texas.
IN WITNESS WHEREOF, this instrument has been duly executed by the
undersigned as of the date set forth above.
COI HOTEL GROUP, INC.,
a Texas corporation
By:
-------------------------
Name: Jeffrey L. Stevens
-----------------------
Title: President
----------------------
PROMISSORY NOTE - Page 3
<PAGE> 1
EXHIBIT 10.12
AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT ("Agreement") is
made and entered into August 31, 1997, to be effective as of July 31, 1997, by
and between Wine Country Hotel, LLC, a Delaware limited liability company
("WCH"), and The Varma Group, Inc. ("Manager").
RECITALS
A. Manager and WCH entered into an Asset Management Agreement
dated as of November 19, 1996 (the "Original WCH Management Agreement"),
pursuant to which Manager agreed to provide management services with respect to
WCH's interest as lessee of the Sonoma Mission Inn and Spa in Sonoma,
California (the "Resort") under a long- term lease agreement (the "Lease") with
the owner of that property (the "Owner"). The Resort is operated by a
management Operator (the "Operator") under a long-term operation or management
agreement (the "Management Agreement"). WCH entered into the Original WCH
Management Agreement to obtain the services of a company with principals
qualified and experienced in asset and hotel management and supervision of the
Operator, in order to fulfill WCH's obligations under the Lease and to assure
proper supervision and management of WCH's interests as lessee under the Lease.
On August 31, 1997, effective as of July 31, 1997, all of WCH's equity
owners sold 100% of the outstanding equity of WCH to RoseStar Management LLC, a
Texas limited liability company ("RoseStar").
B. WCH and Manager mutually desire to modify certain terms of
the Original WCH Management Agreement and to restate the modified agreement
between WCH and Manager as set forth below.
C. Manager and RoseStar entered into an Asset Management
Agreement dated as of May 1, 1996 (the "RoseStar Management Agreement")
pursuant to which Manager agreed to provide management services with respect to
RoseStar's assets, including its interest as the lessee of the Marriott City
Center Hotel in Denver, Colorado (the "Marriott Hotel") under a long-term lease
agreement with the owner of that property. The Marriott Hotel is operated by a
hotel management operator under a long-term operation or management agreement.
Contemporaneously with the execution and delivery of this Agreement, RoseStar
and Manager are amending and restating the RoseStar Management Agreement, on
terms substantially identical with the terms of this Agreement, by entering
into that certain Amended and Restated Asset Management Agreement of even date
herewith (the "Restated RoseStar Management Agreement").
On August 31, 1997, effective as of July 31, 1997, all of
RoseStar's equity owners sold 100% of the outstanding equity of RoseStar to
Crescent Operating, Inc.
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D. Manager and RoseStar's subsidiary, RoseStar Southwest, LLC
("RoseStar Southwest") entered into an Asset Management Agreement dated as of
May 1, 1996 (the "Southwest Management Agreement") pursuant to which Manager
agreed to provide management services with respect to RoseStar Southwest's
assets, including its interests as the lessee of the Hyatt Regency Hotel in
Albuquerque, New Mexico, and the Hyatt Regency Beaver Creek in Avon, Colorado
(the "Hyatt Hotels") under long-term lease agreements with the respective
owners of those properties. Each of the Hyatt Hotels is operated by hotel
management operators under long-term operation or management agreements.
Contemporaneously with the execution and delivery of this Agreement, RoseStar
Southwest and Manager are amending and restating the Southwest Management
Agreement, on terms substantially identical with the terms of this Agreement,
by entering into that certain Amended and Restated Asset Management Agreement
of even date herewith (the "Restated Southwest Management Agreement").
Contemporaneously with the execution and delivery of this Agreement,
WCH and Manager are amending and restating the WCH Management Agreement, on
terms substantially identical with the terms of this Agreement, by entering
into that certain Amended and Restated Asset Management Agreement of even date
herewith (the "Restated WCH Management Agreement").
Now therefore, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
Manager and WCH agree to amend and restate the Original WCH Management
Agreement as follows:
ARTICLE 1
APPOINTMENT
1.1 Appointment to Manage Specific Assets and Supervise Resort
Management.
(a) WCH hereby appoints Manager as exclusive manager of
the assets of WCH listed in Schedule 1 attached hereto, including its
interests under the Lease, and in connection therewith (i) to perform,
to direct the performance of, or to supervise the performance of WCH's
obligations under the Lease, (ii) to supervise the performance of the
Operator, (iii) to promote, exercise, and protect the rights of WCH
under the Lease and its contract with the Operator, (iv) on behalf of
WCH to deal with the Owner and the Operator, and (v) in general to
oversee, preserve, protect, supervise, maintain, promote and utilize
WCH's assets associated with or relating to the Resort. In carrying out
its duties, Manager (provided Manager shall have been provided by WCH
the funding required of it under this Agreement) shall endeavor to
assure that the Resort is operated in an efficient and businesslike
manner consistent with the standard, status and character of the Resort
as a first class Resort property, that revenues and net income from
operation of the Resort are maximized, and, subject to Section 3.3, to
do and perform, or cause to be done and performed, all other activities
customary and usual in connection with the management of WCH's Resort
property.
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(b) During the Management Period WCH at its discretion may
offer to Manager the opportunity to manage the assets of one or more
other hospitality properties (each a "Hospitality Property") hereafter
acquired (by purchase or lease) by WCH or a subsidiary of WCH, the
terms and conditions thereof to be substantially similar to this
Agreement except that Manager's compensation shall be at the then
prevailing market rate or such other rate mutually agreed upon by
Manager and WCH.
(c) Nothing herein shall be construed to prohibit Manager
from entering into, and WCH is aware that Manager may enter into, asset
management agreements with owners and operators or lessees of other
Resort or resort properties.
1.2 Authority and Power. WCH hereby authorizes Manager, subject to
Section 3.3, to exercise such powers with respect to the Lease, the Management
Agreement and the interests and assets of WCH as may be necessary for the
performance of Manager's obligations under the terms of this Agreement and
Manager accepts such appointment under the terms and conditions hereinafter set
forth. Except as expressly limited in Section 3.3, Manager shall have plenary
right and authority to commit or otherwise obligate WCH in all matters
pertaining to the Lease or the Management Agreement.
1.3 Independent Contractor. In performing its obligations
hereunder, Manager shall be an independent contractor. Neither WCH nor Manager
intends hereby to create a partnership, joint venture or trust or (except as
provided elsewhere herein) to make either party hereto the agent of the other
party hereto or to create any fiduciary relationship between WCH and Manager or
to create any contractual relationship between WCH and Manager except as
expressly created by this Agreement. Except as strictly provided herein,
Manager shall not in any capacity become liable for any obligations,
liabilities, losses or debts of WCH.
1.4 Representation by Manager. Manager represents and warrants to
WCH that by entering into and performing its obligations under this Agreement,
Manager is not violating and will not violate any contractual, fiduciary or
legal obligations or responsibilities to which it is or is likely to become
subject, nor is it subject to any contractual, fiduciary or legal obligations
or responsibilities which may reasonably be expected to interfere with its
ability to perform its obligations under this Agreement.
ARTICLE 2
TERM
Manager's duties and responsibilities under this Agreement shall begin
on August 1, 1997, and unless otherwise terminated as provided in Article 7
hereof, shall continue through July 31 , 2002 (the "Management Period").
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ARTICLE 3
MANAGER'S RESPONSIBILITIES
3.1 Management of Resort Assets Generally. Subject to Section
3.3, Manager, on behalf of WCH, shall implement, or cause to be implemented,
the decisions of WCH with respect to the Lease, the Management Agreement and
the Resort; shall direct the performance of WCH's obligations under the Lease
and the Management Agreement; and shall supervise the performance by the
Operator of its obligations under the Management Agreement; including, without
limitation: (a) formulating policies, strategies and tactics for carrying out
WCH's duties under the Lease; (b) reviewing and supervising the performance by
Operator of its contractual obligations to WCH with respect to the Resort; (c)
assembling, organizing and maintaining records of the Resort's operations and
activities; (d) maintaining permits and licenses required of WCH and necessary
for the leasing of the Resort; and (e) inspecting the Resort to assure
compliance by the Operator with its Management Agreement.
3.2 Management of Resort Assets Specifically. Without limiting
the preceding and by way of illustration but not limitation, Manager shall,
subject to Section 3.3, in a prudent, businesslike, skillful, and expeditious
manner:
(a) after consultation with WCH, obtain all licenses, permits,
consents, and approvals ("Governmental Approvals") from any applicable
governmental authorities and agencies necessary for WCH as lessee of
the Resort;
(b) after consultation with WCH, obtain all consents and approvals
("Private Approvals") from any applicable associations, persons and
other parties holding rights of consent and approval necessary for WCH
as lessee of the Resort;
(c) deliver to WCH operating and capital budgets ("Operating and
Capital Budgets") for the Resort pursuant to Section 3.7;
(d) prepare and submit to WCH upon its request (but not more frequently
than monthly) written progress reports in form acceptable to WCH and
reflecting significant developments affecting or relating to the Resort
and a comparison between budgeted and actual operations, all for the
periods requested by WCH;
(e) consult with WCH on all matters requiring Approval of WCH under or
pursuant to Section 3.3 or elsewhere in this Agreement;
(f) permit WCH to inspect and audit records of Manager pertaining to
the Resort and consult with Manager on matters pertaining to the
Resort;
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(g) coordinate, be responsible for, and, where necessary, assist WCH in
obtaining or recovering payment for all credits, reimbursables or other
funds payable to WCH in connection with the Lease;
(h) advise WCH with respect to and with WCH's Approval implement, any
challenge to the tax rates or assessments on or pertaining to the
Resort; and
(i) comply with the Lease and the Management Agreement, including
without limitation taking or causing Operator to take all actions in
management of the Resort as are required to be taken and refraining
from taking any action that would cause WCH to breach or be in default
of the Lease or Management Agreement.
3.3 Approval of WCH Required. Manager shall not have authority or
exercise power to take any of the following actions without first obtaining
WCH's written approval or consent ("Approval"; an action shall be "Approved" if
Approval has been granted), which may be given or withheld in WCH's sole
discretion and judgement: (a) apply for, modify or renew a Governmental
Approval and Private Approval, if WCH beforehand shall have requested Manager
to discuss with it the propriety or advisability thereof, (b) enter into any
agreement or transaction which may become a lien against the Resort, a personal
obligation of any member of WCH, or an obligation of WCH involving more than
$25,000, (c) sue, defend, settle or compromise any claim by or against any
third party, including but not limited to governmental or taxing authorities,
or (d) take any other action for which Approval is elsewhere in this Agreement
required, without first obtaining such Approval. Notwithstanding the
preceding, WCH's Approval shall be deemed to have been given as to any action
for which Manager shall have requested Approval in writing if WCH shall have
neither given nor denied Approval within 20 days after its actual receipt of
such written request.
3.4 For WCH's Account. The services of Manager in performing its
duties and providing services pursuant to this Agreement shall be for the
account of WCH. Except for costs and obligations otherwise provided herein to
be paid or borne by Manager, WCH agrees to be responsible for all costs,
expenses, and disbursements incurred by Manager under the terms of this
Agreement in providing asset management services hereunder and WCH agrees to
provide all funding reasonably necessary for Manger to perform its asset
management services under this Agreement; but without WCH's consent, Manager
will not incur any expenses or make any expenditure except as required or
permitted in this Agreement. Whenever Manager in good faith believes that
emergency circumstances exist that require immediate actions to preserve WCH's
assets or to protect WCH's rights under the Lease or its contract with the
Operator, then Manager shall take such actions and incur such reasonably
necessary expenses and expenditures for the account of WCH, without undue
delay, as Manager deems necessary under the circumstances; but Manager shall
furnish WCH a complete reporting of such actions and expenses as promptly as
practicable.
3.5 Standards. In the performance of its obligations under this
Agreement, the Manager shall exercise a high degree of skill, expertise,
judgment and prudence. The Manager shall also act in the best interest of WCH
with respect to the proper protection of and accounting for the Resort
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property of WCH. Manager will be deemed to have performed within the standards
set forth herein if, in any action, Manager acted in good faith and in a manner
it reasonably believed to be in the best interest of WCH and such action did
not constitute, involve or result from gross negligence, willful or wanton
misconduct, or a breach of a material provision of this Agreement.
3.6 Financial Reports and Records. Manager shall keep proper and
suitable books and records for the Resort as reasonably required to protect
WCH's assets from theft, error or fraudulent activity.
(a) Manager shall provide reports with respect to the
Resort as set forth in Exhibit A and such other reports as WCH may from
time to time request.
(b) All financial statements and reports will be prepared
in accordance with accounting principles established by WCH; if WCH
does not specify accounting principles to be followed by Manager, then
Manager shall keep books and records in accordance with the Uniform
System of Accounts for Hotels as approved by the American Hotel
Association.
(c) WCH or its representatives may, at any time, conduct
examinations of the books and records maintained for WCH by Manager.
WCH also may perform any and all additional audit tests relating to
Manager's activities with respect to this Agreement at any appropriate
place. Any and all such audits shall be at the sole expense of WCH
subject, however, to WCH's indemnification rights. All books and
records shall be preserved throughout the Management Period, upon
termination of this Agreement shall be promptly delivered to WCH, and
shall at all times remain the exclusive property of WCH.
3.7 Budgets. Manager shall for each calendar year review,
analyze, and critique the Operating and Capital Budgets prepared by the
Operator and submit to WCH a report thereon together with Manager's
recommendations thereon. The proposed Operating and Capital Budget shall be
presented to WCH as required by the terms of the Management Agreements.
3.8 Bank Accounts. Manager shall make timely deposits of cash
receipts of WCH in operating accounts, in banks designated by WCH. At all
times the funds deposited shall be the sole and exclusive property of WCH and
shall not be commingled with the funds of Manager or any third party. Manager
shall use the funds in the accounts solely for the purpose of management as
provided under this Agreement.
3.9 Collection of Income. Manager shall use diligent efforts to
collect all income and payments due to WCH from operations of the Resort.
3.10 Compliance with Laws. Manager shall not in the performance
of its services hereunder violate any federal, state, municipal or other
governmental law, ordinance, rule or regulation. Manager shall immediately
notify WCH of any known violation of any federal, state,
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municipal or other governmental law, ordinance, rule or regulation due to the
structure, condition or operation of the Resort or the activities therein.
Manager shall obtain and maintain all permits and licenses required for WCH's
lease of the Resort. Manager shall not in performance of its services
hereunder knowingly violate, and shall comply in all material respects with the
terms of, the Lease, Management Agreement, mortgages, deeds of trust or other
security instruments binding on WCH or affecting the Resort. In the event of a
conflict between the terms of any such document and the terms of this
Agreement, Manager shall not take any action except to notify WCH and await
WCH's instructions. Manager shall not be required to make any payment on its
own behalf or incur any liability in order to comply with the terms or
conditions of any such instruments.
3.11 Notification of Litigation. If Manager shall be apprised of
any claim, demand, suit or other legal proceeding made or instituted against
WCH on account of any matter connected with the Resort, Manager shall give WCH
all information in its possession in respect thereof, and shall assist and
cooperate with WCH in all reasonable respects in the defense of any such suit
or other legal proceeding.
3.12 Confidentiality. Manager acknowledges and agrees that all
information about WCH or the Resort provided to it is and will continue to be
the exclusive property of WCH and agrees to keep all such information (other
than information which is publicly known other than as a result of Manager's
disclosure in violation of this Agreement) in strictest confidence except that
limited disclosure may be made with the prior express consent of WCH, or as
Manager determines in good faith is necessary to enable it to perform its
obligations under this Agreement, or as required by law or judicial or
regulatory process. The provisions of this Section 3.12 shall survive
termination of this Agreement.
3.13 Notice of Breaches and Defaults. Manager shall notify WCH
immediately upon becoming aware of a breach or default by Manager under this
Agreement or the occurrence of an event which, with or without notice or the
lapse of time or both, would entitle WCH to terminate this Agreement for cause.
3.14 Personal Performance Requirement. This Agreement is based on
the special skill and ability of Sanjay and Johanna Varma, as principals of the
Manager, and the devotion by them of sufficient time to cause Manager to
perform its obligations hereunder in a timely manner. Therefore, Sanjay and
Johanna Varma each covenants to WCH that at least one of them shall at all
times during the Management Period own in the aggregate a majority of the
outstanding stock of Manager and shall serve as the most senior executive
officer and member of the board of directors of WCH, and Johanna Varma (and in
her absence, Sanjay Varma) shall devote the substantial majority of her
professional time and efforts to the Manager's business.
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ARTICLE 4
INSURANCE COVERAGE
Manager shall procure and maintain at all times during the term of this
Agreement workmen's compensation insurance coverage, in reasonable amounts, for
the benefit of Manager. WCH shall add Manager to WCH's general liability
insurance policy or policies as an additional insured at all times during the
term of this Agreement.
ARTICLE 5
COMPENSATION AND REIMBURSEMENTS
5.1 Base Compensation.
(a) Subject to Section 5.1(b), Manager shall receive as
consideration and remuneration for all its services under this
Agreement a fee of $165,000 (the "Management Fee") for the first twelve
months of the Management Period (that is, for the period from August 1,
1997 through July 31, 1998); for each subsequent twelve month period
during the Management Period, a cost of living adjustment will be
determined as of the beginning of that period and applied to the
Management Fee for that period as follows: the Management Fee will be
increased (but not decreased) by an amount equal to the product
calculated by multiplying the Management Fee for the immediately
preceding 12 months, times the percentage increase for such calendar
year of the Consumer Price Index for Urban Consumers [Fort Worth -
Arlington Metro Area] -- All Items Index, published by the US
Department of Labor, Bureau of Labor Standards. The Management Fee
will be payable in advance in equal monthly installments (each a
"Monthly Installment") as follows: the Monthly Installment for the
month of September 1997 shall be paid directly to Manager not later
than September 5, 1997; the Monthly Installment for each succeeding
month during the Management Period shall be paid directly to the
Manager by the 20th day of the immediately preceding month. Any
Monthly Installment not paid when due shall bear simple interest at 18%
per annum from and after the due date until paid; additionally, for any
Monthly Installment not paid by the first day of the month to which it
relates, WCH shall become obligated to immediately pay Manager a late
charge equal to ten percent of the amount of such Monthly Installment
(exclusive of interest accrued thereon). Prior to execution of this
Agreement, Manager received a partial payment of the Management Fee for
August 1997; WCH shall pay the remaining balance of the August
Management Fee by September 5, 1997.
(b) In the event of the termination, for any reason, of
the Lease, then WCH shall have the right to substitute in place of the
terminated Lease any other lease of another resort or hotel property
(but the Management Fee, as adjusted pursuant to Section 5.1(a), shall
not be affected by termination of the Lease or by the substitution in
place of a terminated Lease of a lease of another resort or hotel
property).
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5.2 Bonuses. Not less frequently than each anniversary date of
this Agreement, WCH shall give due and fair consideration to determining
whether Manager's performance under this Agreement and the resulting financial
benefits to WCH merit, in WCH's discretion, additional compensation in the form
of a cash bonus or other remuneration.
5.3 Manager's Costs to be Reimbursed. During the Management
Period, Manager will be entitled to reimbursement for reasonable out of pocket
expenses in excess of $20,900 per year that its personnel incur in accordance
with this Agreement in travel to and from the Resort in performing its services
hereunder. WCH shall reimburse Manager for such expenses within 30 days
following actual receipt of itemized invoices of such expenses.
ARTICLE 6
TERMINATION
6.1 Termination by WCH for Cause. WCH shall have the right to
immediately terminate this Agreement, without recourse by Manager except as
provided in Section 6.5(b), in the event Manager commits any act which is a
breach of a material provision of this Agreement and which constitutes an act
of gross negligence, willful or wanton misconduct or is in material violation
of any mortgage, deed of trust, or other security instrument, equipment lease,
insurance contract, or other material contract or agreement affecting the
Resort, and which is not cured within 20 days after written demand by WCH to
Manager (provided, that WCH shall not be required to give Manager an
opportunity to cure if in WCH's good faith judgment its rights or interests are
likely to be materially prejudiced by delay). In addition, WCH shall have the
right to terminate this Agreement upon at least 90 days notice, without
recourse by Manager except as provided in Section 6.5(b), in the event:
(a) Manager shall apply for or consent to the appointment
of a receiver, trustee, or liquidator of Manager or of all or a
substantial part of its assets, file a voluntary petition in
bankruptcy, or admit in writing its inability to pay its debts as they
come due, make a general assignment for the benefit of creditors, file
a petition or an answer seeking reorganization or arrangement with
creditors or take advantage of any insolvency law, or file an answer
admitting the material allegations of a petition filed against Manager
in any bankruptcy, reorganization, or insolvency proceeding, or of an
order, judgment, or on the application of a creditor, a decree shall be
entered by any court of competent jurisdiction adjudicating Manager
bankrupt or insolvent or approving a petition seeking reorganization of
Manager or appointing a receiver, trustee, or liquidator of Manager or
of all or a substantial part of its assets, and such order, judgment or
decree shall continue unstayed and in effect for any period of 90
consecutive days; or
(b) The latter of Sanjay Varma and Johanna Varma,
principals of Manager, dies, becomes permanently disabled or
incapacitated (and an individual shall be deemed "permanently disabled
or incapacitated" if he or she is unable to complete his or her duties
for
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60 days in any consecutive 90 day period), or ceases to engage
personally in performing the Manager's obligations under this
Agreement.
In the event WCH terminates this Agreement under Subsection (b) above based
upon the death, disability and/or incapacity of the Varmas, then WCH shall pay
Manager the Termination Fee (as calculated in Section 6.2).
6.2 Termination by WCH Without Cause. In addition to the
termination rights set forth in Section 6.1, this Agreement may be terminated
by WCH without cause:
(a) at any time prior to January 31, 2000 (the "Guaranteed Date"),
by giving Manager written notice of termination (the date of such
notice is called the "Termination Date") and delivering to Manager a
lump sum cash payment (the "Termination Fee") equal to the greater of
(i) the Value of the Management Fee for the period from the Termination
Date through the Guaranteed Date (the "Remaining Period") and (ii) the
product realized by multiplying the amount of the most recent Monthly
Installment by 6. For purpose of this Section 6.2(a), the "Value" of
the Management Fee shall be calculated as the sum of the Monthly
Installments which, if this Agreement had not been terminated under
this Section 6.2(a), would become payable to Manager during the
Remaining Period (assuming that this Agreement would not otherwise have
been terminated prior to the Guaranteed Date and assuming that the
percentage increase in the Consumer Price Index for each year during
the Remaining Period is four percent); and
(b) at any time after the Guaranteed Date, upon six months prior
written notice delivered to Manager.
Subject to Section 6.5(b), except for the right to receive payment of the
Termination Fee, Manager shall have no claim, right or cause of action against
WCH arising out of its termination of this Agreement pursuant to the provisions
of this Section 6.2. The provisions of this Section 6.2 shall survive
termination of this Agreement.
6.3 Termination by Manager.
(a) Manager may at any time after the Guaranteed Date
notify WCH in writing that Manager intends to resign on a specified
date after the expiration of at least 6 months following the date of
such notification (the "Resignation Date"). WCH shall have no
obligation to pay Manager any compensation hereunder with respect to
any period following the Resignation Date and Manager, by so resigning,
will forfeit all claims to any compensation with respect to any period
following the Resignation Date.
(b) Manager shall have the right to immediately terminate
this Agreement,
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without recourse by WCH except as provided in Section 6.5(b), in the
event RoseStar Southwest terminates the Restated Southwest Management
Agreement without cause (as provided in the Restated Southwest
Management Agreement) or RoseStar terminates the Restated RoseStar
Management Agreement without cause (as provided in the Restated
RoseStar Management Agreement), but Manager's right shall expire unless
exercised within 30 days following the date on which either RoseStar
Southwest terminates the Restated Southwest Management Agreement or
RoseStar terminates the Restated RoseStar Management Agreement. In the
event RoseStar Southwest terminates the Restated Southwest Management
Agreement without cause (as provided in the Restated Southwest
Management Agreement) or RoseStar terminates the Restated RoseStar
Management Agreement without cause (as provided in the Restated
RoseStar Management Agreement) and Manager timely exercises its right
to terminate this Agreement, then the provisions of Section 6.2 shall
apply to the termination of this Agreement as if WCH had terminated
this Agreement without cause as of the date of termination of the
Restated Southwest Management Agreement or as of the date of
termination of the Restated RoseStar Management Agreement, as
applicable.
(c) Manager shall have the right to immediately terminate
this Agreement, without recourse by WCH except as provided in Section
6.5(b), in the event WCH commits any act which is a breach of a
material provision of this Agreement and which constitutes an act of
gross negligence, willful or wanton misconduct or is in material
violation of any mortgage, deed of trust, or other security instrument,
equipment lease, insurance contract, or other material contract or
agreement affecting the Resort, and which is not cured within 20 days
after written demand by Manager to WCH (provided, that Manager shall
not be required to give WCH an opportunity to cure if in Manager's good
faith judgment its rights or interests are likely to be materially
prejudiced by delay). In addition, Manager shall have the right to
terminate this Agreement upon at least 90 days notice, without recourse
by WCH except as provided in Section 6.5(b), in the event WCH shall
apply for or consent to the appointment of a receiver, trustee, or
liquidator of WCH or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to
pay its debts as they come due, make a general assignment for the
benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any
insolvency law, or file an answer admitting the material allegations of
a petition filed against WCH in any bankruptcy, reorganization, or
insolvency proceeding, or of an order, judgment, or on the application
of a creditor, a decree shall be entered by any court of competent
jurisdiction adjudicating Manager bankrupt or insolvent or approving a
petition seeking reorganization of WCH or appointing a receiver,
trustee, or liquidator of WCH or of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed and
in effect for any period of 90 consecutive days.
6.4 Intentionally Deleted.
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6.5 Effect of Termination.
(a) Upon the termination of this Agreement, WCH's
obligation to pay Manager the Management Fee shall cease upon the date
of termination or resignation (the "Termination Date"), and except as
provided herein, the parties shall have no further rights or
obligations to the other.
(b) Notwithstanding the foregoing, the termination of this
Agreement shall not affect (i) the rights of WCH or Manager with
respect to any damages at law or in equity either may have suffered as
a result of any breach of the Agreement by the other party hereto, (ii)
the rights of WCH or Manager with respect to liability or claims
accrued (including but not limited to reimbursement rights), or arising
out of events occurring, prior to the Termination Date, (iii) the
indemnification or exoneration rights of Manager set forth in Sections
8.5 and 8.6, (iv) the confidentiality obligations of Manager under
Section 3.12, (v) the obligations of Manager under Section 6.6 of this
Agreement, (vi) the obligations of Manager and its principals under
Section 1.1(b), which shall survive as provided therein, and (vii) the
provisions of this Section 6.5 and of Section 6.2. The provisions of
this Section 6.5 and of Sections 6.2, 6.3, 6.6, 3.12, 8.5 and 8.6
shall survive termination of this Agreement.
(c) Neither party to this Agreement shall be liable to any
other party hereto for consequential or punitive damages arising as a
result of a breach of this Agreement.
6.6 Final Accounting. Upon termination of this Agreement for any
reason, Manager shall not take or destroy any books, records, contracts,
receipts for deposits, unpaid bills, and other papers, documents or properties
and operating and maintenance information which relate to the Resort, the Lease
or the Management Agreement or any personal property or equipment of the
Resort. Manager shall convey to WCH all books and records pertaining to the
Resort, the Lease or Management Agreement in its possession or under its
control and make a final accounting as promptly as practicable but in no event
later than 60 days following the Termination Date. Manager shall cooperate
with WCH and Manager's successor to assign contracts, transfer management
responsibilities, and otherwise to make best efforts to assure continued asset
management services without interruption; without limiting the foregoing,
Manager shall not take any actions which might reasonably be expected to
interfere with or damage the continued operations of the Resort or its
reputation and shall not make any disparaging public remarks about the Resort,
WCH, or Manager's successor. The provisions of this Section 6.6 shall survive
termination of this Agreement.
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ARTICLE 7
ASSIGNMENT
7.1 No Assignment by Manager or WCH. This is a personal services
contract. Manager may not assign its rights and obligations hereunder without
the prior written consent of WCH. WCH may not assign its rights or obligations
hereunder without the prior written consent of Manager. The assignment of this
Agreement by WCH with Manager's consent shall not be deemed to terminate this
Agreement or to give Manager any right to receive a Termination Fee.
7.2 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective legal
representatives, successors, and assigns.
ARTICLE 8
GENERAL PROVISIONS
8.1 Modification and Changes. This Agreement cannot be altered,
amended, or modified except by another agreement in writing signed by Manager
and WCH.
8.2 Understandings and Agreements. This Agreement (including
Schedule 1 and Exhibit A attached hereto, which are incorporated herein by
reference) constitutes all of the understandings and agreements of whatsoever
nature or kind existing between the parties with respect to Manager's asset
management services to WCH in connection with the Resort. The Original WCH
Management Agreement is superseded in its entirety by this Agreement.
8.3 Waiver. No consent or waiver, express or implied, by any
party to this Agreement to or for any breach or default by any other party to
this Agreement in the performance by such other party of its obligations under
this Agreement shall be deemed or construed to be a consent or waiver to or of
any other breach or default in the performance by such other party of the same
or any other obligations of such other party under this Agreement. Failure on
the part of any party to this Agreement to complain of any act or failure to
act of any other party to this Agreement or to declare any other party in
default, regardless of how long such failure continues, shall not constitute a
waiver by such party of his or its rights hereunder.
8.4 Headings. The Article and Section headings contained herein
are for convenience or reference only and are not intended to define, limit, or
describe the scope or intent of any provision of this Agreement.
8.5 Indemnification of Manager. Subject to the last paragraph of
this Section 8.5, WCH shall indemnify and hold harmless the Manager as
follows:
(a) In any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, to which Manager was or is a party or is threatened to
be made a party involving an alleged cause of action arising from the
activities of Manager and which activities were on behalf of WCH or the
Resort or any appeal
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in such action, suit or proceeding or in any inquiry or investigation
that could lead to such an action, suit or proceeding, WCH shall
(except as otherwise provided in Section 8.5(c) below) indemnify
Manager against any and all losses, claims, demands, liabilities, costs
and expenses, including reasonable attorneys' fees, accountant's fees,
judgments, penalties, fines and amounts paid in settlement, actually
and reasonably incurred by Manager in connection with such action, suit
or proceeding, (collectively "Losses"), WHETHER OR NOT RESULTING FROM
OR ARISING OUT OF MANAGER'S MERE NEGLIGENCE, provided that (i) Manager
acted in good faith, (ii) Manager acted in a manner it reasonably
believed to be in the best interests of WCH, and (iii) Manager's
conduct does not constitute a breach of a material provision of this
Agreement and an act of gross negligence or willful or wanton
misconduct or a material violation of any mortgage, deed of trust, or
other security instrument, equipment lease, insurance contract or other
material contract or agreement affecting the Resort. The termination
of a proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not, of itself,
determine or create a presumption that Manager did not act in good
faith and in a manner that he or it reasonably believed to be in the
best interests of WCH, nor shall any such termination of a proceeding,
of itself, determine or create a presumption that Manager was grossly
negligent or was guilty of willful or wanton misconduct or a breach of
a material provision of this Agreement unless a specific finding to
such effect is included in such judgment, order, settlement, conviction
or plea.
(b) With respect to matters as to which Manager is
entitled to indemnification hereunder, all reasonable expenses
(including reasonable legal fees and expenses) incurred in defending
any proceeding shall be paid by WCH in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on
behalf of Manager to repay such amount if it shall ultimately be
determined, by a court of competent jurisdiction or otherwise, that
Manager is not entitled to be indemnified by WCH as authorized
hereunder.
(c) Any such indemnification shall be made only out of the
assets of WCH, and in no event may Manager subject the members,
managers, officers, directors, employees, affiliates or agents of WCH
to personal liability by reason of these indemnification provisions.
(d) The indemnification provided by this Section 8.5 shall
be in addition to any other rights to which Manager may be entitled, in
any capacity, under any agreement, as a matter of law or otherwise and
shall inure to the benefit of the heirs, successors, assigns and
administrators of Manager.
(e) Manager shall not be denied indemnification in whole
or in part under this Section 8.5 because Manager had an interest in
the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this Agreement.
(f) The provisions of this Section 8.5 shall survive any
termination of this Agreement.
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Despite the foregoing, WCH shall have no obligation to indemnify Manager under
this Section 8.5 if and to the extent that Damages arise as a result of or
relate to Manager's bad faith, breach of this Agreement or out of Manager's
willful or wanton misconduct or gross negligence.
8.6 Exoneration. Manager shall not be liable for obligations,
liabilities, losses or debts of WCH or damages caused by or resulting from
actions or omissions of WCH, except if and to the extent of obligations,
liabilities, losses, debts or damages that arise as a result of or relate to
Manager's bad faith, breach of this Agreement or out of Manager's willful or
wanton misconduct or gross negligence. Furthermore, Manager shall not be
liable to WCH for mistakes in judgement, for actions or inactions taken or
omitted for a purpose which Manager in good faith reasonably believed to be in
the best interest of WCH, for losses due to mistake, action or omission of any
agent provided that he shall have been selected and monitored by Manager in
good faith, if the same do not result from or involve gross negligence, willful
or wanton misconduct, or breach of a material provision of this Agreement. The
provisions of this Section 8.6 shall survive any termination of this Agreement.
8.7 Third Parties. None of the obligations hereunder of either
party shall run to or be enforceable by any party other than the other party to
this Agreement or by a party deriving rights hereunder as a result of an
assignment permitted pursuant to the terms hereof.
8.8 Governing Law. THE VALIDITY, ENFORCEMENT, AND INTERPRETATION
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.
8.9 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
8.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and
all of which when taken together shall constitute a single counterpart
instrument. Executed signature pages to any counterpart instrument may be
detached and affixed to a single counterpart, which single counterpart with
multiple executed signature pages affixed thereto constitutes the original
counterpart instrument. All of these counterpart pages shall be read as though
one and they shall have the same force and effect as if all of the parties had
executed a single signature page.
8.11 Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States first
class mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person or by facsimile transmission, or by sending the same by
reputable overnight courier. Such notice shall be deemed received on the date
on which it is hand-delivered or received by facsimile transmission, on the
third business day following the date on which it is so mailed, or on the
business day next following the
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date on which it is sent by overnight courier. For purposes of notice, the
addresses of the parties shall be:
If to WCH: Wine Country Resort, LLC
------------------------
Fort Worth, Texas 76102
Attention:
---------------
Facsimile:
---------------
If to Manager: The Varma Group, Inc.
777 Main Street, Suite 2680
Fort Worth, Texas 76102
Facsimile: 817 878 0469
Attention: Johanna Varma
Any party may change its address for notice by written notice given to the
other parties in accordance with this section.
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8.12 Arbitration. Upon the demand of either party, whether
made before or after the institution of any judicial proceeding, any
controversy or claim whatsoever arising out of or relating to this Agreement or
the breach or alleged breach thereof, the performance or nonperformance of any
terms hereof, or the relationship between the parties created by or arising out
of this Agreement, shall be settled by binding arbitration in Fort Worth,
Texas, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgement upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof.
IN WITNESS WHEREOF, this Asset Management Agreement is executed as of
the date first above written.
WCH:
WINE COUNTRY RESORT, LLC
By:
-----------------------------------
Its:
-----------------------------------
MANAGER:
THE VARMA GROUP, INC.
By:
-----------------------------------
Johanna Varma, President
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SCHEDULE 1
Managed Assets
WCH's interests as lessee under that Lease Agreement between Crescent
Real Estate Equities Limited Partnership and Wine Country Hotel, LLC, dated
November 18, 1996.
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EXHIBIT "A"
Reports
In accordance with Section 3.6, Manager shall prepare and submit to WCH the
following reports with respect to the Resort:
A. Financial Statements as required by the Lease
B. Capital Projects progress reports
C. Comparisons of actual to projected operational results and budgets
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EXHIBIT 10.13
AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT ("Agreement") is
made and entered into August 31, 1997, to be effective as of July 31, 1997, by
and between RoseStar Southwest, LLC, a Delaware limited liability company
("RoseStar Southwest"), and The Varma Group, Inc. ("Manager").
RECITALS
A. Manager and RoseStar Southwest entered into an Asset
Management Agreement dated as of May 1, 1996 (the "Original Southwest
Management Agreement") pursuant to which Manager agreed to provide management
services with respect to RoseStar Southwest's assets, including its interests
as the lessee of the Hyatt Regency Hotel in Albuquerque, New Mexico, and the
Hyatt Regency Beaver Creek in Avon, Colorado (the "Hotels") under long-term
lease agreements (the "Leases") with the respective owners of those properties
(the "Owners"). Each of the Hotels is operated by hotel management operators
("Operators") under long-term operation or management agreements ("Management
Agreements"). RoseStar Southwest entered into the Original Southwest
Management Agreement to obtain the services of a company with principals
qualified and experienced in asset and hotel management and supervision of the
Operators, in order to fulfill RoseStar Southwest's obligations under the
Leases and to assure proper supervision and management of RoseStar Southwest's
interests as lessee under the Leases.
B. Manager and RoseStar Management LLC ("RoseStar"), the parent
of RoseStar Southwest, entered into an Asset Management Agreement dated as of
May 1, 1996 (the "RoseStar Management Agreement") pursuant to which Manager
agreed to provide management services with respect to RoseStar's assets,
including its interest as the lessee of the Marriott City Center Hotel in
Denver, Colorado (the "Marriott Hotel") under a long-term lease agreement with
the owner of that property. The Marriott Hotel is operated by a hotel
management operator under a long-term operation or management agreement.
Contemporaneously with the execution and delivery of this Agreement, RoseStar
and Manager are amending and restating the RoseStar Management Agreement, on
terms substantially identical with the terms of this Agreement, by entering
into that certain Amended and Restated Asset Management Agreement of even date
herewith (the "Restated RoseStar Management Agreement").
On August 31, 1997, effective as of July 31, 1997, all of
RoseStar's equity owners sold 100% of the outstanding equity of RoseStar to
Crescent Operating, Inc.
C. RoseStar Southwest and Manager mutually desire to modify
certain terms of the Original Southwest Management Agreement and to restate the
modified agreement between RoseStar Southwest and Manager as set forth below.
D. Manager and Wine Country Hotel, LLC ("WCH") entered into an
Asset Management
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Agreement dated as of November 19, 1996 (the "WCH Management Agreement"),
pursuant to which Manager agreed to provide management services with respect to
WCH's interest as lessee of the Sonoma Mission Inn and Spa in Sonoma,
California (the "Resort") under a long-term lease agreement with the owner of
that property (the "Resort Owner"). The Resort is operated by a management
Operator under a long-term operation or management agreement.
On August 31, 1997, effective as of July 31, 1997, all of WCH's equity
owners sold 100% of the outstanding equity of WCH to RoseStar.
Contemporaneously with the execution and delivery of this Agreement,
WCH and Manager are amending and restating the WCH Management Agreement, on
terms substantially identical with the terms of this Agreement, by entering
into that certain Amended and Restated Asset Management Agreement of even date
herewith (the "Restated WCH Management Agreement").
Now therefore, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
Manager and RoseStar Southwest agree to amend and restate the Original RoseStar
Southwest Management Agreement as follows:
ARTICLE 1
APPOINTMENT
1.1 Appointment to Manage Specific Assets and Supervise Hotel
Management.
(a) RoseStar Southwest hereby appoints Manager as
exclusive manager of the assets of RoseStar Southwest listed in
Schedule 1 attached hereto, including its interests under the Leases,
and in connection therewith (i) to perform, to direct the performance
of, or to supervise the performance of RoseStar Southwest's
obligations under the Leases, (ii) to supervise the performance of the
Operators, (iii) to promote, exercise, and protect the rights of
RoseStar Southwest under the Leases and its contracts with the
Operators, (iv) on behalf of RoseStar Southwest to deal with the
Owners and the Operators, and (v) in general to oversee, preserve,
protect, supervise, maintain, promote and utilize RoseStar Southwest's
assets associated with or relating to the Hotels. In carrying out its
duties, Manager (provided Manager shall have been provided by RoseStar
Southwest the funding required of it under this Agreement) shall
endeavor to assure that the Hotels are operated in an efficient and
businesslike manner consistent with the standard, status and character
of the Hotels as first class hotel properties, that revenues and net
income from operation of the Hotels are maximized, and, subject to
Section 3.3, to do and perform, or cause to be done and performed, all
other activities customary and usual in connection with the management
of RoseStar Southwest's Hotel properties.
(b) During the Management Period RoseStar Southwest at
its discretion may offer to Manager the opportunity to manage the
assets of one or more other
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hospitality properties (each a "Hospitality Property") hereafter
acquired (by purchase or lease) by RoseStar Southwest or a subsidiary
of RoseStar Southwest, the terms and conditions thereof to be
substantially similar to this Agreement except that Manager's
compensation shall be at the then prevailing market rate or such other
rate mutually agreed upon by Manager and RoseStar Southwest.
(c) Nothing herein shall be construed to prohibit Manager
from entering into, and RoseStar Southwest is aware that Manager may
enter into, asset management agreements with owners and operators or
lessees of other hotel or resort properties.
1.2 Authority and Power. RoseStar Southwest hereby authorizes
Manager, subject to Section 3.3, to exercise such powers with respect to the
Leases, the Management Agreements and the interests and assets of RoseStar
Southwest as may be necessary for the performance of Manager's obligations
under the terms of this Agreement and Manager accepts such appointment under
the terms and conditions hereinafter set forth. Except as expressly limited in
Section 3.3, Manager shall have plenary right and authority to commit or
otherwise obligate RoseStar Southwest in all matters pertaining to the Leases
or the Management Agreements.
1.3 Independent Contractor. In performing its obligations
hereunder, Manager shall be an independent contractor. Neither RoseStar
Southwest nor Manager intends hereby to create a partnership, joint venture or
trust or (except as provided elsewhere herein) to make either party hereto the
agent of the other party hereto or to create any fiduciary relationship between
RoseStar Southwest and Manager or to create any contractual relationship
between RoseStar Southwest and Manager except as expressly created by this
Agreement. Except as strictly provided herein, Manager shall not in any
capacity become liable for any obligations, liabilities, losses or debts of
RoseStar Southwest.
1.4 Representation by Manager. Manager represents and warrants to
RoseStar Southwest that by entering into and performing its obligations under
this Agreement, Manager is not violating and will not violate any contractual,
fiduciary or legal obligations or responsibilities to which it is or is likely
to become subject, nor is it subject to any contractual, fiduciary or legal
obligations or responsibilities which may reasonably be expected to interfere
with its ability to perform its obligations under this Agreement.
ARTICLE 2
TERM
Manager's duties and responsibilities under this Agreement shall begin
on August 1, 1997, and unless otherwise terminated as provided in Article 7
hereof, shall continue through July 31, 2002 (the "Management Period").
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ARTICLE 3
MANAGER'S RESPONSIBILITIES
3.1 Management of Hotel Assets Generally. Subject to Section 3.3,
Manager, on behalf of RoseStar Southwest, shall implement, or cause to be
implemented, the decisions of RoseStar Southwest with respect to the Leases,
the Management Agreements and the Hotels; shall direct the performance of
RoseStar Southwest's obligations under the Leases and the Management
Agreements; and shall supervise the performance by the Operators of their
respective obligations under the Management Agreements; including, without
limitation: (a) formulating policies, strategies and tactics for carrying out
RoseStar Southwest's duties under the Leases; (b) reviewing and supervising the
performance by Operators of their respective contractual obligations to
RoseStar Southwest with respect to the Hotels; (c) assembling, organizing and
maintaining records of the Hotels' operations and activities; (d) maintaining
permits and licenses required of RoseStar Southwest and necessary for the
leasing of the Hotels; and (e) inspecting the Hotels to assure compliance by
the Operators with their respective Management Agreements.
3.2 Management of Hotel Assets Specifically. Without limiting the
preceding and by way of illustration but not limitation, Manager shall, subject
to Section 3.3, in a prudent, businesslike, skillful, and expeditious manner:
(a) after consultation with RoseStar Southwest, obtain all licenses,
permits, consents, and approvals ("Governmental Approvals") from any
applicable governmental authorities and agencies necessary for
RoseStar Southwest as lessee of the Hotels;
(b) after consultation with RoseStar Southwest, obtain all consents
and approvals ("Private Approvals") from any applicable associations,
persons and other parties holding rights of consent and approval
necessary for RoseStar Southwest as lessee of the Hotels;
(c) deliver to RoseStar Southwest operating and capital budgets
("Operating and Capital Budgets") for the Hotels pursuant to Section
3.7;
(d) prepare and submit to RoseStar Southwest upon its request (but not
more frequently than monthly) written progress reports in form
acceptable to RoseStar Southwest and reflecting significant
developments affecting or relating to the Hotels and a comparison
between budgeted and actual operations, all for the periods requested
by RoseStar Southwest;
(e) consult with RoseStar Southwest on all matters requiring Approval
of RoseStar Southwest under or pursuant to Section 3.3 or elsewhere in
this Agreement;
(f) permit RoseStar Southwest to inspect and audit records of Manager
pertaining to the Hotels and consult with Manager on matters
pertaining to the Hotels;
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(g) coordinate, be responsible for, and, where necessary, assist
RoseStar Southwest in obtaining or recovering payment for all credits,
reimbursables or other funds payable to RoseStar Southwest in
connection with the Leases;
(h) advise RoseStar Southwest with respect to and with RoseStar
Southwest's Approval implement, any challenge to the tax rates or
assessments on or pertaining to the Hotels; and
(i) comply with the Leases and the Management Agreements, including
without limitation taking or causing Operators to take all actions in
management of the Hotels as are required to be taken and refraining
from taking any action that would cause RoseStar Southwest to breach
or be in default of either Lease or Management Agreement.
3.3 Approval of RoseStar Southwest Required. Manager shall not
have authority or exercise power to take any of the following actions without
first obtaining RoseStar Southwest's written approval or consent ("Approval";
an action shall be "Approved" if Approval has been granted), which may be given
or withheld in RoseStar Southwest's sole discretion and judgement: (a) apply
for, modify or renew a Governmental Approval and Private Approval, if RoseStar
Southwest beforehand shall have requested Manager to discuss with it the
propriety or advisability thereof, (b) enter into any agreement or transaction
which may become a lien against either Hotel, a personal obligation of any
member of RoseStar Southwest, or an obligation of RoseStar Southwest involving
more than $25,000, (c) sue, defend, settle or compromise any claim by or
against any third party, including but not limited to governmental or taxing
authorities, or (d) take any other action for which Approval is elsewhere in
this Agreement required, without first obtaining such Approval. Notwithstanding
the preceding, RoseStar Southwest's Approval shall be deemed to have been given
as to any action for which Manager shall have requested Approval in writing if
RoseStar Southwest shall have neither given nor denied Approval within 20 days
after its actual receipt of such written request.
3.4 For RoseStar Southwest's Account. The services of Manager in
performing its duties and providing services pursuant to this Agreement shall
be for the account of RoseStar Southwest. Except for costs and obligations
otherwise provided herein to be paid or borne by Manager, RoseStar Southwest
agrees to be responsible for all costs, expenses, and disbursements incurred by
Manager under the terms of this Agreement in providing asset management
services hereunder and RoseStar Southwest agrees to provide all funding
reasonably necessary for Manger to perform its asset management services under
this Agreement; but without RoseStar Southwest's consent, Manager will not
incur any expenses or make any expenditure except as required or permitted in
this Agreement. Whenever Manager in good faith believes that emergency
circumstances exist that require immediate actions to preserve RoseStar
Southwest's assets or to protect RoseStar Southwest's rights under the Leases
or its contracts with the Operators, then Manager shall take such actions and
incur such reasonably necessary expenses and expenditures for the account of
RoseStar Southwest, without undue delay, as Manager deems necessary under the
circumstances; but Manager shall furnish RoseStar Southwest a complete
reporting of such actions and expenses as promptly as practicable.
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3.5 Standards. In the performance of its obligations under this
Agreement, the Manager shall exercise a high degree of skill, expertise,
judgment and prudence. The Manager shall also act in the best interest of
RoseStar Southwest with respect to the proper protection of and accounting for
the Hotel properties of RoseStar Southwest. Manager will be deemed to have
performed within the standards set forth herein if, in any action, Manager
acted in good faith and in a manner it reasonably believed to be in the best
interest of RoseStar Southwest and such action did not constitute, involve or
result from gross negligence, willful or wanton misconduct, or a breach of a
material provision of this Agreement.
3.6 Financial Reports and Records. Manager shall keep proper and
suitable books and records for either Hotel as reasonably required to protect
RoseStar Southwest's assets from theft, error or fraudulent activity.
(a) Manager shall provide reports with respect to each
Hotel as set forth in Exhibit A and such other reports as RoseStar
Southwest may from time to time request.
(b) All financial statements and reports will be prepared
in accordance with accounting principles established by RoseStar
Southwest; if RoseStar Southwest does not specify accounting
principles to be followed by Manager, then Manager shall keep books
and records in accordance with the Uniform System of Accounts for
Hotels as approved by the American Hotel Association.
(c) RoseStar Southwest or its representatives may, at any
time, conduct examinations of the books and records maintained for
RoseStar Southwest by Manager. RoseStar Southwest also may perform any
and all additional audit tests relating to Manager's activities with
respect to this Agreement at any appropriate place. Any and all such
audits shall be at the sole expense of RoseStar Southwest subject,
however, to RoseStar Southwest's indemnification rights. All books and
records shall be preserved throughout the Management Period, upon
termination of this Agreement shall be promptly delivered to RoseStar
Southwest, and shall at all times remain the exclusive property of
RoseStar Southwest.
3.7 Budgets. Manager shall for each calendar year review, analyze,
and critique the Operating and Capital Budgets prepared by the respective
Operators and submit to RoseStar Southwest a report thereon together with
Manager's recommendations thereon. The proposed Operating and Capital Budget
shall be presented to RoseStar Southwest as required by the terms of the
Management Agreements.
3.8 Bank Accounts. Manager shall make timely deposits of cash
receipts of RoseStar Southwest in operating accounts, in banks designated by
RoseStar Southwest. At all times the funds deposited shall be the sole and
exclusive property of RoseStar Southwest and shall not be commingled with the
funds of Manager or any third party. Manager shall use the funds in the
accounts solely for the purpose of management as provided under this Agreement.
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3.9 Collection of Income. Manager shall use diligent efforts to
collect all income and payments due to RoseStar Southwest from operations of
the Hotels.
3.10 Compliance with Laws. Manager shall not in the performance of
its services hereunder violate any federal, state, municipal or other
governmental law, ordinance, rule or regulation. Manager shall immediately
notify RoseStar Southwest of any known violation of any federal, state,
municipal or other governmental law, ordinance, rule or regulation due to the
structure, condition or operation of the Hotels or the activities therein.
Manager shall obtain and maintain all permits and licenses required for
RoseStar Southwest's lease of the Hotels. Manager shall not in performance of
its services hereunder knowingly violate, and shall comply in all material
respects with the terms of, the Leases, Management Agreements, mortgages, deeds
of trust or other security instruments binding on RoseStar Southwest or
affecting the Hotels. In the event of a conflict between the terms of any such
document and the terms of this Agreement, Manager shall not take any action
except to notify RoseStar Southwest and await RoseStar Southwest's
instructions. Manager shall not be required to make any payment on its own
behalf or incur any liability in order to comply with the terms or conditions
of any such instruments.
3.11 Notification of Litigation. If Manager shall be apprised of
any claim, demand, suit or other legal proceeding made or instituted against
RoseStar Southwest on account of any matter connected with either Hotel,
Manager shall give RoseStar Southwest all information in its possession in
respect thereof, and shall assist and cooperate with RoseStar Southwest in all
reasonable respects in the defense of any such suit or other legal proceeding.
3.12 Confidentiality. Manager acknowledges and agrees that all
information about RoseStar Southwest or the Hotels provided to it is and will
continue to be the exclusive property of RoseStar Southwest and agrees to keep
all such information (other than information which is publicly known other than
as a result of Manager's disclosure in violation of this Agreement) in
strictest confidence except that limited disclosure may be made with the prior
express consent of RoseStar Southwest, or as Manager determines in good faith
is necessary to enable it to perform its obligations under this Agreement, or
as required by law or judicial or regulatory process. The provisions of this
Section 3.12 shall survive termination of this Agreement.
3.13 Notice of Breaches and Defaults. Manager shall notify RoseStar
Southwest immediately upon becoming aware of a breach or default by Manager
under this Agreement or the occurrence of an event which, with or without
notice or the lapse of time or both, would entitle RoseStar Southwest to
terminate this Agreement for cause.
3.14 Personal Performance Requirement. This Agreement is based on
the special skill and ability of Sanjay and Johanna Varma, as principals of the
Manager, and the devotion by them of sufficient time to cause Manager to
perform its obligations hereunder in a timely manner. Therefore, Sanjay and
Johanna Varma each covenants to RoseStar Southwest that at least one of them
shall at all times during the Management Period own in the aggregate a majority
of the outstanding stock of Manager and shall serve as the most senior
executive officer and member of the board of directors of
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RoseStar Southwest, and Johanna Varma (and in her absence, Sanjay Varma) shall
devote the substantial majority of her professional time and efforts to the
Manager's business.
ARTICLE 4
INSURANCE COVERAGE
Manager shall procure and maintain at all times during the term of
this Agreement workmen's compensation insurance coverage, in reasonable
amounts, for the benefit of Manager. RoseStar Southwest shall add Manager to
RoseStar Southwest's general liability insurance policy or policies as an
additional insured at all times during the term of this Agreement.
ARTICLE 5
COMPENSATION AND REIMBURSEMENTS
5.1 Base Compensation.
(a) Subject to Section 5.1(b), Manager shall receive as
consideration and remuneration for all its services under this
Agreement a fee of $330,000 (the "Management Fee") for the first
twelve months of the Management Period (that is, for the period from
August 1, 1997 through July 31, 1998); for each subsequent twelve
month period during the Management Period, a cost of living adjustment
will be determined as of the beginning of that period and applied to
the Management Fee for that period as follows: the Management Fee will
be increased (but not decreased) by an amount equal to the product
calculated by multiplying the Management Fee for the immediately
preceding 12 months, times the percentage increase for such calendar
year of the Consumer Price Index for Urban Consumers [Fort Worth -
Arlington Metro Area] -- All Items Index, published by the US
Department of Labor, Bureau of Labor Standards. The Management Fee
will be payable in advance in equal monthly installments (each a
"Monthly Installment") as follows: the Monthly Installment for the
month of September 1997 shall be paid directly to Manager not later
than September 5, 1997; the Monthly Installment for each succeeding
month during the Management Period shall be paid directly to the
Manager by the 20th day of the immediately preceding month. Any
Monthly Installment not paid when due shall bear simple interest at
18% per annum from and after the due date until paid; additionally,
for any Monthly Installment not paid by the first day of the month to
which it relates, RoseStar Southwest shall become obligated to
immediately pay Manager a late charge equal to ten percent of the
amount of such Monthly Installment (exclusive of interest accrued
thereon). Prior to execution of this Agreement, Manager received a
partial payment of the Management Fee for August 1997; RoseStar
Southwest shall pay the remaining balance of the August Management Fee
by September 5, 1997.
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(b) In the event of the termination, for any reason, of
either or both of the Leases, then RoseStar Southwest shall have the
right to substitute in place of the terminated Lease any other lease
of another hotel or resort property (but the Management Fee, as
adjusted pursuant to Section 5.1(a), shall not be affected by
termination of any of the Leases or by the substitution in place of a
terminated Lease of a lease of another hotel or resort property).
5.2 Bonuses. Not less frequently than each anniversary date of
this Agreement, RoseStar Southwest shall give due and fair consideration to
determining whether Manager's performance under this Agreement and the
resulting financial benefits to RoseStar Southwest merit, in RoseStar
Southwest's discretion, additional compensation in the form of a cash bonus or
other remuneration.
5.3 Manager's Costs to be Reimbursed. During the Management
Period, Manager will be entitled to reimbursement for reasonable out of pocket
expenses in excess of $41,800 per year that its personnel incur in accordance
with this Agreement in travel to and from the Hotels in performing its services
hereunder. RoseStar Southwest shall reimburse Manager for such expenses within
30 days following actual receipt of itemized invoices of such expenses.
ARTICLE 6
TERMINATION
6.1 Termination by RoseStar Southwest for Cause. RoseStar
Southwest shall have the right to immediately terminate this Agreement, without
recourse by Manager except as provided in Section 6.5(b), in the event Manager
commits any act which is a breach of a material provision of this Agreement and
which constitutes an act of gross negligence, willful or wanton misconduct or
is in material violation of any mortgage, deed of trust, or other security
instrument, equipment lease, insurance contract, or other material contract or
agreement affecting either Hotel, and which is not cured within 20 days after
written demand by RoseStar Southwest to Manager (provided, that RoseStar
Southwest shall not be required to give Manager an opportunity to cure if in
RoseStar Southwest's good faith judgment its rights or interests are likely to
be materially prejudiced by delay). In addition, RoseStar Southwest shall have
the right to terminate this Agreement upon at least 90 days notice, without
recourse by Manager except as provided in Section 6.5(b), in the event:
(a) Manager shall apply for or consent to the appointment
of a receiver, trustee, or liquidator of Manager or of all or a
substantial part of its assets, file a voluntary petition in
bankruptcy, or admit in writing its inability to pay its debts as they
come due, make a general assignment for the benefit of creditors, file
a petition or an answer seeking reorganization or arrangement with
creditors or take advantage of any insolvency law, or file an answer
admitting the material allegations of a petition filed against Manager
in any bankruptcy, reorganization, or insolvency proceeding, or of an
order, judgment, or on the application of a creditor, a decree shall
be entered by any court of competent jurisdiction adjudicating Manager
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bankrupt or insolvent or approving a petition seeking reorganization
of Manager or appointing a receiver, trustee, or liquidator of Manager
or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any
period of 90 consecutive days; or
(b) The latter of Sanjay Varma and Johanna Varma,
principals of Manager, dies, becomes permanently disabled or
incapacitated (and an individual shall be deemed "permanently disabled
or incapacitated" if he or she is unable to complete his or her duties
for 60 days in any consecutive 90 day period), or ceases to engage
personally in performing the Manager's obligations under this
Agreement.
In the event RoseStar Southwest terminates this Agreement under Subsection (b)
above based upon the death, disability and/or incapacity of the Varmas, then
RoseStar Southwest shall pay Manager the Termination Fee (as calculated in
Section 6.2).
6.2 Termination by RoseStar Southwest Without Cause. In addition
to the termination rights set forth in Section 6.1, this Agreement may be
terminated by RoseStar Southwest without cause:
(a) at any time prior to January 31, 2000 (the "Guaranteed Date"),
by giving Manager written notice of termination (the date of such
notice is called the "Termination Date") and delivering to Manager a
lump sum cash payment (the "Termination Fee") equal to the greater of
(i) the Value of the Management Fee for the period from the
Termination Date through the Guaranteed Date (the "Remaining Period")
and (ii) the product realized by multiplying the amount of the most
recent Monthly Installment by 6. For purpose of this Section 6.2(a),
the "Value" of the Management Fee shall be calculated as the sum of
the Monthly Installments which, if this Agreement had not been
terminated under this Section 6.2(a), would become payable to Manager
during the Remaining Period (assuming that this Agreement would not
otherwise have been terminated prior to the Guaranteed Date and
assuming that the percentage increase in the Consumer Price Index for
each year during the Remaining Period is four percent); and
(b) at any time after the Guaranteed Date, upon six months prior
written notice delivered to Manager.
Subject to Section 6.5(b), except for the right to receive payment of the
Termination Fee, Manager shall have no claim, right or cause of action against
RoseStar Southwest arising out of its termination of this Agreement pursuant to
the provisions of this Section 6.2. The provisions of this Section 6.2 shall
survive termination of this Agreement.
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6.3 Termination by Manager.
(a) Manager may at any time after the Guaranteed Date
notify RoseStar Southwest in writing that Manager intends to resign on
a specified date after the expiration of at least 6 months following
the date of such notification (the "Resignation Date"). RoseStar
Southwest shall have no obligation to pay Manager any compensation
hereunder with respect to any period following the Resignation Date
and Manager, by so resigning, will forfeit all claims to any
compensation with respect to any period following the Resignation
Date.
(b) Manager shall have the right to immediately terminate
this Agreement, without recourse by RoseStar Southwest except as
provided in Section 6.5(b), in the event RoseStar terminates the
Restated RoseStar Management Agreement without cause (as provided in
the Restated RoseStar Management Agreement) or WCH terminates the
Restated WCH Management Agreement without cause (as provided in the
Restated WCH Management Agreement), but Manager's right shall expire
unless exercised within 30 days following the date on which either
RoseStar terminates the Restated RoseStar Management Agreement or WCH
terminates the Restated WCH Management Agreement. In the event
RoseStar terminates the Restated RoseStar Management Agreement without
cause (as provided in the Restated RoseStar Management Agreement) or
WCH terminates the Restated WCH Management Agreement without cause (as
provided in the Restated WCH Management Agreement) and Manager timely
exercises its right to terminate this Agreement, then the provisions
of Section 6.2 shall apply to the termination of this Agreement as if
RoseStar Southwest had terminated this Agreement without cause as of
the date of termination of the Restated RoseStar Management Agreement
or as of the date of termination of the Restated WCH Management
Agreement, as applicable.
(c) Manager shall have the right to immediately
terminate this Agreement, without recourse by RoseStar Southwest
except as provided in Section 6.5(b), in the event RoseStar Southwest
commits any act which is a breach of a material provision of this
Agreement and which constitutes an act of gross negligence, willful or
wanton misconduct or is in material violation of any mortgage, deed of
trust, or other security instrument, equipment lease, insurance
contract, or other material contract or agreement affecting either
Hotel, and which is not cured within 20 days after written demand by
Manager to RoseStar Southwest (provided, that Manager shall not be
required to give RoseStar Southwest an opportunity to cure if in
Manager's good faith judgment its rights or interests are likely to be
materially prejudiced by delay). In addition, Manager shall have the
right to terminate this Agreement upon at least 90 days notice,
without recourse by RoseStar Southwest except as provided in Section
6.5(b), in the event RoseStar Southwest shall apply for or consent to
the appointment of a receiver, trustee, or liquidator of RoseStar
Southwest or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to
pay its debts as they come due, make a general assignment for the
benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or
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take advantage of any insolvency law, or file an answer admitting the
material allegations of a petition filed against RoseStar Southwest in
any bankruptcy, reorganization, or insolvency proceeding, or of an
order, judgment, or on the application of a creditor, a decree shall
be entered by any court of competent jurisdiction adjudicating Manager
bankrupt or insolvent or approving a petition seeking reorganization
of RoseStar Southwest or appointing a receiver, trustee, or liquidator
of RoseStar Southwest or of all or a substantial part of its assets,
and such order, judgment or decree shall continue unstayed and in
effect for any period of 90 consecutive days.
6.4 Intentionally Deleted.
6.5 Effect of Termination.
(a) Upon the termination of this Agreement, RoseStar
Southwest's obligation to pay Manager the Management Fee shall cease
upon the date of termination or resignation (the "Termination Date"),
and except as provided herein, the parties shall have no further
rights or obligations to the other.
(b) Notwithstanding the foregoing, the termination of
this Agreement shall not affect (i) the rights of RoseStar Southwest
or Manager with respect to any damages at law or in equity either may
have suffered as a result of any breach of the Agreement by the other
party hereto, (ii) the rights of RoseStar Southwest or Manager with
respect to liability or claims accrued (including but not limited to
reimbursement rights), or arising out of events occurring, prior to
the Termination Date, (iii) the indemnification or exoneration rights
of Manager set forth in Sections 8.5 and 8.6, (iv) the confidentiality
obligations of Manager under Section 3.12, (v) the obligations of
Manager under Section 6.6 of this Agreement, (vi) the obligations of
Manager and its principals under Section 1.1(b), which shall survive
as provided therein, and (vii) the provisions of this Section 6.5 and
of Section 6.2. The provisions of this Section 6.5 and of Sections
6.2, 6.3, 6.6, 3.12, 8.5 and 8.6 shall survive termination of this
Agreement.
(c) Neither party to this Agreement shall be liable to
any other party hereto for consequential or punitive damages arising
as a result of a breach of this Agreement.
6.6 Final Accounting. Upon termination of this Agreement for any
reason, Manager shall not take or destroy any books, records, contracts,
receipts for deposits, unpaid bills, and other papers, documents or properties
and operating and maintenance information which relate to either Hotel, either
Lease or either Management Agreement or any personal property or equipment of
either Hotel. Manager shall convey to RoseStar Southwest all books and records
pertaining to the Hotels, the Leases or Management Agreements in its possession
or under its control and make a final accounting as promptly as practicable but
in no event later than 60 days following the Termination Date. Manager shall
cooperate with RoseStar Southwest and Manager's successor to assign contracts,
transfer management responsibilities, and otherwise to make best efforts to
assure continued asset management
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services without interruption; without limiting the foregoing, Manager shall
not take any actions which might reasonably be expected to interfere with or
damage the continued operations of the Hotels or their reputation and shall not
make any disparaging public remarks about the either Hotel, RoseStar Southwest,
or Manager's successor. The provisions of this Section 6.6 shall survive
termination of this Agreement.
ARTICLE 7
ASSIGNMENT
7.1 No Assignment by Manager or RoseStar Southwest. This is a
personal services contract. Manager may not assign its rights and obligations
hereunder without the prior written consent of RoseStar Southwest. RoseStar
Southwest may not assign its rights or obligations hereunder without the prior
written consent of Manager. The assignment of this Agreement by RoseStar
Southwest with Manager's consent shall not be deemed to terminate this
Agreement or to give Manager any right to receive a Termination Fee.
7.2 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective legal
representatives, successors, and assigns.
ARTICLE 8
GENERAL PROVISIONS
8.1 Modification and Changes. This Agreement cannot be altered,
amended, or modified except by another agreement in writing signed by Manager
and RoseStar Southwest.
8.2 Understandings and Agreements. This Agreement (including
Schedule 1 and Exhibit A attached hereto, which are incorporated herein by
reference) constitutes all of the understandings and agreements of whatsoever
nature or kind existing between the parties with respect to Manager's asset
management services to RoseStar Southwest in connection with the Hotels. The
Original RoseStar Southwest Management Agreement is superseded in its entirety
by this Agreement.
8.3 Waiver. No consent or waiver, express or implied, by any party
to this Agreement to or for any breach or default by any other party to this
Agreement in the performance by such other party of its obligations under this
Agreement shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance by such other party of the same or
any other obligations of such other party under this Agreement. Failure on the
part of any party to this Agreement to complain of any act or failure to act of
any other party to this Agreement or to declare
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any other party in default, regardless of how long such failure continues,
shall not constitute a waiver by such party of his or its rights hereunder.
8.4 Headings. The Article and Section headings contained herein
are for convenience or reference only and are not intended to define, limit, or
describe the scope or intent of any provision of this Agreement.
8.5 Indemnification of Manager. Subject to the last paragraph of
this Section 8.5, RoseStar Southwest shall indemnify and hold harmless the
Manager as follows:
(a) In any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, to which Manager was or is a party or is threatened to
be made a party involving an alleged cause of action arising from the
activities of Manager and which activities were on behalf of RoseStar
Southwest or either Hotel or any appeal in such action, suit or
proceeding or in any inquiry or investigation that could lead to such
an action, suit or proceeding, RoseStar Southwest shall (except as
otherwise provided in Section 8.5(c) below) indemnify Manager against
any and all losses, claims, demands, liabilities, costs and expenses,
including reasonable attorneys' fees, accountant's fees, judgments,
penalties, fines and amounts paid in settlement, actually and
reasonably incurred by Manager in connection with such action, suit or
proceeding, (collectively "Losses"), WHETHER OR NOT RESULTING FROM OR
ARISING OUT OF MANAGER'S MERE NEGLIGENCE, provided that (i) Manager
acted in good faith, (ii) Manager acted in a manner it reasonably
believed to be in the best interests of RoseStar Southwest, and (iii)
Manager's conduct does not constitute a breach of a material provision
of this Agreement and an act of gross negligence or willful or wanton
misconduct or a material violation of any mortgage, deed of trust, or
other security instrument, equipment lease, insurance contract or
other material contract or agreement affecting either Hotel. The
termination of a proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, determine or create a presumption that Manager did not act in
good faith and in a manner that he or it reasonably believed to be in
the best interests of RoseStar Southwest, nor shall any such
termination of a proceeding, of itself, determine or create a
presumption that Manager was grossly negligent or was guilty of
willful or wanton misconduct or a breach of a material provision of
this Agreement unless a specific finding to such effect is included in
such judgment, order, settlement, conviction or plea.
(b) With respect to matters as to which Manager is
entitled to indemnification hereunder, all reasonable expenses
(including reasonable legal fees and expenses) incurred in defending
any proceeding shall be paid by RoseStar Southwest in advance of the
final disposition of such proceeding upon receipt of an undertaking by
or on behalf of Manager to repay such amount if it shall ultimately be
determined, by a court of competent jurisdiction or otherwise, that
Manager is not entitled to be indemnified by RoseStar Southwest as
authorized hereunder.
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(c) Any such indemnification shall be made only out of
the assets of RoseStar Southwest, and in no event may Manager subject
the members, managers, officers, directors, employees, affiliates or
agents of RoseStar Southwest to personal liability by reason of these
indemnification provisions.
(d) The indemnification provided by this Section 8.5
shall be in addition to any other rights to which Manager may be
entitled, in any capacity, under any agreement, as a matter of law or
otherwise and shall inure to the benefit of the heirs, successors,
assigns and administrators of Manager.
(e) Manager shall not be denied indemnification in whole
or in part under this Section 8.5 because Manager had an interest in
the transaction with respect to which the indemnification applies if
the transaction was otherwise permitted by the terms of this
Agreement.
(f) The provisions of this Section 8.5 shall survive any
termination of this Agreement.
Despite the foregoing, RoseStar Southwest shall have no obligation to indemnify
Manager under this Section 8.5 if and to the extent that Damages arise as a
result of or relate to Manager's bad faith, breach of this Agreement or out of
Manager's willful or wanton misconduct or gross negligence.
8.6 Exoneration. Manager shall not be liable for obligations,
liabilities, losses or debts of RoseStar Southwest or damages caused by or
resulting from actions or omissions of RoseStar Southwest, except if and to the
extent of obligations, liabilities, losses, debts or damages that arise as a
result of or relate to Manager's bad faith, breach of this Agreement or out of
Manager's willful or wanton misconduct or gross negligence. Furthermore,
Manager shall not be liable to RoseStar Southwest for mistakes in judgement,
for actions or inactions taken or omitted for a purpose which Manager in good
faith reasonably believed to be in the best interest of RoseStar Southwest, for
losses due to mistake, action or omission of any agent provided that he shall
have been selected and monitored by Manager in good faith, if the same do not
result from or involve gross negligence, willful or wanton misconduct, or
breach of a material provision of this Agreement. The provisions of this
Section 8.6 shall survive any termination of this Agreement.
8.7 Third Parties. None of the obligations hereunder of either
party shall run to or be enforceable by any party other than the other party to
this Agreement or by a party deriving rights hereunder as a result of an
assignment permitted pursuant to the terms hereof.
8.8 Governing Law. THE VALIDITY, ENFORCEMENT, AND INTERPRETATION
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.
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8.9 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
8.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and
all of which when taken together shall constitute a single counterpart
instrument. Executed signature pages to any counterpart instrument may be
detached and affixed to a single counterpart, which single counterpart with
multiple executed signature pages affixed thereto constitutes the original
counterpart instrument. All of these counterpart pages shall be read as though
one and they shall have the same force and effect as if all of the parties had
executed a single signature page.
8.11 Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States first
class mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person or by facsimile transmission, or by sending the same by
reputable overnight courier. Such notice shall be deemed received on the date
on which it is hand-delivered or received by facsimile transmission, on the
third business day following the date on which it is so mailed, or on the
business day next following the date on which it is sent by overnight courier.
For purposes of notice, the addresses of the parties shall be:
If to RoseStar Southwest: RoseStar Southwest, LLC
Fort Worth, Texas 76102
Attention: ______________
Facsimile: ______________
If to Manager: The Varma Group, Inc.
777 Main Street, Suite 2680
Fort Worth, Texas 76102
Facsimile: 817 878 0469
Attention: Johanna Varma
Any party may change its address for notice by written notice given to the
other parties in accordance with this section.
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8.12 Arbitration. Upon the demand of either party, whether
made before or after the institution of any judicial proceeding, any
controversy or claim whatsoever arising out of or relating to this Agreement or
the breach or alleged breach thereof, the performance or nonperformance of any
terms hereof, or the relationship between the parties created by or arising out
of this Agreement, shall be settled by binding arbitration in Fort Worth,
Texas, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgement upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof.
IN WITNESS WHEREOF, this Asset Management Agreement is executed as of
the date first above written.
RoseStar Southwest:
ROSESTAR SOUTHWEST, LLC
By: RSSW Corp., sole managing member
By:
---------------------------------------
Its:
---------------------------------------
MANAGER:
THE VARMA GROUP, INC.
By:
---------------------------------------
Johanna Varma, President
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SCHEDULE 1
Managed Assets
1. RoseStar Southwest's interests as lessee under that Amended and
Restated Lease Agreement dated January 1, 1996, between Crescent Real Estate
Funding II, L. P. and RoseStar Management, LLC, which subsequently assigned its
interests to RoseStar Southwest; as amended by that First Amendment dated April
1, 1996.
2. RoseStar Southwest's interests as lessee under that Lease Agreement
dated December 19, 1995 between Crescent Real Estate Equities Limited
Partnership (which subsequently assigned its interest to Crescent Real Estate
Equities Funding II, L. P.) and RoseStar Management, LLC (which subsequently
assigned its interest to RoseStar Southwest); as amended by that First
Amendment dated April 1, 1996 and that Second Amendment dated November 22,
1996.
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EXHIBIT "A"
Reports
In accordance with Section 3.6, Manager shall prepare and submit to RoseStar
the following reports with respect to each Hotel:
A. Financial Statements as required by the applicable Lease
B. Capital Projects progress reports
C. Comparisons of actual to projected operational results
and budgets
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EXHIBIT 10.14
AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED ASSET MANAGEMENT AGREEMENT ("Agreement") is
made and entered into August 31, 1997, to be effective as of July 31, 1997, by
and between RoseStar Management LLC, a Texas limited liability company
("RoseStar"), and The Varma Group, Inc. ("Manager").
RECITALS
A. Manager and RoseStar entered into an Asset Management Agreement
dated as of May 1, 1996 (the "Original RoseStar Management Agreement") pursuant
to which Manager agreed to provide management services with respect to
RoseStar's assets, including its interest as the lessee of the Marriott City
Center Hotel in Denver, Colorado (the "Hotel") under a long-term lease
agreement (the "Lease") with the owner of that property (the "Owner"). The
Hotel is operated by a hotel management operator (the "Operator") under a long-
term operation or management agreement (the "Management Agreement"). RoseStar
entered into the Original RoseStar Management Agreement to obtain the services
of a company with principals qualified and experienced in asset and hotel
management and supervision of the Operator, in order to fulfill RoseStar's
obligations under the Lease and to assure proper supervision and management of
RoseStar's interests as lessee under the Lease.
On August 31, 1997, effective as of July 31, 1997, all of
RoseStar's equity owners sold 100% of the outstanding equity of RoseStar to
Crescent Operating, Inc.
B. RoseStar and Manager mutually desire to modify certain terms of
the Original RoseStar Management Agreement and to restate the modified
agreement between RoseStar and Manager as set forth below.
C. Manager and RoseStar's subsidiary, RoseStar Southwest, LLC
("RoseStar Southwest") entered into an Asset Management Agreement dated as of
May 1, 1996 (the "Southwest Management Agreement") pursuant to which Manager
agreed to provide management services with respect to RoseStar Southwest's
assets, including its interests as the lessee of the Hyatt Regency Hotel in
Albuquerque, New Mexico, and the Hyatt Regency Beaver Creek in Avon, Colorado
(the "Hyatt Hotels") under long-term lease agreements with the respective
owners of those properties. Each of the Hyatt Hotels is operated by hotel
management operators under long-term operation or management agreements.
Contemporaneously with the execution and delivery of this Agreement, RoseStar
Southwest and Manager are amending and restating the Southwest Management
Agreement, on terms substantially identical with the terms of this Agreement,
by entering into that certain Amended and Restated Asset Management Agreement
of even date herewith (the "Restated Southwest Management Agreement").
D. Manager and Wine Country Hotel, LLC ("WCH") entered into an Asset
Management Agreement dated as of November 19, 1996 (the "WCH Management
Agreement"), pursuant to which
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Manager agreed to provide management services with respect to WCH's interest as
lessee of the Sonoma Mission Inn and Spa in Sonoma, California (the "Resort")
under a long-term lease agreement with the owner of that property (the "Resort
Owner"). The Resort is operated by a management Operator under a long-term
operation or management agreement.
On August 31, 1997, effective July 31, 1997, all of WCH's equity owners
sold 100% of the outstanding equity of WCH to RoseStar.
Contemporaneously with the execution and delivery of this Agreement, WCH
and Manager are amending and restating the WCH Management Agreement, on terms
substantially identical with the terms of this Agreement, by entering into that
certain Amended and Restated Asset Management Agreement of even date herewith
(the "Restated WCH Management Agreement").
Now therefore, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
Manager and RoseStar agree to amend and restate the Original RoseStar
Management Agreement as follows:
ARTICLE 1
APPOINTMENT
1.1 Appointment to Manage Specific Assets and Supervise Hotel
Management.
(a) RoseStar hereby appoints Manager as exclusive manager of
the assets of RoseStar listed in Schedule 1 attached hereto, including
its interests under the Lease, and in connection therewith (i) to
perform, to direct the performance of, or to supervise the performance
of RoseStar's obligations under the Lease, (ii) to supervise the
performance of the Operator, (iii) to promote, exercise, and protect the
rights of RoseStar under the Lease and its contract with the Operator,
(iv) on behalf of RoseStar to deal with the Owner and the Operator, and
(v) in general to oversee, preserve, protect, supervise, maintain,
promote and utilize RoseStar's assets associated with or relating to the
Hotel. In carrying out its duties, Manager (provided Manager shall have
been provided by RoseStar the funding required of it under this
Agreement) shall endeavor to assure that the Hotel is operated in an
efficient and businesslike manner consistent with the standard, status
and character of the Hotel as a first class hotel property, that
revenues and net income from operation of the Hotel are maximized, and,
subject to Section 3.3, to do and perform, or cause to be done and
performed, all other activities customary and usual in connection with
the management of RoseStar's Hotel property.
(b) During the Management Period RoseStar at its discretion
may offer to Manager the opportunity to manage the assets of one or more
other hospitality properties (each a "Hospitality Property") hereafter
acquired (by purchase or lease) by RoseStar or a subsidiary of
RoseStar, the terms and conditions thereof to be
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substantially similar to this Agreement except that Manager's
compensation shall be at the then prevailing market rate or such other
rate mutually agreed upon by Manager and RoseStar.
(c) Nothing herein shall be construed to prohibit Manager from
entering into, and RoseStar is aware that Manager may enter into, asset
management agreements with owners and operators or lessees of other
hotel or resort properties.
1.2 Authority and Power. RoseStar hereby authorizes Manager, subject
to Section 3.3, to exercise such powers with respect to the Lease, the
Management Agreement and the interests and assets of RoseStar as may be
necessary for the performance of Manager's obligations under the terms of this
Agreement and Manager accepts such appointment under the terms and conditions
hereinafter set forth. Except as expressly limited in Section 3.3, Manager
shall have plenary right and authority to commit or otherwise obligate RoseStar
in all matters pertaining to the Lease or the Management Agreement.
1.3 Independent Contractor. In performing its obligations hereunder,
Manager shall be an independent contractor. Neither RoseStar nor Manager
intends hereby to create a partnership, joint venture or trust or (except as
provided elsewhere herein) to make either party hereto the agent of the other
party hereto or to create any fiduciary relationship between RoseStar and
Manager or to create any contractual relationship between RoseStar and Manager
except as expressly created by this Agreement. Except as strictly provided
herein, Manager shall not in any capacity become liable for any obligations,
liabilities, losses or debts of RoseStar.
1.4 Representation by Manager. Manager represents and warrants to
RoseStar that by entering into and performing its obligations under this
Agreement, Manager is not violating and will not violate any contractual,
fiduciary or legal obligations or responsibilities to which it is or is likely
to become subject, nor is it subject to any contractual, fiduciary or legal
obligations or responsibilities which may reasonably be expected to interfere
with its ability to perform its obligations under this Agreement.
ARTICLE 2
TERM
Manager's duties and responsibilities under this Agreement shall begin
on August 1, 1997, and unless otherwise terminated as provided in Article 7
hereof, shall continue through July 31, 2002 (the "Management Period").
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ARTICLE 3
MANAGER'S RESPONSIBILITIES
3.1 Management of Hotel Assets Generally. Subject to Section 3.3,
Manager, on behalf of RoseStar, shall implement, or cause to be implemented,
the decisions of RoseStar with respect to the Lease, the Management Agreement
and the Hotel; shall direct the performance of RoseStar's obligations under the
Lease and the Management Agreement; and shall supervise the performance by the
Operator of its obligations under the Management Agreement; including, without
limitation: (a) formulating policies, strategies and tactics for carrying out
RoseStar's duties under the Lease; (b) reviewing and supervising the
performance by Operator of its contractual obligations to RoseStar with respect
to the Hotel; (c) assembling, organizing and maintaining records of the Hotel's
operations and activities; (d) maintaining permits and licenses required of
RoseStar and necessary for the leasing of the Hotel; and (e) inspecting the
Hotel to assure compliance by the Operator with its Management Agreement.
3.2 Management of Hotel Assets Specifically. Without limiting the
preceding and by way of illustration but not limitation, Manager shall, subject
to Section 3.3, in a prudent, businesslike, skillful, and expeditious manner:
(a) after consultation with RoseStar, obtain all licenses, permits,
consents, and approvals ("Governmental Approvals") from any applicable
governmental authorities and agencies necessary for RoseStar as lessee
of the Hotel;
(b) after consultation with RoseStar, obtain all consents and approvals
("Private Approvals") from any applicable associations, persons and
other parties holding rights of consent and approval necessary for
RoseStar as lessee of the Hotel;
(c) deliver to RoseStar operating and capital budgets ("Operating and
Capital Budgets") for the Hotel pursuant to Section 3.7;
(d) prepare and submit to RoseStar upon its request (but not more
frequently than monthly) written progress reports in form acceptable to
RoseStar and reflecting significant developments affecting or relating
to the Hotel and a comparison between budgeted and actual operations,
all for the periods requested by RoseStar;
(e) consult with RoseStar on all matters requiring Approval of RoseStar
under or pursuant to Section 3.3 or elsewhere in this Agreement;
(f) permit RoseStar to inspect and audit records of Manager pertaining
to the Hotel and consult with Manager on matters pertaining to the
Hotel;
(g) coordinate, be responsible for, and, where necessary, assist
RoseStar in obtaining or
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recovering payment for all credits, reimbursables or other funds payable
to RoseStar in connection with the Lease;
(h) advise RoseStar with respect to and with RoseStar's Approval
implement, any challenge to the tax rates or assessments on or
pertaining to the Hotel; and
(i) comply with the Lease and the Management Agreement, including
without limitation taking or causing Operator to take all actions in
management of the Hotel as are required to be taken and refraining from
taking any action that would cause RoseStar to breach or be in default
of the Lease or Management Agreement.
3.3 Approval of RoseStar Required. Manager shall not have authority
or exercise power to take any of the following actions without first obtaining
RoseStar's written approval or consent ("Approval"; an action shall be
"Approved" if Approval has been granted), which may be given or withheld in
RoseStar's sole discretion and judgement: (a) apply for, modify or renew a
Governmental Approval and Private Approval, if RoseStar beforehand shall have
requested Manager to discuss with it the propriety or advisability thereof, (b)
enter into any agreement or transaction which may become a lien against the
Hotel, a personal obligation of any member of RoseStar, or an obligation of
RoseStar involving more than $25,000, (c) sue, defend, settle or compromise any
claim by or against any third party, including but not limited to governmental
or taxing authorities, or (d) take any other action for which Approval is
elsewhere in this Agreement required, without first obtaining such Approval.
Notwithstanding the preceding, RoseStar's Approval shall be deemed to have been
given as to any action for which Manager shall have requested Approval in
writing if RoseStar shall have neither given nor denied Approval within 20 days
after its actual receipt of such written request.
3.4 For RoseStar's Account. The services of Manager in performing
its duties and providing services pursuant to this Agreement shall be for the
account of RoseStar. Except for costs and obligations otherwise provided
herein to be paid or borne by Manager, RoseStar agrees to be responsible for
all costs, expenses, and disbursements incurred by Manager under the terms of
this Agreement in providing asset management services hereunder and RoseStar
agrees to provide all funding reasonably necessary for Manger to perform its
asset management services under this Agreement; but without RoseStar's consent,
Manager will not incur any expenses or make any expenditure except as required
or permitted in this Agreement. Whenever Manager in good faith believes that
emergency circumstances exist that require immediate actions to preserve
RoseStar's assets or to protect RoseStar's rights under the Lease or its
contract with the Operator, then Manager shall take such actions and incur such
reasonably necessary expenses and expenditures for the account of RoseStar,
without undue delay, as Manager deems necessary under the circumstances; but
Manager shall furnish RoseStar a complete reporting of such actions and
expenses as promptly as practicable.
3.5 Standards. In the performance of its obligations under this
Agreement, the Manager shall exercise a high degree of skill, expertise,
judgment and prudence. The Manager shall also act in the best interest of
RoseStar with respect to the proper protection of and accounting for the Hotel
property of RoseStar. Manager will be deemed to have performed within the
standards set forth herein
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if, in any action, Manager acted in good faith and in a manner it reasonably
believed to be in the best interest of RoseStar and such action did not
constitute, involve or result from gross negligence, willful or wanton
misconduct, or a breach of a material provision of this Agreement.
3.6 Financial Reports and Records. Manager shall keep proper and
suitable books and records for the Hotel as reasonably required to protect
RoseStar's assets from theft, error or fraudulent activity.
(a) Manager shall provide reports with respect to the Hotel as
set forth in Exhibit A and such other reports as RoseStar may from time
to time request.
(b) All financial statements and reports will be prepared in
accordance with accounting principles established by RoseStar; if
RoseStar does not specify accounting principles to be followed by
Manager, then Manager shall keep books and records in accordance with
the Uniform System of Accounts for Hotels as approved by the American
Hotel Association.
(c) RoseStar or its representatives may, at any time, conduct
examinations of the books and records maintained for RoseStar by
Manager. RoseStar also may perform any and all additional audit tests
relating to Manager's activities with respect to this Agreement at any
appropriate place. Any and all such audits shall be at the sole expense
of RoseStar subject, however, to RoseStar's indemnification rights. All
books and records shall be preserved throughout the Management Period,
upon termination of this Agreement shall be promptly delivered to
RoseStar, and shall at all times remain the exclusive property of
RoseStar.
3.7 Budgets. Manager shall for each calendar year review, analyze,
and critique the Operating and Capital Budgets prepared by the Operator and
submit to RoseStar a report thereon together with Manager's recommendations
thereon. The proposed Operating and Capital Budget shall be presented to
RoseStar as required by the terms of the Management Agreements.
3.8 Bank Accounts. Manager shall make timely deposits of cash
receipts of RoseStar in operating accounts, in banks designated by RoseStar.
At all times the funds deposited shall be the sole and exclusive property of
RoseStar and shall not be commingled with the funds of Manager or any third
party. Manager shall use the funds in the accounts solely for the purpose of
management as provided under this Agreement.
3.9 Collection of Income. Manager shall use diligent efforts to
collect all income and payments due to RoseStar from operations of the Hotel.
3.10 Compliance with Laws. Manager shall not in the performance of
its services hereunder violate any federal, state, municipal or other
governmental law, ordinance, rule or regulation. Manager shall immediately
notify RoseStar of any known violation of any federal, state, municipal or
other governmental law, ordinance, rule or regulation due to the structure,
condition or
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operation of the Hotel or the activities therein. Manager shall obtain and
maintain all permits and licenses required for RoseStar's lease of the Hotel.
Manager shall not in performance of its services hereunder knowingly violate,
and shall comply in all material respects with the terms of, the Lease,
Management Agreement, mortgages, deeds of trust or other security instruments
binding on RoseStar or affecting the Hotel. In the event of a conflict between
the terms of any such document and the terms of this Agreement, Manager shall
not take any action except to notify RoseStar and await RoseStar's
instructions. Manager shall not be required to make any payment on its own
behalf or incur any liability in order to comply with the terms or conditions
of any such instruments.
3.11 Notification of Litigation. If Manager shall be apprised of any
claim, demand, suit or other legal proceeding made or instituted against
RoseStar on account of any matter connected with the Hotel, Manager shall give
RoseStar all information in its possession in respect thereof, and shall assist
and cooperate with RoseStar in all reasonable respects in the defense of any
such suit or other legal proceeding.
3.12 Confidentiality. Manager acknowledges and agrees that all
information about RoseStar or the Hotel provided to it is and will continue to
be the exclusive property of RoseStar and agrees to keep all such information
(other than information which is publicly known other than as a result of
Manager's disclosure in violation of this Agreement) in strictest confidence
except that limited disclosure may be made with the prior express consent of
RoseStar, or as Manager determines in good faith is necessary to enable it to
perform its obligations under this Agreement, or as required by law or judicial
or regulatory process. The provisions of this Section 3.12 shall survive
termination of this Agreement.
3.13 Notice of Breaches and Defaults. Manager shall notify RoseStar
immediately upon becoming aware of a breach or default by Manager under this
Agreement or the occurrence of an event which, with or without notice or the
lapse of time or both, would entitle RoseStar to terminate this Agreement for
cause.
3.14 Personal Performance Requirement. This Agreement is based on the
special skill and ability of Sanjay and Johanna Varma, as principals of the
Manager, and the devotion by them of sufficient time to cause Manager to
perform its obligations hereunder in a timely manner. Therefore, Sanjay and
Johanna Varma each covenants to RoseStar that at least one of them shall at all
times during the Management Period own in the aggregate a majority of the
outstanding stock of Manager and shall serve as the most senior executive
officer and member of the board of directors of RoseStar, and Johanna Varma
(and in her absence, Sanjay Varma) shall devote the substantial majority of her
professional time and efforts to the Manager's business.
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ARTICLE 4
INSURANCE COVERAGE
Manager shall procure and maintain at all times during the term of this
Agreement workmen's compensation insurance coverage, in reasonable amounts, for
the benefit of Manager. RoseStar shall add Manager to RoseStar's general
liability insurance policy or policies as an additional insured at all times
during the term of this Agreement.
ARTICLE 5
COMPENSATION AND REIMBURSEMENTS
5.1 Base Compensation.
(a) Subject to Section 5.1(b), Manager shall receive as
consideration and remuneration for all its services under this Agreement
a fee of $165,000 (the "Management Fee") for the first twelve months of
the Management Period (that is, for the period from August 1, 1997
through July 31, 1998); for each subsequent twelve month period during
the Management Period, a cost of living adjustment will be determined as
of the beginning of that period and applied to the Management Fee for
that period as follows: the Management Fee will be increased (but not
decreased) by an amount equal to the product calculated by multiplying
the Management Fee for the immediately preceding 12 months, times the
percentage increase for such calendar year of the Consumer Price Index
for Urban Consumers [Fort Worth - Arlington Metro Area] -- All Items
Index, published by the US Department of Labor, Bureau of Labor
Standards. The Management Fee will be payable in advance in equal
monthly installments (each a "Monthly Installment") as follows: the
Monthly Installment for the month of September 1997 shall be paid
directly to Manager not later than September 5, 1997; the Monthly
Installment for each succeeding month during the Management Period shall
be paid directly to the Manager by the 20th day of the immediately
preceding month. Any Monthly Installment not paid when due shall bear
simple interest at 18% per annum from and after the due date until paid;
additionally, for any Monthly Installment not paid by the first day of
the month to which it relates, RoseStar shall become obligated to
immediately pay Manager a late charge equal to ten percent of the amount
of such Monthly Installment (exclusive of interest accrued thereon).
Prior to execution of this Agreement, Manager received a partial payment
of the Management Fee for August 1997; RoseStar shall pay the remaining
balance of the August Management Fee by September 5, 1997.
(b) In the event of the termination, for any reason, of the
Lease, then RoseStar shall have the right to substitute in place of the
terminated Lease any other lease of another hotel or resort property
(but the Management Fee, as adjusted pursuant to Section 5.1(a), shall
not be affected by termination of the Lease or by the substitution in
place of a terminated Lease of a lease of another hotel or resort
property).
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5.2 Bonuses. Not less frequently than each anniversary date of this
Agreement, RoseStar shall give due and fair consideration to determining
whether Manager's performance under this Agreement and the resulting financial
benefits to RoseStar merit, in RoseStar's discretion, additional compensation
in the form of a cash bonus or other remuneration.
5.3 Manager's Costs to be Reimbursed. During the Management Period,
Manager will be entitled to reimbursement for reasonable out of pocket expenses
in excess of $20,900 per year that its personnel incur in accordance with this
Agreement in travel to and from the Hotel in performing its services hereunder.
RoseStar shall reimburse Manager for such expenses within 30 days following
actual receipt of itemized invoices of such expenses.
ARTICLE 6
TERMINATION
6.1 Termination by RoseStar for Cause. RoseStar shall have the right
to immediately terminate this Agreement, without recourse by Manager except as
provided in Section 6.5(b), in the event Manager commits any act which is a
breach of a material provision of this Agreement and which constitutes an act
of gross negligence, willful or wanton misconduct or is in material violation
of any mortgage, deed of trust, or other security instrument, equipment lease,
insurance contract, or other material contract or agreement affecting the
Hotel, and which is not cured within 20 days after written demand by RoseStar
to Manager (provided, that RoseStar shall not be required to give Manager an
opportunity to cure if in RoseStar's good faith judgment its rights or
interests are likely to be materially prejudiced by delay). In addition,
RoseStar shall have the right to terminate this Agreement upon at least 90 days
notice, without recourse by Manager except as provided in Section 6.5(b), in
the event:
(a) Manager shall apply for or consent to the appointment of a
receiver, trustee, or liquidator of Manager or of all or a substantial
part of its assets, file a voluntary petition in bankruptcy, or admit in
writing its inability to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer
seeking reorganization or arrangement with creditors or take advantage
of any insolvency law, or file an answer admitting the material
allegations of a petition filed against Manager in any bankruptcy,
reorganization, or insolvency proceeding, or of an order, judgment, or
on the application of a creditor, a decree shall be entered by any court
of competent jurisdiction adjudicating Manager bankrupt or insolvent or
approving a petition seeking reorganization of Manager or appointing a
receiver, trustee, or liquidator of Manager or of all or a substantial
part of its assets, and such order, judgment or decree shall continue
unstayed and in effect for any period of 90 consecutive days; or
(b) The latter of Sanjay Varma and Johanna Varma, principals
of Manager, dies, becomes permanently disabled or incapacitated (and an
individual shall be deemed "permanently disabled or incapacitated" if he
or she is unable to complete his or her duties for
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60 days in any consecutive 90 day period), or ceases to engage
personally in performing the Manager's obligations under this Agreement.
In the event RoseStar terminates this Agreement under Subsection (b) above
based upon the death, disability and/or incapacity of the Varmas, then RoseStar
shall pay Manager the Termination Fee (as calculated in Section 6.2).
6.2 Termination by RoseStar Without Cause. In addition to the
termination rights set forth in Section 6.1, this Agreement may be terminated
by RoseStar without cause:
(a) at any time prior to January 31, 2000 (the "Guaranteed Date"), by
giving Manager written notice of termination (the date of such notice is
called the "Termination Date") and delivering to Manager a lump sum cash
payment (the "Termination Fee") equal to the greater of (i) the Value of
the Management Fee for the period from the Termination Date through the
Guaranteed Date (the "Remaining Period") and (ii) the product realized
by multiplying the amount of the most recent Monthly Installment by 6.
For purpose of this Section 6.2(a), the "Value" of the Management Fee
shall be calculated as the sum of the Monthly Installments which, if
this Agreement had not been terminated under this Section 6.2(a), would
become payable to Manager during the Remaining Period (assuming that
this Agreement would not otherwise have been terminated prior to the
Guaranteed Date and assuming that the percentage increase in the
Consumer Price Index for each year during the Remaining Period is four
percent); and
(b) at any time after the Guaranteed Date, upon six months prior
written notice delivered to Manager.
Subject to Section 6.5(b), except for the right to receive payment of the
Termination Fee, Manager shall have no claim, right or cause of action against
RoseStar arising out of its termination of this Agreement pursuant to the
provisions of this Section 6.2. The provisions of this Section 6.2 shall
survive termination of this Agreement.
6.3 Termination by Manager.
(a) Manager may at any time after the Guaranteed Date notify
RoseStar in writing that Manager intends to resign on a specified date
after the expiration of at least 6 months following the date of such
notification (the "Resignation Date"). RoseStar shall have no
obligation to pay Manager any compensation hereunder with respect to any
period following the Resignation Date and Manager, by so resigning, will
forfeit all claims to any compensation with respect to any period
following the Resignation Date.
(b) Manager shall have the right to immediately terminate this
Agreement,
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without recourse by RoseStar except as provided in Section 6.5(b), in
the event RoseStar Southwest terminates the Restated Southwest
Management Agreement without cause (as provided in the Restated
Southwest Management Agreement) or WCH terminates the Restated WCH
Management Agreement without cause (as provided in the Restated WCH
Management Agreement), but Manager's right shall expire unless exercised
within 30 days following the date on which either RoseStar Southwest
terminates the Restated Southwest Management Agreement or WCH terminates
the Restated WCH Management Agreement. In the event RoseStar Southwest
terminates the Restated Southwest Management Agreement without cause (as
provided in the Restated Southwest Management Agreement) or WCH
terminates the Restated WCH Management Agreement without cause (as
provided in the Restated WCH Management Agreement) and Manager timely
exercises its right to terminate this Agreement, then the provisions of
Section 6.2 shall apply to the termination of this Agreement as if
RoseStar had terminated this Agreement without cause as of the date of
termination of the Restated Southwest Management Agreement or as of the
date of termination of the Restated WCH Management Agreement, as
applicable.
(c) Manager shall have the right to immediately terminate
this Agreement, without recourse by RoseStar except as provided in
Section 6.5(b), in the event RoseStar commits any act which is a breach
of a material provision of this Agreement and which constitutes an act
of gross negligence, willful or wanton misconduct or is in material
violation of any mortgage, deed of trust, or other security instrument,
equipment lease, insurance contract, or other material contract or
agreement affecting the Hotel, and which is not cured within 20 days
after written demand by Manager to RoseStar (provided, that Manager
shall not be required to give RoseStar an opportunity to cure if in
Manager's good faith judgment its rights or interests are likely to be
materially prejudiced by delay). In addition, Manager shall have the
right to terminate this Agreement upon at least 90 days notice, without
recourse by RoseStar except as provided in Section 6.5(b), in the event
RoseStar shall apply for or consent to the appointment of a receiver,
trustee, or liquidator of RoseStar or of all or a substantial part of
its assets, file a voluntary petition in bankruptcy, or admit in writing
its inability to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer
seeking reorganization or arrangement with creditors or take advantage
of any insolvency law, or file an answer admitting the material
allegations of a petition filed against RoseStar in any bankruptcy,
reorganization, or insolvency proceeding, or of an order, judgment, or
on the application of a creditor, a decree shall be entered by any court
of competent jurisdiction adjudicating Manager bankrupt or insolvent or
approving a petition seeking reorganization of RoseStar or appointing a
receiver, trustee, or liquidator of RoseStar or of all or a substantial
part of its assets, and such order, judgment or decree shall continue
unstayed and in effect for any period of 90 consecutive days.
6.4 Intentionally Deleted.
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6.5 Effect of Termination.
(a) Upon the termination of this Agreement, RoseStar's
obligation to pay Manager the Management Fee shall cease upon the date
of termination or resignation (the "Termination Date"), and except as
provided herein, the parties shall have no further rights or obligations
to the other.
(b) Notwithstanding the foregoing, the termination of this
Agreement shall not affect (i) the rights of RoseStar or Manager with
respect to any damages at law or in equity either may have suffered as a
result of any breach of the Agreement by the other party hereto, (ii)
the rights of RoseStar or Manager with respect to liability or claims
accrued (including but not limited to reimbursement rights), or arising
out of events occurring, prior to the Termination Date, (iii) the
indemnification or exoneration rights of Manager set forth in Sections
8.5 and 8.6, (iv) the confidentiality obligations of Manager under
Section 3.12, (v) the obligations of Manager under Section 6.6 of this
Agreement, (vi) the obligations of Manager and its principals under
Section 1.1(b), which shall survive as provided therein, and (vii) the
provisions of this Section 6.5 and of Section 6.2. The provisions of
this Section 6.5 and of Sections 6.2, 6.3, 6.6, 3.12, 8.5 and 8.6 shall
survive termination of this Agreement.
(c) Neither party to this Agreement shall be liable to any
other party hereto for consequential or punitive damages arising as a
result of a breach of this Agreement.
6.6 Final Accounting. Upon termination of this Agreement for any
reason, Manager shall not take or destroy any books, records, contracts,
receipts for deposits, unpaid bills, and other papers, documents or properties
and operating and maintenance information which relate to the Hotel, the Lease
or the Management Agreement or any personal property or equipment of the Hotel.
Manager shall convey to RoseStar all books and records pertaining to the Hotel,
the Lease or Management Agreement in its possession or under its control and
make a final accounting as promptly as practicable but in no event later than
60 days following the Termination Date. Manager shall cooperate with RoseStar
and Manager's successor to assign contracts, transfer management
responsibilities, and otherwise to make best efforts to assure continued asset
management services without interruption; without limiting the foregoing,
Manager shall not take any actions which might reasonably be expected to
interfere with or damage the continued operations of the Hotel or its
reputation and shall not make any disparaging public remarks about the Hotel,
RoseStar, or Manager's successor. The provisions of this Section 6.6 shall
survive termination of this Agreement.
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ARTICLE 7
ASSIGNMENT
7.1 No Assignment by Manager or RoseStar. This is a personal
services contract. Manager may not assign its rights and obligations hereunder
without the prior written consent of RoseStar. RoseStar may not assign its
rights or obligations hereunder without the prior written consent of Manager.
The assignment of this Agreement by RoseStar with Manager's consent shall not
be deemed to terminate this Agreement or to give Manager any right to receive a
Termination Fee.
7.2 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective legal
representatives, successors, and assigns.
ARTICLE 8
GENERAL PROVISIONS
8.1 Modification and Changes. This Agreement cannot be altered,
amended, or modified except by another agreement in writing signed by Manager
and RoseStar.
8.2 Understandings and Agreements. This Agreement (including Schedule
1 and Exhibit A attached hereto, which are incorporated herein by reference)
constitutes all of the understandings and agreements of whatsoever nature or
kind existing between the parties with respect to Manager's asset management
services to RoseStar in connection with the Hotel. The Original RoseStar
Management Agreement is superseded in its entirety by this Agreement.
8.3 Waiver. No consent or waiver, express or implied, by any party
to this Agreement to or for any breach or default by any other party to this
Agreement in the performance by such other party of its obligations under this
Agreement shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance by such other party of the same or
any other obligations of such other party under this Agreement. Failure on the
part of any party to this Agreement to complain of any act or failure to act of
any other party to this Agreement or to declare any other party in default,
regardless of how long such failure continues, shall not constitute a waiver by
such party of his or its rights hereunder.
8.4 Headings. The Article and Section headings contained herein are
for convenience or reference only and are not intended to define, limit, or
describe the scope or intent of any provision of this Agreement.
8.5 Indemnification of Manager. Subject to the last paragraph of
this Section 8.5, RoseStar shall indemnify and hold harmless the Manager as
follows:
(a) In any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, to which Manager was or is a party or is threatened to be
made a party involving an alleged cause of action arising from the
activities of Manager and which activities were on behalf of RoseStar or
the Hotel or any
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appeal in such action, suit or proceeding or in any inquiry or
investigation that could lead to such an action, suit or proceeding,
RoseStar shall (except as otherwise provided in Section 8.5(c) below)
indemnify Manager against any and all losses, claims, demands,
liabilities, costs and expenses, including reasonable attorneys' fees,
accountant's fees, judgments, penalties, fines and amounts paid in
settlement, actually and reasonably incurred by Manager in connection
with such action, suit or proceeding, (collectively "Losses"), WHETHER
OR NOT RESULTING FROM OR ARISING OUT OF MANAGER'S MERE NEGLIGENCE,
provided that (i) Manager acted in good faith, (ii) Manager acted in a
manner it reasonably believed to be in the best interests of RoseStar,
and (iii) Manager's conduct does not constitute a breach of a material
provision of this Agreement and an act of gross negligence or willful or
wanton misconduct or a material violation of any mortgage, deed of
trust, or other security instrument, equipment lease, insurance contract
or other material contract or agreement affecting the Hotel. The
termination of a proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, determine or create a presumption that Manager did not act in
good faith and in a manner that he or it reasonably believed to be in
the best interests of RoseStar, nor shall any such termination of a
proceeding, of itself, determine or create a presumption that Manager
was grossly negligent or was guilty of willful or wanton misconduct or a
breach of a material provision of this Agreement unless a specific
finding to such effect is included in such judgment, order, settlement,
conviction or plea.
(b) With respect to matters as to which Manager is entitled to
indemnification hereunder, all reasonable expenses (including reasonable
legal fees and expenses) incurred in defending any proceeding shall be
paid by RoseStar in advance of the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of Manager to repay such
amount if it shall ultimately be determined, by a court of competent
jurisdiction or otherwise, that Manager is not entitled to be
indemnified by RoseStar as authorized hereunder.
(c) Any such indemnification shall be made only out of the
assets of RoseStar, and in no event may Manager subject the members,
managers, officers, directors, employees, affiliates or agents of
RoseStar to personal liability by reason of these indemnification
provisions.
(d) The indemnification provided by this Section 8.5 shall be
in addition to any other rights to which Manager may be entitled, in any
capacity, under any agreement, as a matter of law or otherwise and shall
inure to the benefit of the heirs, successors, assigns and
administrators of Manager.
(e) Manager shall not be denied indemnification in whole or in
part under this Section 8.5 because Manager had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(f) The provisions of this Section 8.5 shall survive any
termination of this Agreement.
14
<PAGE> 15
Despite the foregoing, RoseStar shall have no obligation to indemnify Manager
under this Section 8.5 if and to the extent that Damages arise as a result of
or relate to Manager's bad faith, breach of this Agreement or out of Manager's
willful or wanton misconduct or gross negligence.
8.6 Exoneration. Manager shall not be liable for obligations,
liabilities, losses or debts of RoseStar or damages caused by or resulting from
actions or omissions of RoseStar, except if and to the extent of obligations,
liabilities, losses, debts or damages that arise as a result of or relate to
Manager's bad faith, breach of this Agreement or out of Manager's willful or
wanton misconduct or gross negligence. Furthermore, Manager shall not be
liable to RoseStar for mistakes in judgement, for actions or inactions taken or
omitted for a purpose which Manager in good faith reasonably believed to be in
the best interest of RoseStar, for losses due to mistake, action or omission of
any agent provided that he shall have been selected and monitored by Manager in
good faith, if the same do not result from or involve gross negligence, willful
or wanton misconduct, or breach of a material provision of this Agreement. The
provisions of this Section 8.6 shall survive any termination of this Agreement.
8.7 Third Parties. None of the obligations hereunder of either party
shall run to or be enforceable by any party other than the other party to this
Agreement or by a party deriving rights hereunder as a result of an assignment
permitted pursuant to the terms hereof.
8.8 Governing Law. THE VALIDITY, ENFORCEMENT, AND INTERPRETATION OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO ITS CHOICE OF LAW PRINCIPLES.
8.9 Severability. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
8.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and
all of which when taken together shall constitute a single counterpart
instrument. Executed signature pages to any counterpart instrument may be
detached and affixed to a single counterpart, which single counterpart with
multiple executed signature pages affixed thereto constitutes the original
counterpart instrument. All of these counterpart pages shall be read as though
one and they shall have the same force and effect as if all of the parties had
executed a single signature page.
8.11 Notice. Any notice or communication hereunder or in any
agreement entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United States first
class mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the
same in person or by facsimile
15
<PAGE> 16
transmission, or by sending the same by reputable overnight courier. Such
notice shall be deemed received on the date on which it is hand-delivered or
received by facsimile transmission, on the third business day following the date
on which it is so mailed, or on the business day next following the date on
which it is sent by overnight courier. For purposes of notice, the addresses
of the parties shall be:
If to RoseStar: RoseStar Management LLC
---------------------------
Fort Worth, Texas 76102
Attention:
-----------------
Facsimile:
-----------------
If to Manager: The Varma Group, Inc.
777 Main Street, Suite 2680
Fort Worth, Texas 76102
Facsimile: 817 878 0469
Attention: Johanna Varma
Any party may change its address for notice by written notice given to the
other parties in accordance with this section.
16
<PAGE> 17
8.12 Arbitration. Upon the demand of either party, whether
made before or after the institution of any judicial proceeding, any
controversy or claim whatsoever arising out of or relating to this Agreement or
the breach or alleged breach thereof, the performance or nonperformance of any
terms hereof, or the relationship between the parties created by or arising out
of this Agreement, shall be settled by binding arbitration in Fort Worth,
Texas, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgement upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof.
IN WITNESS WHEREOF, this Asset Management Agreement is executed as of
the date first above written.
ROSESTAR:
ROSESTAR MANAGEMENT LLC
By:
----------------------------------
Its:
MANAGER:
THE VARMA GROUP, INC.
By:
----------------------------------
Johanna Varma, President
17
<PAGE> 18
SCHEDULE 1
Managed Assets
RoseStar's interests as lessee under that Amended and Restated Lease
Agreement between Crescent Real Estate Equities Limited Partnership and
RoseStar Management, LLC, dated June 30, 1995.
18
<PAGE> 19
EXHIBIT "A"
Reports
In accordance with Section 3.6, Manager shall prepare and submit to RoseStar
the following reports with respect to the Hotel:
A. Financial Statements as required by the Lease
B. Capital Projects progress reports
C. Comparisons of actual to projected operational
results and budgets
19
<PAGE> 1
EXHIBIT 10.15
AGREEMENT FOR FINANCIAL SERVICES
This Agreement for Financial Services (the "Agreement") is entered into and
effective this first day of July, 1997, (The Effective Date"), by and between
CRESCENT OPERATING, INC. (referred to as the "Client"), and PETROLEUM FINANCIAL,
INC., a Texas corporation ("Consultant").
In consideration of the mutual promises herein contained, the parties hereby
agree as follows:
1. Engagement. As of the Effective Date, the Client hereby engages
Consultant, and Consultant hereby accepts such engagement, to render to
the Client financial services as listed on Exhibit "A" upon the
terms and subject to the conditions set forth herein.
2. Services. Consultant agrees to provide the services described on
Exhibit "A" pursuant to this Agreement, in accordance with industry
standards. Consultant shall, through its officers, employees and
representatives make itself available to consult with the Client and
the department heads of the administrative staff of Client at
reasonable times, concerning matters pertaining to the rendering of the
services described on Exhibit "A". Consultant shall devote such time to
the performance of the services described on Exhibit "A" as is
reasonably necessary for the satisfactory performance thereof.
3. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the Effective Date and shall continue thirty six months
from the Effective date. However, this Agreement may be terminated by
either party at any time with 90 day written notice after nine months
from the Effective Date.
4. Compensation. As compensation for Consultant's agreement to enter into
this Agreement and in consideration of the services to be performed by
Consultant under this Agreement, the Client shall pay Consultant a
monthly fee as set forth on Exhibit "B" for the term of this Agreement.
Client shall also pay any reasonable and necessary out-of-pocket costs
such as bank charges, check printing charges, mailing costs, etc.
5. Indemnification. Client hereby covenants and agrees to and does hereby
indemnify, defend, protect, save and hold harmless the Indemnitee(s)
(as such term is hereinafter defined) from and against any and all
Claims (as such term is hereinafter defined) asserted against the
Indemnitee(s) (or any Indemnitee) arising out of this Agreement or on
account of the services rendered to the respective Client regarding its
interest only pursuant to this Agreement, including without limitation
any negligent acts or negligent omissions of the Indemnitees (or any
Indemnitee), or other alleged or adjudicated wrongful act or omission,
default or breach of whatever kind or nature, whatsoever arising;
provided, however, that the respective Client shall have no obligation
under this Section 5 if such Claims arise due to the gross negligence
or willful misconduct of Consultant or its representatives in the
performance of the services to be performed under this Agreement. As
used herein, the term "Indemnitee" shall mean Consultant, any Affiliate
of Consultant, and any officer, director, employee, agent, attorney,
joint venturer, partner (limited or general), servant, representative,
trustee, successor, assign or shareholder of Consultant. As used
herein, the term "Claims" shall mean allegations, actions, claims,
liabilities, demands, debts, actions, causes or action, suits, dues,
reckonings, controversies, promises, rights of indemnity and
contribution, and all attorneys' fees and costs of court related to or
incurred in connection therewith, of any kind or character whatsoever,
known or unknown, suspected or unsuspected, in contract or in tort or
otherwise, at law or in equity, whether heretofore or hereafter
existing or accruing. The provisions of this Section 5 shall survive
one year from the termination of this Agreement. Anything to the
contrary, notwithstanding an indemnification from a Client, shall be
only with respect to that Client's interest and shall not be binding
upon the
<PAGE> 2
SERVICE AGREEMENT BETWEEN PETROLEUM FINANCIAL & CRESCENT OPERATING, INC.
other Client or Clients as the case may be. In other words, there is no
joint and several indemnification by the Clients in favor of
Consultant.
6. Confidentiality. Consultant (including its Affiliates) shall keep
confidential all material information of the Client and Crescent Real
Estate Equity Ltd., its affiliate to which it has access for purposes
of carrying out the provisions of this Agreement and, except as
required by legal or regulatory requirements beyond the control of
such party, shall not disclose any such information to unauthorized
persons or utilize any such information except in the performance of
its respective duties under this Agreement. The provisions of this
Section 6 shall not apply to any information required to be disclosed
by law, that is otherwise publicly available, or that is disclosed
with the written consent of the owner thereof or required to be
disclosed in the execution of the duties set forth on Exhibit. In the
event that Consultant is requested to disclose any of Clients
confidential information required by law, Consultant shall immediately
notify Client in writing. The provisions of this Section 6 shall
survive one year from any termination of this Agreement.
7. Relationship. Consultant in furnishing services to the Client hereunder
is providing such services only as an independent contractor. This
Agreement does not create, and shall not be construed to create, any
employer-employee, joint venture or partnership relationship between
the parties hereto. No officer, employee, agent, servant or independent
contractor of either party hereto or their respective Affiliates shall
at any time be deemed to be an employee, servant, agent or contractor
of any other party for any purpose whatsoever.
8. Waiver. The failure of any party hereto to seek a redress for
violation, or to insist upon the strict performance of any covenant,
agreement, provision or condition of this Agreement, shall not
constitute the waiver of the terms of such covenant, agreement,
provision or condition at subsequent times or of the terms of any other
covenant, agreement, provision or condition, and the parties hereto
shall have all remedies provided herein with respect to any subsequent
act which would have originally constituted the violation hereunder.
9. Governing Law. THIS AGREEMENT, AND ALL QUESTIONS RELATING TO ITS
VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT (INCLUDING,
WITHOUT LIMITATION, PROVISIONS CONCERNING LIMITATIONS OF ACTION), SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF TEXAS, NOTWITHSTANDING ANY CONFLICT-OF-LAWS DOCTRINES OF
SUCH STATE OR OTHER JURISDICTION TO THE CONTRARY.
10. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed
to have been fully given, made and received only when personally
delivered or delivered by Federal Express or other nationally
recognized courier service, or three working days after having been
deposited in the United States mail, certified mail, postage prepaid,
return receipt requested, addressed as set forth below:
<PAGE> 3
SERVICE AGREEMENT BETWEEN PETROLEUM FINANCIAL & CRESCENT OPERATING, INC.
If to Consultant:
Petroleum Financial, Inc.
Attn: Jeff Stevens
1025 Fort Worth Club Building
306 West Seventh Street
Fort Worth, TX 76102
If to the Client:
Crescent Operating, Inc.
Attn: Gerald W. Haddock
777 Main, Suite 2100
Fort Worth, TX 76102
Any party may change the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 10 for the giving of notice.
11. Entire Agreement. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except
as herein contained. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of
the terms hereof. This Agreement may not be modified or amended other
than by an agreement in writing by authorized representatives of the
parties hereto.
12. Headings. The headings in this Agreement are for convenience only and
they form no part of this Agreement and shall not effect its
interpretation.
13. Multiple Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all such counterparts
together shall constitute but one and the same instrument.
14. Assignment. No party may or shall have the power to assign this
Agreement or any right, interest or obligation hereunder, whether by
operation of law or otherwise, without first obtaining the prior
written consent of the other party.
15. No Other Rights in Third Parties. This Agreement shall inure to the
benefit of and bind the Client, Consultant, the Indemnitee (but only
with respect to Section 5 hereof), successors and permitted assigns.
Nothing expressed or referred to in this Agreement is intended or shall
be construed to give any person other than the Client, Consultant, the
Indemnitee, and their respective heirs, executors, administrators,
successors or permitted assigns any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained
herein, it being the intention that this Agreement shall be for the
sole and exclusive benefit of such parties and such heirs, executors,
administrators, successors and permitted assigns and not for the
benefit of any other person. References in this Section 15 to "heirs,
executors, administrators, successors and permitted assigns"
<PAGE> 4
SERVICE AGREEMENT BETWEEN PETROLEUM FINANCIAL & CRESCENT OPERATING, INC.
shall not relieve the parties from the provisions of Section 5 hereof.
16. Attorneys' Fees. The prevailing party in any dispute arising out of the
interpretation, application or enforcement of any provision of this
Agreement shall be entitled to recover all of its reasonable attorneys
fees and costs whether suit be filed or not, including, but not limited
to, costs and attorneys' fees related to or arising out of any trial or
appellate proceedings. The provisions of this Section 16 shall survive
one year from any termination of this Agreement.
17. No Implied Covenants. Each party waives and relinquishes any right to
assert, either as a claim or as a defense, that the other party is
bound to perform or liable for the non-performance of any implied
covenant or implied duty or implied obligation.
18. Severability. Any provision of this Agreement which is unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability, without invalidating
the remaining provisions hereof, which provisions shall be enforced to
the maximum extent permitted by law and construed in a fashion to
effectuate best the provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such
provision in any other jurisdiction.
19. References. The use of the words "hereof", "herein", "hereunder", and
words of similar import shall refer to this entire Agreement, and not
to any particular article, section, subsection, clause, sentence or
paragraph of this Agreement, unless the context clearly indicates
otherwise.
IN WITNESS WHEREOF, Consultant and the Client, by and through their respective
authorized officers, have executed and delivered this Agreement on this 29th day
of April, 1997, to be effective as of the Effective Date.
CLIENT: CONSULTANT:
CRESCENT OPERATING, INC. PETROLEUM FINANCIAL, INC.
- ------------------------- -----------------------------
<PAGE> 5
SERVICE AGREEMENT BETWEEN PETROLEUM FINANCIAL & CRESCENT OPERATING, INC.
EXHIBIT A
to
Financial Service Agreement between Crescent Operating, Inc.
and Petroleum Financial Inc.
Petroleum Financial Inc. will provide all accounting and financial services
required by Crescent Operating, Inc. including but not limited to the following.
1. Reporting required pursuant to the Securities Exchange Act of 934 and
The Securities Act of 1933, subject to review and assistance by outside
counsel and public accounting firm, as deemed necessary.
2. Preparation of monthly financial statements on an accrual basis, and in
accordance with generally accepted accounting practices.
3. Processing all transactions effecting Crescent Operating, Inc.
4. All Treasury functions.
5. Preparation of federal and state income tax and franchise tax returns,
subject to review and assistance by public accounting firm, as deemed
necessary.
6. Carrying out duties and responsibilities of the office of Chief
Financial Officer, Treasurer and Secretary.
7. Preparation of all management reports and reports to the Board of
Directors, including budget reports.
8. Monitoring all investment activities of Crescent Operating, Inc. and
reporting all material issues to the President.
9. Setting up and monitoring systems of internal control.
10. Coordinate and assist with the annual audit by outside public
accounting firm.
11. Administer employee benefit plans and insurance.
12. Prepare press releases for review by management.
13. Handle all reporting and applications for listing on applicable stock
exchanges.
14. Coordinate all activities of Stock and Warrant Transfer Agent.
<PAGE> 6
SERVICE AGREEMENT BETWEEN PETROLEUM FINANCIAL & CRESCENT OPERATING, INC.
EXHIBIT B
to
Financial Service Agreement between Crescent Operating, Inc.
and Petroleum Financial Inc
Crescent Operating, Inc. will monthly reimburse Petroleum Financial
Inc. all reasonable and customary cost related to the services provided herein
plus 5%. Initially, Petroleum Financial Inc. will have two employees dedicated
to Crescent Operating, Inc. Any additional employees will be subject to approval
of the President and Chief Executive Officer. Such approval will not be
unreasonably withheld. Jeffrey L. Stevens will provide services to Crescent
Operating, Inc., on a priority basis, as required at a rate $150.00 per hour.
All personnel involved with Crescent Operating, Inc. will keep detailed time
sheets recording their activities and such time sheets will be provided with
monthly billings and monthly billings will detail all cost being billed in a
manner satisfactory to the President. It is further agreed that the parties will
revisit this Exhibit B 120 days after the Effective Date and make whatever
changes are mutually agreeable to the parties. Further, commencing six months
from the Effective Date the Consultant will present the President and annual
budget related to its activities.
<PAGE> 1
EXHIBIT 10.16
===============================================================================
CREDIT AGREEMENT
by and between
CRESCENT OPERATING, INC.,
a Delaware corporation,
and
NATIONSBANK OF TEXAS, N.A.,
***
$15,000,000.00
***
August 27, 1997
================================================================================
<PAGE> 2
NATIONSBANK OF TEXAS, N.A.
500 West Seventh Street, 13th Floor
Fort Worth, Texas 76113-2260
Facsimile No. (817) 390-6271
August 27, 1997
Crescent Operating, Inc.
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile No. (817) 820-6650
Re: Credit Agreement
Ladies and Gentlemen:
Subject to this agreement, NationsBank of Texas, N.A. ("Lender"),
agrees to extend credit to Crescent Operating, Inc., a Delaware corporation
("Borrower") from time to time on or after the date of this agreement and
before the Termination Date -- up to $15,000,000.00 principal exposure at any
time -- on a revolving credit basis, to be used by Borrower for working capital
and for other lawful, general corporate purposes, but not for the purpose of
purchasing or carrying margin stock. Accordingly, in consideration of the
mutual covenants in the Loan Papers, Borrower and Lender agree as follows:
1. Definitions. As used in this agreement:
Advance means any amount disbursed by Lender to Borrower under the
Loan Papers -- as a original disbursement of funds, or the continuation of a
amount outstanding.
Advance Notice is defined in Paragraph 2.
Affiliate of any Person shall mean any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
first mentioned Person, and, without limiting the generality of the foregoing,
shall include: (a) any Person beneficially owning or holding five percent
(5.0%) or more of any class of Voting Stock of such first mentioned Person; (b)
any Person of which such first mentioned Person owns or holds five percent
(5.0%) or more of any class of Voting Stock; and (c) any officer or director
(or other individual performing the duties of officer or director) of such
first mentioned Person; provided that, in the absence of actual control, the
term Affiliate shall in no event include any financial institution which would
otherwise be an Affiliate by virtue of its ownership of a class of Voting Stock
of Borrower. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of Voting Stock or
by contract or otherwise; provided that, in no event shall the fact that a
Person is a holder of indebtedness of such Person be considered in and of
itself sufficient to enable such Person to direct or cause the direction of the
management and policies of such Person.
-1-
<PAGE> 3
Base Rate means, for any day, the annual interest rate most recently
announced by Lender as its prime rate -- which is not necessarily the lowest or
best rate actually charged to any customer -- in effect at its principal office
in Fort Worth, automatically fluctuating upward and downward as specified in
each such announcement without special notice to any Person.
Business Day means: (a) for all purposes, any day other than Saturday,
Sunday and any other day that commercial banks are authorized by law to be
closed in Texas; and (b) for purposes of any Advance at the LIBOR Rate, a day
when commercial banks are open for international business in London.
Consequential Loss means any loss or expense (other than lost profits)
which Lender may incur as a consequence of: (a) any failure or refusal of
Borrower (for any reasons whatsoever other than Lender's default) to take any
Advance at the LIBOR Rate after Borrower has requested it under this agreement;
or (b) any prepayment, or payment of an Advance at the LIBOR Rate before the
last day of the Interest Period for it.
Conversion Notice is deemed in Paragraph 3(i).
Default is defined in Paragraph 9.
Default Rate means, for any day, the lesser of: (a) the Maximum Rate;
and (b) the Base Rate plus 4.0%.
GAAP means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, and the results
of operations and changes in financial position, of Borrower, except that any
accounting principle or practice required to be changed by the said Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of the said Boards) in order to continue as a generally
accepted accounting principle or practice may so be changed.
Intercompany Credit Agreements means the Amended and Restated Credit
and Security Agreement, and the Line of Credit Credit Agreement and Security
Agreement, each dated May 21, 1997, and each entered into by and between
Crescent Real Estate Equities Limited Partnership, a Delaware limited
partnership, as lender and secured party, and Borrower, as borrower and debtor;
as well as any other agreements in existence thirty (30) days immediately
preceding the date hereof evidencing loans or extensions of credit from any
other Affiliate to Borrower; as all of such agreements may be amended, modified
or restated with the consent of Lender as contemplated in this agreement.
Intercompany Debt means, at any time, all indebtedness of Borrower
under, or in connection with, the Intercompany Credit Agreements.
Interest Period means, for each Advance at the:
(a) Base Rate, the period beginning with the date it is
borrowed or converted to the Base Rate, and ending on the date when
all or a portion of that Advance is next paid or converted to an
Advance at the LIBOR Rate; and
(b) LIBOR Rate, a 1, 2, 3, 6 or 9-month period, as
designated in accordance with this agreement.
LIBOR Rate means, for each Advance at the LIBOR Rate, the per annum
rate of interest (rounded upward, if necessary, to the nearest 1/16th%) equal
to the sum of: (a) the quotient of (i) the rate of interest determined by
Lender to be the average rate (rounded upward, if necessary, to the nearest
0.01%) at which deposits in United States dollars
-2-
<PAGE> 4
are offered by Lender (or, at Lender's discretion, its affiliate) in the London
interbank market at approximately 11:00 a.m. London time two (2) Business Days
prior to the first day of the applicable Interest Period for delivery on the
first day of that Interest Period for the number of days comprised therein and
in a amount comparable to the amount of that Advance, divided by (ii) one minus
the Reserve Requirements (stated as a decimal); plus (b) 1.00%.
Loan Papers means this agreement, any and all notes, assignments,
subordination agreements, certificates, security agreements, financing
statements, guaranties, support agreements and other agreements, documents and
instruments ever delivered in connection with this agreement, and all future
renewals, extensions or restatements of, or amendments, modifications or
supplements to, all or any part of the foregoing.
Material Adverse Event means any set of one or more circumstances or
events which, individually or collectively, would reasonably be expected to
result in any: (a) impairment of Borrower's ability to perform any payment or
other material obligations under the Loan Papers or the ability of Lender to
enforce any such obligations or any of its rights under the Loan Papers; (b)
adverse effect upon the validity or enforceability of any Loan Paper; (c)
material adverse effect upon Borrower's financial condition, as represented to
Lender in Borrower's financial statements that were most recently furnished to
Lender as of the date of this agreement; or (d) Potential Default or Default.
Maximum Amount and Maximum Rate respectively mean the maximum
non-usurious amount and the maximum non-usurious rate of interest that, under
applicable law, Lender is permitted to contract for, charge, take, reserve or
receive on the Obligation.
Note is defined in Paragraph 4(a).
Obligation means all present and future indebtedness, obligations,
and liabilities and all renewals, extensions and modifications thereof, now or
hereafter owed to Lender by Borrower, arising from, by virtue of or pursuant to
any Loan Paper, together with all interest accruing thereon and costs, expenses
and attorneys' fees incurred in the enforcement or collection thereof.
Person means an individual, a corporation, an association, a joint
stock company, a business trust or other similar organization, a partnership, a
joint venture, a trust, an unincorporated organization or a government or any
agency, instrumentality or political subdivision thereof.
Potential Default is defined in Paragraph 9.
Principal Debt means the unpaid principal balance of all Advances.
Reserve Requirements means the then stated maximum rate of all reserve
requirements under regulations issued by the Board of Governors of the Federal
Reserve System (including, without limitation, any margin, emergency,
supplemental, special or other reserves required in respect of Eurocurrency
liabilities for a member of the Federal Reserve System having deposits in
excess of $1,000,000,000.00).
Revolving Commitment means $15,000,000.00.
Successful Rights Offering means the offer and sale by Borrower to
its shareholders or to any other parties, in a public offering or private
placement (in either case, in accordance with all applicable laws and
regulations), of securities of Borrower, pursuant to which sufficient net
proceeds (after costs and expenses, including underwriting commissions, if any)
are received by Borrower to enable Borrower pay the Obligation in full when due
and payable.
Tangible Net Worth means the amount by which total assets of Borrower
exceed total liabilities of Borrower in accordance with GAAP, less such assets
which would be classified as intangible assets in accordance with GAAP.
-3-
<PAGE> 5
Termination Date means the earliest to occur of the following dates:
(a) August 27, 1998 (provided that such date may be once extended to August 27,
1999 by agreement of Lender upon request by Borrower received by Lender by June
27, 1998, so long as there shall not exist and be continuing a Default at such
time); (b) the fifth day immediately following the date on which a Successful
Rights Offering is completed; and (c) the effective date that Lender's
commitment to extend credit under this agreement is otherwise cancelled or
terminated in accordance with this agreement.
Voting Stock when used with reference to any Person, shall mean shares
(however designated) of such Person having ordinary voting power for the
election of a majority of the members of the board of directors (or other
governing body) of such Person, other than shares having such power only by
reason of the happening of a contingency.
2. Commitment. Upon Borrower's prior notice -- in substantially
the form of the attached Exhibit B-1 (an "Advance Notice"), Lender agrees to
extend credit to Borrower prior to the Termination Date in the form of Advances
so long as, immediately after an Advance is made the Principal Debt does not
exceed the Revolving Commitment. The Advance Notice must be received by Lender
at least three (3) Business Days before an Advance. Each such Advance may only
be borrowed on a Business Day and must be a minimum of $250,000.00 unless such
Advance would be a lesser amount which would exhaust availability under the
Revolving Commitment. Subject to the terms and conditions of this agreement,
Borrower may borrow, repay without penalty or premium (subject to the
obligation of Borrower to pay any Consequential Loss as required in Paragraph
3[l] hereof) and reborrow hereunder, prior to the Termination Date.
3. Interest Rates and Protections. Except as otherwise stated,
the Principal Debt shall bear interest at a rate per annum equal to the lesser
of: (a) the Maximum Rate; and (b) the LIBOR Rate (or, in certain circumstances,
the Base Rate, as provided in this agreement). Each change in the Base Rate
and Maximum Rate, subject to the terms of this agreement, will become
effective, without notice to Borrower or any other Person, upon the effective
date of that change.
(a) Advance Notice. Borrower must designate the date,
amount and Interest Period of each requested Advance in the Advance Notice for
it.
(b) Interest Period. At the time Borrower gives any
Advance Notice (or Conversion Notice pursuant to Paragraph 3[i]) in respect of
the making of an Advance at the LIBOR Rate, Borrower must elect the Interest
Period applicable thereto, provided that: (i) the initial Interest Period for
an Advance at the LIBOR Rate shall commence on the date of that Advance
(including the date of any conversion thereto), and each Interest Period
occurring thereafter in respect of that Advance shall commence on the day on
which the next preceding Interest Period applicable thereto expires; (ii) if
any Interest Period for an Advance at the LIBOR Rate begins on a day for which
there is no numerically corresponding Business Day in the calendar month at the
end of such Interest Period, that Interest Period shall end on the last
Business Day of such calendar month; (iii) no Interest Period may be chosen
with respect to any portion of the Principal Debt which would extend beyond the
scheduled repayment date for such portion of the Principal Debt; and (iv) no
more than an aggregate of twenty LIBOR Rate Interest Periods shall be in effect
at one time.
(c) Rate Estimates. Borrower or Borrower's
representatives may call Lender on or before the date on which an Advance
Notice (or Conversion Notice pursuant to Paragraph 3[i]) is to be delivered by
Borrower in order to receive an indication of the rates then in effect, but
that such projection shall neither be binding upon Lender nor affect the rate
of interest which thereafter is actually in effect when the Advance Notice or
Conversion Notice is given.
(d) Default Rate. At Lender's option and to the extent
permitted by law, all past due Principal Debt and accrued interest thereon
shall bear interest from the date due and payable (stated or by acceleration)
at the Default Rate until paid, regardless whether such payment is made before
or after entry of a judgment.
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<PAGE> 6
(e) Recapture. If the Base Rate, LIBOR Rate or Default
Rate (the "contract rate") ever applicable to any Advance exceeds the Maximum
Rate, the rate of interest on that Advance shall be limited to the Maximum
Rate, but any subsequent reductions in the contract rate shall not reduce the
rate of interest thereon below the Maximum Rate until the total amount of
interest accrued thereon equals the amount of interest which would have accrued
thereon if the contract rate had at all times been in effect. In the event
that at maturity (stated or by acceleration), or at final payment of any Note,
the total amount of interest paid or accrued is less than the amount of
interest which would have accrued if the applicable contract rates had at all
times been in effect, then, at such time and to the extent permitted by law,
Borrower shall pay an amount equal to the difference between: (a) the lesser of
the amount of interest which would have accrued if those contract rates had at
all times been in effect and the amount of interest which would have accrued if
the Maximum Rate had at all times been in effect; and (b) the amount of
interest actually paid or accrued on that Note.
(f) Calculations. All payments of interest shall be
calculated on the basis of actual number of days (including the first day, but
excluding the last day) elapsed, but computed as if each calendar year
consisted of 360 days in the case of an Advance at the LIBOR Rate (unless such
calculation would result in the interest on the Advances exceeding the Maximum
Rate in which event such interest shall be calculated on the basis of a year of
365 or 366 days, as the case may be) and 365 or 366 days, as the case may be,
in the case of an Advance at the Base Rate. All interest rate determinations
and calculations by Lender shall be conclusive and binding absent manifest
error. Interest calculations may be made ten (or less) days prior to any due
date. If the interest rate is adjusted in accordance with the terms herein
during any period for which interest is payable, then, subject to Paragraph
3(g), the interest payable for the succeeding period will be adjusted
appropriately.
(g) Maximum Rate. Regardless of any provision contained
in any of the Loan Papers, Lender shall never be entitled to contract for,
charge, take, reserve, receive or apply, as interest on the Obligation, or any
part thereof, any amount in excess of the Maximum Rate, and, in the event
Lender ever contracts for, charges, takes, reserves, receives or applies as
interest any such excess, it shall be deemed a partial prepayment of principal
and treated hereunder as such and any remaining excess shall be refunded to
Borrower. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the Maximum Rate, Borrower and Lender shall,
to the maximum extent permitted under applicable law: (a) treat all Advances as
but a single extension of credit (and Lender and Borrower agree that such is
the case and that provision herein for multiple Advances is for convenience
only); (b) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest; (c) exclude voluntary prepayments and the effects
thereof; and (d) "spread" the total amount of interest throughout the entire
contemplated term of the Obligation; provided that, if the Obligation is paid
and performed in full prior to the end of the full contemplated term thereof,
and if the interest received for the actual period of existence thereof exceeds
the Maximum Amount, Lender shall refund such excess, and, in such event, Lender
shall not to the extent permitted bylaw, be subject to any penalties provided
by any laws for contracting for, charging, taking, reserving or receiving
interest in excess of the Maximum Amount. To the extent the laws of the State
of Texas are applicable for purposes of determining the "Maximum Rate" or the
"Maximum Amount", such term shall mean the "indicated rate ceiling" from time
to time in effect under Article 1.04, Title 79, Revised Civil Statutes of
Texas, as amended. Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79,
Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees that such
Chapter 15 (which regulates certain revolving credit loan accounts and
revolving tri-party accounts) shall not govern or in any manner apply to the
Obligation.
(h) Offices. To the extent permitted by law, Lender may
make, carry or transfer its part of any Advance at, to or for the account of
any of its branch offices or the office of any of its affiliates.
(i) Basis Unavailable or Inadequate. If, on or before
any date on which a LIBOR Rate is to be determined for an Advance, Lender
determines that the basis for determining any such rate is not available or
that the resulting rate does not accurately reflect the cost to Lender of
making, maintaining or converting Advances at such rate for the applicable
interest Period, then Lender shall promptly give notice of such determination
to Borrower (and such determination shall be conclusive and binding on
Borrower) and such Advance shall bear interest at the Base Rate. Until
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<PAGE> 7
Lender notifies Borrower that the circumstances giving rise to such condition
no longer exist, Lender's commitments hereunder to make or maintain, or to
convert to, Advances at the LIBOR Rate shall be suspended and such Advance
shall be made or maintained at the Base Rate. When the circumstances giving
rise to such condition no longer exist, Borrower may convert such Advance or
Advances into an Advance at the LIBOR Rate, provided that each such conversion
must be effected by Borrower giving Lender irrevocable notice in the form of
the attached Exhibit B-2 (a "Conversion Notice") which must be received by
Lender no later than 10:00 a.m. Fort Worth time on the third Business Day
preceding the date of the requested conversion for conversion of an Advance to
the LIBOR Rate. Each Conversion Notice must specify the date of conversion,
the Advances to be converted and the Interest Period to be applicable thereto.
(j) Additional Costs/Reductions.
(i) If, in respect of all or any portion of any
Advance at the LIBOR Rate: (A) any present or future law shall impose, modify
or deem applicable, or compliance by Lender with any requirement (whether or
not having the force of law) of any central bank or governmental agency shall
result, in any requirement that any reserves (including, without limitation,
any marginal, emergency, supplemental, special or other reserves) be maintained
- -- other than the Reserve Requirements already taken into effect in the
calculation of the LIBOR Rate -- and (B) any of the same results in a reduction
in any sums receivable by Lender hereunder or an increase in the costs incurred
by Lender in advancing or maintaining any portion of any Advice at the LIBOR
Rate; then (C) Lender shall give notice to Borrower upon becoming aware of same
and deliver to Borrower a certificate setting forth in reasonable detail the
amount necessary to compensate Lender for such reduction or such increase
(which certificate shall be conclusive and binding as to such amount, absent
manifest error); and (D) Borrower shall either, at Borrower's election, pay
such amount to Lender within ten (10) days after demand therefor or, before the
Termination Date and subject to all other conditions to an Advance under this
agreement, add such amount to the Principal Debt.
(ii) If with respect to all or any portion of any
Advance, any present or future law regarding capital adequacy or compliance by
Lender with any request, directive or requirement now existing or hereafter
imposed by any central bank or governmental agency regarding capital adequacy
(whether or not having the force of law) shall result in a reduction in the
rate of return on Lender's capital as a consequence of Lender's obligations
under this agreement to a level below that which Lender otherwise could have
achieved (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by Lender to be material (and Lender may, in
determining such amount, utilize such assumptions and allocations of costs and
expenses as Lender shall deem reasonable and may use any reasonable averaging
or attribution method), then (unless the effect of such event is already
reflected in the rate of interest then applicable hereunder) Lender shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount necessary to compensate Lender
therefor, which certificate shall be conclusive and binding absent manifest
error, and Borrower shall either, at Borrower's election, pay such amount to
such Lender within ten (10) days after demand therefor or, before the
Termination Date and subject to all other conditions to an Advance under this
agreement, add such amount to the Principal Debt.
(k) Unlawfulness. If at any time any law shall make it
unlawful for Lender to make or maintain any Advance at the LIBOR Rate, then
Lender shall promptly notify Borrower, and: (a) in respect of undisbursed
funds, Lender shall not be obligated to make any requested Advance which would
be unlawful; and (b) in respect of any outstanding Advance (i) if maintaining
such Advance until the last day of the Interest Period applicable thereto is
unlawful, such Advance shall be converted to the Base Rate as of the date of
such notice, and Borrower shall pay any related Consequential Loss, or (ii) if
not so prohibited by law, such Advance shall be converted to the Base Rate as
of the last day of the Interest Period then applicable thereto, or (iii) if any
such conversion will not resolve such unlawfulness, Borrower shall prepay
promptly that Advance, without penalty, but with any related Consequential
Loss.
(l) Consequential Loss. Borrower shall indemnify Lender
against, and shall pay to Lender within ten (10) days after demand, any
Consequential Loss of Lender. When Lender demands that Borrower pay any
Consequential Loss, Lender shall deliver to Borrower a certificate setting
forth in reasonable detail the basis for imposing
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<PAGE> 8
such Consequential Loss, the calculation of such amount thereof, which
calculation shall be conclusive and binding absent manifest error.
4. Terms of Payment.
(a) Note. The indebtedness arising under this agreement
shall be evidenced by, and payable in accordance with the terms of, a
promissory note (as renewed, extended, amended or replaced, the "Note"),
executed by Borrower and in the stated principal amount of $15,000,000.00 and
substantially in the form of the attached Exhibit A.
(b) Prepayments. Subject to the terms and conditions of
this agreement, Borrower may prepay without penalty or premium (subject to the
obligation of Borrower to pay any Consequential Loss as required in Paragraph
3[l] hereof) and reborrow any Principal Debt hereunder before the Termination
Date.
(c) Order of Application. Except as otherwise provided,
payments and prepayments of the Obligation shall be applied in the following
order: (i) expenses then owed to Lender; (ii) fees then due and payable to
Lender; (iii) accrued interest on the Obligation that is then due and payable;
(iv) Principal Debt; and (v) to the remaining Obligation in the order and
manner as Lender may select. Applications under clause (v) will be made in an
order that will minimize the related Consequential Loss.
(d) Fees. Borrower agrees to pay to Lender a facility
fee, payable on the date of closing of this agreement, as a condition to the
making of the initial Advance hereunder, equal to 0.50% of the Revolving
Commitment, which -- except as otherwise provided by law and to the extent not
in excess of the Maximum Rate -- does not constitute compensation for the use,
detention or forbearance of money, is in addition to, and not in lieu of,
interest and expenses otherwise described in this agreement, is non-refundable,
bears interest at the Default Rate from the date due until paid, and is
calculated on the basis of actual number of days over a 360-day year.
5. Certain Representations and Warranties. Borrower represents
and warrants to Lender that: (a) Borrower is a corporation duly organized and
existing in good standing under the laws of the State of Delaware and is duly
licensed or qualified as a foreign corporation and in good standing in all
states and nations in which such licensing or qualification and good standing
are necessary in order to, and it has the corporate power and authority to, own
its properties and assets and to transact the business in which it is engaged;
(b) Borrower has the corporate power and requisite authority to execute,
deliver, comply with and perform its obligations under the Loan Papers, for
which no approval or consent of any Person, entity or governmental authority of
any nature is required; (c) the execution, delivery and performance of the Loan
Papers will not cause Borrower to be in violation or contravention of any
applicable law or regulation or of any material agreement, instrument or
contract to which Borrower is a party, including without limitation any of the
Intercompany Credit Agreements or any other material contracts with its
Affiliates, or by which any of Borrower's assets are bound or of the
Certificate of Incorporation or By-Laws of Borrower; (d) Borrower is not
involved in or aware of the threat of any litigation which, if determined
adversely to Borrower, would be a Material Adverse Event; (e) there are no
outstanding or unpaid judgments against Borrower; (f) all financial statements
and related information delivered to Lender by Borrower were true and correct
in all material respects as of the date thereof, were (in the case of financial
statements) prepared in accordance with accounting principles acceptable to
Lender, and fairly present Borrower's financial condition, material
liabilities, there having been no material adverse changes in the financial
condition of, and no (except as contemplated herein) material obligations
(direct, indirect, contingent or liquidated) incurred by, Borrower between the
date of such financial statements and the date hereof; (g) Borrower has filed
all material tax returns and reports required by law to have been filed and has
paid all taxes and governmental charges thereby shown to be due and payable;
(h) Borrower has no subsidiaries other than those which have specifically been
disclosed in writing by Borrower to Lender prior to the date hereof; (i) credit
extended under this agreement is for the purposes stated in the first paragraph
of this agreement; (j) as of the date hereof, and after giving effect to this
agreement and the indebtedness and obligations of Borrower evidenced hereby,
Borrower is, and will be, solvent, and has and will have assets which, fairly
valued, exceed its obligations, liabilities and debts; (k) Borrower will use
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<PAGE> 9
its best efforts to complete a Successful Rights Offering prior to August 27,
1998; provided that, if Borrower elects to extend the Termination Date in
accordance with the terms and conditions of this agreement to August 27, 1999,
Borrower will use its best efforts to complete a Successful Rights Offering on
or before January 31, 1999; and provided, further, that Borrower will utilize
the Support Agreement dated August 27, 1997, and executed by Richard E.
Rainwater, John Goff and Gerald Haddock in connection herewith, if necessary in
order to accomplish the foregoing and pay the Obligation in full when due, and
Borrower specifically agrees to take all reasonable and necessary action to
enforce such Support Agreement in such instance and/ or, at the request of
Lender, to join Lender in any such enforcement action; and (l) without limiting
the generality of the foregoing clause (k) of this Paragraph 5, Borrower will
maintain, at all times until the Obligation has been paid and performed in full
and Lender has no further commitment to make Advances, a sufficient number of
duly authorized shares of Company's common stock as may be necessary to
complete a Successful Rights Offering and, in any event, to complete any sale of
such shares which may be required by the Support Agreement.
6. Conditions Precedent. Lender shall not be obligated to make
the initial or any subsequent Advance hereunder unless and until it shall have
received: (a) the notice therefor in substantially the form of the attached
Exhibit B-1 and all statements made therein are true and correct; (b) all
agreements, documents, instruments, notes, subordination agreements,
certificates, support agreements and other agreements, certificates, opinions,
evidences and other items listed on the attached Schedule I, in each case in
such number of counterparts and in form as may be reasonably acceptable to
Lender; (c) full and timely payment of the facility fee referred to in
Paragraph 4(d) hereof and all other amounts due and payable to Lender as of
such time as contemplated in this agreement; (d) the representations and
warranties in the Loan Papers are and will be true and correct in all material
respects; (e) no material adverse change shall have occurred in the financial
condition of Borrower or any other Person or entity liable for or supporting
Borrower's repayment of any of the Obligation and the Lender shall not have
determined that the prospect of repayment or performance of any of the
Obligation has been materially impaired; and (f) no Default or Potential
Default is or will be continuing.
7. Certain Affirmative Covenants. Until the Obligation has been
paid and performed in full and Lender has no further commitment to make
Advances, Borrower covenants with Lender that it shall: (a) deliver to Lender
financial statements and other information from time to time and at any time as
Lender may reasonably request concerning Borrower and its properties and
Affiliates, containing such information as Lender may deem necessary or
appropriate, in its sole discretion, including, without limitation: (i) as soon
as available, but no later than ninety (90) days after the end of each fiscal
year of Borrower, annual audited financial statements (including a balance
sheet, income statement, changes in capital position, reconciliation of net
worth and all financial notes thereto) of Borrower prepared in accordance with
GAAP by an independent certified public accountant acceptable to Lender, as
well as annual individual financial statements of Richard E. Rainwater, John
Goff and Gerald Haddock, each in form and detail satisfactory to Lender; and
(ii) as soon as available, but no later than thirty (30) days after the end of
each fiscal quarter of Borrower, quarterly compiled financial statements
(including a balance sheet and income statement) prepared in accordance with
GAAP; (b) permit Lender's officers or authorized representatives to visit and
inspect Borrower's books of account and other records at such reasonable times
and as often as Lender may desire; (c) maintain insurance with responsible
insurance companies on such of its properties, in such amounts and against such
risks as is customarily maintained by similar businesses; (d) promptly advise
Lender in writing of: (i) any condition, event or act which comes to its
attention that would or might materially adversely affect Borrower's financial
condition or operations or Lender's rights under the Loan Papers; (ii) any
material litigation filed by or against Borrower; (iii) any event that has
occurred that would constitute a Default or a Potential Default; (e) maintain
its existence, good standing and qualification to do business, where required
and comply with all laws, regulations and governmental requirements including,
without limitation, environmental laws applicable to it or to any of its
property, business operations and transactions; (f) maintain a ratio of (i)
total indebtedness of Borrower, less Intercompany Debt to (ii) the sum of
Tangible Net Worth plus Intercompany Debt, of not more than 1.00 to 1.00 at
all times; (g) make, execute or endorse, and acknowledge and deliver or file or
cause the same to be done, all such vouchers, invoices, notices, certifications
and additional agreements, undertakings, conveyances, deeds of trust,
mortgages, transfers, assignments, financing statements or other assurances,
and take any and all other action, as Lender may, from time to time, reasonably
deem necessary or proper in connection with this agreement or any of the other
Loan Papers, or the obligations of the Borrower hereunder or thereunder, for
better assuring and confirming unto Lender all or any part of such obligations;
(h) pay the out-of-pocket
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<PAGE> 10
costs, including, without limitation, filing fees and reasonable attorneys'
fees (including, without limitation, the reasonable attorney's fees of the
Lender's legal counsel in an amount not to exceed $10,000.00 through the date
of closing of this agreement), costs, expenses and disbursements incurred by
Lender in the preparation, negotiation, execution and, if appropriate,
recordation of the Loan Papers and any amendments thereto or waivers
thereunder, such costs and expenses being due and payable on the date of
closing of this agreement to the extent incurred on or before such date (and
being due and payable upon demand by Lender to the extent incurred after such
date); and (i) within five (5) days after the completion of a Successful Rights
Offering, to pay the Obligation in full.
8. Certain Negative Covenants. Until the Obligation has been
paid and performed in full and Lender has no further commitment to make
Advances, Borrower covenants and agrees with Lender that Borrower will not
directly or indirectly, without prior written consent of Lender: (a) assign or
attempt to assign any of Borrower's rights or obligations under any Loan Paper;
(b) create, assume, incur, permit to exist, guarantee or in any manner become
liable, contingently or otherwise, in respect of any material indebtedness,
other than the indebtedness of the Borrower under the Loan Papers, except for
indebtedness and leases incurred in the ordinary course of business,
indebtedness incurred for the sole purpose of paying the Obligation in full when
due and indebtedness pursuant to the existing loan facilities as currently set
forth in the Intercompany Credit Agreements; or (c) enter into any material
amendments of the Intercompany Credit Agreements regarding any amount of
credit, payment schedule or rate of interest thereunder; (d) sell, lease,
assign or otherwise dispose of or transfer all, substantially all, or any
substantial portion of its assets, or enter into any merger or consolidation,
or transfer control of the Borrower, or form or acquire any subsidiary without
the prior written approval of Lender; (e) grant, suffer or permit any
contractual or noncontractual lien, encumbrance, charge or security interest on
any of its assets, except in favor of Lender and the holders of the
indebtedness evidenced by the Intercompany Credit Agreements, or enter into any
other similar negative pledge agreements, covenants or similar agreements with
any Person other than Lender and such holders; or (f) make or declare any
dividends to its shareholders.
9. Default. As used herein, "Default" means the occurrence of
any one or more of the following (and the term "Potential Default" means the
occurrence of any event which, with notice or lapse of time or both, could
become a Default): (a) Borrower's failure or refusal to pay any of the
Obligation when due (and, in respect of interest payments only, the same is not
paid within five [5] days of such due date); (b) Borrower's failure to
punctually and properly perform, observe and comply with any other covenant,
agreement or condition contained in any Loan Paper; (c) Borrower shall be
insolvent, shall generally fail to pay Borrower's debts as they become due, or
shall become a party to (other than as a claimant or creditor) or is made the
subject of any proceeding provided by any bankruptcy, liquidation,
conservatorship, moratorium, rearrangement, receivership, insolvency,
reorganization or similar law from time to time in effect and affecting the
rights of creditors generally (unless, in the event such proceeding is
involuntary, the petition instituting same is dismissed within sixty [60] days
after its filing); (d) Borrower fails to have discharged, within a period of
thirty (30) days after final entry of any judgment, warrant of attachment,
sequestration or similar proceeding against its assets with a value,
individually or collectively, in excess of $500,000.00; (f) the occurrence and
continuance of an event of default in respect of any other debt of Borrower in
excess of $500,000.00 (unless Borrower is diligently contesting the amount or
validity of such debt or such event of default by appropriate proceedings and
the obligee in respect thereof is not pursuing the exercise of remedies against
Borrower or Borrower's assets at such time); (g) any representation or warranty
made by Borrower in this agreement or in any other writing delivered by
Borrower to Lender in connection with this agreement was false, misleading or
erroneous in any material respect at the time it was made; (h) any of Richard
E. Rainwater, John Goff, Gerald Haddock or Jeff Stevens shall cease to be
involved in the executive management of Borrower; (i) any other "event of
default" or "default" under, or as such terms are defined in any Loan Paper;
and (j) any "Event of Default" as defined in, or any other breach or default
in, any of the Intercompany Credit Agreements.
10. Remedies and Rights. Upon the occurrence and continuance of a
Default, Lender may exercise any and all legal and equitable rights and
remedies afforded by the Loan Papers, applicable laws or otherwise, including,
without limitation, declaring all of the Obligation immediately due and payable
and terminating its commitment to make Advances under this agreement. All
rights available to Lender under the Loan Papers shall be cumulative of and in
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<PAGE> 11
addition to all other rights granted to Lender at law or in equity, whether or
not the Obligation be due and payable and whether or not Lender has instituted
any suit for collection or other action in connection with the Loan Papers.
Any sums spent by Lender pursuant to the exercise of any right provided herein
shall become part of the Obligation and shall bear interest from the date spent
until the date repaid by Borrower at the Default Rate, and the obligations of
Borrower and the rights of Lender under the Loan Papers shall continue in full
force and effect until the Obligation and all other indebtedness under the Loan
Papers has been paid and performed in full.
11. INDEMNIFICATION. BORROWER SHALL INDEMNIFY, PROTECT AND HOLD
LENDER AND ITS PARENTS, SUBSIDIARIES, DIRECTORS, OFFICERS, EMPLOYEES,
REPRESENTATIVES, AGENTS, SUCCESSORS, ASSIGNS AND ATTORNEYS (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS AND
PROCEEDINGS, AND ALL REASONABLE AND NECESSARY COSTS, EXPENSES (INCLUDING,
WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER
OR NOR SUIT IS BROUGHT) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (THE
"INDEMNIFIED LIABILITIES") WHICH MAY AT ANY TIME BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE INDEMNIFIED PARTIES, IN ANY WAY RELATING TO OR ARISING OUT
OF ANY LOAN PAPER, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN TO THE
EXTENT THAT ANY OF THE INDEMNIFIED LIABILITIES RESULTS, DIRECTLY OR INDIRECTLY,
FROM ANY LITIGATION OR PROCEEDING COMMENCED BY OR ON BEHALF OF ANY PERSON OR
ENTITY OTHER THAN THE INDEMNIFIED PARTIES (PROVIDED THAT, ALTHOUGH EACH
INDEMNIFIED PARTY SHALL BE INDEMNIFIED FOR SUCH PARTY'S ORDINARY NEGLIGENCE
HEREUNDER, NO INDEMNIFIED PARTY SHALL HAVE THE RIGHT TO BE INDEMNIFIED
HEREUNDER FOR ITS OWN FRAUD, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT).
12. Waivers. Borrower and all endorsers, sureties and guarantors
of the Obligation, or any part thereof, hereby severally waive: (a)
presentment, demand and protest; (b) notice of default, dishonor, demand,
non-payment and protest; (c) notice of intent to accelerate all or any part of
the Obligation; (d) notice of acceleration of all or any part of the
Obligation; (e) diligence in collecting any payment of all or any part of the
Obligation; (f) the bringing of any suit against any Person; (g) notice of
release, subordination, substitution or modification of any security for all or
any part of the Obligation; (h) any delay, indulgence, waiver or other act of
or by Lender; (i) the release of any party primarily or secondarily liable for
all or any part of the Obligation; and (j) notice of any other kind.
13. Miscellaneous. Where appropriate, words of any number shall
include the plural and singular or of any gender shall include each other
gender. Unless specifically otherwise provided, any approval, consent, demand,
notice, request or other communication under the Loan Papers to any party under
this agreement must be in writing (which may be by facsimile transmission if a
facsimile number is provided herein for such party and if, without affecting
the date such facsimile transmission was actually made, subsequently confirmed
by delivery or mailing in accordance with this paragraph) to be effective and
shall be deemed to have been given on the day actually delivered or, if mailed,
on the third Business Day after it is enclosed in an envelope, addressed to the
party to be notified, properly stamped, sealed and deposited in the appropriate
postal service. Until changed by notice pursuant hereto, the address (and
facsimile number, if any) for each party is set forth below its name on the
first page of this agreement. All covenants, agreements, undertakings,
representations and warranties made in any Loan Paper shall survive all
closings under the Loan Papers and shall not be affected by any investigation
made by any party. Representations, warranties, covenants, defaults, remedies
or other provisions of any Loan Paper shall not limit or abrogate the
provisions of any other Loan Paper even if of a similar nature, and all
provisions of all Loan Papers shall be binding and enforceable upon the parties
thereto. Any conflict or ambiguity between the terms and provisions of one
Loan Paper and terms and provisions in any other Loan Paper shall be controlled
by the terms and provisions that are the most restrictive upon Borrower. The
laws of the State of Texas and the United States shall govern the rights and
duties of the parties hereto and the validity, construction, enforcement and
interpretation of the Loan Papers. If any provision in any Loan Paper is held
to be illegal, invalid or
-10-
<PAGE> 12
unenforceable, such provision shall be fully severable; the appropriate Loan
Paper shall be construed and enforced as if such provision had never comprised
a part thereof; and the remaining provisions thereof shall remain in full force
and effect and shall not be affected by such provision or by its severance
therefrom. The Loan Papers may be amended or the provisions thereof waived
only by an instrument in writing executed jointly by Borrower and Lender, and
supplemented only by documents delivered or to be delivered in accordance with
the express terms thereof. This agreement may be executed in a number of
identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one agreement; but, in
making proof of this agreement, it shall not be necessary to produce or account
for more than one such counterpart.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO, INCLUDING, BUT NOT LIMITED TO, THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED
ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION
IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
CREDIT AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF THE BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF
SUCH HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED TO: (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A
WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR
ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER
HERETO: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER.
THE LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
15. Acceptance; Parties Bound. If the foregoing is acceptable to
Borrower, Borrower should execute one or more copies hereof in the spaces
provided below, whereupon this letter will become an agreement binding upon and
inuring to the benefit of Lender and Borrower, and the respective heirs,
personal representatives, successors and assigns of each; provided that
Borrower may not, without the prior written consent of Lender, assign any
rights or obligations hereunder, and any purported assignment without such
consent shall be void ab initio.
-11-
<PAGE> 13
THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Very truly yours,
LENDER:
NATIONSBANK OF TEXAS, N.A.
By: /s/ TIMOTHY W. MCKINNEY
------------------------------------------
Timothy W. McKinney, Senior Vice President
The foregoing is accepted and agreed to in all respects, to be
effective as of as of August 27, 1997.
BORROWER:
CRESCENT OPERATING, INC., a Delaware
corporation
By: /s/ JEFF STEVENS
------------------------------------------
Jeff Stevens, Vice President and Secretary
-12-
<PAGE> 14
PROMISSORY NOTE
$15,000,000.00 Fort Worth, Texas August 27, 1997
FOR VALUE RECEIVED, Crescent Operating, Inc., a Delaware corporation
("Maker"), promises to pay to the order of NATIONSBANK OF TEXAS, N.A., a
national banking association ("Payee"), at its principal offices at 500 West
Seventh Street, Fort Worth, Tarrant County, Texas 76102-4700, that portion of
the principal amount of $15,000,000.00 that may be disbursed and outstanding
under this note, together with interest.
This note is the Note under the Credit Agreement (as it may be
renewed, extended, amended or restated, the "Credit Agreement") dated as of the
date of this note, between Maker and Payee. All of the defined terms in the
Credit Agreement have the same meanings when used in this note.
This note incorporates by reference all provisions in the Credit
Agreement, including, without limitation, all provisions applicable to this
note -- such as provisions for use of proceeds, disbursements of principal,
applicable interest rates before and after Default, voluntary and mandatory
prepayments, acceleration of maturity, exercise of rights, assurances and
security, choice of Texas and United States federal law, usury savings and
other matters applicable to "Loan Papers" under the Credit Agreement.
Interest on this note is due and payable as it accrues on the last day
of each calendar month -- beginning September 27, 1997 -- during the term of
this note and on the final maturity date of this note.
Before the Termination Date and subject to the Credit Agreement,
principal of this note may be repaid and reborrowed. The unpaid principal
balance of this note is due and payable on the Termination Date.
If this note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceedings, Maker agrees to pay court
costs, reasonable attorneys' fees and other costs of collection of the holder
of this note.
Maker and each surety, endorser, guarantor and other party ever liable
for payment of any part of this note jointly and severally waive presentment
and demand for payment, protest and notice of protest and nonpayment, intention
to accelerate and acceleration, and agree that their liability on this note
shall not be affected by, and consent to, any renewal or extension in the time
of payment of this note, any indulgences or any release or change in any
security for the payment of this note.
THIS NOTE, THE CREDIT AGREEMENT AND THE RELATED LOAN PAPERS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED on August 27, 1997, to be effective as of the date first above
written.
MAKER:
CRESCENT OPERATING, INC., a Delaware corporation
By: /s/ JEFF STEVENS
---------------------------------------------
Jeff Stevens, Vice President and Secretary
<PAGE> 1
EXHIBIT 10.17
SUPPORT AGREEMENT
This SUPPORT AGREEMENT dated as of August 27, 1997 (this "Agreement"),
is made jointly and severally by Richard E. Rainwater, John Goff and Gerald
Haddock, each in their individual capacities (collectively, the "Support
Parties" and individually, a "Support Party"), in favor of Crescent Operating,
Inc., a Delaware corporation (the "Company") as a material inducement to
NationsBank of Texas, N.A. ("Bank") to enter into that certain Credit Agreement
(as it may be renewed, extended, amended or restated, the "Credit Agreement")
dated the date hereof by and between Bank as Lender and Company as Borrower.
(Capitalized terms used in this Agreement shall have the meanings assigned to
them in the Credit Agreement, unless the context hereof otherwise requires or
provides.)
PRELIMINARY STATEMENT. In order to induce Bank to enter into the
Credit Agreement, (i) Company has agreed to use its best efforts to complete a
Successful Rights Offering, and (ii) Support Parties have agreed to enter into
this Agreement.
In consideration of the premises, the Support Parties do hereby
jointly and severally agree as follows:
SECTION 1. Support Obligations.
(a) Promptly upon notice from Bank to the Support Parties that
Company has not provided evidence to Bank that a Successful Rights Offering has
been completed prior to the Required Completion Date, Support Parties
unconditionally agree to purchase from Company, and Company unconditionally
agrees to sell to Support Parties, a sufficient number of shares of Company's
common stock, at a cash purchase price per share equal to the [average closing
bid price of Company's common stock during the ten (10) days immediately
proceeding such notice], in order for Company to complete a Successful Rights
Offering. (As used in this Agreement, the term "Required Completion Date"
shall mean the earlier to occur of: (ii) an Event of Default which has not been
cured or waived in writing by Bank, or (ii) the Target Date. As used in this
Agreement, the term "Target Date" shall mean August 27, 1998; provided that, if
Company elects to extend the Termination Date in accordance with the terms and
conditions of the Credit Agreement to August 27, 1999, "Target Date" shall mean
January 31, 1999.)
(b) Bank shall have the right in addition to such other remedies
as may be available to it by virtue of the occurrence of any Event of Default,
to injunctive relief to enforce this Agreement and none of Support Parties, or
their employees, attorneys, agents or representatives shall urge that such
remedy is not appropriate under the circumstances, it being expressly
acknowledged by each of the Support Parties that such action shall cause the
Bank irreparable damage for which legal remedies are inadequate to protect the
Bank. It shall not be necessary for Bank to first enforce any of its rights
and remedies under the Credit Agreement, in order to enforce this Agreement.
This Agreement is intended to be an irrevocable, absolute, continuing
agreement. This Agreement may not be revoked by Support Parties, or any of
them, and shall continue to be effective with respect to any of the Obligation
arising or created after any attempted revocation by Support Parties, or any of
them, and after any Support Party's death (in which event this Agreement shall
be binding upon such Support Party's estate and such Support Party's legal
representatives and heirs).
(c) The fact that at any time or from time to time the Obligation
may be increased, reduced or paid in full prior to shall not release, discharge
or reduce the obligations of Support Parties, or any of them, hereunder. This
Agreement may be enforced by Bank and any subsequent holder of the Obligation,
and may be enforced by Company (acting alone or together with Bank or any such
holder), and shall not be discharged by the assignment or negotiation of all or
part of the Obligation, or by any amendment, modification, waiver, release or
other action with respect to the Credit Agreement or the Loan Papers (none of
which shall require notice to or consent by any of Support Parties), it being
intended by Support Parties that their obligations under this Agreement be
continuing and irrevocable.
SECTION 2. Representations and Warranties. Each Support Party
hereby represents and warrants as follows:
(a) This Agreement is the legal, valid and binding obligation of
such Support Party, and is enforceable in accordance with its terms;
<PAGE> 2
(b) The value of the consideration received and to be received by
Company and such Support Party in connection with Bank's entering into the
Credit Agreement is reasonably worth at least as much as the liability and
obligations of such Support Party hereunder, and the incurrence of such
liability and obligations in return for such consideration may reasonably be
expected to benefit such Support Party, directly or indirectly.
SECTION 3. Term. This Agreement is a continuing agreement which
shall remain in effect until the full, final and indefeasible payment of the
Obligation after the Termination Date.
SECTION 4. Amendments; No Waiver; Remedies. No amendment or
waiver of any provision of this Agreement nor consent to any departure by any
of the Support Parties therefrom shall in any way be effective unless the same
shall be consented to in writing and signed by Bank. No failure on the part of
the Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided under the Credit Agreement or by law or in
equity.
SECTION 5. Notice. Unless specifically otherwise provided, any
approval, consent, demand, notice, request or other communication under this
Agreement to any party under this agreement or to Company or to Bank must be in
writing (which may be by facsimile transmission if a facsimile number is
provided herein for such party and if, without affecting the date such
facsimile transmission was actually made, subsequently confirmed by delivery or
mailing in accordance with this paragraph) to be effective and shall be deemed
to have been given on the day actually delivered or, if mailed, on the third
Business Day after it is enclosed in an envelope, addressed to the party to be
notified, properly stamped, sealed and deposited in the appropriate postal
service. Until changed by notice pursuant hereto, the address (and facsimile
number, if any) for each party is set forth below:
<TABLE>
<S> <C> <C>
Richard E. Rainwater or John Goff: Company or Gerald Haddock: Bank:
- --------------------------------- ------------------------- ----
777 Main Street, Suite 2700 c/o Crescent Operating, Inc. NationsBank of Texas, N.A.
Fort Worth, Texas 76102 777 Main Street, Suite 2100 500 West Seventh Street, 13th Floor
Fort Worth, Texas 76102 Fort Worth, Texas 76102
Attn: Mr. Cary Conwell
</TABLE>
SECTION 6. Successors and Assigns. This Agreement shall be
binding upon the each of the parties hereto, and their successors and assigns,
and shall inure to the benefit of and be enforceable by Company and by Bank and
their successors and assigns.
SECTION 7. Governing Law. This Agreement is a contract made
under and shall be governed by, and construed, interpreted and enforced in
accordance with, the laws of the State of Texas.
SECTION 8. Multiple Counterparts. This Agreement may be
executed in a number of identical counterparts, each of which shall be deemed
an original for all purposes and all of which constitute, collectively, one
agreement; but, in making proof of this agreement, it shall not be necessary to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
/s/ RICHARD E. RAINWATER
------------------------------------
RICHARD E. RAINWATER
/s/ JOHN GOFF
------------------------------------
JOHN GOFF
/s/ GERALD HADDOCK
------------------------------------
GERALD HADDOCK
2
<PAGE> 3
The foregoing Support Agreement is hereby accepted
as of the date first above written:
BANK:
NATIONSBANK OF TEXAS, N.A.
By: /s/ TIMOTHY W. MCKINNEY
-----------------------------------------------
Timothy W. McKinney, Senior Vice President
COMPANY:
CRESCENT OPERATING, INC.
By: /s/ JEFF STEVENS
-----------------------------------------------
Jeff Stevens, Vice President and Secretary
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,706,170
<SECURITIES> 0
<RECEIVABLES> 17,051,713
<ALLOWANCES> 126,719
<INVENTORY> 7,191,397
<CURRENT-ASSETS> 43,502,643
<PP&E> 83,251,501
<DEPRECIATION> 0
<TOTAL-ASSETS> 405,014,190
<CURRENT-LIABILITIES> 74,366,017
<BONDS> 0
0
0
<COMMON> 110,414
<OTHER-SE> 3,579,731
<TOTAL-LIABILITY-AND-EQUITY> 405,014,190
<SALES> 3,211,858
<TOTAL-REVENUES> 31,353,190
<CGS> 2,600,789
<TOTAL-COSTS> 31,329,421
<OTHER-EXPENSES> 916,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,177,081
<INCOME-PRETAX> (7,783,645)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,783,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,783,645)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> 0
</TABLE>
